ICT and e-Business in the Construction Industry

European Commission ICT and e-Business in the Construction Industry ICT adoption and e-business activity in 2006 ICT and e-Business in the Construction Industry ICT adoption and e-business activity in 2006 Sector Report No. 7/2006 Construction 2 About e-Business W@tch and this report The European Commission, Enterprise & Industry Directorate General, launched the e-Business W@tch to monitor the growing maturity of electronic business across different sectors of the economy in the enlarged European Union, EEA and Accession countries. Since January 2002, the e-Business W@tch has analysed e-business developments and impacts in manufacturing, construction, financial and service sectors. All results are available on the internet and can be accessed or ordered via the Europa server or directly at the e-Business W@tch website (http://ec.europa.eu/comm/enterprise/ict/policy/watch/index.htm, www.ebusiness-watch.org). This document is a sector study by e-Business W@tch, focusing on the construction industry (CI). Its objective is to describe how companies in this industry use ICT for conducting business, to assess the impact of this development for firms and for the industry as a whole, and to indicate possible implications for policy. Analysis is based on literature, interviews, case studies and a survey among decision-makers in European enterprises from the CI about the ICT use of their enterprise. Disclaimer Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the following information. The views expressed in this report are those of the authors and do not necessarily reflect those of the European Commission. Nothing in this report implies or expresses a warranty of any kind. Results from this report should only be used as guidelines as part of an overall strategy. For detailed advice on corporate planning, business processes and management, technology integration and legal or tax issues, the services of a professional should be obtained. Acknowledgements This report was prepared by Rambøll Management on behalf of the European Commission, Enterprise & Industry Directorate General. It is part of a deliverable in the context of e-Business W@tch, which is implemented by a team consisting of empirica GmbH (co-ordinating partner), Berlecon Research, Databank Consulting, DIW Berlin, Lios Geal Consultants, Rambøll Management and Salzburg Research, based on a service contract with the European Commission. e-Business W@tch would like to thank the following members of the Advisory Board 2006 for providing comments and supporting the work on this study: Mr Arturas Kaklauskas, Vilnius Civil Engineering Institute; Mr Ulrich Paetzold, FIEC – European Construction Industry Federation; Mr John Sarborg Pederson, ITEK – Confederation of Danish Industries; and Mr Alfredo Soeiro, University of Porto. Contact For further information about this Sector Study or the e-Business W@tch, please contact: Rambøll Management A/S Nørregade 7A DK-1165 Copenhagen K Denmark Fax: (45) 3397 8200 [email protected] e-Business W@tch c/o empirica GmbH Oxfordstr. 2, 53111 Bonn, Germany Fax: (49-228) 98530-12 [email protected] European Commission Enterprise & Industry DirectorateGeneral Technology for innovation, ICT industries and e-business Fax: (32-2) 2967019 [email protected] Rights Restrictions Any reproduction or republication of this report as a whole or in parts without prior authorisation is strictly prohibited. Copenhagen / Brussels, 2006 Construction 3 Table of Contents Executive Summary................................................................................................... 5 1 Introduction......................................................................................................... 9 1.1 About e-Business W@tch................................................................................................ 9 1.2 "e-Business" – the conceptual framework................................................................... 13 2 Context and Background................................................................................... 19 2.1 Sector definition – scope of the study.......................................................................... 19 2.2 Industry background...................................................................................................... 20 2.3 Review of earlier sector studies.................................................................................... 23 3 Adoption of ICT and e-Business in 2006 ........................................................... 25 3.1 Use of ICT Networks....................................................................................................... 26 3.2 ICT Skills, Outsourcing and ICT Budgets..................................................................... 30 3.2.1 Demand for ICT skills and skills development ..................................................... 30 3.2.2 Outsourcing of ICT services and ICT investments............................................... 32 3.3 Standards, Interoperability and ICT Security Issues ..................................................36 3.3.1 Types of e-standards used................................................................................... 36 3.3.2 Use of Open Source Software ............................................................................. 37 3.3.3 Interoperability challenges ................................................................................... 39 3.3.4 ICT security measures ......................................................................................... 41 3.4 Internal and External e-Integration of Processes........................................................ 43 3.4.1 Use of software systems for internal process integration .................................... 43 3.4.2 Use of ICT for cooperative and collaborative business processes...................... 45 3.4.3 Deployment of e-invoicing.................................................................................... 46 3.5 Supply Chain Management............................................................................................ 48 3.5.1 SCM, financial e-processes and ICT links with suppliers .................................... 48 3.6 e-Marketing and Sales.................................................................................................... 50 3.6.1 Enterprises receiving orders from customers online............................................ 50 3.6.2 e-Integration of marketing processes: CRM and ICT links with customers......... 54 3.7 ICT and Innovation.......................................................................................................... 55 3.8 Drivers and Inhibitors for the Uptake of e-Business................................................... 57 3.9 Summary..........................................................................................................................61 4 Current e-Business Trends and Implications.................................................... 64 4.1 e-Procurement................................................................................................................. 67 Construction 4 4.1.1 Introduction .......................................................................................................... 67 4.1.2 Definition of e-procurement.................................................................................. 67 4.1.3 Use of e-procurement in the construction industry .............................................. 68 4.1.4 Potential benefits of e-procurement ..................................................................... 72 4.1.5 Barriers................................................................................................................. 74 4.1.6 Business implications........................................................................................... 75 4.1.7 Implications of public e-procurement for construction enterprises....................... 76 Case Study: E-Vergabe, Germany ................................................................................... 79 Case Study: Implementation of Public E-procurement/ Y&H RCoE, United Kingdom..... 86 Case Study: Skanska, Scandinavian countries ................................................................ 92 Case Study: E-Construction, Greece................................................................................ 97 4.1.8 Summary of main points and conclusions ......................................................... 101 4.2 3D technology ...............................................................................................................102 4.2.1 Introduction ........................................................................................................ 102 4.2.2 Definition of 3D technology ................................................................................ 102 4.2.3 Use of 3D technology in the construction industry............................................. 105 4.2.4 Potential benefits of 3D technology ................................................................... 107 4.2.5 Barriers............................................................................................................... 109 4.2.6 Business implications......................................................................................... 110 Case Study: Constructus, Lithuania ............................................................................... 113 Case Study: Akershus University Hospital, Norway ....................................................... 119 4.2.7 Summary of main points and conclusions ......................................................... 124 4.3 Project web....................................................................................................................124 4.3.1 Introduction ........................................................................................................ 124 4.3.2 Definition of project web..................................................................................... 125 4.3.3 Use of project webs in the construction industry ............................................... 127 4.3.4 Potential benefits of project webs ...................................................................... 129 4.3.5 Barriers............................................................................................................... 130 4.3.6 Business implications......................................................................................... 131 Case Study: Spie SCGPM, France................................................................................. 133 4.3.7 Summary of main points and conclusions ......................................................... 138 5 Conclusions ..................................................................................................... 140 5.1 Business impact ...........................................................................................................140 5.2 Policy implications ....................................................................................................... 154 References............................................................................................................. 157 Annex I: The e-Business Survey 2006 – Methodology Report.............................. 161 Annex II: Expanded Tables – Data by Country ...................................................... 171 Annex III: Glossary of Technical Terms................................................................ 177 Construction 5 Executive Summary Objectives and scope of the study This sector study by e-Business W@tch focuses on the construction industry (CI). It describes how enterprises in this industry use information and communications technology (ICT) for conducting business, assesses the impact of this development for firms and for the industry as a whole, and indicates possible implications for policy. Analysis is based on literature, interviews, case studies and a survey among decisionmakers in European enterprises from the CI about the ICT use of their enterprise. The sector covers the business activities specified in NACE Rev. 1.1 Groups F 45.2 and 45.3.1 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. This trend is in line with the findings and case studies presented in Section 4 on the use of specific ICT solutions for the CI. 1 NACE Rev. 1.1 is a 4-digit classification of business activities. It is a revision of the ‘General Industrial Classification of Economic Activities within the European Communities’ known by the acronym NACE and originally published by Eurostat in 1970. Construction 6 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 eprocurement 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 estandards 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 largesize 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. Construction 7 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 Construction 8 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. Construction 9 1 Introduction 1.1 About e-Business W@tch Policy background The European Commission launched e-Business W@tch in late 2001 to monitor the adoption, development and impact of electronic business practices in different sectors of the economy in the European Union. The initiative is rooted in the eEurope Action Plans of 2002 and 2005. The eEurope 2005 Action Plan defined the goal "to promote take-up of e-business with the aim of increasing the competitiveness of European enterprises and raising productivity and growth through investment in information and communication technologies, human resources (notably e-skills) and new business models".2 e-Business W@tch has been an important instrument for the European Commission to assess the developments and progress in this field. The i2010 policy3, a follow-up to eEurope, also stresses the critical role of ICT for productivity and innovation, stating that "… the adoption and skilful application of ICT is one of the largest contributors to productivity and growth throughout the economy, leading to business innovations in key sectors" (p. 6). The Communication anticipates "a new era of e-business solutions", based on integrated ICT systems and tools, which will lead to an increased business use of ICT. However, it also warns that businesses "still face a lack of interoperability, reliability and security", which could hamper the realisation of productivity gains (p. 7). In 2005, in consideration of globalisation and intense international competition, the European Commission launched a new industrial policy4 to create better framework conditions for manufacturing industries in the coming years. Some of the policy strands described have direct links to ICT and e-business developments. One of the new sectorspecific initiatives covered by the policy is the taskforce on information and communication technologies (ICT) competitiveness. The taskforce with stakeholders representatives focuses on identifying and proposing measures to remove obstacles that inhibit ICT take-up among enterprises. Another initiative is to conduct a series of competitiveness studies, to include for ICT, food, and fashion and design industries, in order to analyse trends affecting the competitiveness of these industrial sectors. These policy considerations constitute the background and raison d'être of e-Business W@tch as an observatory of related issues and a core theme for the analysis. Within this 2 "eEurope 2005: An information society for all". Communication from the Commission, COM(2002) 263 final, 28 May 2002, chapter 3.1.2 3 "i2010 – A European Information Society for growth and employment." Communication from the Commission, COM(2005) 229 final. 4 "Implementing the Community Lisbon Programme: A Policy Framework to Strengthen EU Manufacturing - towards a more integrated approach for Industrial Policy." Communication from the Commission, COM(2005) 474 final, 5.10.2005 Construction 16 The addendum regarding payment and delivery is an important part of the definition, but can be debated. The difficult question is which processes along the different transaction phases constitute e-Commerce and which do not (see Exhibit 1-2). The OECD definition excludes the pre-sale or purchase phase and focuses on a specific part of the sale / purchase phase, namely the ordering process. e-Business W@tch follows the OECD position on this issue.11 e-Commerce, defined in this way, is a key component of e-business, but not the only one. In recent years, it has been increasingly acknowledged among policy and research communities that the focus on e-commerce transactions may be too narrow to capture the full implications of e-business. A wider, business process oriented focus has been widely recognised. Reflecting this development, the OECD WPIIS12 proposed a (broader) definition of 'e-business' as "automated business processes (both intra-and inter-firm) over computer mediated networks" (OECD, 2004, p. 6). In addition, the OECD proposed that e-business processes should integrate tasks and extend beyond a stand-alone or individual application. This definition reflects an understanding of e-business that encompasses more than ecommerce transactions. The broad concept of e-business also includes the digitisation of internal business processes, as well as cooperative or collaborative processes between companies which are not necessarily transaction-focused. Collaborative edesign processes between business partners are a typical example from industrial engineering. The OECD definition implicitly indicates that the focus and main objective of electronic business is to be found in business process automation and integration, and the impacts thereof. To bridge the gap between 'e-Commerce' and 'e-Business', it was proposed in earlier years (mainly around 2000) to use the term 'c-Commerce' (collaborative commerce). Although this concept was rather abandoned when the new economy bubble burst, it has some value as it stresses the role of ICT for cooperation among enterprises. If web service and other emerging technologies (e.g. RFID, mobile applications) hold their promise, the digital integration of B2B trading processes could be taken to a new level, possibly with a considerable impact on industry structure. If so, it could be worth revisiting the former 'c-Commerce' concept. e-Business and the company's value chain Given the broad concept of e-Business applied for this study, which concentrates on business processes and a company's interactions with its environment, some further structuring and mapping of processes is necessary. Michael Porter's framework of the company value chain and value system between companies (Porter, 1985) is still valid and useful in this context, although dating back 20 years to the pre-e-business era. A value chain logically presents the main functional areas ('value activities') of a company and differentiates between primary and support activities. However, these are 11 This is reflected in the updated wording of the respective survey questions in 2006, when for "placing / accepting online orders" was asked instead for "purchasing / selling online". 12 Working Party on Indicators for the Information Society Construction 17 "not a collection of independent activities but a system of interdependent activities", which are "related by linkages within the value chain" (p. 48). These linkages can lead to competitive advantage through optimisation and coordination. In fact, it is exactly here that ICT have a major impact, as they are a key instrument to optimise linkages and thus increase the efficiency of processes. The value system expands this concept by extending the perspective beyond the single company. The firm's value chain is linked to the value chains of (upstream) suppliers and (downstream) buyers, resulting in a larger set of processes – the value system. e-Commerce, i.e. electronic transactions, occurs within this value system. Exhibit 1-3: Value chain framework of a company by Michael Porter Operations Outbound Logistics Marketing and sales Service Inbound Logistics Primary activities Procurement Technology development Human Resources Management Firm infrastructure Support activities Operations Outbound Logistics Marketing and sales Service Inbound Logistics Primary activities Procurement Technology development Human Resources Management Firm infrastructure Support activities Source: Adapted from M.E. Porter (1985) – simplified presentation Key dimensions of this framework (notably inbound and outbound logistics, operations, and the value system) are reflected in the Supply Chain Management (SCM) concept. Here, the focus is on optimising the procurement-production-delivery processes, not only between a company and its direct suppliers and customers, but also aiming at a full vertical integration of the entire supply chain (Tier 1, Tier 2, Tier n suppliers). In this concept, each basic supply chain is a chain of sourcing, production, and delivery processes with the respective process interfaces within and between companies.13 The analysis of the digital integration of supply chains in various industries has been an important theme in sectors studies previously prepared by e-Business W@tch. e-Business and innovation A very important aspect for e-Business W@tch studies is the link between ICT and innovation. The European Commission places great emphasis on the critical role of innovation for European businesses in order to stay competitive in the global economy.14 On the other hand, a strong competitive pressure provides powerful incentives for companies to continuously engage in innovation and R&D. Thus, innovation, competition and competitiveness are closely intertwined. 13 cf. SCOR Supply-Chain Council: Supply-Chain Operations Reference-model. SCOR Version 7.0. Available at www.supply-chain.org (accessed in March 2006). 14 See, for example, "An innovation-friendly, modern Europe". Communication from the Commission, COM(2006) 589, 12 October 2006. Construction 18 ICT have been identified and widely recognised as a major enabler of innovation, in particular for process innovation. According to the e-Business W@tch survey 2006, 75% of those companies that had introduced new business processes in 2005 reported that this innovation was directly related to or enabled by ICT. In many cases, the implementation of e-business processes in a company will constitute a process innovation in itself. In manufacturing sectors, e-business has triggered significant innovation inside the companies, notably in supply chain and delivery processes, such as automatic stock replenishing and improved logistics. In service sectors such as tourism, the innovative element is more evident in the way that external transactions are accomplished. For example, if a company starts to sell its services online, this can imply innovation in the service delivery process and in customer communication. In some sectors, particularly in ICT manufacturing, consumer electronics and telecommunications, ICT are also highly relevant for product innovation. However, as more companies strive to exploit the innovation potential of ICT, it becomes more difficult for the individual company to directly gain competitive advantage from this technology. e-Business is becoming a necessity rather than a means to differentiate from competitors.15 In addition, the introduction of innovation can cause substantial costs in the short and medium term, as it may take time before the investments pay off. This causes challenges in particular for small and medium-sized companies. It is one of the reasons why e-Business W@tch focuses on such challenges in its sector studies (see also ‘Policy Background’ in chapter 1.1). 15 Cf. Carr, Nicholas (2003). "IT Doesn't Matter". In: Harvard Business Review, May 2003. Construction 19 2 Context and Background 2.1 Sector definition – scope of the study Business activities covered This study explores the development of e-business in the European CI. The main focus is on engineering and construction enterprises working as mainand sub-contractors. The study also covers other important players in the construction value chain, such as material suppliers and architects, when this is relevant for the analysis. Engineering and construction enterprises constitute a rather homogeneous group in terms of value-adding activities in the construction value chain, enterprise set-up and organisation, and ICT capability level. With this scope in mind, the study covers business activities specified by NACE Rev. 1.1 groups F 45.2 (except 45.22) and F 45.3 (except 45.34).16 Exhibit 2-1: Business activities covered by this study (NACE Rev. 1.1) NACE Rev. 1.1 Group(s) Class(es) Business activities F 45.2 Building of complete constructions or parts thereof; civil engineering 45.21 General construction of buildings and civil engineering works 45.23 Construction of motorways, roads, airfields and sport facilities 45.24 Construction of water projects F 45.3 Building installation 45.31 Installation of electrical wiring and fittings 45.32 Insulation work activities 45.33 Plumbing As mentioned above, engineering and construction enterprises are interlinked with other stakeholders in the CI. Exhibit 2-2 below illustrates a non-exhaustive example of a value chain in the CI and indicates the links between the engineering and construction enterprises and other industry stakeholders. The sector value system The CI value system consists of a large number of stakeholders. It is widely spread across many value-adding activities including raw material discovery and retrieval, construction material manufacturing, drawing, design, engineering, construction, and supervision. This study focuses on engineering and construction enterprises and construction clients/owners. However, as shown below in exhibit 2-2, these stakeholders are interlinked with other stakeholders such as manufacturing enterprises and supporting industries. The vertical value system represented in this exhibit starts with industrial 16 NACE Rev. 1.1 is a 4-digit classification of business activities. It is a revision of the ‘General Industrial Classification of Economic Activities within the European Communities’ known by the acronym NACE and originally published by Eurostat in 1970. Construction 20 enterprises producing and selling raw materials and ends with the users/owners of the infrastructure.17 Exhibit 2-2: The CI value chain Source: Inspired by Danish National Agency for Enterprise and Construction, Building – House; a Business Analysis (Bygge – Bolig, en erhvervsanalyse), 2004 N.B: exhibit 2.2 above represents a simplified version of the construction supply chain. Economic operators such as certification and inspection bodies, insurance enterprises and administrations could be added to give a more detailed picture of the value chain. 2.2 Industry background The European CI is currently experiencing a period of growth in production following a decade of limited growth. The growth in production has been estimated at about 1.8% for the year 2005 (CIFT 2006, p. 1). In the second quarter of 2006, the CI’s seasonally adjusted production grew by 1.9% in EU25, compared to the previous quarter. Compared to the second quarter of 2005, output in the second quarter of 2006 in the sub-sector of building construction rose by 3.9% in EU25, after increases of 2.9% in the first quarter of 2006. The sub-sector of civil engineering grew by 0.4% in the EU25 after a fall of 3.9% respectively in the previous quarter (European Commission, STAT/06/116, Sep. 2006). 17 The industry also includes stakeholders like official organs, construction industry think tanks, and tradeand industry associations. INDUSTRIAL ENTERPRISES SUPPORTING INDUSTRIES END USERS P Pr ro od du uc ce er rs s o of f r ra aw w m ma at te er ri ia al l P Pr ro od du uc ce er rs s o of f c co on ns st tr ru uc ct ti io on n m ma at te e r r i ia al l R Re et ta ai il le er rs s o of f c co on ns st tr ru uc ct ti io on n m ma at te e r r i ia al l Universities, research institutions, and construction equipment Real estate brokers C Co on ns st tr ru uc ct ti io on n m ma an na ag ge em me en nt t E En ng gi in ne ee er rs s/ / a ar rc ch hi it te ec ct ts s Client, owner Enterprises/ private owners CONSTRUCTION ENTERPRISES CLIENTS C Co on nt tr ra ac ct to or rs s Building management O Op pe er ra at ti io on n & & m ma ai in nt te en na an nc ce e Construction 21 The growth in production in the CI is, however, not evenly distributed across the EU Member States. Certain Member States have experienced high rates of growth in production (Ireland, Latvia, Slovakia, Slovenia, Czech Republic and, to a lesser extent, Austria, the United Kingdom, and Romania). On the other hand, the German and Portuguese CI have been subject to low growth in production for several years now (EBS 2005, p. 14). The new Member States are expected to see the highest growth rates in the CI over the years 2003-09, as their governments invest heavily to upgrade large sections of their infrastructure (Camecon, www.camecon.com, April 2006). 2.2.1 Size of the EU construction industry According to recent figures from the European Construction Industry Federation (FIEC), the CI is the largest industrial cluster in the EU, representing some 9.9% of Gross Domestic Product (GDP), corresponding to one-quarter of the total European industrial output (FIEC 2006, p. 1). According to the European Commission, about 910bn euros were invested in construction in 2003, representing approx. 10% of the GDP and more than 50% of the Gross Fixed Capital Formation of EU-15.18 The estimated construction investment in EU-15 for 2004 is 1.004bn euros (FIEC 2006, p. 1). There are approximately 2.4m construction enterprises, of which 97% are micro or small enterprises with fewer than 20 employees. Enterprises with fewer than 250 employees (SMEs) account for 78% of the turnover and employ about 80% of the work force. According to FIEC, the industry employs 14m people equal to 7.1% of the European work force and 28.5% of industrial employment19. 26m workers in the EU depend, directly or indirectly, on the CI (FIEC 2006, p. 2). The main activities in the European CI are house-building (26%), non-residential building (29%), civil engineering (20%) and rehabilitation (25%) (FIEC 2006, p. 2). Other sources indicate that the total European turnover is generated from new residential buildings (22%), maintenance and renovation of residential buildings (23%), new non-residential buildings (20%), maintenance and renovation of non-residential buildings (14%) and public procurement (21%) (European Builders Confederation, September 2006). The new EU Member States also have large CIs. In Poland, the Czech Republic and Hungary alone, the turnover was about 38bn euros in 2003 and the market is estimated to grow significantly at an average rate of 4.2% per year.20 18 European Commission, http://europa.eu.int/comm/enterprise/construction, April 2006 19 Figures from the European Commission estimate the employment at around 11.8 m people. 20 European Commission, http://europa.eu.int/comm/enterprise/construction, April 2006 Construction 22 2.2.2 Trends and challenges The European CI currently faces some challenges brought on by globalisation, crossborder job migration and new ICT requirements. The industry is confronted with a trend towards consolidation among industry stakeholders, increased use of sub-contractors, increased focus on environmental issues and the impact of globalisation on the manufacturing of construction materials. The following section provides an overview of these trends and challenges. Globalisation affecting procurement behaviour Globalisation affects the European CI as the production of building materials is increasingly internationally based. Measures to offset the effects of globalisations are promoted by EU initiatives for certification of all products to be sold or traded in the European market. Globalisation is expected to lead to decreasing material prices, in particular for larger enterprises that purchase large volumes of building materials. Construction SMEs may have to collaborate in order to increase purchase volume, or charge customers higher material prices (EBS 2005, p. 14). Large construction enterprises are already altering their procurement behaviour from decentralised site-specific procurement to centralised bulk procurement of frequently used building materials. This centralisation of procurement is, however, often a timeconsuming process that requires organisational changes in order to be successful. Globalisation of the markets is, by some, expected to help improve quality in construction materials, and related additional costs can be shared across a broader market (EMCC 2005, p. 20). Consolidation among industry stakeholders Another - related - trend in the European CI is consolidation among construction contractors and engineering enterprises (Ricaud, www.pwc.com, April 2006). The market for construction materials is increasingly dominated by large enterprises with international operations, capable of profiting from standardisation efforts in the field of product norms. As a client of such enterprises, the CI is forced to acquire the appropriate market clout by creating mega-enterprises and entering alliances, thus presenting a counterweight to the growing bargaining power of its suppliers (UBS 2006, p. 1). For larger construction enterprises, increasing customer demand – public, private, and public-private partnerships – will strengthen the consolidation of the industry. Enterprises require a broad range of qualifications, as well as a solid financial base, to be able to interact with the customer to develop customised building solutions. To complement the full-service enterprises, small specialised suppliers will evolve. Their function will be to offer highly specialised and qualified products and services which the large enterprises do not regard as one of their key competencies. Due to the size of projects and the local character, continuous building maintenance will still mainly be carried out by small, local enterprises (EMCC 2005, p. 21). Increased use of sub-contracting Construction 23 Another trend in the European CI concerns the use of sub-contractors. According to one source, construction enterprises have, in recent year, increased the use of third parties to handle incoming orders (UBS 2006, p. 1). The continuity of resources – both human and material – that are crucial to managing the flow of work, can often be assured only by passing on some of the work to partner enterprises or by hiring temporary staff. This means, however, that construction enterprises face increasing demands in terms of quality assurance, cost planning and project monitoring. Increased focus on environmental issues Environmental issues have also gained importance in the European CI. The focus on environment and sustainability is continuously increasing among public and private building owners and users. This trend spans the whole life cycle of a building. In the construction process, many aspects should be taken into consideration: re-using existing physical assets; designing for minimum waste; minimising energy use throughout the life cycle; avoiding pollution; adding to bio-diversity; conserving water resources; respecting people and communities (EMCC 2005, p.19). This trend is supported by the European Union Directive on energy efficiency. This directive is targeted at achieving a 1% yearly energy saving in the retail, supply and distribution of electricity, natural gas, urban heating, and other energy products including transport fuels. The Directive will further support the trend toward construction of energy efficient buildings and the promotion of energy-efficient construction processes. This theme is also relevant when renovating large urban areas in the new EU Member States. In these large-scale infrastructure projects, increasing emphasis is put on sustainable construction. 2.3 Review of earlier sector studies The 2005 e-Business W@tch sector study on the CI concluded that ICT was not considered by the CI itself to be an essential parameter for business competitiveness.21 Two sets of explanations for the low use of ICT were presented in the 2005 e-Business W@tch sector study on the CI: Construction services consist of unique projects with a natural manual element (labour-intensive). Customers generally demand tailor-made solutions and a close customer relationship over a longer period of time is typical for the construction process. Construction services thus seemed less suited for ecommerce than, for example, IT services and/or industries dealing with mass produced, standardised physical products. 21 To access the 2005 e-Business W@tch sector study on the CI please visit www.ebusinesswatch.org Construction 24 There is a predominant oral culture in the CI with a conversation-based rather than a textual, information-based cooperation form. Traditions and habits seemed to form a barrier to ICT uptake in the sector. At the same time, in comparison with enterprises in some other sectors studied by the e-Business W@tch, construction enterprises to a higher extent employed staff with limited ICT skills and offered only irregular ICT training to their employees. Consequently, many enterprises demonstrated limited ICT competence levels. The 2005 e-Business W@tch sector study also concluded that production improvements via ICT in the CI as a whole lagged behind other industries. The reportedly low ICT usage in construction SMEs, despite the purported availability of ICT solutions with good return on investment (ROI), implied that something was missing in these enterprises – either awareness of these systems or the competencies to use them (e-Business W@tch 2005b). Furthermore, it was concluded that in terms of internal integration, SMEs faced different challenges than the larger CI enterprises. Small companies did not usually have as many types of ICT applications as their larger counterparts and, thus, the issue of integration did not have a strong resonance among SMEs. On the other hand, findings of the 2005 survey indicated that many CI SMEs had neither a consistent ICT strategy nor sufficient skills and competencies to ensure an efficient integration of the ICT systems they already had. Other problems for SMEs in this sector included handling conflicting demands from various external customers and a tradition of using “home-made” systems. External collaboration, in the form of business-to-business (B2B) cooperation, was identified as an area of high relevance and potential for SMEs in construction. Most SMEs were quite dependent on external relations with other enterprises in the industry. However, as demonstrated by case studies on the standardisation and interoperability initiatives from Denmark, Luxembourg and the Netherlands, there was still a long way to go before reaching more advanced solutions. Thus, many construction enterprises, especially SMEs, were left with less complicated ICT solutions, whereas larger enterprises were more active in this application area (e-Business W@tch 2005b, p. 66). Finally, the field of e-procurement had thus far been driven primarily by the industry’s large enterprises which were found using e-purchases to support a broader rationalisation of procurement workflows. In last year’s sector study it was argued that SMEs were only involved to a limited degree in e-procurement of building materials. The most important challenge identified in this respect was supplying services to clients who were increasingly oriented towards electronic tendering. Participation in e-tendering meant that enterprises needed to have certain minimum ICT knowledge and literacy (eBusiness W@tch 2005b, p. 66). Construction 25 3 Adoption of ICT and e-Business in 2006 Background information about the e-Business Survey 2006 e-Business W@tch collects data on the use of ICT and e-business in European enterprises by means of representative telephone surveys. The e-Business Survey 2006 was the fourth survey after those of 2002, 2003 and 2005. It had a scope of 14,081 interviews with decision-makers in enterprises from 29 European countries.22 Most of the tables in this report feature a breakdown of the population of enterprises based on the aggregate of 10 EU countries – the "EU-10".23 In these countries the survey covered all 10 sectors (at least to some extent) and therefore comparability of the sample across sectors is given. The EU-10 represent more than 80% of the total GDP and inhabitants of the EU-25 and are thus to a large extent representative for the whole EU. The survey was carried out as an enterprise survey, i.e. focusing on the enterprise as a business organisation (legal unit) with one or more establishments. Similarly to 2005, the 2006 survey also included only companies that use computers. The configuration of the survey set-up (e.g. sampling) reflects the mandate of e-Business W@tch to focus on sectors and SMEs. As a result, comparisons should mainly be made between sectors and between size-bands of enterprises. Breakdowns by country are also possible, but should be treated cautiously, for several reasons (see Annex I). In the CI 2.654 interviews were conducted; out of these, 754 with companies from the EU-10. Some data are broken down into the two main sub-sectors, i.e. the two NACE groups which make up the total CI as defined for this study (see Section 2.1): 45.2 (Building of complete constructions or parts thereof; civil engineering) and 45.3 (Building installation). When representing data for the two NACE groups in Chapter 3, the abbreviation “Comp. con.” will be used to describe NACE group 45.2 and the abbreviation “Installation” will be used when referring to NACE group 45.3. It should be noted that the average size of surveyed “comp. con.” enterprises was 411 employees and, respectively, 95 employees for “installation” companies. This difference in size indicates that complete construction enterprises have larger human and financial resources to invest in ICT. In addition, large construction enterprises more often take on the role of prime contractor and, hence, more often need ICT to communicate with project stakeholders and project management. 22 The survey was conducted in March-April 2006 using computer-assisted telephone interview (CATI) technology. Field-work was co-ordinated by the German branch of Ipsos GmbH (www.ipsos.de) and conducted in co-operation with their local branches and partner organisations. The countries covered include EU Member States, Acceding and Candidate Countries, and countries of the European Economic Area (EEA). 23 The EU-10 cover the Czech Republic, Germany, Spain, France, Italy, Hungary, the Netherlands, Poland, Finland and the UK. Construction 32 In terms of differences between size-classes, about every tenth micro or small CI enterprise reported using e-learning compared to about every third large enterprise. These figures can, to a certain extent, be explained by the fact that many construction SMEs conduct the bulk of their employee training on-site and on-the-job. Larger construction enterprises may, due to a larger organisation, more resources and higher numbers of administrative personnel, have a higher propensity to prefer a more standardised employee training programmes which can include e-learning. Another interesting indicator is the share of companies which reported hard-to-fill ICT jobs. This indicator may, on the one hand, indicate the condition of the current labour market for ICT professionals and, on the other, provide useful insights about the demand for ICT practitioners. Survey findings show that the reported number of hard-to-fill vacancies for ICT jobs is limited in the CI, with only 1% of enterprises saying that they have problems filling such vacancies. This picture is fully in line with the respective allsectors average and similar to most other sectors studied in 2006, except for the ICTintensive ones. This limited demand for ICT skills is further supported by the analysis in Section 4, suggesting that SMEs have difficulties in identifying the benefits of using ICT systems and employing ICT practitioners. 3.2.2 Outsourcing of ICT services and ICT investments Outsourcing In 2006 e-Business W@tch asked enterprises whether they had outsourced during the previous year any of their ICT services which they were previously conducting in-house. Outsourcing of services can be a solution when internal resources are not readily available and/or when it is economically sound to place parts of the business process outside the traditional boundaries of the enterprises. 14% of CI enterprises, representing a fifth of employment in this sector, said that they had outsourced ICT services which they had previously conducted in-house. This figure is in line with the weighted average of the 10 sectors both in terms of number of enterprises and in terms of employment. Looking at enterprise sizes, there are two interesting observations. Firstly, all CI enterprise groups except the micro-enterprises are, for once, above the all-sectors average when it comes to outsourcing ICT services. However, this is actually consistent with the other indicators showing that CI in-house ICT capabilities are generally lower than in other sectors studied this year, thus making it quite natural to outsource some ICT processes. Secondly, there is a considerable gap between micro-enterprises, which rarely outsource ICT services, and all other types of enterprises, which reported doing so fairly regularly. This observation may be explained on the following grounds: when outsourcing services, the volume, in terms of contract sum, must be high enough for ICT service providers to be willing to engage in an outsourcing agreement. Many of the operations in a micro-enterprise may not be large enough for outsourcing. Construction 33 Exhibit 3-4: Outsourcing and spending on ICT Have outsourced ICT services in 2005 Share of ICT budget as % of total costs Have made ICT investments in 2005 Difficulty to draw funds for investments Weighting: % of empl. % of firms % of empl. % of firms % of empl. % of firms % of empl. % of firms Construction (EU-10) 20 14 5 4 58 45 (7)* (11)* Micro (1-9 empl.) 8 4 38 (13)** Small (10-49 empl.) 24 4 60 (0)** Medium (50-249 empl.) 23 5 79 (0)** Large (250+ empl.) 41 8 85 (0)** NACE 45.2 (Comp. con.) 24 14 5 3 64 52 (0)* (0)* NACE 45.3 (Installation) 16 14 5 4 51 42 (15)* (18)* All 10 sectors (EU-10) 19 14 6 5 65 50 19 15 Micro (1-9 empl.) 8 5 39 25 Small (10-49 empl.) 21 560 3 Medium (50-249 empl.) 21 678 6 Large (250+ empl.) 31 686 29 Base (100%) firms using computers all firms (excl. "don't know") firms using computers Firms with external funding sources for their ICT investments N (for sector, EU-10) 754 482 754 28 Questionnaire reference B6 C1 C3 C5 ( )* numbers are only indicative due to low number of observations (< 50) ** numbers are not of statistical value because of low number of observations (< 25) Source: e-Business W@tch (Survey 2006) In addition, the articulation and optimisation of internal business processes may not be as highly prioritised among micro-enterprises. The same pattern to the one described above can be identified for the all-sectors average, thus indicating that this is more of a general pattern related to company size rather than a specific case for the CI. It could, consequently, be argued that outsourcing follows a time sequence: large enterprises, due to size and business volume, will be the first movers and medium, small and micro enterprises will gradually follow for business processes useful for outsourcing in the CI. The increased focus on outsourcing in the CI is further supported by the finding that 16% of enterprises said that the amount of ICT outsourcing has increased in 2005 (compared to the year before) while a very limited number of enterprises stated that outsourcing has decreased. However, the trend toward outsourcing is much stronger in other industries, indicated by the weighted average of the 10 surveyed sectors, where 1 in 4 companies has reported increased outsourcing activities. In eight of the ten sectors studied this year by e-Business W@tch, the share of enterprises that reported an increase in ICT outsourcing is higher than in the CI. Construction 34 Exhibit 3-5: Outsourcing trend: percentage of companies that have increased / decreased their outsourcing activities in 2005 -3 16 26 -1 -5 0 5 10 15 20 25 30 Construction (EU-10) All 10 sectors (EU-10) Outsourcing has decreased Outsourcing has increased Base (100%): Companies that have outsourced ICT services. N (for sector, EU-10) = 117 Weighting: in % of firms. Questionnaire reference: C2 Source: e-Business W@tch (Survey 2006) ICT investments and expenditure Surveyed CI companies stated their ICT budget corresponds to about 4% of their total expenditures (see Exhibit 3-5). This figure is in line with the respective weighted average across all the studied sectors. Large CI enterprises use about twice as much of their total budget on ICT compared to the sector’s micro-enterprises, clearly indicating that large enterprises have more focus on ICT as a source of competitive advantage. Exhibit 3-6: ICT budget trend: percentage of companies that plan to increase / decrease their ICT budgets in 2006/07 -5 -9 -6 -5 -8 22 16 14 30 43 25 0 -2 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 50 Total Construction (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Will decrease ICT budget Will increase ICT budget Base (100%): Companies using computers (excl. "don't know"). N (for sector, EU-10) = 718. Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as “enterprises comprising…% of employment in the sector(s)”. Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: C2 Source: e-Business W@tch (Survey 2006) Construction 35 This is confirmed by the survey results on ICT budget trends (see Exhibit 3-6). Overall, about 1 in 5 construction enterprises is expected to increase its ICT budget and only about 1 in 20 expects to decrease it in the coming year. According to the same findings, however, more than 40% of large CI enterprises intend to increase their ICT spending in the coming year, while only about 15% of the sector’s micro and small enterprises said that they will do so. This should be viewed in conjunction with findings shown in exhibit 35, according to which only four in ten micro-enterprises and about 6 out of every 10 small CI companies reported having made ICT investments in 2005 compared to nine in ten among the sector’s large enterprises. It, therefore, seems likely that, if no major changes occur in companies’ investing behaviour, the already identified –negativerelationship between enterprise size and ICT uptake in this sector will continue if not intensify. About 1 in 10 enterprises has experienced difficulties in drawing funds for their ICT investments, which is slightly below the all-sectors average. However, this figure is only indicative due to statistical uncertainty (low number of observations). Looking into the sources of finance for ICT investments, 74% of CI firms said that they use cash-flow financing which is a little below the 82% of firms in the weighted 10-sectors average, but exactly in line in terms of employment-weighted figures (see Exhibit 3-7). Only about 1 in 10 CI firms reported using bank loans for ICT investments, while venture capital and public funds are rarely used as financial source for ICT investments by this sector’s companies. Exhibit 3-7: Major source for investments in ICT Cash-flow financing Bank loans Venture capital Public funds and other Weighting: % of empl. % of firms % of empl. % of firms % of empl. % of firms % of empl. % of firms Construction (EU-10) 74 74 10 13 22 2 3 Micro (1-9 empl.) 73 15 2 2 Small (10-49 empl.) 76 8 1 2 Medium (50-249 empl.) 77 6 0 0 Large (250+ empl.) 79 0 3 0 NACE 45.2 (Comp. con.) 72 68 8 12 3 4 2 4 NACE 45.3 (Installation) 78 78 11 13 1 1 1 3 All 10 sectors (EU-10) 74 82 5 7 1 1 9 7 Micro (1-9 empl.) 82 81 2 Small (10-49 empl.) 81 61 2 Medium (50-249 empl.) 70 81 2 Large (250+ empl.) 67 21 8 Base (100%) firms that have made investments in ICT N (for sector, EU-10) 458 458 458 458 Questionnaire reference C4 C4 C4 C4 Source: e-Business W@tch (Survey 2006) Compared to the respective all-sectors weighted averages, CI enterprises in general, and in particular micro and small enterprises, seem to be using cash-flow financing less often Construction 36 and bank loans more frequently as the main source for their investments in ICT. However, this is not the case for the medium-sized and large companies in this sector, which have reported more cash-flow financing and less bank loan financing. This may be a contributing factor to the rather low level of ICT budget especially among this sector’s SMEs: ICT investments often require rather high once-off investments, which can be difficult to finance through cash-flow, thus explaining the higher level of bank loan financing among SMES. Looking into the two sub-sectors analysed in this report, it is evident that building installation companies use cash-flow financing more often than complete construction enterprises. This may be partly explained by the latter’s greater awareness of external funding opportunities such as venture capital and public funds, also taking into account their usually larger average size and more regional, national and international activities. 3.3 Standards, Interoperability and ICT Security Issues A "standard", used as a technical term, is "a technical specification approved by a recognised standardisation body for repeated or continuous application, with which compliance is not compulsory"24. The agreement on shared technical standards is an instrument to achieve compatibility between different systems. Without interoperability of ICT systems, which requires standards and compatibility between standards, advanced forms of e-business (such as the digital integration of systems in B2B exchanges) is hardly possible. 3.3.1 Types of e-standards used The use of ICT-related standards is not widespread in the CI. Enterprises representing about 3% of employment reported using EDI-based standards which is three times lower than the weighted all-sectors average. In addition, enterprises representing 8%, 15% and 2% of the sector’s employment reported using XLM-based, proprietary and other standards respectively. On all types of standards, the CI is below the respective allsectors weighted averages. The reported use of e-standards is much higher among large CI enterprises, a finding which further supports the notion that larger enterprises apply more advanced ICT solutions than the smaller size-bands. While no substantial differences can be observed between the two sub-sectors, it is interesting to notice that the share of large CI firms which reported using XML-based and/or proprietary standards is quite high and practically in line with the respective all-sectors averages. 24 Directive 98/34/EC of the European Parliament and the Council of 22 June 1998, laying down a procedure for the provision of information in the field of technical standards and regulations, see http://europa.eu.int/eur-lex/pri/en/ oj/dat/1998/l_204/l_20419980721en00370048.pdf Construction 37 Exhibit 3-8: Use of e-standards EDI-based standards XML-based standards Proprietary standards Other standards Weighting: % of empl. % of firms % of empl. % of firms % of empl. % of firms % of empl. % of firms Construction (EU-10) 3 2 8 4 15 10 2 2 Micro (1-9 empl.) 2 4 12 2 Small (10-49 empl.) 2 6 8 0 Medium (50-249 empl.) 3 3 22 0 Large (250+ empl.) 11 32 26 7 NACE 45.2 (Comp. con.) 4 3 9 3 15 5 4 5 NACE 45.3 (Installation) 2 1 7 5 16 12 1 1 All 10 sectors (EU-10) 9 3 11 519 12 4 2 Micro (1-9 empl.) 2 6 10 1 Small (10-49 empl.) 4 5 13 2 Medium (50-249 empl.) 10 10 24 2 Large (250+ empl.) 29 27 31 7 Base (100%) firms using computers Firms using computers firms using computers firms using computers N (for sector, EU-10) 754 754 754 754 Questionnaire reference G1a G1b G1c G1d Source: e-Business W@tch (Survey 2006) Overall, in view of the all-sectors average, CI companies do not seem to implement ICTrelated standards to the same degree as their counterparts in other sectors. This could prove an obstacle to advanced forms of e-business. The slow uptake of ICT standards which is shown by the survey results is also supported by the analysis presented in Chapter 4. There, it is concluded that the slow uptake of ICT standards in the CI is primarily due to the lack of international cross-sector standards. 3.3.2 Use of Open Source Software The Open Source model Open Source Software (OSS) refers to computer software under an open source license. An open source license is a copyright license for software that makes the source code available and allows for modification and redistribution without having to pay or seek permission from the original author(s). In the past years, the public awareness of OSS has grown steadily, with the operating system Linux (an alternative to proprietary operating systems such as Windows) being the best-known project. Besides Linux, other OSS such as the database mySQL and the internet browser Firefox (a Mozilla browser) have each achieved significant market shares. Policy-makers are interested in monitoring OSS developments and the uptake among companies for several reasons. There is some debate and different views on whether the use of OSS-based operating systems could reduce ICT costs for SMEs, at least in the Construction 38 long run. Another aspect is whether OSS systems may help to "unlock" companies from specific ICT service providers in the future. Deployment of Open Source Software In 2006, e-Business W@tch asked enterprises on their use of OSS in operating systems, databases and browsers. As illustrated in Exhibit 3-9, OSS is not widespread in the CI. About 1 in 8 firms in this sector reported using OS operating systems, about 1 in 9 said that they use OS databases and about 1 in 7 did so for OS browsers. In terms of different enterprise sizes, it is evident that the uptake of OS browsers is almost the same for all enterprise sizes, whereas the use of OS operating systems and databases tend to increase with company size. This is not surprising, since databases and, in particular, operating systems, are generally both more complex and more significant to key business processes than internet browsers. Thus, using OS versions of these systems will often require more ICT skills than proprietary systems. These findings are in line with the analysis presented in Chapter 4 where it is argued that large enterprises apply more advanced ICT solutions and technology and, in addition, they are more aware of the potential for increased competitive advantage through the use of ICT. Exhibit 3-9: Companies using Open Source (OS) Software 12 97 18 25 21 11 44 23 30 18 16 16 14 19 17 22 0 10 20 30 40 Total Construction (EU-10) M icro (1-9 empl.) Small (10-49 empl.) M edium (50249 empl.) Large (250+ empl.) All 10 sectors (EU-10) OS Operating Systems OS Databases OS Brow sers Base (100%): Companies using computers. N (for sector, EU-10) = 754. Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: G8 Source: e-Business W@tch (Survey 2006) Construction 39 3.3.3 Interoperability challenges Interoperability refers to the "ability of two or more systems to exchange data, and to mutually use the information that has been exchanged."25 As illustrated in Exhibit 3-10, only about 1 in 5 of the CI enterprises found the issue of interoperability critical for conducting different types of e-business. Interoperability is seen as less important for producing products/services than for e-business in and between sectors. Of all ten sectors surveyed this year by e-Business W@tch, the CI appears to be the one putting – by farless focus on the importance of interoperability. This observation is in line with the overall analysis of ICT uptake in the CI. Exhibit 3-10: Perceived importance of interoperability: percentage of companies saying that interoperability is critical … 28 38 31 36 27 33 20 30 41 42 27 28 33 30 32 27 30 20 32 41 30 27 28 35 31 36 30 34 18 26 39 21 24 020406080100 Food & beverages Footw ear Pulp & paper ICT manuf acturing Consumer electronics Shipbuilding & repair Construction Tourism Telecommunication Hospitals activities All 10 sectors for e-business w ithin sector for e-business betw een sectors for producing products/services Base (100%): Firms using computers. N (for sector, EU-10) = 769. Weighting: in % of firms. Questionnaire reference: G5a-c Source: e-Business W@tch (Survey 2006) 25 Definition by IEEE and ISO, cf. e-Business W@tch Special Study on e-Business Interoperability and Standards, September 2005, p. 14. Available at www.ebusiness-watch.org ('resources'). Construction 40 Taken at face value, this does not support the notion that interoperability issues are a barrier to the CI. What is important to take into consideration, however, is that many micro and small enterprises have not yet had any experience with e-standards and interoperability issues and, hence, may have difficulties in assessing their importance. Due to the limited uptake of advanced ICT solutions among this sector’s micro-firms and SMEs, only a few –mostly large– construction enterprises have been faced with the possible challenge of interoperability for e-business. In line with the findings presented above, Exhibit 3-11 shows that between one in four and one in three of the CI enterprises who said that interoperability is critical to their business reported difficulties stemming from a lack of interoperability. This is more than the weighted average of the 10 sectors studied this year by e-Business W@tch. On all factors, more CI respondents have indicated problems related to interoperability than in the weighted average of all sectors. The CI enterprises especially reported problems with the technical aspects of interoperability. This could be attributed to the use of advanced ICT applications among some large enterprises (mainly engineering and prime contractors, and specialist enterprises). Here, applications such as 3D technology, electronic procurement systems and document management systems are more widespread. As will be further discussed in Chapter 4, to reap the full benefits of these types of ICT applications interoperability is required. It could be supposed that the relatively high number of CI enterprises saying that they have experienced interoperability problems in respect to technical aspects stems from the development and implementation of these systems. Exhibit 3-11: Problems due to a lack of interoperability: firms experiencing difficulties in … 29 29 26 29 25 35 23 25 23 25 25 20 24 16 0 10 20 30 40 Procurement Logistics Invoicing Payments Cataloguing Technical aspects Regulatory aspects Construction (EU-10) All 10 sectors (EU-10) Base (100%): Firms that say that interoperability is critical for their e-business. N (for sector, EU-10) = 255. Weighting: In % of firms. Questionnaire reference: G6 Source: e-Business W@tch (Survey 2006) Construction 41 3.3.4 ICT security measures e-Business W@tch analysed security controls and other measures applied by European enterprises to counter security threats in detail in its survey of 2005. Results, which were presented in a special report,26 indicated that basic components such as firewalls and secure servers – for those enterprises requiring these – already exhibited high levels of penetration. As a follow-up to this study on ICT security, questions on selected security measures of particular policy interest were also included in the e-Business Survey 2006. Secure Server Technology "Secure server technology" refers to data exchange between computers based on certain technical standards or protocols, for example "Secure Sockets Layer" (SSL); this is a commonly used protocol for managing the security of a message transmission using the internet. SSL has recently been succeeded by Transport Layer Security (TLS), which is based on SSL, but the latter is still widely used27. One in five CI enterprises (representing about a quarter of the sector’s employment) reported using secure server technology, which is in line with the weighted all-sectors average but rather lower than the all-sectors average of 36% for employment-weighted data (see Exhibit 3-12). Half of the sector’s large enterprises said that they use secure server technology, compared with one in five micro-enterprises. Again due to the less advanced ICT solutions implemented in micro-enterprises, the need for secure server technology may not be as pronounced. In addition, awareness among micro-enterprises of the usefulness of SSL is not deemed as high as among larger enterprises. When looking into the application of firewalls, close to six in ten enterprises apply this rather simple form of data protection. This is, again, slightly below the weighted 10-sector average. Looking at the employment-weighted data, the difference is more pronounced and again the CI is performing worse than the all-sectors average. This might mainly be attributed to the relatively low uptake of ICT in general and, especially, to the low level of e-commerce, e-marketing and other e-practices applied by CI enterprises. A relationship between enterprise size and ICT uptake is visible as almost 9 in 10 large enterprises in this sector reported using firewalls but only five in ten CI micro enterprises did so. 26 See e-Business W@tch Special Study on ICT Security, e-Invoicing and e-Payment Activities in European Enterprises, September 2005. Available at www.ebusiness-watch.org ('resources'). 27 Cf. Whatis.com (http://searchsecurity.techtarget.com) Construction 48 Exhibit 3-16: Share of e-invoices as % of total invoices 12 19 10 15 10 17 0 5 10 15 20 25 30 Construction (EU-10) All 10 sectors (EU-10) % of invoices sent electronically % of invoices received electronically % of turnover corresponding to e-invoices Base (100%): Companies sending/receiving e-invoices (without "don't know"). N (for sector, EU-10) = 95/107/75. Questionnaire reference: D6, D7, D8 Source: e-Business W@tch (Survey 2006) 3.5 Supply Chain Management 3.5.1 e-Integrated supply chains: SCM, financial e-processes and ICT links with suppliers SCM – Supply Chain Management Supply Chain Management (SCM) software can help enterprises match supply and demand through integrated and collaborative interaction tools. SCM provides an overview of the flows of products, materials, information, and finances, as they move through the value chain. SCM coordinates and integrates these flows both within and among companies. One of the key objectives of any effective SCM system is to reduce inventory (with the assumption that products are available when needed).30 Enterprises representing about 16% of employment in CI –and across all sectors studied this year by e-Business W@tchreported using an SCM system. However, in terms of linking their ICT system with that of their suppliers, the respective figure in CI was less than 10% which, again, is below the weighted average of all the surveyed sectors (see Exhibit 3-17). Thus, the CI seems to be on a par with the weighted all-sectors average concerning use of SCM, but the share of enterprises in the CI which have ICT systems linked with suppliers is significantly below the all-sectors average. Traditionally, ICT links with suppliers would be a prerequisite for the efficient use of SCM systems. The finding may, however, be explained by enterprises using their SCM systems for internal purposes only but not to interact with suppliers. With this approach, enterprises will not fully reap the benefits of SCM through online supply chain integration. 30 Cf. www.mariosalexandrou.com/definition/scm.asp: "Definition of Supply Chain Management" Construction 49 Exhibit 3-17: Supply chain integration: use of SCM and ICT links with suppliers 16 10 15 13 26 16 810 63912 0 10 20 30 40 Total Construction (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50249 empl.) Large (250+ empl.) All 10 sectors (EU10) Use SCM ICT system linked with suppliers Base (100%): Companies using computers. N (for sector, EU-10) = 754 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: D1f, F13a Source: e-Business W@tch (Survey 2006) The 2006 survey results also indicate that the use of SCM systems in CI is –againnot evenly distributed across size-bands. Looking at micro-enterprises, about 10% reported using a SCM system compared to 26% of large enterprises which did so. This substantial variation in ICT usage among small and large construction enterprises is also illustrated in the case study about Skanska in Section 4.1. Integration of financial processes in international trade About 6 in 10 CI enterprises said that they do not have international trading activities (see Exhibit 3-18). This is about 50% more than the all-sectors average, confirming that construction is a geographically limited sector (see also Exhibit 3-21). More than half of those enterprises which reported international trading said that their respective financial processes are paper-based – a share which is almost in line with the all-sectors average. Overall, less than 15% of this sector’s firms said that they use internally automated financial procedures when trading at the international level and practically none reported externally automated relevant processes. As would be expected, percentages of companies reporting some form of international trading and of integration of their related financial processes increase with size. Construction 50 Exhibit 3-18: Integration of financial processes in international e-trade 26 30 21 30 32 32 14 8 8 14 38 22 1 2 2 7 59 60 71 53 30 40 0 20406080100 Total Construction (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Paper based Internally automated Externally automated No international trade Base (100%): Companies placing orders online (without "don't know"). N (for sector, EU-10) = 391 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: E6 Source: e-Business W@tch (Survey 2006) 3.6 e-Marketing and Sales ICT, and in particular the internet, can be used in various ways to support marketing activities, including the communication with customers, offering products for sale, and developing new marketing strategies. Normally, CI enterprises do not sell directly to consumers (B2C) but more often offer their services to other enterprises. The exceptions to this are the clients building their own private houses. In these cases, a B2C relationship exists. However, the uptake of online solutions for marketing, promotion, PR and sales is not yet widespread in the CI. 3.6.1 Enterprises receiving orders from customers online About 10% of CI enterprises said that they accept orders from customers online which is significantly lower than the all-sector average of 25% (employment-weighted shares are 13% and 36%, respectively). Compared to other individual sectors analysed in this year’s survey, the CI has one of the lowest acceptance rates of orders online. The reported levels of accepting orders online are not significantly greater for large CI enterprises compared to micro and small enterprises. Nevertheless, among those enterprises saying that they do accept online orders, large enterprises tend to receive a larger share of their orders online – and this share is comparable to the respective all-sectors average. Construction 51 When taking the nature of the service provided by the CI into consideration, this observation should not be surprising. Most construction and building projects are relatively long-term, customised projects, which require much interaction between client and contractor, as well as high degrees of flexibility and adaptability. It can be argued that the internet may not be fully suited to handle these types of orders, which would explain the low uptake of online ordering in CI. Exhibit 3-19: Companies receiving orders from customers online Accept orders from customers online Receive up to 25% of orders online Receive more than 25% of orders online Use specific ICT solutions for e-selling Weighting: % of empl. % of firms % of empl. % of firms % of empl. % of firms % of empl. % of firms Construction (EU-10) 13 11 84 88 16 12 8 5 Micro (1-9 empl.) 12 90 11 4 Small (10-49 empl.) 11 87 13 6 Medium (50-249 empl.) 14 83 17 8 Large (250+ empl.) 13 78 22 16 NACE 45.2 (Comp. con.) 13 9 75 75 25 26 9 4 NACE 45.3 (Installation) 12 12 93 93 7 7 7 5 All 10 sectors (EU-10) 35 25 73 75 27 25 18 9 Micro (1-9 empl.) 23 79 21 6 Small (10-49 empl.) 26 76 24 12 Medium (50-249 empl.) 29 75 25 16 Large (250+ empl.) 26 74 26 27 Food & beverages 31 19 82 87 18 13 14 4 Footwear 25 23 86 88 14 12 8 5 Pulp & paper 26 28 78 77 22 23 19 11 ICT manufacturing 26 27 55 64 45 36 24 12 Consumer electronics 25 35 90 66 10 34 20 12 Shipbuilding & repair 18 14 100 100 0 0 12 8 Construction 13 11 84 88 16 12 8 5 Tourism 49 36 68 72 32 28 28 11 Telecommunication 36 40 66 63 34 37 37 21 Hospitals activities 710 93 83 717 8 8 Base (100%) firms using computers firms accepting orders online firms accepting orders online firms using computers N (for sector, EU-10) 754 123 123 754 Questionnaire reference F4 F6a+b+c F6d+e F10 Source: e-Business W@tch (Survey 2006) Looking into the two sub-sectors covered by this survey, more building installation enterprises tend to accept orders online than complete construction enterprises. The difference is, however, not very significant. On the other hand, among those enterprises that do accept orders online, significantly more complete construction firms than building installation enterprises tend to accept a larger share of their orders online. The observed difference may, again, be explained by the difference in the services provided by the two sub-sectors. Construction 52 According to the survey results about the use of specific ICT solutions for e-selling, findings for the CI are in line with the previous observation on online orders: About 1 in 20 enterprises, representing only 8% of employment in this sector, said that they use a specific ICT solution for e-selling. This is about half of the all-sectors average but can, again, be partly explained by the nature of the product/service provided. Looking into size spans, large enterprises are four times as likely to have a specific ICT solution for eselling as micro-enterprises. This is in line with previous findings, confirming once more that construction SMEs do not use ICT to the same degree as large enterprises. Compared to other sectors studied this year by e-Business W@tch, the CI is positioned in the lower end along with the shipbuilding and hospitals sectors whose products and services are also difficult to sell online. ICT solutions can support various marketing and sales processes. As shown in Exhibit 3-20, about 4 in 10 of CI enterprises said that they use specific ICT tools to publish orders online. This is about half as many as the weighted all-sectors average. In contrast, the share of CI companies which reported using specific ICT tools for answering calls for tenders online is significantly higher than the respective all-sectors average. Differences between these two findings may be explained by the introduction of e-tendering systems among many public clients (see a more detailed discussion on this topic in Section 4.1). Lastly, it is quite evident that e-auction is not widely used in the CI and that the majority of enterprises do not find this format useful for selling construction services. Interestingly, about 4 in 10 enterprises from the CI that use specific ICT tools for emarketing purposes said that these tools are enabling their customers to pay online. This is above the weighted all-sectors average and represents an interesting finding. Since the number of respondents is relatively small (N=62), however, this finding should be cautiously interpreted. Exhibit 3-20: Marketing and sales processes supported by specific ICT solutions 41 78 55 42 78 60 19 66 34 1 0 20 40 60 80 Publish offers to customers Answer calls for tenders Launch sales auctions Receive orders from customers Enable customers to pay online Construction (EU-10) All 10 sectors (EU-10) Base (100%): Companies using specific ICT solutions for marketing / sales. N (for sector, EU-10) = 62. Weighting: In % of firms. Questionnaire reference: F11 Source: e-Business W@tch (Survey 2006) Construction 53 Location and type of customers placing online orders In the CI the reported location of customers which order online is mainly regional and national, with a 56% majority being regional. This figure is about twice as high as the allsectors average. There are practically no international customers ordering in the CI, compared to more than 20% for the all-sectors average. The main explanation for this is that more than 90% of the construction companies are SMEs which mainly operate at regional/national level. The description of the industry presented in Chapter 2 clearly indicates that CI is a locally/regionally-oriented sector. The seemingly non-existing international online sales, illustrated in Exhibit 3-21, could be an additional indication that a single European market for construction services is underdeveloped. Exhibit 3-21: Main location of customers that order online 56 30 44 47 23 0 20406080100 Total Construction (EU-10) All 10 sectors (EU-10) Mainly regional Mainly national Mainly international Base (100%): Companies accepting orders online (without "don't know"). N (for sector, EU-10) = 121. Weighting: In % of firms. Questionnaire reference: F7 Source: e-Business W@tch (Survey 2006) Interestingly, the survey findings on the type of customers ordering online indicate that in public clients rarely order online. As illustrated in Exhibit 3-22, more than a third of CI companies which accept orders electronically said that the majority of their online customers are other companies, while about 30% said that these are mainly private customers. According to the survey, a very limited number of online customers are from the public sector. The most plausible explanation is that many public clients either have their own e-tendering systems or, as is still very common, require a more traditional paper-based tendering procedure for construction projects. Exhibit 3-22: Main type of customers that order online (B2B / B2C / B2G) 36 18 29 39 1 6 35 37 0 20406080100 Total Construction (EU-10) All 10 sectors (EU-10) Mainly companies (B2B) Mainly consumers (B2C) Mainly public sector (B2G) Mix ed Base (100%): Companies accepting orders online (without "don't know"). N (for sector, EU-10) = 121. Weighting: In % of firms. Questionnaire reference: F8 Source: e-Business W@tch (Survey 2006) Construction 54 3.6.2 e-Integration of marketing processes: CRM and ICT links with customers Customer Relationship Management (CRM) systems promise an enterprise the capability to systematically increase knowledge about customers and their profitability, and to build and adapt marketing strategies on the basis of this intelligence. CRM is a term that refers to a broad range of methodologies and software applications that help an enterprise manage customer relationships in an organized way. Normally, this will be based on some kind of database with systematic information about customers and the business record the enterprise has with them. On average, about 1 in 10 enterprises in the CI reported using a CRM application which is about half as much as the weighted all-sectors average. This may to some extent be explained by the relatively limited number of customers normally constituting the client base of a construction enterprise. Especially for SMEs, this rather low number of customers, in connection with often limited marketing activities, makes the use of ICTbased CRM systems redundant. Large CI enterprises reported having a CRM system much more often than their smaller counterparts. They also more often reported having an ICT system that is interlinked with that of their customers in the form of project webs and similar (for more information on the use of project webs and collaborative systems, see Section 4.3). Exhibit 3-23: Use of CRM and integration of ICT systems with customers 9599 24 18 6454 13 10 0 5 10 15 20 25 Total Construction (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50249 empl.) Large (250+ empl.) All 10 sectors (EU10) Use CRM ICT system linked with customers Base (100%): Companies using computers. N (for sector, EU-10) = 754 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: F2, F13b Source: e-Business W@tch (Survey 2006) Construction 55 3.7 ICT and Innovation e-Business W@tch asked enterprises whether they had launched any new or substantially improved products or services during the 12 months prior to the interview. Surveyed companies were also asked if they had introduced new or significantly improved internal processes in the same period of time. Enterprises that indicated that they had introduced any such innovations were then asked follow-up questions on the role of ICT in their innovation activity. Exhibit 3-24: ICT and Innovation activity Companies with new product innovation in 2005 Share of ICTenabled product innovations Companies with process innovation in 2005 Share of ICTenabled process innovations Weighting: % of empl. % of firms % of empl. % of firms % of empl. % of firms % of empl. % of firms Construction (EU-10) 21 17 53 49 25 14 70 67 Micro (1-9 empl.) 20 47 13 65 Small (10-49 empl.) 13 38 19 57 Medium (50-249 empl.) 23 50 37 67 Large (250+ empl.) 36 70 49 86 NACE 45.2 (Comp. con.) 19 14 63 67 29 14 70 52 NACE 45.3 (Installation) 22 18 44 43 21 14 69 74 All 10 sectors (EU-10) 32 24 50 45 32 20 75 63 Micro (1-9 empl.) 22 41 16 69 Small (10-49 empl.) 25 42 25 57 Medium (50-249 empl.) 33 45 38 71 Large (250+ empl.) 48 49 53 81 Base (100%) firms using computers firms with product innovation firms using computers firms with process innovation N (for sector, EU-10) 754 151 754 171 Questionnaire reference I1 I2 I3 I4 Source: e-Business W@tch (Survey 2006) In the CI, 17% of enterprises experienced product innovation in 2005. This is, both in terms of number and percentage of employment, lower than the weighted all-sectors average. This may be explained by generally less focus on innovation in the CI compared to other sectors, such as ICT manufacturing, consumer electronics and other manufacturing sectors in this year’s survey. In addition, the data show that about 4 in 10 large enterprises have made product innovations in 2005 compared to two in ten micro enterprises. As many micro enterprises work as sub-contractors to larger enterprises, they will more often tend to perform standardised and predefined work that more rarely gives rise to product or service innovations. Construction 56 Interestingly, among those firms which experienced some form of product or service innovation, the reported share of ICT-enabled product innovations is slightly higher in the CI than the weighted all-sectors average. However, these average figures conceal some interesting findings at the sub-sector level: Complete construction enterprises said that they use ICT much more often when innovating products compared to building installation enterprises. This could be explained by the generally lower ICT uptake among building installation enterprises along with the higher number of SMEs in this sub-sector. This argument is further supported when looking into the data spread on different enterprise size classes. Again, the large enterprises more often use ICT to support product innovation. Actually, whereas there is little difference between size groups in the all-sectors average, the large CI enterprises stand out with an unusually high share of ICT-enabled product innovation (70% of companies). Looking at the indicator for process innovation, fewer CI enterprises reported making process innovations in 2005 compared to the weighted all-sectors average. This is in line with the results on product innovation above but, again, among those CI enterprises saying that they made some process innovations, ICT is more often used as an enabler compared to the weighted all-sectors average. Also looking at size spans, large enterprises more often reported process innovations and also more often said that they used ICT for this, compared to micro and small enterprises.31 The figures and findings from the table above are also illustrated in Exhibit 3-25, which shows the share of enterprises that have conducted product/service and process innovation in the 12 months before the survey and how much of these activities were linked to ICT. As stated above, for both product/service and process innovation, fewer CI enterprises make innovations compared to the weighted all-sectors average, but a larger share of these innovations are ICT-enabled. This can partly be explained by the nature of the services offered in the CI and partly by the fact that most innovation in the CI is made by large enterprises which, however, constitute a small fraction in terms of total number of enterprises in this sector. 31 For more information about e-business and innovation, see also the e-Business W@tch special report (2006) on “The role of new companies in e-business innovation and diffusion”, available at www.ebusiness-watch.org ('resources')." Construction 57 Exhibit 3-25: The role of ICT for product and process innovation Construction (EU-10) All 10 sectors (EU-10) 89 95 0 10 20 30 40 50 Firms w ith product/service innovation in past 12 months Firms w ith process innovation in past 12 months Not ICT linked ICT linked 11 13 13 7 0 10 20 30 40 50 Firms w ith product/service innovation in past 12 months Firms w ith process innovation in past 12 months Not ICT linked ICT linked Base (100%): Companies using computers. N (for sector, EU-10) = 905/925 Weighting: In % of firms. Questionnaire reference: I1 – I4 Source: e-Business W@tch (Survey 2006) 3.8 Drivers and Inhibitors for the Uptake of e-Business 3.8.1 Drivers of e-business adoption The survey confirms an expected slow uptake of e-business in the CI. Differences in drivers for uptake of e-business clearly prevail between the CI and the weighted average of the 10 sectors covered in 2006. In the CI, about 6 in 10 large enterprises adopt ebusiness due to the use of e-business by competitors, which is only slightly higher than the weighted all-sectors average. Especially for the larger CI enterprises, customer expectations constitute also a main driver; this is actually the most important reported driver across the 10 sectors studied this year by e-Business W@tch. However, the most important driver for the CI enterprises is the desire to gain competitive advantage – especially as regards micro-enterprises. Given the generally low uptake of e-business in this sector, it is not surprising that gaining competitive advantage is a relatively more important motive in the CI. Apparently, there are still “first-mover” advantages to be exploited for those that take the leap and invest in e-business solutions. Construction 64 4 Current e-Business Trends and Implications The previous chapter presented the results of the 2006 e-Business W@tch survey for the CI. The aim of this chapter is, based on the analyses presented in Chapter 3, to provide industry-specific insights into current ICT use and e-business activities. This chapter does not claim to offer a comprehensive overview of the topics discussed, as that would exceed the limits of this report. In fact, it would be difficult to achieve, as ICT and ebusiness are relevant to nearly all core business areas of the CI. The issues analysed, as well as the case studies presented in the following sections, should be understood as representative examples of current practice and the related opportunities and challenges. The following paragraphs introduce the issues that have been selected for in-depth study, and explain the main reasons for their selection. This selection was made in co-ordination and agreement with DG Enterprise and Industry, and with relevant industry stakeholders. Solutions for electronic procurement The 2005 e-Business W@tch sector study, as well as industry experts highlighted the need to increase focus on benefits from centralised procurement initiatives. Due to rising competitiveness among this industry’s players, CI enterprises focus increasingly on internal processes in their search for business optimisation and cost savings. Some large European construction enterprises have already introduced e-procurement initiatives and the first experiences point to substantial benefits achieved in terms of cost savings and quality improvement. The first section of this chapter, therefore, looks into the topic of e-procurement activity among construction enterprises. A special section focuses on the issue of public eprocurement in CI, as a follow-up to the 2005 e-Business W@tch sector study which highlighted the potential of public e-procurement solutions for promoting the uptake of ICT solutions among this industry’s enterprises. Relevant developments are described in Section 4.1. Analysis is supported by case studies of the Swedish construction enterprise Skanska, the German public eprocurement solution e-Vergabe, the Greek e-procurement portal E-Construction and the UK based public e-tendering solution SCMS. Solutions for 3D technology According to interviews with industry experts from construction enterprises, IT and software producers, supporting trades and academia, the development and uptake of advanced drawing and simulation software like 3D technology is driven both by public requirement and by the potential benefits of error reduction in the design and construction phases for engineering enterprises. For instance, the Danish Government requires the use of 3D technology in all public construction projects as of January 1, 2007. Furthermore, several construction enterprises have pointed to the benefits of virtual models with parametric data attached to the 3D elements and more efficient communication. Based on these considerations, Section 4.2 describes relevant developments and implications in the area of 3D technology. It also explains barriers for Construction 65 the further adoption of 3D technology among European construction enterprises. It provides, as examples, case studies of the Lithuanian construction enterprise Constructus and the construction project of the Norwegian Akershus University Hospital. Project web solutions for electronic collaboration The 2005 e-Business W@tch sector study addressed the issue of e-collaboration. According to the discussion in that study, electronic collaboration could be a tool that enables quicker data transfer, advanced visualisation, and faster alterations during the planning process. This would be achieved through the sharing of building plans, time schedules, calculations, technical specifications and other project data (European Commission 2004, p. 7) (Ricaud 2006). Following-up the discussion on these conclusions, the last section in this chapter describes the use of collaborative systems known as project webs, where the stakeholders in a construction project communicate and share information via an electronic portal. Section 4.3 analyses the impact of project webs on the various stakeholders, as well as the requirements and benefits of implementing project webs. It is supported by a case study on the French construction enterprise Spie SCGPM. Case studies and business examples The survey data presented and analysed in Chapter 3 along with the case studies/ business examples (summarised in Exhibit 4-1), and secondary literature, form the basis for the conclusions and policy implications presented in Chapter 5 of this report. Construction 66 Exhibit 4-1: Case studies and business examples presented in this report Section Enterprise / project Country Topic(s) 4.1 Case study: e-Construction Greece Implementation of a construction eprocurement solution 4.1 Case study: e-Vergabe Germany Implementation of public e-procurement on federal level 4.1 Case study: Y&H RCoE United Kingdom Implementation of a regional public etendering solution 4.1 Business example: Water Services Belfast United Kingdom Implementation of a local public e-tendering solution 4.1 Case study: Skanska Sweden Implementation of an e-procurement system in a large international construction enterprise 4.2 Case study: Constructus Latvia Implementation of 3D technology in a small East European construction enterprise 4.2 Case study: Akershus University Hospital Norway Implementation of 3D technology and the use of IFC standards in a large hospital project 4.2 Business example: Autodesk France France Online solutions for the construction industry 4.2 Business example: Bentley Denmark The opportunities in 3D modelling technology 4.2 Business example: Micrograf Portugal Impacts of 3D technology on construction enterprises 4.2 Business example: NCC Construction Denmark 3D technology in a European construction enterprise 4.2 Business example: Raiffeisen/Strabag/4D Books Hungary Experiences from implementation of 3D technology in a Hungarian construction enterprise 4.3 Case study: SPIE SCGPM France Implementation of a project web solution in a Paris-based construction enterprise 4.3 Business example: Byggeweb A/S Denmark Use of project web solutions 4.3 Business example: Prosys SA France Use of project web solutions 4.3 Business example: Bouygues Construction France Project web in a construction enterprise Construction 67 4.1 e-Procurement 4.1.1 Introduction This section describes the current use of e-procurement in the CI and analyses the benefits, barriers and business implications within two specific areas of e-procurement in the CI: e-procurement among construction enterprises and public e-procurement of construction products. These two topics represent two trends in the use of e-procurement in the European CI, which were briefly touched upon in the e-Business W@tch 2005 sector study. The first trend refers to buyer-driven e-procurement solutions that are mainly implemented and operated by large construction enterprises (illustrated through the Skanska case below). The second trend involves the benefits for construction enterprises when entering into public e-tendering. Although the benefits of this development accrue to the buyers - i.e. the public institutions - in the short run, improvements in accessibility to information and transparency in the tendering processes benefit the construction enterprises in the long run (illustrated through the e-Vergabe case presented after Section 4.1.7). 4.1.2 Definition of e-procurement e-Procurement is generally defined as the use of the internet for requisitioning, authorising, ordering and payment of products and services (Lootah 2006, p.3). eProcurement is hence the application of a span of digital technologies to expand the front-end and back-office integration of contracting, service, transportation and payment of the products and services through electronic processes, decisions, and transactions (Andersen et al. 2003, p. 963). However, e-procurement can be more than just a system for online procurement. An eprocurement system can connect a construction enterprise and its business processes directly with suppliers while managing all interactions between them. This includes management of correspondence, bids, questions and answers, previous pricing, and multiple e-mails sent to multiple participants. Enterprises can also engage in e-tendering which is the use of electronic means throughout the tendering processes, i.e. finding and selecting suppliers of works or services (European Commission working group on e-construction Phase II, 2004). When the buyer is a public authority, the term public e-tendering is used, which is defined as the acquisition of high value, low volume goods, works and services by seeking bids (proposals) via a public process followed by the evaluation of bids and award of contracts (IADB 2002, p. 4). An integrated part of e-procurement is e-purchasing (also called e-ordering), which is the use of electronic means in the process of procurement of goods, works, services and utilities (This includes the processes from finding a product to invoicing and payment). Thus, procurement includes the process of ordering, but also the final stages of the procurement process, i.e. payment (European Commission 2004, p. 12). Construction 68 4.1.3 Use of e-procurement in the construction industry A study from the UK Construction Federation estimates the possibility of annual costsavings for clients from producing, copying and distributing tender documents through the use of electronic tendering by as much as 90% (UK Construction Federation 2006). The introduction of e-procurement by European construction enterprises and the introduction of e-tendering by public clients have an effect on the dynamics between members of the construction value chain. According to recent research by eMarket Services, an enterprise engaging in electronic procurement could cut procurement costs by as much as 8 to 15% (eMarket Services 2005a, p. 2 and 2005b, p. 2). According to the 2006 e-Business W@tch Survey, more than half of the interviewed enterprises said that they place orders online. The frequency is slightly lower for micro and small enterprises than for large enterprises. A slightly greater number of enterprises in the CI place orders online compared to the average for all sectors. More specifically, sectors such as tourism, footwear and food & beverages, that the CI can be compared with concerning ICT uptake, are positioned lower in terms of enterprises placing orders online. The uptake of e-procurement is, among other things, driven by the rather high number of e-market places available for construction enterprises in many Member States. As shown in Exhibit 4-2, about half of the responding enterprises place orders online. This is on a par with the weighted all-sector average. Looking into enterprise sizes, there is no clear relationship between enterprise size and the number of enterprises placing orders online. Among building installation enterprises, more than half place orders online, compared to about 1 in 3 complete construction enterprises. This observation may indicate that building installation enterprises use the internet more often to place orders online but the difference may also be explained by the fact that more large enterprises have implemented their own e-procurement solutions and hence do not buy products over the open internet. About 7 in 10 enterprises placing orders online, said that these concern less than 25% of their total purchase activities. In other sectors, the relative share of e-procurement is somewhat higher; particularly in ICT-related sectors, but also in shipbuilding and tourism, more than a quarter of those companies that procure online said that this activity accounts for more than 25% of their total orders. Construction 69 Exhibit 4-2: Companies ordering supply goods online Place orders online Place up to 25% of orders online Place more than 25% of orders online Use specific ICT solutions for e-sourcing Weighting: % of empl. % of firms % of empl. % of firms % of empl. % of firms % of empl. % of firms Construction (EU-10) 53 51 74 72 26 28 12 6 Micro (1-9 empl.) 51 72 28 4 Small (10-49 empl.) 54 76 24 10 Medium (50-249 empl.) 57 80 20 17 Large (250+ empl.) 58 69 31 26 NACE 45.2 (Comp.con.) 49 37 76 83 23 17 14 7 NACE 45.3 (Installation) 57 58 73 69 27 31 9 6 All 10 sectors (EU-10) 57 48 74 75 26 25 16 9 Micro (1-9 empl.) 44 73 27 7 Small (10-49 empl.) 54 80 20 10 Medium (50-249 empl.) 60 76 24 16 Large (250+ empl.) 68 75 25 29 Food & beverages 54 39 86 91 14 9 14 5 Footwear 35 29 83 87 17 13 9 5 Pulp & paper 59 49 81 75 19 25 14 8 ICT manufacturing 72 69 67 49 33 51 20 10 Consumer electronics 70 71 60 47 40 53 16 9 Shipbuilding & repair 62 53 78 69 22 31 18 12 Construction 53 51 74 72 26 28 12 6 Tourism 60 39 77 72 23 28 20 12 Telecommunication 78 77 54 49 46 51 26 12 Hospitals activities 67 67 71 73 29 27 19 12 Base (100%) firms using computers firms placing orders online firms placing orders online firms using computers N (for sector, EU-10) 754 401 401 754 Questionnaire reference E1 E3a+E3b+E3c E3d+E3e E7 Source: e-Business W@tch (Survey 2006) As displayed in Exhibit 4-2, less than 1 in 10 enterprises reported using a specific ICT solution for e-sourcing. It would be safe to assume that the rest might use internet or supplier-driven solutions for online procurement, but not any specific system or specialised software. In comparison with the portion of enterprises placing orders online, it could be inferred that firms in the CI currently use more simple solutions for eprocurement that do not require specific software or extensive ICT skills among employees. Interestingly, results seem to be in the same range (50-60%) for all sizebands, but differences appear when looking at the two sub-sectors: surprisingly, it is building installation enterprises which come higher, both in terms of number of firms and in terms of employment-weighted data. Enterprises using such specific solutions use them mainly for finding suppliers in the market (53% of firms), inviting them to quote prices (62%) and ordering goods/services (61%) – see Exhibit 4-3. The use of e-auctioning is very limited in the CI which, based on the nature of the provided service, is not surprising. These findings should, however, only be seen as indicative since the sample size is limited (N=87). Construction 70 Exhibit 4-3: Sourcing and procurement processes supported by specific ICT solutions 53 62 61 63 58 75 7 2 0 20 40 60 80 100 Finding suppliers in the market Inviting suppliers to quote prices Ordering goods/services Running online auctions Construction (EU-10) All 10 sectors (EU-10) Base (100%): Companies using specific ICT solutions for e-procurement. N (for sector, EU-10) = 87 Weighting: in % of firms. Questionnaire reference: E8 Source: e-Business W@tch (Survey 2006) The sourcing of products online can relate to different types of products / commodities. As illustrated in Exhibit 4-4 below, about 1 in 3 of the responding enterprises source online for a combination of MRO products, raw materials, and intermediary products. Among micro and small enterprises, the largest group - about a third – primarily order raw materials. Among the medium and large enterprises, the largest group – again, about a third – primarily source mixed products. Compared to the weighted all-sectors average the CI is more focused on online purchase of raw materials. This reflects the CI characteristics illustrated in Section 2, where it is argued that the main inputs into the CI production process are raw material, machinery and intermediary products. Exhibit 4-4: Main type of supply goods ordered online 22 14 26 35 27 21 27 33 28 18 31 22 8 13 10 4 2 6 14 15 14 7 9 14 28 24 22 35 31 37 0 20406080100 Total Construction (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) MRO goods Raw materials Intermediary products Services Mixed / all Base (100%): Companies placing orders online (without "don't know"). N (for sector, EU-10) = 406 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: E4 Source: e-Business W@tch (Survey 2006) Construction 71 Main location of suppliers in e-procurement National suppliers are, by far, the most common type of suppliers when construction enterprises procure online. 94% of the enterprises in the CI report that they mainly procure from regional and/or national suppliers. Only 6% use international suppliers when purchasing online. These findings highlight the local and regional focus of the CI where local raw materials, due to transportation and storage costs, have traditionally been preferred. Compared to the weighted average of the industries surveyed, the CI is more regionally and nationally oriented, and international suppliers are only half as common in the CI as the average of the industries surveyed. Interestingly, the use of local suppliers was reported more by large enterprises than by micro and small enterprises. This further highlights the local focus of CI companies when procuring essential raw materials. Apparently, however, large enterprises also have a comparatively higher tendency to use international suppliers than their smaller counterparts in this sector. This could be a result of their expected higher purchasing volume and geographically more far-reaching operations. Exhibit 4-5: Main location of suppliers in e-procurement 33 33 30 27 42 24 61 60 63 70 47 64 6 6 6 3 12 12 0 20406080100 Total Construction (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Mainly regional Mainly national Mainly international Base (100%): Companies placing orders online (without "don't know"). N (for sector, EU-10) = 415 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: E5 Source: e-Business W@tch (Survey 2006) Construction 72 4.1.4 Potential benefits of e-procurement The potential efficiency gains from e-procurement are especially expected from savings related to:33 Procurement prices Administrative costs for the buyers Administrative costs for the suppliers. These savings can be achieved by using e-procurement and in public e-tendering. The potential savings in the CI when using e-procurement were illustrated by expert comments arguing that the construction sector will be able to lower the cost of individual items purchased by 20-30% (Cederblad 2001, p. 110). According to Farzin Saber, Professional Relations Manager of IBX, the estimated savings are in the area of 12%. Another analysis by e-Market Services of e-procurement in European enterprises showed the average payback period for the investment in e-procurement to be less than a year (eMarket Services 2005b, p. 2). However, the survey results presented in Section 3 showed that the European CI only uses e-procurement to a limited degree, and that only the large enterprises are engaged in e-procurement. These two findings could indicate that there is still untapped potential for CI enterprises in implementing e-procurement. More specifically, the case study on Skanska in this section illustrates the fact that the economic gains are centred on a general improvement of procurement practices, including a decrease of the supplier base. The introduction of e-procurement will enable enterprises to limit the number of suppliers used. This reduction can lead to better price agreements with suppliers and the creation of a framework for long-lasting supplier relationships. The potential benefits from a limited supplier base include the possibility of lower negotiated prices in framework contracts. This is the case when a construction enterprise can designate a supplier to be the sole provider of specific materials (single sourcing). The limitation of supplier bases and the potential use of single sourcing will increase the collaboration between supplier and buyer. As discussed in the above paragraphs, an expected impact from e-procurement is the limitation of the number of suppliers, leading to a closer relationship between buyers and suppliers. A large majority of the enterprises in the CI, however, do not seem to have experienced any change in the number of suppliers as a result of their e-procurement strategy (71%). In fact, 20% of enterprises have experienced an increase in the number of suppliers and only 9% have experienced a decrease in the supplier base (see Exhibit 4-6). This development could be founded in the rather large number of suppliers traditionally associated with a construction enterprise in order to meet specific needs for clients concerning raw material selection and use of special intermediary products. 33 See e-Business W@tch 2005a, p. 38. Construction 73 Exhibit 4-6: Impact of e-sourcing and e-procurement on the number of suppliers 20 26 71 68 9 5 0 20406080100 Construction (EU-10) All 10 sectors (EU-10) Increased Stayed the same Decreased Base (100%): Companies placing orders online (without "don't know"). N (for sector, EU-10) = 395 Weighting: in % of firms. Questionnaire reference: E9 Source: e-Business W@tch (Survey 2006) This development may, in the long run, improve the relationship between the two parties; lead to lower transaction time as well as better quality of procurement catalogues. The reduction of the supplier base through e-procurement is expected to lead to procurement savings, compliance increases and procurement process optimisation. To ensure that construction enterprises can remain competitive in the long run, occasional renegotiations of terms with the single sourcing supplier are of course required. An e-procurement system must have several call-off methods, i.e. ways in which a user of the e-procurement platform can communicate with suppliers. Traditional supplierupdated catalogues are the main call-off method. According to the case studies conducted for this study, this may yield 20-40% of the total purchase being channelled through the e-procurement system (Interview with Farzin Saber, March 2006). The most common call-off method in e-procurement is an e-catalogue which offers the same valueadded features as a traditional paper-based catalogue, i.e. an overview of different products with detailed information on products, pricing agreements and discount criteria. e-Catalogues with an e-form are also used. This type of catalogue allows the user to browse through an online catalogue and then place a request for the standardised items presented in the catalogue. This type of call-off method provides the possibility of a free text option where the buyer can specify extra requirements such as special design features (customisation of the product) or special delivery terms. Applying these different call-off methods, the percentage of the total purchase being channelled through the eprocurement systems (also called the e-procurement ratio) of a construction enterprise can increase to as much as 80-90%.34 34 Interview with Farzin Saber, conducted in March 2006, in the context of the Skanska case study. Construction 80 Today, the Öffentlicher Eink@uf Online programme consists of three elements (www.bescha.bund.de, July 2006): The Tendering Module (Vergabe-Modul “DOMEA®”), facilitating the work of buyers at the Procurement Agency who invite tenders and award contracts The e-Tendering platform (e-Vergabe) The one-stop eGovernment shop (Kaufhaus des Bundes) is based on an electronic catalogue. Federal authorities can request any item available from the suppliers with whom the Procurement Agency has made a framework agreement. Today, the e-Vergabe platform has 600 users, including about 60 firms related to the CI, and is in place within 33 public authorities, at all three levels of government: federal, state, and local. Another 22 authorities are expected to join shortly (Activity Report 2004/2005 Beschaffungsamt des Bundesministeriums des Innern, 2005). Furthermore, 1000 public tenders have been published on e-Vergabe in 2005 and this number is expected to increase sharply in 2006 (Interview with Marc Christopher Schmidt, Beschaffungsamt des Bundesministeriums des Innern, 27 March 2006). The main objective for the German Government of introducing e-tendering is to improve the efficiency of the entire tendering process by substituting all the paper-based processes with electronic ones. This is expected to generate a better classification and a more efficient retrieval of documents. In addition, by publishing all tenders online, all enterprises have access and can apply for them. Through lowering the barriers to participation, competition among enterprises is increased and is expected to lead to lower procurement prices. Finally, cost savings as a result of fewer paper-based processes and higher transparency are expected by the Government. Contracts in tender by German public authorities are worth 250bn euros annually (about 13% of the Germany’s GDP). Overall, the Government expects to save 10% of this figure by using e-Vergabe (IDABC, E-Procurement Case studies, 2002). This is supported by to the German Association of Towns and Municipalities (Deutscher Städte und Gemeindebund), especting the costs of public procurement should fall by 10 to 15%. As for the processing costs, according to the Bund, both the contracting authorities and the suppliers can expect to save as much as 50 to 80%. e-Business activities Technical requirement The entire e-Vergabe system runs on an application server. JBoss, an open source software, supports applications like Java and is free to download.38 The database (where all documents, tenders and contracts of e-Vergabe are stored) is based on the Oracle Database 10g Release 2 version.39 38 For more information on JBoss application server:, visit www.jboss.com 39 For more information on Oracle Database 10g, visit www.oracle.com Construction 81 The e-Vergabe system is divided in two main parts: a notification platform and an intercommunication platform. On the first platform, enterprises have access to all the tenders published through e-Vergabe. A search function is used to identify specific tenders. Furthermore, enterprises have access to the economic partner register. The following screenshot shows an example of the classification of construction-related tenders published on the notification platform: Exhibit 4-7: Screen shot of the E-Vergabe user interface The second platform is used for communication using a Java Webstart software solution, embedded in the application server JBoss. This communication includes correspondence of questions and upload/download of documents in a secure manner. For example, the Procurement Agency can communicate with single economic partners or with certain groups, such as all the economic partners who are invited for a call for tender or all those who have requested tendering documents. The training provided by e-Vergabe is composed of an e-learning module provided by the federal German Government, an online training platform for self-training, information campaigns regarding implementation and usage of e-Vergabe and a phone and e-mail based hotline. The main driver behind the development of e-Vergabe has been the desire to create a secure channel for the distribution of public procurement tenders and contracts. The development of a secure platform for e-Vergabe has undergone an evolution from digital signature cards using a card reader towards software certificates. Upon introduction in 2001, e-Vergabe used digital signature cards where each user needed a smart card with two personalised digital certificates. Combined with a card reader plugged into a computer, the user can sign a contract encrypted with his own key. The supported trust centres (providing certificates) where users can obtain a digital certificate are: Signtrust, DATEV, TeleSec, D-Trust and A-Trust. The client computers need to have a class 3 or class 2 key card readers. Class 3 readers feature displays as well as key panels and thus prevent attacks against unauthorised PIN use through input logging. This solution can, however, create problems with interoperability of card readers and signature cards as the e-Vergabe system supports 13 different card readers and 6 Construction 82 different cards among 16 existing in Germany. The cost of this security system is approx. 200 euros per user and the card can last 2 or 3 years. This initial solution was partly replaced by a secure system of software certificates and the new system has been in operation since the beginning of 2006. Through this system, each computer using e-Vergabe owns one unique personalised signature. The new system requires fewer electronic features because the card reader and signature cards are not relevant, except when the enterprise wants to sign a tender electronically. By using software certificates, enterprises have access to the notification and intercommunication platforms. There are no direct costs associated with using the new software certificates for the users: e-Vergabe provides an online service that enables enterprises to download a personalised software certificate directly onto their computer by filling out and sending a form. The only requirement for this software solution is a computer with a Windows operating system (Version 2000 or newer). The format used to open and read contract files is PDF from Adobe. The e-Vergabe Software that enables the user to bid online is available free of charge on the web site. The e-tendering process is based on qualified signatures: the enterprise tendering must have a signature card and a card reader installed on its computer to carry out the etendering process. First, the buyer (public authority) prepares the tender documents. The tender document is created using a PDF format identical to the traditional tender offer form. The documents are then sent to all suppliers which have applied for participation in the electronic tender process. Due to the use of qualified signature, the tenderer only has to download the tender-offer document, fill out the contract and sign it by using the signature card that is legally equivalent to a paper signature under German law.40 Then they can submit their bid as usual on the platform, where it is stored and locked as a digitally signed PDF file. Exhibit 4-8 illustrates the e-tendering process on e-Vergabe. The platform guarantees the following security features through its tasks in the process: Access to publishing (buyer) and receiving (supplier) bid invitations Time registration of confirmation notice Time registration of the tender Integrity verification of the tender documents Secure locking of tenders from the buyer and other tenderers until deadline. The feature enables e-Vergabe to meet its security objectives which are: Integrity and authenticity of tenders Confidentiality of exchanged documents Legally binding tenders. 40 For further information see www.bundesnetzagentur.de Construction 83 Exhibit 4-8: E-Vergabe tender process Source: E-Vergabe 2006 Enterprises may still print contracts and send them by traditional mail but the German federal Government plans to stop acceptance of this process. Thus, according to eVergabe, by the end of 2011, all tenders will be electronic. In addition, e-Vergabe expects in the near future to replace qualified signature by advanced signature. This tendering process will be easier for the enterprises as advanced signatures can be generated by eVergabe using software smart cards. Impact The implementation of e-Vergabe has not yet had a substantial impact on the buyer side, although this is expected to be achieved in the near future. Even though enterprises are forced to use the e-Vergabe platform because the web site www.bund.de is the only German information source concerning public tenders, only 5% of the German enterprises use the platform today. This limited use should be viewed in the context of the German administrative structure: the German local governments and administrations (municipalities and Länder) are still using their individual platforms. Furthermore, cities generally use platforms where enterprises have to pay if they want to have access to information. This use of many different platforms across municipalities, Länder and the federal government hampers the merging and centralisation into one single platform for the country, as different vendors of the pay-for-use platforms will not be interested in missing out on this income in order to merge with one free federally run procurement platform. According to e-Vergabe, no statistics that measure the impacts on costs and efficiency of the system have yet been established. The impact is expected to be analysed in more depth by the Federal Government in the next couple of years according to Marc Christopher Schmidt. Preliminary analysis indicates that the new security features Construction 84 including software certificates, described above, will support the increased use of eVergabe in the coming years. The e-Vergabe platform also has an impact on construction firms. Among all the enterprises using e-Vergabe, 10% to 20% are construction firms. Thus, public e-tendering begins to be more widely used within the CI. In volume, however, the CI is the main player in public tendering. This is due to the high individual cost of construction projects. According to Ms Bettina Schneider from the Federal Government, impact is the same for SMEs and big enterprises, as they use exactly the same e-tendering process. The use of e-Vergabe brings about faster processes since procedures that would last several days using traditional mail, only take a few hours to complete using e-Vergabe. In addition, they require less administrative work which can lead to a much simpler work organisation concerning tendering. Information and services provided by e-Vergabe are free, except for the signature card and card reader. Thus, the e-tendering process is cheaper than the traditional paper and mail-based process. In addition, according to the German Procurement Agency, electronic tendering is a means to prevent corruption. In fact, in all the important steps of the tendering process, all procedures are double-checked by two different employees so that no enterprise can be preferred over another for subjective reasons. Managers are also trained to be more aware of corruption problems. Finally, as all tenders are published on the e-Vergabe platform, all enterprises, either SMEs or large firms, have equal access and an equal opportunity to apply for tenders online. Lessons learned The first challenge of e-Vergabe has been to make public authorities adhere to using the e-procurement system instead of their traditional systems. Now 33 different public authorities use e-Vergabe and 22 new users are expected by the end of the year. Thus, the new challenge of the Procurement agency is to focus more on the buyer side: eVergabe can be modified to bring about more benefits in the e-procurement process of authorities. Moreover, during the implementation phase of the e-tendering platform, no workflow system was included. This therefore enables the German Procurement Agency to be more flexible in its choice of workflow. Finally, to optimise security and usability an e-tendering platform should use software certificates as opposed to digital signature cards. It is more likely that enterprises will use a platform where they do not have to work with signature cards. But on the other hand, it is important to make sure that the public authority can rely on the electronically signed bid from the tenderer. The use of the platform among construction enterprises is driven by a push from authorities more than a pull from enterprises. Construction 85 References Research for this case study was conducted by Anders Pennerup Gantzhorn, Ramboll Management, on behalf of e-Business W@tch. Sources and references used: Interview with Marc Christopher Schmidt, Beschaffungsamt des Bundesministeriums des Innern, 27 March 2006 Interview with Sonja Branskat, Beschaffungsamt des Bundesministeriums des Innern, 20 April 2006 Interview with Bettina Schneider, Beschaffungsamt des Bundesministeriums des Innern in Berlin, 20 April 2006 Digital Procurement Solution Helps Streamline German E-Government, LEF TechEx Award, 2005 Security and Trust in Public e-procurement, Technical Report, IT Transfer Office, Darmstadt University of Technology, 29 July 2006 IDABC, E-Procurement Case studies, http://europa.eu.int/idabc/en/document/630/197, 2002 www.emarketservices.com, E-marketplaces in Germany, 2003 Websites: www.beschaffungsamt.de www.evergabe-online.de Construction 86 CASE STUDY: IMPLEMENTATION OF PUBLIC E-PROCUREMENT/ Y&H RCOE, UNITED KINGDOM Abstract In 2005, Leeds City Council and the Yorkshire & Humber Region implemented a Supplier and Contract Management System (SMCS). The SMCS handles supplier management, electronic tendering and contract management and is implemented in 22 local authorities in the region. The initial cost savings amounted to about 3.75m euros and are expected to increase in the future. The primary impacts are related to the collating of information on suppliers and contracts across the region, which can be carried out faster and more cost-effectively. Furthermore, information sharing between authorities has become easier. The lessons learned are 1) Clarity, simplicity and minimal graphics are essential when drawing up specifications to be used electronically 2) Procedures and documentation need to be standardised across different public departments (acting as procurers) for maximum effect 3) The process must allow for resistance to change, especially at a practical operational level and 4) Electronically enabling an imperfect manual system may make it faster, but will not improve it. Case study fact sheet Full name of the enterprise: Leeds City Council and The Yorkshire & Humber Regional Centre of Excellence (Y&H RCoE) Location (HQ / main branches): Leeds, United Kingdom Sector (main business activity): Public procurement Year of foundation: 2004 Number of employees: - Turnover in last financial year: App. 1.8m euros Primary customers: Public sector (local government) Most significant market area: Local government municipalities Focus of case study: Public e-procurement/ public e-tendering Key words: Supplier and Contract Management system, interaction between public authorities Background and objectives In 2005, the UK Government set out the target to improve the efficiency of UK local governments and local/regional public authorities. Regional centres of excellence (RCoEs) were established as the lead efficiency change agents for local governments. Based on this initiative, the Yorkshire & Humber Regional Centre of Excellence (Y&H RCoE) was created to provide support to 22 Local Authorities and to the Fire Police Services and National Parks in the Yorkshire & Humber region (Leeds and surrounding areas). One of the projects promoted by Y&H RCoE was the introduction of public eprocurement and public e-tendering. To support the implementation and use of public eprocurement, Y&H RCoE supervised the purchase of an electronic supplier and Construction 87 contract management system (SCMS) which serves as the basis for all public eprocurement activities. The SCMS is based on a system implemented by Leeds City Council called the Electronic Tendering System (ETS), which was in operation from 2001 to 2005.41 During the period of operation the ETS had about 10,000 registrations, 2,600 tenders placed, 1.1bn British pounds worth of contracts placed, 28,319 tender documents downloaded and more than 9 out of ten users rated the ETS as “good” or “very good”. e-Business activities In the past, the authorities in the Yorkshire & Humber region used stand-alone systems for supplier and contract management. The scope of the SCMS project was the specification and procurement of a web-based service to deliver public e-procurement and make it available to any contracting authority within the Yorkshire & Humber region. The objective was to make contracting with local authorities in the region easier and more accessible, and to remove many of the obstacles, real or perceived, in relation to finding procurement information quickly and easily. The SCMS system joined all 22 Local Authorities in the region together with any supplier associated with the Y&H RCoE. The objectives of the SMCS project were: To give contracting authorities in the region immediate access to quality procurement information, pre-qualified suppliers, and professionally procured contractual arrangements To give suppliers access to local authority procurement information - including self-registration, current and forward contracting opportunities, and the suppliers’ own historical records To provide a catalyst for standardisation, aggregation and collaboration across the region To improve the efficiency and effectiveness of procurement within each user authority To share the back office elements of supplier and contract management. An IT system supplier was selected through a competitive tendering procedure. Authorities in the region worked jointly to agree on the specification for the SCMS and, following the competitive tendering procedure, Alito Limited was nominated as the preferred bidder. Leeds City Council, acting in its capacity as host authority of the Y&H RCoE, formally accepted the tender on 11th January 2006 for a five-year period. Implementation and roll-out of the system was undertaken in two phases, with ten authorities using the system by the end of June 2006, and the remaining authorities ‘going live’ in October 2006. Access to the public e-procurement website (http://scms.alito.co.uk) is provided to all approved buyers and suppliers and the system is in effect the central ‘core’ database for local authority procurement requirements 41 The existing electronic tendering system (ETS), which was used by twelve councils from 2001, was shut down in July 2006. In the 22 local authorities in the region a variety of legacy systems existed in varying degrees of sophistication. Construction 88 throughout the region. As of August 2006, the project is entering the third phase of implementation which is aimed at getting service managers to use the system and suppliers to adopt the system as part of their way of doing business. All 22 municipalities will be online by the end of 2006. The system involved a cost of approximately 750,000 euros and Y&H RCoE acquired an already developed software solution (off the shelf) rather than one that was to be developed. The common electronic tendering process is illustrated in Exhibit 4-9. Exhibit 4-9: Common electronic tendering process Source: Electronic Tendering from BVR to Counciltenders.net, Leeds City Council, 2003 The SMCS system contains three core elements. The supplier management module (including supplier performance management) is an information system that automates sourcing, purchasing and the management of daily supplier relations. It provides modules for vendor identification and selection as well as direct procurement. The electronic tendering module sends requests for information and prices to suppliers Construction 89 and receives the responses of suppliers using the internet. The contract management module encompasses all the activities that a local authority engages in while entering into a business transaction with one or more construction enterprises and fulfilling all the obligations related to the contract. As an integrated part of the e-procurement procedure when using the SCMS system, the client departments (acting as procurers) are requested to review and revise their standard contract documentation to take account of the SCMS process. This includes not only file configuration (bearing in mind the size of the file), but also file format (MS Word or PDF), of how individual files are compiled and what documents must be returned to the tenderer. Impact Based on the experiences from the implementation of the SCMS system, the Y&H RCoE estimates that the region is now better equipped to conduct collaborative procurements through pooling of information on similar requirements and joining forces to run procurements. The SMCS project contributes to efficiency gains by providing a common resource that can be used to support procurement activities. The expected impacts from the introduction of SCMS system are: Cost reduction of 3.75m euros through efficiency gains (with a potential for significant savings increase in the future) Collating information on suppliers and contracts across the region is quicker and more cost-effective. Information sharing between authorities has become easier Suppliers only have to pre-qualify once for one, several or all authorities in the region, and can maintain their own details online Because the system is transparent it has “demystified” the public procurement process. In addition to the above-mentioned impacts and benefits for the procurer, the Y&H RCoE has collected information on the impacts of the SCMS system seen from a supplier perspective. The following paragraphs sum up the impacts experienced by two UK-based construction enterprises using the SCMS system: SEC Building services SEC Building Services (SEC) is a construction enterprise owned by Scottish and Southern Energy plc. SEC had a turnover of 257m euros in 2002/2003. Today, approximately 5% of the total turnover of SEC is handled electronically. SEC has used the SCMS system to tender for a Communal Heating system in Rothwell. SEC found the system to be a quick and efficient way of submitting a tender and received an automated receipt by return. Using this system saved time and costs and also removed the worry as to whether the tender had arrived by the due date and time. Positive measurable savings have been identified in delivery while additional costs have incurred in printing. According to SEC, the clients are the driving force for the Construction 96 Best Practices in E-Procurement, Aberdeen Group December 2005 Websites: Skanska AB, www.skanska.com IBX AB, www.ibx.se Bouygues Construction, www.bouygues.fr Construction 97 CASE STUDY: E-CONSTRUCTION, GREECE Abstract E-Construction was founded in May 2002 by the three largest Greek construction enterprises in order to provide electronic B2B solutions. In February 2003, E-Construction launched the first Greek construction e-marketplace, www.b2bconstruct.gr. This construction e-marketplace offers three main e-procurement options, being a commercial catalogue of products offered on the site, an e-sourcing solution and online auctions. During its 3 years of operation (2003-2006) www.b2bconstruct.gr has supported transactions of construction goods exceeding a value of 220m euros. As of 2006, 629 construction suppliers have subscribed to this e-marketplace. The construction enterprises using www.b2bconstruct.gr have experienced better communication between stakeholders through a more secure e-procurement system, changes in their human resource policy as more IT skilled employees have been hired to carry out procurement and reduced procurement costs. Case study fact sheet Full name of the enterprise: E-Construction SA Location (HQ / main branches): Greece Sector (main business activity): E-Marketplace Year of foundation: 2002 Number of employees: 22 Turnover in last financial year: 701,300 euros (2005) Primary customers: Construction enterprises Most significant market area: Greece Focus of case study: e-procurement Key words: Electronic B2B solutions, e-marketplace Background and objectives E-Construction SA was founded in May 2002 by the three main Greek construction enterprises in order to improve their procurement process. Elliniki Technodomiki, J&P Hellas and Terna S.A. are all shareholders of the society (they hold respectively 37.5%, 37.5% and 25% of the capital) and are the main actors in the use and development of the emarketplace42. E-Construction employs 22 people in 2006 and its turnover in 2005 exceeded 700,000 euros. The project was launched in 2002 due to the construction boom that was generated by the – then forthcoming - 2004 Summer Olympic Games in Athens. 42 For more information on the participating enterprises, see www.etae.gr, www.jandp-group.com and www.terna.gr, respectively. Construction 98 The objective of E-Construction was to substitute traditional paper-based procurement processes and call-off43 methods with modern electronic solutions for both construction enterprises and suppliers. In order to achieve this goal, the two first objectives were to introduce and train the construction enterprises’ employees to the new e-procurement process, and then to make the existing suppliers of these enterprises use the system by providing training to them as well. The efficiency of this solution was expected to be achieved though real-time information dissemination improving communication between buyers and suppliers. Moreover, updated electronic catalogues were envisaged to ensure quality of procurement on the buyer side and to give construction firms reliable references for their procurement. e-Business activities In 2002, after having studied all the alternative e-procurement solutions, the three Greek construction enterprises chose the Commerce-One SA44 platform (now Perfect Commerce SA) to develop their own e-procurement solutions based on this technology. Commerce One was selected for its good usability, its security, and because the platform was already widely used in many countries and known among clients. The next step was to create the independent enterprise E-Construction SA and www.b2bconstruct.gr to implement adaptable e-procurement solutions for the three construction enterprises. The services provided by E-Construction SA can be divided in three main parts: Commercial e-Catalogue e-Sourcing e-Auctioning Furthermore, additional services such as direct e-mail campaigns or printed catalogues have been introduced. The Commerce One platform is based mainly on JAVA, XML, Visual Basic and SQL. However, the electronic commercial catalogue differs from e-sourcing and e-auction as it has been created and developed in Greece on the basis of ASP technology that interfaces with an SQL server. The main feature of the electronic commercial catalogue is to advertise supplier enterprises on the E-Construction platform. Each supplier is listed with data including enterprise name, address, and other contact details, as well as its logo and profile, in the product categories it chooses. 629 suppliers are registered in 120 different product categories. Through a search engine, a construction enterprise can find all the suppliers that can provide a certain product. A supplier can also be found according to its name or location. Thus, a construction firm can access a list of all suppliers registered according to its search criteria. Another important feature of E-construction is the e-sourcing element. The e-sourcing solution developed by E-Construction SA was implemented first and is based on the 43 A call-off method is the way a procurer interacts with a supplier. E-procurement solutions uses a variety of different call-off methods including electronic commodity catalogues, online auctions, reverse online auctions, customised Q&A interaction and alike. 44 For information on Perfect Commerce SA, please visit: www.perfect.com Construction 99 Commerce One Platform. The e-sourcing process can be described as follows: First, the construction enterprise fills out and signs electronically a form for the required product. The enterprise then chooses the relevant suppliers from the electronic catalogue and sends the request and form electronically to each of the suppliers through the platform. The supplier receives the request and form via e-mail. Using the form which is now also signed by the supplier, an offer is submitted to the construction enterprise through the platform. The construction enterprise can now easily compare the offers and make its choice by sending an electronic order through the platform to the selected supplier. The third important element of E-Construction is the e-auction feature. The goal of this electronic solution is – for the procurer - to find the lowest possible price for a product. The procedure of an e-auction runs as follows: Suppliers are first invited to participate in an online auction for which they have usually already submitted an offer through the esourcing process mentioned above. Then the purchasing enterprise defines the opening price of the auction and the supplying enterprises are put into contest without any further interference. An e-auction usually lasts 30 minutes but recurrent extensions of 3 minutes are added every time a supplier bids during the last 3 minutes of the auction. Furthermore, a supplier can underbid as many times as he wants. Finally, the order goes to the lowest bid. All these electronic procurement solutions have a cost that can be divided into two main parts. First, both the supplier and the construction enterprise pay an annual standard fee. The fee amounts to 1,500 euros for a supplier enterprise. The fee includes the registry in the electronic commercial catalogue, the creation of an account for 2 users, training for these users (1 hour), participation in the e-sourcing and e-auction services, and phone support. For the construction enterprises, the annual standard fee is between 3,000 and 10,000 euros depending on the size of the firm. This fee includes the creation of an account, technical phone support and training (3 hours). Moreover, some fees are added for each service: for example any new request costs 10 euros, and every new e-auction launched costs 800 euros. Impact The implementation of E-Construction e-procurement solutions has many impacts for the stakeholders of this process, both on the supplier and construction enterprises’ side. For the suppliers, the electronic commercial catalogue is a way to keep in touch with construction enterprises. For instance, they can present their special offers through email campaigns. Furthermore, electronic transactions managed in a secure way enable the establishment of a better business climate between the stakeholders. Both the construction enterprises and the construction material suppliers experience the changes that the electronic B2B solution brings to the workflow and the recruitment of new employees. One of the main barriers for the implementation of e-procurement is the conservative mindset of the employees on both sides. The traditional workflow processes make the introduction of new electronic solutions time consuming and costly. As a result, suppliers and construction enterprises are hiring people with IT skills to effectively use the e-procurement processes. Construction 100 Yet the main impacts can be observed on the construction enterprises’ side. Their procurement process has completely changed with the implementation of e-procurement: the elimination of the paper-based process has generated fewer administrative tasks, faster procurement processes and a higher security of transaction. Moreover, eprocurement has an impact on costs, mainly due to the implementation of e-auctions: on average, the provision costs have been lowered by an 8% as a result of this switch. One of the construction enterprises using the E-Construction portal is the Greek enterprise J&P-AVAX. This enterprise started the implementation of the B2B system in March 2003 and uses the system mainly for request for quotation (RFQ), material sourcing and e-auctions. The use of the B2B platform has reduced the time required for material sourcing by a third when compared to the usual RFQ procedure. This extra time is now spent on better and more analytical order control and follow up systems. According to J&P-AVAX, the platform has also lowered procurement costs, especially when the e-auction process is used. However, no quantitative data are available at the moment. Currently, E-Construction aims at raising the number of suppliers and buyers and creating a network abroad by connecting its e-marketplace to existing European construction e-marketplaces. This development strategy is expected to lead to more foreign suppliers and buyers, and hence a richer diversity of products and services on the one hand, and a larger buyers base on the other hand. Lessons learned Based on the development and implementation of the e-procurement portal, the developers (E-Construction) and its users have identified the following learning points: One of the main barriers for E-Construction is the conservative behaviour of the enterprises’ employees to adopt new electronic solutions. In relation to the Olympic Games, for which E-Construction was originally designed, problems arose as the solution was not implemented until 2004. The result was that paper-based methods were still used during the construction boom generated by the Olympic Games. The optimal solution would have been to implement the e-procurement solutions prior to this boom thus providing the maximum savings in terms of cost and time for both suppliers and contractors Since building materials and other inputs to the sector are increasingly sourced internationally, a sector-specific e-procurement portal must be international to be really interesting to national procurers. In other words, the e-procurement portal needs to have international suppliers in its product catalogues. Construction 101 References Research for this case study was conducted by Anders Pennerup Gantzhorn, Ramboll Management, on behalf of e-Business W@tch. Sources and references used: Interview with Key Accounts Manager Giannis Katsiaris, E-Construction SA, 2. June 2006 Case review and interview with Key Accounts Manager Giannis Katsiaris, EConstruction SA, 16. June 2006 Interview with George Gouloussis, Purchasing Administrator, J&P-AVAX SA, 27 June 2006 Websites: E-Construction SA, www.b2bconstruct.gr Perfect Commerce SA, www.perfect.com 4.1.8 Summary of main points and conclusions Many large construction enterprises are working towards strategic procurement and consolidation of the supplier base, using e-procurement in order to optimise prices and to secure compliance with quality standards, terms of delivery etc. In addition to the 2005 eBusiness W@tch sector study on the CI, this year’s study shows that change management is a key element of a successful implementation of e-procurement systems in a construction enterprise. The case study of Skanska supports this point. The change management process should be driven by strong and dedicated senior management, and focus should be on employee training. As indicated in exhibit 4-2 (in Section 4.1.3) it is mostly large enterprises which use eprocurement systems. This may indicate that the business case for e-procurement implementation in large enterprises is now established. However, many construction SMEs do not utilise the opportunities provided by e-procurement. It is still difficult for construction SMEs to identify a solid business case for e-procurement due to the lack of ICT skills and due to the volume and investment requirements associated with custommade e-procurement solutions. Because of these barriers, it is more likely that the shortterm developments in the SME segment will be driven by suppliers’ networks, involving building material providers and/or producers and the like. Thus, for e-procurement to be interesting for European construction SMEs, it could be argued that e-procurement solutions need to be more affordable, easier to use, and webbased. Some of the data from the survey presented in Chapter 3 support this conclusion. For example, SMEs are spending less on ICT and have more often difficulties drawing funds for ICT investments compared to large enterprises (cf. Exhibit 3-4). Furthermore, only few SMEs employ ICT practitioners (compared to larger enterprises), and fewer SMEs send employees regularly to ICT training measures (cf. Exhibit 3-3). Thus, smaller companies normally do not have the same e-skills base as their larger counterparts; for e-procurement systems (and ICT systems in general) to be accepted by them, these systems will need to be more user-friendly and affordable. Construction 102 As discussed is Section 4.1.4, the advantages of framework contracts and single sourcing in normal e-procurement situations may not be applicable to well-defined construction purchases conducted by large construction enterprises. Such cases may be better suited for an e-tendering process. The case study of E-Vergabe supports this finding. In these cases, an e-tendering procedure may yield better economies of scale than framework contracts. The public sector is also a driver. The public e-procurement solutions are, however, currently focused on the initial steps of the procurement process i.e. notification of public tenders online and e-tendering, with the aim of increasing transparency in the public procurement process. 4.2 3D technology 4.2.1 Introduction 3D technologies (also called Building Information Modelling or BIM) are used in the CI as a tool to generate three-dimensional drawings, plans and construction outlines, and to improve communication among construction project stakeholders (Yeomans 2005, p. 21). This section will present the current use of 3D technology and subsequently analyse the potential benefits, barriers and business implications for implementation of 3D technology in the CI. It will be discussed how 3D technology can be used to optimise the preliminary stages of the construction process – the design and estimation phase and technological planning. Among other things, the ICT skills requirement for 3D technology are analysed and a special section on the development for interoperability standards is presented. The case study of the Lithuanian-based construction enterprise Constructus illustrates the use and benefits of 3D technology. Furthermore, this section looks into the current use, benefits, barriers and business implications of 3D technology in the CI. It should be noted that the discussion on interoperability standards is also relevant for the sections of e-procurement and project webs (Sections 4.1 and 4.3, respectively). 4.2.2 Definition of 3D technology 3D technology is part of a digital construction process, where all elements of a specific construction project are created and stored in a digital three-dimensional model. 3D technology can be used by the main stakeholders when planning, designing and constructing buildings and infrastructure. A 3D model can give a full overview of the building and generate an “as-built” database that can be handed over to other stakeholders in the construction process (Tredal & Johnsen 2005, p. 8). A traditional paper-based or electronic 2-dimensional model cannot provide the stakeholders in a construction project with a fully fledged virtual model of a building with all the necessary data attached to the drawing before starting the actual execution of the project. 3D technology can provide faster quantity extraction, easier evaluation of construction methods and faster communication with the contractor or other stakeholders Construction 103 (Terry 2005). Exhibit 4-10 illustrates an example of a user interface in a 3D technology solution for the CI. Exhibit 4-10: User interface in a 3D technology solution Source: www.construcware.com, 12 April 2006 3D technology can provide stakeholders with an overview of the building’s attributes and can identify weak points in the construction or irrational construction planning. Furthermore, some 3D technology software can extract information on the number of construction elements used in a specific project. The building objects can be pre-defined, but with flexibility in type and position to allow for change in construction design. Instead of data being static as in 2D models, data in a 3D model can be used in a parametric manner (Interview with Eric Bessone, March 2006) (Tredal & Johnsen 2005, p. 8). As illustrated in the Constructus case study described below, 3D technology can be used to simulate various construction phases and foresee potential obstacles. In addition to the illustration of the attributes of a construction project, a 3D technology solution can also be used to visualise the exterior and interior of a construction project. Exhibit 4-11 illustrates this kind of visualisation. Construction 104 Exhibit 4-11: Visualisation using 3D technology Source: Graphisoft, used by the California Academy of Sciences Project for Webcor Builders, Inc. Some of the key issues in relation to the usage of 3D technology are illustrated by the following two business examples on the software providers Autodesk France and Micrograf. Business example Autodesk France – online solutions for the construction industry Autodesk provides a selection of different software products to their customers such as AutoCAD, Architectural Desktop and Revit. The purpose of the software is to enable various stakeholders in the CI to exchange data and collaborate using a shared online platform. The following key issues in relation to the online solutions were highlighted by Autodesk: - BIM or 3D technology can reduce risks and miscalculations, thus leading to cost reductions in construction projects; - It is mainly the building/ construction owners who have started to see benefits from using and implementing 3D technology software in construction projects; - Barriers to 3D technology uptake include a conservative culture and organisational behaviour and management approach; - SMEs generally lack ICT capabilities, which poses barriers to the uptake of 3D technology; - The issue of interoperability and standardisation is seen as another barrier. In France, governmental institutions are now pushing for more Industry Foundation Classes formats (IFC) when exchanging data. Autodesk sees IFC standards as a good way to share data. Owners and governmental institutions have begun to make demands on the use of more digitised data exchanges. Source: Interview with Eric Bessone, Sales Manager, Building Solutions Division, Autodesk France, March 2006 (summary) Construction 105 Business example Micrograf – a distributor of 3D technology Micrograf is the distributor of Autodesk software in Portugal. In an interview with e-Business W@tch, Mr. Oliveria, Business Development Manager, highlighted: - Architects are using 3D technologies more than construction enterprises. - There is huge impact and potential in using 3D technology as a tool for collaboration in the CI. - Using 3D technology can help the industry and its stakeholders avoid errors and miscalculations, the two sources that contribute to additional costs to the construction project. Micrograf estimates that 40% of the total investment is wasted by errors due to poor communication, which can be reduced by using 3D technology. Source: Interview with Rui Oliveria, Business Development Manager, Micrograf, Portugal, March 2006 (summary) 4.2.3 Use of 3D technology in the construction industry A commercial breakthrough is currently underway in countries where the use of ICT in the CI is already well developed. As an example, the Nordic region is at the forefront, but the technology is also gaining ground in other European regions.45 As seen in the case study of Constructus, diffusion and penetration of 3D technology in Lithuania is limited to a small number of CI enterprises. This also seems to be the case in other Eastern European countries. Based on data from the 2006 e-Business W@tch Survey (see Section 3.4.2), adoption of collaborative design processes and forecasting of demand are still rare in the CI and the 10 sectors studied this year by e-Business W@tch. Breaking the numbers down by sizeband, “collaborative design processes” and “collaborative forecasting of demand” have been adopted by about 1 in 20 micro enterprises; whereas 29% of large enterprises use collaborative design processes and 32% collaborative forecasting of demands (see Exhibit 3-14). According to a recent study, the use of 3D technology is not widely diffused and is mainly used on large projects, but the technology has the potential to enhance project collaboration and help prevent change in orders due to interference fits for most project sizes (CMAA 2005, p. 17). This study also showed that about half of the stakeholders surveyed did not use 3D technology, about 40% used it selectively, one in ten used it on most of their construction projects and only one in twenty used it on all their construction projects (CMAA 2005, p. 17). In fact, other industry experts argue that most design communication in the CI today is still done through 2D drawings or traditional text documents (Evans 2003). This finding is also confirmed by another recent study, where the issue of overcoming the 2D vs. 3D working culture was used to explain why construction enterprises are not undertaking more 3D work (Yeomans 2005, p. 79). 45 Interview with Industry Sales Director Steen Læssøe, Bentley, February 2006 Construction 112 Exhibit 4-13: List of organisations working for standardisation and data exchange standards activities in the CI (Non-exhaustive) Organisati ons Planning Design Preconstruction Construction Tenant Improvements Close -out Ongoing operations AISC ASHRAE Autodesk BLIS FIATECH gbXML Graphisoft IAI IFMA () () () () MIMOSA NavisWorks NFRC NIBS NIST OSCRE () () () PISCES Primavera () () () () () Solibri W3DC Source: www.building-connections.info, August 2006 There are indications which point towards a possible change in the balance between the large and small construction enterprises in the value chain. The uptake of 3D technology solutions is mainly driven by architects and engineers and then introduced into large construction enterprises. The natural next step would be to promote 3D technology to smaller construction subcontractors (usually SMEs) but this may prove more difficult. Construction SMEs, operating as subcontractors or independent contractors, may have difficulties in meeting the ICT skills requirements needed to interact and fully benefit from the use of 3D technology. This means that, even if the architects / engineers and large construction enterprises have integrated 3D technology, the sector’s SMEs might not be able to gain the same economic benefits of 3D technology implementation. Taking into account the limited ICT skills present in some construction SMEs (see exhibit 3-3), the economic incentive and motivation may not be present. The following pages feature a case study on the use of 3D technology in the Lithuanian construction enterprise Constructus. This enterprise is the first Lithuanian construction enterprise to introduce 3D technology, and the case study supports the analysis of this section by highlighting the cost savings and the barriers to uptake of 3D technology in the CI. The second case study is that of the Norwegian construction project Akershus University Hospital where both 3D technology and IFC standards were used. Construction 113 CASE STUDY: CONSTRUCTUS, LITHUANIA Abstract Constructus UAB is a large construction enterprise in Lithuania. It operates exclusively in the Lithuanian market and provides various construction-related services. In 2004, Constructus implemented a new e-business tool in its productivity processes called SAS Programinis Paketas47 based on 3D technology. This Lithuanian-made software allows construction project developers to integrate and coordinate the main preliminary stages of construction – design, estimation, and technological planning. Based on the 3D model, developers can speed up their work and save expenditures in developing, coordinating, and adjusting construction design. The software was used for the first time in the 2004-2005 PET Factory construction in the city of Klaipeda. The software allowed improvements in planning, management of production processes, and logistics. Case study fact sheet Full name of the enterprise: UAB Constructus Location (HQ / main branches): Vilnius, Lithuania Sector (main business activity): Construction related services Year of foundation: 1994 (renamed in 2003) Number of employees: 70 (2005) Turnover in last financial year: 28.37 million euros in 2004 Primary customers: Private real-estate developers, private enterprises, banks, municipalities Most significant market area: Designing and building industrial, commercial and residential estates Focus of case study: 3D technology Key words: 3D model including time management Background and objectives UAB Constructus was founded in 2003 when the construction and project management enterprise Skanska decided to exit the Lithuanian market. The shares of the enterprise are now owned by a group of Lithuanian investors. The main activities of Constructus comprise commercial, residential, industrial and civil construction. The enterprise employs more than 70 people (2005), mostly project and construction managers, engineers and other construction specialists. Constructus operates only in the Lithuanian market with local clients The Lithuanian construction market is facing rigid competition which has forced construction enterprises to look for ways to lower production costs. In 2004, Constructus decided to implement the 47 SAS stands for Samatu Amortizuotas Sudarymas – a Lithuanian-built software package to calculate estimates and create design. It was developed by the enterprise called SES (statybu ekonomiai skaiciavimai), also responsible for a programme named SES2000 and SES2004 (new version) – which is used only to calculate costs. SES2000 is part of SAS software package. Construction 114 e-business application SAS Software Package in its production processes. The main motive for investing in the software was to improve the enterprise’s competitiveness in the local market. So far, Constructus is the only enterprise in Lithuania using such 3D software-based technology in construction. Constructus hopes that with the use of this ebusiness tool, their construction projects will benefit from: Improved planning capacity Ability to anticipate and avoid mistakes during the construction project cycle Better control of the process of construction while improving interoperability. The above improvements can not be attributed to one single feature of the software, but is rather a result of the use of all the features of the programme. These features are listed in Exhibit 4-14 below: Exhibit 4-14: SAS Software Package features and benefits for Constructus SAS Software Features Benefits for Constructus 3D model visualisation Architects/engineers/clients can visualise the final product and use component modelling. Furthermore, they can follow stages of the production and modify the building design in real time All-in-one data storage capacity Efficiency and improved interoperability of having building plans/drawings/working plans in one place and in one format. Convenience for project managers, architects, suppliers and other stakeholders of construction. Component modelling Changing components in a building is easy and is reflected immediately in the final plans, drawings, prices and work schedules of the project manager. Expenditure calculation The new final price is calculated every time changes are made to the building; advantages of cost control of a project and the ability to modify costs/prices during component modelling stage and directly on a final ‘invoice’. Creation of precise working plans Automatic production and updating of work schedules; any changes in the construction process will result in subsequent work schedules being updated immediately with appropriate new delivery times, supply orders, execution dates. Comparing with alternatives (still being developed) Ability to visualise and compare a number of whole building processes and final structures. Useful for comparing completely separate designs, different strategic decisions of building similar or different buildings. Source: Constructus 2006 Most of the stakeholders of the construction process are expected to benefit from this ebusiness tool by improving their effectiveness and efficiency of work. However, it is argued by Constructus that, in the end, the building owner will benefit the most - through a lower total construction price achieved by using the 3D technology to secure faster planning and construction of building projects. e-Business activities Currently, the 3D model is not entirely finalised as parts of it are still being tested and modified. However, since 2002, other parts of the system have been regularly used in most of the Constructus assignments. In June 2004, the creation of a 3D model was initiated by a consortium comprised of UAB Constructus, UAB INRE and “Statybų Construction 115 ekonominiai skaičiavimai (SES)“ – all local enterprises. The partners have contributed to this 3D model by bringing in their individual experiences with: the use of Bentley Systems software (INRE) the use of the SES 2000 (SES’s own product) the creation of a 3D model (Constructus) The 3D model is based on a 3D model concept supplemented by a capacity to estimate the expenditure of construction, the ability to create/modify exceptionally precise work schedules, and the ability to compare structural building alternatives based on price and materials used (this type of 3D model is sometimes referred to as a “4D model” because of the inclusion of the “time” dimension). Exhibit 4-15: 3D model used in Vilnius Municipality Building construction (2004) Source: Constructus 2006 The 3D model part of the application was prepared by UAB INRE. In addition to providing traditional information database and visualisation use for architects and project managers (PMs), this part of the programme also allows for “component modelling”. This means that each separate part of the 3D model can be changed or modified. For example, the wall structure can be altered in size or material used, or it can be replaced with pillars. Such changes will immediately be reflected in the overall building plans, drawings, visualisations, safety descriptions and the final cost of production. The 3D model has been used successfully for the Vilnius Municipality building construction which took place in 2002-2004. The real innovative features of the SAS application are: The expenditure calculation capacity of the model The ability to create precise working plans. This allows the PM to explore different alternatives of different materials, construction types in the process of building and viewing expenditure changes in real time. This part of Construction 116 the software was developed using an existing SES 2000 cost estimation programme and connecting it to the existing database of raw materials, prices and quantities. The 3D model has been used by Constructus since 2002. The improved 3D model was tested for the first time in a recent Constructus assignment – the 2004-2005 Klaipėda PET Factory construction (Klai-PET). In total, almost 145m euros were invested in the PET factory, of which more than 33m euros have been allocated to the construction and technology installation work performed by Constructus. The use of 3D technology specifically involved on-site work foremen, material suppliers and subcontractors (more than 70 at times), construction workers (about 1000), postconstruction building installation suppliers, the client himself and other stakeholders in the process. Impact The specific advantages can be attributed to the use of the 3D model during the Klai-PET factory construction. The advantages were: The 3D model was used to position the 500 ton capacity cranes in order to maximise their ability to lift up to 125 ton structural loads to a height of 14 metres. This process and its obstacles were simulated, which helped the engineers on the ground responsible for the execution. Exhibit 4-16: Positioning of the crane in Klai-PET factory construction using 3D model Source: Constructus 2006 The 3D mappings and diagrams were handed over to the subcontractor AG Zimmer (Germany), who was in charge of the technical installation of the factory. It allowed the contractor to determine whether the proposed construction was suitable for the specific equipment to be placed inside. The 3D model visualisation was also an information source for the client who could suggest changes on-the-fly and see the effects of alterations immediately. Construction 117 The project team was able to use the model to create working schedules. The managing team decided to connect the 3D model to the Microsoft Office Project 2003 programme using Bentley Navigator software. It was useful in this project because there were four different physical work locations. These four work locations needed an individual specific flow of material and manpower. The integration of project management software in the 3D model facilitated the development of clear timetables for the demand of materials and manpower at each of the four separate work locations. In addition, the use of the 500 ton capacity crane brought down from Finland had to be planned very precisely because of high rental costs and the complexity of the assignment. According to Constructus, the initial working plan of 1,200 positions was increased to 3,500 positions using the 3D model after running a number of simulations. Overall, Constructus suggested that in this particular project the 3D model allowed most of the savings to be made in the building design phase, streamlining of materials supply and overall organisation of works. The avoidance of potential mistakes also served to reduce potential extra costs of the project. As a result, the PET factory was built at a relatively fast pace and within 18 months. It is still too early to draw general conclusions on Constructus’ 3D technology benefits as the new version of the SAS software package has only been tested in one assignment. However, based on this example and the experience of similar products abroad, Constructus predicts that use of the SAS software can save up to 40% of the time used to plan construction works and to estimate the final expenditure of the project. The 3D technology used by Constructus can also be used in connection with maintenance of finished construction projects. Constructus sees this as a major selling proposition towards future clients. Using 3D technology, Constructus would furthermore be able to maintain and renovate the building at lower cost than traditional building maintenance. Lessons learned The experiences gained from SAS in Constructus so far indicate advantages both in the planning and implementation phases of projects. Cost savings can be achieved especially in terms of time required to plan the assignments. It is also essential to note that the 3D model is not used by any competitor, which gives the enterprise a competitive advantage in the domestic construction market (at least in the short term). To retain this position, Constructus is planning to make SAS software an inherent part of its services, offered to clients at no extra cost. The enterprise believes, however, that the competitive advantage of such a tool will encourage other firms in the Lithuanian market to look for similar e-business solutions for improving efficiency of their construction processes. The developers have not noticed any major drawbacks of the 3D model yet. References Research for this case study was conducted by Simonas Vileikis, Ramboll Management Brussels, on behalf of e-Business W@tch. Sources and references used: Written interview with Laura Kurselyte, March 2006 Construction 118 Constructus enterprise brochures 2005 (Constructus, PET Factory construction) Presentation: Kompiuterinis statinio modeliavimas: architektūrinės, konstrukcinės ir technologinės dalies parengimas, statybos proceso ekonominis įvertinimas ir planavimas. Dr. Vladimiras Popovas, Saulius Mikalauskas, Darius Migilinskas. Vilnius November 1. 2005 Websites: Constructus, www.constructus.lt Government of the Republic of Lithuania, www.lrvk.lt/main_en.php?id=en_aktualijos_su_video/p.php&n=122 EC DG Regio; Structural Funds in Lithuania http://europa.eu.int/comm/regional_policy/atlas/lithuania/factsheets/pdf/fac t_lt_en.pdf Construction 119 CASE STUDY: AKERSHUS UNIVERSITY HOSPITAL, NORWAY Abstract The Danish architectural firm C.F. Møller has used 3D technology for the design and construction of the Akershus University Hospital in Oslo, Norway. With a budget of about 900m euros, 116.000 m2 of new buildings, and 20.000 m2 of renovation work the construction project is very large and 3D technology proved its value in decreasing the number of design and construction errors, decreasing construction time and optimising the flow of documents between stakeholders. The main learning points were 1) The use of 3D models should be accompanied by information libraries if the knowledge sharing is to increase. Implementing information libraries could further enhance the effective project completion. 3) 3D technology, in the form implemented in the Akershus project, is robust enough to handle the entire design and construction process of even large and complicated projects and 3) The inclusion of HVAC building elements in the model (heating, ventilating and air-conditioning) made the building planning and execution easier. Case study fact sheet Full name of the enterprise: C.F. Møller Architects Location (HQ / main branches): Aarhus, Denmark / Copenhagen, London, Oslo Sector (main business activity): Architectural design, Hospital planning Year of foundation: 1924 Number of employees: 261 Turnover in last financial year: About 25.5m euros Primary customers: Building owners Most significant market area: Design of large buildings, e.g. hospitals Focus of case study: 3D technology Key words: BIM modelling and IFC standards Background and objectives Established in 1924, C.F. Møller Architects (CFMA) is an international Danish architectural firm specialised in the design of large construction projects within the office and hospital segment, having designed more than 30 hospitals and other health care related constructions, primarily in Scandinavia. The enterprise operates in more than 10 countries and employs 261 persons from 16 countries. Annual turnover is about 25.5m euros (2005). In 2000, C.F. M.A. won the architectural and design contract for one of the largest new hospitals, the Akerhus University Hospital in Oslo, Norway. The client was the “Helseregion Øst Norge” (Health Care Region East, Norway). The Akerhus University Hospital is the largest in a series of new hospitals in Norway and will, when completed, be one of the most advanced hospitals in Europe. The construction work started in March 2004, and the new hospital will take over from the old one in October 2008. Thereafter demolition and renovation of the old hospital will take another 3 years before the project Construction 120 is completed in 2011. The budget of the entire construction project amounts to about 900m euros and encompasses 116.000 m2 of new buildings and 20.000 m2 of renovation work. It includes 4.000 rooms for hospital functions and 1.500 rooms for communication and technical purposes, containing 60.000 articles of medical technical equipment, furniture and fixture. e-Business activities C.F. Møller Architects decided to work with 3D technology (also referred to as a Building Information Model (BIM)) for the design and construction of this project because they wanted to improve the control of the location and the quantity of applied building elements. This control of building elements should be carried out both during design and construction, and 3D technology was thought to be well suited for this purpose. In addition, the project owner found the use of 3D technology relevant and had already incorporated the costs of using 3D technology in the original construction budget. For this reason, no individual figures can be provided for the cost of using 3D technology. Exhibit 4-17: 3D visualisation of the exterior of the Akershus University Hospital Source: C.F. Møller Architects (2006) During the design process, only a smaller part of the project (the Front/Entrance Building) was created as a full 3D model including interior fixing. This part of the project used all the features of the 3D model that could be used and also applied the Industry Federation Classes (IFC).48 C.F. Møller Architects decided to use the software “Autodesk Architectural Desktop” as their BIM modelling tool. This software is widely implemented in 48 The Industry Foundation Classes (IFC) is an object-oriented file format with a data model developed by the International Alliance for Interoperability (IAI) to facilitate interoperability in the building industry. For more information, visit: www.iai-international.org . Construction 121 many architectural firms and engineering companies and was selected because it was viewed as the most cost-effective in the specific circumstances. The Building Information Model differs from the traditional paper-based drawing process in so far as the files saved on the computer consist of virtual building objects and not lines of graphical objects. The computer-aided design (CAD) tool allows the architects to define data objects composed of building elements like walls, doors, rooms or windows. The entire physical environment which needs to be visualized is built up with those objects. All the objects are established in 3D and stored in a common central library. Subsequently, after they have been assessed in a quality assurance procedure, they are distributed to the project team. The intention is that all the information which is connected to the objects should be reused by all the actors in the value chain. The 3D model also includes information about national zoning regulations and laws. 3D technology does, however, not exclude traditional paper drawings: drawings can be extracted from specific views of the model available on separate files. Exhibit 4-18 below illustrates such a specific view of one of the hospital building in the Akershus University Hospital project. Exhibit 4-18: 3D visualisation of the interior of the Akershus University Hospital Source: C.F. Møller Architects (2006) The use of a 3D model that used the Industry Federation Classes (IFC) meant that extra costs for training of key personnel among the project stakeholders were incurred. In addition, the use of IFC standards was estimated to result in slightly higher personnel costs in the early phases of the development of the 3D model. As a special feature of the 3D model applied to the Akershus University Hospital project, the model included HVAC elements (heating, ventilating and air-conditioning). The subcontractors carrying out this work had access to the 3D model, and all building elements related to HVAC were created in the 3D model. The inclusion of these building Construction 128 mentioned. In addition, architects, engineers and contractors experience increasing demand for the further development of competencies in the area of project web (Inhouse Consulting 2006, p. 67) This trend is furthermore supported by an American study where the order of project web usage is the following; the construction project manager (96%), the administrative assistant (81%), the architect (79%), the construction manager (61%), the owner (60%), the engineer (55%) and finally the subcontractor (42%) are the most frequent users (Constructware 2001, p. 17). Another finding of the desk research about project web solutions is the following list of IT vendors producing project web solutions: Exhibit 4-20: Non-exhaustive list of IT vendors developing project web software Name Country Website 4Projects United Kingdom www.4projects.com BouwASP The Netherlands www.bouwasp.nl BuildOnline United Kingdom www.buildonline.com Byggeweb Denmark www.byggeweb.dk Citadon U.S.A. www.citadon.com Constructware U.S.A. www.constructware.com Eudata Belgium www.eudata.be Formi France www.formi.fr KPN The Netherlands www.livelinked.nl NVision Luxemburg www.iconstruct.lu Procos Belgium www.procos.be ProjektWeb Denmark www.ramboll.dk Prosys France www.prosys.fr Quadram Luxemburg www.quadram.lu Scia Belgium www.scia.be SwITch Belgium www.asbuilt.be Van Meijel Projectservice BV The Netherlands www.edificium.com Source: CSTC, Les Portails de Projects – Gestion collaborative électronique de documents dans les projects de construction, 2005. As discussed in a report from the European Commission, exchange of information is not frequent in the CI and is hindered by the deficiency of shared information standards (European Commission 2004, p. 11). This can cause construction projects to exceed time limits and costs because of problems with communication and collaboration (CMAA 2004, p.11). Furthermore, Søren Bilsøe points to the problem that, due to the lack of a European-wide technical standard for the interface between collaborative IT systems, most producers of project web solutions use different customised software coding and programming (Interview with Søren Bilsøe, February 2006). This is also confirmed in a recent study which finds a: “lack of software interoperability particularly between different types of systems, where it is not possible to transfer or use previous data” (Yeomans 2005, p. 41). For a further elaboration on the issue of interoperability standards see Section 4.2.6. Interviews support this point by highlighting that the different standards used by IT vendors may have the effect that enterprises have to use different project web solutions Construction 129 from project to project. When no unified standard exists, some enterprises may be forced to spend resources on training and ICT to be able to handle different user interfaces and workflow processes in different types of project web software. This, in itself, may constitute a barrier to the uptake of project web solutions (Interview with Søren Bilsøe, February 2006). 4.3.4 Potential benefits of project webs One of the main benefits of using project webs in the CI is the reduction of delays in communication. An American study showed that 40% of the questioned enterprises saw the project web as an eliminator of barriers such as delays in communication, workflow, and processing information and documentation. 94% of the questioned enterprises saw document management as a tool to reduce costs, with the main reduction stemming from man-hours used for creating, filing and searching for documents. The study also showed that enterprises gained a competitive advantage by using project webs, especially in the area of more effective communication and operational efficiency (Constructware 2001, p. 9, 13). This is supported by another study on the UK CI, which showed that the main advantages from project webs are reduction of errors, improved possibility for audit, and reduction in building time (Martin 2003, p. 5-6). Another benefit from project webs is the reduction of errors arising from the use of different versions of key documents by stakeholders (Interview with Søren Bilsøe, February 2006). Project webs normally offer functionalities that enable users to retain their well-known workflow processes and access the needed documents, drawings and minutes online. The following business example builds upon the benefits of project webs presented above and goes in greater detail with the possibility for auditing and log trail: Business example Prosys SA – a French project web provider Prosys SA is one of the major project web providers in France. The use of project webs is not widespread in France at this stage, but for large projects (more than 100m euros) it can be economically feasible to use a project web. The goal of the software supplier is to develop new affordable products (less than one euro per day per user) which can be adopted by the users according to their needs. This gives the possibility of selling software licenses, which allows the construction enterprise to use it for all their projects. According to Prosys, the use of project webs can enhance the transparency in the construction process and enables a continuous update of plans and schedules. The project web technology also enables the stakeholders to keep a watch on the log and audit trail in order to see who and when the stakeholders have seen revised documents. Source: Interview with Emmanuel Netter, Head of Marketing, Prosys (summary) Construction 130 Participation in a project web allows for fast access to the newest information and revised documents and drawings. For SMEs, there are also savings on printing costs. This can be seen e.g. in the best practice example conducted by the project web provider Citadon, where the Brazilian engineering enterprise Odebrecht saved over 5,000 US dollars per month in reduction of document dispatches and distribution and in printing costs (Citadon, www.citadon.com, March 2006). 4.3.5 Barriers This section analyses the barriers to project web uptake in the CI. Three main barriers are identified on the basis of the survey results presented in Section 3.8.2 and the discussion in the previous paragraphs of Section 4.3. Lack of standards. A barrier to the uptake of project webs in the European CI is that many of the present project webs cannot be integrated with other business administration software such as ERP systems. This increases the number of different ICT systems used in the enterprise and leads to increased ICT complexity, partly because employees have to be capable of using multiple ICT systems and partly because data exchange does not take place automatically. This complexity places a heavy burden on the staff (Yeomans 2005, p. 41). This lack of ICT systems’ integration derives from the absence of industry standards within the area. Many different ICT systems (with different ICT formats and user interfaces) are used across enterprises. This further complicates the interaction between different enterprises. For construction enterprises participating in parallel construction projects, this may be problematic. Lack of financial resources. Another barrier identified in this report relates to costs. In some cases, construction SMEs do not have the financial resources to engage in a project web (interview with Søren Bilsøe, February 2006). The survey results presented in Exhibits 3-4 and 3-7 support this argument by highlighting that SMEs use less of their total budget on ICT compared to large enterprises and that SMEs more often are forced to loan-finance their ICT investments compared to large enterprises. The one-off start-up costs for software and hardware can, for an SME, be quite considerable, and hence act as a barrier. This means that the large European construction enterprises drive the uptake of project web solutions. Since large construction enterprises are primarily investing in project web solutions, the issue of who is to pay for the sub-contractor’s participation in the project web arises. If it is a prerequisite for a project that stakeholders have or buy a specific project web solution, this may generate a barrier that hampers the access for SMEs to be subcontractors in large projects. Small sub-contractors rarely use the electronic features of the project web solutions, hence their incentives for engaging and partly financing the project web solutions are limited (Interview with Søren Bilsøe, February 2006). It can furthermore be argued that the use of project web solutions is closely connected to the direct benefits from using the solution. And because benefits for small sub-contractors seem to be limited, there are indications that the use of project web solutions is decreasing throughout the value chain i.e. larger construction enterprises working as project managers use project webs more than the smaller sub-contractors engaged in these projects (Martin 2003). Construction 131 Limited awareness. Another barrier identified in the analysis concerns the diffusion and penetration of project web in the CI. Many construction SMEs are not aware of the content, requirements and benefits of project web solutions, and hence cannot assess the usefulness of such software. In general, ICT is not a primary focus point of many CI enterprises and this, in effect, hampers also the uptake of project web solutions. 4.3.6 Business implications The business implications of implementing project webs in the European CI are that enterprises using project webs can achieve improvements in productivity through faster communication and fewer errors caused by versioning mistakes. The efficiency gains from faster workflow processes may thus save time and money. Furthermore, project web solutions can reduce building time and improve the maintenance and operation phase, because all documents, drawings and their revisions can easily be retrieved from the project web server. The following business example is about the use of a project web solution in a construction project. This business example also illustrates some of the implications that project webs may have on the workflow processes and the efficiency of stakeholders involved in a construction project. The broad introduction of project web solutions may widen the ICT gap between SMEs and large enterprises. Normally, the building owner, the engineering enterprises or the prime contractor selects a project web solution. This may have a negative effect on SMEs operating as sub contractors. If they want to be selected as sub-contractors on a specific project, they must implement the selected project web solution, even if this means implementing a new project web system, with possible new user-interfaces and ICT-skills requirements. If, in the next project, another prime contractor selects a different project web solution, the SMEs might be asked again to invest in new software. Based on the survey presented in Section 3 it is argued that SMEs mainly finance ICT investments from their cash flow and, in addition, that SMEs have limited focus on ICT skills training (see Section 3.2). These factors could indicate that some SMEs would not be able to support a continuous change of project web solutions. Overall, the implementation and use of project webs are not expected to greatly impact the dynamics and structure of the European CI. It is more likely that their use will reinforce current trends towards cost reduction in the construction process. Construction 132 Business example Bouygues Construction (France) Bouygues Construction is a French construction enterprise with a turnover of 5.5bn euros in 2004 and has 38,500 employees in 60 different countries. Bouygues first adopted project web solutions in 2000 and in 2002 They decided to use project web solutions systematically for all big construction projects exceeding 50 different stakeholders. At present (2006), Bouygues is using project web solutions on 20-25% of their projects. Bouygues implemented a project web solution for the construction of the Home Office Building in England. The Home Office project started in 2001 and ended in January 2005. Three buildings (75 000m2) were delivered for 3,400 employees and 255m euros in total have been invested in the project. A clause of the contract stipulated that all the project stakeholders should use the project web solution implemented by Bouygues. In June 2003, 237 different stakeholders were using the project web; 18 gigabytes of data were shared (13,400 online documents). At the end of the project 50 gigabytes of data were online. Bouygues chose software provided by Brigsnet. The costs of the project web solution can be divided in three parts: 1) A monthly fee 100-200 euros; 2) maintenance and consulting equivalent to 3 fulltime employees; 3) internal training costs amounting to approx. 600-2000 euros. Based on the project webs, engineers and architects can conduct projects from France in e.g. Tahiti, which would not be possible with traditional papers and mails. The use of project web generated a 25% saving on cost for paper and mail but the main impacts from project web implementation seem to be not quantitatively but rather qualitatively measurable through improved project execution. Bouygues expects project web solutions to remain simple and maybe even simpler to use in the future. The challenge is how to combine 3D technology and project webs. There is a lack of standards concerning 3D technology and stakeholders still work on 2D plans. The challenge for Bouygues is therefore to implement a graphic charter (like IFC standards) so a 3D plan with notification on each object can be realised and shared on a project web. This can, according to Bouygues, lead to 20 to 30% savings during the conception phase. Source: Interviews with Mr. Eric Juin, Bouygues Construction, 28 March 2006 and 20 April 2006; Annual Report 2005, Bouygues Construction The following case study features the French construction enterprise Spie SCGPM which successfully uses project webs in their construction projects. The case illustrates the benefits and barriers to project web usage in the CI. Construction 133 CASE STUDY: SPIE SCGPM, FRANCE Abstract Spie SCGPM, the regional branch of the fourth-largest French construction enterprise, Spie Batignolles, is at the forefront of the implementation of project web solutions in the CI. The mother enterprise, Spie Batignolles, had a global group turnover of 805m euros in 2004 and 60 offices in 5 European countries. The regional branch, Spie SCGPM, covers the Paris area and employs around 500 people. In 2000, Spie SCGPM introduced project web solutions into its construction projects and has, as of spring 2006, used project web solutions in 10 different construction projects. The enterprise adopted the software called Projecteo provided by Prosys SA, and this solution has generated a positive impact on the work organisation of the enterprise as well as on the workflow process of construction projects. The main advantages of the use of this project web solution within Spie SCGPM have been improved response time and communication among stakeholders in the construction project and a greater efficiency in construction planning and building. Case study fact sheet Full name of the enterprise: Spie SCGPM Location (HQ / main branches): France Sector (main business activity): Construction Year of foundation: 1950 (SCGPM) (merged with Spie Batignolles in 1984 and became Spie SCGPM) Number of employees: About 500 people Turnover in last financial year: 160 m euros Primary customers: Public and private contractors Most significant market area: Construction projects Focus of case study: Use of Project Web Solutions Key words: Construction planning, project webs Background and objectives Spie Batignolles, the mother enterprise of Spie SCGPM, is the fourth largest French construction firm. With branches in Germany, England, Spain, Portugal and Switzerland, Spie Batignolles had a turnover of 945m euros in 2005 (35% in classic construction, 20% within maintenance, 20% within specialised construction (such as underground or technological construction projects), and 25% through partnerships in real estate projects (www.spiebatignolles.fr, June 2004) and currently employs more than 5,000 people. Spie SCGPM acts as a regional branch of Spie Batignolles in the geographical area of Paris (Ile de France). Spie SCGPM works primarily within the four business segments of office, residential buildings, commercial centres, hostelry and non-residential buildings (hospitals, schools and equipment). The enterprise is organised into two main activity branches: Concertance (Complete building projects) and Présance (Rehabilitation, renovation and maintenance). This division is intended to secure higher efficiency within the four main business segments. Construction 134 Spie SCGPM executes projects for public clients such as the French Ministry of Culture and Communication, the General Direction of the Civil Aviation (DGAC) or the Hospital Saint Camille in Paris. Private clients include Hines (client of the Meudon Campus project below mentioned), BNP Paribas, France Telecom and Renault (www.spiebatignolles.fr, May 2005). The turnover of Spie SCGPM amounted to 160m euros in 2005. The main competitors to Spie SCGPM are Bouygues (France), Vinci (France) and Eiffage (France). Since the activities of Spie SCGPM are only in the Paris area, this means that Spie SCGPM only competes with enterprises also operating in the area. According to Spie SCGPM the enterprise holds a market share of 15% - 20% within the greater Paris area (Interview with David Barbin, Engineer, Spie SCGPM, March 2006). This competitive position is obtained through close and long-lasting customer relationships. Moreover, Spie SCGPM creates a competitive advantage by utilising synergies found in the relatively small and flexible size of the enterprise. e-business activities Since the year 2000, Spie SCGPM has adopted project web solutions as this was a requirement in public tenders. Furthermore, contractors wanted to be more involved in the ongoing planning and execution of the construction projects. Spie SCGPM has experience with project web solutions from 10 recent construction projects and currently uses project web solutions for 3 different projects as illustrated in Exhibit 3-10: Exhibit 4-21: Current construction projects using project web solutions Construction project Project description Construction period Antony Parc II 42m euros, 29,000 m2 offices May 2005 - April 2007 Montreuil Arborial 35,000 m2 offices for the French Ministry of Agriculture May 2005 - May 2007 Meudon Campus 95m euros, 6 buildings, 45 000 m2 offices April 2004 - December 2006 Spie SCGPM uses the software Projecteo LT provided by Prosys (though no exclusivity clause with the provider has been signed ) as their Project Web solution. This choice is based on the following criteria: The project web vendor should be a French enterprise preferably situated in the greater Paris area. The project web solution should be cost-efficient with no or low implementation cost and no requirements for high-tech hardware. The system software should have a high degree of usability and provide easy communication between the users and not add to the costs. As the use of a project web solution was imposed by the client and represents an extra cost for Spie SCGPM, the low price of the solution was a decisive criterion for Spie in choosing the provider. The main function of the Projecteo LT project web software is to host all data of a construction project and to enable the diffusion of documents to selected stakeholders in Construction 135 the construction project. An interface is provided and the project web is divided in 4 main parts: A personalised welcome page A list of all members taking part in the project Files and data sharing Forum for communication with other stakeholders. As the provider Prosys SA works closely with Microsoft in the development of software, Projecteo is based on a Microsoft NET 2.0/SQL Server 2005 platform. The interoperability of the system is built around standards like SOAP (Simple Object Access Protocol), Web services, XML and XHTML. Moreover, the tool for visualisation in Projecteo enables the users to open and annotate more than 200 different formats, including formats such as CAO (AutoCAD, Microstation) and Office (Word, Excel, Powerpoint). The feature for document handling is a main issue in terms of document security. Every time a document is uploaded into the project web solution, all the relevant stakeholders in the construction project are informed via e-mail and have instant access to these documents. Each user is responsible for the distribution of the documents and the security of each document uploaded. Spie SCGPM’s Meudon Campus works as an example of project-by-project implementation of project web solutions. Here, the project web solution was not in operation during the first study phase of the elaboration of the Meudon Campus project (also called the commercial study period). In May 2004, when the project went into the operational phase, a project web solution was introduced. In the beginning of 2004, a meeting with the project web software provider, Prosys SA, was conducted with the purpose to establish the content and set-up of the project web operation. Then a one-day training session for Spie SCGPM’s administrator was conducted prior to launch of the project web solution, and Prosys SA and Spie SCGPM organised two additional training sessions of 2 hours to present the main aspects of the software and the procedures to all the stakeholders of the Meudon Campus project. Almost all the stakeholders in the construction process, with the exception of some subcontractors, use the system – including the contractor, construction firms, subcontractors, the engineering enterprise and the client. In the case of Meudon Campus, all project data is shared via the project web including blueprints, plans, photos, memos and syntheses. Only financial data is deemed too sensitive to be placed on the project web platform. Each stakeholder/user has a personal access code, and needs a PC with internet to use the project web solution. To upload data, the user has to first create a folder by filling out a card with a code from the paper-version of the document. Then the user can upload the different documents to this folder. Finally, the user has to notify the upload to the persons that are going to access the file. Each stakeholder/user will receive an e-mail and can access the documents immediately. The documents that have been uploaded cannot be modified: the user must create a new folder if he wants to add or over-write existing documents. The user-interface for document handling is illustrated below. Construction 136 Exhibit 4-22: The Projecteo LT project web solution user interface (The Meudon Project) In the Meudon Campus project, costs of using the project web solution can be divided in two main elements: implementation costs and operational costs. Implementation costs at project level amount to approx. 5,000 euros including meeting activities and training (not including software purchase and/or licensing). Operational costs are around 50 euros per month per user. By implementing project web solutions into more projects, Spie SCGPM plans to decrease the cost per user. This goal is, however, still to have room for upgrades, further development of the features and user-interfaces of the software. Impact Initially, Spie SCGPM did not expect any specific impact from the introduction of project web, but after a few years this perception changed, and the enterprise has come to realise the potential of project webs. At the moment, the use of project webs cannot be used as a sales argument in contract negotiations by Spie SCGPM because project webs do not seem to be diffused throughout the CI and among the customers (Interview with David Barbin, Engineer, Spie SCGPM, March 2006). However, Spie SCGPM expects the value-adding potential of project webs to increase over the next years as customers become more and more aware of the possible financial and managerial advantages of using ICT and, in particular, project web solutions. At the moment, the impact generated within the enterprise is most clearly seen in terms of efficiency gains on work-flow processes. The use of project webs has an impact on the work-flow process by improving the communication capabilities within Spie SCGPM. This impact is mainly seen in the speed at which information flows in and around the project organisation in the construction projects. The use of e-mails as main communication channel and the use of common standards for graphic charts, financial numbers and construction design have greatly improved the information flows among project team members, and the quality of the shared information has also improved. In addition, the accessibility of information has increased due to the standardised process of document categorisation. Construction 137 Pre-project web work-flow process A construction plan is circulated to all relevant personnel in the project team via traditional mail and each member reviews the plan for mistakes, miscalculations and the like. The drawback of the traditional work process is low response time due to slow work processes, lack of a warning system for delay in communication, etc. Moreover, the traditional pre-project work-flow process is hampered in its effectiveness and efficiency by the lack of a versioning control system. Several versions of the same document may circulate between stakeholders, a circumstance which can lead to design and construction mistakes. Post-project web work-flow process When a sub-contracting firm in the construction project uploads a specific document online on the Prosys project web, relevant project team members receive an instant email with a notification of this new document. If, for example, an engineer in the project team finds a mistake in the measures, he/she can immediately contact the document owner (in this case the construction sub-contractor) and notify him/her of the mistake in the document. The sub-contractor will not send out a revised document but can only cancel the old and flawed document and then upload the new and revised document. In this way, the project web reduces the mistakes arising from versioning issues. Another impact of the use of project web is the increased possibility of changing subcontractor during the construction process. Traditionally, Spie SCGPM found it difficult to shift sub-contractors during the construction process because highly relevant information regarding the specific construction process was embedded with the sub-contractor. By enforcing the use of a project web solution, Spie SCGPM has access to more information and can, with greater ease, involve a new sub-contractor during the construction process. Lessons learned Spie SCGPM is satisfied with the positive impact of the project web so far. However, according to Spie SCGPM, a difficult task in the implementation of project web solutions has been to define the criteria of classification of the platform. These criteria depend on the requirements of each project and consequently shift from project to project. This makes it difficult to make a generic project web platform to be used in different types of construction projects. On the other hand, the presentation of Projecteo software and the short training of the users have been the most successful point of the implementation. It has enabled the stakeholders to understand the project web and has induced a positive attitude towards the concept before using it. Based on this, Spie SCGPM expects to use project webs more and more in the future and hopes to implement the system on all the enterprise’s construction projects irrespectively of project size. The integration of systems like AutoCAD-based software into the project web would be relevant for Spie SCGPM. It represents a future benefit related to the evolution of project webs, as the visualisation tool for plans in project web are not precise enough today. This Construction 144 Compared to the other nine sectors studied this year by the e-Business W@tch, the CI lags behind in perceived positive influence of ICT on all the studied business areas. Lack of ICT skills among this sector’s SMEs and subsequent lack of possibilities to optimise the use of ICT could explain some of the observed differences. Across the nine specific business areas shown in Exhibit 5-3, micro-enterprises in general claim fewer positive impacts of ICT than large enterprises. A clear pattern appears, in which micro-enterprise cannot see the positive influence of ICT on their business to the same extent as large enterprises. This observation practically confirms the argument brought forward in Section 4.3, that especially SMEs in this sector have difficulties in identifying the benefits of introducing ICT systems such as e-procurement, 3D technology and project webs into their business. Impact on organisation In both the CI and in the other 9 benchmarked sectors, around a third of the enterprises perceive ICT as having a positive influence on “organisational structure” and “task and job descriptions” (see Exhibit 5-4). The impact of ICT on outsourcing has been limited in the CI and the data indicates that only about 1 in 5 enterprises experience a positive effect from ICT on their outsourcing decisions. In addition, only about 1 in 3 said that they see a positive impact from ICT on employee training. The impact on the organisation from the implementation of ICT can, based on the survey results presented in Exhibit 5-4, be argued to be somewhat limited. Looking into different sizes of enterprises, a relationship exists between enterprise size and perceived importance, indicating that ICT is more important to this sector’s large enterprises than to the plethora of micro-firms and SMEs in CI. The same relationship is observed as regards the influence of ICT on employee training. At an aggregate level, the CI lags behind the weighted all-sectors average, which confirms a possible lack of awareness of the ICT potential. This may in turn explain the lacking focus of this sector’s companies on investments related to employee training in this area. Construction 145 Exhibit 5-4: Perceived important influence of ICT on…: Organisational structure 30 31 42 51 39 36 0 20406080 Construction (EU-10) 1-9 empl. 10-49 empl. 50-249 empl. 250+ empl. All 10 sectors (EU-10) Task and job descriptions 24 35 41 40 34 38 0 20406080 Construction (EU-10) 1-9 empl. 10-49 empl. 50-249 empl. 250+ empl. All 10 sectors (EU-10) Employee training 20 26 45 53 41 31 0 20406080 Construction (EU-10) 1-9 empl. 10-49 empl. 50-249 empl. 250+ empl. All 10 sectors (EU-10) Outsourcing decisions 18 20 22 39 22 27 0 20406080 Construction (EU-10) 1-9 empl. 10-49 empl. 50-249 empl. 250+ empl. All 10 sectors (EU-10) Base (100%): Companies using computers. N (for sector, EU-10) = 754 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as “enterprises comprising…% of employment in the sector(s)”. Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: H7 Source: e-Business W@tch (Survey 2006) ICT impact on competitiveness and productivity49 Public e-tendering has helped increase transparency in the procurement market for construction contracts, giving easier access to tender notices for both large and small construction enterprises. This increased access to tender information is expected to slightly improve the competitiveness of construction SMEs because they will spend fewer resources on business intelligence in the search for available tenders. e-Procurement as a tool to support strategic procurement is a development which is already reported to offer savings for large enterprises (see Section 4.1 and the case study about Skanska). The survey findings presented in Section 4.1, however, illustrated the rather limited used of e-procurement (Exhibit 4-2), that most of the materials procured online were raw materials and mixed products (Exhibit 4-4) and that most of the suppliers 49 For more information on the impact that ICT may have on enterprises’ competitiveness and productivity, see e-Business W@tch Special Study on the "Impact of ICT on corporate performance, productivity and employment dynamics" (2006), available at www.ebusinesswatch.org ('resources')." Construction 146 of e-procurement were mainly regional or national (Exhibit 4-5). In addition, SMEs more seldom use e-procurement compared to medium-sized and large enterprises. Based on these findings, it is argued that large construction enterprises, with buyer-driven e-procurement systems, are expected to improve their competitive situation vis-à-vis smaller enterprises. This change in competitiveness is rooted in the large volume of raw material and intermediate products that large construction enterprises are able to purchase. This high volume allows for more favourable contracts with raw and intermediate material suppliers which lead to lower unit costs compared to construction SMEs with more limited procurement volumes. The case studies and business examples presented in Section 4.3 illustrate that the use of project web solutions is expected to increase productivity through more efficient communication between construction project stakeholders. However, the effect of this trend is not expected to greatly affect the overall competitive situation in the CI. Cases presented in this study indicate that project webs are not used as an external sales argument in connection with clients, but more often as an internal project-related optimisation tool. The survey data support this argument by pointing out that the construction enterprises see ICT and e-business more as a tool to optimise internal processes than as an external, customer-oriented tool (see Exhibit 5-3). Expected ICT impact in the future As illustrated in Exhibit 5-6 below, CI enterprises anticipate that ICT will have the highest impact on management, accounting and customer support, while they expect ICT to have less future impact on production. Indeed, by using ICT, the supply and value chain can be optimised due to better information sharing and interlinking with suppliers. As discussed in Chapter 4, however, the main benefits of 3D technology and project webs are envisaged on the production process, where both systems have the potential to increase productivity. It is, therefore, interesting that, according to the survey results, construction enterprises do not perceive ICT as having high impact on production compared to other aspects of their business. This might indicate that the benefits of these technologies have not been successfully communicated to potential customers in the CI. Construction 147 Exhibit 5-5: Anticipated future impact of ICT 24 35 20 13 22 23 24 31 29 17 25 27 26 29 45 36 63 62 51 51 47 0 20406080100 Management Accounting R&D Production Marketing Logistics Customer support Expect high impact Expect medium impact Expect low /no impact Base (100%): Companies using computers. N (for sector, EU-10) = 754 Weighting: by employment, i.e. figures should be read as “enterprises comprising…% of employment in the sector”. Questionnaire reference: H8 Source: e-Business W@tch (Survey 2006) At the same time, ICT is not expected to have any considerable impact on research and development in CI enterprises. Interestingly, the same more or less perception has been identified across most of the sectors studied this year –with the expected exception of ICT-related industries. This seems surprising, because combining ICT and R&D can create a competitive advantage. In CI, for example, 3D technology (discussed in Section 4.2) can lead to both product and process innovation through simulation of individual components in the project and through complete construction simulation. Concluding assessment Exhibit 5-5 below shows the identified impact of ICT and e-business on the CI. The implications are divided into implications for large and small enterprises. The scores are not to be understood as 'exact' results of a quantitative computation, based on some model; they are tentative, reflecting the opinion which the study team has formed, on the basis of the survey findings of the analysed in Section 3 and 4.1 along with expert interviews, the case studies presented in Section 4.1-4.3 and the literature review. Based on this, the concluding assessment presented in Exhibit 5-5 should be regarded as a vehicle for debate. Construction 148 Exhibit 5-6: Impact of ICT and e-business on competition in the CI Business areas where ICT and e-business can have an impact Observed impact in large enterprises low < > high Observed impact in SMEs low < > high 1 Organisational structure 2 Work-flows / operational organisation 3 Sourcing and procurement 4 Production / service provision 5 Logistics 6 Marketing / sales 7 Customer support 8 Research & development 9 Product & service innovation 10 Process innovation 11 Skill requirements 12 Outsourcing 13 Employment Maximum: 3 points ( or ) Source: e-Business W@tch (2006) The main expected business impacts of the ICT and e-business trends for large enterprises are: Survey findings show that e-procurement and collaborative work spaces are not yet implemented to a high extent in the CI. However, the discussion in Sections 4.1 and 4.3 indicates that the use of e-procurement and project webs seems to affect the organisational structure and the workflow processes in enterprises already working with such technologies. As was illustrated by case studies presented in these sections, CI enterprises have to change the traditional work processes to accommodate elements such as online information sharing, just-in-time communication and electronic approval of documents like drawings and construction blueprints. This year’s survey results indicate a limited uptake of e-procurement systems in the CI, but also a rather high activity in online procurement. Based on this trend, it is important to state that the future implementation of e-procurement may change the overall approach to procurement among large construction enterprises. For some years now, large enterprises have focused on strategic procurement, more precisely on buyer-driven procurement systems based on an ICT platform. In order to succeed with strategic procurement in the CI, enterprises need to implement support functions such as help desks and hotlines in addition to standard operating procedures. The purchaser (often site and line managers on the physical construction site) should be supported by a centralised procurement department to handle large scale, framework-based procurement across different construction projects. The increased use of e-procurement among large enterprises will increase the requirements for ICT skills among employees, especially among site and line managers in CI. As shown in Chapter 3, construction enterprises in general, do not Construction 149 focus much either on hiring ICT practitioners or on regular ICT training of their employees. Improved ICT skills, however, are necessary to take advantage of new ICT technologies, such as project web solutions and 3D technology. So far, 3D technology is only in use in selected projects, but experience indicates that it does have an impact on this industry’s process innovation. Especially within the activities of proposal writing, construction design, engineering and physical construction, 3D technology may have profound impact on workflow processes. The three selected technologies discussed in this study appear to have limited impact on small and medium-sized construction enterprises, mainly because of their low uptake. Nevertheless, some effect has been noted and the main identified impacts for small and medium-sized enterprises include: The introduction of a project web requires a change from traditional mail-based communication among stakeholders to communication over a centralised project web system. To reap all the benefits of project webs, stakeholders need to invest time in document description and handling, as well as in establishing new operating processes for document handling and sharing. Survey findings presented in Chapter 3 show that about 4 in 10 construction SMEs do not have a broadband connection to the internet. Such a connection, however, is seen as a prerequisite for implementation of project webs and its lack may impact this sector’s SMEs negatively and decrease their competitiveness in the long run. Concerning the ICT skills and capabilities among construction SMEs, the introduction of e-procurement, 3D technology and project webs will require ICT skills within several areas, such as handling of 3-dimensional drawings and blueprints and electronic document handling. This means that the construction SMEs will have to continuously, but probably not dramatically, upgrade ICT competences to support the introduction of e-procurement, 3D technology or project webs. 5.1.2 Implications for industry structure This section assesses the implications of ICT and e-business adoption on the structure of the CI. As with the 2005 e-Business W@tch sector study on the CI, a 'five-forces-model', developed by Michael E. Porter (1980), will by applied to discuss and assess e-business implications on the industry’s structure. Construction 150 Background information: Michael E. Porter’s Five-Forces Model The ‘Five Competitive Forces’ model was developed by Michael E. Porter in his book “Competitive Strategy: Techniques for Analysing Industries and Competitors“ in 1980. Since then, it has become an important tool for analysing industrial structure, competition and strategic options of players. Porter’s model is based on the insight that a corporate strategy should meet the opportunities and threats in the organisation’s external environment. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and, hence, the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organisation. Porter’s model helps to identify the main driving forces in an industry. Based on the information derived from the Five Forces Analysis, enterprises can decide how to influence or to exploit particular characteristics of their industry. The instrument has been applied by e-Business W@tch since 2004/05 to assess the influence of ICT and e-business on competition in a sector. Michael E. Porter is Bishop William Lawrence University Professor at Harvard Business School. Even though industry experts and stakeholders are currently debating the effect and impact of ICT on the development of the industry, the key drivers of competition are to a high extent not to be found in ICT and developments in e-business. The expected increase in rivalry in the European market due to cross-country enterprise consolidation has limited origin in ICT related issues. The main driving forces and the major areas where ICT and e-business will have an impact in the future are illustrated below. The impacts illustrated graphically below are based upon the survey presented in Section 3 along with the analysis conducted in Section 4 and 5. In addition expert interviews with academia and industry stakeholder have created the foundation for the following analysis. The following section after Exhibit 5-7 elaborates on the findings of the Five Forces analysis. Construction 151 Exhibit 5-7: Impact of ICT and e-business on competition in the CI Competitive forces General importance in the sector (currently) low < > high Impact of ICT and e-business low < > high 1 Threat of new entrants* 2 Substitution of products / services 3 Bargaining power of suppliers 4 Bargaining power of customers 5 Rivalry in the market Maximum: 3 points ( or ) * "New entrants" in the sense of new enterprises being founded. “New entrants” in the sense of enterprises from a different geographic area entering the European market are considered under "rivalry in the market". Source: e-Business W@tch (2006), developed from Michael E. Porter Threat of new entrants There are different opinions about the impact of the EU enlargement on the CI. For some, the accession of new Member States is perceived as having an important impact on this industry. Others argue that this factor will not greatly change the competitive situation of the European CI as a whole, but there may be, in some regions, an increase in new entrants to the industry. In any case, the introduction of ICT in enterprises is not expected to greatly affect the possibilities for new entrants into the CI. The implementation of e-procurement, 3D and project web technologies, for example, is mainly driven by the companies’ internal need to reduce mistakes in the construction process and increase efficiency in procurement and communication. New entrants to the CI must have or acquire general ICT skills within communication, accounting, document management, and process optimisation in order to compete. These skills are, however, available in the marketplace from professional education agencies and the like. As regards the three technology trends discussed in this sector report, it can be said that 3D technology requires more specialised ICT skills in terms of engineering and design skills. Such requirements, however, are not expected to be a barrier to potential new entrants because these skills are available in the market place in the form of educated personnel or can be acquired through training courses offered by professional institutions. Substitution of products / services The CI is not greatly affected by the issues of client substitution to other products and services because there are no real alternatives to construction products/services. Currently, there are no feasible alternatives for building owners when constructing buildings and the like. Building owners can, however, choose to substitute between different types of building materials. Due to architectural trends, some building materials are more in fashion at certain times but it is argued that only a limited amount of building materials need highly specialised know-how to install. In general, most types of building materials can be applied by most enterprises. Construction 152 Bargaining power of suppliers e-Procurement systems are gradually becoming more widely diffused, especially among large construction enterprises. This development may decrease the bargaining power of suppliers because buyers would then tend to engage in a limited number of framework contracts. The possible limitation of the supplier base may increase competition among suppliers of “off–the-shelf” construction products and raw materials, leading to decreased bargaining power of suppliers. The case study of Skanska presented in Section 4.1 is an example of the shift in bargaining power that can arise from the implementation of eprocurement. In this case study, Skanska was able to negotiate more favourable framework contracts with suppliers that resulted in lower procurement costs. In some cases, such as design-protected materials, patented work processes or similar, however, the construction enterprise is dependent on specialised supplies. This would put some suppliers in a more favourable position whereas suppliers with standardised goods would be more vulnerable towards an opening of the market and the increased transparency resulting thereof. Bargaining power of customers The bargaining power of the construction clients (customers) is already considered to be high due to high competition in many EU Member States. The competitive situation is affected by a rather stagnating market for the last few years which, until recently, have given greater supply than demand. This has meant that the bargaining power of customers have been fairly high. The use of e-tendering by public and private clients may further increase the bargaining power of the customers because a large number of potential tenderers will have the ability to tender (due to greater information transparency). An increased number of economic operators tendering for construction contracts would lead to a decrease in prises and an increase in the bargaining power of the clients / building owners. As discussed in Chapter 4, some large construction enterprises focus on ICT-enabled optimisation of internal workflow processes. In an effort to counteract the increased external pressure, these companies aim at identifying potential cost savings that could partly offset this external pressure on profitability. Rivalry in the market As described in Section 2.2, one trend in the CI is consolidation among building material suppliers, engineers and construction enterprises. Rivalry in the construction market is already considered high and the use of e-procurement is expected to add to this development Among complete construction enterprises, competitive rivalry is expected to be impacted by the continuous consolidation among large enterprises. The uptake of ICT is, however, not expected to impact this process, which is rather driven by volume and profitability issues. This assessment is supported by survey results presented in Exhibit 5-8, which indicate that about 1 in 10 enterprises finds competition to have significantly increased Construction 153 due to ICT, while about 1 in 4 enterprises argued that competition has somewhat increased. Compared to the weighted all-sectors average, the CI does not consider the impact of ICT on competitiveness to be as large. This observation is in line with findings that CI enterprises, in general, do not perceive ICT to have as much influence on their business as on average in the 10 sectors studied (see Exhibit 5-3). However, the situation is different for the medium-sized and large construction companies; here, 4560% of all firms said that they have experienced at least some increase in competition due to ICT. Among large firms, in particular, more than 20% said that ICT has led to a significant increase in competition. Thus, the effect of ICT on competition might be more pronounced for larger firms than for small ones in the CI. Among building installation enterprises, the impact of ICT on competitiveness is even smaller. Less than 1 in 10 found competition to have significantly increased due to ICT. The rather limited perception of ICT impact on competitiveness may be attributed to the low general uptake of ICT solutions by companies in this sub-sector, in connection with internal focus of the ICT systems implemented in the CI. Exhibit 5-8: Perceived impact of ICT on competition in the industry 26 21 24 31 41 0 35 11 87 13 21 17 -1 -1 0-3 -2 -2 -20 0 20 40 60 80 Total Construction (EU-10) M icro (1-9 empl.) Small (10-49 empl.) M edium (50249 empl.) Large (250+ empl.) All 10 sectors (EU-10) "Significantly increased due to ICT" "Somew hat increased due to ICT" "Rather decreased due to ICT" Base (100%): Companies using computers. N (for sector, EU-10) = 754 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as “enterprises comprising…% of employment in the sector(s)”. Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: H6 Source: e-Business W@tch (Survey 2006)