{"id":25854,"date":"2017-11-15T21:12:22","date_gmt":"2017-11-16T02:12:22","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/building-a-new-way-to-build-at-katerra\/"},"modified":"2017-11-15T21:12:22","modified_gmt":"2017-11-16T02:12:22","slug":"building-a-better-way-to-build-at-katerra","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/building-a-better-way-to-build-at-katerra\/","title":{"rendered":"Building a Better Way to Build at Katerra"},"content":{"rendered":"

The Productivity Problem<\/strong><\/p>\n

\"\"<\/p>\n

Over the past 80 years, industries in the U.S. such as manufacturing and agriculture have increased their productivity by 10 to 15 times, but one industry seems stuck in place: construction.[1]<\/a>\u00a0 Construction has enjoyed the lowest productivity gains of any industry over the past twenty years \u2013 which presents an opportunity for firms to leverage technology and digital supply chains to dramatically improve productivity in the $10 trillion industry.[2]<\/a>,[3]<\/a><\/sup><\/p>\n

Perhaps no company has generated as much excitement in tackling this challenge as Katerra, a startup that \u201coptimizes the way we develop, design and construct buildings.\u201d[4]<\/a> Founded in 2015 by Michael Marks, former CEO and Chairman of Flextronics, Katerra has raised over $200 million in venture capital to apply best practices from the manufacturing industry to construction. Katerra is interested in how digitally enabled supply chain solutions can help tackle the productivity problem because even small increases in productivity could translate to billions of dollars of value creation. As of 2017, construction related goods and services account for approximately 13% of the world\u2019s GDP and the industry employs 7% of the world\u2019s working population.[5]<\/a> And yet, despite the size of the addressable market, improvements in construction productivity have not materialized: in the United States, the construction sector\u2019s labor productivity is lower in 2016 than it was in 1968.[6]<\/a><\/p>\n

Katerra’s Solution<\/strong><\/p>\n

Katerra is fundamentally rethinking construction and is working to become an \u201cend-to-end\u201d, vertically integrated builder. It claims that \u201cwhen the entire building process is owned by a single team from end to end \u2013 bringing design, manufacturing, material sourcing, and construction together intro one streamlined system \u2013 it is possible to build high quality, beautiful buildings, faster and at a lower cost.\u201d[7<\/a>]<\/a> On the production front, the company has built a 200,000 SF factory in Phoenix, AZ where it can manufacture various components of a building, such as whole walls complete with windows, plumbing and electrical wiring hook ups. These \u201cparts\u201d can then be shipped and installed at a building site, aided by technology that tells cranes and labor where and how to assemble the finished materials.[8]<\/a> By manufacturing and assembling the various components of a building at its factory, Katerra endeavors to reduce the variability associated with building on-site, as well as reduce inventory build ups. For a look inside Katerra\u2019s factory, see here<\/a>.<\/p>\n

On the technology front, Katerra is building products that will enable the company to connect with workers in the field, better manage inventory, aggregate demand across multiple projects, and link its production facilities to enterprise resource planning systems.[9]<\/a> Over the medium term, Katerra plans to build additional factories in other parts of the country, as well as become further vertically integrated.[10]<\/a> In fact, the company recently announced plans to build a facility in Spokane Valley, WA that will produce cross laminated timber (CLT), a raw material for its buildings.[11]<\/a><\/p>\n

What’s Next<\/strong><\/p>\n

Construction is an industry that is traditionally slow to innovate, so Katerra needs to explain clearly and convincingly why multiple stakeholders, such as investors and city regulators, should become \u201cfirst adopters\u201d of this new way of building. The United States does not have uniform building code regulations, which means that local authorities determine the viability of a given project\u2019s design and feasibility. If Katerra is to leverage its technological advantages on a national scale and across building types, it will require cooperation from regulators and local agencies. Investing in educating those stakeholders early will be critical.<\/p>\n

Katerra should also think about how digitalization can create value once the building is built; that is, are there ways that digital plans and specifications, along with IoT solutions, can become \u201cliving and breathing\u201d platforms that help owners better manage their buildings. For example, Katerra should think about ways to stay involved in the supply chain through the useful life of the building by monitoring the building systems and providing replacement parts and services. Today, building owners are largely confronting issues after they arise, but Katerra\u2019s control of the supply chain could enable it to outfit materials with automated sensors that monitor for potential problems.<\/p>\n

Katerra\u2019s technology is exciting, but many questions remain. How will Katerra convince owners and operators of real estate to abandon longstanding relationships with their existing contractors? How will they get lenders comfortable financing projects with this new building model? And how will they maintain positive relationships with subcontractors, who may find their on-site roles diminished given Katerra\u2019s off-site fabrication methods? These are just some of the questions that Katerra needs to answer before it upends an industry that has built in much the same way for over a century.<\/p>\n

(766 words)<\/p>\n

[1]<\/a> Filipe Barbosa, et al. , \u201cReinventing Construction: A Route to Higher Productivity,\u201d Page 1, McKinsey Global Institute<\/em> (February 2007), McKinsey & Company, https:\/\/www.mckinsey.com\/industries\/capital-projects-and-infrastructure\/our-insights\/reinventing-construction-through-a-productivity-revolution<\/a>, accessed November 2017.<\/p>\n

[2]<\/a> Ibid.<\/p>\n

[3]<\/a> \u201cEfficiency Eludes the Construction Industry,\u201d August 17, 2017, The Economist, https:\/\/www.economist.com\/news\/business\/21726714-american-builders-productivity-has-plunged-half-late-1960s-efficiency-eludes<\/a>, accessed November 2017.<\/p>\n

[4]<\/a> Katerra, \u201cFAQs\u201d, https:\/\/katerra.com\/en\/FAQ.html<\/a>, accessed November 2017.<\/p>\n

[5]<\/a> Filipe Barbosa, et al. , \u201cReinventing Construction: A Route to Higher Productivity,\u201d Page 1.<\/p>\n

[6]<\/a> Ibid, Page 3.<\/p>\n

[7]<\/a> Michael Marks, \u201cConstruction: The Next Great Tech Transformation,\u201d Voices<\/em>, McKinsey & Company, June 2017, https:\/\/www.mckinsey.com\/industries\/capital-projects-and-infrastructure\/our-insights\/construction-the-next-great-tech-transformation<\/a>, accessed November 2017.<\/p>\n

[8]<\/a> Christopher Mims, \u201cWhy You\u2019d Want to Build an iPhone like a Skyscraper,\u201d The Wall Street Journal<\/em>, July 2nd<\/sup>, 2017, https:\/\/www.wsj.com\/articles\/why-youd-want-to-build-a-skyscraper-like-an-iphone-1499000401<\/a>, accessed November 2017.<\/p>\n

[9]<\/a> Katerra, \u201cHow We Do It\u201d, https:\/\/katerra.com\/en\/how-we-do-it\/process.html, accessed November 2017.<\/p>\n

[10]<\/a> Ibid.<\/p>\n

[11]<\/a> \u201cKaterra Annouces New Mass Timber Facility,\u201d press release, September 26, 2017, on Katerra website, https:\/\/katerra.com\/en\/who-is-talking\/press\/2017\/press-releases\/CLT-Factory.html<\/a>, accessed November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"

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