Overcoming the Productivity Puzzle in UK Construction

Transcription

1 Overcoming the Productivity Puzzle in UK Construction A Donseed white paper for construction companies looking to improve their onsite productivity with new technologies.

2 Contents 01 Introduction 02 What affects productivity and why is it important? 03 The productivity puzzle 04 The productivity puzzle (continued) 05 The outlook for construction companies and the need to keep-up 06 New ways of working smarter 07 New ways of working smarter (continued) 08 The right level of decision-making 09 About Donseed and contact information

3 Improving productivity in construction: why the discussion needs to start in the boardroom Introduction The UK has been struggling with the productivity puzzle and how to catch-up with its close neighbours in the production stakes. While national questions may indeed require long-term visionary thinking from the government, in this white paper we look at how construction companies can do a lot today to improve their own fortunes. What is productivity? Productivity is the measure of the efficiency of a person, organisation, sector or country, calculated by the rate of output per unit of input. Typical inputs are labour and capital, and these, along with inputs such as technical or organisational innovation, form total factor productivity (TFP). A partial measure of productivity is labour productivity, which measures output per worker or number of hours worked and is a measurement of the efficiency of the workforce. 01

4 What affects productivity and why is it important? There are a number of factors that affect a nation or a company s ability to improve productivity, some of which require investment or robust policies at national state level, others that require investment at company level. Among the most important are R&D spend, which helps create the technical innovations of tomorrow; investment in workforce skills; and investment in new technologies. [1] Other factors also affect productivity, such as wellbeing to ensure a workforce is healthy; education for upgrading skills; access to affordable housing, so skilled workers can move for work; immigration so skills can be imported; and transport infrastructure to move people and materials efficiently. In this respect, construction output, in terms of creating the buildings where economic activity takes place and where people live, contributes to the overall productivity of the economy. Governments are preoccupied with productivity because it is one of the biggest factors in securing economic growth, which has long been seen as the holy grail of economic policy. For instance, the National Institute of Economic and Social Research (NIESR) estimates that, over the last 250 years in the UK, increases in labour have contributed just under 20% of the overall increase in output, increases in capital have contributed 37%, whereas increases in productivity have upped output by 44%. Furthermore, since the middle of the last century, reports show that increases in productivity are responsible for almost 60% of the increase in output. [1] 02

5 The productivity puzzle Looking at the national picture, figures published by the Office of National Statistics (ONS) in 2015 put UK output per hour worked to 15.9% below the average for the rest of the G7 advanced economies, with the difference between post and pre 2008/9 downturn productivity performance at 15.2%, double the G7 average of 7.5%. [2] In terms of R&D, the UK is also lagging behind, at 1.7% of GDP compared with Germany s 2.8%. [3] Back in 2016, the UK Chancellor of the Exchequer, in his Autumn statement, neatly summed up the UK s ongoing productivity problem by saying: The productivity gap is well known, but shocking nonetheless. It takes a German worker four days to produce what we make in five, which means, in turn, that too many British workers work longer hours for lower pay than their counterparts. [4] Yet somehow the UK has maintained growth, which would normally be expected to dip. This productivity puzzle is explained by NIESR, which points to a drop in real wages of 7% since the financial downturn: In effect, we have stumbled on a low wage-low productivityhigh employment outcome...the problem is that this outcome is one that implies low productivity growth. [5] 03

6 The productivity puzzle (continued) But there is only so far growth can be upheld through driving down labour costs or increasing labour market flexibility; and particularly in the construction industry. At some point a new approach is needed - investment in R&D, skills and new technologies. While a drop-in unemployment is welcome, the real solution to increasing productivity for construction companies is not to have more employees working on site, but to be working smarter. As the Organisation for Economic Co-Operation (OECD), cited in the Chartered Institute of Building (CIOB) s Productivity in Construction report put it: Productivity is about working smarter, rather than working harder : it reflects our ability to produce more output by better combining inputs, thanks to new ideas, technological innovations and new business models. [6] However, the situation is more complex that. 04 The CIOB report emphasises that some sectors of the economy are more labour-intensive than others and simply reducing labour-intensive activities to improve productivity is not necessarily the way to go. For example: In construction repair and maintenance, for instance, work is noticeably more labour-intensive than most new build. But it would not necessarily be sensible, holistically, to stop repair and maintenance in favour of new build. [7]

7 The outlook for construction companies and the need to keep-up The construction industry, often cited as one of poorer sectors out of all UK industries for productivity growth, looks to have improved in recent years, if only in comparison with other sectors that have decreased more rapidly. The industry s productivity contribution to gross value added (a major part of GDP) improved slightly, in contrast to all other sectors, albeit from a negative base. [8] ONS data, cited by the CIOB, shows that output per hour worked in 2012 in construction was 23.60, compared with agriculture at 11.80, chemicals and pharmaceuticals 73.30, finance and insurance 56.30, and real estate [9] The CIOB adds that this in part reflects the labour intensity of the various sectors. [10] Again, the context is important. Good construction contributes to increased productivity elsewhere in the economy. Improvements in construction productivity, such as off-site manufacture or assembly, may not show up in the construction figures, but be counted as manufacturing improvements. Additionally, as the CIOB points out, The notion that construction is locationspecific is important in any discussion on productivity, because the value of its products are in a large part determined by location and consequently by land. The construction industry cannot off-shore, as manufacturers often can. [11] Although it is true that individual construction companies are limited by a range of factors in how much they can do to improve matters, the cost of not adopting measures to improve their own productivity could see them being priced-out of the market by early adopters of rapidly advancing technological opportunities. We are living in a digital age, the Internet of Things (IOT) is fast approaching, which will enable direct linking of internet-connected devices, to bring about, among other things, smart homes, smart cities, intelligent public transport systems and smarter construction. Another impact will be the big data derived from this, and what uses it can be put to by construction companies and society alike to improve and inform decision-making. 05

8 New ways of working smarter There is already a lot that can be done to improve productivity in the construction industry today by tackling some of the inefficiencies that we already know exist. Alasdair Reisner, Chief Executive at the Civil Engineering Contractors Association, said in the Productivity in Construction report: Everyone is currently chasing their tails trying to find the solution to the productivity puzzle, both in construction and the wider economy. Yet, if we are being honest with ourselves, we know where the answers are for our industry. Every day we see duplication of effort, underinvestment in innovation, and the time spent jumping through procurement and regulatory hoops that create little value. The problem is not one of knowing what we can do to improve productivity, but knowing how the industry can change its whole business model to one that allows these improvements to occur. [12] In the same report, the Construction Industry Training Board (CITB) found more than 70 factors affecting productivity stated in academic studies. In fact, the CITB concluded that the range of productivity between teams doing more or less identical tasks in identical environments could vary widely. It highlighted an example where the average productivity between two groups of workers varied by more than 50%. [13] 06

9 New ways of working smarter (continued) Apply this theory to construction, where margins are so tight, and that is money that construction companies cannot afford to give away. But there are clearly reasons for this. The CITB points to the quality of site management as one cause. Another cause could be that historically this information has been difficult to identify in a tangible way. What is essential is that construction companies collect the right data to determine what is happening on site to help them make informed decisions. The IOT, 3D printing and general digital automation, to name a few, are all technologies that the industry will harness to a lesser or a greater extent, but construction companies have yet to fully embrace the innovations designed to improve their own organisations. Among the range of technologies available for business process automation are biometric identity workplace management systems, the field in which we work. With paper-based systems, keeping track of on site operatives to fulfil health and safety requirements and for payroll purposes is a challenging process. In addition, any data collected can often be difficult, timeconsuming and ultimately costly to extract. Detecting all forms of paid unproductive time, health and safety breaches, or checking that the right people with the right skills are on site at the time they should be is a laborious job using paper-based systems. Such technologies can also have an immediate positive effect on overall workplace productivity. Ground Construction Limited, for example, found that by upgrading to Donseed s system to monitor their 800-strong onsite labour force they were able to cut labour costs by 10-15%. [14] 07

10 Summary: getting the right level of decision-making The new ways of working with biometric identity workplace management systems give true visibility over what is happening on sites and, automatically, eliminates a host of bad practices. Many managers in construction are reluctant and cautious to upset existing practices for fear of losing the loyalty of their sub-contractors workforces. For this reason, the conversation about productivity needs to start in the boardroom. Leaders at construction companies cannot rely on the management of the business to ascertain which new technologies should be tried to tackle the productivity problem. If any new technology is to be successfully deployed, it must come from the leaders of the business, who buy into it themselves and understand the business ultimate objectives. While change can be disruptive in the short-term, it need not be costly. Biometric identity workplace management systems typically pay for themselves within months, producing ongoing savings and valuable data to address more deep-rooted issues. 08 Harnessing technology in the construction industry, as the evidence suggests, is where the next step-change in the productivity puzzle will come from. If you would like to talk about this white paper or to see how Donseed can help your business, please contact one of our specialists.

11 About Donseed and contact information Donseed provide specialist workplace management software solutions to construction companies, allowing them to accurately capture project data using biometric identification at the point of site entry and exit. The unique solution integrates leading biometric hardware, advanced web-hosted technology and a management process that brings about big business benefits. Established in 2007 to initially meet the management needs of the construction sector, Donseed s workplace management solutions are now deployed across a wide range of temporary, mobile and permanent workplaces. Donseed is used throughout the construction industry, including by Careys Civil Engineering, Keltbray, Severfield, 800 Group and ISG Retail. Website: sales@donseed.com Phone: +44 (0) [1] The UK s Productivity Puzzle: Labour, Investment and Finance. NIESR. General Election 2017 Briefing No. 7 Productivity%20Puzzle-%20Labour%2C%20Investment%20and%20Finance%27.pdf [2] ONS figures [3] see [1] [4] Guardian Nov [5] see [1] [6] OECD, The Future of Productivity, December 2015: cited in CIOB, Productivity in Construction: Creating a framework for the industry to thrive. [7] CIOB, Productivity in Construction: Creating a framework for the industry to thrive. [8] ONS Multi-factor Productivity (experimental): Estimates in [1] [9] ONS, Labour Productivity: Oct to Dec 2015, April 2016 Note: tables 4, 6, 8 at 2012 levels, cited in CIOB, Productivity in Construction: Creating a framework for the industry to thrive. [10] CIOB, Productivity in Construction: Creating a framework for the industry to thrive. [11] CIOB, Productivity in Construction: Creating a framework for the industry to thrive. [12] CIOB, Productivity in Construction: Creating a framework for the industry to thrive. [13] CITB, The Construction Skills Network programme, : Final Report Bid Package 5 - Productivity Review/Workshop, May 2015, cited in CIOB, Productivity in Construction: Creating a framework for the industry to thrive. [14] Donseed, Ground Construction Limited case study 09

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