According to a recent white paper written by FMI’s* Sabine Hoover and Jay Snyder, today’s modular design and construction trends are poised to pull the engineering and construction (E&C) sector out of its 50-year lethargy and launch a new era for the industry.

Capital projects today are getting more complex and many of these projects face chronic cost overruns and schedule delays. In fact, according to The Economist, over 90% of all global infrastructure projects are either over budget or late. The authors maintain that modular design and construction can alleviate these costly issues.

While offsite construction has been around for decades – including prefabrication, modularization, preassembly or offsite multi-trade fabrication — according to these industry pundits, it has only recently emerged as a critical method for delivering projects faster, safer and cheaper in today’s labor-constrained environment. That being said, according to the FMI researchers, only 37% of owner organizations in the E&C sector are embracing offsite construction; nearly 50% still opt for traditional design-build approaches, which do not allow for optimal project planning and execution of offsite construction.

Despite advanced technologies and digital tools that now allow firms to leverage data to address these issues, and despite the fact that there is a $1.6 trillion productivity gap in the construction industry (that much additional value could be added to the sector’s revenues via higher productivity), the U.S. is experiencing declining productivity in this sector, with China and South Africa making dramatic leaps and taking the overall lead in this category.

The authors point out that the E&C industry’s resistance to change could “cost it dearly”. It is not an industry that has traditionally embraced disruptive innovation. Most firms have lacked the vision, strategic initiative, will, expertise –  and most importantly, the financial capital to innovate. There simply hasn’t been a significant return on investment or incentive to innovate. Even so, if firms don’t learn the art of managing change and take advantage of new business models and new technologies such as modular design and construction, they will be eclipsed by those that do.

FMI sees a tremendous amount of venture capital directed into innovative sectors of the E&C industry. “Private equity firms are ramping up investments and seeking new niches that are helping firms to change corporate direction,” says Alex Miller of FMI Capital Advisors. With companies like Google, Marriott, Starbucks and Autodesk embracing offsite construction, investment money is looking to revolutionize the industry.

While FMI claims that over half of all E&C firms expect more change in the next 5 years than in the last 50 years combined, the question remains: will they change? Will they adopt a new framework for success? Will they collaborate on a more streamlined approach to the design-manufacture-construct process? Can construction manufacturers leverage technology to reinvent the entire construction value equation and drive innovation?

There is plenty of evidence that leveraging off-site construction and modular design can mitigate the impact of weather delays and create safer on-site construction environments, as well as improve productivity, increase project efficiency, and enhance collaboration between offsite fabricators and general contractors. It remains to be seen however, if E&C firms can reinvent themselves, not only to keep up with the competition, but to stay relevant in the future.

The authors offer the analogy that disruption is more like a hurricane than a tornado – destructive but offering sufficient time to respond if industry participants are willing to do so. They believe it is in fact possible to respond and survive. Ironically, disruption is rarely led by current industry experts or insiders, but rather it is generated by innovators from outside the industries they disrupt.

*FMI is a management consulting and investment banking firm focused in the E&C, infrastructure and built environment sectors.

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