According to the rather direct message in the recent McKinsey report on “The Next Normal in Construction”, the construction industry has historically underperformed, and struggles with poor customer satisfaction due to budget overruns, lengthy claims, along with a substantial list of other issues.
The report cites that construction, “as the largest industry in the global economy, accounting for 13 percent of the world’s GDP,” is due for a disruptive overhaul driven by a changing landscape, technology innovation and a much savvier customer.
While this might sound like a scathing criticism of the industry, it is actually a very optimistic outlook on the positive looming changes that will result in safer, more reliable, more sustainable, and more profitable construction projects going forward. Disruption is rarely a bad thing – it most often leads to progressive outcomes that streamline even the most complex construction projects. Clearly, however, like with any major changes, there will be winners and losers that emerge out the other end of this pending transformation. The article argues that there has historically been a low barrier of entry to get work (due to a shortage of skilled labor), so even the most unproductive, low-tech contractors can compete. This is despite their subpar results. Going forward, however, the bar will be set higher and only the superior performers will thrive.
What’s Causing this Disruption?
There are a number of sources that are triggering the anticipated disruptions including pressure from clients and owners that have become much more sophisticated and are demanding more cost certainty and generally lower total cost of ownership. It’s clear to customers today that applying financial and project controls, along with the technology to embed rigor and governance on the project, is a very basic requirement for any contractor on the project to demonstrate. Customers want things to be digital – they don’t want to see paper or spreadsheet reports anymore. In addition to project financial controls, clients are demanding sustainable construction, along with energy and operational efficiency, as key metrics they’re looking for.
Customers are also looking for more modularization – meaning offsite production of key components that don’t need to be custom-built at the site. The idea of a pluggable, modular future is very appealing to most clients who see that as risk and cost mitigation, along with higher standards of quality control.
The imminent changes causing the disruptions are suggested to be categorized in Nine Industry Shifts, “According to our executive survey, more than 75 percent of respondents agree that these shifts are likely to occur, and more than 60 percent believe that they are likely to occur within the next five years. The economic fallout from the COVID-19 pandemic looks set to accelerate them.” The construction ecosystem of the future will, according to the McKinsey report, be “A more standardized, consolidated, and integrated construction process,” that will be accelerated by the COVID-19 pandemic.
A key element to the disruptive shift is the adoption of technology, among both contractors and owners, that facilitates deep visibility and a collaborative view on projects in real-time. “Digital technologies can enable better collaboration, greater control of the value chain, and a shift toward more data-driven decision making.” This means that contractors need to invest the time to implement software to manage their operational activities – such as the careful management and control of projects. This has become critical for them if they’re going to survive and compete in the long term. It’s become clear that clients are not going to tolerate contractors (whether general contractor or specialty contractor – in any industry vertical) that are still using outdated processes and systems and thus can’t perform to expectations.
“Construction is already in the perfect storm.” The report articulates, “Industrialization, globalization, and digitalization have been key drivers of change in all industries. While this change happened in sequential waves—for example, in auto industrialization in the 1970s and 1980s, globalization in the 1990s and 2000s, and digitalization in the 2010s and ongoing—all of these drivers are hitting construction simultaneously. It is a daunting task and will require bold and agile moves to maneuver, but the size of the prize is enormous.”