Reinventing construction: a route to higher productivity.

[edit] Introduction

In February 2017, the McKinsey Global Institute (MGI) published a report entitled ‘Reinventing construction: a route to higher productivity’. The report highlighted the continuing ‘remarkably low productivity’ of global construction compared to other industries. This is pertinent given that the global construction sector:

• Is one of the largest sectors of the global economy;
• Spends US$10 trillion on construction;
• Comprises 13% of global GDP,
• Employs 7% of world working population.

[edit] Putting construction in context

According to the report, while other sectors such as automotive, manufacturing and retail have transformed themselves with leaner methodologies, aggressive automation and resulting higher productivity, much of construction has ‘evolved at a glacial pace’. In terms of average global labour productivity growth over the past two decades:

• Construction 1% (flat in most economies)
• World economy 2.8%
• Manufacturing 3.6%.

Putting construction in context, the report cites the US where while many sectors such as agriculture and manufacturing have seen 10-15-fold productivity increases since the 1950s, construction productivity has stayed at the same level as 80 years ago. In fact, since the 1960s, construction productivity has declined.

MIG estimates that if construction labour productivity were to match the past 20 years’ increases of other industries, it could add US$1.6 trillion to the construction industry’s value – or equivalent to the GDP of Canada. Despite this, construction continues to operate slowly and is ridden with ‘misaligned incentives among owners and contractors and with market failures such as fragmentation and opacity’.

However, the report emphasises that around the world, labour productivity performance is not uniform, with huge regional differences apparent: in the US, labour productivity is today lower than it was in 1968; in Europe it is at about the same level, China and South Africa are seeing rapidly increasing productivity, while Brazil and Saudi Arabia are falling further behind.

In the face of unprecedented demand, the industry needs a more productive approach which, the report claims, can be facilitated through digital technologies and new materials.

[edit] 10 root causes for poor productivity in construction

The 10 root causes for construction’s historical poor productivity and performance are cited as:

[edit] External forces:

• Increasing project and site complexities;
• Extensive regulation, land fragmentation and the cyclical nature of public investment,
• Informality and potential for corruption to distort the market.

[edit] Industry dynamics:

• Construction is opaque and highly fragmented;
• Contractual structures and incentives are misaligned,
• Bespoke or suboptimal owner requirements.

[edit] Firm-level operational factors:

• Design processes and investment are inadequate;
• Poor project management and execution basics;
• Insufficiently skilled labour at frontline and supervisory levels,
• Under investment by the industry in digitisation, innovation and capital.

[edit] Causes for optimism

However, says the report, construction can tackle the ten root causes underlying its poor productivity and catch up with total economy productivity by acting in seven areas. If adopted on a widespread basis, sector productivity could be increased by 50-60%. The seven action areas are:

1. Reshape regulation and raise transparency e.g streamlining permitting and approvals processes; reduce informality and corruption, and encourage transparency on cost and performance.
2. Rewire the contractual framework, i.e move away from the hostile contracting environment that characterises many construction projects to a system focused on collaboration and problem solving.
3. Rethink design and engineering processes. Boost productivity by institutionalising value engineering into the design process with a greater focus on constructability and pushing for repeatable design elements in projects not requiring bespoke solutions.
4. Improve procurement and supply-chain management. A combination of best practices seen in other industries and innovative, digitally-enabled approaches can deliver substantial change. Improved planning and increased transparency among contractors and suppliers would reduce delays significantly.
5. Improve on-site execution through four key-approaches:
   1. Introduce a rigorous planning process to ensure that key activities are achieved on time and on budget;
   2. Reshape the relationship and interactions between owners and contractors, with key performance indicators (KPIs) being agreed on and used at regular performance meetings at which on-site issues are resolved.
   3. Improve the mobilisation for new projects by ensuring that all pre-work (e.g, obtaining approvals and developing project milestones) has been completed prior to starting onsite,
   4. Ensure careful planning and coordination of different disciplines on-site along with the application of lean principles to reduce waste and variability.
6. Infuse digital technology, new materials, advanced automation e.g BIM alongside drones, unmanned aerial vehicles; 5D BIM; the Internet of Things to improve on-site monitoring of materials, labour, and equipment productivity; digital collaboration and mobility tools; cloud-based processes to increase on-site productivity; big data, pre-fab and pre-finished volumetric construction; advanced automated equipment and tools and more investment in IT and technology.
7. Reskill the workforce. Construction firms and workers need to continuously reskill and train to use the latest equipment and digital tools; adopt apprenticeship schemes.

[edit] About the McKinsey Global Institute (MGI)

Founded in 1990, the McKinsey Global Institute (MGI) has been ranked as the world’s premier private-sector think-tank. It aims to provide the commercial, public and social sectors with facts and insights on which to base management and policy decisions.

[edit] Related articles on Designing Buildings Wiki

• Accelerating change: A report by the Strategic Forum for Construction.
• Banwell Report.
• Business process reengineering BPR.
• Construction 2025.
• Constructing Excellence.
• Construction Industry Board.
• Construction Task Force.
• Demonstration project.
• Emmerson Report.
• Government Construction Strategy.
• Just-in-time manufacturing.
• Latham report.
• Lean construction.
• List of construction industry reports since 1934.
• National Economic Development Office (NEDO) reports.
• Never Waste a Good Crisis.
• Rethinking Construction 2002: Achievements, Next Steps, Getting Involved.
• Strategic Forum for Construction.
• Supply chain management.

[edit] External references

• The Egan report: Rethinking Construction.
• Constructing Excellence.
• Constructing the team: A US Perspective, King 1996.