Construction remains the world’s largest industry, with $10.5 trillion in value representing 13% of global GDP. Despite the ongoing supply chain disruptions, labor shortages and broader economic headwinds challenging nearly every industry, the global construction segment is projected to grow steadily over the next five to ten years. Simple demand will drive the bulk of this growth, as Deloitte estimates that sum of all global infrastructure today represents just 25% of the infrastructure that will be needed to support the world population by 2050.
Yet, other vital signs in the construction segment look less healthy. The industry remains plagued by productivity issues, cost overruns, high risks and comparatively small margins. While productivity grew nearly 3% for the global economy over the last two decades — and a whopping 3.6% in manufacturing — productivity has grown just 1% in construction over the same period. Projects in construction take 20% longer to finish, and the segment averages 33% less value added, when compared to the global economy. These stunted figures all add up to earnings before interest and taxes (EBIT) stagnating around 3-5%, according to a 2020 McKinsey report.
Construction industry ripe for digital disruption
Engineering and construction (E&C) companies have traditionally accepted this volatility as a result of the inherent complexity of jobs: Construction projects bring together contractors, suppliers, equipment, labor, and global supply chains that are more precarious than ever. But one root problem is that most E&C companies are still trying to juggle this high level of complexity with a relatively low level of technology adoption. The construction industry lags far behind nearly all others in digitization, spending less than 2% of revenue on Information Technology (IT) and less than 1% on innovation, research and development, according to McKinsey research.
These conditions make the construction industry ripe for the digital disruption that has already transformed many other sectors. McKinsey estimates that surging tech adoption in the construction segment will improve overall productivity in the industry by 50-60%, generating $1.6 trillion annually in incremental global value.
Accelerated by the growing pressures and market forces that have emerged out of the pandemic period — unprecedented labor shortages, inflating materials costs, persistent supply chain volatility — forward-thinking E&C companies are investing in digital transformation as the foundation of their future competitive advantage. They’re creating connected construction ecosystems that leverage the proliferation of IoT devices and integrated sensors with sophisticated AI-powered analytics to gain real-time visibility, resolve complexities and harness insights to drive productivity and performance across their business operations.
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