Weak productivity crippling global construction industry growth
- Not only has the U.S. construction industry failed to keep pace with the U.S. compounded annual business productivity growth rate of 1.76%, but it has lost ground since 1995 with a yearly productivity decline of 1.04%, according to a recent McKinsey Global Institute report.
- In its report, "Reinventing Construction Through a Productivity Revolution," McKinsey said the global construction industry, which has a 1% productivity growth rate compared to the world's 2.8%, has been slow to adopt the new technology and management techniques that could increase its value by $1.6 trillion.
- McKinsey noted that unless the industry takes significant steps to modernize, it will not be able to meet the demands of an aggressive infrastructure program or be able to address the shortage of housing in the U.S.
While construction is not amenable to the full-scale automation and management techniques that are employed in industries like manufacturing, McKinsey suggested that the construction industry could increase productivity to the tune of 50%-60% with regulatory reform, new contracting methods, design and engineering innovations, better procurement and supply chain practices, increased workforce training and offsite prefabrication methods.
This latest report is in line with a World Economic Forum study last year that also pointed to construction's dismal productivity showing when compared to other world industries. The study found that reducing construction costs by 1% through productivity gains could save the global industry approximately $100 billion each year.
The WEF pointed to Lean construction methods as a way to increase productivity and said Lean could reduce costs by 15% and schedules by 30%. The WEF is also a big proponent of digitization and automation and said using new technology could also trim operational costs by up to 17% and capital costs by 21%.
McKinsey and the WEF also agree that the industry's fragmentation is holding back advancements in productivity, which could be helped along by the creation of global standards.
Experts say the industry's lack of productivity growth is also due largely to the leadership in the construction industry and their aversion to collaboration. Howard Ashcraft, partner at Hanson Bridgett and construction industry consultant, told Construction Dive last year that there is significant emphasis on individualism in the industry.
- The Wall Street Journal Why Construction Has Seen Particularly Weak Productivity Growth
- McKinsey Reinventing construction through a productivity revolution
- CityLab The Housing Crisis Is a Building Crisis
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