McKinsey partner David Rockhill joined the Bricks and Bytes podcast to discuss how the digitization of the construction industry is starting to address the industry’s productivity challenge, propelled by a $50 billion wave of investment in software and technology. Here, he condenses that wide-ranging conversation into a brief discussion of why productivity growth has historically been low, some game-changing technologies, and how construction companies can make the most of the moment.
The construction industry, often perceived as slow to adapt to change, stands on the brink of a transformative leap. Innovations including AI and machine learning, generative AI (gen AI), robotics, augmented reality (AR) and virtual reality (VR) are enabling automation, more efficient design, better training, quality control, and real-time monitoring of construction sites, among other benefits. These and other technological innovations are crucial for an industry long characterized by low productivity growth.
This is important now because the world needs a productive construction industry more than ever. Annual global capex needs to rise by 20 to 30 percent to hit 2050 net zero targets, at a time when the construction industry is facing a shortage of skilled labour as professionals retire and fewer new recruits enter the industry.
Addressing the sector’s productivity challenges requires a multifaceted approach, including encouraging investments in technology that can lead to long-term productivity gains, restructuring industry practices, and fostering a culture of quality and innovation.
Crucially, there is abundant interest from external investors in construction technology. We work with private equity firms that are looking for construction tech companies and help them exit companies when they're ready for the next stage of growth. The excitement is understandable: This is among the biggest industries in the world—at roughly $12 trillion—and one of the least digitized. External investment can provide the necessary capital and resources for innovative technologies that promise to enhance productivity.
One of the most optimism-inspiring areas of innovation is in AI and gen AI, which have many applications for construction productivity. AI has changed the way companies approach design. It has applications for managing workforces on site, which is especially important for getting maximum productivity out of a limited skilled-labor workforce. Gen AI can reduce the cost of creating software, which could mean that engineering firms will start to develop their own custom-tailored software.
In an example of how these advances can lead to productivity gains, a Nordic construction company implemented a system where an AI tool analyzed the production of concrete panels, identifying defects before the panels were shipped to construction sites. The early detection system allowed for corrections at the manufacturing stage, drastically reducing the incidence of defects and, consequently, of costly and time-consuming rework at construction sites.
Robotics are also gaining traction, for example in autonomous vehicles used in mining, excavation, and road construction. While there is some hesitation about the cost-effectiveness and practical deployment of direct construction robots, interest is notably high due to the acute shortage of skilled laborers, such as bricklayers.
VR can simulate construction environments and scenarios, offering a safe and controlled space for training construction workers. A company could train thousands of construction workers on details much more efficiently using this technology. Moreover, the integration of VR with digital twins—virtual replicas of physical entities—allows for detailed planning and troubleshooting before the actual construction begins.
Embedding new technology into the workflows and processes of a construction entity often requires a deep corporate rewiring. Step one, the CEO and their team has to be behind it. That may sound obvious, but sometimes the strategy and innovation teams within companies are not aligned and that has to change. Tech innovation needs to be core to the business for it to be a success.
Once that’s in place, the technology stack needs to be the priority. It’s important that the engineering, commercial, and IT teams don’t all go off and grab their own tools and tech. Success comes when they develop the tech and processes together.
Data is what feeds the tech stack, so companies need to make sure they have access to the right data and the right data platforms. When it comes to data, some companies let the perfect be the enemy of the good. We think it’s more advisable for companies to make initial changes using the data they have, and then use the outcomes to figure out what improvements are required.
Adoption and scaling is the next step. Companies need to be smart about how they’re building capabilities and also how they are incentivizing their people. What are the incentives within personal development plans and maybe also within salary structure? People need incentives to adopt new ways of working or even to propose new ways of working, and to be flexible.
Finally, companies can benefit from a modern approach to talent and leadership in this industry. Construction companies need to make sure there is the same kind of career pathway for digital talent as there is for engineering talent. Here’s a way to measure that: Could a technology leader rise to a similar position within the business that an engineering leader could? That may sound radical to some in the industry, but in today’s world, digital talent can be as core to a construction business as engineering talent has always been.