The construction industry employs about 7 % of the world’s working-age population and is one of the world economy’s largest sectors, with $10 trillion spent on construction-related goods and services every year.
But the industry has an intractable productivity problem and, according to Reinventing construction: A route to higher productivity, a new McKinsey Global Institute report, an opportunity to boost value added by $1.6 trillion.
The report suggests that acting in seven areas simultaneously could boost productivity by 50 to 60 %. They are reshaping regulation; rewiring the contractual framework to reshape industry dynamics; rethinking design and engineering processes; improving procurement and supply-chain management; improving onsite execution; infusing digital technology, new materials, and advanced automation; and reskilling the workforce.
Parts of the industry could move toward a manufacturing-inspired mass-production system, in which the bulk of a construction project is built from prefabricated standardized components off-site in a factory. Adoption of this approach has been limited thus far, although it’s increasing. Examples of firms that are moving in this direction suggest that a productivity boost of five to ten times is possible.
Some governments are now taking an active approach to boosting construction-sector productivity through regulation. The impact of such efforts may be reinforced by a number of forces that are bringing down barriers to change. Demand is rising; the scale of players and projects is increasing, making a more productive new system more viable; and the price of productivity-enhancing technology and digital tools is falling, making them more accessible, while increasing market transparency and disrupting small trades. With labor costs rising, the case for productivity-enhancing technology only becomes more pressing.
If construction-sector productivity were to catch up with that of the total economy—and it can—this would boost the sector’s value added by an estimated $1.6 trillion, adding about 2 percent to the global economy, or the equivalent of meeting about half of the world’s infrastructure need (exhibit). One-third of the opportunity is in the United States.