As an industry, construction is struggling to evolve. On average, capital projects now reach completion 20 months behind schedule, with budgets running over their original estimates by 80 per cent. While other sectors have increased their efficiency, boosted productivity and embraced the digital age, construction appears to be stuck in a rut. This represents a lost opportunity, and also costs the world economy.
Current construction-related global spending is estimated to stand at $11 trillion a year, equivalent to 13 per cent of GDP, and is increasing year-on-year by an average of 3.6 per cent. However, the construction industry must do much more to realise its productivity potential.
Research by McKinsey Global Institute (MGI) indicates that the industry is ripe for disruption, and adoption of best practices across the project lifecycle could boost productivity by 60 per cent, resulting in gains worth $1.6 trillion a year. The adoption of digital technology is the most promising opportunity for improvement, with the potential to boost productivity by up to 15 per cent.
The Middle East construction industry has not fully embraced technologies that require up-front investment, such as advanced analytics, automation and robotics, building information modelling (BIM) and online collaboration tools. While technical and commercial challenges have slowed the pace of digitisation, the standardisation of designs, rather than approaching every project as a bespoke effort, improve the supply chain and logistics.
There are encouraging signs that owners in the Middle East are increasingly realising the benefits of BIM and requesting its implementation on their projects. However, one of the challenges is that the processes and procedures have not caught up with the advancing technology. Some clients still insist on a paper trail in addition to digital submissions, which creates work that BIM is designed to eliminate.
MGI’s Construction Productivity survey found that another challenge is the varying sophistication levels of smaller construction firms that often function as subcontractors. Larger players engaged in heavy construction tend to have 20–40 per cent higher productivity than smaller, more specialised firms.
That being said, large players often subcontract to smaller firms, which points to a need to optimise productivity along the value chain. This means the investment in technology is likely to come from the large players, but they will need to work with the smaller firms to implement training to ensure that their workforce has the skills needed to use the new methods of working.
The adoption of digital platforms represents potential cost reductions of up to 45 per cent on each project. To make the necessary changes, engineering and construction (E&C) firms must implement top-down digital investment initiatives to identify opportunities, measure progress and share success.
To leverage new technologies, firms will need to navigate the market of available digital solutions and identify those that best address their major pain points.
It is vital that organisations make fact-based decisions about technology investments. To prioritise investment in new tools, companies should be systematic in identifying their greatest challenges and then follow a two-step categorisation to evaluate digital tools and estimate potential savings.
When McKinsey evaluated the construction technology landscape, it found that most tools fall into one of three clusters: on-site execution, back-office integration and digital collaboration. Based on an analysis of their productivity challenges and performance goals, companies can determine which cluster will have the greatest positive impact on their operations. Next, they can evaluate tools within that cluster based on the specific improvements they facilitate.
The first cluster involves on-site execution, an area in which E&C companies typically encounter difficulties, including low productivity and delays in material shipments. Construction-technology startups have tried to mitigate some of the most pressing problems by developing solutions that assist with field productivity.
As E&C stakeholders, including architects, engineers and foremen, tend to be more widely dispersed than those in other industries, frequent communication is important because certain changes, such as a minor modification to a materials order, can significantly increase timelines or costs.
As a result, many construction-technology startups focus on tools that promote digital collaboration throughout all E&C project phases. Some of the most compelling tools relate to design management, contract management, document management and performance management.
Back-office integration, involving functions such as accounting, finance and human resources, can help companies to exploit project data about finances, costs and schedules. Often, however, analysts fail to mine this information because it is not easily accessible.
Startups have developed solutions that give foremen and other managers immediate access to real-time back-office data. Some tools, for instance, allow general contractors to see which change orders an E&C company’s customers have approved, including those for which they have not provided payment. In many cases, back-office use focuses on scheduling, managing equipment and enterprise resource planning.
Increasing digital investment
With the construction industry on the brink of digital disruption, stakeholders must be quick to act. Companies that are slow to digitise or that lack a bold, well-structured transformation plan, will lose ground.
While every organisation may pursue different digital priorities, they must all share a commitment to large-scale change. That means altering their business and operational models to better support digital innovation.
In other industries in the region, such as finance, the companies that are quick to embrace technologies and develop new platforms have gained a strong competitive advantage. Just as startups have transformed industries such as retail and entertainment, digital leaders in construction – particularly in the Middle East, where projects tend to be large and complex – could set the industry on a new path and lay down standards for others. The real question is not if this will occur, but when.
About the author
Ghassan Ziadat is vice-president of major projects at McKinsey & Company