MOFS-INTERIM REPORTGloria deo

MOFS INTERIM REPORT

Modular Off‐site  Fabrication  Subsector (MOFS) Study

Dr. Mary NobeA t P f CSUAsst Professor, CSU

Construction ManagementPeter MeansPeter Means

Graduate Student, CSUConstruction Management g

Natural Resources

MODULAR OFF-SITE FABRICATIONS (MOFS) SSUBSECTOR (MOFS) STUDY

Cordial Greetings from Colorado State University, Department of Construction Management  p g(CSU/CM) to MBI  members and staff.

CSU/CM:  undergraduate/graduate construction science education  & research; strong sustainability (green building) emphasis.

G i f h MOFS S d l k f k l d f Genesis of the MOFS Study:  lack of knowledge of MOFS & advancing productivity in construction.

MBI nor NMHC sponsored this study but they MBI nor NMHC sponsored this study, but they  recommended  firms & consulted with researcher.

MOFS INTERIM REPORTOOVERVIEW

Provide broad overview of MOFS study goals & results to dategoals & results to date

Describe observations of MOFS: “the good, the bad and the ugly”

Provide case study summaries applicable to observations

Describe “State of the Market” changing values, opportunities & potential risks

MOFS GOALSMOFS GOALS

o To address issues of declining productivity in the construction industryy

o To better understand the modular/off‐Site  fabrication sub‐sector (MOFS).

o To observe and characterize the distinctive strengths of  MOFS.

o To identify innovations which may be applicable to the larger construction industry.

MOFS RESEARCH THEMESMOFS RESEARCH THEMES

o Business Model

o Technology

o Innovation 

o Productivity

MOFS STUDY:R DRESULTS TO DATE

Field Research: Field Research:

Completed 19 structured interviews of CEOs, managers, consultants & architects in 11 states

About 15 interviews pending for April & May in 7 states & Canada

End Product:

Theme analysis of interview transcripts

Published journal article

MOFS OBSERVATIONSMOFS OBSERVATIONS

o MOFS Business model dated & vulnerable:  not all dinosaurs are extinct……yety

o Lack of awareness of changing market values:  profound paradigm shift underway

o Unaware of advances in international construction industry (e.g. productivity)

o General resistance to technological innovation:  little or no R & D

o Lack of MOFS collaboration & brand development:  opportunities missed

MOFS OBSERVATIONS CAVEATSMOFS OBSERVATIONS CAVEATS

o MOFS study has not been completed; observations are provisional

o Generalizations are broad & do not necessarily pertain to each firm participating in this study. 

o Observations were made of all elements of the modular industry:  residential, commercial and temporary structures .

o Observations were made by a social scientist whose construction experience has been predominantly in stick‐built residential construction.

ENTERPRISE VS HERTZENTERPRISE VS HERTZ

PARADIGMPARADIGM In 1962:

Hertz was car rental market leader in US Hertz was car rental market leader in US

Enterprise had 17 cars, 1 office

I 2010 In 2010:

Hertz: in market decline, 7.1 billion in sales, 8,100 OfficesOffices

Enterprise: world market leader, 12.6 billion in sales, 14,000 offices, 1.1 million cars

ENTERPRISE PARADIGML LLESSONS LEARNED

Start‐ups can beat market leaders if:

They have accurate understanding of changing market valuesvalues

They leverage their niche to create new products & services

They empower employees to be entrepreneurs

Mature companies decline when:

They become confident in their market position

Fail to track continuous changes in market values

Organization effectiveness declines middle Organization effectiveness declines:  middle management is always the enemy

3 PHASES OF COMPANYL CLIFE CYCLE

Normal life cycle of companies:  3 phases

Start‐up:  building market niche

Mature:  niche break‐out; owns market share

Declining:  losing market share due to shift in market values; leadership frequently suffers from “golf tournament syndrome (GTS)”

Product  success or failure depends upon accurate perception of changing market values.

Life Cycle of CompaniesProfits vs. Market Values

Mature

DecliningStart‐up

cradle grave

NAPA VALLEY PARADIGM:BRAND COLLABORATIONBRAND COLLABORATION

The 1976 Paris Blind Tasting Caper:  discovery of N V llNapa Valley

Napa Valley business model

R & D collaboration

Equipment and labor sharing

Collaboration of vintners to create Napa Valley brand recognition

French business model: secrecy visceral French business model:  secrecy, visceral competition, & market leader over confidence

NAPA VALLEY PARADIGM:LLESSONS LEARNED

Collaboration can be a win‐win situation:

Increased sharing of knowledge Increased sharing of knowledge

Fuller utilization of resources

Increases productivity and market advantage Increases productivity and market advantage

Brand recognition can benefit multiple firms in subsector

If brand recognition advances all firms benefit If brand recognition advances all firms benefit

When brand distinctives become widely known it creates potential for niche break‐out

MOFS: COLLABORATIONMOFS: COLLABORATION

fi f i d O S ll b io Benefits of increased MOFS collaboration

o R & D Collaboration:  Improving manufacturing productivityproductivity

o Market research Collaboration:  Improving & expanding products, customer base, brand recognition

o Geographic collaboration:  marketing nationally, but geographically collaborating in manufacturing

o Cross‐industry collaboration:  form strategic partnerships with conventional builders & developers

U MBI ll b i l f MOFSo Use MBI as collaboration catalyst for MOFS

ASIAN AUTO PARADIGMASIAN AUTO PARADIGM

1976:  90% of vehicles in US sold by “Big 3”

f ll i ld b i i 2005:   60% of all cars  in US sold by Asian companies

Innovation quickly applied:  e.g. Europe invents disc brakes, rack‐and‐pinion steering, air‐cooled & dieselbrakes, rack and pinion steering, air cooled & diesel engines; Asian auto firms quickly apply technology 

Manufacturing productivity & quality soars:  Japan adopts Deming’s Total Quality Management (TQM) system

Market values changes identified:  quality & fuel economy

ASIAN AUTO PARADIGM:L LLESSONS LEARNED

When out‐of‐market productivity rises, market invasion is inevitable

Market invasion occurs when least expected and frequently by unknown players 

US R & D and quality declined; Japan practiced US R & D and quality declined; Japan practiced continual improvement  & rewarded innovation

US Market leaders were over confident  & suffered from GTS – i.e. unconcerned with market value change

Organization effectiveness trumped by large slow Organization effectiveness trumped by large, slow bureaucracies – leadership knowledge suffered

Denial is Not a river in Egypt

M k ImpactMarket ValuesChange

Products & Services 

Accurate Perceptions

…but denial may create a river in Asia

Increased productivityCommitted R & D

M k

Increased productivityCommitted R & D

Impact

Market ValuesChange

Products & Services 

Accurate Perceptions

Superior MarketResearch

15 story hotel in china:5 story hotel in china:assembled in 6 days

MOFS: STATE OF THEM SMARKET SUMMARY

Asia/Europe productivity is advancing using integrated assembly & automation

Transportation costs per unit of through-put Transportation costs per unit of through-put is decreasing due to super post Panamax/UL container ships

Construction R & D in Japan and Europe is Construction R & D in Japan and Europe is being subsidized by governments/industry for 30+ yrs: focus on integrated/automated building systems

US construction costs are soaring: both labor & materials; delivery systems inefficient

US construction productivity is in decline: US construction productivity is in decline: R&D, innovation & collaboration are not industry core values

MOFS: SHIFT INPROJECT DELIVERYPROJECT DELIVERY

SYSTEM

Design/build business model advantages:

One stop shopping for customer: faster smarter One stop shopping for customer: faster, smarter, better communication, reduced risk, quality control, tighter schedule, fewer surprises

I d fl th h i d Increased revenue flows through increased services provided

Opportunities for strategic partnerships/repeat tcustomers

Expands products offered: niche breakout

T iti t t t b t d i /b ild fi Transition step: target robust design/build firms in your area & demonstrate modular potential

MOFS: EXPLOITINGN M VNEW MARKET VALUES

o New Consumer & Sustainability o Under 40: profound paradigm shift

Touchstone for most life style decisionso Touchstone for most life style decisions, particularly capital acquisitions

o Sustainability underserved in the entire construction industryconstruction industry

o No trust in green product claims by manufacturers: Rejection of “green washing”

o Consumer willing to pay more for certified sustainable products

o New Consumer & One Stop Shopping: socialization by the computer and social networking; instant results

MOFS: DEVELOP BRANDDDISTINCTIVES

MOFS: exploit sustainable manufacturing methods Expand sustainability applications in materials and

f b i ti th dfabrication methods Demonstrate advanced energy conservation in

products Conduct life cycle analyses of primary product sub- Conduct life cycle analyses of primary product sub-

systems & materials to determine environmental impact

Give each product a carbon footprint value Use third party commissioning to establish

sustainability claims & increase use of USGBC LEED certification

Participate in Sustainable Industries & USGBC Participate in Sustainable Industries & USGBC One Stop Shopping: explore benefits of design/build

business model

MOFS: CHANGING ROLEMBIOF MBI

MBI: traditional trade association or market catalyst?

Market research: developing MOFS distinctives

R & D: increasing manufacturing R & D: increasing manufacturing productivity and efficiency

Mobilizing knowledge experts on behalf of g g pMOFS

Bridge to conventional constructors, architects and de elopers to aggressi elarchitects and developers to aggressively educate on benefits of modular methods

EXPLORINGEXPLORING

R hi k d li & b i d l l Rethink delivery system & business model: explore design/build and “one-stop-shopping”

Initiate aggressive nation-wide education program f hit t d l i iti d fi i lfor architects, developers, universities and financial institutions (i.e. merchant banks, insurance companies, REITs) on benefits of modular

D l St t i P t Develop Strategic Partners

Collaborate on R & D; partner with universities & US Gov to increase productivity/sustainability research

Create national modular brand as most sustainable approach to construction; no “green washing”

Fully exploit sustainability paradigm shift; partner Fully exploit sustainability paradigm shift; partner with AIA, USGBC, FSC, WRC & others to increase awareness

Edward DemingEdward Deming

Management's failure to plan for the future brings about loss of market, which brings about loss of jobs.

Management must be judged not only by the quarterly dividend, but by innovative plans to stay in business,dividend, but by innovative plans to stay in business, protect investment, ensure future dividends, and provide more jobs through improved products and services.

Long-term commitment to new learning and new philosophy is required of any management that seeks transformation.

Life Cycle of CompaniesProfits vs. Market Values

Mature

DecliningStart‐up

cradle grave