Bricks And Bytes Podcast

#045 – Christoph Betz – Transcript

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Do you think that based on your experience, when a company implements innovation, how do they do it and do they do it in the right way? Is there anything that people usually miss when they implement innovation? I think it’s unfair to everyone out there that’s trying to improve their business to overgeneralize this and trying not to say yes or no to this question. In principle, there is a phenomenon in construction that makes innovation a bit more difficult as a discipline because we don’t have what in sports is called muscle memory. So what do I mean with that? In construction, we don’t have the legacy of R&D into innovation, into incubation, and then adopting it into our core business. We don’t have that legacy in the industry. On the other hand, innovation is happening on construction sites all the time, whether you call it innovation or not. I just imagine there are these large tunnel projects or complex bridges. Like engineers have always been trying to figure out solutions for complex problems. So it’s not a yes and no answer.

Hello everyone and thanks for tuning into another episode of the Bricks and Bytes podcast, your go-to for all things construction and property technology. On today’s show, we have Christoph Betz. Christoph is an independent innovation advisor and researcher. In this episode, we discussed what innovation really means and how companies go about it, collaboration as the key to effective teams, how understanding of social science can improve your innovation department, and many more. If you’re enjoying our podcast, please check us out on Spotify or Apple or wherever you listen to your podcast. And if you enjoyed, please leave us a review. This helps us to get more amazing guests to give you guys the best and most informative content on technology in the build world. And shout out to EnSport for beta. If you want to connect with some of the biggest players in the construction tech world, including tier 1 building contractors, some of the biggest construction tech companies, investors, and advisors, check them out by visiting www.d-beta.com. And this is www.the-beta.com.

You are listening to Bricks and Bites podcast, where we take you on a journey in construction, technology, and business. All right, let’s get this episode started. So tell us briefly, how did you get involved in the construction?

Thank you for having me, Martin Owen. Yeah, well, for me, it is a bit of an unusual story. You know, I’m a trained social scientist, and I really focused on innovation ever since my undergraduate degree. And so innovation became like a passion for me really, really early on. And then after grad school, I spent a year in academia. I did an industry project on innovation, open innovation in the German SME markets. And after that, I was hired to the chief group in Germany. And you’re probably familiar, chief group is a large GC in North America, in Western Europe and in APEC. And yeah, out of that situation, I very quickly joined the team of the chief innovation officer, and that was basically for me to set up.

Did you pick the construction or did it just happen that the business that you were employed in, it was a construction business?

Yeah, funny that you ask. I actually, before my degree that I finished, I started an engineering degree because I kind of had this idea of working in the built environment. But at that time, maybe I wasn’t really ready to become an engineer. It was an interesting year, but like physics and chemistry at that point, not my thing. So I dropped that course and switched majors. So I guess it worked out in the end.

So stupid question. So social science, by social science, can you just explain briefly what that is?

Yeah, absolutely. So it’s an umbrella term. And under that term, you can find very, very different disciplines. So it includes what you probably will see as social science, like psychology, sociology, anthropophily. That’s a difficult word then, but also management sciences under that economics is under that umbrella. So it’s a wide range of disciplines that belong to social science, which basically deals with what happens in society and the elements within society.

Okay. So like human nature as well? Yeah, but not the biological part. Yeah. The culture.

Okay. So how is social science embraced in construction and construction tech? To be honest, my opinion obviously is it’s everywhere, right? Because construction is about people. So our organizations are made up of people. Our collaboration is a social interaction.

The very core of what makes construction companies great is their expertise, their knowledge, their ability to organize. These are all social practices. And so there are social elements in all of that, what we do in the industry, whether we are aware or not. This is like part of my thinking recently is why I don’t think, you know, obviously there’s that big question at the moment, like will AI replace roles in construction? I think as long as humans are involved, like you say, it’s a social aspect to it, then that just simply can’t happen because people want to deal with people. That’s a big topic. And I don’t claim to have an answer to that at all. And it’s very difficult. I think AI will play a role. I think we all agree on that. But I also believe it’s not about AI taking someone’s job away. Maybe some roles and some jobs will transform, but we actually have the complete opposite of the problem. We don’t have enough people in construction. And when you look into the future, I just recently came across some figures from the United States. It’s really interesting how the workforce in construction is transforming over time.

It actually got older over the last 20 years. So apparently we don’t really have a good pipeline of younger people getting into construction. That’s right. So I really think it’s more important to figure out how do we get more people into construction long term. Yeah, agreed. Okay. So back to the story and how you got involved with innovation, what’s your definition of innovation? And the reason I ask is because there are varying definitions out there. And I’ve read books and listened to podcasts and people say, this is my thoughts. I can’t remember any of them, to be honest. This is my thoughts. This is their thoughts. Blah, blah. So it’d be interesting, Christoph, to hear what you think and if you can spin that, relate to construction bonus points. It is difficult because there is no universal answer to that. And so with your experience, I totally relate to that. And then you can open any innovation book and you will find a different definition for that. And that’s okay, right? Because we don’t need an exact universal definition for that. I think every company, every group, they can decide for themselves how they define innovation.

I actually believe it’s important to do that because then you really get into what you want to achieve with that and you define what you’re trying to do, what you’re trying to achieve, and everybody’s on the same page. But to your answer, let me start with my personal journey again. So I joined the Hohtief Group and I got onto the team of the chief innovation officer, who is a very visionary person who came from the architecture world. And he started… He said in my first meeting with him, he said, ‘Hey, Chris, can you code?’ I don’t. Why? And that was an interesting start of a really, really good relationship with him. And what we did over the upcoming, over the last five to six years was build a unit inside the Hohtief Group around digital innovation. And for me, coming from outside into that industry, I had to learn a lot. So I had to pick up because I never went to a construction site before. Right. So I didn’t speak the language. I had zero social credibility with the people on site or in headquarters. So I had to figure out how construction works and what the pain points really are, what drives people mad to have an anchor to talk about innovation. So in this unit, we built digital products for the construction companies of the Hohtief Group and then started also bringing them to market. And during that journey, I kind of came up with this idea that in the end of the day, especially in construction, innovation is the activity of generating new value for users. So generating new value. Why do I highlight it like that? Innovation to me is not buying software from a vendor on the market. Yes, it is a change, and yes, it is something new, but are you really generating a new type of value for your project or your company?

And so this is kind of the distinction that I observed over time. But when you look at it from a more conceptual answer, so it’s for me, it’s about generating new value for the users. And it usually comes in kind of a sequence of ideation, incubation, and then some form of adoption or commercialization. So while it sounds easy, these three phases, there is really a lot that goes into that and like strategy, organization, do you have the right people? What are the processes that we’re looking at? What’s the execution going to look like and so on? It’s a really multi-dimensional field and it has very specific challenges in construction. Okay. What do you think that based on your experience, when a company implements innovation, how do they do it, and do they do it in the right way? Is there anything that people usually miss when they implement innovation? I think it’s unfair to everyone out there that’s trying to improve their business to overgeneralize this. So I’m trying not to say yes or no to this question. In principle, and we can discuss this if you want to, there is a phenomenon in construction that makes innovation a bit more difficult as a discipline because we don’t have what in sports is called muscle memory. So what do I mean with that? In construction, we don’t have the legacy of R&D into innovation, into incubation, and then adopting it into our core business. We don’t have that legacy in the industry. On the other hand, innovation is happening on construction sites all the time, whether you call it innovation or not. Just imagine there are these large tunnel projects or complex bridges. Engineers have always been trying to figure out solutions for complex problems.

So it’s not a yes and no answer. Yeah. I guess it depends on what side because yeah, this is an interesting dynamic. We always think, and this is a bias, I guess I’ve developed anyway for doing this podcast, that when you speak about innovation, you’re talking about cutting-edge, digital tech, should we say? We’re not actually really thinking about the real smart people that are designing underground tunnels or crazy bridges. So to generalize, like you say, is a very, very good argument. I like it a lot. And it’s a very broad range of things, probably from innovating from stock of papers to PDFs, from humans laying bricks to robots laying bricks. So the spectrum is… Gigantic. Vast, yeah. Okay. What does innovation, if we’re not painting it like a broad brush, say? Do you have any general thoughts on innovation in construction? And I can give you some pointers in that, you know, we’re slow to adopt. People are happy and stuck in their ways of doing things. I’m interested, Christoph, to hear if you have any opinion on that. I have, obviously, I have a ton of opinion on that. That’s literally what I do most of my time. In general, innovation in construction can be many things, like we just started to discuss. It can be a new process. It can be a new digital product. It can be a completely new business model. Or it can be a new construction method. And the challenge that the industry has right now that I’m observing is how do you pick and choose, right? And it’s really tough to find something that really moves the needle. I agree. I’m really happy right now about what happened during the last five years. So there’s a lot of new stuff coming up, and you guys notice way better than I do because you’re in the weeds.

It’s a very positive effect of what’s happening right now, but I’m a little bit afraid that we’re, when you think about hype cycles, coming into a phase where at some point your CFO will come to you and ask you, “Hey Chris, so now we did this innovation program for three years. Where’s my return? What is my ROI?” It’s really hard to answer. And so I think there will be a phase of consolidation around innovation. And there will be, especially with the macro environment that we’re going into right now in this industry, there will be maybe a more focused approach. Maybe we stop doing everything in parallel. Maybe we become more strategic about it, which I’m all for. Yeah, so it can be many things, and it really can be many things for different companies. Just imagine it’s so hard to say, “This is the construction industry, and this is the innovation that all of the different organizations in any markets would need.” So this is why I’m always a bit surprised when startups or investors claim that their product disrupts the industry or transforms the industry. Show me. Who do you disrupt? Like how, why? The market is very fragmented, and we have a lot of specialized companies, large, medium, and small, and they do different things. Things are done differently in any country. Regulations are different. So it really comes down to what you as an individual organization define as innovation for you and how do you connect it to your strategy? Yeah, so you said something very interesting that I resonate with quite a lot, which is like it’s difficult to see a game changer, broadly speaking, whatever it is. To me, a game changer would be, for example, a different material that can be used to build buildings cheaper or faster or whatever one wants that everything around it revolves around better software or just kind of add-ons. It’s not, there’s no nothing burger kind of thing. Yeah. And it adds more complexity to an already complex industry.

Right. What’s your observation on that? Oh, and since you also are involved in the tech community and you have your construction past, how do you observe the adoption of new technology?

In my observation, the adoption of new technology in construction is often slow and difficult. One of the biggest challenges is integrating new technology into existing workflows. For example, if someone is accustomed to using Excel spreadsheets, transitioning them to an integrated platform on the internet can be met with resistance. It requires training and additional cognitive load to learn and use the new platform, which can lead to frustration and inefficiencies. People are under pressure to perform and may not have the necessary training or support to adapt quickly. Therefore, it’s crucial to reduce cognitive load and streamline workflows rather than adding to the complexity.

It’s interesting to consider the role of AI in simplifying the adoption process. Instead of requiring humans to learn and navigate through software, AI can potentially handle the technical aspects, while humans focus on utilizing the output generated by the software. This could alleviate some of the burden and make the transition smoother.

I think that’s a really intriguing concept for the future. However, going back to the point about reducing cognitive load, it’s essential to consider different perspectives within the industry. For instance, a project executive may prioritize standardized data entry across multiple projects, even if it means additional workload and clicks. This consolidation of data and workflows can provide valuable insights for project and company directors to make informed decisions. However, it’s also important not to only tell them what they want to hear but to present accurate data for meaningful conclusions.

Furthermore, there are various benefits to consider beyond just monetary gains, such as increased efficiencies. However, one challenge is the reluctance to upset superiors by reporting negative information. This can lead to an inaccurate representation of project progress and hinder effective decision-making. So, it’s crucial to promote a culture of transparency and honest reporting.

Regarding the adoption of technology in construction, I see a shift happening. The industry is gradually moving away from data silos and embracing a more digital-focused approach. However, it takes time because the industry lacks certain organizational capabilities required for this shift. But there is progress, and with the younger generation entering the workforce, who are more tech-savvy, the adoption is likely to accelerate.

In terms of starting an innovation project, my advice is to start doing something, anything. Inaction is not an option anymore. However, it’s crucial to understand the why behind the innovation initiative. It should align with the company’s competitive strategy and contribute to making the business more competitive. Innovation is an investment, and its purpose should be clear in relation to the overall business strategy.

So if you know why you want to innovate and very few actually do, then you can figure out the specifics. Are we going to be a pioneer or are we going to be followers? Very important question because it’s really dependent on your risk profile. Do we try to close a performance gap or do we want to benefit from an opportunity gap? Now, let me quickly dive into that. So a performance gap. So this is not my framework. It’s from Michael Tuschman. The performance gap is when you see that in the marketplace, other players are able to perform better through some form of an arrangement of their capabilities, technologies, resources, but you’re lacking certain elements. So you’re consistently being outperformed by your peer group. So now you realize, oh, this company is outcompeting me all the time. I need to change something in order to keep up, right? And on the other hand, an opportunity gap is, okay, I see now I’m very good at what I’m doing. I see a certain approach, for example, through innovation, and I apply, let’s say a new technology. that gives me an edge and I can apply this maybe as a first mover, as a pioneer. And then for a certain amount of time, because innovation advantage is usually temporary, you can then really benefit from that and be a leader in the marketplace. So this is also a very important question. And then another leading question that’s always important is how do you define success, right? So do you define success on an operational level? Like do you have project-based KPIs of how much time you want to save your people, or do you have more like organizational strategic level goals that you link your success to saying, we want to be received as the innovation leader in the global construction industry and so forth. So this leads you to the how, right? Answering these couple of questions leads you to the how and how you actually set it up. So how you want to set up your activities, how you want to commit resources. But unfortunately, often companies set up these innovation teams with very unclear missions. And these teams end up spending more energy basically on justifying their existence than actually supporting the company in achieving their goals.

Yeah, that sounds good. So how about collaboration? Is it a part of the innovation success within the organization?”

“I’m not sure I understand the question.”

“Yeah, so to achieve to create innovation and to success within this innovation department, let’s call it, people need to collaborate. And obviously there are younger people and older people usually. And is collaboration important to achieve the success of innovation and innovating?”

“Yes, absolutely. Collaboration is the key element of making innovation work. Why? Because innovation never happens in isolation. So what do I mean by that? It means… the collaboration has to go within the innovation team. It has to go beyond that team to the finance team. It has to go to the project team. It has to link to the executive team. It has to link to the quality and the risk department. But then not also, you’re not isolated within your organization. You also want to go beyond your company boundaries because you operate in a business ecosystem. So you have to innovate together with your partners, your subcontractors, your suppliers, because if you’re the only one driving a Porsche and everybody is sitting around on a Nissan, then nothing’s, you’re not going anywhere.”

“Yeah, Christopher, I want to touch back just back to your previous answer about like innovation is almost a department. So you have your, I suppose it is a department. So you have your high-level vision, your business goals, and then every other department sets their goals based on that and innovation just being. one of those departments like marketing, sales operations in order to feed the bigger objectives. Like you say, increased revenue, increased operational efficiency, whatever it might be. So getting your vision right is a good place to start by the sound of things. So I’m not sure I get the question in that. So I’m just making a statement really to add. And if you had anything else to add, then please do. But if not, we can go on to something else.”

“Yeah, I think just spot on. It’s innovation in construction. Again, this goes back to what I said earlier, we don’t have the legacy, but it’s we’re getting there and slowly we see more innovation people in construction companies, not so much in Europe and the US. It’s a little bit different. So in the US, there are a couple of chief innovation officers actually and most of the very large corporates we see that. But in SME world in Europe, we don’t see that as much. But we see more and more innovation managers, more innovation teams. So it’s a good sign we’re getting there. But it finally becomes a career. It wasn’t like that five years ago when I started into construction as an innovation manager. It was really tough because these positions didn’t exist. But this is changing right now. There are a lot of things going on and I’m really happy to see that.”

“Christoph, you are based in Germany, right?”

“Yes, I am.”

“Yes. And so how do you see innovation happening in Europe or Germany with the background or places like US, UK, Middle East?”

“Yeah. So I cannot speak on the Middle East, but in general about Germany and Europe. I think we’re doing good. Like we’re on a really, really good path. We’re here in Europe. We are kind of systematic about tech implementation, I guess. I think Germans are leading the way in Europe. Well, there are different opinions about that. Yeah, like it really depends on what topic you want to discuss. Like if you want to discuss BIM, there are other countries out there that are leading, like the UK, I think. We don’t want to discuss BIM. Yeah. So, but in general, maybe Germany or in Europe. for that matter, is a bit conservative. But in general, my opinion is that a lot of the larger and the SME firms are doing great things, period. It’s happening, we’re making progress, so that’s a good sign. However, I see how much impact we get from that, and this is what I see in Europe. What do I mean by that? I sometimes feel that companies get nervous around the topic of innovation, and then they behave like an octopus on rollerblades. My head is going crazy right now. How does it look? Literally, like imagine you had an octopus with legs and you put roller blades on that. And in the business terms that means these companies doing a lot and potentially uncoordinated and doing a lot of different things at the same time does not automatically mean that you’re all of a sudden super innovative and double the profit margin overnight. That’s not gonna work. So… I hope, and this relates to what I said earlier, I really hope that we’re now getting into a more mature approach towards innovation, where we derive our innovation strategies from our competitive strategies. And we don’t do everything at the same time. We don’t have to do the full portfolio from working with startups, collaborating with universities, doing corporate investing, doing whatever is out there in different tactics you could do. I think it’s important to figure out how you do that strategically and connected to what you’re trying to do as a company.”

“Yeah, yeah, I definitely I’m getting the message here. It comes from the strategy and then it filters down from there. What areas of construction would you say are in need of innovation? I’m doing inverted for people that are listening, I’m doing inverted commas with my hands, like innovation being a kind of a term. And do you have Perhaps any examples of any cool innovation projects you could share with us that may tackle these issues?”

“It’s tough to answer because there’s just so much. It would be unfair to single out certain things. I think it’s unfair. One thing I think is also a society discussion is we still see a lot of demand for affordable residential work. But I also see a lot of potential for innovation adoption in infrastructure. I think infrastructure work is highly attractive for innovation because some of the work, especially like highway construction, bridge construction, can be a bit more linear or repeatable. And so when we talk, for example, about modules and modularized bridges, this is already happening. When we talk about autonomous vehicles, and that’s a bit down the road, but I… I see robotics happening first in an effective manner on the road construction, then in a high-rise building. Yeah. Okay.

Robotics first on the roads and then in the high-rise buildings. Yeah. I think the challenge with the building construction sites is just a bit different. For example, what we tried, we did one of these. We used one of these robot dogs, put them on a side. And even actually before going on site, we tested them offsite and we found that, yes, great movement, great navigation, at least to what’s happening today. And great for Instagram. But that’s a completely different topic in terms of purpose on innovation, the marketing part. That’s an interest. But yeah, it is. And I’m not against it. Like there are legit large GCs, global leaders that basically do innovation from a headquarter perspective for innovation purposes. And I’m 100% fine with that. I’m 100% fine with that. It serves a purpose. It pictures you. It helps you to be recognized as an innovation leader. It helps your client conversation. It helps the conversation with your shareholders. So I’m all for it. But back to the topic with the robot dogs. So we tested it off-site and then all of a sudden we realized, oh. The robot has a really good lidar system and knows its way around the construction site, but it cannot differentiate between a wet and a fully hardened concrete floor. What happens next? You don’t want to run a 100k robot into a wet concrete floor, right? It’s very practical things that you need to figure out. Yeah, I like that. Great story. And obviously the small sites are very messy and not always structured as a highway there when there are lanes and everyone knows what they should be doing rather than on the small sites. It’s way more difficult here.”

“I think, again, I don’t have a crystal ball, but I do believe that things are changing, right? We all agree on that. I see a couple of shifts in the built environment happening. The first is there’s a transformation of the value chain. Some data points, I see more and more real estate developers transforming their business model so that they can do GC work on the back of technology. So that is potentially disruptive to GC work. Another interesting move is, for example, talking about value chains. There are a lot of GCs thinking about how their business model translates into the future. And here’s the interesting part. Like what type of a GC are you? Are you a German GC that has a lot of self-performed deep value chain, their own trades, or are you a US-based construction management type of a GC that is more high level and there are some business models that could potentially completely go digital? Why not? You say a good point business model innovation. That’s the thing about the value chain. So I see there will be changes and some players will need to reinvent themselves in order to remain relevant.”

“I also think on the back of digital innovation and more data-driven cultures in the companies, we will have kind of a re-emergence of vertical integration. When you look into the really successful niche companies, for example, Goldbeck in Germany, they are a highly integrated, very digital system builder. They have their niches and they are world-class in that. And they are financially super successful. So this idea of being like an industrialized company with a digital core, this enables you to really leverage more vertical elements of the value chain. But in the past, basically the construction companies try to stay away from that and manage that on a contractual, on a transactional basis. And still, honestly, talking to executives over the last couple of months, it’s a 50-50 split. Some say 10 years from now, we’re going to build the same way, no major changes. And then there are others who say, well, we’re going to be a tech company. And there’s another one saying, well, we’re going to change our operating model because we’re going to do more in terms of the value chain. We integrate more vertically and we’re going to step away from that low asset type of a business model into a heavy asset type of middle model. We’re buying machinery again. We’re hiring people. We have our own trends. So what does it tell me? It tells me that there is no consensus at all about the transformation in the future.”

“I see and that is also no surprise to you, there is a shift in the supply of resources. So the supply of people and materials in a post-abundance area, I think right now we’re all looking for ideas and answers there. But we don’t have enough people, material prices are through the roof. There’s so much work to be done and we just don’t know how to cope with it. So this is a major shift in supply. Chains are already disrupted.”

“The third major shift that I see is, and that’s really a deeply innovation topic, I see a transformation of the digital layer. And this new digital layer that is kind of emerging, it will enable deep construction data. So right now, or let’s say the last five years, everybody talked about big data. Apparently big data isn’t that really helpful, especially in construction. It’s not that big. Yes, it’s not that big and you need so much skill and so much effort to get something out of that. So luckily the software world already understood that and we’re now transitioning towards that deep data area where you really have actionable data, high-quality data that really lets you make decisions. In the past, for example, we had silos of data. Right now we’re transitioning into a world of system of record. Still within the defined boundaries of a software company, there are some big players out there that are doing a lot in keeping their data within their boundaries. At some point, we will transition very soon, it’s already happening through APIs and stuff, into an ecosystem of records. So all of a sudden, it’s not just my data on my project, in my company, but all of a sudden, we’re really talking about a data ecosystem that goes across the whole project, my whole business ecosystem, and it’s much more efficient. Decisions can be made so much easier. And then at some point, when the data quality is high enough, I think there will be a new era of database decisions. And then we get into what I would call the ecosystem of action. Because on a deep level, data itself does not change the game. It’s a means to an end. What we want is to enable better decision-making and better actions. So the moment we don’t hustle so much in getting towards high-quality data, and high-quality data is just there, we then have a completely new era of really actionable decision-making that could redefine the way construction professionals work. This leads to eventually an emergence of what I call the Bionic Construction Organization, where I really see humans and machines working efficiently side by side, along with AI.”

“I think down the road, it really will not be this black and white discussion of am I a human that makes the decision or is it an AI that makes the decision? A couple of years from now, this topic, this very populistic discussion, is not going to happen anymore. When we’re in a stage where we have all high-quality data and it’s not about who has the one true source of this data, but it’s only about what you’re going to do with the data or actually your digital layer suggests what you should do. It’s a completely different way of collaborating, and it’s not a question of machine versus human beings. You want to have all the machines around you because it makes you so much better at the things that humans are just vastly superior to machines.”

In conclusion, Christoph believes that the construction industry is undergoing several shifts in the next five to ten years. One shift is a transformation of the value chain, with real estate developers adopting technology to perform general contracting work, potentially disrupting traditional GC work. Another shift is the re-emergence of vertical integration, enabled by digital innovation and data-driven cultures, where companies can leverage more vertical elements of the value chain. Christoph also predicts a shift in the supply of resources, such as people and materials, which is already causing disruptions in supply chains. Finally, he sees a transformation of the digital layer, enabling deep construction data and ushering in an era of actionable decision-making. He envisions a future where humans and machines work side by side, collaborating efficiently with the help of AI, and where the discussion of machine versus human decision-making becomes obsolete.

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