Digital tools can reduce construction costs and boost productivity

The Middle East’s construction firms could record double-digit growth in productivity – and cost reductions of 45% – through the adoption of digital tools

Dr Ghassan Ziadat is the vice president for major projects at McKinsey & Company.
Dr Ghassan Ziadat is the vice president for major projects at McKinsey & Company.

Construction-related global spend is increasing year-on-year by an average of 3.6%. In the Middle East, construction spend on infrastructure projects alone is expected to be worth $2tn from 2016 to 2020.

While sectors from agriculture to manufacturing have achieved significant increases in productivity gains, the construction industry has yet to realise its productivity potential, despite being a driver of both regional and global economic growth. Stagnation in productivity is reflected in capital projects that, on average, reach completion 20 months behind schedule, with budgets exceeding original estimates by 80%.

Research by McKinsey Global Institute (MGI) indicates that the adoption of best practices across a project’s lifecycle could boost productivity by 60%, resulting in gains worth $1.6tn a year. The adoption of digital technology is a promising opportunity for improvement, with the potential to boost productivity by up to 15%.

However, construction is currently among the least digitised sectors worldwide, despite widespread recognition of its need to improve productivity. For construction firms and stakeholders in the Middle East, there in an opportunity to achieve this double-digit step-up in productivity by adopting digital tools and platforms. These include advanced analytics, automation and robotics, and building information modelling, as well as online collaboration tools such as document management or data collections systems, among other technologies.

In other industries, companies that have been quick to embrace technologies and develop new platforms – the first movers – have gained a strong competitive advantage. Just as start-ups have transformed the retail, entertainment, and automotive industries, digital leaders in construction could move the sector onto a new path and set standards for others. The real question is not if this will occur, but when. Today’s players who do not transform their operations and prepare to embrace these new technologies at scale face the risk of being left behind.

Organisations in the region may hesitate to use digital tools because of the fragmented nature of the construction industry, or the upfront investment required. But, with the adoption of digital platforms representing potential cost reductions of up to 45% on each project, stakeholders must encourage the implementation of top-down digital investment initiatives to identify opportunities, measure progress, and share success. For digital initiatives to succeed, chief executive officers and board members must take ownership of the digital transformation from the outset, focussing on strategy, project enablement, and enterprise transformation.

The recent MGI Construction Productivity Survey uncovered significant variations in the industry. Large-scale players engaged in heavy construction, including civil and industrial work, tend to have 20% to 40% higher productivity than smaller firms engaged in specialised trades. That being said, large players often subcontract to other smaller firms, which points to a need to optimise productivity along the entire value chain.

This means that the investment in technology will likely need to come from the large players, but these – and the smaller firms alike – will need to implement training programmes to ensure their workforce, particularly on site, has the skills needed to use the new methods of working.

With the construction industry on the brink of digital disruption, stakeholders must be quick to act. Although digital tools will not eliminate all productivity issues – there is still room to improve when it comes to regulation, contractual frameworks, and procurement and supply – they represent the greatest improvement lever available. Companies that are slow to digitise or that lack a bold, well-structured transformation plan, will lose ground.

While each organisation may pursue different digital priorities, they must all share a commitment to large-scale change in order to succeed, and that means altering business and operational models to support digital innovation.

Dr Ghassan Ziadat is the vice president for major projects at McKinsey & Company.

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