Update from the Technology Frontier
It seems to me building and construction will become a laboratory for the fourth industrial revolution. This update from the technology frontier broadly looks at both open and closed emerging platforms. It covers Katerra’s expansion and links to a recent interview with Executive Chairman Michael Marks, a recent paper in Construction Management and Economics on the digital evolution of DPR Construction, RAD Urban and Project Frog, and a new JV between Bentley and Topcon, Digital Construction Works, to provide digital ‘twinning’ services to contractors. The last topic is venture capital invested in the built environment related firms, which was over US$75 billion between 2015-2019.
A previous post looked at site production, with remote controlled equipment, 3D printed machinery and 3D concrete printers. My view is that economies of scale will increasingly favour site production, with exceptions like poured concrete, and the future will see building and construction move to a form of hybrid production that combines off-site manufactured components with those printed on-site. The mix of the two determined by the project’s characteristics.
I suggest three pathways for the development of industry processes and structures over the next few decades, in the sense of technology adoption and implementation trajectories. These are the business as usual, upgraded and modified, and transformational versions of the industry. What really differentiates the three is the rate at which new technologies are taken up, which in turn leads to different trajectories of technological development for firms within those three pathways, which are:
1. Business as Usual - Similar But Smarter
Where the industry as a whole is much larger than any given project, and the individual projects reflect a consensus view on what the appropriate technological mix might be for that type of project, in that place at that time. Over time this industry consensus moves to include whatever the most effective or efficient piece of technology available
2. Upgraded and Modified - Manufactured Mass Customization
These firms invest considerably more in technological development, making significant changes to the way they are organized and the way they organize their projects. Some businesses are much better at this than others. The companies included in this post are clearly on this path, laying the foundations for the future industry, or in Bentley’s case meeting a requirement for an industry built on digital twins.
3. Transformational - Faster, Higher, Stronger
New production technologies automate many tasks and processes and create new machines that are far more capable than existing ones. Materials and machinery become smart, with embedded processors, are networked and communicate with each other. Components are location and condition aware. Humans partner with machine intelligence to accomplish many tasks, and use robots or exoskeletons for most physical work, with remote control of automated heavy plant and equipment, while fabricated and modular components combine with automated systems and onsite robots to transform the building process. This is happening, as the KES example below shows.
Katerra was founded in 2015, and in 2017 raised $130 million reaching a $1 billion valuation. The company’s goal is complete vertical integration of design and construction, from concept sketches to installing the bolts that hold their buildings together. On its projects the company is typically the architect, off-site manufacturer and on-site contractor, and usually contracts directly with developers, who are its clients. The company’s focus is on reducing the time needed to get approval, to document and to build, with significant cost savings to those developers.
The company started by developing software to manage an extensive supply chain for fixtures and fittings from around the world, particularly China, then added a factory in Phoenix making roof trusses, cabinets, wall panels, and other elements. In September 2017 it announced plans to build a factory that will make panels of cross-laminated timber (CLT), a high-tech structural wood.
Initially, buildings were designed by outside architects, but in 2016 the company started a design division. In 2018, five months after raising another $865mn led by SoftBank’s Vision Fund, Katerra acquired Michael Green Architecture and architects Lord Aeck Sargent. Since then Katerra has acquired lighting manufacturer Shanghai Dangoo Electronics, precast and prefabrication company KEF Infra, engineering firm Equilibrium, and general contractors United Renovations, Fields Construction Co., Bristlecone Construction, UEB Builders and Fortune-Johnson. Expected revenue this year is between $2 billion and $3 billion.
One of the company’s three founders is a multi-family developer, and his projects provided the initial pipeline of work that made the company viable, and a second founder has a tech venture capital fund. The third founder and CEO is Michael Marks who, after revolutionising electronics hardware manufacturing and a stint at Tesla, raised nearly $2 billion in capital. Their ambition is to leverage new technologies to transform building by linking design and production through software, and their strategy now appears to have four legs.
First, modular construction using CLT is what Katerra has become known for, and there are now two multifamily building platforms. The company has two mass-timber factories in California and Washington respectively, the latter the largest CLT manufacturing facility in the US, with another in Texas due next year. Three more factories are planned in India, where Katerra does precast concrete. All structural components are standardised.
However, Katerra is moving on from structural components to fittings and finishes. Katerra plans to outfit its buildings with Katerra Energy System (KES), a proprietary energy and mechanical system, an intelligent power-metering and distribution platform, and KTAC air conditioners, while delivering Katerra Windows from their factory to site in one week. There is a new line of bathroom kits and interior fixtures and finishes under the brand name Kova, with carpet, tile, plumbing fixtures, hardware, wood trim, light fixtures, light sources, and mirrors, as well as a curated line of products called Kova Select.
Third is operations and maintenance services to maintain mechanical and prefabricated systems. Katerra will contract these out but be responsible, because their mechanical and electrical systems talk to the cloud and an operating center gets notified if there’s a problem. This will get the IoT into buildings.
Finally, another significant development for Katerra is a software platform called Apollo. Initially building designs were done in Revit and then the files converted to a different format for machines in the factory. Apollo integrates six functions:
1. Report uses an address to find site information, zoning, and crime rates etc.;
2. Insight focuses on design with the two building platforms;
3. Direct is a library of components used in the building;
4. Compose is a used for coordination between the different groups working on a project;
5. Construct is for construction management (similar to Procore and Bluebeam):
6. Connect is a way of managing the workforce on a project, a database of subcontractors.
At this point, Katerra may be the lead disrupter in building and construction. They have the most fully developed view of integration of the site and supply chain, and are creating a platform for project development and delivery that could become one of the major, widely used systems across the industry. If Apollo works as advertised in linking design and building, it will move well beyond the current focus on document control and communication of software from Oracle Aconex, Trimble Connect, Procore and SAP Connect, and is one model of what second generation PM systems look like.
Interviews with Michael Marks:
Rob Sobyra from Construction Skills Queensland and Michael Marks discuss Katerra:
There is an Australian series of podcasts on engineered wood, including another 2019 interview:
Digital Twin as a Service
In what may another big step forward toward a platform for Construction 4, Bentley Systems and Topcon Positioning Systems have a new joint venture company, Digital Construction Works, to provide digital automation, integration, and ‘twinning’ services to constructors. Bentley and Topcon have been working together since 2016, collaborating on surveying, modelling, scheduling and logistics, work packaging, machine control, and progressive assurance for construction. In 2017 they opened Constructioneering Academies, to further the automation of digital construction through surveying, engineering design, model development and as-built data collection.
The company will ‘embed’ people in contractor’s organisations to act as what I’d call a project information manager, taking some of the responsibility for managing digital work flows off contractors and PMs and maintaining the digital twin of their project. One can see how this could be a successful model for construction. For SMEs in particular, who generally do not have much digital competence, this type of platform may be important, possibly necessary, as clients increasingly require BIM capability from contractors and suppliers.
A recent paper in Construction Management and Economics examines three San Francisco firms: DPR construction, RAD Urban, and Project Frog. The case studies describe the strategic evolution and restructuring of firm boundaries five years, to enable greater adoption of digital manufacturing. Each firm has developed a different approach: relational, project-based spinoff; vertical integration; or digital systems integration. These approaches are theorized as a form of strategic mirror-breaking intended to redefine the current paradigm of knowledge and task dependencies. They enable the firms to develop products with new system architectures and access more opportunities for innovation in digitally-enabled manufacturing. In a “mirroring trap” incumbent firms resist organizational change: “the knowledge about design, engineering and construction are deeply embedded in specialty firms and their employees’ individual actions. In other words, knowledge about tasks has become tightly aligned with the task dependencies themselves.”
DPR and RAD have both developed in-house systems prefabricated of walls, building factories and managing workloads in interesting but rather conventional ways. DPR has three product lines: a load-bearing structural panel system, exterior wall panels, and interior wall panels with MEP systems.
In 2016 Project Frog moved to a strategy of mass customization: “They transitioned away from modular construction toward a flexible kits-of-parts called their “Frog Kit.” Using the principles of mass customization, Project Frog developed a web-based configuration platform called myProjectFrog. The configuration platform draws from a library of Frog Kit parts designed in Autodesk Revit. Using heuristic rules for design and assembly and the logical constraints of shape grammar, myProjectFrog enables designers to manipulate building design on a standardized grid.”
By coordinating and integrating product design and production from digital-manufacturing suppliers, and the development of a platform which “integrates a product-ready supply chain”, where they provide the core infrastructure of digital integration but other firms participate, Project Frog hopes to build an industrialised construction ecosystem, with these partners developing the products Project Frog inputs into their platform.
Hall et al. conclude with the importance of platforms: “One proposition is that future platform development will tend to be open or closed, depending on the level of vertical integration for the firm. Open platforms will be developed by digital systems integrators such as Project Frog. These firms will develop the platform core and leverage the principles of industry 4.0 to organize the periphery into new digital ecosystems. Closed, internal platforms will be developed by vertically integrated firms such as RAD. These firms gain advantage from total control of system architecture
and the ability to push the limits of technical change.”
They also note: “The start-up Katerra can make an interesting deviant case as a vertically-integrated company that began with a closed product platform but has recently positioned its Apollo Construct software platform as a hybrid between open and closed ecosystems.” The research the paper is based on was done in 2016-17. In 2018 Project Frog released KitConnect, bringing together a decade of development into prefabrication and component design, and integrating BIM with DfMa and logistics.
Daniel M. Hall, Jennifer K. Whyte & Jerker Lessing (2019): Mirror-breaking strategies to enable digital manufacturing in Silicon Valley construction firms: a comparative case study, Construction Management and Economics, DOI: 10.1080/01446193.2019.1656814.
Venture Capital in the Built Environment Sector
Also just out is a report from EY’s Global Real Estate, Hospitality & Construction team Venture Capital Funding Points to the Hottest Concepts in Built-World Tech. Since 2015, US$75.2b has been invested in built-world tech by venture capital (VC), in the first three quarters of 2019 US$24.6b was invested. EY calls built-world tech a subset of the more than 7000 private real estate tech firms globally that have received a combined $US155 billion in funding over the past three years.
Interestingly, their view is not about disruption and new business models. They say “built-world tech has evolved as start-ups have focused on finding solutions to some of the greatest challenges facing traditional operators, thereby complementing rather than redefining their businesses. Moreover, these start-ups are increasingly focused on cost-saving and profitability, which will enhance the return on investment.”
Construction is one of the eight sectors they include in their built world, but there are companies in the Visualization and IoT sectors with relevant products. The two biggest sectors by far are Real estate and finance and Flexible work space, and four of the eight are property focused. Three others are construction, IoT and smart buildings and visualization, and all these sectors are inside the built environment sector (BES). EY notes many companies are blurring the lines between IoT, visualization and data and analytics. Companies are named but not discussed in the EY report.