'Companies need to rethink their business models'

A new study examines the impact of digital transformation on the construction and real estate sectors. We spoke with one of the authors.

What do digitalization and artificial intelligence mean for the building sector? A new study by ILI CONSULTING AG and Siemens provides answers to this question. Co-author Serhan Ili tells us why traditional success models are threatened, how companies can make money on data and what smart buildings will be capable of in the future. 

Mr. Ili, what does the building of the future look like, in your view?


Dr. Serhan Ili: The building of the future is interconnected, communicates with the people inside of it and creates positive emotions. It’s safe and efficient and makes a contribution to environmental protection, for example by improving air quality. This environmental aspect harbors tremendous potential, especially in megacities. The building of the future is smart and capable of communicating with outside systems, including the power grid. And it accommodates the needs of its users. This happens automatically, to a certain extent, but users also have the option to adjust the settings to suit their own preferences. 


What opportunities is the digital revolution creating for the building sector? 


The opportunities created by the new technologies are endless. When I say that at events, the audience members look at me in amazement. But everything you undertake in the building sector can lead to innovation. After all, hardly anything has changed as much in the last 100 years as the way buildings are planned and built. Digitalization is creates tremendous opportunities for planners, architects, investors, building technicians and facility managers throughout a building’s entire lifecycle. New actors will also position themselves along this value chain and tap new markets.

In the study, you criticize companies that see digitalization as an opportunity to achieve efficiency gains. What’s wrong with that?


An overly strong focus on efficiency gains shifts attention away from what’s really important: creating a genuine competitive advantage. Against the backdrop of the digital transformation, companies must be willing to rethink their business models and make a break with them so they can discover fresh perspectives and greater advantages. Digitalization is a powerful weapon: It shouldn’t be wielded only for the purpose of lowering costs or becoming more efficient or productive.


The digital revolution is so comprehensive that it’s hard to understand it all. What should actors in the building sector focus on?


Disruptive trends like digitalization and AI always generate a certain unease. It’s still too early to develop a comprehensive agenda for digitalization and AI for construction and real estate companies. Nonetheless, these players shouldn’t remain inactive; rather, they should try to actively shape their role in line with the smart buildings of the future. This works best when they strive for innovation: Companies need to stop managing the status quo. A potential starting point is to acquire an overview of the technologies and products that are already available in the market. Are they interconnected enough? Do they make it possible to feed data and information to a platform where they can generate added value? Because it will no longer be possible for a single company to offer everything, companies should provide an ecosystem where other actors can participate.


Companies must learn to collect and process data and convert it into digital knowledge.

The sector isn’t considered to be particularly innovative. How should these actors proceed?


It’s certain that big data, artificial intelligence and predictive analytics will very soon become integral aspects of this sector. Companies must learn to collect and process data and convert it into digital knowledge. That’s how they can create digital intelligence, which will open up new revenue streams, lead to new business relationships and make it possible to achieve productivity gains. For this to succeed, building sector companies need to create digital interfaces with users – the so-called touchpoints – that offer either rational or subjective benefits and are freely accessible. These touchpoints will enable users to exchange their data for an added value.


Can you name an example?


In the future, real estate companies will make money not just from rent but also from data. This could be the flow of people in a building, and when you analyze these flows, you can determine things like the rooms that need to be cleaned and those that don’t because no one has been in those rooms. Similarly, digital data can create many other opportunities for generating revenue.


Digitalization is also associated with risks, including cyber-criminality. How should companies deal with these risks?


As an outside consultant, I’m often involved in discussions about risk. Often, highly creative arguments are elaborated in a very time-consuming way and fears are stoked that prevent the introduction of future technologies and business models. It would be better to use this energy to find solutions instead of blocking progress. In the first step, you need to consider the potential of new ideas. You can only counter the risks when you focus on the future instead of the status quo.

The business models of the future will operate in digital ecosystems that will be organized on platforms.

The study repeatedly mentions the subject of “ecosystems.” What does that term mean?


The business models of the future will operate in digital ecosystems that will be organized on platforms. To benefit from this trend, companies need to work on their digital readiness. What that means exactly is that companies must learn to strategically collect the right data and information with the help of their products and services. Knowledge can be created, for example, by placing building data on a digital platform and enriching it. I’d like to make this knowledge available to third parties – in exchange for money, of course. Perhaps an insurance company that wants to perform premium calculations on this basis. This is the context in which we’re using the word “ecosystem.” When you expand your business model, you suddenly begin to think in terms of digital platforms, interfaces and ecosystems. That’s because the newly created digital knowledge can be converted into new value propositions and offered to completely new players in the ecosystem.


How do users benefit from smart buildings?


Let’s take the example of an employee who drives to work every day. Even on the way there, a smart building can tell him where he can park and charge his vehicle. Once in the lobby, he’ll know what elevator will arrive first. And he can be assured that his office will have just the right temperature, the lighting will be adapted to his preferences and the air quality will be optimal. And in the event of an emergency, dynamic escape route planning will help him leave the building quickly and safely.

Gamification is a brilliant and effective method for obtaining the desired data and information from users.

What potential do you see for gamification approaches in the building sector?


Gamification is a brilliant and effective method for obtaining the desired data and information from users. You might even say, for coaxing it out of them. Gamification can also be used to create a kind of behavioral cocaine for the users for your company’s own products and services. That might not sound very nice, but it describes the objective of this approach very well. Users should be repeatedly enticed to use the digital services and products.


Can you give a specific example?


In the building sector, gamification can be used in security. Have the security guards actually patrolled the routes they were supposed to? Digital game elements can be placed along the route that have to be collected. Or there could be puzzles that need to be solved along the way. This motivates staff because they can collect points and attain levels. The collected points can also be exchanged for cosmetic features to beautify the guards’ digital avatars. Granted, many people still laugh at this idea. But we’re already using it successfully as a strategic instrument at many companies in different industries.


Picture credits: Siemens AG, Ili Consulting AG

Study "Buildings and beyond"

The digital revolution has reached the construction and real estate sector. The study entitled “Buildings and Beyond: Digitization and Artificial Intelligence in Building Automation, Construction and Real Estate” provides answers and assessments on the impacts of digitalization on this sector. It demonstrates why digital services will become increasingly important and stresses the importance of technologies like blockchain and Building Information Modeling (BIM). And it describes approaches that construction and real estate management companies can apply to make their business models fit for the future.


This study is a joint project of ILI CONSULTING AG and Siemens.

About Dr. Serhan Ili

Dr. Serhan Ili is the founder and CEO of ILI CONSULTING AG based in Karlsruhe. He advises leading companies in a wide range of industries on the subjects of innovation and digitalization. Dr. Ili studied industrial engineering at Karlsruhe University (TH). He also earned a Ph.D. in engineering at the Weissach Development Center of Dr. Ing. h.c. F. Porsche AG.

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