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What are the truly innovative business models of the future? How do we incentivise the whole supply chain to work on a whole life basis?
Current construction business models currently miss opportunities to create value by considering the whole life cycle of buildings and infrastructure. The circular economy offers a new approach to the planning, design, delivery and operation of civil engineering assets, offering a step-change in value added and productivity through the planning, organisation, delivery and maintenance of infrastructure.
In the current model the industry seeks to add value by optimising the efficiency of the delivery process and minimising capital expenditure. But due to well-documented structural issues, particularly low levels of research and development spending, high levels of fragmentation and inadequate risk sharing, the UK industry fails to do this.
It’s not keeping pace with technological change or customer expectations and its profligate use of materials is increasingly at odds with efforts to mitigate climate change.
The current approach to infrastructure is based on a traditional linear model which separates the planning, design, construction and operation of assets into separate activities. Further, the industry is organised into competing sectors.
The circular economy challenges this model by requiring the whole life cycle of an asset to be considered from the beginning. It uses systems-thinking to identify the most effective solutions that cut across traditional sector boundaries, implementing life-cycle assessment, digital technology and new business models to reduce cost, maximise asset utilisation and maximise system efficiency across a range of sectors.
Adopting a circular economy approach in infrastructure changes where value is realised in the supply chain and offers opportunity for new, more profitable businesses at all project stages.
Strategically, taking a circular economy approach changes the question. Rather than considering sector-by-sector what infrastructure is needed, a circular economy approach takes a step back and considers if infrastructure is needed at all.
For example, congestion on a particular route represents demand for connectivity. A traditional approach would be to provide more capacity. A circular approach, however, may be to meet demand in a different way using virtualised services, for example, or provide information that facilitates users to shift to alternative under-utilised assets on the same route.
In the new model the delivery of projects changes. At present, infrastructure is a product that is bought with design, construction and operation of assets undertaken by different organisations.
Using design-build-operate-maintain contracts transforms infrastructure from a product into a service. By placing the responsibility for the whole life of a project into the hands of one organisation allows value to be realised across the whole life cycle of a project. The returns on investment in research into new durable, replaceable and recyclable materials will be recouped if constructor and operator are one and the same.
At the same time a new focus on reducing carbon can, as shown in government’s Infrastructure Carbon Review, reduce upfront cost.
In the circular economy, the ways assets are managed will change. Assets will be used more intensively, as start-ups like BlaBla Car and Zipcar use sharing to work existing assets harder.
In response, operators can use new digital services to manage demand in real time, collect data on how assets are used and to augment the user experience. At the same time, smart sensors and intelligent monitoring will reduce disruption by allowing maintenance to take place only when necessary.
This approach, where solutions may be provided without resorting to physical interventions, is clearly a challenge to an industry focused on construction. But in a mature economy where most infrastructure is in place, where maintaining those ageing assets and adapting them to new demands is the primary challenge, the old business models are struggling, and persevering with them is not an option.
Digital technology companies see infrastructure as a market opportunity and are already developing tools which make the old infrastructure obsolete. The circular economy offers the opportunity for the industry to add the value and deliver the productivity it has so far failed to do. If it doesn’t take that opportunity soon, someone else will.
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