Infrastructure + Digital = Innovation Shortfall?
Having developed expertise across the Infrastructure sector and Digital function, our experience tells us that the industry is not only short on innovation, but also lacks the ability to challenge and change this.
From a digital perspective, the Infrastructure sector seems to be falling way short of other similar industrialised sectors, such as Oil & Gas, Utilities, and Basic Goods manufacturing. These other sectors seem to be ‘holding their own’ against the heavily digitised sectors of ICT, Media, and Professional services. Given that the majority of firms are low margin businesses with many facing numerous challenges, even the largest firms are unable to innovate within the sector. Project planning, for example, remains uncoordinated between the office and the field, and a lack of innovation and ability to change sees many firms still running paper-based systems to manage processes and deliverables.
Is the technology in place to change this?
Innovative technology being used in the Manufacturing, Engineering and Construction sectors is nothing new. Robotics, sensors, data analytics, and BIMs have already been implemented in process design. There has been small scale, almost ‘proof of concept’ projects implemented. IBM as an example, have been experimenting with wearable technology such as bio-sensing, GPS, Environment sensors, and accelerometers to transform Health and Safety within Construction. They have also been working with the Internet of Things (IOT) to make a cognitive and connected industrial machinery ecosystem. This allows for remote performance monitoring, predictive analytics on productivity, and cognitive assisted repair, resulting in improved safety, reduced maintenance costs, reliable availability and increased productivity.
However, it is apparent that within the Infrastructure sector, there has not been the large-scale adoption necessary to fully manifest these changes. Even when there is a defined problem, it is difficult to make a business case. For example, despite the immense amount of data that is created by a complex build programme, there is very little adoption of a real-time data analytic backed dash-boarding technology. Conversely, this practice is relatively wide spread in other sectors like banking, insurance, risk, and technology.
We’ve seen that the innovation is possible and witnessed the fruits of its labour. Yet implementation remains an issue. If there is not a technology gap, is there something else missing?
Lack of Research & Development?
Norman Broadbent Solutions recently carried out research around this question. During conversations with respondents, we regularly heard about the lack of R&D within the Construction industry. The McKinsey Global Institute reported that R&D spending is a mere 1% of revenue within Construction, compared with 3.5% and 4.5% in Auto and Aerospace respectively. The report went on to say that the world will need to spend $57 trillion on Infrastructure, specifically Construction, to keep up with projected global GDP growth. This not only shows a clear lack of investment, but also a vast potential market for R&D.
When asked why there had been little investment in innovative technology, respondents cited historically low profit margins. Putting this into context, profit margins among the UK’s biggest contractors more than halved in 2015, with the average operating margin across the top 25 firms down to 1.2%. EY predicted margins among the top tier firms would exceed around 5% by 2020 as companies diversified their portfolio of businesses. With a low margin environment expected for the next few years, firms need to work out how they can innovate under these circumstances.
We have seen several technology firms invest in R&D for the consulting sector (although this is in its infancy). It should be expected that with an advisory firm’s wide client base, proof of concept designs can be built, tested and refined faster than in an end user. However, if this is contrasted against other sectors (technology, retail etc.), Construction is lacking behind even advisory firms.
Respondents to our research argued that there is an innate risk aversion across the industry when it comes to implementing innovation in capital projects. With the projects becoming larger in scale and more complex, firms have been unwilling to add another variable/risk by moving away from traditionally accepted technology. With new contracts wrapped up with increasingly stringent risk management clauses, it is argued that this is one of the factors holding back innovation. With a lack of risk sharing, more complex projects, and an air of caution, a culture of ‘tired, but tried and tested’ is prevalent.
So what does the right person look like to drive this change and implementation?
As the Infrastructure industry waits for its moment of distribution, getting the human aspect right is crucial for businesses, especially those seeking to exploit this time of huge opportunity. Companies who attract and retain digitally minded talent, who in turn, can adapt, implement change and innovation, will have the advantage in a digitized world.
As available technology has not been adopted, R&D has been restricted, cross-collaboration has been difficult, and innovation has a reputational problem. If we are able to adapt the profile of the individuals within the industry, we can go a long way to fixing these problems.
To adapt to new innovative digital technologies, a change in business climate must take place first. This can only occur through finding the right talent internally, that can lead such a significant and impactful change from within. For businesses to change and adapt, senior leadership teams need to adapt to pave the way for long-lasting and sustainable change.
Chris Smith is Director of Global Energy & Utilities for Norman Broadbent Solutions, supporting large corporations, SMEs and PE-backed businesses to help restructure, assess their internal capabilities, and plan proactively for future leadership requirements.
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