How leaders in the AEC industry can drive digital transformation
Leaders in the architecture, engineering, and construction (AEC) industry need to adopt four different ways of thinking to build digital transformation readiness
Increased use of technology in the architecture, engineering, and construction (AEC) industry globally has yielded substantial improvements in safety, cost and efficiency over recent decades. However, the slow and partial adoption of digital solutions is holding the industry back from realising greater gains, and industry leaders need to adopt different kinds of thinking to drive innovation through digital transformation.
“The AEC sector is very diverse, fragmented, regulated, and risk averse; these characteristics tend to moderate the pace of technology change. This is not a bad thing as we all want safe and reliable buildings and infrastructure,” said Matthias Hank Haeusler, an Associate Professor in the School of Built Environment at UNSW Sydney.
While the AEC industry, at its core, has significant technical capability in architects, engineers, and project managers, A/Prof. Haeusler said the industry is recognised to be lagging in digital technology uptake. Another important factor is the willingness of clients and customers to embrace digital approaches, and A/Prof. Haeusler observed this willingness has been constrained by factors such as regulation and risk aversion.
“The AEC sector is one of the least digitised industry sectors. At the moment only a few large firms engage with digital tools that could be described as advanced, a very few very large firms (mainly international firms) have included advanced digital tools and more importantly start to think about a digital strategy. But the bulk (some 97 per cent) of all are still at the bottom of the ladder,” he said.
Digital transformation challenges for the AEC industry
George Shinkle, a Professor in the School of Management & Governance at UNSW Business School, also said that, overall, the AEC industry’s digital technology readiness is underdeveloped. “While there are exceptional firms in the industry and signs of progress clearly exist, the average firm is under-prepared for the type of digital tsunami that has hit other industries,” he said.
“The AEC industry is characterised by rather big capital investments with comparatively small margins and limited financial slack, resulting in a rather hostile environment for any corrections – or, put in different terminology, innovation.”
The AEC industry tends to operate on non-repetitive projects, and Prof. Shinkle said this project mindset limits the focus on business strategy and business models. As such, digital investments are predominantly reactive to projects needs or client contractual requirements. “The end result of this is a shortage of longer term yet sensible investments in digital technology shaped by a digital strategy,” he said.
Digital transformation in the AEC industry was the subject of a recent research paper, Digital Transformation in the Australian AEC Industry: Prevailing Issues and Prospective Leadership Thinking, which was co-authored by A/Prof. Haeusler, Prof. Shinkle and UNSW Sydney colleagues including Dr Christian Criado-Perez Chanin, Professor Markus Höllerer, Angel Sharma, A/Prof. Catherine Collins, Dr Nicole Gardner and Professor Shan Pan.
The paper examined the digital technology challenges facing the AEC sector, examined lessons learned in meeting these challenges from other industries, and detailed a framework AEC industry leaders could use to help their firms to adapt and create a more sustainable future.
“Those willing to push for a digital transformation also face challenges due to the fragmentation of the industry and the insufficient digital knowledge and skills in the AEC industry for large scale digital transformation, said Prof. Shinkle, who observed many emerging digital solutions require an alignment of stakeholders and an orchestrated adoption – which is challenging given the multiple professions, skills and interests at play with digital transformation.
Similarly, A/Prof. Haeusler said training current and future staff is a challenge in the industry. “The current business model does not allow for training staff and in digital tools constant training is required as these tools constantly change. Yet most training is done outside of office hours and not part of a staff members’ workload,” he said. This leaves the process of up-skilling to a few, who are most often then recruited by the bigger firms with more salary – increasing the pay gap between small and large firms.
Digital transformation success stories
The research paper noted there are some areas, however, where the AEC industry does excel when it comes to innovation and taking risks for business benefit. One of these areas is design. Each project is novel and thinking starts from scratch, and A/Prof. Haeusler said many things are innovated for a design in a project. “Unfortunately, this future scenario planning is only applied to the design of the project but not to design and rethink their organisation’s business model and mode of operation,” he said.
The paper also noted the AEC industry has made substantial progress over the past few decades by embracing technology. Some of the larger organisations have been successfully adopting innovative technologies within their organisation, for example, while others have implemented initiatives around sustainability that have been successful like the adoption of NABERS rating.
“Building information modelling (BIM) stands out as an example of technology adoption that has helped to reduce inefficiencies and support collaborative processes between firms and clients,” said A/Prof. Haeusler, who gave the example of BIM enabling a process called “digital twins”, which uses live data to facilitate the monitoring and optimisation of operational assets, processes and resources in the field.
A/Prof. Haeusler also noted that while some employees in the AEC sector are undertaking a digital upskilling, holistic training in digital design and digital tools is often not offered in post-academic settings (such as continuous professional development for architects or engineers). To help bridge this gap, UNSW has developed a one-year Bachelor degree in Computational Design, which gives working professionals an opportunity to lift their digital transformation skills and knowledge in technical skills in computation and computing. “Many have undertaken the opportunity to be more ‘future ready’, said A/Prof. Haeusler.
Three lessons to be learned from other industries
A key focus of the research paper was how other industries successfully embraced digital transformation for business benefit, and how AEC industry leaders could do the same. Disruptions often take organisations by surprise, and Prof. Shinkle said modern, digital focussed disruptions are often “ecosystem disruptions” where disruptive players emerge from outside an existing industry.
“In these cases, the change often starts very slowly on the edge of the industry and at some point, an inflection occurs. If one waits to start activity until the situation is clear, it is often not possible to catch up,” he said. Organisations need to pay attention to what is happening very broadly, and Prof. Shinkle said they need to be highly aware of and sensitive to weak signals in the broad arena of their market – and, most importantly, act on these signals.
A second lesson is that digital transformation is more successful when entire business models or processes are reimagined (such as the way clients are served, for example) – rather than just automating or digitising existing processes. “That is not to say automating processes is not good; it is just that that should be viewed as a first step on a fast-paced digital journey,” said Prof. Shinkle.
A third lesson is that the pace of change is exponential when it comes to digital technology, and this requires a more strategic focus and agile approach than most organisations are currently designed to achieve. In the process, Prof. Shinkle said long-held assumptions may need to be questioned or unlearned, as the digital skills of both employees and managers can facilitate (or hinder) an agile adaptation. “The good news for firms in the AEC sector is that they have the opportunity to learn from the experience of other industries that have ‘gone digital’ before them,” he said.
Four ways AEC industry leaders need to think about digital transformation
The research team at UNSW Sydney proposed a framework consisting of four approaches to thinking to build digital transformation readiness: future thinking, strategic thinking, capability thinking, and experimental thinking.
There is strong evidence from other industries that cultivating these thinking approaches in organisations will guide firms in the AEC sector toward initiatives that may help them to better adapt to – or proactively create and shape – their future. While organisations typically have these; however, the research paper found they are insufficiently developed to respond to the type of digital transformation that many other industries have experienced.
Future thinking, for example, includes efforts to map plausible paths of business evolution into real-world scenarios. These scenarios can stretch thinking and guide organisations toward better digital transformation readiness and resiliency, according to the research paper, which said frequent updates and discussions about these scenarios with the top management team should drive strategy and strategic initiatives.
Strategic thinking includes efforts to understand future client desires, establish ecosystems partners, and build new business models that harness the power of digital technology and data analytics. This is not a simple task, however, and the paper said organisations should expend effort on strategically selecting clients and projects.
Capability thinking facilitates what is called “dynamic capabilities”, which has been shown to be important to digital transformation efforts. Digital technology evolves at a very fast pace and many aspects are unpredictable, so being able to quickly adapt is often required for success. Most importantly, the paper said capabilities in the digital area must not be constrained to the IT department, and top managers must also be aware and involved in order to bring everyone along on the digital journey.
Experimental thinking is also part of the digital transformation thinking framework because digital technology opens up new avenues that may be surprising or risky. Building an organisational system and culture that (1) promotes experiments to learn, (2) supports hypothesis testing using lean start-up concepts, and (3) accepts that not all experiments meet desired outcomes (this means accept failures) has been shown to be a key success factor in many other industries.
For more information please read Digital Transformation in the Australian AEC Industry: Prevailing Issues and Prospective Leadership Thinking or contact A/Prof. Matthias Hank Haeusler or Prof. George Shinkle directly.