Prockure’s Mission: Reduce New Home Construction Costs by €10,000
Since our evolution as a species 150,000 years ago, humans have had this innate desire to build these incredible structures like Newgrange, the Pyramids, and the Taj Mahal. Our homes were the most important material object we owned 150,000 years ago and they’re still the most important thing we own today. Construction importance in all our lives is reflected in the fact it’s the largest industry in the world, representing 13% of global GDP. This makes perfect sense when you think that the largest purchase most of us will ever make is our home. In theory, due to its size, the industry should be extraordinary efficient; in practice, anybody who’s worked with a homebuilder or contractor can describe a multitude of areas where it’s not.
Construction is one of the oldest industries in the world and this can be sometimes reflected in sectoral attitudes towards new technologies. Aside from BIM, which involves creating a digital representation of a built space, there’s been very little innovation in the sector amongst building contractors and homebuilders over the past two decades. On a global level, the reason behind this is simple: construction companies allocate the lowest IT budgets as a percentage of their revenue at 1.5%, which is less than half the average across all other sectors according to Deloitte.
When it comes to investment and innovation, if you pay peanuts, you get monkeys. McKinsey compared U.S. industries across 27 criteria over 9-years, to create a digitisation index of 1 to 100, with 100 being the most digitised. Their analysis showed a strong correlation between sectoral digitisation and productivity growth, with the information and communications technology industry being the most digitised with an index score of around 94%, and the highest annual compound Productivity Growth of around 4.6%. Conversely, construction is ranked bottom in the index with a digitation score of about 6% and the worst productivity declines of any industry at around -1.4%.
With the sector’s low margin and volatile nature, both on an international and domestic levels, it’s somewhat understandable that building contractors and homebuilders haven’t invested in software in the past. It can sometimes be hard justifying the typical large six-figure outlays on something unproven, when you could go out of business before seeing any return on it. This attitude towards technology creates a vicious cycle though, whereby the industry’s inability to get more productive leaves it more vulnerable to economic shocks, and when those downturns start to bite, it’s less able to weather them.
This is borne out in the number of companies going out of business before the Covid-19 pandemic, when the construction industry had the most insolvencies in the UK and the second-most in Ireland. No contactor in a high-risk earthquake zone like San Francisco would use boulders and wood to construct a skyscraper. Yet from a financial risk perspective, those builders seem to be willing to sleep in the penthouse of that dodgy skyscraper, when they should be looking to rebuild it with the digital equivalents of reinforced steel and concrete.
In Ireland, a report carried on behalf of the Department of Public Expenditure and Reform showed that construction companies lag behind their international counterparts in other smaller wealthy countries when it comes to productivity per labour hour worked. Belgium achieves a Gross Value Add (GVA) per hour of €45.51, while Ireland achieves less than half of this at €22.30 GVA per hour, and one of the key factors behind the success of Belgian companies is attributed to their adoption of digital technology.
In Irish construction, a common complaint from the industry is that the cost of building is too high. The average three-year net margins amongst CIF Top-25 Contractors is 2.9%, and using this figure as an approximation for the rest of the construction industry, it’s clear that the sector isn’t making enormous profits, like many outsiders assume.
So, when the risks are high and the margins low, we feel the most obvious way of improving the sector is for it to become more productive, and the easiest and most logical way of doing it is by investing in technology. While much of the current focus in construction software is on BIM, it’s not a panacea because of the high up-front software licensing and training costs. At Prockure, we believe that there’s much lower-hanging fruit to be picked by digitising the supply-chain, and that the first step towards improving that process is for a builder to introduce online material ordering to their company.
Fifteen years ago, Alan Hore of CITA characterised construction’s use of electronic purchasing technology as sporadic and piecemeal. Amazingly, a decade and a half later in Ireland, nothing has really changed, as only one major Irish contractor has adopted any sort of procurement software which could resemble a digital ordering system. This is reflected in the Central Statistics Office’s most recent Information Society Enterprise study which shows that only 2% of purchases in construction are made through e-Commerce, as opposed to a 36% average across all other sectors.
All of this is quite academic, and on a practical level construction’s productivity problem costs us all money, on what’s probably most people’s largest annual expense: our mortgages and rent. SCSI has estimated that the hard cost (bricks and mortar) of building a 3-Bedroom house, 1,227 sq. ft. (114 sq. m.) in Dublin is €178,902. Using the McKinsey productivity chart above, if construction could achieve a 6% turnaround in productivity levels and hit the same peaks as the IT sector, that Dublin house would become €10,734 cheaper to build; if construction productivity were to catch up with the 2.8% levels of the wider economy, that home would be €7,513 cheaper.
Our mission as a company is to help the construction industry reach the productivity levels of a technology company, and we believe the first step to achieving this is to digitise the material ordering process. Those doing the buying on-site probably use e-Commerce to buy concert tickets or book a flight, and there’s no logical reason why the same shouldn’t be happening when they’re ordering electrical cable or timber from a local builders’ merchant.
We’d equate the construction industry’s current technology setup as being analogous to having a beautiful home on an island off the coast of Galway or Kerry, with no connection to the mainland. Going through the ordering process manually is like having no water main connection and carrying 30l of water home every week to consume. When a site clerk is manually entering GRNs into an ERP, we’d equate the current non-software-based approach to having no electricity connection and having to cook the dinner over a fire-lit stove after lighting the house with candles. Finally, when the construction company’s accounts have to reconcile all of this to try and make payments, it’s like the island having no telephone connection and trying to communicate messages through carrier pigeons. Our goal as a company is to help every construction become more connected, but instead of water, electricity, and a phone line, it’s quick clean order, GRN and payment data.
If any of your friends, families or partners are involved in construction, and think we might be able to help, feel free to share this post. If you’re involved with a building contractor or homebuilder, and would like to use e-Commerce to order building materials without any up-front costs, arrange a chat with us today.