Construction is not the first industry to encounter disruption across the value chain. McKinsey & Company has analysed shifts in four industries with similar attributes: shipbuilding, commercial aircraft manufacturing, agriculture, and car manufacturing. By studying these industries, clear patterns emerge regarding how the construction industry can prepare for disruption.
In shipbuilding, commercial aircraft manufacturing, and car manufacturing, players shifted to a product-based approach for which production facilities became assembly sites. The most famous example is Ford’s innovation of the assembly-line manufacturing process for its Model T. Most of the auto-manufacturing industry adopted the process within ten years. In this model, prefabricated and modularised subcomponents are inputs, and ships, airplanes, and cars are outputs.
While the manufacturing process was significantly standardised, products remained customisable because subcomponents could take various forms and sizes within an industry-wide, standardised framework. When early movers boosted their productivity and profit margins, competitors adopted the innovation over time. Toyota’s lean manufacturing and use of robotics, and further innovations in the assembly-line manufacturing process boosted the company from a small player to one of the largest in the industry.
As industrialisation started to reform these industries and processes became standardised, companies targeted specific niches and segments (for example, tankers, freight ships, and cruise ships in shipbuilding and budget, luxury, and utility autos in car manufacturing). As a result of this specialisation, players created a competitive advantage by developing knowledge and scale in their market segment.
Value-chain control and integration with industrial-grade supply chains
As ship, aircraft, and car manufacturing shifted to assembly lines, the supply of critical components was increasingly important. In many cases, those components were the basis of differentiation: in car manufacturing, for example, the quality of engines could be a distinctive factor. Therefore, it was important to control the supply. Vertical integration or partnerships along the value chain were common in each industry. In commercial aircraft manufacturing, engines were, and are, produced by external suppliers but, in order to develop better-quality and more efficient engines than their competitors’, manufacturers hold integrated partnerships in R&D and testing. Also, Boeing recently decided to build the 777X wing internally (formerly outsourced) and has also set up an internal avionics division to reduce reliance on suppliers of navigation, flight controls, and information systems.