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Construction industry

Download the full study report

Dec. 2006, pdf, 3.2 MB

Scope of the study

The sector covers the business activities specified in NACE Rev. 1.1 Groups F 45.2 and 45.3. The building of complete constructions (or parts thereof) and civil engineering (NACE 45.2) is dominated by large construction and engineering enterprises, whereas the building installation industry (NACE 45.3) is predominantly made up of small and medium-sized enterprises.

There are approximately 2.4 million construction enterprises in EU-25, of which 97% are micro or small enterprises with fewer than 20 employees. The industry employs about 14 million people, corresponding to about 7% of the European work force and 28.5% of industrial employment.

Adoption of ICT and e-business in 2006 – survey results

The CI is a sector where ICT and e-business are used to a lesser extent than in most of the other sectors studied by e-Business W@tch in 2006. There are two main reasons for this comparatively low ICT uptake:

  • the high concentration of SMEs in the CI and
  • the typical nature of the service provided in construction which, being an on-site and often highly customised service, does not lend itself to the typical e-business concept which is rather adapted to manufacturing industries.

Looking into the two sub-sectors covered by this report, complete construction enterprises demonstrate, in general, a higher level of ICT uptake than building installation enterprises. In addition, complete construction enterprises are larger enterprises, employ ICT practitioners more often, use ICT more to support innovation and spend more on ICT than companies from the building installation industry.

The 2006 e-Business Survey data also suggest that large construction enterprises are increasing their focus on ICT issues, as they have started introducing more advanced ICT solutions such as e-procurement systems, collaborative design systems and collaborative document sharing.

The same statistical findings, however, indicate that there is still a sort of "digital divide" between the CI and the weighted averages of all sectors covered this year by e-Business W@tch. Examples are the low percentage of firms employing ICT practitioners, as well as the low adoption of enterprise resource planning (ERP) systems and advanced e-procurement solutions. This cannot be entirely attributed to structural factors, i.e. the dominance of small firms, but is also explained by the nature of the services in the CI.

Another worth-mentioning finding from this year’s survey is that construction enterprises have little focus on hiring ICT practitioners and ICT training. Furthermore, the use of e-standards is limited in the CI but about in line with the weighted all-sectors average, indicating that interoperability is a common issue across different sectors. The CI lags behind on both product and process innovation when compared to the cross-industry total (EU10). However, the reported shares of ICT-enabled product and process innovation in CI are more or less the same with the respective cross-industry totals for the ten sectors covered this year by e-Business W@tch.

Important e-business trends and implications

Important developments are taking place in the CI in the areas of e‑procurement, 3D technology and project web. These technologies carry significant economic potential for the industry, particularly with regard to process efficiency. The study shows that large construction enterprises and the public sector drive the development. Large enterprises, on the other hand, clearly possess the financial resources, human capital and ICT capabilities which are necessary to benefit from these technologies at this point in time. The public sector, on the other hand, could enhance and further accelerate development, both as a major buyer of construction services and via policy initiatives.

e-Procurement

This study investigates two issues related to e-procurement: e-procurement conducted by construction enterprises and e-procurement (e-tendering) of construction services conducted by public authorities. The main trends identified this year confirm findings from the 2005 sector study on the CI:

  • Developments are mainly driven by the broad introduction of e-procurement in large European construction enterprises.
    e-Procurement is used as a tool to enhance new procurement concepts such as strategic procurement. Centralisations of tendering, establishment of framework contracts, consolidation of the supplier base are aspects of strategic procurement, and construction enterprises use e-procurement to optimise the price/quality ratio.
  • The benefits of e-tendering are first and foremost on the buyer side and the development is mainly driven by the public sector (public e-tendering)
    The public sector is a driver for promoting e-procurement, due to the overall procurement volume and the –usually large- size of projects which are tendered by public services. As the electronic notification of tenders and the on-line publication of tender material generate more savings for the procurer than for the supplier, public services are also likely to benefit more from e-tendering.
    This study suggests that change management is pivotal for the successful implementation of e-procurement systems in a construction enterprise. This involves commitment by the company’s senior management and a focus on employee training. The correct set-up and outstanding business cases for electronic procurement, however, are still not easy to identify. Thus, for smaller enterprises in particular, the absence of a clear business case is a barrier for many types of e-procurement.

3D technology

3D technology (also called Building Information Modelling) is a significant tool for the CI. Two relevant issues are discussed in this study, based on recent literature and expert interviews: interoperability and compatibility. The study shows that the benefits of using 3D technologies in the CI include cost reduction through risk minimisation, more precise communication between stakeholders and earlier detection of miscalculations and deviations. However, the study also shows that there are still barriers to a successful uptake of 3D technology by CI companies:

  • The strong adherence to traditional workflow processes in the industry and a lack of competences in 3D design;
  • The lack of European-wide standards increases the problem of system incompatibility, both internally between different 3D technology solutions and externally with other ICT applications.

Project web

Project web solutions can enable more efficient and secure exchange of information between the stakeholders in construction projects. This study focuses on four areas: usability, workflow processes, economic incentives and a discussion on the drivers for development. The discussion presented in this report indicates that:

  • Project web solutions are complex. The uptake of project web solutions is constrained by its technical complexity and lack of user-friendly interfaces. Project web solutions require specific ICT competencies, which European CI SMEs do not always possess.
  • Project web solutions lack integration possibilities with existing ICT systems. Project web solutions are normally not compatible with already existing ICT systems such as electronic document management EDM and ERP systems. This incompatibility reduces the uptake of project web solutions in the CI.
  • Project web solutions are tailor-made for the existing workflow processes. Traditional workflow processes in the CI are usually maintained in an effort to reduce implementation barriers, but this may prevent reaping the full technology benefits.

Business impact

The increased uptake of e-procurement will require a further strengthening of ICT skills among employees of European CI enterprises. Despite the currently rather slow uptake of 3D technologies and project web solutions, these developments will eventually require large companies and SMEs in the CI to invest not only in the technologies themselves, but also in ICT training to ensure that the required skills are in place.

Once the uptake of project web and e-procurement systems has gained momentum, this is expected to affect organisational structures and workflow processes in the CI.

The increasing use of e-procurement by the public sector in calls for tenders for construction services will have an impact on SMEs that contribute as sub-contractors to these services. Again, one of the effects is that even smaller enterprises need to familiarise themselves with using related ICT systems, i.e. they need to develop ICT capabilities which many small CI enterprises are currently lacking.

Policy implications

In the previous e-Business W@tch sector study on construction (September 2005), the issues of improving ICT skills, increasing the awareness of ICT benefits and potentials, and facilitating interoperability, were identified as relevant policy initiatives. Findings from this year’s survey and the discussion of the three major technology trends in this report suggest that these implications are still relevant, with slight adjustments and elaborations:

  • Focus on identifying ICT skills gaps
    Having the right ICT skills has been identified as a challenge for SMEs both in general and in respect to the three specific areas of ICT use in the CI. Most importantly this concerns the transition to 3D technology, which is a rather complex technology and contains many software features. Focus should be given to defining the required ICT skills in the CI and to whether market imperfections exist with regard to the training offered by public and private educational institutions.
  • Raise awareness of ICT benefits and e-business policies
    It is important to raise awareness about ICT and e-business among CI enterprises and business associations, in particular with regard to new technologies discussed in this report (project web, 3D technology). In this context, the public sector can play an active role by supporting initiatives to promote best practice examples based on successful ICT implementation in construction enterprises. Industry operators could facilitate such “peer-to-peer” demonstrations of successful cases to improve awareness about ICT solutions in this industry.
  • Facilitating the process of interoperability
    Setting standards and promoting interoperability is an important area to address. On-going work towards common e-standards has promising benefits for the uptake of ICT in the CI. Nevertheless, on the basis of the statistical findings and within each of the three ICT application areas presented in this study, there is a number of standardisation-related issues that should be addressed at international and European levels. The European Commission could, for example, consider analysing the benefits of introducing standard transfer protocols, and disseminating the results of this analysis.

Download the study report