WHY HAVEN 'T BUILDINGS BECOME PRODUCTISED Why haven't buildings become productised?

Innovation in the construction industry has been a dots of already existing components to transform What are the blockers? slow process. Despite advances in technology, and what was originally a vehicle for the wealthy few, Does the current design process involving architects the emergence of industrialised construction some to a means of accessible transportation for the and engineers working on bespoke designs prohibit 60 or so years ago, we are still ‘swinging hammers’ masses. efficiencies and scaling? on site, creating buildings that are all unique and bespoke. Why is that? How did he do it? Are there fundamental differences between market maturity, customer expectations and supply chains for As well as developing cars such as the Model What’s missing? Why hasn’t industrialised cars as opposed to buildings? T in 1908, he revolutionised the assembly line, construction disrupted the way we design and driving down the cost of Ford automobiles to the Will industrialised construction only have a role to play construct buildings? point where the average wage earner, including in emerging economies or large population regions? his factory workers, could afford them. With the The late Harvard Business School Professor and Is there another newer technology that might leapfrog Model T becoming so commonplace, sidewalk gas businessman, Clayton Christensen, coined a theory industrialised construction and pave the way for a stations started popping up, eventually bought of disruptive innovation which explains this as different future? by the large oil companies such as Shell, Esso the way in which companies enter a market at the and Texaco, with nozzles that fitted perfectly into bottom with a product or service that may be a less the Model T’s tank, thus creating standardisation, expensive and more accessible version of those at accessibility and convenience of petrol to fuel the the top of the market. Through relentless growth new wave of automobiles. these new entrants eventually move up to the top of the market, displacing the incumbents. Mass manufacturing of cars only took 20-30 years and has become mainstream since the Taking this meaning of innovation, you could say that advent of Henry Ford’s moving production line. Henry Ford was one of the greatest innovators of Now virtually all cars are constructed in this way. the 20th century. Ford did not invent the automobile, While we have been doing variants of nor did he invent the manufacturing process that industrialised construction for 60 years, it still enabled cars to become the ubiquitous machines isn’t the norm. they are today. He merely combined inspiration from the past with a vision for the future and a belief in the changing power of technology. He joined the … Design and construction have been luddites but things are changing of an imperative for return on investment Productivity in the construction industry is also (ROI) and overall growth. In 2016, McKinsey & lagging behind, not just manufacturing, but the Co. estimated that 80 per cent of construction total economy, and has stayed relatively static projects were over budget, and 20 per cent over the past 20 years, as demonstrated in ran over time. Figure 1 below. Compared to the auto parts manufacturing industry where the average return on equity (ROE) in the US is approximately 12.5 per cent, the engineering and construction industry Design and construction in the 21st century ROE is 3.4 per cent as at January 2020. is characterised by unique components being * brought together on-site, resulting in supply global productivity growth trends chains, materials and processes requiring 200 manufacturing real gross value added per hour worked by precise alignment to avoid cost and time over- 180 persons engaged, 2005 $ total economy runs, and ultimately, gross inefficiencies. 160 (index: 100=1995) The result is that while increasing populations 140 and urbanisation are leading to rising demand 120 construction for construction, pushing up revenues, both 100 profits and affordability are decreasing. Cost 80 and time are therefore becoming even more 1995 2000 2005 2010 2014 Figure 1: Labour productivity growth in the construction industry lags behind other sectors (Source: OECD; WIOD; GGCD-10, World Bank; BEA; BLS; national statistical agencies of Turkey, Malaysia, and Singapore; Rosstat; McKinsey Global Institute analysis) * Based on a sample of 41 countries that generate 96% of global GDP house price to income ratio

130

120

110

100

90 chile italy spain korea japan greece latvia poland france sweden belgium canada norway ireland austria estonia finland hungary slovenia germany denmark portugal lithuania euro area euro australia luxembourg switzerland south africa netherlands new zealand czech republic united states united kingdom slovak republic slovak

Figure 2: House price to income ratio - House prices are rising faster than wages in over half OECD surveyed countries - 2019:Q1 or latest available index, 2015=100. (Source: Organisation for Economic Co-operation and Development) Affordability and accessibility of residential Yet, if we need to build and commercial buildings is also not improving in most economies. Just like the 10,000+ buildings a day to cater for automobiles of the late 1800s, housing, in a 10 billion world population by 2050, particular, is becoming restricted to the wealthy few. In the latest research from the how are we going to achieve that International Monetary Fund’s (IMF) Global without significant change in the way Housing Watch, house prices have grown we design and construct buildings? faster than incomes in over half the countries surveyed, over the five years from 2015 to 2019, as shown in Figure 2. The World Economic Forum in collaboration with Boston Consultant Group in their paper Shaping the Future of Construction – Future Scenarios and Implications for the industry, identified global megatrends such as climate change, shifting demographics, the cost of labour in some regions, urbanisation, automation and digitisation as creating a burning platform for change. The report showcases three extreme versions of the future: 1. Building in a virtual world – where virtual reality (VR), in the form of intelligent systems and robots run the construction industry 2. Factories run the world – where modularisation and prefabrication in factories blur the lines between manufacturing and construction 3. A green robot – a world impacted by climate change, in which we rebuild using eco- friendly construction methods and materials Alternatively, a combination of all three may result, assisted by blockchain’s smart contracts, creating transparency amongst project partners, making construction cheaper, safer and faster. Case study Modularisation has been around for some time, but finally gaining momentum due to new technologies and economic drivers. One example Buildings clipped of buildings being clipped together like Lego in a factory, from standard components, then delivered to site, is ModnPods, designed and built together like Lego on Australia’s Gold Coast. ModnPods are constructed using standard components such as shipping containers or a pre-designed steel frame. and delivered to The build time is just eight weeks and each ModnPod comes complete with fixtures and fittings such as windows and doors, as well as all plumbing, site - ModnPods electrical and mechanical components.

Customisation is also available in the form of ‘clip on’ extras such as timber decks. Sustainability aspects such as solar panels, grey water processing, wood panel composites (a blended composite of recycled PE bottles and used industrial pallets or other woods) are also available. Marketed as ‘backyard’ homes or offices, multi-unit developments and caravan parks, the pods range in size from a 3x3.4 metre studio for AUD 29,600 up to a 12x3.4 metre two-bedroom house for AUD 99,000. With a commitment to giving back, ModnPods donates a portion from the sale of each pod to third world countries, to provide more affordable housing and schools. Prefabricated construction and automated technology such as robotics to install these prefabricated construction materials, Case study and additive printing, are all construction technologies that already exist and can be In 2017, Aurecon designed two nearly identical buildings in two different implemented to make not only construction cities in Asia. Building 1 did not utilise any BIM and pre-fabrication in design but also building maintenance easier — and delivery, while Building 2 did. The information regarding the impact on driving down short- and long-term costs. construction is provided below: Starting at the design stage, buildings with standard designs and pre-fabricated Building 1 – no BIM and pre- Building 2 –BIM and pre- Percentage components are cheaper and faster to build. fabrication fabrication impact 6 Storeys 6 Storeys These buildings are highly accurate, with Size small tolerances. They achieve a high-quality finish throughout any storey level and can be 22,800m2 25,000m2 fully planned and documented very quickly. Pre-fabricated components Because they are manufactured, not built, Precast construction Columns, lift and stair, there are reduced weather delays and waste, structural wall, façade None walls, hollow core floor and carbon generation and site time are slabs, stair flights, fuel reduced. This safer way to build requires elements tanks only low or semi-skilled labour for fast onsite % of precast construction 0% 70% assembly/installation. Total cast-in-place concrete 34,290m3 6,779 m3 -80% Programme However, this still involves transporting very Superstructure construction 8 months 4.5 months -43% large components to a construction site, often at high cost. Total labour days 30,695 days 15,860 days -48% Taking this one step further, construction companies like Katerra and Mace are exploiting opportunities to create factory-like conditions on-site to construct a building in an Case study assembly line manner, using a building platform. As buildings can’t physically move along an 3D printed buildings are already assembly line, the idea is to take the ‘assembly line’ to the building site. Standardised, pre- a reality in places like Dubai fabricated components are assembled on-site to create a building or precinct, in a Lego-like and Saudi Arabia... fashion, as shown in Figure 3. By 2025, 25 per cent of Dubai’s new buildings will be made using 3D printers. The aim of the 3D-printing strategy is to reduce labour by 70 per cent and cut costs by 90 per cent as well as solve the emerging homelessness crisis.

The city’s fascination with 3D printing in the construction industry was showcased as early as 2016 when the world’s first 3D printed office was created. Only one technician, seven installers and 10 electricians and specialists were required to build the office of the future. Labour costs were reduced by 50 per cent and it took just 17 days to print and two days to install on site. The total cost of the building was USD 140,000. It is now home to the Dubai Future Foundation, which was set up to provide a strategy and showcase for innovative design.

Saudi Arabia is now owner of the world’s largest construction 3D printer, which can design and construct 12x27x9 metre buildings and three storey structures with 300 Figure 3: Buildings are manufactured on-site using m2 floor plates. As part of its Vision 2030, the Saudi Housing Program aims to deliver standardised components more affordable housing in faster time to the majority of its population. This form of design and construction is already occurring in cities like Dubai, Tokyo and Singapore where fast population growth is forcing new ways of working to achieve economies of scale.

Enable change and adaptation and change Enable 6.

opportunities opportunities

Review product portfolios and identify new new identify and portfolios product Review 5.

Leverage data and digital models models digital and data Leverage 4.

that will have significant impact impact significant have will that

Embrace advanced technologies at a scale scale a at technologies advanced Embrace 3.

industry

development urban and infrastructure

across collaborate and Integrate 2.

required skills skills required

develop and talent new Recruit 1.

business in this changing environment: changing this in business

Mass customisation but built to change to built but customisation Mass •

construction companies to future-proof their their future-proof to companies construction

The changing face of building methodology building of face changing The •

are identified as being vital for design and and design for vital being as identified are

Design partnerships Design • , six transformation imperatives imperatives transformation six , construction

Design trumps technology technology trumps Design • Consulting paper on the future of of future the on paper Consulting

World Economic Forum and Boston Boston and Forum Economic World the In

and adaptation to be future-ready. These were: were: These future-ready. be to adaptation and

isn’t it more widespread? more it isn’t themes around the need for flexibility of design design of flexibility for need the around themes

construction methods already in practice, why why practice, in already methods construction undertaken by Aurecon which identified key key identified which Aurecon by undertaken

So, with all these efficient design and and design efficient these all with So, This is supported by market research research market by supported is This

industrialised design and construction? and design industrialised

create a significant step-change towards towards step-change significant a create What else needs to occur to to occur to needs else What The advantages of modularisation and for buildings that lend themselves to industrialised construction are well known standardisation such as schools and and documented. In various research reports, hospitals including the 2019 McKinsey report on • Increased precision in off-site manufacture Modular construction: From projects to can decrease lifecycle operating costs. The products these are defined as: McKinsey report quotes one client claiming • Reduced construction time – by 20-50 per 25 per cent on energy costs after a move to cent modular construction • Potential to reduce costs by 20 per cent • It can be the best option in areas of high • Increased safety on site cost employment or lack of skilled site labour and high demand • Increased speed to market which can lead to increased revenue potential

• Ease of construction, particularly in urban and/or congested areas • Reduced waiting time in sequencing of construction • Reduced wastage • Avoids possible delays and quality issues due to weather – the controlled environment of the factory improves precision and certainty. The move to robotics would improve this further • Increased certainty and reduction of rework • Improves opportunity to use alternative materials which would otherwise be difficult to transport to site • Opportunities for repeatability particularly Modularisation can vary in complexity from 2D only be done by ‘professionals’ to a use of elements that require more assembly on-site to standardisation and prescriptive solutions, to 3D (eg. panels) to 3D units that are fully-fitted systemisation which is a situation where the off-site (eg. fully fitted-out house, including ‘craft’ work is actually done by technology, and services and finishes). Wood, concrete and steel professionals are the gate keeper between the are used separately or in hybrid. public and the knowledge. This is described The less modularised the more design by Richard and Daniel Susskind, in their book, flexibility and ease of transport to site; the The Future of the Professions. more modularised, the more standardisation, So, with all these benefits, why isn’t repeatability and cost savings. modularisation, off-site and industrialised For example, RAD Urban modular supplier is design and construction occurring more looking to move 85-90 per cent of labour off- broadly across more markets and regions, and site into factories where productivity is higher at a faster pace? and costs are cheaper. This could lead to 20-30 per cent cost savings on mid to high rise office developments. The move to automation is next with a predicted 10 x efficiency gain.

While a move towards a manufacturing- style approach to design and construction of buildings is an imperative for sustainable growth, and is already occurring, there is still room for customisation and optimisation, as not all customers of buildings will want a mass produced, component-driven outcome.

Technology is allowing for the transition from an environment where work is a craft and can Why isn't change occurring more broadly and faster?

In their full report, Modular construction: From projects to products, McKinsey identifies seven factors influencing modular construction, as shown in Figure 4: regulatory • Labour shortages • Ability to service demand access to quality • Regulation materials perception • Access to materials • Supply chain and logistics • Quality perception supply chain and local site logistics constraints legend: • Local site constraints regulation key drivers Without these factors, modularised labor consolidated construction may not meet the economic goals and continuous supply dynamics demand volumes of companies and jurisdictions and the needs of demand consumers. Figure 4: 7 Factors influence modularised construction (Source: McKinsey analysis) The McKinsey report emphasises that all A simple example of this is the travel industry While commoditisation and standardisation participants will need to change to create a where the use of a travel agent is now optional can be valid in many situations, there is significant impact. These include: and not used by the majority of the public. To little scope for differentiation. We shouldn’t • Manufacturers – modularisation will need to what extent could this happen in design and ignore opportunities for customisation and scale and optimise construction? Could the general public design optimisation. Designers can start to create and 3D print their own homes or offices based ‘customised’ modular libraries to help decrease • Developers and investors – will need to on standardised components? time and cost of design and move towards more understand options for productisation ‘design for manufacture’ approach, but this and investment opportunities, and choose won’t be suitable for every situation. industry partners • Materials suppliers – will need to shift products to more repeatable components with an efficient ‘go to market’ strategy • Public sector – opportunity to bundle projects and may need to look at changing shared building codes commoditisation / fee for service feedback on bespoke systemisation externalisation access to free to access specialisation • Engineering and construction firms – will standardisation specialisation specialisation to help you need to understand what commoditisation choose will mean for the industry and make decisions about where they will ‘play’

Richard and Daniel Susskind, in their book, The Future of the Professions, argue that the final Figure 5: Graph derived from The Future of the Professions, Richard and Daniel Susskind. stage of significant change and innovation is externalisation when access to the technology is available to the general public without the gatekeeper being needed, as shown in Figure 5. such as the emergence of mass engineered timber (MET) and precast concrete which are enabling off-site, modularised construction What needs to be true for of standardised components change to occur? • Supply chains are aligned to enable ease of delivery of components to create cost- There are some concerns that increased be objects of high design value. effective and fast manufacture, as achieved modularisation, robotics and automation, by Henry Ford with his optimised assembly So, what precedents need to exist for as well as a move to niche customisation lines and optimisation, will lead to job losses for significant change to occur in the design and traditionally-skilled construction labour construction of buildings? and professionals undertaking work which If we look at history, disruptive innovations can now be undertaken more efficiently by have occurred when: Case study robots. This will no doubt be the case, but the accompanying increases in productivity, • There is a burning platform for change combined with ongoing increasing demand, eg. The post-war construction of housing Aurecon's data could mean that more projects could be estates in the UK and Europe to cater for centre configurator designed and built, hence labour will still be thousands of displaced citizens or the Aurecon conducted a Data Centre Devel- required. current global trends of population increases opment Sprint, bringing together program- and urbanisation As Christensen espoused in his theory of mers, data centre specialists, designers • Affordability has become an issue for the disruptive innovation, change needs to occur and leaders across the Aurecon business majority so a significant customer base is at the bottom of the market, typically with a to create a configurator to enable fast and ripe for a disruptive product or service – as new entrant offering a significantly lower cost efficient automated design of a data centre. in the case of automobile ownership in the alternative to the masses. He continued that This prototype is currently being tested with early 20th century or ride-sharing in the 21st the focus should be on ‘the job that needs to be clients. century done’, rather than the product or service itself. Applied to design and construction, this means • New technologies are enabling change – for that a house, office, school or hospital, need to example 3D design, 3D printing and ‘on-site fulfil the need of the customer to live, work, be factories’ educated or receive healthcare, as opposed to • New materials are creating opportunities – Where these factors converge, It will be necessary to develop clear protocols for when commoditisation and standardisation are appropriate – that is, buildings that have low design value and can benefit from repeatability. innovation will occur. This may mean This may represent the bulk of the ‘new world’ of design and construction. This will still enable that the significant step-change customisation and optimisation to flourish – this is appropriate for buildings with high design values and that require customisation for differentiation. Design and construction firms will gravitate to required for more efficient and cost- one of the two extremes as well as some sitting across both, as shown in Figure 6. effective design and construction to gain momentum, may occur in situations such as regions where housing is at a all players need to prepare for shifts in value pools crisis point, and inexpensive, and fast design and general specialised operations development OEMs construction could make a significant engineering contractors trades and difference, for example in emerging maintenance economies or countries devastated by example profit >10 5-10 2-4 3-15 3-5 2-3 natural or man-made disasters such as margin, % tsunamis, earthquakes, war, or as we potential buyers of more design model could opportunity partial more efficient have seen in China where a hospital disruption productised libraries and become for package displacement lifecycle solutions engineering obsolete if solutions via modular management was constructed in 10 days, due to the OR automation modules and and service and use of data coronavirus outbreak. owner- better bim offerings integrators of polarisation models improve BUT bespoke projects of high-value planning and risk of vs repetitive lower risk commoditisation work more specialisation

Figure 6: The spectrum of change for designers and developers as we move towards industrialised construction (Source: Client studies; expert interviews; McKinsey analysis) Designers and developers will need to Ultimately, someone, or something, needs For example, Japan and Sweden have made assess options and priorities in terms of significant inroads into modular construction appropriateness of approach, cost, time, to emerge, as did Uber and Airbnb in the due to many factors, including quality of build location and differentiation, as demonstrated in transportation and travel industries, and resistance to seismic activity (Japan) and Figure 7. short daylight hours for on-site construction and Henry Ford before them, to disrupt (Sweden). The US and UK have utilised off-site

hong kong singapore sydney london design and construction in a way that construction after major wars when speed of general labourer construction was an imperative, but this has US$/hour $12 $12 $48 $28 will change the landscape forever. since waned. As McKinsey suggests, it may index (hk=100) 100 100 400 233 Once the options are understood informed be time to revisit this approach now due to hong kong singapore sydney london decisions can be made about how to move advances in technology which has made digital concrete US$/m3 in place $98 $76 $147 $148 forward with a project. It will be necessary to design and many automated processes ideal for index (hk=100) 100 78 150 151 consider all aspects of a project from design, fast, efficient design and construction. through supply chain and construction to structural steel $1,812 $1,508 $1,765 $2,438 US$/tonne operation, to decide the best approach, and index (hk=100) 100 83 97 135 ensure the most appropriate team to design and deliver a project. hong kong singapore sydney london high-rise apartment US$/sqm $3,371 $1,803 $2,169 $3,803 index (hk=100) 100 53 64 113

Figure 7: The relative cost of labour and materials across four modern cities What other questions should we be asking?

What about the ethics? Entitled Socially Responsible Automation – While industrialised construction and the A Framework for Shaping the Future they increasing use of automation and robotics identified four levels of progress towards to build our communities of the future, is a automation: more efficient, cost effective, faster, safer and Level 0 – cost-focused automation – where practical move forward, what about the ethics technology is used solely for financial benefit of a displaced workforce? Level 1 – performance-driven automation – Where will the site labour of yesterday and where technology is often used to do the ‘heavy today fit into the automated construction world lifting’ with humans still required to provide of tomorrow? skills to fill in the gaps Level 2 – worker-centred automation – In a paper presented at the MIT Technology’s where the business goals are both worker Review EmTech Next Conference, the Vice development and performance optimisation Chancellor for Research at the University of Level 3 – socially responsible automation – California, Pramod Khargonekar, and Associate where automation is used to drive improved Vice Chancellor for Research at the State opportunities for humans University of New York, Meera Sampath, address this issue. Will our unique human ‘craft’ skills be lost? A 2017 study by Gartner Research predicted that while 1.8 million jobs would be lost worldwide by 2020 due to automation, 2.3 million new jobs would be created. As history has taught us, any new processes or transformations result in temporary job losses, followed by a readjustment as new opportunities emerge, and researchers believe that automation, particularly when combined with the human skills required to drive new technology, will be no different.

The key is upskilling and job enrichment. As machines increasingly take over low-level, mundane and heavy-lift tasks, humans will be required to hone their skills even further, developing new, smarter ways of working.

While it might mean that robots take over some of the traditional ‘crafts’ we have seen in construction, such as carpentry, bricklaying and electrical wiring, skills in programming, coding, detailing, customising and optimising will come to the fore. Buildings of the Future: Why haven’t buildings become productised? > 18

1. What needs to change in the current design process to allow the wider adoption of industrialised construction?

2. How can the digital documentation the design industry produces be enhanced?

3. How will industrialised construction create a place of belonging in cities and communities?

4 What new business models will be required for industrialised construction to accelerate?

5. How do industrialised construction and design flair co-exist?

6. Do we need to integrate more technology into the process to enable it to scale?

7. Is there a place for a hybrid version of industrialised construction in the industry? is the only way in which we will meet the They may take weeks rather than months or global need for buildings of the future. New years to be constructed, and their cost may Conclusion processes, technologies and materials are be a tenth of what they are today. Entire enablers already in place to assist with this communities could be assembled cheaply and There is a burning platform for change in transformation. quickly, providing homes and public buildings the design and construction of our built for currently homeless populations, or at environments. Increasing urban populations, All that is now required is a mindset and least those for whom home ownership is rising demand for residential, commercial, behaviour shift of designers, developers, beyond their reach. On the other end of the social and public buildings, escalating costs owners, suppliers, governments and end- scale, high-end buildings featuring customised and declining profits, means a step-change users, towards a new breed of buildings designs could still be available for those with needs to occur to create a democratic and that are built by robots, standardised, the means to purchase them. sustainable sector for the future. commoditised and affordable. While not likely to cater to all, there will still be room for There is a lot for us to consider - we don’t While prefabrication, modularisation and customisation and optimisation. Questions have all the answers now, but as long as we industrialised design and construction in of ethics and craft will also need to be keep asking the right questions, solutions will general is occurring in pockets around the addressed, to ensure a smooth transition. The eventually emerge. world and has been for decades, it is not gains will need to be greater than the losses, occurring broadly, and not at a fast-enough for customers to make the shift. pace for significant change. WHO, OR WHAT, WILL But as Christensen points out, the ‘job that PROVIDE THE ANSWERS Drawing on Christensen’s theory of disruptive needs to be done’, in this case, hiring an TO ENABLE BUILDINGS TO innovation, the time is ripe for a new entrant BE TRULY PRODUCTISED? affordable and functional building to provide to emerge at the bottom of the market, a house, office, university or healthcare creating a maelstrom of change akin to what facility is a far more relevant opportunity for Henry Ford achieved with the car industry in widespread innovation than merely tweaking the early 1900s and Uber and Airbnb have an existing product or service hoping to meet delivered to transportation and travel in the ongoing customer demand. 21st century. The buildings of the future may arrive on-site Low cost, commoditised products available via a 3D printer in a factory or may in fact to many through construction robotics and be assembled in-situ by robotic processes. 3D printing systems, with minimum human interface on the actual construction site, For more information please contact: Peter Greaves Buildings of the Future Leader E [email protected] P +61 3 9975 3346

About Aurecon Aurecon brings ideas to life to design a better future. Imagining what is possible, we turn problems into solutions. For more information please visit www.aurecongroup.com