Why construction productivity growth is lagging – and what can be done about it

On the one hand, the prospects for the construction industry are bright. With the The global middle class is growing rapidly and the need for infrastructure of all kinds, construction spending could reach $22 trillion by 2040, up from $13 trillion last year.

On the other hand, this potential will remain unfulfilled if the industry does not move forward. For one thing, the country needs to almost double its growth rate (outside China) from 1.3% to 2.7%. On the other hand, there isn't just one already Shortage of skilled workers in many markets, but a large cohort of workers are nearing retirement. In the United States the number of Vacancies in the construction industry have doubled between 2017 and 2023.

Finally, and perhaps most importantly: Productivity growth was low. Of course, some individual companies have done well. However, the fact is that global construction productivity improved by only 10% from 2000 to 2022, i.e. only a fifth of the rate of the overall economy.

The situation is even worse in advanced economies such as Europe and the United States. with declining productivity since 2000, also as Costs have risen faster than inflation. All told, construction production could lag demand by a total of $40 trillion by 2040.

1% per year

That's the problem, and if it were easy to solve, that would have been it. But that doesn't mean it's insoluble. If the industry could close its workforce gaps while increasing productivity by 1% per year, it could go a long way toward addressing the looming $40 trillion deficit.

Those are big ifs. But the solutions lie largely in the industry's own hands. The lack of standardization in building design, including the slow adoption of the use of modular componentsfor example, has been a known problem for years. Less than 4% of the current US housing stock and 15% in Japan were built using modular techniques.

3 possible solutions

Here are three steps construction companies can take to increase their productivity.

Take advantage of continuing education. Companies are often willing to accept less skilled or less experienced workers to get the job done. Such stopgaps have their place, but they are not a talent strategy.

Research on the effects of temporary work shows that temporary work has a negative impact on productivity. The industry needs to strengthen skills building. In addition, it can better help create attractive career paths for potential workers and promote the mobility of current workers.

Examples of this include technology-supported learning trips, training courses and project academies. Partnerships with universities, community colleges and high schools could make young men and women more aware of the possibilities of a career in construction while helping them develop the skills they need to succeed. Ultimately, despite the labor shortage, there are also many people who are not employed at all. Companies may want to Consider overlooked talent sources.

Cultivate a supplier ecosystem. Supplier ecosystems can promote stability so that owners and partners operate in a transparent, credible and stable manner. Based on this, construction companies can accelerate learning and improve the way they work. Instilling such habits in an ecosystem can build trust and promote positive change. Typically, owners enter into these partnerships. It is important that they model the desired way of working.

Reform project management. The traditional Project delivery model is characterized by a lack of integrated systems thinking, prioritization of short-term cost management over long-term results, poor communication, rigid planning systems and tight budgets. All of this discourages managers from trying new things that could benefit future projects.

One way to address the problem is for project teams to follow manufacturing's lead and shift their focus to production rate metrics such as meters welded, volume excavated, and drawings reviewed. This would allow teams to be more experimental while identifying small problems before they become big ones.

Another option is to work with project sponsors, including governments, to spread risk, particularly on complex projects and particularly where delays are clearly due to matters outside their remit, such as: B. the discovery of archaeological remains, the protection of endangered species or delays in approval. Predictability of outcomes could be a powerful, albeit indirect, way to increase productivity in the long term.

The construction sector accounts for about 7% of global GDP 8% of employment. The effects of his troubles spread far and wide. If the sector fails to address its labor and productivity challenges and falls short of $40 trillion by 2040, it will mean fewer homes and hospitals, less transportation, slower growth, and under-investment in climate-efficient infrastructure of all kinds. Not to mention a worse quality of life.

For a traditional, capital-intensive industry like construction, change is neither easy nor quick. The point, however, is that it is urgent for companies to get started, in their own interest and in the interest of the societies they serve.