The McKinsey Global Institute report Reinventing construction through a productivity revolution was released in February 2017. This is the latest in an ongoing MGI research and consultancy program in construction and infrastructure, previous reports were discussed here and here.
The infographic from McKinsey shown below summarizes a weighty report, at over 100 pages, and tells us that:
- The building and construction industry is large, therefore important;
- There are a number of sectors or sub-industries with different characteristics on the supply side;
- Specialized trades have lower productivity than the other sectors; and
- Four of the seven areas of reform are on the demand side (regulation, procurement, contracts and design).
At the beginning of the report MGI makes their position clear:
Even while other sectors from retail to manufacturing have transformed their efficiency, boosted their productivity, and embraced the digital age, construction appears to be stuck in a time warp. In the United States since 1945, productivity in manufacturing, retail, and agriculture has grown by as much as 1,500 percent; productivity in construction has barely increased at all.
The industry is extensively regulated, very dependent on public-sector demand, and highly cyclical. Informality and sometimes corruption distort the market. Construction is highly fragmented. Contracts have mismatches in risk allocations and rewards, and often inexperienced owners and buyers find it hard to navigate an opaque marketplace. The result is poor project management and execution, insufficient skills, inadequate design processes, and underinvestment in skills development, R&D, and innovation. ...Examples of innovative firms and regions suggest that acting in seven areas simultaneously could boost productivity by 50 to 60 percent. They are: reshape regulation; rewire the contractual framework to reshape industry dynamics; rethink design and engineering processes; improve procurement and supply-chain management; improve on-site execution; infuse digital technology, new materials, and advanced automation; and reskill the workforce. Parts of the industry could move toward a system of mass production, standardization, prefabrication, and modularization—a production system—that has the potential to boost productivity by five to ten times."Many barriers to higher productivity and ways of overcoming them have been known for some time, but the industry has been in deadlock. Most individual players lack both the incentives and the scale to change the system. However, there are forces lowering the barriers for change: rising requirements and demand in terms of volume, cost, and quality; larger-scale players and more transparent markets, and disruptive new entrants; more readily available new technologies, materials, and processes; and the increasing cost of labor with partial restrictions on migrant workers. Construction-sector participants should rethink their operating approaches to avoid being caught out in what could be the world’s next great productivity story.
A large amount of data supporting their view is provided, for example the diagram below. Each circle represents a country, and the size of the circle shows the size of the construction industry in that country. The horizontal axis shows the annual rate of productivity growth in construction from 1995-2015 in that country. The vertical line at 0% shows that the US construction industry, along with a number of others, has experienced negative productivity growth in the last two decades. The vertical axis shows output/hour in 2015, a standard measure of productivity. It's expected that high income countries like the US will tend to be relatively high in productivity: after all, that's why they are high-income countries in the first place. The countries in yellow are the few examples of nations where labor productivity in construction exceeds labor productivity in the country as a whole. Australia compares well here, although McKinsey carefully avoids questions about the reliability and quality of construction statistics.