According to a recent McKinsey Global Institute report entitled Reinventing construction: A route to higher productivity, a significant productivity boost in the construction industry may be achievable. How?
Transformation has changed many industries
Productivity performance has increased in many sectors. In retail nowadays there are large-scale modern retailers managing global supply chains and digitised distribution systems. Manufacturing has been transformed by the introduction of lean principles and extensive automation.
So far construction has not been so rapid in terms of productivity. It is one of the least digitised sectors and labour productivity growth has averaged only 1% per year over the last 20 years. (For manufacturing it was 3.6%.)
Without an increase in productivity, it may be the case that we will not be able to satisfy the global needs for infrastructure and housing.
Main reasons for poor performance
- the construction industry is still extensively regulated
- it is dependent on public-sector demand (which sometimes leads to corruption)
- the industry is highly fragmented
- in contracts there are discrepancies regarding ownership of risks and rewards
- insufficient investment in skills development and innovation
Productivity varies considerably among regions. Large-scale players (those carrying out civil and industrial work as well as large-scale housing) show 20-40% higher productivity when compared to smaller, specialised companies that often do subcontract work.
The second part of the article will focus on how the situation might be improved.
-jk-