Smarten up construction? Why would we want to do that?
Well, if your new phone arrived with scratches, poorly fitting parts and some features not working you would be decidedly unimpressed.
A similar experience with a new car would have it branded a ‘lemon’.
But poor quality construction is so commonplace that a special process exists just to deal with it – the defects rectification period.
This highlights the stark difference between the performance of, and our expectations around, products from industries which have modernised (IT/telecoms and automotive manufacturing being two examples) and the construction sector, which has been a laggard. In short, construction has hardly changed over many decades.
How can this be, and why do we put up with substandard delivery quality in construction when we do not accept it for other products? Surely building a modern home is not more complex and demanding than making a smartphone.
The answer would seem to be that there has been no alternative. Yet, our homes are significant financial assets, often the most expensive things we purchase. They also embody emotional value and even social standing attributes. That suggests that there would be interest in superior quality housing outcomes and processes.
Where might we look for a better way? The chart below, from a US study, shows manufacturing sector output being made up of "value added" at 62 per cent, "support activities" at 26 per cent, and "waste" at 12 per cent.
Now let’s look at the construction industry breakdown from the same study.
Talk about a construction cringe; for construction, the value added element is just 10 per cent, and waste is making up for it with a staggering 57 per cent.
We can see that waste and value added in construction are pretty much the reverse of those same measures for the manufacturing sector. Therein lies the potential if construction can become more like manufacturing.
In Charlie and the Chocolate Factory, it was Willy Wonka’s chocolate factory, dutifully manned by the Oompa-Loompas, which gave rise to the much sought after ‘golden ticket.’
If manufacturing is the golden ticket for construction, what does that mean for Australia? It is easy to characterise manufacturing in Australia as a ‘sunset’ sector, in perpetual decline as manufacturing increasing switches to lower cost countries.
But that assessment does not hold up to closer scrutiny if we recognise that manufacturing is not what it used to be. It no longer simply equates to production. Value creation in manufacturing is now much more about intangibles such as research and development, design, logistics and engineering than what happens on the factory floor.
It wasn’t that long ago that mobile phones were for telephone calls and not much else. Back then, the Apple brand was known for personal computers and user-friendly operating systems. We are all familiar with how that has changed. But who would argue that Apple is not an American company because its iPhone screens are made by (Korean) Samsung and its phones assembled in China?
An analysis undertaken for the Advanced Manufacturing Growth Center (AMGC) Sector Competitiveness Plan due out before year-end revealed that Australia’s manufacturing sector is larger and more relevant than publicly portrayed. It shows that manufacturing in Australia:
- generates export revenue of more than $9 billion per month - 44 per cent of total merchandise exports
- employs close to 900,000 people - 7.5 per cent of the Australian workforce
- files the most patents of any sector in the Australian economy
What is even more remarkable is that these figures are based on the traditional manufacturing metrics which do not reflect the manufacturing ‘smarts’ outlined earlier.
The AMGC analysed 3,000 globally successful manufacturers to understand what makes them competitive. Key findings include:
- pre- and post-production activities are increasingly important to competitiveness
- higher-skill intensity is required to remain relevant and competitive (this explicitly includes management skills)
- Australia has a labour cost advantage in the higher skill sets compared to other leading manufacturing nations. In the two sub-sectors AMGC looked at - aerospace and medical technologies - Australia enjoys a labour cost advantage of 40 per cent.
This means Australia can compete on the global manufacturing stage by making complex things. That's a good news story not just for construction but for Australia’s overall prospects in the new age of manufacturing.