Technological Diffusion Takes Time

How Rapidly Will New Technology Spread Across an Industry?

One of the underlying ideas here is that the industry we call ‘construction’ is a ‘technological system’, a densely connected network of firms and organizations that produces and maintains the built environment. This system can be divided into three different levels (local, national and global) and three distinct sub-sectors (residential and non-residential building and engineering construction), each with their own characteristics and therefore each with their own development trajectory. The driver of these differing development trajectories will be how rapidly firms adopt the range of new twenty-first century technologies now emerging.

These technologies will greatly enhance our abilities to reorder the physical world, the ultimate purpose of a technological system. These abilities are increasing through continued improvement in hardware, both mechanical and silicon, and software, with new applications and programs and the development of machine intelligence.

How firms use technology, in the way it is adopted, adapted and applied, varies widely within the construction technological system, and this is a significant driver of change. After 100 years the construction technological system is well developed, and as a mature system it is also conservative. Mature technological systems accumulate capital and skills, and this investment in the existing system gives it great inertia until some disruptive change emerges. How and why a new technology spreads through the economy and society are determined by many factors, but studies of historical cases like steam power, tractors, electricity, phones and the internet have given us good examples of technology diffusion and its dynamics. 

The rate of adoption of technologies within the firms that make up an industry, which is affected by a range of factors, has also been studied. The technology adoption literature discusses rank effects, which are the different individual characteristics of firms such as their size, and how they affect the rate and extent of adoption of new technologies, also the effects of competitive dynamics, which is how the adoption of new technology by one company in an industry influences the adoption of technology by other companies in that industry.

From economic history, we know major new technologies take time to diffuse through the economy because they require parallel changes in forms of organization, methods of production and patterns of consumption. These are not decisions firms and households make quickly or easily, due to the investment in upgrading machinery and equipment usually needed. New technologies are ‘embodied’ in this new physical capital, in the way a 20 year old car incorporates the technology of two decades ago when it was made. In the literature there are many studies of the introduction of new technologies, and the consensus is that it typically takes 15 to 30 years for a new technology to reach 90 percent of its potential market. A well-known example is Paul David’s research on electrification in the US, which took 30 years from 1900 because of the fundamental changes industry and households needed to make to take advantage of electrical power.

Another good example is tractors. The figure below shows the tractor slowly displacing horses and mules in US agriculture from 1910 to 1960. Horses and mules declined from about 26 million in 1920 to about 3 million by 1960, while the number of tractors rose from zero in 1910 to 4.5 million by 1960. One reason for the slow spread of tractors was the incremental innovation needed to increase their capabilities, which made them more attractive over time. A second was an increase in farm wages after 1940, which made tractors more economic. 

The spread of new technologies through society and the economy often takes longer than expected, based on the benefits the new tech typically brings. Paul David observed many people "lose a proper sense of the complexity and historical contingency of the processes involved in technological change and the entanglement of the latter with economic, social, political, and legal transformations. There is no automaticity in the implementation of a new technological paradigm, such as that which we presently discern is emerging from the confluence of advances in computer and communications technologies." The same could be said today about the advances in machine learning and artificial intelligence.  

Generally, discussion of construction industry development over the next decade shares a view that the impacts of new technology, including BIM, will be gradual, changing industry practice over time without significantly affecting industry structure or dynamics. Given the entanglement of economic, social, political, and legal factors in the construction technological system this might be the case, however there are good reasons to think this may be wrong because these studies either predate the current surge in machine learning or do not consider the potential of AI. Machine learning, AI, automation and robotics are an interconnected set of technologies that are evolving quickly, enabled by expanding connectivity and the massively scaleable hardware available today. 

Technologies have to be adapted into solutions for specific tasks, with their role in the workplace evolving over time as machines reach the levels of performance required. Only when their cost is low enough will they be adopted, but developing and engineering new technologies takes time and money. Once established, the single most important factor in technology uptake is the price/performance relationship, or the gain in productivity or other measure (time, quality, safety) the new technology delivers for a given level of investment. To successfully displace an older technology a new technology often has to provide an overwhelming economic advantage to overcome the inbuilt conservatism of an existing industry, due to the investment by incumbents in the current system. This is a significant barrier because, at present, the price/performance trade-off is not there for the many small firms in building and construction because the investment required to upgrade capability is too large for the size of these firms. However, for larger firms the issue is not whether to invest, in BIM for example, but how much, if they intend to compete in the upgraded and modified category of firms in the industry.

A period of technology-driven restructuring of the building and construction industry may be about to start, similar to the second half of the 1800s when the new materials of glass, steel and reinforced concrete arrived, which led to new methods of production, organization and management. There are many implications of such a restructuring. Some firms are rethinking their processes in response to developments in AI, robotics and automation as capabilities improve quickly and the range of new products using these technologies expands. Many firms, however, are not. Meanwhile, frontier firms are exploring new tech and pushing the boundaries of what is possible, and are inventing new processes.

There is understandable skepticism across the industry about the extent of impact of new technology, the ‘business as usual’ approach has worked well for many firms. With the characteristic changeability of construction sites particularly challenging for automated and robotic systems, it might take decades of investment for machines to learn how to do site work. On the other hand, once a robotic system has learned how to do something, that skill can be copied and replicated at minimal cost, and that applies as much to engineers, architects, quantity surveyors, urban planners and project managers as it does to crane drivers, bricklayers and electricians.

 

Rodolfo E. Manuelli and Ananth Seshadri 2014. Frictionless Technology Diffusion: The Case of Tractors, American Economic Review.
Paul David 1991. Computer and Dynamo: The Modern Productivity Paradox in a Not-too-Distant Mirror, in Technology and Productivity: The Challenge for Economic Policy. OECD.

Construction's Three Pathways to the Future

Technological Trajectories

Over the last few decades there have been many scenarios for the future of the building and construction industry, often with titles like Construction 2000, 2020 or now 2030 or 2050, usually with a list of major trends expected to impact the industry. The list typically includes more data and associated computing technology, new materials and equipment, more education and training, less carbon and more sustainability and so on. For many of these items there have been a variety of roadmaps produced, providing very specific steps in developing a particular form of technology or process. Many scenarios emphasize the industry’s linkages to the rest of the economy and society. An interesting recent scenario analysis for Australian construction was covered here.

What often seems to be missing from the discussion in those sorts of exercises is an appreciation of how an industry as large and diverse as building and construction actually adopts and implements new technology. While it’s obvious that the industry as a whole is not going to be overwhelmed by some sudden mass movement to adopt some particular technology, whether it be steel reinforced concrete or BIM, the rapid pace of technological change is affecting construction. Like other industries there is potential for new entrants, new business models and great disruption.

It seems that there are three plausible pathways for how industry processes and structures might change over the next few decades, in the sense of technology adoption and implementation pathways. These might be called the business as usual, upgraded and modified, and transformed scenarios. What really differentiates the three is the rate at which new technologies are taken up, which in turn leads to different trajectories of technological development of firms within those three pathways.

The business as usual pathway is the slow accretive method that has been followed by the industry for decades, if not centuries. This is where the industry as a whole is much larger than any given project, and the individual projects reflect a consensus view on what the appropriate technological mix might be for that type of project, in that place at that time. Over time this industry consensus moves to include whatever the most effective or efficient piece of technology is, again for the circumstances of the particular project and those involved.

This is not a static process. I’ve argued elsewhere against the idea that building and construction is a technologically stagnant industry. The reality is that building and construction is the recipient of vast amounts of new technology from its traditional suppliers in the plant and equipment and building materials industries, and is increasingly IT intensive. The extraordinary growth of offsite fabrication in all its forms indicates the industry is quite willing to move to a new technological platform, but that platform has to be well proven before it becomes widespread.

Also, there are a limited number of projects that reward the investment of time and capital needed to develop and implement new technologies and new processes, and to overhaul organizational forms. In this case it is not always sensible, from a business point of view, to try and be on the cutting edge of technological developments. Nevertheless, offsite fabrication has already changed parts of the industry, the return on investment in BIM is generally positive, and the increasing sophistication of project management and integration software is opening up new possibilities and organizational forms.

Pathway 1: Business as Usual - Similar But Smarter

• BIM integrates project development and delivery. Clients get procurement systems right, or at least less wrong, which drives efficiency and productivity improvements.
• Modular and pre-fabricated components become universal and more complex, and many structural elements are standardised. Services become more integrated and building management systems become increasingly capable. 
• Project management becomes much more information intensive and sophisticated, and techniques like target costing, last planner, tiered suppliers and so on become widespread.

The difference between the business as usual and the upgrade and modified pathways is the rate at which firms adopt new tech. There will be a widening divergence between firms that are comfortable with business as usual and firms looking for ways to create or sustain their market position. Again this might be as much about circumstances, where the opportunity presents itself firms would be expected to upgrade. The many YouTube videos of concrete printing and other 3D printed components, or carbon-fibre bridges, girder-laying robots and such, show just how nascent this technology is, with an intriguing mixture of backyard inventors, universities and multinationals involved. Drones are everywhere, and microsats are also offering site monitoring.

In the upgraded and modified pathway firms invest considerably more in technological development. In the course of upgrading to these new technologies firms might need to make significant changes to the way they are organized and the way they organize their projects. To really leverage the investment and get an advantage from the technology, whatever it is, usually requires modification of existing business processes, and depending on how the business approaches the task these modifications could be extreme or could be at the margin. Some businesses are much better at this than others.

There are many different firms in the industry, and many big firms have clearly developed technological areas of expertise, that they build their business around, such as tunneling, or remote sites or bridge building. Chinese firms like Win Sun (3D printed components) and Broad Group (prefab high rise) call themselves technology companies not construction companies. Australian company Hickory Group also has its own factories producing modular components for its projects, going back to the integrated model of nineteenth century general contractors. Sekisui and Ikea have been doing this for a while.

Pathway 2: Upgraded and Modified - Manufactured Mass Customization

• Disruptive new entrants appear, with no historical baggage, who do not care about the traditional roles of industry professionals or suppliers. These firms do not work for clients but make products for their customers, in a vertically integrated supply chain.
• Their buildings are standardized platforms, built repeatedly and thus can be quick and cheap. Designed to be produced in a factory (which may be onsite) and assembled by a trained workforce, with a range of finishes and decorative elements to allow mass customization.
• New materials and production processes allow current boundaries of performance, size, function and design to be greatly extended. 
• Incumbent firms respond by moving up the value chain, developing their integration and PM capabilities and concentrating on larger and more complex projects that incorporate new tech like high performance materials, systems and services.

The transformational model is the extreme high-tech version of rapid and sustained advances across a broad front of key items. This is far more speculative, because the future is inherently unpredictable, of course, but the potential is there for some serious disruption. The two primary drivers of change are expected to be IT (both software and hardware, i.e. AI, automation and robotics) and new materials and production processes. At present, new tech is rapidly spreading across larger firms in the industry, but generally at the boundary of pathways one and two. However, in the near future breakthroughs are possible in digital mapping and surveying and 5D BIM, production process automation, advanced analytics, and the Internet of Things. Continued progress in molecular engineering and high performance materials, 3-D printing, real-time site data, communications, advanced robotics, roller press printing of smart materials and fabrics and many more technologies will feed into the industry over coming decades.

Pathway 3: Transformational - Faster, Higher, Stronger

• Science transforms building materials and production technology. The new products and materials are significantly stronger and lighter than existing ones. They create new opportunities for buildings that can be more distinctive, larger or higher than currently possible.
• The new production technology automates many tasks and processes and creates new machines that are far more capable than existing ones. Materials and machinery become smart, with embedded processors, are networked and communicate with each other. Components are location and condition aware.
• Humans partner with machine intelligence to accomplish many tasks, and use robots or exoskeletons for most physical work. Remote control of automated heavy plant and equipment becomes standard, while fabricated and modular components combine with automated systems and onsite robots to transform the building process.

What’s missing from the discussion here is any sense of the time-frame, however this too is entirely speculative. We’ve currently got elements of all three of these pathways in play, and the three will coexist across the industry as a whole for a long time. Because of the localized nature of building and construction there will still be large numbers of small firms in the industry for the foreseeable future, and those firms will generally follow pathway one.

One important issue will be how the broad mass of companies in the middle of the industry, the small and medium-size contractors of every sort, actually cope with the tsunami of new technology likely to descend over the next couple of decades. In every other industry which has become more capital intensive as technology develops, that industry has become more concentrated and the largest firms expand at the expense of mid-sized firms. This doesn’t mean we end up with a few giant construction companies, but it does mean that we are likely to see a far smaller number of, on average, larger firms across the industry. The effect of this change in industry structure should be fatter tails in the size distribution of firms.

The transformational pathway, by definition, does not have any current examples. The characteristics of the transformed industry might best be seen in what the industry produces, which would be smart and responsive buildings and structures. These are made of smart materials, which know their location, purpose and condition, run by smart operating systems that constantly monitor and control the building’s internal environment and systems, and have an energy efficient, self-repairing external skin. And the whole thing would have been delivered through some massively integrated management and manufacturing process that was entirely underpinned by digital data.

A recent publication on the Future of Construction page on advanced buildings shows how this trajectory is developing. This research by the Boston Consulting Group, a management consultancy, and the World Economic Forum, a multinational think-tank, is an ongoing project to promote cutting edge building technology in all it's forms. This new report  is Inspiring innovators Redefine the Industry, with six buildings and four flagship projects that demonstrate innovation in construction. As William Gibson pointed out (at a 1992 demonstration of the first clunky VR systems) “The future is already here, it’s just not very evenly distributed”.

 

https://www.weforum.org/agenda/2017/03/buildings-construction-industry-innovation