Construction Innovation: Venture Capital and Contech Funding

What do we know given definition and measurement Issues?

Construction is often seen as a low R&D industry, with a low expenditure on R&D to revenue ratio compared to other industries. While that may be true for the many small and medium sized firms that make up the majority of the industry, many of the large firms do invest in R&D. A 2023 McKinsey report on construction technology (Contech) that ‘includes design software, robotics, and tools for the planning, scheduling, budgeting, and performance management of projects’ found USD$50 billion had been invested between 2020 and 2022. Their estimate based on Pitchbook data includes incumbents as well as startups and new entrants.

Incumbents like Project Frog (US), Balfour Beatty (UK) and Mirvac (Australia) have developed platforms, and there are many established offsite manufacturing and modular building Firms. There are partnerships between Trimble and Microsoft and Laing O’Rourke and Lenovo. Other examples are Autodesk’s recent integration of design and manufacturing systems, Skanska embedding wireless sensors in buildings, Holcim’s green cement, ARUP’s data collection systems, remote-controlled excavators from Caterpillar and Komatsu, the Hilti Jaibot, and software from OracleAconex and Procore. There are many more.

As those examples show, contractors are not the only firms doing R&D, so estimates for the industry are unreliable. R&D by professional service firms, and the construction materials, component and equipment manufacturing industries will not be included, although they have been responsible for many technical advances and the introduction of new products and equipment, such as drywall, plastic pipes, excavators, cranes, facades and lifts. This is a well-known problem when measuring construction R&D, and is a result of the industry classification system used by national statistical agencies.

This measurement problem is becoming more acute because, for the construction industry, a cycle of innovation has begun with new entrants attracting substantial R&D investment from outside the industry. Investment in construction R&D and innovation is now coming from private equity and venture capital (VC) funds such as Fifth Wall, Brick & Mortar, WND Ventures, Ironspring, Building Ventures, Dynamo, Foundamental and Australia’s Taronga Ventures.  

How much of the expenditure on R&D by incumbents is likely to be included in VC funding estimates? Although this expenditure should be taken into account for overall industry investment in Contech, many incumbents do not participate in VC. In fact, it is hard if not impossible to get a good estimate of Contech investment because it includes so many different areas associated in some way with the built environment, such as property and real estate, transport, energy and waste management, materials manufacturing and so on. Then there are areas associated with decarbonisation, such as measuring embodied carbon, the energy transition, retrofitting buildings etc. How to draw a boundary around such diverse topics is a major issue.

The table below demonstrates the extent of the measurement problem. It collects the latest estimates and total investment from the three sources reviewed in this post for the different time periods they cover, plus the 2023 McKinsey report that was not restricted to VC funding. There are a few key points to note. First, there are similar trends in their data with considerable variation but, second, wide differences are seen in the yearly figures, and third, the totals indicate significant cumulative investment.

Comparing the Foundamental ($25.4bn) and Kabri ($22.4bn) data for the same time period of 2017 to 2022 as McKinsey ($77bn), there may be something like a 60/40 split between VC and incumbent funding of Contech. That can only be a guesstimate because of the different sources used and the severe definitional and boundary issues around what is and is not included in these estimates of Contech.

Table 1. Estimates of Contech VC funding by year and totals USD$billion

This significant level of VC investment is a new development, before 2017 there was little interest in construction innovation from investors. Then a Californian start-up called Katerra reached a USD$1 billion valuation in 2017 followed by a $865mn investment in 2018 from Softbank. The company’s goal was complete vertical integration of design and construction, building factories to manufacturing cross laminated timber panels and then delivering and assembling the building onsite. Over five years Katerra went through four different business models as they sought to achieve sufficient scale to keep their factories busy, but in June 2021 filed for Chapter 11 bankruptcy and the factories were sold. The Katerra story was covered in a previous post here. 

Despite the failure of Katerra, and many other firms attempting to make the economics of manufactured housing work, there has been a rapid increase in VC investment in Contech since 2018. Venture capital funding is a significant metric because investment in startups is a proxy for innovation, and the development of IP and other forms of intangible capital. This post looks at three recent reports on VC investment in Contech.

Cemex Ventures Top 50

In January Cemex Ventures released their Top 50 Contech Startups 2024, the 5^th edition of their Top 50 list. Cemex Ventures is the VC and innovation unit of Cemex, a global supplier of building materials. The 2019, 2020 and 2021 reports were only lists of companies, but the 2022 and 2023 reports have VC totals and other details like deal size and numbers. The source of their data is the Traxn VC database.

Their estimate for 2023 is USD$3.03bn, compared to $5.38bn in 2022, significantly higher than the Foundamental estimates below, particularly for 2023, no doubt due to differences in their data sets. Cemex found half (49.5%) was in initial seed rounds for early stage startups, and 23.3% was for Series A funding rounds for more mature companies. In 2023 nearly 90% of funding went to the US (44%) Canada (11%) and Europe (32%, including the UK with almost 10%).

Cemex Ventures divided funding into four ‘focus areas’:

1. Green Construction: Processes, products and services that offset negative environmental impacts raised $1.06bn.

2. Enhanced Productivity: Digital solutions aimed to increase efficiency through technical, data-driven solutions got $701mn.

3. Future of Construction: AI, robotics and industrialized construction like 3D printing, BIM and autonomous equipment raised $690mn.

4. Construction Supply Chain: Technologies that secure or track materials and fleets, manage builders’ inventories and material marketplaces got $584mn.

   
   

Figure 1. Four focus area

There is also 2023 data on a number of specific ‘topics’, which are more specific areas of interest.

Figure 2. Specific Contech topics

Where to draw the boundaries around the many and diverse areas of Contech, and how to define those areas, is an important issue because it should be possible to separate different topics or areas, for example Contech from Proptech and carbon accounting from energy efficiency. The Cemex Ventures division into four topics is a good place to start.

Foundamental

Another Contech VC estimate came from Foundamental, which found over USD$30bn was invested in Contech between 2014 and 2023. Their estimate for 2021 was $8.7bn, followed by $4.9bn in 2022, falling to $1.3bn in 2023. Figure 3 shows their data, where they have separated funding for Katerra.

Figure 3. Construction technology funding

 Source

The database Foundamental used is from Wallhack, an open source provider of VC investment in AEC-Tech and ConTech. They provide this explanation:

AEC-Tech contains pure Construction-Tech, but includes more. It is about fixing the building-world. In our definition, besides construction-tech, AEC-Tech also contains design solutions that also help architects and engineers, supply chain solutions that fix problems in the building world, solutions that help with the retrofitting of buildings and infrastructure, and fixes for skilled labor/blue-collar work and installers. It does NOT, however, include building operation, which would often be called Prop-Tech.

There are over 700 companies in the dataset, many of which have less than 10% of their portfolios invested in AEC-Tech. A group of ‘building world specialists’ can be selected. How these ‘building world specialists’ are differentiated from the broader AEC-Tech investors is not clear. This list has 81 companies, with the percentage of their portfolios invested in AEC-Tech ranging between 30% and 100%. Total investment in this group of companies is USD$42.4bn.

The start-ups included in these estimates of VC funding are by definition technology leaders, pushing at the technological frontier through experimentation and development. Frontier firms bring with them radical new production technologies. While these firms are new entrants, some incumbents are also on the frontier. Cemex is not the only incumbent investing in Contech VC, the Wallhack list also includes Bentley, Trimble, Autodesk, CRH and Suffolk among others. There are others not included, like Vinci with their Leonard fund.

Kabri Construction Research

Research by Kabri Construction Research referenced here used publicly available information and they note, as a result, it will underestimate both the number of startups and the amount raised. Kabri found 300 construction startups up to 2022. Their estimate for 2022 is USD$8.9bn, and for 2021 was $5.5bn.

Figure 4. Contech funding

Kabri divided the startups into 13 categories, explained as:

1. Builders/Developers - Startups that are tackling the entire process of constructing a building, either as a builder or as a builder+developer. Many of these startups use prefabricated or modular construction to try to improve the process. Others such as Homebound, are focusing on improving the building experience with software. These startups are almost uniformly devoted towards residential construction. Examples: Veev, Blokable, Prescient

2. Building Materials - Startups trying to develop new types of building materials. This includes things like low-carbon concrete, drywall alternatives, and smart glass. This category also includes what we might call ‘low level components’ - things that we might consider ‘simple parts’ rather than raw materials, such as BAMCore. Examples: View, Carbicrete, Electrasteel

3. ADUs/Office Pods - Companies trying to sell small backyard homes or office units. Examples: Cover, Adobu, Boxabl

4. Energy Use and Management - Startups aimed at improving building energy use. This includes companies like BlocPower (finances and install energy efficiency upgrades), as well as companies like BrainBox AI (which makes software to try to optimize HVAC use.) It also includes startups like Intellihot, which make more efficient water heaters. Examples: Redaptive, Dandelion Energy, Domatic

5. Marketplaces - Startups trying to connect the large number of buyers, sellers, and transaction parties that exist in the hugely fragmented construction industry. These range from workforce sourcing companies like Workrise, to construction equipment marketplaces like EquipmentShare, to companies that help homeowners find renovation contractors like Sweeten. Examples: Amast, BuildZoom

6. Distribution and Logistics - Startups trying to tackle the problem of getting building materials to the jobsite. Examples: RenoRun, Tul, Infra.Market

7. Construction Management Software - Startups that make software for jobsite coordination, progress tracking, task and document management, and other similar tasks. Examples: Procore, Fieldwire, RedTeam

8. Robotics - Startups trying to find ways to introduce robots onto the jobsite, or in other parts of the construction value chain. Examples: Dusty, Canvas, Toggle

9. 3D Printing - Companies trying to use scaled-up 3D printing technology to fabricate entire buildings or building components. Examples: Icon, Mighty Buildings, Branch Technology

10. Fintech - Companies trying to improve the financial plumbing that the construction process uses. Examples: Built Technologies, Rigor.build, Levelset

11. Datacapture and Digital Twins - Companies using some combination of drones, 360 degree cameras, hardhat mounted cameras, and other sensors to record and analyze jobsite data and track construction progress. Often utilize computer vision and machine learning techniques to process this data. Examples: OpenSpace.AI, Doxel.AI, Versatile

12. Renovation/Repair/Maintenance - Companies trying to improve the process of maintaining a building. These range from software companies who offer maintenance subscriptions, to products that can monitor and report water usage and leaks, to companies that make bathroom renovation easier. Examples: Humming Homes, Block Renovation, Made Renovation

13. Other - Everything else that doesn’t fit into one of the above categories. This includes AR/VR startups, companies that make AEC design tools, companies that make software to streamline one particular workflow (what we might call “excel replacements”), construction insurance companies, and anything else that doesn’t fit into one of the above. Examples: UpCodes, Toric, Shepherd

Table 2. Funding by category

The post on Kabri concluded with some important points. First, ‘many, perhaps most, innovative building products don’t seem to come out of startups – they’re either small-scale developments from companies that don’t obtain VC … products from large, established suppliers … or from academia’. Second, a few companies have taken the bulk of investment. The top three categories in Table 2 ‘account for more than 50% of construction startup funding. Within each category a single company (Equipmentshare, Katerra and View respectively) accounts for 50-60% of total funding’. Note that Katerra and View have both failed.

Conclusion

Measurement problems are not a new issue in construction, productivity being the prime example. Even so, getting a clear picture of R&D and innovation investment in Contech is particularly challenging. Reports on VC funding come and go, covering different time periods and geographical areas, making comparisons difficult. The Cemex Ventures Top 50 reports for the last two years have annual total funding data included, and if they continue their reports that would be a set of consistent data. Foundamental may also keep their annual data updated, although they only have a grand total and do not have categories or topics.

As well as regular annual data some way of organising it is necessary. The Cemex four topics are probably too broad, while Kabri’s 13 may be too many. Somewhere in the middle would be a useful way of categorising the very diverse range of areas generally accepted as included in Contech. Kabri drew the boundary around things that could not be moved from a building, but included Building maintenance and management and Fintech companies. As Kabri note, including a startup in Contech is often a judgement call because their hardware or software can be used in other industries, drones are a good example.

The project delivery approach taken by Foundamental and McKinsey seems appropriate. This focuses on technology that in some way will (might) improve project creation and delivery, which is the traditional domain of the construction industry. It means property and real estate tech is excluded, but more controversially climate related tech too. That is an important omission because climate change is (IMO) the single biggest issue. However, given the number and variety of climate related tech startups this can be usefully considered a category of its own.

Many startups fail, and usually VC spreads its bets to manage the risk. Contech seems different, the bets are concentrated in construction or related built environment industries. Many funds in the databases used in the reports discussed here seem to be concentrated, with a small number of investments. Some of the biggest bets have already failed. Even Procore, seen as a Contech success story, is finding profitability hard to achieve Finally, there is a very large number of small Contech startups covering a wide range of topics. Unfortunately, numbers and diversity may not lead to success because fragmentation makes achieving scale more difficult, and consolidation only starts to happen when successful innovators emerge.

Figure 5. Innovation and Industry Structure

Catch 22: Construction Innovation and Procurement

 

Source: https://www.statista.com/statistics/270233/percentage-of-global-rundd-spending-by-industry/

Construction is in a catch-22 situation, where neither industry incumbents nor its clients can rationally commit to significant, expensive investments in innovation for the vast majority of construction projects. Procurement has a significant effect on technological opportunity and innovation because the effects of appropriability of intellectual property (IP), substitutability between suppliers, and risks associated with innovation for clients are mutually reinforcing factors that have worked against innovation in construction. 

 

The development of new technology and increasing productivity requires investment in R&D and IP. If firms cannot capture the benefits of innovation and IP for some reason, because of imitation, piracy or secure supply of materials for example, they will not invest in innovation. Because the traditional tender method does not allow capture of IP and knowledge externalities by contractors, there is a perverse disincentive to innovate. Tendering rules or codes have been developed to maintain the integrity of the bidding process, not to encourage innovation, and a successful tenderer’s scope to be innovative is limited. There is opportunity to maximise profits within the tender price by novel ways of organising work or driving down subcontract prices, but bidders are not asked to put forward design suggestions, there are no criteria for evaluation of novel proposals, and tenderers cannot be treated equally if one is preferred on an alternative tender, which is non-conforming in terms of the original invitation. 

 

The answer often proposed is that the best way to increase innovation lies in changing the methods and systems used to procure building and construction projects. If contractors can make novel proposals to owners, productivity can improve, and society benefits from innovation. With non-traditional procurement methods such as design and construct (D&C), build, own, operate (BOO) or build and maintain (B&M), this disincentive is reduced because contractors can appropriate benefits of innovation and R&D through improved performance. 

 

It may not be that simple. If all firms have access to the same technology, and compete through continual, but gradual, improvement, they are subject to a ‘ratchet effect’. First identified in the 1930s by sociologists studying workers subject to performance pay, they found workers choose to restrict their output because they rationally anticipate that employers will respond to higher output by raising output requirements by cutting piecework pay or worker incentives within firms. It was also an unintended consequence of Soviet planning. If a factory met or exceeded its planned target, the target for subsequent years was increased, thus reducing incentives and effort for the factory manager. 

 

In construction the ratchet effect can be seen in bidding for projects, where tenderers will typically not deviate far from a client’s expected cost for the project, and all tenderers have access to the same information. Because of the ratchet effect, a firm avoids revealing a significant cost advantage on one project that might jeopardise margins on future projects. Importantly, it allows for innovations that improve productivity and efficiency, that are neither disruptive nor expensive to contractors but will deliver a windfall gain if a project comes in well under budget, which will be hidden from the client and competitors as much as possible. This suggests that there will be cost-reducing innovations available to contractors if they decide to invest, but the pressure to find them will be affected by client demands, upfront costs, market conditions and a competitor’s likelihood of using them. [1]

 

Also, clients avoid risk associated with innovation on their projects and do not include it in their budgets. Clients can act as a significant barrier to innovation because they are concerned about both construction costs and operating costs, and do not think they individually will benefit significantly from a successful innovation. Further, clients carry a significant share of innovation risk and as a result do not take on the risks of budget and time overruns or poor building performance, and other costs associated with innovation. This risk minimisation objective also applies to financiers and insurers of construction projects.

 

While this argument might be generally true, exceptions prove the rule. An example is the Heathrow Terminal 5 (T5) project. This project demonstrates the effect a determined client with a clear strategy to encourage innovation in order to improve performance can have. In its role as the client BAA took on all the risk for the ₤4.3 billion project, under the unique T5 Agreement that the 60 first tier contractors signed. In total, 15,000 suppliers were involved. The overall project was divided into 147 sub-projects, with an integrated team led by BAA responsible for each one. Unlike the majority of megaprojects, T5 was delivered on time and on budget. 

 

The key relevant point about T5 was that innovations were actively sought out and rewarded. These included product innovations in offsite fabrication such as the roof structure, technological innovations such as the tunnelling process and equipment, process innovations such as the two logistics centres and management innovations in the industrial relations, insurance provisions and supplier incentives built into the T5 Agreement. 

 

The risk associated with large, complex projects can provide the motivation for clients to pursue and reward innovation by major contractors and suppliers, who on T5 demonstrated a capability for innovation that is left unused under traditional tendering and procurement methods. However, most construction projects are less complex, many are standardized and repetitive, and clients have no reason to support innovations that might marginally affect their project’s delivery or performance but increase the risk of cost overruns. Construction is in a catch-22 situation, where neither industry incumbents nor its clients can rationally commit to significant, expensive investments in innovation for the vast majority of construction projects. 

 

The traditional procurement method does not allow capture of IP and knowledge externalities by tenderers. Therefore, many believe the best way to increase innovation lies in changing the methods and systems used to procure building and construction projects, but while there will be cost-reducing innovations available to contractors if they decide to invest, the pressure to find them will be affected by client demands, upfront costs, market conditions and a competitor’s likelihood of using them. As a result, innovation is difficult, though not absent. 

 

 

[1] Given a variety of locations with different relative prices, there will be a best location for supply of the most productive factor. Therefore, firms can raise productivity by moving to a site with a larger supply and lower relative price of the most productive factor, so for any one location there will be a better technology in use somewhere else (but with different relative prices). However, firms face search and switching costs when looking for new technology, and sunk costs in adopting one.  

 

 

Incremental Innovation in Construction

 The example of concrete

 

Construction of the built environment has an interlocking set of economic, political, legal, and social barriers that make innovating difficult. As long as current technology meets the expectations of clients and users for prices and dominant products, there will be significant market imperfections such as network economies, lumpiness, split incentives, requirements for collective action, and transaction costs that inhibit diffusion of more efficient, advanced technologies. There is also an institutional structure that imposes regulatory hurdles or other policy disadvantages, favours existing technology or discourages new entrants, and a financing system based around incumbents. Educational curricula, career paths, and professional standards use existing technology. And because organizations, people and technical standards are embedded within a production system, the tendency is for technologies to develop along defined trajectories unless or until deflected by a powerful external force.

 

Construction of the built environment is a project-based system of production with complex professional, organizational, contractual and working relationships, and is geographically distributed. Moreover, the context is one of wider networks containing many small and medium size firms with a range of organizational and institutional relationships, where external contracting is common. All these factors are seen as inhibiting, although not preventing, innovation and diffusion of new technology. Within such a system incremental innovation improves industry products and processes without affecting the structure of the system. 

 

In construction, many technical advances have come from materials suppliers or component, plant and equipment manufacturers, who have been responsible for the introduction of new products and equipment, such as excavators, cranes, facades and lifts, using incremental innovation directed at improving existing products and processes. Across the construction supply chain firms don’t create new industrial networks to develop or exploit new technologies such as lifts and elevators, glass facades, and interior wall systems, instead these firms become part of the existing network, which is the modern construction production system. As a well-developed industrial system many of its sub-markets are expected to be concentrated and oligopolistic, with a few large, well-established firms exactly like those economic historian Joseph Schumpeter suggested would be most likely to engage in R&D, invention and innovation.

 

The process where inventions are developed, tested and extended, and finally put into production is one of incremental innovation. Firms refine specific parts of a production system, usually in response to something changing elsewhere in the system as production and distribution methods evolve over time, step by step. Although this form of innovation is incremental, it should not be dismissed as unimportant. Examples are the increase since 1950 of mining truck loads from 4 to 400 tonnes and the increase in lifting capacity of tower cranes to over 1,000 tonnes. Another example is the development of computer-aided design (CAD) software, which went on for two decades before Autodesk was started in 1982, one year after the first IBM PC. Over the decades Building information models (BIM) have advanced through 2D and 3D versions to the 4D (schedule) and 5D (cost) iterations today. Now software linked to cameras on helmets or drones can provide real time augmented reality (AR) images from a building site linked to the BIM model of the project.

 

Building and construction products and processes are the outcome of a long development path. Many of the industry’s global leaders are well-established, Bechtel for example is over 100 years old, and other firms like Hochtief, Skanska, and AECOM can trace their origin stories back over a similar period. Shimizu is over 200 years old. Most of today’s manufacturers also have their roots in nineteenth century firms. It’s a remarkable fact that construction today is a production system that has been developing for more than 150 years, since the arrival of steam, steel and concrete, using incremental innovation to gradually improve products and processes. 

 

In the industry life cycle, after emergence and the initial growth stage, technology stabilises around standardised products and processes. In many cases industries are oligopolistic, with a few specialized firms in market niches or layers in the supply chain. Consolidation leads to industry concentration with large firms dominating their markets, the car industry is an example. Construction materials like cement, concrete and glass, and components like building management systems, interior walls, plumbing fixtures, lifts and elevators are all oligopolistic industries in an established supply chain.[i]

 

 

Incremental Innovation: The example of concrete 

 

The development of concrete is an example of how effective incremental innovation in construction can be. By the 1880s the increasingly widespread use of concrete had changed its status from hobby to a modern industry, as scientific investigation into its material properties revealed its shear and compressive characteristics. With the development of reinforced concrete there was change in architectural concepts of structures and approaches to building with concrete. The industrial standards of concrete technology influenced ways of thinking based on building systems and standardized building elements. These became identified with what was known as the Hennebique System, a simple to use system of building with reinforced concrete columns and beams patented in 1892. By 1905 Hennebique’s system had spread across Europe and elsewhere and his company employed 380 people in 50 offices with 10,000 workers onsite.[ii]

 

Concrete then set the agenda for the development of construction as a technological system over the next hundred years driven by the modernist movement in architecture, as it explored the possibilities of these material for increasing the height and scale of buildings, and modern construction materials and methods.[iii] For over one hundred years, since Hennebique, there has been ongoing refinement and development of the world’s most widely used construction material, as shown in Table 1.

 

Concrete shows how incremental innovation in materials played a significant role in the reorganization of site production methods as mixers, pumps and chemicals were refined and developed in a long process of interconnected innovations. One of the characteristics of a successful technology are these spillover effects, with advances in one industry leading to complimentary developments in related industries. 

Table 1. Incremental innovation in concrete since 1800

Source: Jahren, P. 2011. Concrete: History and Accounts, Trondheim: Tapir Academic Press.

Innovation is continuing today with 3D concrete printing (3DCP). Research into 3DCP has focused on developing the equipment needed and the materials used, and by 2019[iv] over a dozen experimental prototypes had been built. By 2022 the commercialisation of 3DCP was underway, with two types of systems available. One using a robotic arm to move the print head over a small area, intended to produce structural elements and precast components, the other a gantry system for printing large components, walls and structures. 3DCP combines BIM models, new concrete mixtures and chemicals, and new printing machines. Again, a combination of new materials and new machinery is required for this technology to work.

 

In 2022 the Additive Manufacturing Marketplace had 34 concrete printing machines listed, ranging from desktop printers to large track mounted gantry systems that can print three or four story buildings. Companies making these machines are mainly from the US and Europe, and Table 2 also has details on the type and size of a selection of machines. There are also several companies offering 3DCP as a service at an hourly or daily rate.[v]

 

Concrete printing is only one part of the development of additive manufacturing. In mid-2022 the Additive Manufacturing Marketplace listed 2,372 different 3D printing machines from 1,254 brands. The number of printers and materials used were: 364 metal; 355 photopolymers; 74 ceramic; 61 organic; 34 concrete; 24 clay; 20 silicone; 19 wax; and 19 continuous fibres. Many of these printers could be used to produce fixtures and fittings for buildings. Producing components onsite from bags of mixture avoids the cost of handling and transport, and for large items avoids the load limits on roads and trucks. There are also printing services and additive manufacturing marketplaces being set up. These link designers to producers with the materials science, specialised equipment and print farms capable of large production runs and manufacture on demand. Examples are Dassault Systems 3DExperience, Craft Cloud, Xometry, Shapeways, 3D Metalforge, Stratasys and Materialise.

Table 2. Some companies making 3D concrete printers

Source: Additive Manufacturing Marketplace, 2022. 

 

 

Conclusion

 

Innovating in a complex, long established industrial sector like construction of the built environment can be difficult. The institutional architecture can impose regulatory hurdles or other policy disadvantages on new technologies, and government expenditures often support existing technology. Lenders are risk averse. There are subsidies and price structures that favour incumbents and ignore externalities like the environment and public health. Educational curricula, career paths and professional standards are oriented to existing technology. The dominance of existing technologies is further reinforced by imperfections in the market for technology such as network economies, lumpiness, split incentives and the need for collective action.[vi]

 

The construction industry has become used to incremental innovation and a gradual rate of change since the modern industry emerged over the last few decades of the nineteenth century. At the beginning of the twentieth century there was a great deal of resistance to change: ‘the older assembling industries like engineering were slow to change. Each firm took a proprietary pride in its own work’, and the trades were ‘fearful of technological unemployment and fought all changes in conditions of work.’[vii] Nevertheless, by the 1920s construction had reorganised the system of production around concrete, steel and glass. 

 

We are at a similar point today. The development of digital construction using combinations of BIM, offsite manufacturing, 3DCP, drones and robots, is an emerging new system of production, and the adoption and adaptation of these technologies will depend on incremental innovation continually improving their performance, which can only happen if they are put to use. There is a strong case here for public clients, who will be major beneficiaries of the improved efficiency of digital construction, to sponsor demonstration projects that use these technologies and measure the improvements in waste, carbon, defects, time and cost that are delivered. 

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[i] Syverson, C. 2019. Macroeconomics and Market Power: Context, Implications, and Open Questions, Journal of Economic Perspectives, 33, 3, 23–43. Syverson, C. 2008. Markets: Ready-Mixed Concrete, Journal of Economic Perspectives, 22, 1, 217–233.

[ii] Pfammatter, U. 2008. Building the Future: Building Technology and Cultural History from the Industrial Revolution until Today. Munich: Prestel Verlag.

[iii] Cody, J. 2003. Exporting American Architecture 1870-2000, London: Routledge. 

Huxtable, A. L. 2008. On Architecture: Collected Reflections on a Century of Change, New York: Walker Publishing Company.

[iv] Sanjayan, N. and Nematollahi, B. (eds.) 2019. 3D Concrete Printing Technology: Construction and building applications. Butterworth-Heinemann.

[v] https://www.aniwaa.com

[vi] Bloom, N., Van Reenen, J. and Williams, H. 2019. A toolkit of policies to promote innovation. Journal of Economic Perspectives, 33(3), 163-84.

[vii] Hughes, T. P. 1989: 495. American Genesis: A Century of Invention and Technological Enthusiasm 1870-1970, Chicago: University of Chicago Press. 

Construction as a technological system of production: A life cycle approach

 Innovation and industry evolution

The stages in the life cycle of an industry typically start with first applications of a new invention by technology leaders, followed by development and refinement of products and services, before becoming a mature industry with well-understood products and practices. Mature industries are past the early growth phase, their culture of technology has stabilised and the shape of industrial structure and processes has emerged. In many cases these industries are oligopolistic, with a few specialised firms dominating market niches in the supply chain. Consolidation leads to concentration. 

The new technology that starts a cycle of industry development can be a general purpose technology (GPT) that becomes the basis of a new system of industrial production. The key feature of a GPT is ‘pervasiveness’, how it is used by other sectors in the economy and leads to ‘complementary investments and technical change in the user sections’ (Helpman and Trajtenberg 1998: 86).  The examples originally used by David (1990), and broadly followed since, were steam, electricity and information technology.  Lipsey, Carlaw and Bekar  (2005) include two organizational GPTs in their list of two dozen since 9000BCE: mass production and the factory system; and lean production and the Toyota system. It is widely believed AI is a new GPT.

Thinking about the construction industry and the production of the built environment as an evolving ‘system of production’ provides a new perspective on the context and direction of innovation and its evolution since the first industrial revolution. Hughes’ (1987) life cycle model had seven phases: invention, development, innovation, transfer, growth, competition, and consolidation. Within those seven phases of the life-cycle are two interior cycles that divide an industry’s evolution into two stages: Cycle 1 is invention, development, innovation, and transfer, Cycle 2 is growth, competition, and consolidation.

Cycle 2 focuses on innovation in production and organization, when mature technological systems emerge and construction materials like cement, concrete and glass, and components like building management systems, interior walls, plumbing fixtures, lifts and elevators have become oligopolistic industries in a mature supply chain. A mature industry produces a specific culture of technology, embodied in the firms and social institutions of the system of production, and creates the tendency for an industry to develop along defined technological trajectories unless or until deflected or disrupted by a powerful external force.

A diverse cluster of industries with deep layers of specialised firms in a dense network of producers, suppliers and materials is a ‘technological system’ (Hughes 1987: 47). Electricity grids and railways have networks, telecommunications and air traffic use interconnected nodes, postal systems use existing networks, some are geographically large, some are local, some are narrow, some broad.  

Construction innovation has been narrowly focused because construction is a mature technological system, but this is changing. With a technological trajectory based on AI and associated emerging production technologies, the commercial contracting part of the industry will adopt these technologies as they become viable. The organization and structure of the industry will then change in response to changes in relative costs as the economies of scale of digitized production technologies are realized.

AI as a new GPT may be the start of a new life cycle in building and construction technology, and may be as disruptive as steam power was in the nineteenth century to the master builders and craftsmen of the day. The organization of construction is currently centred on project managers and incremental innovation, but a transformed industry would be focused on integrators who combine site preparation with production and assembly of digitally designed and fabricated components and modules.

 

 

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Helpman. E. and Trajtenberg, J. 1998. Diffusion of General Purpose Technologies, in Helpman, E. (ed.), General Purpose Technologies and Economic Growth, Cambridge: MIT Press. 85-119.

Hughes, T. P. 1987. The evolution of large technological systems, in The Social Construction of Technological Systems: New Directions in the Sociology and History of Technology, W. E. Bijker, T. P. Hughes, and T. J. Pinch (eds.), Cambridge, Mass.: MIT Press.

Hughes, T. P. 1989. American Genesis: A Century of Invention and Technological Enthusiasm 1870-1970, Chicago: University of Chicago Press. 

Lipsey, R. G., Carlaw, K. I. and Bekar, C. T. 2005. Economic Transformations: General Purpose Technologies and Long-term Economic Growth, Oxford: Oxford University Press.