The engineering, construction and infrastructure industry is facing huge disruptive changes. We are at an inflection point, and need wholesale change right now.
Global construction productivity has improved about a quarter of the rate of manufacturing productivity since 1995. When we look at rich countries like Germany, France and the United States, things are much worse however—here, construction productivity is actually falling. The United States’ top contractors according to ENR have recently experienced a decline of 26 percent on their return on working capital. And the top 10 contractors in the UK have increased their debt by 24 percent in 2018, and British contractors delivered an average operating margin of negative .5 percent in 2018.
Since global construction productivity has been atrocious for a long time, why must we act right now? Just consider some of these scary facts:
- 55 percent of the top 100 construction companies are now in Asia – a huge increase from where it was 10 years ago – so for the rest of the world, foreign competition is intensifying
- Modular and offsite construction, which can improve productivity, is forecast to grow by 6.9 percent per year
- Demand will be high, with 2 billion new homes need to be built over the next 80 years according to the UN
It is very clear that running a construction business successfully is becoming extremely hard and the complexity is increasing at a rapid pace.
The Essentials for Business Growth
The need for tight project control and business governance is now not optional but essential if you are to grow and prosper in the future. Those who do not have timely and accurate information about how their projects and business are performing will be unable to make the right decisions and risk being the next casualty in the industry.
Today, most construction businesses are running their companies using a patchwork quilt of non-integrated systems. In addition, the most common management information system in use is Excel.
Does this patchwork quilt solution support best practices?
Is this landscape going to be capable of supporting this highly disrupted industry in the future?
Integrated business Software
The term enterprise resource planning (ERP) is often talked about in the construction industry but it is usually interpreted as meaning the finance and maybe human resources systems. But ERP is meant to be an integrated enterprise wide system which is what it is in many industries such as manufacturing.
Interestingly productivity has increased by 760 percent over the last 50 years in manufacturing and yet construction has achieved a pathetic 6 percent increase over the same period. So maybe we could conclude that this is because the manufacturing industry has recognized and exploited the benefits of integrated processes and systems for many years.
Of course, the answer is more complex than that and I would agree that the construction industry is unique. Unlike manufacturing, construction contractors deliver large, long-term one-off projects rather than products. Construction-centric ERP systems have evolved and become mature solutions so there is no longer a good excuse for not implementing ERP properly other than a resistant culture. We are also seeing the construction industry converge with the manufacturing and service industries so there are even bigger reasons now to become more efficient and agile by implementing an integrated ERP system. This should also be viewed as the platform to integrate the emerging digital technologies such as BIM, 4D scheduling, robotics, augmented reality (AR) and IoT into the core ERP backbone.
Can we adapt and be an agile successful business if we continue to run our business using a patch work of non-integrated business systems?
I would argue that the huge pressure on businesses to deliver high quality projects on time and at lower cost can only be met by moving to more integrated and agile business processes and systems.
For more on real-time visibility and control of project operational and financial performance, download the Manage Construction Project Financial Control and Governance executive summary.
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