Reinventing construction through a productivity revolution

To transform the sector, action is needed in seven areas or through broader adoption of mass-production approaches.

The construction industry employs about 7 percent of the world’s working-age population and is one of the world economy’s largest sectors, with $10 trillion spent on construction-related goods and services every year. But the industry has an intractable productivity problem and, according to Reinventing construction: A route to higher productivity, a new McKinsey Global Institute report, an opportunity to boost value added by $1.6 trillion.

Other sectors have transformed themselves and their productivity performance. In retail, the mom-and-pop stores of half a century ago have been replaced by large-scale modern retailers with global supply chains and increasingly digitized distribution systems and customer-intelligence gathering. In manufacturing, lean principles coupled with extensive automation have utterly changed industries.

In comparison, much of construction has evolved at a glacial pace. Take one example: construction is among the least digitized sectors in the world, according to MGI’s digitization index. In the United States, construction comes second to last, and in Europe it is in last position on the index.

Globally, labor-productivity growth in construction has averaged only 1 percent a year over the past two decades, compared with growth of 2.8 percent for the total world economy and 3.6 percent in the case of manufacturing. In a sample of countries analyzed, over the past ten years less than one-quarter of construction firms have matched the productivity growth achieved in the overall economies in which they work. There is a long tail of usually smaller players with very poor productivity, and many construction projects suffer from overruns in cost and time.

If construction-sector productivity were to catch up with that of the total economy—and it can—this would boost the sector’s value added by an estimated $1.6 trillion, adding about 2 percent to the global economy, or the equivalent of meeting about half of the world’s infrastructure need (exhibit). One-third of the opportunity is in the United States.

http://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/reinventing-construction-through-a-productivity-revolution

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