McKinsey: Reinventing Construction: Route to Higher Productivity

Check out a real Mckinsey presentation on construction.

McKinsey: Reinventing Construction: Route to Higher Productivity

Key Learnings from the Presentation

The presentation titled “Reinventing Construction: A Route to Higher Productivity” by McKinsey & Company, delivered on July 6, 2017, by Dr. Jan Mischke, offers a comprehensive analysis of the construction sector’s challenges and potential. Here’s a detailed summary capturing the essential insights and key takeaways:

Sector Overview and Challenges

• The construction industry, which accounts for 13% of global GDP, is facing significant productivity challenges. Despite being a $10 trillion sector, its productivity growth lags behind other industries, such as manufacturing. The analysis indicates a potential 50-60% improvement in productivity or a 5-10x increase from transitioning to a production system approach.

Key Findings on Productivity

• Labor-productivity growth in construction is notably lower than in manufacturing and the total economy, highlighting inefficiencies and the opportunity for substantial improvement.
• Several factors contribute to weak productivity, including misaligned contractual structures, inadequate design processes, extensive regulation, the cyclical nature of public investment, and a lack of digitization and innovation.

Opportunities for Improvement

• The study identifies a value creation opportunity of $1.6 trillion from raising construction productivity. This value can benefit businesses, workers, and owners by improving profitability, wages, and cost efficiencies, respectively.
• A survey highlighted root causes for weak productivity, ranking inadequate design processes and misaligned contractual structures as top reasons, among others such as insufficiently skilled labor and poor project management.

Strategic Areas for Action

• McKinsey suggests that the construction sector can significantly improve productivity by focusing on seven key areas: Regulation, Collaboration & Contracting, Design & Engineering, Supply Chain Management, Onsite Execution, Technology, and Capability Building.
• These areas represent potential global productivity improvements ranging from 6% to 10% individually, cumulatively aiming to close the gap to total economy productivity and achieve a 48-60% overall productivity boost.

The Role of Government

• The presentation underscores the potential role of government intervention in supporting the sector’s transformation. This can involve combating informality and corruption, creating transparency, streamlining permitting processes, moving to outcome-based building codes, and supporting skills development.
• Additionally, governments can act as owners by pooling projects into standardized portfolios, moving to performance-based contracting, and supporting new approaches and technologies such as Building Information Modeling (BIM).

About McKinsey

McKinsey & Company stands as a premier entity in the global management consulting sphere, initiated by James O. McKinsey in 1926. Anchored in New York City, this firm has carved a distinguished position in the consulting arena, offering strategic guidance across the globe to a diverse clientele that includes businesses, governments, and various institutions.

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