Markets Property Buildings of the future Productisation What can be done?

Why isn't change occuring 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:

Labour shortages
Ability to service demand
Regulation
Access to materials
Supply chain and logistics
Quality perception
Local site constraints

Without these factors, modularised construction may not meet the economic goals of companies and jurisdictions and the needs of consumers.

BOTF why isn't change occurring more broadly and faster house

Figure 4: 7 Factors influence moduarlised construction (Source: McKinsey analysis)

The McKinsey report emphasises that all participants will need to change to create a significant impact. These include:

Manufacturers – modularisation will need to scale and optimise
Developers and investors – will need to understand options for productisation and investment opportunities, and choose 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 building codes
Engineering and construction firms – will need to understand what commoditisation 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 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.

A simple example of this is the travel industry where the use of a travel agent is now optional and not used by the majority of the public. To what extent could this happen in design and construction? Could the general public design and 3D print their own homes or offices based on standardised components?

While commoditisation and standardisation can be valid in many situations, there is little scope for differentiation. We shouldn’t ignore opportunities for customisation and optimisation. Designers can start to create ‘customised’ modular libraries to help decrease time and cost of design and move towards more ‘design for manufacture’ approach, but this won’t be suitable for every situation.

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Figure 5: Graph derived from 'The Future of the Professions' by Richard and Daniel Susskind

What needs to be true for change to occur?

There are some concerns that increased modularisation, robotics and automation, as well as a move to niche customisation and optimisation, will lead to job losses for traditionally-skilled construction labour and professionals undertaking work which can now be undertaken more efficiently by robots. This will no doubt be the case, but the accompanying increases in productivity, combined with ongoing increasing demand, could mean that more projects could be designed and built, hence labour will still be required.

As Christensen espoused in his theory of disruptive innovation, change needs to occur at the bottom of the market, typically with a new entrant offering a significantly lower cost alternative to the masses. He continued that the focus should be on ‘the job that needs to be done’, rather than the product or service itself. Applied to design and construction, this means that a house, office, school or hospital, need to fulfil the need of the customer to live, work, be educated or receive healthcare, as opposed to be objects of high design value.

So, what precedents need to exist for significant change to occur in the design and construction of buildings?

If we look at history, disruptive innovations have occurred when:

There is a burning platform for change eg. the post-war construction of housing estates in the UK and Europe to cater for thousands of displaced citizens or the current global trends of population increases and urbanisation
Affordability has become an issue for the majority so a significant customer base is ripe for a disruptive product or service – as in the case of automobile ownership in the early 20th century or ridesharing in the 21st century
New technologies are enabling change – for example 3D design, 3D printing and ‘on-site factories’
New materials are creating opportunities – such as the emergence of mass engineered timber (MET) and precast concrete which are enabling off-site, modularised construction of standardised components
Supply chains are aligned to enable ease of delivery of components to create cost-effective and fast manufacture, as achieved by Henry Ford with his optimised assembly lines

Case study Aurecon's data centre configurator

Aurecon conducted a Data Centre Development Sprint, bringing together programmers, data centre specialists, designers and leaders across the Aurecon business to create a configurator to enable fast and efficient automated design of a data centre.

This prototype is currently being tested with clients.

Where these factors converge, innovation will occur. This may mean that the significant step-change required for more efficient and cost-effective design and construction to gain momentum, may occur in situations such as regions where housing is at a crisis point, and inexpensive, and fast construction could make a significant difference, for example in emerging economies or countries devastated by natural or man-made disasters such as tsunamis, earthquakes, war, or as we have seen in China where a hospital was constructed in 10 days, due to the coronavirus outbreak.

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. This may represent the bulk of the ‘new world’ of design and construction. This will still enable 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 one of the two extremes as well as some sitting across both, as shown in Figure 6.

All players need to prepare for shifts in value pools

BOTF why isn't change occurring more broadly and faster diagram Figure 6: The spectrum of change for designers and developers as we move towards industrialised construction

Figure 6: The spectrum of change for designers and developers as we move towards industrialised construction (Source: Client studies; expert interviews; McKinsey analysis)

Ultimately, someone, or something, needs to emerge, as did Uber and Airbnb in the transportation and travel industries, and Henry Ford before them, to disrupt design and construction in a way that will change the landscape forever.

	Hong Kong HKG	Singapore SIN	Sydney SYD	London LCY
General labourer US$/hour	$12	$12	$48	$28
Index (HK=100)	100	100	400	233
Concrete US$/M3 in place	$98	$76	$147	$148
Index (HK=100)	100	78	150	151
Structural steel US$/Tonne	$1812	$1508	$1765	$2438
Index (HK=100)	100	83	97	135
High rise apartment US$/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

Designers and developers will need to assess options and priorities in terms of appropriateness of approach, cost, time, location and differentiation, as demonstrated in Figure 7.

Once the options are understood informed decisions can be made about how to move forward with a project. It will be necessary to consider all aspects of a project from design, through supply chain and construction to operation, to decide the best approach, and ensure the most appropriate team to design and deliver a project.

For example, Japan and Sweden have made significant inroads into modular construction due to many factors, including quality of build and resistance to seismic activity (Japan) and short daylight hours for on-site construction (Sweden). The US and UK have utilised off-site construction after major wars when speed of construction was an imperative, but this has since waned.

As McKinsey suggests, it may be time to revisit this approach now due to advances in technology which has made digital design and many automated processes ideal for fast, efficient design and construction.

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