Imagining construction’s digital future – by Rajat Agarwal, Shankar Chandrasekaran, and Mukund Sridhar
McKinsey Consultants have published a very interesting report titled “Imagining construction’s digital future” a couple of years ago. The report challenged the construction industry head-on by suggesting that it was time for change. It pointed to poor productivity, delayed projects, low margins, increased competition, and poor business processes as driving forces for change. Find the full article in: www.mckinsey.com
Here is an excerpt of the paper:
The industry needs to change; here’s how to manage it.
The construction industry is ripe for disruption. Large projects across asset classes typically take 20 percent longer to finish than scheduled and are up to 80 percent over budget (Exhibit 1). Construction productivity has actually declined in some markets since the 1990s (Exhibit 2); financial returns for contractors are often relatively low—and volatile.
While the construction sector has been slow to adopt process and technology innovations, there is also a continuing challenge when it comes to fixing the basics. Project planning, for example, remains uncoordinated between the office and the field and is often done on paper. Contracts do not include incentives for risk sharing and innovation; performance management is inadequate, and supply-chain practices are still unsophisticated. The industry has not yet embraced new digital technologies that need up-front investment, even if the long-term benefits are significant (Exhibit 3). R&D spending in construction runs well behind that of other industries: less than 1 percent of revenues, versus 3.5 to 4.5 percent for the auto and aerospace sectors. This is also true for spending on information technology, which accounts for less than 1 percent of revenues for construction, even though a number of new software solutions have been developed for the industry.
Technical challenges specific to the construction sector have a role in the slow pace of digitization. Rolling out solutions across construction sites for multiple sectors that are geographically dispersed—compare an oil pipeline, say, with an airport—is no easy task. And given the varying sophistication levels of smaller construction firms that often function as subcontractors, building new capabilities at scale is another challenge.
However, none of this is going to get easier. Projects are ever more complex and larger in scale. The growing demand for environmentally sensitive construction means traditional practices must change. And the shortage of skilled labor and supervisory staff will only get worse. These are deep issues that require new ways of thinking and working. Traditionally, the sector has tended to focus on making incremental improvements, in part because many believe that each project is unique, that it is not possible to scale up new ideas, and that embracing new technologies is impractical.
The McKinsey Global Institute estimates that the world will need to spend $57 trillion on infrastructure by 2030 to keep up with global GDP growth.1 This is a massive incentive for players in the construction industry to identify solutions to transform productivity and project delivery through new technologies and improved practices.
In this report, we consider five ways the industry can transform itself over the next five years.
Disrupting construction: Five big ideas
None of these five ideas is futuristic or even implausible. All are grounded in innovations that are applicable to the construction sector and that are either being deployed or prototyped. In short, they are practical and relevant. Moreover, they are designed to work together to deliver greater impact (Exhibit 4).
- Higher-definition surveying and geolocation
- Next-generation 5-D building information modeling
- Digital collaboration and mobility
- The Internet of Things and advanced analytics
- Future-proof design and construction