Trends in construction, 20190326 final

© Inlumino Consulting, 2019 | 1© Inlumino Consulting, 2018 | 1
IIss CCoonnssttrruuccttiioonn IInndduussttrryy RRiippee FFoorr DDiiggiittaall
DDiissrruuppttiioonn??
Jožek Gruškovnjak, MBA
Managing Partner and Principal Consultant
Inlumino Consulting GmbH inlumino
c o n s u l t i n g

© Inlumino Consulting, 2019 | 3
Does technology matter?

© Inlumino Consulting, 2019 | 4 4
Technology has thoroughly transformed manufacturing.
Industrial
revolution Age of steam Age of steel
Age of oil and
automobile
Age IT and
the Internet
Next technology
revolution
Digital Age
1771 1830 1875 1907 1971 2020?
Source: Carlota Perez; World Economic Forum, BC,G,
Industry 1.0 Industry 2.0 Industry 3.0 Industry 4.0
First mechanical
weaving loom
1784
First assembly line
1870
First
programmable
control logic
1969
Digitalization - merging
of real and virtual
worlds, cyber-physical
production systems

5
10
15
20
25
#ofEmployees(millions)
MMaannuuffaaccttuurriinngg –– JJoobbss vvss.. PPrroodduuccttiioonn
(1972 – 2018)
Manufacturing - All Employees
1970 1980 1990 2000 2010
25% less employees
Where have the
manufacturing jobs
gone?
Source: FRED Economic Data, Inlumino analysis

0
20
40
60
80
100
120
5
10
15
20
25
IndustrialProduction–Manufacturing(2012=100)
#ofEmployees(millions)
MMaannuuffaaccttuurriinngg –– JJoobbss vvss.. PPrroodduuccttiioonn
(1972 – 2018)
Manufacturing - All Employees
Industrial Production - Manufacturing
1970 1980 1990 2000 2010
Technology in the
form of
automation
drove U.S.
manufacturing
productivity in the
last 50 years.
25% less employees
2.9 x increase in production
Source: FRED Economic Data, Inlumino analysis

Technology helps us do more, with
less resources and in less time…
… and sometimes instigates dramatic societal change.

Construction
labor
productivity
has not kept pace
with overall
economic
productivity growth.
50
100
150
200
250
300
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Labor productivity gross value added per hour worked, constant prices, index: 100 - 1996
Manufacturing
Germany
Construction
Germany
Total economy
Germany
Average growth rates:
Germany
Total economy 1.4%
Manufacturing 2.5%
Construction 0.4%
Source: OECD.Stat statistics database, Inlumino analysis
PPrroodduuccttiivviittyy –– CCoonnssttrruuccttiioonn vvss.. MMaannuuffaaccttuurriinngg vvss.. TToottaall EEccoonnoommyy

Construction
labor
productivity
has not kept pace
with overall
economic
productivity growth,
and the gap is
even wider in
Slovenia.
50
100
150
200
250
300
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Labor productivity gross value added per hour worked, constant prices, index: 100 - 1996
Manufacturing
Germany
Construction
Germany
Manufacturing
Slovenia
Construction
Slovenia
Total economy
Slovenia
Total economy
Germany
Average growth rates:
Germany Slovenia
Total economy 1.4% 2.6%
Manufacturing 2.5% 4.8%
Construction 0.4% 0.5%
Source: OECD.Stat statistics database, Inlumino analysis
PPrroodduuccttiivviittyy –– CCoonnssttrruuccttiioonn vvss.. MMaannuuffaaccttuurriinngg vvss.. TToottaall EEccoonnoommyy

© Inlumino Consulting, 2019 | 10© Inlumino Consulting, 2019 | 10Background photo: Michael Molloy Photography
INTERNAL CHALLENGES EXTERNAL CHALLENGES
Poor project management and execution
basics
Increasing project and site complexities
Industry underinvests in digitization,
innovation, and capital
Extensive regulation, land fragmentation,
and the cyclical nature of public investment
Design processes and investment are
inadequate
Informality and potential for corruption
distort the market
IT budgets significantly below cross-
industry average
Construction is opaque and highly
fragmented
Unsophisticated supply chain practices
Contractual structures and incentives are
misaligned
Insufficiently skilled labor at frontline and
supervisory levels
Bespoke or suboptimal owner
requirements
Poor performance management
Usually low level of sophistication of
smaller construction firms - subcontractors
The productivity
squeeze –
multiple
challenges
are the cause of
low productivity
of construction
industry.
Productivity
Source: McKinsey, IBCG, Inlumino analysis

Taking everything into account,
construction industry is ripe for
disruption…
Large capital projects typically take
20% longer to finish...
… and are up to
80% over the budget.
R&D spending in construction runs
well behind other industries
Construction Automotive Aerospace
< 1% 3.5% 4.5%
Source: McKinsey

“In the 32 years I’ve been in construction, this is the first
time that technology is ahead of what we do. It has
accelerated at a pace I have never seen… There is
technology that can operate machines unmanned.
Figuring out how to make technology work, in stride
with our employees and partners is paramount for us a a
business.”
— Global head of operations, multinational construction company

Digital is the
representation of physical
items or activities through
binary code. When used as
an adjective, it describes the
dominant use of the latest
digital technologies to
improve organizational
processes, improve
interactions between people,
organizations and things, or
make new business models
possible.
Process
Things
People
Data
Business
Mobile
Physical
Home
Digital
People-to-People
(P2P)
Machine-to-Machine
(M2M)
People-to-Machine
(P2M)
Source: Cisco IBSG, Gartner IT Glossary

© Inluceo Consulting, 201615
Digital
is reshaping every
aspect of modern
enterprise, causing
major
disruption
in almost every
industry.
Risk
Optimization
Product and
Service
Innovation
Distribution,
Marketing
and Sales
Digital
Fulfillment
Enhanced
Corporate
Control
Customer
Experience
Decision
Making
based on big
data & advanced
analytics
Connectivity
with customers,
colleagues and
suppliers
Automation
of manual
activity, replacing
labor with
technology
Innovation
of products,
business models
and operating
models
§ Seamless multichannel experience
§ Wherever, whenever service propositions
§ New digital
products
and services
§ Co-creation
of new
products
and services
§ Improved real-time
management
information
systems and
decision making
§ Seamless
integration into
third parties
§ Improved targeting
with customer
insights
§ Embedded /
automated controls
and risk profiling
§ Full straight-through processing and
automatic provisioning
§ Virtual servicing and administration
§ Digital
marketing with
higher ROI
§ Digital
augmentation
of traditional
channels

Internet of
Things
Mobile
Autonomous
Things /
Robotics
Augmented
and Virtual
Reality
…
Cloud
Computing
Cyber
Security
Blockchain
Artificial
Intelligence
Big Data /
Analytics
Illustrative, non
exhaustive
Building
Information
Modelling
Intelligent
Construction
and Robotics
Our digital
world is enabled
and continuously
expanded by
technologies
(a non-exhaustive
list…)

Internet of Things – IoT – was
generating a lot of excitement in the
past few years.
Sources: IDC
Internet of Things
noun phrase
Definition of Internet of Things
: the networking capability that allows information
to be sent to and received from objects and
devices (such as fixtures and kitchen appliances)
using the Internet
Source: Merriam-Webster Dictionary
Devices
Native
5G
LPWA
LTE/M
SigFox
Connectivity
Platform
Enterprise
Systems
Application
IoT
Sensors
Amazon IOT IBM Bluemix
Major focus of investment – $745B in 2019
(15.4% growth over 2018)

Preventive / predictive
equipment maintenance
Construction tools and
equipment tracking
Remote operation
Quality control
Material / supplies tracking
Continuous remote site
monitoring
Employee tracking and
monitoring (safety)
…
Consumer IoT
Phones, wearables, health &
fitness, connected home,
connected car, …
Industrial IoT
Manufacturing, supply chains,
utilities, transportation, natural
resources, oil & gas,
…
Commercial IoT
Healthcare, smart buildings,
smart cities, retail, agriculture,
energy, automotive
telematics,
…
Connected Car
Connected Industry
Connected Health
Connected Home
Connected
Living &
Working
A myriad of applications in the
IoT realm…
Sources: McKinsey, Machina Research, Inlumino Consulting analysis
Connected
Cities
Connected
Construction

Consumer IoT
Phones, wearables, health &
fitness, connected home,
connected car, …
Industrial IoT
Manufacturing, supply chains,
utilities, transportation, natural
resources, oil & gas,
…
Commercial IoT
Healthcare, smart buildings,
smart cities, retail, agriculture,
energy, automotive
telematics,
…
Connected Car
Connected Industry
Connected Health
Connected
Cities
Connected Home
Connected
Living &
Working
A myriad of applications in the
IoT realm, with tremendous
potential to generate
economic value.
1.2
0.9
0.2
0.4
0.6
0.2
0.2
0.2
0.1
4.0
3.7
1.7
1.6
1.2
0.9
0.9
0.7
0.3 0.2 11.2
Factory City Human
body
Retail Outside Worksite Cars Home Office Total
Sources: McKinsey, Machina Research, Inlumino Consulting analysis
Potential economic value that IoT can generate is
from $4 to $11 trillion by 2025
Potential economic impact by segment
Connected
Construction

Source: “Accenture, PWC
The Term
Artificial
Intelligence
Encompasses many
Different
Technologies and
Capabilities
Sense Think Act
Ability to see, hear,
speak, smell, feel,
understand
gestures, interface
with your brain
Moving from
automated
intelligence to
augmented
intelligence.
AI is equaling or
surpassing humans in a
number of other
activities – playing
games, driving cars,
recommendations
(movies, books, finance,
research) etc.

artificial intelligence
noun
Definition of artificial intelligence
1: a branch of computer science dealing with
the simulation of intelligent behavior in
computers
2: the capability of a machine to imitate
intelligent human behavior
Source: Merriam-Webster

AI and other analytical tools have
potential to create major
economic impact across
industries, functions and business
problems…
Marketing and sales
up to $2.6 trillion
Suplly-chain
management and
manufacturing
up to
$2.6 trillion
0.2
0.1
0.1
0.1
Up to
0.4
0.2Risk
Service
operations
Other
operations
Finance
and IT
Product
development
HR
Strategy and
corporate
finance (<0.1)
AI in construction
Source: McKinsey
Project schedule
optimizers
Image recognition
and classification
Enhanced
analytics
Supply chain
optimization Outcomes prediction for
constructability issues
Machine learning for quality
control and claims management
Continuous design
optimization

Robots are taking over
our jobs!
Not really, but their impact will be significant.
DECREASING COST OF AUTOMATION
INCREASING VARIETY, SIZE RANGE AND CAPABILITIES OF ROBOTS
Index of average robot prices and
labor compensation in manufacturing
in the United States.
1990 = 100%
Sources: EIU; IMB; Institut für Arbeitsmarkt- und Berufsforschung; International
Robot Federation US Social Security data; McKinsey analysis
1%
8%
18%
26%
34%
42%
51%
62%
73%
91%
100%
100 > 90 > 80 > 70 > 60 > 50 > 40 > 30 > 20 > 10 > 0
About 60% of occupations
have at least 30% of
their activities that
are automatable.
HIGHEST POTENTIAL
81% predictable physical
activities
69% processing data
64% collecting fata
TECHNICAL AUTIMATION POTENTIAL

Roboticsinconstruction–
therevolutionisjustbeginning…
Brick laying robots
Autonomous vehicles, loaders, etc. Fully autonomous robots
Exoskeletons, intelligent tools, etc.

Don’t kick
the robots…

inlumino
c o n s u l t i n g
inlumino
c o n s u l t i n g
…they may
remember.

BBuuiillddiinngg
IInnffoorrmmaattiioonn
MMooddeelliinnggRenovation
Programming
Conceptual Design
Detailed Design
Analysis
Documentation
Fabrication
Construction
Construction LogisticsOperations &
Maintenance
Demolition
Building
Information
Management
systems became a
cornerstone entire
construction life-cycle.
“Building Information Modeling (BIM) is
a digital representation of physical and
functional characteristics of a facility. A
BIM is a shared knowledge resource
for information about a facility forming
a reliable basis for decisions during its
life-cycle; defined as existing from
earliest conception to demolition ”
NBIMS-US, 2016

Taking BIM a step
further –
a multidimensional
(cloud based)
integration
platform…
Multi-
dimensional
BIM
3D
4D
5D6D
7D
3D model
§ Geometry
§ Spatial data
§ Specifications
§ Aesthetics
§ Thermal properties
§ Acoustic properties
§ …
4D – Scheduling
§ Project planning simulation
§ Lean scheduling
§ Visual validation for
payment approval…
5D – Budgeting
§ Elements of 3D model are
used to develop budget
and linked to cost heads
6D – Sustainability
§ Energy analysis
§ Sustainable elements
tracking
§ LEED tracking
7D – Facility Management
Applications
§ Life-cycle BIM Model
§ BIM As-Builts
§ COBie data
population and
extraction
§ …
… leading to
connected
everything:
customer, worksite,
supply chain, etc.

Planning Design & Engineering Construction Operations & Maintenance
Life-cycle Integration
User interfaces
and applications
Digital / physical
Integration layer
Equipment and
sensors
Source: BCG, McKinsey, Inlumino analysis
Software
platform and
control
Simulation and virtual reality Mobile interfaces and augmented reality
Big data and analytics
Cybersecurity
Additive manufacturing
3D scanning
Intelligent construction equipment and robotics
Drones (unmanned areal vehicles) Embedded sensors
Building information management – cloud based
Ubiquitous connectivity and tracking
Blockchain – smart contracts
Technologyintegration

Planning Design & Engineering Construction Operations & Maintenance
Life-cycle Integration
User interfaces
and applications
Digital / physical
Integration layer
Equipment and
sensors
Software
platform and
control
Simulation and virtual reality Mobile interfaces and augmented reality
Big data and analytics
Additive manufacturing
3D scanning
Intelligent construction equipment and robotics
Drones (unmanned areal vehicles) Embedded sensors
Building information management – cloud based
Ubiquitous connectivity and tracking
Blockchain – smart contracts
Benefits of
BIM enabled
processes
Conflict
detection and
risk mitigation
High level of
customization
and flexibility
Optimization
of scheduling
and costs
Coordination
and
collaboration
Easy
maintenance
of building
life-cycle
Faster
drafting
without loss
of quality
Improved,
lower cost
sales process
Reduced
sourcing
costs
,,,
38%
40%
31%
36%
59%
47%
32%
34%
46%
43%
60%
65%
36%
38%
35%
37%
44%
55%
Improved review and approval
cycles
Better performing completed
infrastructure
Prefabrication of larger, more
complex parts
Lower risk and better predictability
of outcomes
Improved overall project quality
Reduced conflicts and change
during construction
A/E Firms Contractors Owners
Source: “McGraw-Hill Construction
BIM BENEFITS
“By applying the right technologies in the right way, companies
can not only reduce the asset’s construction time and while life-
cycle costs but also enhance the quality of processes and
improve safety, working conditions and sustainability.”
— Boston Consulting Group

Case Study
(initial parameters)
Core Levers Impact on Life-cycle Costs1
(millions USD)
Vertical
Construction
Office building:
§ 5 stories
§ 10,000 m2
§ 30-year life cycle
§ 14 months to build
§ BIM throughout the lifecycle
§ Data-driven construction
planning and lean execution
§ Rigorous construction
monitoring and surveillance
Infrastructure
construction
Highway:
§ 100 km (62 miles)
§ 4 bridges
§ BIM throughout the life-
cycle
§ Automated and
autonomous construction
§ Condition monitoring and
predictive maintenance
Industrial
Construction
Power plant:
§ Combined-cycle gas turbine
plant
§ BIM throughout the -
lifecycle
§ Data-driven construction
planning and lean execution
§ Smart and efficient
operations and
maintenance
Studies show
that application
of digitalization
in construction
can have
significant
economic
impact.
49
41
±0% -12% -18%
-15%
285
240
±0% -19% -10%
-16%
540
476
-5% -14% -10%
-12%
◼ Design and engineering ◼ Construction ◼ Operations and maintenance
DIGITAL TECHNOLOGIES SIGNIFICANTLY REDUCE LIFE-CYCLE COSTS
Source: BCG
1
Life-cycle cost is shown as
inflation adjusted net present
value. The cost of equipment
(e.g. gas turbines in the power
plant) and of non –building
related operations (e.g. fuel for
the gas turbines) is excluded.

Why do digitalization of construction industry and
resulting productivity improvements
matter?

Low productivity
hurts as
construction
represents an
important
factor in both
world and
Slovenian
economies…
6% of global GDP
5% in developed countries
8% developing countries
100+ million
employed globally
$15 trillion
estimated revenues in
2015 globally
4.8% of Slovenian GDP
6.6% of working population or
≈ 56.000 employees
Sources: McKinsey, World Bank WDI, Statistical Office of the Republic of Slovenia

... so, improving
productivity and
overall effectiveness
could have a
major
economic
impact.
Boston Consulting Group
Digital transformation in engineering and construction could reduce
annual costs by more than 1 trillion USD in 2025.
0.7 to 1.2 trillion USD (13% to 21%)
annual savings on design, engineering
and construction in 2025
0.3 to 0.5 trillion USD (10 %to 17%)
Annual savings on operations in 2025
McKinsey & Co.
Cumulative impact
Capability building
Technology
On-site execution
Procurement and supply chain
management
Design and engineering
Collaboration and contracting
Regulation Enabler
8–9
8–10
7–8
6–10
14–15
5–7
48–60
POTENTIAL PRODUCTIVITY IMPROVEMENT
from implementation of best practices – impact in %
6–7
7–10
3–5
4–5
4–6
3–5
27-38
COST
SAVINGS
%
50 – 60%
productivity boost
27 – 38%
potential cost savings
If construction productivity were to
catch up with the total economy, the
industry's value added could rise by
$1.6 trillion a year
(meeting 50% of world’s
infrastructure needs or boost
global GDP by 2%).

If 87% of business executives expect to be
disrupted1 by digital, how come less then
half are preparing adequately?
1
Source: MIT Sloan Management Review, 2018; 451 Research Voice of the Enterprise Digital Pulse, Budgets & Outlook, 2018
11%
59%
33%
28%
23%
9%
25%
3%
8%
87% anticipate disruption
Great extent Moderate
extent
Small
extent
Not al all
Strongly
agree
Organization is adequately preparing
for disruptions projected to occur in
my industry due to digital trends.
To what extent do you believe that digital
technologies will disrupt your industry?
Agree Neither
agree or
disagree
Disagree Strongly
disagree
44% are preparing adequately
Execution
39%
Evaluation
31%
`Consideration
21%
No strategy
9%
When it comes to
digital
transformation,
more businesses are laggards
than leaders.

Assets Usage Labor
Sector
Overall
digitalization
Digital
spending
Digitalasset
stock
Transactions
Interactions
Business
processes
Market
Making
Digital
spendingon
workers
Digitalcapital
deepening
Digitalization
ofwork
ICT
Media
Professional services
Finance and insurance
Wholesale trade
Advanced manufacturing
Oil and gas
Utilities
Chemicals and
pharmaceuticals
Basic goods manufacturing
Mining
…
Personnel and local services
Government
Healthcare
Hospitality
Construction
Agriculture and hunting
Relatively low
digitalization
Relatively high
digitalization
McKinsey Global Institute industry digitization index; 2015 or latest available data
Unfortunately the
construction
industry is
among the
least
digitalized.
Sources: McKinsey

0.4%
16.7%
19.1%
20.3%
36.9%
46.0%
54.2%
64.6%
Other
Decline in business performance
New standards in regulatory and
compliance
Lack of expertise, literacy and
understanding of digital trends
Proactive investment to fight
disruption
Growth opportunities in new
markets
Increased competitive pressure
Evolving customer and employee
behaviors and preferences
4.2%
6.1%
10.6%
19.7%
23.7%
24.6%
30.1%
30.5%
30.5%
30.9%
31.4%
Respondents have not
experienced any of these…
No leadership driving efforts
Lack of data or ROI to justify
value of digital transformation
No sense of urgency
Human barriers (e.g. politics,
egos, sabotaging, fear)
Legal, risk management, and/or
compliance concerns
Lack of staff resources
Company Culture
Lack of budget
Digital transformation is viewed as
a cost center
Low digital literacy or expertise
among employees and leadership
Source: Altimeter Digital Strategist Survey, August 2017
KEY DRIVERS OF DIGITAL TRANSFORMATION TOP CHALLENGES FOR DIGITAL TRANSFORMATION
While drivers and potential benefits are clear,
digital transformation is not easy…

inlumino
c o n s u l t i n g
inlumino
c o n s u l t i n g
Smart Sensors
Analytics
Cloud
Big Data
Omnichannel
Experience
Business skills,
competencies
and mindset
Data strategy
Compliance
and risk
management
Funding and
incentives
Business
models
Operating
model
Organization’s
clock speed
Business and
technology
architecture
Value Impact of
Technology
Change
X
Value Impact of
Technology
Change
15X
While technology is an
important enabler, digital
transformation requires
enterprise
change not just
technology change.
It is about rethinking
strategy, culture, talent,
operating models and
processes.
67% of business
leaders’ questions
relate to technologies
33% of business
leaders’ questions
relate to enterprise
changes
Source: Gartner, Inlumino Consulting analysis

So what should leaders
focus on?

To succeed in
digitalization
organizations
must get right
the five
critical
areas…
Digital Strategy – end-to-end evaluation of digital opportunities and their
alignment with overall strategy.1
Operating Model – new infrastructure needed to execute: talent, skills,
processes, governance, organization, partnerships, …2
Technology Architecture – scalable and expandable core intelligent
architecture, making intelligent use of data, software and cloud base capabilities.
Portfolio Approach – outcome driven approach to investments
managing both short and long term objectives.4
5
Value Measurement – the value case for solutions should be defined
upfront and results should be tracked closely and shared, so the future
projects can deliver additional value to the organization.
3

“ Other industries have shown that first movers can build a
sustainable competitive advantage. In the construction
sector, this is also likely to be the case. Over the next
decade, these winners of tomorrow will take the lead in
technology innovation and digitization. Resisting change
is no longer an option.”
McKinsey & Company

“Be strong to stand alone,
smart enough to know when
you need help and brave
enough to ask for it.”
− Multiple authors cited

inlumino
c o n s u l t i n g
inlumino
c o n s u l t i n g
inlumino
c o n s u l t i n g
jg@Inlumino.ch
Thank you!

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