Connected construction: Industry digitalisation in numbers
A recent survey of 835 construction firms across 13 countries provides a snapshot of digital maturity in the industry. Here, we present some of the headline numbers.
The RICS Global Construction Monitor is leading indicator of conditions in the sector around the world. Following our webinars on the findings of the Q2 surveys, RICS Senior Economist Sean Ellison took the time to answer some additional questions submitted by attendees.
World Built Environment Forum
18 August 2020
Sean Ellison: It’s tough to disagree with this statement. There is enough research showing that, over the past several decades, construction firms have invested less in productivity enhancing technology than other sectors (such as manufacturing and services). Much of this investment would have likely been in labour-saving technology, such as automation. And research since the onset of COVID-19 has shown that sectors with higher levels of investment in these labour-saving technologies appear to be more resilient than others.
A more interesting question may be why construction firms have not invested more over the past several decades. Perhaps it is because there has not been a significant incentive to do so. It is no secret that since the 1980s, there has been a divergence in the employment market prospects for individuals with an advanced degree versus those without one. Although several factors are likely at play here, increased automation and globalisation are often cited as the two main culprits.
However, both of these would likely have less of an impact on the construction sector. The jobs that have been affected by increased automation are generally those that have a high degree of repetition. Recall that in the 1950s, computers were not machines, but people who did mathematic calculations for a living. More recently, basic accounting functions like doing your taxes, have largely been absorbed by software packages. This has decreased the demand for general accountants; as a result, accountants are much more specialised than they were twenty, or forty years ago.
The jobs that have been affected by increased automation are generally those that have a high degree of repetition. Recall that in the 1950s, computers were not machines, but people who did mathematic calculations for a living.
This sort of automation is much more difficult for the average construction labourer, who performs much more complex tasks. The amount of computational power it would take to automate these tasks were far beyond what was commercially available until very recently, if it is even possible now. And as such, the cost would be prohibitive.
The second factor – globalisation – also has less impact on the construction sector. There are innumerate examples of manufacturing being outsourced, and low-value-add services, such as call centres and tech support, are increasingly automated as well. However, construction is a non-tradeable sector, which means that production in the sector must occur at the same location as the demand. Although you can outsource the design of a building, you can’t build an office block in Santiago and ship it to San Diego – though modular construction may affect this to a degree.
This leaves us with a large portion of the labour force with a level of skill and education fit for jobs in the manufacturing and services sectors that either no longer exist (automation) or no longer exist locally (outsourcing). At least some of this prospective labour has been redirected to sectors like construction, where there is still a need for labourers onsite. This additional supply suppresses the cost of labour (wages). This then amplifies the benefits that are required of any labour-saving technology to incentivize firms to invest.
RICS Construction and Infrastructure Market Surveys
RICS Construction and Infrastructure Market Surveys are leading indicators of conditions in the construction and infrastructure sector around the world. In these two webinars, we present the results of the Q2 surveys, assess the continuing impact of the COVID-19 pandemic, and assess industry prospects for the remainder of the year.
So, the reason construction firms have not invested in more labour-saving technology is likely a mix of the technology not being available, and the cost of such investment being unjustifiably high relative to the cost of labour. Unfortunately, a quick fix for this is unlikely. What is needed are structural policies to address issues with the labour force and increased technological progress.
I’d add that the 0.3% figure may also be deceiving. Of the 28 countries where sample sizes were large enough to generate datasets, respondents in 19 reported no projects being cancelled. These include several of the larger markets, like the USA, Canada, Saudi Arabia and Nigeria, and all European countries, excluding the UK.
It is difficult to say for sure, as there are likely several factors involved, but I would speculate that the primary factor is the uncertainty surrounding both the genesis of this pandemic and that surrounding the subsequent recovery. COVID-19 has been so fast moving that I think many would agree that it is difficult to see beyond the next couple of months. And given the support measures that have been rolled out to help ease financial stress, I’m sure at this point companies are reluctant to cancel projects outright, when a surprise to the upside is still very much a possibility.
McKinsey & Company recently surveyed 400 construction industry leaders for their report The next normal in construction: How disruption is reshaping the world’s largest ecosystem. Of those surveyed, a majority believe these nine disruptions will impact the industry within the next five years.