Managing Director & Partner
The engineering and construction (E&C) industry has been a relatively conservative one, slow to adopt innovative materials, technologies, and processes—so much so that labor productivity in the US has actually fallen during the last 40 years. Such torpor is worrying, given the central role that buildings and infrastructure assets play in daily life and the impact that the industry has on other industries, the environment, and the economy as a whole. Currently, the industry is the largest global consumer of raw materials, and about 30% of greenhouse gas emissions are attributable to buildings. And E&C accounts for 6% of global GDP. Given the industry’s size and weight, even a small improvement in performance would generate huge benefits worldwide.
Change is inevitable, however, as several global megatrends continue to unsettle the industry. Consider just one: the population of the world’s urban areas is increasing by 200,000 people per day, all of whom need affordable housing as well as social, transportation, and utility infrastructure. In the face of such challenges, the industry is bound to transform. And this journey will have transformative effects elsewhere:
A new report from the World Economic Forum, Shaping the Future of Construction: A Breakthrough in Mindset and Technology, presents an “industry transformation framework,” which lists 30 measures that cover such aspects as the uptake of innovative technologies, enhancements in operations and processes, new adjustments to business and HR strategies, industry cooperation, and—crucially—the optimization of public policy. To reinforce the framework, the timely report, prepared in collaboration with The Boston Consulting Group, includes numerous best practices and case studies.
The multitude of private companies directly or indirectly involved in construction is spearheading the transformation. Individually, these companies can tap a wealth of transformative opportunities right now, by applying new technologies, materials, and processes. Emerging digital technologies, for example, will not only boost productivity but also enhance the quality of buildings and improve on-site safety and environmental compatibility. A full-scale digitalization of nonresidential construction would, within ten years, produce annual global cost savings of $0.7 trillion to $1.2 trillion (13% to 21%) on E&C.
One drawback in this regard is that the industry remains extremely fragmented. To unlock all the potential, companies along the value chain will need to collaborate far more than they do currently. And industry organizations will need to act more strongly¾in defining common goals and standards, engaging local communities and prospective employees, and advocating with governments.
Governments are, in fact, key contributors to the industry’s transformation. A government not only acts as the regulator but also is often the owner and a major client of infrastructure assets. By speeding up regulatory and environmental approvals, it can reduce project delays. By inviting foreign bidders to tender, it can improve competitiveness. By supporting academic and corporate R&D, it can promote technological innovation. It can impose environmental standards and weed out corruption in procurement practices. In general, a government can create a fertile environment for the industry’s transformation. As a key project owner, for example, it could require that answers to requests for proposal make reference to new technologies.
All of this great potential—on the part of companies, industry organizations, and governments—will blossom very soon. In fact, as the numerous case studies described in the report show, profound changes in the industry are already taking place, though not yet on a sufficiently wide scale. All stakeholders need to take more coordinated and committed action to move the industry forward and make the transformation a reality.
The original version of the report was published by the World Economic Forum.
Digital in Engineering and Construction: The Transformative Power of Building Information Modeling, an earlier BCG report, examines the impact of digital technologies on the E&C sector. Another BCG report, The Lean Advantage for Large Construction Projects: Industrializing Project Execution to Create Value, discusses the methods and advantages of applying lean principles to construction projects.