Construction’s Mission Impossible? – AEC Business

“Good morning, Construction. Your mission, should you choose to accept it, is to lead the construction industry in a high-stakes race against time. The challenge: double the industry’s growth by 2040.”

That is the gist of McKinsey’s August 2024 article, “Delivering on construction productivity is no longer optional.” The article paints a picture of an industry with tremendous growth potential but is still in slow progress despite its increased tech investments.

Whopping growth potential

The construction sector is heading towards notable growth: at constant prices, global construction spending is expected to rise from $13 trillion in 2023 to a striking surge of $22 trillion by 2040—a 70% increase!

The forecast necessitates a compound annual growth rate (CAGR) of 3.2 percent. This growth rate matches the rapid expansion driven by China over the past two decades. However, it means that the industry outside of China will need to double its current growth rate—from 1.3 percent to 2.7 percent CAGR—to meet the 2040 projections.

Can we do it? The article casts severe doubts over a positive answer.

A challenging baseline

The construction industry’s global productivity has grown 0.4% annually between 2000 and 2022. The growth mainly came from developing economies that have adopted foundational productivity practices, such as upskilling the workforce.

There has been virtually no productivity progress in the U.S. and Europe despite investments in digitalization and prefabrication.

The other challenge is the need for more people in the industry, which is tough considering the development in Western countries. In the United States alone, 41 percent of the construction workforce from before 2020 is expected to retire by 2031, so fresh talent is in dire need.

The efforts so far

Interest in and investments in AEC technology have increased considerably since 2020. However, this trend has yet to materialize in improved productivity.

The article indicates that tech investments have focused on increased control, design tech, and new materials instead of workforce productivity. Technologies like prefab and supply chain process improvements still need to deliver on their promise at scale.

The authors conclude that the industry struggles to scale improvements from one project to the entire portfolio. On the other hand, construction companies that have improved productivity have passed the benefits upward to suppliers and downward to customers in the value chain. Hence, the productivity increase does not improve the contractor’s margins.

In most projects, productivity has yet to be a key metric. Instead, it is hitting the delivery date. The typical solution is adding extra workers to finalize the work on time, not developing processes and technology ahead of time.

Is the mission impossible?

The authors remind us that construction executives should ensure that evergreen, foundational measures are in place. After that, companies need to go above and beyond foundational measures.

Adopting project steering 2.0 that focuses on production rate metrics, nurturing a supplier ecosystem, and upskilling project staff are necessary steps. In addition, the authors conclude that companies must scale initiatives across project portfolios and apply technology in ways that directly impact productivity.

Construction has enormous growth potential on the global level. The authors don’t mention that the AEC industry is cyclical on the local level, challenging any long-term improvements. Alleviating the cyclical nature of construction would be one more action item on the list.

“Should you or any of your team fail to meet this mission, the future of construction as we know it will be compromised. This message will self-destruct in five seconds. Good luck.”