Part 2: Josh Johnson, Expert - Engineering Construction & Building Materials at McKinsey & Company in conversation with Board Director, Jaimie Johnston on our construction podcast

So in the next normal, it talks about the areas or roles, the biggest likelihood of shift being general contractors, developers, design engineering firms, and then specialist contractors, which is the lower tier. Can you talk about some of those roles a bit, and what you think that the change actually looks like? So we've talked about contractors, maybe you can talk about it from a development point of view, or design engineering point of view, I think that'd be really useful.

that is a developer, right. But sometimes it's, you know, an industrial company that's just going to own, you know, a building and is contracting through a developer to develop a building, right, like think, you know, think like, HQ2 for Amazon. I'm based in the US, I'm quoting US examples, right. But HQ2 for Amazon, is probably being built by a developer who knows actually how to develop areas rather than Amazon owning

it themselves. Right? And so when you think about who is the beginning buyer, it is that that entity, right, whether it's the the organization, you know, getting a developer to develop the project, or the developer themselves, who is saying I want to building, right, um, everyone in between there is some version of middle person until you get to the building, right? And so who are the middle people that will be squeezed by consolidation? effectively?

Well, you have a wealth of contractors, all of whom hold a different chunk of the process to deliver the actual building, right, or the asset will just say, well, you disaggregate it from a building to an asset,

right. Um, if you have seven service providers that are helping you deliver this asset, and suddenly you begin empty, you you get integrated, well, then you have fewer and less need for, you know, three or four of them, right now you need, you know, two or three service providers to deliver this same asset, right. Similarly, if you're vertically integrated, right, you start to begin to get much more sophisticated with the, with the, with the level of procurement that you have to our

previous conversation. So you need fewer middle people to then source and, you know, add value added services on top to the materials that you're using to

build that, that that asset. And then, you know, finally, when you're talking about actually delivering it, right, you're, you've either invested in and started to leverage, you know, some of these prefabrication techniques for the MEP or in some way shape, or form, volumetric modular construction methods, that doesn't necessarily mean everything's a room in a box, but you can, you can modularize lots of different subsystems in a building without it being, you know, ye old

hospitality example, right? You know, you start to integrate those things, which means you now have less of a need for your, your, your pure play building materials distributor in the same way that it's currently configured now in the

industry. So, you know, it really comes down to that kind of dynamic, right, um, your, your general contractor, your specialist contractor will likely be squeezed once you have a vertically integrated player that can deliver many of these things or, at minimum, manage the risk and a standardized process that delivers more efficiently, your building materials, distributors, and building materials, players in general will likely experience you know, some kind of

disruption. Because when you have larger, more vertically integrated, more sophisticated players in the procurement sense, there's a lot of the volume, the margin that they're able to command just with smaller volumes and, and different value added services that they're able to add for players that don't have that capability that they just won't be able to add to a larger, you know, vertically integrated

player. Right. Um, and then when you when you talk about developers, right, um, the value add for a developer, um, is is kind of managing that process and connecting the end out the the beginning purchasing person, you know, whether that's, you know, a business that is like Amazon or you know, The actual developer themselves, if you disaggregate the developer from the owner, then the developer is just, you know, adding the value of, you know, sourcing the land, you know, um, you know, putting

the like sourcing the land, finding the opportunity, building the consortium doing the financing, you know, those things, you have a vertically integrated player, maybe they're not vertically integrated that far back, but it is certainly an area that could be disrupted. If you had a player that was sophisticated and large enough. And again, this is not saying that this is going to happen

tomorrow. This is saying this is the direction that the industry is going and you know, in in a couple of decades, this is the vision of the industry that could be out there.

that must be quick and cheap. So that is the old manufacturing mindset of saying, Well, how can I strip out all the non value adding stuff?

integration. Fewer handoffs or hand overs, and therefore, yeah, potentially vertical integration consolidation. So yeah, I guess it's another one of these things that's articulating the same sort of end state towards, you know, this sort of particular approach around standardization, consolidation. rationalization,

added work. Cuz I mean, like, just think about it, like non value added work for, you know, for, for the uninitiated into kind of, like manufacturing thinking is simply defined, and like, rather dramatically defined as anything that does not directly contribute to creating the good or service, that doesn't mean it's not

necessary. And that doesn't mean it's not part of the process that needs to ultimately, you know, create or deliver the work, it just means it is not a direct one for one, you know, input into creating the, the good. So in a construction example, you as an engineer, your field engineer might need to make 15 calls to figure out what size you know, what's, what diameter hole, you need to bore into the ground to set the foundation for the light poles.

But all six of those calls were non value added work, right? Because you didn't need to make low six calls did not directly contribute to putting that that that foundation in the ground. Now, are they necessary for the

coordination? Sure, but like now that we know that they're non value added, we need to find ways to do them as efficiently as possible, so that we can focus more of our attention and time on the value added work, which is drilling the hole pouring the concrete setting and tying the rebar and then you know, watching the cure and doing the quality control check on top of it. Right.

actually, you're right. It's the philosophy of working out what's valuable, and what's not value added. And then once you've identified the non value, I'd say, right? How do we not do that next time? And the other way, manufacturing's, obviously done that is by continual improvement, standardizing the process improving the process, lots of tiny iterations, but you've got to start with a baseline decent solution, and then you know, iterate and get

better and better over time. So yeah, that's exactly what we've been trying to explain over here. With some of the approaches we've been taking, but yeah, that's great to hear. You describe it from a completely different different context, different lens. But yeah, again, sort of arriving at the same sort of mindset.

general period, right? We have to, as an industry get more efficient with the, with the assets and, and, and resources, both, you know, physical financial and, and, and human resources that we have, in order to deliver projects, like that's just happening, there's going to be an entire generation of what I affectionately refer to as greybeards, that will, you know, have done there have done their job, right, like, they've built some of the most awesome assets and, and, and, and, and, and,

and buildings, you know, in the world, and I'm gonna retire, rightfully so right, and we're gonna have a bunch of people after them that need to continue to pick up the ball and run with it, right. And if there are fewer of them, then we need to figure out how to work in a way that we're still going to carry the ball with fewer people,

right? I'm second, when you think about the value add of an engineer, right, or even a skilled trades person, right, the value out of a skilled trades person is not filling out a quality check audit sheet, right? The value add of an engineer is not making six calls to figure out the person that they need to talk to, to understand how the decision was made, right, the value add of that skilled trades person is actually applying that skill,

right. And so the more that we can find ways to focus those skilled trades people and those engineers or even, you know, those, the the people in general, on on the things that actually drive value, the things that are actually driving value from their, from their trading their skill, you know, that's going to one make us as a as an industry much more efficient, but two, which I think is a characteristic of, you know, kind of manufacturing, continuous improvement that, you

know, doesn't get publicized enough, it just respects the like, the mental capacity of the person doing the job, right. You know, if you're as an engineer, if you're just making 17 phone calls a day, and you're nowhere near any of the technical stuff that like lights your fire and gets you excited, then your job is drudgery, right?

idea. So you want to spend more time having more ideas and try more things, and then allow the technology to do the heavy lifting or speed up the process. So yeah, as we move forward, you need a Yeah, better toolkit is always getting bigger, there's fewer people. And that's why you start to need to develop these new technologies. And so that leads into... Can you talk about the The Rise of the Platform Era

document. So when there are talks about a series of constellations, or areas of technology that are coming up, so maybe you can talk about some of those, generally, and then maybe a little more about, specifically the things you identify, so Digital Twins, 3D Printing, Augmented Reality, Supply Chain Innovation, those buckets or areas where you can see that the technology is really starting to play a part now?

for technology out there. But if you lay if you if you accelerate, you know, a turd, you're just gonna have really fast moving turds, right, like, you're not going to actually get the, the, the benefit of, of using the technology to its

fullest extent, right. So before we even start talking about technology, I would push you know, anyone in the industry, our listeners, whether they were construction players, or anyone else thinking about, you know, going on, you know, a journey to digitally empower their their organization, but you need to clean up the processes first, like sit down, figure out what actually is value added versus non value added, sketch out the process that would work itself and then figure out what

technology will then enable that process to move at the speed that it should given that

statement. Um, I think that technology is you know, without question and accelerant, right, you look at any industry that has effectively, you know, deployed technology, whether it be hardware or software and they are, you know, leaps and unrecognizable from when they were beforehand and you know, even the construction tech, even the construction industry now, right, like no one digs, no one digs canals, you know, with shovels, right? We use heavy construction equipment, right?

Like that's technology. When you think about the construction technology, space Overall, and you know, our research kind of tends to skew a bit more towards the software side, generally speaking, but there's certainly hardware and mixed mixed environment applications in there that we consider, um, you start to see different

constellations arising. And what we did was we just looked at, you know, we looked at about 25-2400 players and looked at all the different offerings that they had we, you know, we'll do A, B, and C. And then we looked at, you know, the number of companies offering A, B, and C, and then we look at the number of companies who are offering A and B, A, and C, A and D, right.

And then we were able to draw this kind of network of use cases, with the number of companies offering that use case and also the connectivity between all these use cases to like, get a sense for, you know, what the world looked like. And then that, that brought up a few different constellations of use

cases for technology. And so generally speaking, you see things around, you know, broadly speaking, I'm going to even speak more broadly than what we lay out in the document, you see things around, you know, improving the productivity of the of the G&A, right like the the project G&A, you see things a large chunk of, of effort around improving the overall field productivity itself in different applications, right, you also see constellations around design and BIM usage, and

then you see things around, you know, kind of 3D printing kind of next gen, next gen applications of work. Now, that's not the exact framework that we lay out in the article, it's a different one. But I think just for the sake of our listeners, kind of, like abstracting it to, to a, just a higher level, to understand the broader strokes of the point.

What we see in, in the way that the industry is evolving, is that, you know, it's like any other technology industry, right, you start with, you know, people, you know, there's a big bang, and then there's lots of different point solutions that jump on the scene and say, I can solve this problem and that problem and that problem, and then you start to the the acceleration of that initial explosion slows, and then you start to, you know, see the proverbial gases, cool, go with

the Big Bang example, right? And you start to get globs of matter starting to coalesce, right. And that's what we're seeing in the construction technology space, right? Like, you're starting to see larger players, that that own platforms that either grew up in, you know, the field execution space, or they grew up, so to say, in design and engineering, or they're growing up in, you know, the growing area of, you know, 3D printing, you know, Robotics or AI, right.

And they're stitching together, some of the individual use cases that were there, to add more value to a player, because like, what most construction companies are looking for, isn't necessarily the One Stop Shop, to digitize everything, but they're not trying to stitch together 15 different applications for every single project every single time, they want to deploy technology,

right? So you have this, this, this, this growth of players who are identifying, you know, into end solutions that need to be created, and then building platforms around that versus saying, if you use me, you can digitize your payments, and I'll like, scan all your documents, and you'll have them in your computer now, right? Still a really relevant and really important use case. But the competition has kind of shifted and on an industrial scale to say, what is the broader

solution that you need. And here, let me give you the platform that you can either build that solution on, will plug into the individual player that does that on this solution, or, you know, build it yourself?

need to stitch them together. So actually, maybe the workflow will emerge or evolve out of stitching together a series of different things to it, as we've talked about before, reduce the number of interfaces. So you don't need 50 applications, you start to get get fewer. But again, it's pointing at consolidation integration, I guess, interoperability being the digital version of the things that we've been talking about. So that yeah, that's

quite, that's interesting. So they feel like they're all moving at the same pace. So there's loads of buzzwords in the industry that we constantly hear, you know, AI, Blockchain, Machine Learning, 3D printing, there's loads of things that are nascent technologies. Are you starting to get a sense of which ones are really going to go somewhere which ones are not quite oven ready yet you know, is that is the state of maturity

the same across the piece? Are there certain things that are To be dropped by the wayside, or is it too early to say where it's all gonna go as it is, it was just after the Big Bang, we can't see which things are going to solidify into planets, maybe to use that analogy.

for investment. And I think that that is largely inter influenced, rather, by the customer set being, like...more often than not the large EMC companies, right, and like, what is what is attractive from a technology perspective, to a large EMC company, where, you know, 90 plus percent of my business is wrapped up in project cost, well help me deliver these projects faster, right, and more, more

efficiently. And so, um, you see, you know, applications and things that are really focused on, you know, quite honestly, that like the the easier problem to see, rather, which is field productivity, popping up and being funded and finding really new and novel ways to improve the efficiency of construction sites and things in the field, better manage it, so that you're more efficient, in the dirt, so to speak, really, really important things to do take

nothing away from it. Um, but those are, those are the things that you just see getting a lot of the attention. Um, what you also see though, are like pockets of kind of next gen applications coming up, because like, now that you have many of these applications, now beginning to digitize a lot of these things that were once manual, and, you know, unfortunately, and still many respects in the industry are still manual, you start to have a large, you know, caches of

data available. And now these caches of data are able to have, you know, AI, and Machine Learning algorithms and approaches applied to them. Right. And so, you know, while some of those buzzwords aren't really, you know, prevalent Now, that's not to say that they won't be, you know, in a couple of years, when you have larger caches of better organized data, and historical views on some of

these things. Right. Um, I will say that, um, you know, the, the, the conversation around like Robotics in construction is also similarly tied to technology. And I think, you know, this is my opinion, that it's this a similar use case, and a similar kind of conversation around what we talked about with continuous improvement, right, like, you know, we need to solve the productivity and also the the

skilled trades. gap in terms of availability, that is a lever, um, will it be a lever that I think we continue to use as an industry broadly speaking?

Absolutely, um, you know, I just, I think that there's no getting around or getting away from it, it's, you know, the the trade off in terms of safety and quality, particularly, when you have people working at height or working in, you know, you know, specialized construction applications, like a nuclear facility or chemical plant, where it's just literally a self a safety issue for a human being to be in there, you know, absolutely, you will see it, and I think you will also begin to

see it in some of the more standardizeable mobile applications on a construction site, things like I know, you know, I've seen articles about drywalling robots, you know, there are certainly outfits out there right now, that will, you know, retrofit a front end loader, or a skid steer, to run a route and and, you know, do the, the the site prep work, you know, for for for a construction company, so that they don't have to have people out there doing that, it's just automated,

right? Those things will happen in my mind, when they will happen up for debate, some of them are currently happening right now, and fits and starts. But you know, it's all part of this kind of, again, evolution and push towards, you know, a more integrated and efficient industry.

it. So from a Bryden Wood perspective, that's obviously a particular interest of ours is saying, Well, how do I design out some of those productivity issues? That source by using technology? So yeah, maybe it's one version of this, which is taking the current process and making it better. But I guess what we're interested in is maybe there's another version of this, which is having a better process left shifting everything and saying, Well, you know, how do you design those things out?

How do you use some of these tools earlier on to preclude some of the field problems and therefore I don't need to fix them. But yeah, it's obviously it's a hard one to invest in because no one quite understands that all season quite in quite the same way. So that's a particular interest of of Bryden Wood's, I guess we've been looking at.

symptom. And yes, all of those things are valuable, I don't want I'm not trying to down talk any of the work that anyone has done, or any of the solutions that are out there on the market

to be extremely clear. But when you think about a process, right, and, um, you know, I try to understand where things are going wrong, well, things are going wrong, things generally go wrong at hand offs, right, like we, like we talked about earlier, it's particularly when you have these really complex and expensive processes like construction, right. And so, you know, those kinds of things only get solved by investing in investing in building, you know, the underlying infrastructure,

right? Like you have seven different siloed systems that that don't talk to each other that have duplicate duplicative, sometimes misaligned data, and it's, you know, it requires an email that doesn't get tracked or managed or, or, or propagated anywhere for an engineer to truly communicate with the field or field, the field team, right? Or it takes a phone call, right? Or it's a or it's, uh, you know, manually written notes that do

that, right. And when you have those things, and you'll have the infrastructure in place, to begin to, you know, organize that data, collect that data, analyze that data, find the trends, find the patterns, and like truly improve the process, right, then you're going to, you will ultimately still end up being capped by the efficiency that you're going to get, because, again, you're you're accelerating the turd, rather than rebuilding the process.

And you can start to get these technologies. So yeah, there'll be a sort of transition from where we are now to, I guess, a short term fix to a longer term, potentially quite different industry, I guess.

get this moving. Obviously, there's no right or wrong way about this, because no one's done it before, it'd be interesting to see what your view is of what's happening in the UK, you say, with that kind of strong central government backing versus what's happening in the US where there's definitely a strong drive towards the same end state, but it's not coming necessarily from the government. It's coming from contractors, from clients and

suppliers. There's a slightly different group of movers, but they're, they're moving in the same direction. So I don't know if you've got any thoughts on that? Or comments on that?

right. And so if, you know, if the if in the UK, for example, you know, there is a regulatory environment that is, like highly incentivizing, um, you know, this movement and in that direction, that in my mind is still part of the market mechanism, versus just the independent, you know, businesses work operating there, you know, deciding to go under

direction. So I don't think that, you know, the, the work being done by the UK Government, you know, at all, you know, goes against that kind of conversation about whether it's market driven or not, um, I think that, you know, in with that definition in mind, you know, the government's just practically will have a role to play in, in the growth and

development of these things. Um, you know, fundamentally, again, it goes back to this piece around risk, right, like, the government's like, large developed country, governments are some of the only, you know, players in an industry that can shift the risk equation enough that will incentivize, you know, the individual businesses to actually move in that direction, like, absent a huge existential threat, right, like construction companies are going to no longer exist unless they start to

completely redesign the way they did. They deliver projects in a year, right, like COVID, for example, was one of those X's like huge existential threats that forced, you know, the entire industry to change the way that it collaborated and worked and delivered projects.

Right? Absent that, right? The only other lever that it had that that exists really effectively shifted the risk profile of a given action in the industry starts to become A) wholesale customer, you know, feedback and movement in one direction or B), you know, some type of participation or regulatory or, or policy intervention by the government.

Right. And so, um, I think that all of us have a role to play in this, I think, you know, we obviously have to be smart about what projects and policies and and regulations we put in place. Because we don't want to endanger the public any more than we want to kill innovation. But I think that it's a it's a, it has to be a collaborative conversation between all of those parties, it's not going to be any one of them driving the boat more than others, right?

Like, you know, we'll all switch the driver's seat, right? Sometimes it's going to be the government in the driver's seat, and then we'll take a break on the side of the road, and then the industry players will jump in, and then they'll take a side of the road, and then the customers will jump in, right. But we're all in the car together. Yeah,

means on their own. You know, you're building things because you need to educate your 60 million people, you need to provide health care and transport and growth and all these other things so that the built assets are almost a byproduct of that, too. But that's why you as government have to do it, because no one else has those conditions or has the ability. So even the big serial clients like Heathrow don't have the ability to shift

the market on their own. So yeah, that's a it's an interesting, interesting, interesting perspective. So very conscious of your time. And I know it's a completely unfair question. But might your thoughts on you know, assuming things go well, everyone heads in the right direction? Where do you think we could be in 10 or 20 years? So conscious? It's a very, you know, speculative question, I had a go myself for predicting some of this where this might happen. Something

might need to be right. But I'd be really wanted to get your thoughts on where you think we could be. If you use that analogy, everyone gets on the bus, everyone decides to head in the right direction, and we really start to shift things collectively.

really, really do. Right, I think we could I think the end to end digitized project and meaning, right, like the, the the tide data, from development, to financing to engineering and design, to construction, planning to construction, execution, you know, commissioning operations, all of that history of data and decisions being tied together in an integrated way and collaborated on in real time. I think that's possible, right, in

in ten, twenty years. And I think that, you know, many of the resources that we need to do that, and in the construction industry exists right now, right? Like, there are other industries that literally do

that, right. The difficulty with the construction industry, again, comes down to its fragmentation and the risk that it takes to actually, you know, take that on, but if we're all on the same boat, and we're all as an industry committing to get there, I have no doubt that we could get there, you know, in the time in the in the in, you know, the next decade or two.

and your input. That was that was really, really fascinating, interesting conversation. And I've really enjoyed talking to you this morning.