Photography by Nick Frank
It’s impossible to ignore the extent to which technology has changed how business gets done. From agriculture to finance, there are few professional sectors in modern life that haven’t been revolutionized by digital platforms. One industry, however, has been slow to embrace such transformation. Global annual spending for building and construction currently amounts to several trillion dollars and is predicted to top $9 trillion a year by 2025, according to a report from the professional services firm PwC. While construction spending is massive and on the rise, research from McKinsey and Company indicates there has been little advancement made in how the construction industry utilizes technology and integrated software solutions to streamline the building process and capture the associated efficiencies and costs. The consultancy also found that large construction projects typically take 20% longer to finish than scheduled and are over budget by up to 80%. Compared to industries such as media, finance, education, and health care, construction ranks 21 out of 22 in digitization in terms of business processes, spending, and labor.
With global infrastructure investment predicted to reach $13 trillion by 2030 (especially factoring in megaprojects of $1 billion or more), McKinsey reports, taking advantage of new technologies will be vital for such projects to gain efficiency. Now, with the ubiquity of cloud-based software and the globalized nature of the construction supply chain, two companies are working together to bring the industry into the modern era, starting by building the housing developments of the future.
Silicon Valley–based Flex and Stuttgart, Germany–based RIB Software recently announced the creation of YTWO Formative, a joint venture that will provide open-platform, cloud-based software that combines RIB’s software capabilities with Flex’s expertise in logistics and supply chain management. The name YTWO (pronounced why-two) Formative takes inspiration from RIB’s iTWO software solution for construction planning and execution, along with a need to look forward. Says the company’s CEO, Thomas Wolf, “[The Y in YTWO] stands for Generation Y, because we have to develop concepts and systems now for the future generation.”
Build It Right the First Time
The partnership, in which each company has already invested $60 million, aims to streamline everything from cost to labor to engineering and products in new construction. “We are building a smarter, more connected system using modern software architecture and real-time information, which will reduce costs, shorten cycle times, improve efficiency, and help complete projects on schedule,” Flex CEO Mike McNamara says.
The dynamic of creating physical solutions through virtual processes is an area in which Flex excels. Using its exclusive Sketch-to-Scale™ platform, Flex provides innovative design, engineering, manufacturing, real-time supply chain insight and logistics services to companies in various industries and end markets. At the same time, RIB has become a leader in developing enterprise software. RIB’s iTWO solution is an end-to-end platform that allows users to plan and build construction projects—like the tallest tower in Qatar and Germany’s biggest IKEA store, or large-scale housing developments in cities around the world—virtually before using any physical materials or real-world resources. Through a BIM-based visualization of project progress in terms of time and cost, iTWO enables users to develop a holistic 5D virtual plan of their construction projects. Comparing virtual planning against physical progress during project execution, iTWO tracks budget and scheduling issues in real-time.
Both RIB and Flex have an equal ownership interest in YTWO Formative, and the venture has already achieved regulatory clearance. McNamara believes that due to the size of the worldwide engineering and construction industries, two companies are better than one for tackling digitization. RIB’s sophisticated front-end system—encompassing design, visualization, cost analysis, and knowledge of building materials—fits with Flex’s back-end expertise in design, engineering, manufacturing, supply chain and logistics services gleaned from working in 12 different industries, each one with more than $1 billion in revenue. “Nobody has built a customized software system to be able to connect those pieces,” McNamara notes. “It’s in the connection of that entire end-to-end process that’s unique and different. The fact that we’ve got two powerful players on each side, bringing their expertise and all their skills to bear, is a unique differentiator. We don’t think anybody else has something like this in the marketplace.”
Like RIB’s iTWO, the joint venture will offer a software as a service–based platform designed to assist the building process, making it possible to design and scale entire construction projects virtually before breaking ground. A digital catalog that can be used for design and construction software will reflect an optimized supply chain to minimize any waste in time, personnel, or resources. A pricing index will provide users with a detailed analysis of where and how savings were gained throughout the process.
According to McNamara, this new system cuts down on the need for rework—activities that must be redone multiple times, or removing anything that was previously installed for a project. He estimates that rework often costs at least 30% of a project’s total budget, and material waste accounts for another 30%.
Homes Worth Waiting For
Currently YTWO Formative is focused on affordable housing, with the first project expected to be completed in 2019. Wolf notes that there’s a global trend of prefabricated or modular construction and expects that will be part of the venture’s business model. Eventually it will include the creation of prefabrication plants to supply construction materials, which will create further savings for companies and consumers.
Wolf says that the venture’s target is to cut construction costs and time spent. He anticipates that the savings will get passed along to the people moving into the new buildings. “If you reach this full end-to-end integration—building virtually first and then physically, and then eliminating all the waste from the process—you reduce the prices for buildings and infrastructure by up to 50%,” he says. That, in turn, can lower rents and result in better prices for home buyers.
As an example of the kinds of efficiencies the venture promises, Wolf brings up the auto industry, which is organized end to end for faster production and lower-cost products. Applying such high levels of production efficiency to the construction industry may prove to be extremely challenging because the players in the supply chain are siloed. Suppliers, contractors, architects, engineers, and other stakeholders each have their own software tools that are disconnected from one another. Unifying them, while beneficial, would be expensive and logistically difficult—a different challenge altogether. Automotive manufacturing turns out hundreds of thousands of cars, so solutions that make the process more efficient have clear return on investment. But many construction projects are singular, meaning one system that speeds up the work in one structure may not apply to another. That’s where the Internet of Things can make a difference. “Today, hardware costs nearly nothing, and cloud technology allows you to use software as a service,” Wolf says.
There’s also an opportunity to create jobs, both in the U.S. and abroad. Wolf envisions the YTWO Formative platform’s role in creating millions of jobs. “Projects can get financed, they become successful, they don’t need taxpayers’ money or support from anybody else because they are at a level where the project can be realized,” he says. “When you mix all this together—job creation, affordable housing, and smart homes—this is a huge step forward.”
Wolf understands that a key point in modernizing the construction sector is knowing that, as the system for building homes becomes smarter, so do the homes themselves. “What we see is the smart home of the future,” he says. “You have a huge demand for affordable and smart homes. Thousands of people are moving into cities every day, and there is a huge gap of affordable houses.”
The necessity of looking toward a future of connected homes was a key component in establishing the partnership between RIB and Flex, a recognized IoT leader. We’re moving to the point where sensors, connected technologies, and the Intelligence of Things™ is a reality, says McNamara. At the same time, the cost of capturing and analyzing that data is now super low, he adds. “You also have these hardware access points that can capture the data in the home and a central hub that can link or manage it. Then you can create algorithms off of multiple devices,” he says. “As this starts to move into reality, both from a cost standpoint and a technology standpoint, you have these huge opportunities where you’re going to start seeing more smart home devices.”
Using Data to Update the Outdated
YTWO Formative’s integration of smart design and the IoT will unfold in several ways. In one, software options will not only be useful for new designs but also allow customers to upgrade, modernize, or integrate smart features into existing homes. In another, data analytics will inform best practices, creating a cloud-based knowledge ecosystem about consumer needs and how construction companies most easily and economically responded with action. As these homes become a reality for more people, they’ll create a ripple effect that will produce more data. Finally, the wealth of data collected through RIB’s software and managed by Flex will inform a new generation of construction professionals who are already finding that building smart gives more bang for the buck.
“Anytime you try to get someone to change, to use a different system, to use different tools, it takes some time because people are very comfortable doing things the same way they always have,” says McNamara. “More than anything else, our real challenge is going to be moving people to a whole set of tools that are very powerful and can actually add real value. They’re not used to using them. This new generation coming up is very, very used to using advanced digital tools and we’re going to find more and more of them coming right out of architecture school. [This mentality] is going to change over time as we target the larger builders and real-estate developers. They’re more sophisticated to start with, and the return on investment for their learning is higher.”
As professionals embrace and adopt the new platform, the way construction is practiced, taught, and fundamentally understood might finally begin to change, reshaping the landscape of our modern world. Literally.
For those familiar with Flex’s data and connectivity solutions, it shouldn’t come as a surprise that the company is trying to make a big impact on an enormous industry. Executives from both RIB and Flex believe that now is the ideal time to try and take on the non-digital construction sector. “Technology is moving and enabling transformational advancements like the cloud and sensors and the cost structures associated with those technologies,” says McNamara. “[This change] wasn’t going to happen five years ago—it just wasn’t. The technologies weren’t there yet. Integrating new technologies with an old construction system and upgrading the tools using modern ones can be very interesting.”
Wolf agrees. “There was never such a platform on the market [like YTWO Formative’s],” he says. “It comes when the technology is ready, and it comes together with somebody who has experience with a successful transformation model.”
That success could mean an exciting shift not just in terms of how homes are built but how people live once they are inside them.