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Can we improve margins in the construction sector?

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Hitachi Solutions > Blogs > 2022 > 07 > Can we improve margins in the construction sector?

Construction is renowned for competitive pricing and tight margins, which the industry has been trying to improve for years.

Yet margin improvements across the sector tend to lead to cost reduction and therefore even more competitive pricing, which passes the efficiency on to the client. This means that very quickly you achieve a cost reduction rather than an increase in margins and it’s your client that gets the benefit. The improvement of efficiency drives down cost and instead of driving up margins it simply allows the contractor to remain competitive. Still a benefit, but not a bankable margin increase.

To improve margins, it is necessary not only to improve process efficiencies but be ahead of the market so that pricing pressures don’t remove the gain.

Faced with unique circumstances and complications other industries do not have, tackling these issues is not as easy as it seems on your own. The workforce on a site will come from many different subcontractors, and the supply chain is unique to the project. In this series, we’ll be exploring how it’s possible to stay competitive whilst remaining ahead of the market, avoid pricing pressures and answer the ultimate question – Can we improve margins in the construction sector?

In answering this, we will be exploring how the Microsoft building blocks: Data, Microsoft Dynamics 365, and Low Code Applications are all important in helping to solve the challenges facing the sector.  

Data

It is truly difficult to get full value from the data on your project because of the number of parties involved. Most people will have contrasting data sources which don’t correspond – getting one source of the truth seems impossible. Projects in this sector are, as we know, a unique combination of the developer, main contractor and the supply chain of subcontractors and material suppliers.

Many organisations are involved and there are many disparate systems in place each with its own data. As a result, projects need to create a central data repository using standardised models.

As you’d imagine, there is no overall shortage of data. The challenge is to gather consistent information and to have the analytical skills to take advantage of it and start to take measures to improve efficiency and reduce waste based on the insights provided by the data.

Digital twinning is used increasingly to improve coordination between the different parts of the combined team. It ensures that information from the early design stages of the project is available throughout the build and into operation. It is a major step forward but can’t be just switched on to suddenly yield results. The client/developer must initiate and include the contractor and the supply chain otherwise there is a high level of investment yielding limited results.

There are technical challenges in all this, but also commercial ones. Organisations can be reluctant to openly share with each other. We’ll explore exactly what that is in; ‘Can data investment improve margins in the construction sector?’

Microsoft Dynamics 365

Modern open and interrogable business applications are needed within the sector. The unique nature of construction projects is the very reason for this – a complex supply chain, unique to most projects, with multiple major parties all needing their own business application systems. Unless these disparate systems are open and contribute to the overall data and process flows for a project, this will remain a huge barrier to progress.

Business applications from Microsoft and other vendors, sitting in the Microsoft Cloud and open in structure will allow the supply chain to work closely together eliminating errors and inefficiencies and feeding the central data repository.

Microsoft’s own business applications suite (Dynamics 365) has matured functionally and seamlessly to interoperate with the rest of the Microsoft Cloud platform. This brings capability that you simply can’t get from buying a software application.

In looking to increase profitability, we need continuous improvement and a key incentive for this change is the £21bn that the industry wastes fixing mistakes made on site each year.

A rich and functional business application tied in with data, collaboration and integration tools made for sharing is the only way forward. A one-off improvement is not enough. We need continuous improvement, so we need to keep finding ways to drive our integrated platform forward. In ‘Can Microsoft Dynamics 365 improve margins in the construction sector?’ we’ll explore how supply chain efficiency possibilities are opened, and how they can help eliminate waste and errors and solve the issues of a fragmented supply chain in manageable chunks.

Low Code Applications

It’s fantastic just how quickly apps for specific point uses can be built out and distributed these days. These apps take us from personal productivity through to business process accuracy and efficiency. At one level, all they may do is eliminate hitherto paperwork tasks. But when these apps use the Microsoft cloud framework with its Dataverse, they can drive a process through to completion.

For example, a pre-site app to submit RAMS, confirm certifications and induction status in advance issues a ready permit-to-work and swift check-in on site. Further, the worker can track progress, report health and safety incidents, and report faulty work instead of papering over the cracks. There’s much more, and the ability to produce flexible apps that run on smartphones and tablets as needed helps keep workers on the job rather than in the site office.

That’s an exciting description of the possibilities from the app-building capability, all to be explored in more detail in ‘Can Low Code Applications improve margins in the construction sector?’.

So, what ties this all together? The extended Microsoft platform within which these apps will run. It means we can integrate these apps with our main data platform, our line of business applications, and our supply chain partners. Now we can do more than just find islands of automation, we can find lasting improvements in the core challenges that face us.

Back to the original question then, can we improve margins in the Construction sector? Well, let’s find out.

Get in touch with our experts

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John Brearton

John Brearton is our Business Development Director across Professional Services and Construction. John has a long history delivering and selling Microsoft Dynamics 365 solutions and is passionate about the difference Dynamics 365 can make to the productivity and brand image of major firms in this space.

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