While global labor productivity has risen by 2.8% in the past 20 years, productivity in construction reportedly has only increased by 1%, and compared to the 3.6% increase for manufacturing, is actually in decline (see Figure 1). If the construction industry could close that gap to match the global economic average, the industry’s value could increase by $1.6 trillion, boosting global GDP by 2%. However, the construction industry is extensively regulated, risk averse and hard to navigate for new players. But not all is lost…to solve for these inefficiencies, there is a growing effort to engage innovative technologies and business models.
One part of the construction value chain seeing a lot of innovation is prefabrication. The use of offsite manufacturing increases labor productivity and reduces waste, ultimately improving efficiency. While prefabricated buildings aren’t new, with early examples being evident as far back as the 12th century, the pressing need for new housing and higher productivity has heightened the interest.
Innovative approaches to construction
Digital technologies such as Building Information Modeling (BIM) are enabling all aspects of design performance to be simulated and assessed prior to construction, integrating information related to a construction project from its design phase to management years after construction. Recently, 5D BIM software is helping accelerate transparency in design, costing, and progress visualization by utilizing advanced analytics enabled by IoT to improve on-site monitoring of materials, labor, and equipment productivity.
One of the disruptors is Katerra. The company was founded in 2015 and has raised over $1 billion in equity to date from Softbank’s Vision Fund, DFJ, Khosla Ventures and others. Katerra takes an end-to-end project lifecycle approach, providing prefabricated, modular buildings through the provision of complete services in architecture, engineering, interior design, materials supply, construction management, general contracting and staffing services. Another player is Legal & General, a British multinational financial services company with a history of providing housing, has seen prefabricated building construction as an evolution of its position in this market. The firm invested in the world’s largest modular home factory with the capacity to produce 3,000 homes annually, and is aiming to make an impact on the UK’s housing crisis.
For prefabricated building construction, materials need to fit the model. Mass timber, and more specifically Cross Laminated Timber (CLT), is one of the building construction materials that is poised to make rapid advances in the next decade or so through prefabrication. CLT is an engineered timber with a layered construction. It’s easy to install and generates almost no waste. On the sustainability side, CLT can lower a building’s carbon footprint by sequestering the CO2 used during construction. Integrated into prefabricated building construction, the timber can be used in a closed loop cycle: the timber offcuts from the manufacturing can be used to power the manufacturing plant, and when buildings are demolished, the carbon can still be stored in reused or recycled materials. Compared to traditional construction, procurement of CLT requires a greater level of coordination earlier in the design process. Prefabrication of panels in a factory offers accuracy and quality, optimizing material use while vastly reducing site waste, and therefore is a well-suited material.
Europe has been the leader for CLT for several years, with the UK at the center of CLT with around 500 completed projects, taking up around 20% of global CLT use. The strong commercial benefits have been realized thanks to less prescriptive, more evidence-based building regulations, and also due to a highly geared development market, relative to other countries. In addition, Legal & General is constructing a new factory in the UK to produce CLT for use for prefabricated housing.
While the US has been slow to start adopting CLT, there is an increasing demand for it due to access to certified material modernization of state and federal building codes. Last year the Timber Innovation Act was enacted, which aims to drive commercialization of wood products for building construction through a range of national grant programs such as the Mass Timber Certification Program. Katerra has also wholly adopted CLT as their primary material of choice, recognizing its potential. This month, Katerra will open a 250,000 square foot mass timber manufacturing facility to scale the production of CLT in the US so the material can be more broadly accepted across the construction industry.
Waugh Thistleton, a UK-based architect firm and one of pioneers in CLT development, has to-date completed numerous projects and is a global voice for driving CLT use in building construction. The firm completed a 121-apartment building last year, concluding in a report after the project was finished that the timber which was harvested from a forest in Austria took 20 minutes to replenish. Evidence of the availability of the material if demand increases.
New methods in the steel industry
Many incumbent steel corporates are adopting a lifecycle assessment (LCA) methodology, which takes into consideration the environmental impact of a building based on the entire building lifecycle, from manufacturing of the material, transport and erection of the building components to dismantling and demolition at the end of life. In addition, LCA incorporates the environmental potential for materials reuse and recycling.
This summer, steel production corporate ArcelorMittal announced an objective-based disruptive method for holistically assessing the performance of building construction solutions, called Steligence. This approach models buildings as full objects, taking all aspects into account as parameters to optimize the entire supply chain. The method also looks to optimize a building from an economic, environmental and social point of view, considering the interaction between the different buildings and the interaction between the building and its surrounding environment (job site disturbances, traffic bringing construction material on the jobsite, etc.).
Other players are also taking on innovative approaches to steel. SSAB for example, is aiming to be the world’s first fossil-free steel company in the world by 2045. The company has introduced an innovative hydrogen-based steel making process, which will capitalize on the hydrogen markets that are expected to come to fruition in the coming decades. With the adoption of LCA and new technologies, as well as a more serious attitude toward sustainability, the steel industry is looking to keep up with the new materials to maintain its market position.
Challenges for disruptors
Traditionally, construction is a risk averse industry, with slow material/technology adoption and hampered by a range of global regulatory barriers as well as stiff competition from the large number of players. Inefficient project execution, insufficient skill-base, and a lack of investment in R&D has led to a largely fragmented value chain.
As with every industry, technology will play a key role in improving construction’s productivity problem. For these disruptive solutions to prosper, construction firms need to increase investment in workforce training, taking on a continuous improvement mentality to revolutionize the way new solutions are adopted. Technology alone will not solve the problem, however. Key opportunities lie in the improvement of entire project management processes, which incorporate value engineering methodologies into the design process.
While the thoughts outlined above are worth voicing, there are many more areas within the value chain that can and should be considered. To gain a better understanding of the activity going on within these different areas, be sure to check out our i3 platform.