Modularity and the Construction Industry

he construction industry is the largest industry in the global economy with a share of 13% of global GDP. Estimated at around US$12 trillion, it is the largest consumer of raw materials and has been in steady growth at a rate of 6% since. While the industry suffered some decline due to COVID-19 crisis, but is expected to growth reach US$15.5 trillion in 2023.

The construction industry in MENA has the fastest growth rate at more than 7% and expected to reach a size of US$565 billion in 2023, forming almost 3.6% of the total global construction market. In Jordan, a small country with a GDP less than US$44 billion, the construction sector amounts for 3% of the GDP, with a value of US$1.3 billion which is a significant part of the local economy, and it is the sixth largest employer in the nation at 5.5%. While residential building construction accounts for almost 38% of global construction activity, in Jordan it accounts for more than 85% of total construction activity, which amounts to almost US$1 billion.

The industry has been in decline in Jordan since 2018 due to economic conditions (28% in 2020, 35% in 2019, and 21% in 2018,) and the COVID-19 crisis will force the continuation of this decline for the rest of 2020 and possibly the first half of 2021. Housing suffered a smaller share of the decline (19% in 2020, 33% in 2019, 25% in 2018), however, the general economic down has negatively affected the purchase power of citizens.

On the other hand, annual productivity growth in the construction industry in the last 20 years has been only a third of total economy averages. Digitization is lower than any other industry, while 90% of projects are not delivered on time or within budget.

According to McKinsey & Company, this is due partly to some internal challenges within the industry including:

• Lack of innovation and delayed adoption.
• Informal processes or insufficient rigor and consistency in process execution.
• Insufficient knowledge transfers from project to project.
• Weak project monitoring.
• Little cross-functional cooperation.
• Little collaboration with suppliers.
• Conservative company culture.
• Shortage of young talent and people development.

In addition, the industry has unique characteristics that further hinder its development such as:

• Multiple stakeholders with diverse interests/needs.
• Project business and on-site construction.
• High industry fragmentation.
• Low profitability and capitalization.
• Highly cyclical and volatile business.
• Unstable workforce.
• Immature project definition and technical assessment.
• Over-preference for lowest price bid.
• Insufficient or incremental funding.
• Conservative clients.
• Increased risk transfer to contractors.
• Complexity of contracts and dispute resolution.

Therefore, the industry is being pushed towards fundamental transformation, which will be accelerated by the COVID-19 crisis.

This transformation is shaped by changes in the market including:

1. Pressure to reduce costs of acquisition and operation especially for affordable housing.
2. Increasing customer sophistication and awareness of global trends.
3. Need for simple adaptable solutions to replace complex structures and operations.
4. Urgency of sustainable and energy efficient solutions.
5. Shortage of skilled labor.
6. Stricter regulations on safety, worker rights, and work environments.
7. Industrialization of construction and material production.
8. New material technology.
9. Digitization of products and processes from design, management, operation, and supply chain This includes BIM, IoTs, Automated processes, AI, and data driven approaches.
10. Integration with other industries and new market entrants.

These, in turn, will shape the industry in the following dynamics:

1. Product based approach: where buildings transform from projects with linear processes, uncertainties, and inefficiencies to more standardized, integrated components and processes which allow for customization and quality improvement iterations.
2. Specialization: where companies focus on specific parts of the value chain and integrate with other players in a modular collaborative approach.
3. Value chain control and integration: so as to reduce inefficiencies among players and maximize value to owners.
4. Customer centricity and branding: moving towards creating compelling customer experiences and brand identities to restore trust.
5. Investment in technology and facilities: moving towards offsite and manufactured solutions.
6. Investment in human resources: building talent and retaining high skill workforce while optimizing low skill work with machine or automation.
7. Internationalization: creating partnerships across borders and exchange of goods and information (will be delayed with COVID-19).
8. Sustainability: investing in green and socially responsible solutions from a product and process aspects.

It is therefore envisioned that the construction ecosystem of the future will be radically different, and will transform from siloed linear processes and operations into a more integrated value driven and client centric structure. Where buildings will be more of products, selected and developed from a library of modular components, that are designed and produced in consolidated manner and aligned through marketplaces and digital platform technologies. Construction will be off-site and lean, and data will be generated throughout the lifecycle of the building to fuel improvement and future iterations. This clearly shows a need and an opportunity to move into modular and offsite design and construction, with a focus on housing and affordable solutions. Konn is a construction solution that provides affordable housing through responsible sourcing for various income segments. It uses offsite and modular construction methods, in a distributed manufacturing system that creates synergies between local suppliers and manufacturers and aligns them to deliver to an underserved market segment. Konn is a tech-enabled system that consists of pre-designed housing schemes, based on the specific needs and typology requirements of communities starting with Jordan. These schemes are designed for manufacturing and assembly (DfMA), through digital tools and platforms, and then translated into modular components that are sourced from a group of local suppliers and manufacturers and delivered to the site for assembly by local certified assemblers and contractors. Konn employs lean construction practices, which lower the costs of building by adopting industrial techniques such as prefabricating components offsite and assembling them onsite, and standardizing major operations like structural design and finishing elements.

Konn proposes a few schemes of houses varying in size and layouts per geographic area. The product has the following features:

1. Modular components with offsite manufacturing and onsite assembly.
2. Achieves high standard of thermal and moisture insulation.
3. Employs renewable energy systems for construction and operation.
4. Built for permanence and future expandability according to the needs of the residents.
5. Digital customer service through online ordering, tracking and customer care.
6. Digital tools and technology in the design, production, and operations.

The benefits of Konn for housing are:

1. Reduce construction time 75%.
2. Reduce energy needs for the homes by 70%.
3. Reduce indoor dampness and cold by 90%.
4. Reduce construction induced environmental pollution by 50%.
5. Reduce construction waste by 50%.
6. Reduce building defects by 90%.
7. Provide job opportunities for local communities.
8. Promotes economic growth by catalyzing local supply chains.

Konn’s vision is to create a seamless journey to home ownership through technology. It provides sustainable, smart, healthy and independent living experiences that aim to achieve better living for its clients. In order to achieve that, Konn acts as a one-stop-shop platform, that provides customers with comprehensive living solutions that turns the complexity and challenges of home ownership into a simple delightful experience.

While Konn as offsite and modular construction can offer the following benefits over traditional construction:

1. Achieves economies of scale, making high quality products affordable.
2. Integration along the value chain, which refers to forming a partnership based business model between private sector, government institutions, and finance institutions to ensure the success of the projects and reaching the desired volume.
3. Optimizing design, by integrating technology and intelligence in the identification and integration of the design parameters, design needs to shift from highly customized into standardization for manufacturing.
4. Digitizing and harnessing data, one of the largest challenges facing the solutions to the problem is the lack of data on the current status of the target segment. Digitization and standardization would create channels for data collection and pattern recognition and providing the proper infrastructure.
5. Automation, of all processes from design, manufacturing, assembly and operation would reduce the costs along the chain and therefore contribute to the affordability and the quality.
6. Improving capabilities, where the local manufacturers, suppliers, and builders can enhance their capabilities in the construction and production and therefore lead to growth in the industry as a whole.

Through the integration of technology throughout its processes, Konn transforms home construction and ownership into a value generating realm where the customer, the environment, and the supply chain align to create positive change.