Population growth statistics paint a nice future for the construction industry. According to a PwC report, the global population is predicted to hit 9 billion by 2050 and two out of every three people will be living in cities by 2050. The demand for construction has never been greater. Worldwide, construction is already one of the largest industry sectors, accounting for more than 11% of global GDP and expected to grow to 13.2% by 2020.
But focusing on this strong demand conceals a more dangerous reality. Challenges in productivity, profitability, performance, labor and sustainability could derail the industry’s growth.
The construction industry is at a crossroads. Companies that address these challenges head-on and re-imagine their business processes will be ready for significant growth. Businesses that fail to take the challenges seriously, will face an uphill battle for success.
Challenge #1: Poor productivity and profitability
Currently, the barriers to entry in construction are low, creating a saturated marketplace with heavy competition. The competition is shrinking profit margins and constraining essential reinvestment in new technology and better business practices. Stagnant construction labor productivity is compounding the problem.
Why is it stagnant? According to a Construction Owners Association of America (COAA) study, 63% of direct labor time on construction projects is spent waiting for materials and equipment, traveling to the job site, taking early breaks, and planning how to do the work. This lack of productivity is reflected in the bottom line. As a result, construction companies find themselves trapped between shrinking profit margins and stagnant productivity, unable to generate the profit necessary to invest in critical technology.
Challenge #2: Project performance
The opportunities in construction are growing, but so is project complexity. With companies already operating under thin profit margins, any surprise changes in production can wipe out profits for the whole company. Design complexity only compounds the problem. As designs become larger and require greater efficiency, construction companies struggle to keep up.
According to an Accenture study, only 30% of large projects in the energy industry are delivered on budget, and only 15% of projects are completed on time. Even worse, the 2015 KPMG Global Construction Survey found that more than half of all construction companies experienced one or more underperforming projects in the previous year.
Challenge #3: Skilled labor shortages
The construction industry is bracing for a dramatic reduction in workforce. Prior to the recent recession, the U.S. construction market consisted of two generations: the traditionalists and baby boomers. Now, the workforce has split into four generations: traditionalists, baby boomers, Generation X, and millennials. This present labor diversification is a challenge because of glaring differences in work ethic, attitude, outlook, and behavior between the generations. Traditionalists are largely no longer in the workforce and the baby boomer retirement is in full swing. Then the recession drove many skilled craftsmen to leave the industry and never return. By 2020, millennials are expected to represent half of the global workforce and many of them have little to no experience or interest in the construction industry.
This combination of increasing project complexity and declining experience is a risk multiplier, increasing the risk of deliverable delays, quality construction problems, and employee safety concerns.
Challenge #4: Sustainability concerns
The construction industry is the top global consumer of raw materials. The industry generates between 25% to 40% of the world’s carbon emissions. This use of natural resources is not sustainable and could hurt the environment for the sake of growth. Climate change and water management are two environmental issues that pose a growing challenge to the construction industry. Smart planning and sustainable design could reduce energy consumption and pollution, but require a new approach to project management.
Embrace disruption and prepare for the digital future
The construction industry is at a crucial technological point, similar to the move from landline phones to mobile phones. Technology is already disrupting the industry and providing new opportunities to address the challenges of poor profitability/productivity, project performance, skilled labor shortages, and sustainability concerns. Digitization will increase productivity, eliminate waste, and mitigate the adverse impact of on-site surprises. It will change most everything, including the competitors and the barriers to entry. Construction companies must take steps now to join the digital future and stay ahead of the competition or risk being left behind.