Digitization of the Construction Industry
In a recent article, MNP’s Kerry Mann, National Leader – Enterprise Resource Planning, discussed the costs, risks and challenges of procrastinating digital transformations in the construction industry. He offers a cost-effective and strategic path forward that can allow many to reinvent not only their business — but their industry as well.
This article was originally published in the 2020 issue of Building Rural Manitoba. It has been reproduced with permission.
Digitization of the Construction Industry
Moving to a cloud-based system can streamline company processes
While the construction sector has been slow to adopt process and technology innovations, there is also a continuing challenge when it comes to fixing the basics. Project planning, for example, remains uncoordinated between the office and the field and is often done on paper. Project management is manual using cumbersome analog tools, performance management is inadequate and supply-chain practices are still unsophisticated. The industry has not yet embraced new digital technologies that need up-front investment, even if the long-term benefits are significant.
Research and development spending in construction runs well behind that of other industries: less than one per cent of revenues, versus 3.5 to 4.5 per cent for the various manufacturing sectors. This is also true for spending on information technology, which accounts for less than one per cent of revenues for construction, even though several new software and technology solutions have been developed for the construction industry that enhance profitability.
If construction companies fail to digitize their business, they risk becoming uncompetitive. There is an ample amount of research pointing to the fact that productivity enhancement is the key to thriving in the digital economy. When looking at technology adoption in the construction industry, the difference between leaders and laggards is so staggering that leaders can bid a job below the cost of laggards and still make a good profit. Quite the sobering thought, right?
The time has come when construction companies must view cloud construction software as a competitive advantage in the field – not merely an office tool. Bluntly speaking, being competitive in this digital economy while operating on a legacy system is not possible.
Technology adoption in the construction industry is diverse. The key to success is to have the right people, in the right place, at the right time – with the right information. When running a business as geographically dispersed as a construction company, having access to real-time data is always imperative. This is where the cloud delivers. Leading companies in the construction sector are leveraging modern construction enterprise resource planning (ERP) solutions and exciting new technologies – virtual/augmented reality, internet of things, machine learning, and more – while laggards are still relying on static project manuals, spreadsheets, manual processes and emails to get the job done.
Digitization is about working smarter, not harder
Usage of legacy technology makes for an interesting reality: despite everyone getting the job done, some companies just have to work harder.
This is the kind of work that doesn’t create value or contribute to the project. Worse yet, it’s the kind of hard work that annoys industry workers, vendors, subcontractors and clients. No worker wants to be buried in paperwork, no vendor or subcontractor wants to wait weeks for a cheque and no client wants to find out that a project has been delayed because of an ordering or accounting error.
In an environment where workers and subcontractors are in high demand, vendors expect fast payments and customers are more tuned-in to company reputations than ever. It pays to work smarter and save the hard work for the jobsite.
This is what makes “anytime, anywhere” access in the cloud so important to construction companies. No one wants to run field tickets back to the home office or spend late nights entering and re-entering data between systems.
The challenges faced by disconnected processes
In today’s market, construction companies should be able to connect the jobsite with the office, but if they are unable to do so, processes become more complex than necessary. Visibility suffers, errors happen and business slows to a grinding halt. This disconnect leaves a construction business with the challenge of keeping up with payments, projects and competition. When employees must scramble to piece together data from a variety of applications while managing multiple jobsites, mistakes are bound to happen, as well as the following challenges.
Inadequate information flow
People need to know what’s going on and when it’s happening. Time can’t be wasted typing emails or digging through spreadsheets. Like cash and materials, information needs to flow through an organization. Knowing this, the process of sending data from the field to the home office may not sound like a huge challenge – simply enter the data into an email or spreadsheet and hit send. However, it is not that simple. That data likely needs to be hand-keyed into another system after hitting save and send. Each time this information is manually entered, the risk for error increases. Not only does it take time to fix errors, but several other dangers exist if an order is entered incorrectly, leaving field workers with the wrong product and causing unnecessary delays at the jobsite.
Lack of functionality and integration in legacy software can lead to inefficient processes and hold back an entire organization. For example, review and approvals of subcontractor invoices between the office and the field can be slow. This is frustrating for the subcontractor and could reflect poorly on a business, especially in times when it’s hard to find great subcontractors.
Delays and rework in commercial construction projects happen. Whether from unpredictable weather or dealing with permitting and licensing red tape, a project may stall. This can result in millions of dollars of lost revenue and potential harm to a company’s reputation. In an environment where a market correction always presents a threat, a reputation for being easy to work with and delivering timely project execution is critical.
The way forward
The construction industry is evolving and technology innovation will play a key role in its future. Next-level success means using integrated, automated and innovative software that meets the needs of the back office, the job site and field service personnel, which is quickly becoming populated by members of the Gen X, Millennial, and Gen Z. The construction industry must embrace modern, cloud-based construction and accounting software.
According to the JBKnowledge 2019 Construction Technology Report, many of the respondents were comfortable implementing new technology. However, IT spending is not happening as quickly as Gartner had predicted. The result is that construction companies are not realizing the profits they could be if the productivity measures enabled by technology were in place.
Perhaps one reason for stagnant IT spending has been the lack of comprehensive construction and accounting software options available to the industry. That has changed with the introduction of innovative construction ERP tools like Acumatica Construction Edition.
Construction professionals of all generations now have access to modern solutions that were born in the cloud, allowing for seamless integration of their front-office, back-office, field needs and specialty applications. The entire organization can operate from a single source in real time. Job costing, project management, contracts, budgets, commitments, subcontracts, workflows, compliance, billing, payroll and a construction mobile app – all from one cloud-based software solution.
Forward-thinking small- and midsized construction companies are rapidly embracing cloud-technology, which is leapfrogging them in front of their peers in every metric including overall profitability and customer/employee experience.
Anderson Pinto, owner and CEO of Hartzell Construction said, “I needed a system that my accounting department, which is the heart of the company, could utilize. I also needed a system that could communicate with my scheduling and estimating departments. I was looking for a complete system. I couldn’t find exactly what I wanted until we came across a cloud-based solution from Acumatica.” His company, which provides commercial remodelling, plumbing services and new construction for residential and government clients, has complex project management requirements.
One challenge that comes up in every survey is difficulty in the adoption of technology. As construction companies embark on this journey to modernize, it is important to invest in human capital by upskilling and reskilling teams. Modern tools are far more intuitive than older technology and that makes the uptake in the business much easier.
Anderson said, “When I looked at Acumatica Construction Edition for the first time, I saw how easy it was to use, I truly believed Acumatica would be good to partner with after seeing the innovative technology Acumatica is bringing to help modernize the industry.”
Hartzell Construction saw many benefits, including rapid growth and improved profitability. The team also enjoyed having the entire company use the system at the same time without extra cost, increased communication and efficiency, and a 60 to 70 per cent reduction in paperwork among other benefits.
In summary, digitization or digital disruption, whatever one may choose to call it, is happening to every industry including construction. The fact that construction is the least digitized industry next to agriculture means that it is second most likely to be disrupted by technology. Billions of dollars have been invested in construction technology over the last several years by companies looking to bring productivity gains to construction companies.
MNP has partnered with leading vendors like Acumatica to help construction companies reinvent themselves digitally. MNP service is about meeting customers where they want to be and creating service offerings that improve the process of getting there. MNP’s goal is to help its clients push the boundaries of technology use – and to capture disproportionate gains as a result. The expertise of MNP allows the team to focus on fixing pain points, not just installing another IT system. This process centred approach helps focus solutions on a real business need while suppressing the impulse to chase technology trends. Solutions defined in this way deliver greater benefits while building the understanding and conviction of the workforce from the CEO to managers and frontline workers in various functional groups and decentralized business units. Such solutions are also easier to replicate on multiple projects and introduce to new workers.
Kerry Mann is a Consulting Partner with MNP and leader of the firm’s national Enterprise Resource Planning practice. To learn how we can help with your digital transformation, contact Kerry at 647.480.8400 or [email protected]