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Reinventing construction:

A route to higher productivity


International Construction Transformation Conference
Kuala Lumpur, March 26, 2018

CONFIDENTIAL AND PROPRIETARY


Any use of this material without specific permission of McKinsey & Company is strictly prohibited
Construction matters: Construction-related spending accounts
for 13 percent of global GDP
$ trillion

Global GDP Construction industry spending

3.6% p.a.
13.9 14.0
13.4
12.4 12.9
11.4 11.4 11.9
10.5 10.9
9.5 10.0
$64.5 $9.5
$74.0
(87%) (13%)

2014 15 16 17 18 19 20 21 22 23 24 2025

SOURCE: World Bank; IHS; ISSA; McKinsey Global Institute analysis McKinsey & Company | 1
Globally, labor-productivity growth lags behind that of manufacturing
and the total economy
Global productivity growth trends1 Construction Total economy Manufacturing

Real gross value added per hour worked Compound annual


by persons engaged, 2005 $ growth rate, 1995–2014
Index: 100 = 1995 %
3.6 +2.6
200

180
2.7

160

140

120 1.0

100

80
1995 2000 05 10 2014 Hourly rate $25 $37 $39

1 Based on a sample of 41 countries that generate 96% of global GDP

SOURCE: OECD; WIOD; GGCD-10, World Bank; BEA; BLS; national statistical agencies of Turkey, Malaysia,
McKinsey & Company | 2
and Singapore; Rosstat; McKinsey Global Institute analysis
A small number of countries have achieved healthy productivity levels
and growth rates
Sector productivity growth lags behind total economy Size indicates total country
construction investment, 2015 500
Sector productivity growth exceeds total economy $ billion

Construction labor productivity, 20151


2005 $ per hour worked by persons employed, not adjusted for purchasing power parity2
50
Belgium
45 Declining leaders Outperformers
Spain Netherlands
40 Denmark United Kingdom
United States Israel
Austria
35 Canada
Japan
France
Sweden
30 International
Germany Australia
average = 25
25 Italy
Laggards Accelerators
20 Greece
15 Slovak Republic
Saudi Arabia Korea
10 Portugal Singapore
Mexico Czech Republic Chile Hungary Russia Turkey
5 Colombia Argentina
Brazil South Africa
Malaysia Nigeria Thailand Indonesia Egypt India China
0
-2.0 -1.5 -1.0 -0.5 0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 6.0 6.5 7.0
Construction labor-productivity growth, 1995–20151
Annual growth in real gross value added per hour worked by persons employed

1 Countries with a shorter time series due to data availability: Argentina, Australia, Brazil, Chile, Ethiopia, Japan, Mexico, Nigeria, South Africa (1995–2011); Belgium
(1999–2014); China, Colombia (1995–2010); Czech Republic, France, Israel, Malaysia, Russia (1995–2014); Egypt (1995–2012); Indonesia (2000–14); Saudi Arabia
(1999–2015); Singapore (2001–14); Thailand (2001–15); and Turkey (2005–15)
2 Published PPPs are either not applicable (i.e., are not for the construction sector specifically or not for a value-added metric) or vary too widely in their conclusions to
lend any additional confidence to the analysis

SOURCE: OECD Stat; EU KLEMS; Asia KLEMS; World KLEMS; CDSI, Saudi Arabia; Ministry of Labor, Saudi Arabia;
McKinsey & Company | 3
WIOD; GGDC-10; Oanda; IHS; ITF; GWI; McKinsey Global Institute analysis
The cost of low productivity is high, USD 1.6 trillion a year for the global
economy
Average Construction sector Economic value lost as a
Total productivity differential, 2015 productivity result of productivity gap1
Total economy
Real gross value added per hour, 2005 $ ($ trillion)

63 $0.58
40 $0.46
34 31 $0.44
16 21

North America Europe Asia Pacific

Global

37 $1.63
25

~1/3
of lost value globally
in the construction sector
comes from North
America (primarily
the United States)

Central and Africa Middle East


South America $0.07
34
$0.05 20
6 8 6 $0.03
3

1 Assumes construction sector output remains constant and current workers are re-employed in other sectors at the total economy productivity rate

SOURCE: OECD; WIOD; GGCD-10; World Bank; BEA; BLS; Turkish National Statistics Bureau; Singapore National
McKinsey & Company | 4
Statistics Agency; Malaysian Statistics Agency; Rosstat; IHS; ITF; GWI; McKinsey Global Institute analysis
There is some correlation between productivity and profitability:
Productivity matters for the individual firm
Productivity/profitability pair for one firm in one year

Profitability
EBITDA as % of revenue, annual
30
25
R2 = 0.16
20
15
10
5
0
-5
Construction companies can achieve
-10
~1 point higher margins on average by
-15 increasing productivity by 25%
-20
0 50 100 150 200 250 300 350 400 450 500
Productivity
Annual value added per employee
$ million

SOURCE: Bureau van Dijk; 100 largest construction companies by revenue with publicly available data for FY 2005–15;
McKinsey & Company | 5
McKinsey Global Institute analysis
The construction industry has bottom-quartile profit margins
Average profit margin Top quartile Second quartile Third quartile Bottom quartile
NOPLAT over sales, %
Pharmaceutical/
IP-intensive 19.8
medical devices
Technology hardware 7.8
Technology-
IT and business services 11.7
intensive
Media 12.4
Consumer discretionary
5.0
products
Consumer staples 9.3
Local
consumer- Hospitality services 8.5
facing
Health-care services 3.9

Retail 3.5

Construction 4.4

Automobiles 5.4
Capital goods
Machinery 6.8

Processing 6.6

Transportation 6.0

Telecom 13.4
Infrastructure
Utilities 8.5

Extraction 5.8

SOURCE: McKinsey Corporate Performance Analysis Tool; IHS; US Bureau of Economic Analysis; US BLS; McKinsey
McKinsey & Company | 6
Global Institute analysis
Scale matters when it comes to productivity
Comparison of national construction productivity level
to productivity level of largest construction firms Country construction average
Value added per employee, average 2010–14, $ thousand Largest companies
Number of companies

129 +175%

114 +56%
102 +77%

88 +89%

73
57
47 47

5 4 4 2

Spain United France Germany


Kingdom

NOTE: “Large companies” considers only firms headquartered in a country with annual revenue in excess of $5 billion. Numbers may not sum
due to rounding

SOURCE: Bureau van Dijk; Eurostat; McKinsey Global Institute analysis McKinsey & Company | 7
However, specialization does not seem to drive productivity, specialized
contractors have the lowest productivity
Construction productivity by subsector Aggregate

Value added per employee, indexed total sector = 100, 2013 Outlier top
Outlier bottom
161
High and low outliers
of countries in data set1
138
127
110
105

87
77
72
119 124
100 104
79

Total Building Civil Industrial Specialized


construction construction construction construction contracting

% of construction 23 21 4 52
sector value added

1 United States, Canada, Australia, EU-15 (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands,
Portugal, Spain, Sweden, United Kingdom)

SOURCE: US Census Bureau; Eurostat; Statistics Canada; Australia Statistics Bureau; McKinsey Global Institute analysis McKinsey & Company | 8
Ten root causes for low productivity

Number of respondents = 210


Rankings 1 (Highest) 10 (Lowest)
Root cause Aligned Misaligned Overall Contractor Owner Supplier

External  Increasing project and site complexities 4 3 4 3


forces Extensive regulation, land fragmentation, and the
8 8 8 7
cyclical nature of public investment
Informality and potential for corruption distort the
10 10 10 8
market

Construction is opaque and highly fragmented 9 9 9 9


Industry
dynamics  Contractual structures and incentives are misaligned 2 1 5 1

Bespoke or suboptimal owner requirements 6 5 6 10

 Design processes and investment are inadequate 1 2 2 4


Firm-level
operational
factors
 Poor project management and execution basics 5 6 1 6

Insufficiently skilled labor at frontline and


3 4 3 5
supervisory levels
Industry underinvests in digitization, innovation,
 and capital
7 7 7 2

Productivity
impact

SOURCE: McKinsey Global Institute analysis McKinsey & Company | 9


Complex megaprojects account for an increasing share of global
construction and are particularly vulnerable to cost and schedule overruns
Megaprojects as a share of global construction spending1
%, $ trillion

100% = 7.2 7.6 8.1 8.1 7.9 8.3 8.6 9.0 9.1 9.5

17 17 21
16 14
6 6 8 10
4
Award year 2005 06 07 08 09 10 11 12 13 2014

1 Total project value >= $1 billion; includes parent and standalone projects only, excludes subprojects

SOURCE: IPAT; CIC; IJ Global; MEED; Zawya; India Infra Monitor; Dodge; SNL Mining; CGLA; Exame; IHS; ITF; GWI;
McKinsey & Company | 10
McKinsey Global Institute analysis
Greenfield projects have higher productivity than brownfield, indicating
the benefits of less constrained sites with lower levels of uncertainty
Productivity

Low uncertainty High uncertainty

Structural steel 0.026


Tons erected per hour 0.023
0.018 +46.3%

Poured concrete 0.084 0.088


Cubic yards poured per hour 0.060 +38.7%

Piping/mechanical 0.281 0.260 0.244


Linear feet installed per hour +14.9%

Addition Greenfield Modernization/


brownfield

SOURCE: Construction Industry Institute Performance Assessment System; McKinsey Global Institute analysis McKinsey & Company | 11
The construction sector has long been more regulated than other sectors,
and this is becoming even more the case
US federal regulations directly impacting industry
Number of cited regulations, with 95% probability they apply to industry

Construction Mining Agriculture


800
Incremental construction
700 sector regulations, by regulator
%
600 Environmental +375
Protection Agency
500 Department of +175
Transportation
400 Department of Interior +158
Department of Labor +142
300

200

100

0
1970 75 80 85 90 95 2000 05 10 2014

SOURCE: RegData; McKinsey Global Institute analysis McKinsey & Company | 12


Fragmentation level among subsectors of construction is strongly related
to their productivity
Level, 2015
2012 $ per employee

185
180 Commercial and Oil and gas pipeline
175 industrial outperform
Oil and gas under-
170 Commercial building Industrial other segments with performs given
165 similar fragmentation
the consolidation
160 New multi- Highway, street, of the segment
155 family housing and bridge
150
145 Building equipment
140
Power and communication
135 Water and sewer line
130
125 Site preparation
120 Electrical
115 Structural steel and pre-cast
110 New single- concrete contractors
105 family housing
100
95 Residential Flooring Roofing
90 remodelers
85 Smaller specialty
80 trade segments and
Painting Drywall and
75 remodeling are the
Framing insulation most fragmented
70
65
-5 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85

Average number of employees per firm, 2012

SOURCE: US Economic Census; McKinsey Global Institute analysis McKinsey & Company | 13
Projects that use lump-sum contracting methods have higher productivity
on several measures
Productivity Lump sum Cost reimbursable
Per hour

0.033 +88.2% 0.137 +56.8% 0.344 +34.9% 1.754 +45.6%

0.255
1.205
0.087
0.018

Structural steel Poured concrete Piping/mechanical Electrical


(tons erected) (cubic yards poured) (linear feet installed) (linear feet installed)

N= 17 26 17 25 11 17 15 16

SOURCE: Construction Industry Institute Performance Assessment System; McKinsey Global Institute analysis McKinsey & Company | 14
The negative impact of misaligned contractual structures weighs heaviest
on contractors
Impact of misaligned contracts Relative importance of drivers of misaligned contractual structures
% naming this as top three driver Impact score1

Owner Contractor Competitive contracting leads to hostile


environment, litigious culture, risk aversion, 1.7
59 and lack of transparency and trust

Contract structure does not effectively


1.0
account for project uncertainty

Lack of effective risk allocation among


1.0
stakeholders, including subcontractors

31
Emphasis on low-cost contracts over best-
0.9
value bids based on past performance

Bidding process does not effectively


account for total cost of ownership 0.8
of the asset over its lifetime

Change orders are poorly managed


0.6
and communicated

Misaligned contractual
structures

1 Respondents were asked to rank the three most important drivers. A score of 3 was given to the driver ranked first, a score of 2 to the second,
and a score of 1 to the third. Drivers not ranked in the top three were scored as zero

SOURCE: MGI Construction Productivity Survey; McKinsey Global Institute analysis McKinsey & Company | 15
The benefits of scale and standardization are evident when comparing
different types of residential construction
Construction labor productivity by type of residential construction, 2012
Annual real value added per employee
$ thousand, 2015

303

2.5x

139

89
78

New housing for- New multifamily New single-family Residential


sale builders1 housing housing remodelers2

High Standardization, repeatability, and scale Low

1 Establishments primarily engaged in building new homes on land that is owned or controlled by the builder rather than the home buyer or investor,
often referred to as merchant builders, but are also known as production or for-sale builders.
2 Establishments primarily responsible for the remodeling construction (including additions, alterations, reconstruction, maintenance, and repair work)
of houses and other residential buildings, single-family, and multifamily.

SOURCE: US Economic Census; McKinsey Global Institute analysis McKinsey & Company | 16
Construction – the least digitized sector of all Relatively low
digitization
Relatively high
digitization

Digital leaders within relatively undigitized sectors

McKinsey Global Institute industry digitization index;


2015 or latest available data
Assets Usage Labor
Overall Digital Business Digital Digital Digitiza-
digitiza- Digital asset Trans- Intera- proces- Market spending capital tion of
Sector tion1 spending stock actions ctions ses making on workers deepening work
ICT2
Media
Professional services
Finance and insurance
Wholesale trade
Advanced manufacturing
Oil and gas
Utilities
Chemicals and pharmaceuticals
Basic goods manufacturing
Mining
Real estate
Transportation and warehousing
Education
Retail trade
Entertainment and recreation
Personal and local services
Government
Healthcare
Hospitality
Construction
Agriculture and hunting

1 Based on a set of metrics to assess digitization of assets (8 metrics), usage (11 metrics), and labor (8 metrics).
2 Information and communications technology.
Source: AppBrain; Bluewolf; Computer Economics; eMarketer; Gartner; IDC Research; LiveChat; US Bureau of Economic Analysis; US McKinsey & Company | 17
Bureau of Labor Statistics; US Census Bureau; McKinsey Global Institute analysis
What can the construction industry do - seven areas of focus
Orange Grey Teal Blue grey Tan

Cascading effect
Regulation changes facilitate shifts in industry dynamics that enable firm-level levers and impact
Potential global productivity improvement from
implementation of best practices1 Cost savings
Impact on productivity (%)2 %

External
Regulation Enabler 6–7
forces
Collaboration and
8–9 7–10
contracting
Industry
dynamics Design and engineering 8–10
3–5
Procurement and supply-
7–8
chain management
4–5
On-site execution 6–10
Firm-level
operational 4–6
Technology 14–15
factors
Capability building 5–7 3–5

Cumulative impact 48–60 27–38

Gap to total economy


50
productivity

1 The impact numbers have been scaled down from a best case project number to reflect current levels of adoption and applicability across projects,
based on respondents to the MGI Construction Productivity Survey who responded “agree” or “strongly agree” to the questions around implementation
of the solutions
2 Range reflects expected difference in impact between emerging and developed markets

SOURCE: McKinsey Global Institute analysis McKinsey & Company | 18


Action in seven areas in combination can address the ten root
causes identified
Primary solution in seven action areas
Optimize
Rethink procurement
Rewire design and and supply- Improve
Reshape contractual engineering chain on-site Infuse Reskill the
regulation framework processes management execution technology workforce

Root cause


External forces

Increasing project and site complexities

Extensive regulation, land fragmentation,


and the cyclical nature of public investment 
Informality and potential for corruption
distort the market 
Construction is opaque and highly
fragmented 
dynamics
Industry

Contractual structures and incentives are


misaligned 
Bespoke or suboptimal owner
requirements 
Design processes and investment are

operational factors

inadequate
Poor project management and execution
Firm-level

basics  
Insufficiently skilled labor at frontline and
supervisory levels 
Industry underinvests in digitization,
innovation, and capital 

SOURCE: McKinsey Global Institute analysis McKinsey & Company | 19


Australia significantly improved its regulation of construction by reducing
the number of procedures and increasing the quality of rule-making
Days to complete all permitting and approval procedures by country

<50
<100
<150
<200
<250
<300
300+
No data

Singapore Australia Cambodia


26 days 112 days 652 days

Median 150 days

SOURCE: World Bank Ease of Doing Business Report—Dealing With Construction Permits; McKinsey
McKinsey & Company | 20
Global Institute analysis
Collaboration and risk in contracting strategies lie along a spectrum

Front-end
engineering
Lump-sum turnkey Owner design open
engineering, procurement, integrated/ book + PC
and construction (LSTK- design-bid- (convertible
E+PC)/ Design-build (DB) build (DBB) E+PC) Alliance/IPD

Lower Level of collaboration and risk sharing between parties Higher

▪ Typically a target-cost or lump ▪ Joint target costs established


sum contract for contractor and client
▪ Focus on project delivery as ▪ Project viewed as a collective
per traditional call-off contracts, enterprise, so no claims allowed
hence can lead to claims between parties
▪ Risk is individually managed, ▪ Risks are collectively managed
transferred as much as possible and shared, not allocated

SOURCE: McKinsey Global Institute analysis McKinsey & Company | 21


Increased spending on design and engineering correlates with higher
productivity Blank x

Construction sector labor productivity


Gross value added per hour worked, 2009
2005 %

80
Norway
70

United Kingdom
60
Denmark
50 Sweden

40
Spain
Italy
30

20
Slovak Republic
10 Latvia
Hungary
0
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Value of architectural, engineering, and technical testing and analysis as a proportion of sector output
2008–13 average, %

SOURCE: Eurostat annual detailed enterprise statistics for services and construction (NACE Rev. 2); WIOD; McKinsey
McKinsey & Company | 22
Global Institute analysis
A new project “operating system” is needed to achieve a step change
in predictability, productivity, and performance
▪ Comprehensive KPIs in place to track project outcomes
and planning efficacy (e.g., Percent Plan Complete [PPC]). Strong focus on
variability, plan conformance, and inventory
▪ Contracting strategy aligning commercial interests
of all stakeholders to overall project success
(relational vs. transactional, IPD)
▪ Cloud-based data hub (control tower) to manage performance

▪ Treat performance as you treat Management


safety: Everyone should understand system
the project operating system
▪ Stakeholders embrace roles
as part of an integrated
▪ Cross-contractor control tower war project team
rooms used to ensure rigorous problem
solving, visual management,
▪ Capability-building
programs for the next
and performance dialogues
Mindsets generation
▪ Project production system in place Technical
and of project managers,
with “gold-standard” project controls system
foremen, and craft workers
behaviors
and a project production-management (use train-the-trainer on-site)
system (e.g., LPS)
▪ Root-cause analysis
▪ Employ technological innovation in place that focuses
as practicable, but not as a panacea on improving, rather
(e.g., automated work packaging, 5D than pointing the finger
BIM, and big-data analysis to predict of blame
productivity, cost, and schedule)

SOURCE: McKinsey Global Institute analysis McKinsey & Company | 23


Mandating of lean processes and tools was the least-implemented best
practice of project management Strongly disagree Disagree Agree Strongly agree Low High

Recommended best practices – level of adoption among firms


Average score
Level of adoption Build- Indus-
Best practice % ing Civil trial
We have standardized project startup and closure checklists and are able to staff a dedicated
3 22 47 29 2.83 3.05 2.71
project manager and team from start to finish and ensure all contractual deliverables are met
We involve all functional experts (e.g., sourcing, engineering, and estimation team) to come to an
1 18 56 24 3.22 2.98 2.70
accurate estimate of time and cost; we involve external experts in areas we need a second opinion

Our project team sequences tasks to minimize waste and maximize project flow 2 16 60 22 3.06 3.02 2.70

We proactively manage permits and approvals to ensure smooth site activities; we invest in liaising
4 9 67 21 2.56 2.71 2.54
with relevant stakeholders to ensure zero interruptions to site work
We use analytical tools for contracting and procurement (e.g., clean sheet costing, low-cost country
4 37 39 20 2.56 2.62 2.41
sourcing, productivity benchmarks)
Resource and equipment usage is planned to optimize critical path delivery to proactively reduce
1 18 62 20 2.89 2.87 2.65
restrictions and delays
We use industry standard planning tools and are effectively able to translate masterplans into the
6 23 53 19 2.94 2.73 2.47
daily activity schedules for foremen and crews

We effectively forecast labor needs throughout the project lifecycle 4 24 57 16 2.83 2.87 2.54

Projects synchronize pre-assembly with final assembly to minimize transport, handling and space
4 31 52 13 2.61 2.51 2.26
requirements; pre-assembly items are grouped into kits and delivered to site to optimize flow
We devote enough time and attention to a proper site survey at the earliest stages, often deploying
8 40 41 10 2.72 2.40 2.19
two independent teams for very large projects in order to triangulate estimates and conclusions

We utilize proactive initiatives for identifying and reducing sources of rework, resulting in rework 10 43 38 8 2.67 2.44 2.16

Supply deliveries for projects are based on real sequence of tasks in coordination with the
6 36 50 8 2.83 2.54 2.27
warehouse to trigger just-in-time delivery of materials and minimize space requirements
We apply structured problem solving based on lean techniques, including both root-cause removal
6 43 44 8 2.61 2.44 2.25
and short-term crisis management

Lean processes and tools are used and mandated throughout the project lifecycle 11 51 31 7 2.56 2.35 2.06

NOTE: Numbers may not sum due to rounding

SOURCE: MGI Construction Productivity Survey; McKinsey Global Institute analysis McKinsey & Company | 24
The biggest barrier to digital technology is a lack of internal processes
and standards
Most important barriers to adoption by technology type
Frequency of ranking in top three most important barriers (n = 141)
No internal process No clear industry Management not Frontline workers Lower-
● Primary barrier
(most often ranked) to quantify or standard yet, subs interested, no insufficiently cost

● Secondary barrier
(second most often ranked)
communicate business
case and benefits
and customers need
to adopt
budget at project
level
trained or
unwilling to use
options
available
Digital Real-time
collaboration ● ●
Collaborative
mobility solutions ● ●
Digitized project
workflows ● ●
Real-time workforce
production tools ● ●
Sensor and NFC
technology ● ●
Pattern-/trend-based
advanced analytics ● ●
Surveying and
inspection tools ● ●
Materials Modular
construction ● ●
Durable and
lightweight materials ● ● ●
Automation Advanced
automation ● ●

SOURCE: MGI Construction Productivity Survey; McKinsey Global Institute analysis McKinsey & Company | 25
Construction tech is proliferating
We have to prioritize business use cases

McKinsey & Company | 26


Technology is now available to improve every NOT EXHAUSTIVE

aspect of a construction project Connectivity and sensing Process digitization


Robotics and automation Advanced analytics

McKinsey & Company | 27


Benefits of these steps are visible: scale, standardization and technology
adoption are enabling China to deliver projects at a much lower unit cost
Cost of high-speed rail in China vs. rest of world Discount of Chinese
construction price
$ million per kilometer1

-80% 92

-65% 52

-38% 29
-28% 25
18

China France Spain United States United Kingdom

1 Calculated as average of those listed in World Bank reports: United States (1 project), Spain (3 projects), France (1 project plus 4 under construction),
China (6 projects), and of high-speed 1 (constructed) and high-speed 2 (under construction) in the United Kingdom

SOURCE: World Bank; The Telegraph; McKinsey Global Institute analysis McKinsey & Company | 28
Key take away - a production system in construction would look radically
different from the current project-based approach

Industry Large-scale Collaborative


manufacturers of working team
components and Owner Contractor or
work packages manufacturer

Design and Approvals Supply-chain Post-


Manufacture Site work
procurement and testing coordination construction

Components Streamlined High-quality Supply chain, Site work is Lifetime


selected on digital approvals offsite with tools such as minimized to guarantees
marketplace with process and manufacture just-in-time and assembly of on components
full transparency testing at facilitated through just-in-sequence, components and packages
on lifetime costs production facility automation and replaces project and packages
new lightweight management as facilitated through
materials the predominant universal
coordination interfaces
challenge supported by
technology

SOURCE: McKinsey Global Institute analysis McKinsey & Company | 29


No one size fits all, yet everyone can benefit from a move to a production
system

Fragmented Heavy
small trades construction

Transparency across Construction Better


small trades production system projects

Small trades Single-family home Airport Nuclear power station


Digital marketplace Designs customized off a Components, Built on-site but using a
provides transparency standardized base built in including fully radically improved
and comparison for factories and assembled modular units, project model with a
owners across different on-site in less than a week assembled off-site collaborative, long-term
trades, reducing the and tracked owner and contractor
information asymmetry through fully relationship and
digitized supply technology throughout
chain the process

SOURCE: McKinsey Global Institute analysis McKinsey & Company | 30


What will be different this time – four trends that could really move the
industry forward
Impact of driver High Medium Low

Singapore

Kingdom
Australia

Belgium

United

United
States
China

Brazil
Rising requirements and demand in terms of
volume/time, cost, and quality/sustainability

Trends Larger-scale players in more transparent


leading to markets and disruptive new entrants
a potential
disruption New technologies, materials, and processes

Rising wage rates, labor shortages, and


limitations to migrant labor
Government Shifts in the regulatory landscape in terms of
response harmonization and performance orientation
Annual construction productivity growth, 1995–2015 6.71 2.05 1.96 1.37 0.49 -1.04 -1.21
%

SOURCE: McKinsey Global Institute analysis McKinsey & Company | 31

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