Construction and engineering companies design and build assets as their primary focus and it will become common for them to evolve to a servitised business model, providing services that support operations and maintenance of an asset’s lifecycle, explain Kenny Ingram and Chris Knight at IFS.
As the construction and engineering industry faces ongoing challenges, they are exploring the adoption of digital technologies like AI to automate and optimise their operations. To develop consistent revenue, businesses are transitioning into becoming total asset service lifecycle providers. Outdated and disorganised businesses will look to restructure and streamline operations through real-time data for accurate project budgeting and forecasting.
The construction and engineering industry must prioritise the integration of digital technology to create new revenue streams and streamline operations. Through the implementation of AI and automation and the adoption of a servitised business model, the industry can address challenges like labour shortage, project costs, efficiency, and customer loyalty.
AI and automation in construction is the use of machines and computer systems that can perform tasks that normally require human intelligence, such as design, planning, monitoring, and analysis. According to a forecast, 30% of construction and engineering companies will deploy AI and automation within the next three years.
Some day to day examples include, using AI to collect, process, and analyse large amounts of data from various sources, such a business systems like ERP, to provide insights and predictions for construction projects, such as site conditions, project risks, forecast future project costs and margins and performance indicators.
Devices that can be worn by workers to enhance their safety, productivity and communication, such as smart helmets, glasses, vests, and gloves.
Integrating of building information modelling, BIM and AI to improve the design, coordination and management of construction projects, such as generative design, construction optioneering, and data analytics.
Using AI to monitor and track the location, usage, and status of tools, equipment, and materials, using devices such as RFID tags, GPS trackers, and smart sensors.
Planning and scheduling
Intelligent planning and scheduling using mathematical models can improve business performance both in terms of productivity and improved project and maintenance service delivery performance. This impacts all types of resources including labour, equipment, materials and subcontracts.
For many construction and engineering companies, the consideration and adoption of AI and automation are opportunities to address a number of very traditional and long-standing challenges, such as skilled labour shortages, that will only accelerate over time.
Construction and engineering companies design and build assets as their primary focus. It will become increasingly common for construction and engineering companies to evolve to a servitised business models, also providing the services that support the operations and maintenance of an asset’s lifecycle. This servitisation trend is accelerating at a rapid pace, with a goal for this revenue stream to be greater than 50% of their total revenue.
Many sectors face the challenge of low project margins, intensified by macro-economic conditions that complicate investment in new capital projects. Accurately forecasting which projects contractors will secure a winning project margin on is a difficult task.
These factors make it risky to operate a business that relies on a small volume and poses potentially serious implications. As a result, this can lower their stock market valuation as they are characterised as volatile investments.
Addressing this, companies are actively seeking to diversify their businesses and reduce the impact of large value, unpredictable, low volume projects. By offering asset operations and maintenance services, construction and engineering companies have an effective way to grow, and foster resilience in their business.
A significant benefit of this approach is the production of recurring revenue streams. Long-term maintenance contracts with a 5-to-10-year duration are becoming more common. In fact, this business strategy accounts for over 50% of construction and engineering companies’ revenue, with the aim of making the business more sustainable in the long term and increasing its market valuation.
There are many additional advantages to adopting this strategy that benefits the construction companies and their clients.
Aligns with asset owner
Construction and engineering companies have detailed knowledge of the asset they build. They are in the strongest position to understand how it should be maintained in order to maximise its performance and cost efficiency. We see this trend moving towards a Contracting for Outcomes model where clients ask the company to design, build, operate and maintain the asset.
IFS describes this as transitioning from being a construction or engineering contractor to becoming a Total Asset Lifecycle Service Provider.
Resource utilisation
Contractors have a skilled labour force that have the knowledge to construct install, repair and maintain the elements that comprise an asset. These skills will be employed by the main or speciality subcontractors. By expanding the work beyond construction and installation tasks to maintenance work offers a way to increase labour productivity,. leading to improved margins for the contractor, faster response times for the asset owner, and higher quality service.
Asset design
When contractors are involved in the day-to-day operations and maintenance activities, they have valuable insights into its performance. These insights can be fed back to the engineering function to inform future designs and improvements – a mutual benefit for both the asset owner and the contractor.
Safety and compliance
When the contractor takes responsibility for all stages of the asset’s life, they are exposed to how the asset is performing in terms of safety and compliance. This increases their knowledge and allows for continuous improvement, again benefitting the asset owner and end user community.
Construction and engineering companies are involved in designing, building, operating, and maintaining complex assets. To facilitate these complex business processes, companies have traditionally invested in a wide variety of specialised software applications for individual departments, and then attempted to integrate these systems together to provide efficient business processes.
Due to the complexity of integrations, implementation is almost impossible to execute. As a result of inconsistent data structures many organisations resort to Excel spreadsheets to link processes and provide accurate management information.
Legacy inhibitors
To face these challenges, companies need to become more efficient, agile, and resilient. What is holding them back? A disjointed business system landscape constrains companies and has many disadvantages.
- Expensive to maintain and increases business risk with unsupported software systems.
- Cannot move to a cloud-based, open platform architecture.
- Many processes are manual and inconsistent.
- Use of Excel is labour-intensive, provides inaccurate data that is not real-time and can be manipulated, leading to uninformed decision-making.
- Standardised, repeatable best practice processes cannot be implemented.
- Difficult to change strategy and diversify by acquiring new businesses or offering new solutions.
- Impossible to measure performance and drive continuous improvement.
- Poor project and business performance, resulting in reduced future pipeline.
An effective digital strategy needs to be implemented, led by senior leadership. It should not be seen as an IT or even a tactical business project, but as a strategic, high-level business initiative. This transition needs to be part of a continuous improvement plan that aligns with business goals for significant value improvements.
A phased approach is necessary and would typically be split into two overarching phases to get control and transform and innovate.
Get control
In this stage, the main objectives include:
- Consolidate and simplify systems and processes
- Reduce business risk, siloes and the use of Excel
- Empower management through full transparency of information
- Drive more predictable revenue and margins with project financial control
Transform and innovate
Here, the business can now grow and innovate without risk.
- Grow business and make it more resilient through acquisitions.
- Diversifying into new business streams such as offering operations and maintenance services, asset rental, offsite manufacturing.
- Innovate by adopting digital enablers such as BIM, AI, IoT, Robotics, Automation.
- Exploit new trends across industrialised construction methods.
As we look ahead, it is clear the construction and engineering industry must prioritise the integration of digital technology to create new revenue streams and streamline operations. Through the implementation of AI and automation and the adoption of a servitised business model, the industry can address challenges like the labour shortage, cut project costs, improve efficiency, and enhance customer loyalty.
