Difficulties of transformation
Why is the construction industry lagging behind in the introduction of digital technology?
Strategy Partners, a consulting company, has prepared a federal cross-industry study, The Index of Russian Companies’ Readiness for Digital Transformation. In the course of this study, over a hundred managers of enterprises represented in different market segments, including in construction, were interviewed. Elena Kiseleva, partner of the company, head of the Real Estate and Infrastructure practice, spoke about how domestic developers are ready for digital transformation and what hinders the introduction of new technologies.
CN: In short, what did your study show as a whole?
Elena Kiseleva: First of all, there is a high interest in the topic of digital transformation. So, 48% of Russian companies indicated the importance of this issue, and 87% of top managers involved in strategic planning noted the need to change the current business model of the company over the next 3-5 years. Approximately a quarter of respondents recognized that digital transformation is one of the strategic priorities for the coming years. At the same time, many companies are already experimenting with new digital technologies to increase the effectiveness of their business models. Basic IT infrastructures and systems are being created. However, those who really advanced and managed to get a significant effect, so far units. Most are in the early stages of digital transformation, and are mainly focused on operational aspects. In more than 40% of companies, business processes are not automated at all. At the moment, most enterprises do not have a clear strategic vision for digital transformation. Investing in digitalization is also very modest. In 71% of companies, their total volume did not exceed 5%. 66.7% of companies do not have special centers of competence to promote digital transformation. Only every third company has a CDO (Digital Technology Director) position on staff.
CN: What is the level of digitalization among Russian construction companies?
E.K .: The construction industry is one of the few industries where labor productivity has not changed for decades, new technologies take root here with difficulty. Therefore, it is not surprising that construction closes the list of “advanced” industries in terms of digitalization. The most “digitalized” areas in development companies today are the product and customer interaction processes. According to the survey, the offer of more than 30% of the companies surveyed includes elements of digital solutions (for example, the Smart Home package). However, only 4% have a relatively high level of digitalization of the production process, here electronic document management and cloud solutions for collaboration are most widely used. About the same number of companies have a relatively high level of digitalization of corporate functions. Among the most popular solutions are automated planning, integrated project management systems. But lately, the situation has begun to change, many construction companies have thought that without new technologies, they will not be able to develop effectively in the era of universal digitalization.
CN: Why do you think the business as a whole lags behind in the field of digitalization?
EK: Business leaders believe that the digital transformation is constrained by a lack of staff, a lack of funding and technological competencies. Existing IT services cannot cope with the tasks of digital transformation of the enterprise, they do not have employees with the necessary competencies. For example, machine learning specialists are sorely lacking. In addition, companies point to a state that, in their opinion, should develop appropriate education, support corporate R&D and stimulate the creation of an innovative ecosystem.
CN: What is the biggest obstacle to the digital transformation of the construction industry?
E.K .: According to the results of our survey, the key factor restraining digitalization in construction is the cost of individual solutions with high risks of not achieving an effect. In other words, low confidence in the proposed solutions. So far, only 4% of respondents confirm that the introduction of digital technologies has brought their company a significant effect (more than 10% of profit growth). Therefore, many are waiting for confirmation of the effectiveness of the “neighbor”, and then they are ready to spend their own money for these purposes. A major barrier is the lack of digitalization of service providers and materials. If the developer uses the services of an external contractor with a low level of digitalization of processes, it will not work to provide “digital construction”, even with the very advanced level of digitalization of the developer himself.
CN: And why, in your opinion, do we need a digital transformation?
E.K .: The first and most obvious reason is that digital transformation improves operational efficiency. For example, to reduce excess labor costs due to productivity growth, increase the speed of the project, reduce the time to eliminate errors, improve quality control of work performed by contractors, manage procurement more efficiently, etc. According to experts, as a result of the introduction of digital technologies, design costs can be reduced by 10-30%, inventory storage – by 20-50%, labor productivity – by 45-55%, forecasting accuracy – by 85%, and implementation time project – to decrease by 20-50%. Secondly, digitalization improves the quality of the offer. Modern technologies make it possible to organize an effective collection of information about a client, which means that they can adapt their offer to their needs in a timely manner, and increase their brand and product awareness for the target audience. The latest trend in the market is the use of big data to make decisions about the concept of an object or its location.
Well, the third important circumstance: digitalization helps to change the business model if the old one began to get old, or create a new promising business in related segments. You can own fewer assets, but at the same time increase profit and business value, be more flexible in the conditions of market volatility. For example, a new type of digital business has already appeared in the world – a platform for sharing technology and equipment. Rental of construction equipment only at the time of need allows to reduce capital and operating costs for the maintenance of the fleet and to utilize it more efficiently. A good example is Dozr, Canada’s largest construction equipment sharing platform. Direct rental rates on the platform are 40% lower than retail rates.
CN: What needs to be done to encourage builders to more actively introduce new technologies?
EK: The industry must have, on the one hand, economic incentives to introduce new technologies, and on the other, the absence of regulatory restrictions for the use of individual solutions. As for economic incentives, in our opinion, there are enough of them in the industry right now – the margin of the business is declining, the timing and quality of work are becoming critical. More than weighty arguments to, at a minimum, think about the speedy digitalization of individual processes and functions, and maybe a new business model in the market.
CN: Does the regulator somehow limit the transformation? It seems to me, on the contrary, in every way contributes. The Ministry of Construction of Russia, for example, is actively “promoting” BIM, is implementing the Smart City project
EK: Yes, it is known that the agency has recently finalized the concept of introducing in Russia a system for managing the life cycle of capital construction projects using information modeling technologies. In accordance with it, the large-scale introduction of BIM in the construction industry since 2023 has been declared. At the same time, in world practice, where the state has achieved significant success in the implementation of BIM, comprehensive programs are being implemented to support the development of this area, which include the development of special libraries, educational programs, the requirements for the presence of BIM for the implementation of construction projects in the public sector, support for R&D, stimulation of collaboration throughout the construction chain, PR topics in the industry and others. In other words, if we want to achieve a result, then the role of the state in this process should be more active.
The situation is similar with the Smart City project, implemented within the framework of the national project Housing and Urban Environment and the Digital Economy program. The role of the state in this matter is to set the right standards – what is a “smart city” and what is not. However, today there is no clear understanding on this issue. How such an understanding appears, it will become a guide for business and regions. A lack of clear mechanisms for the commercialization of many solutions for the “smart city” also remains a significant barrier. Until this barrier is removed, the active introduction of new technologies is hardly possible.
CN: What are your forecasts regarding the digitalization of the construction industry? What will firmly enter the life of builders in the long run?
EK: At the moment, technologies such as BIM, IoT (solutions for monitoring the state of stocks of materials and the state of the infrastructure of buildings, efficient use of equipment, movement of workers on the site), industrial unmanned aerial vehicles that allow geodetic and topographic photography and monitor the progress of work, virtual reality technology in the design and sale of objects, cloud storage solutions for the project second information and effective communication between the project participants. And after 3-5 years, I think we will already see artificial intelligence, and building robots, and blockchain, and augmented reality technology.
Elena Kiseleva, Partner, Strategy Partners, Head of Real Estate and Infrastructure Practice:
“The most “digitalized ”area in development today is the product and processes of interacting with customers (30% of companies have established it). Moreover, only 4% have a high level of digitalization of the production process. ”
Strategy Partners (part of the Sberbank ecosystem) has been operating in the market since 1994. Included in the top 3 strategic consultants of the Russian market (according to Forbes). He is a partner of the World Economic Forum (WEF) in the framework of the program on international competitiveness of countries.
Source: “Stroitelnaya Gazeta”