The opportunity for innovation in construction is greater today than ever before. In December of 2015, McKinsey Global Institute issued a report titled “Digital America: A Tale of the Haves and Have-Mores.” It included the MGI Industry Digitization Index that ranked construction second to last out of 21 different industries, just above hunting and agriculture, with regard to the digitization of assets, usage, and labor. It also indicated that our productivity growth between 2005 and 2014 was at -1.4%. Because of this report, innovation in our industry is being driven by technology, and particularly from tech start-ups. It’s exciting to see tech companies interested in our industry and developing applications using technologies like augmented reality and Artificial Intelligence.
One of the biggest challenges with innovation is figuring out how to move it from theory or prototype to operations. When we built our Net Zero trailer, many peer companies told us they had the same idea. It wasn’t the idea itself that was innovative but the fact that we did it – and in a way that it can be replicated. Another challenge with innovation is discerning which ideas are better left for others to develop fully. Constructing the Net Zero trailer taught us that, for several reasons, it’s smarter to partner with a third-party than to manufacture them ourselves.
At Pepper, our goal is to embrace the changes that are headed toward the AEC industry and to apply them in a way that makes sense for us. Just three years ago, Pepper created our Integrated Construction Services (ICS) department to deliver a better project for our clients. Just a year and a half ago, we focused our ICS department on including our Preconstruction group, our Technical Services group and our High-Performance &Sustainability group, which are integrated through their creation and use of 3D models. We established a rotational program through these departments for employees interested in building additional skill sets. After one team member finished her technical services rotation, she moved into our preconstruction group, where she had an idea: She suggested that she could model a building faster than she could do take- offs with 2D drawings. This was the birth of model-based estimating at Pepper, and it has grown to be our standard in just a little over a year. While BIM has become an industry standard for many general contractors, few, if any, are positioned like us to scale its use on any size project or to apply it throughout the life of the building.
Originally, we thought we would need a third-party developer, but when we realized that we would be paying to educate them on our idea and the process, we decided to take on the effort internally. Our collaborative structure opened the door to other opportunities for innovation.
Throughout 2017, VP of High Performance & Sustainability Susan Heinking, Software Architect Dang Do and I worked on the Pepper Building Performance Tool to quickly calculate the upfront construction cost impacts of different system selections, along with their associated long-term operational savings.
We rolled out the Pepper High-Performance Tool in March of 2018, and we have used it to support countless jobs since. He introduced us to players on the tech side of our industry, and our conversations culminated with an investment in the Building Ventures Fund a few months later. There are real opportunities with start-ups in our industry, and we wanted exposure to those opportunities without having to make direct investments. While we have software developers on staff, we are not a software company, so we focus their initiatives and innovations on tools that make us a better builder. Sometimes opportunities overlap, as is the case with SmartVid.io, which is a software that can benefit Pepper Construction and was developed by a company in which the Building Ventures Fund invested. As such, we are piloting the program.
Dedicating our resources to the Pepper Building Performance tool made sense because it was not capital intensive. Even though other trends, like modularization, have been around for decades, they require an incredible amount of upfront capital. Katerra has done a great job of shaking up the market; however, to position themselves, they created a different business model that is vertically integrated from developer/owner all the way down through trades and material suppliers. Locally, Skender is also making a play in the modular construction arena by opening a factory in Chicago. It’s ambitious, and once they have perfected the process, we will look to them as a supplier of fully furnished rooms. Modularization can decrease costs and deliver projects faster, and just because we didn’t manufacture the rooms does not mean we can’t benefit from the process.
The reason why modularization works for Katerra is the same reason our Building Performance tool has been successful for us. Innovation works when we pursue solutions that are both sustainable for our business and beneficial to our clients.
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