The Productivity Opportunity in Construction

In business, it rarely feels like a good time to take a step back and critically assess how the company is performing – especially when that means investing time and resources, or perhaps bringing in an independent voice without knowing what that voice is likely to say. We understand.

A few weeks ago we referenced a construction report by the McKinsey Global Institute called ‘The Productivity Opportunity in Construction’.This gave an interesting overview of the global industry, which is expected to be worth €8.5 trillion by 2023, and it showed that Irish design and build specialists are leading the way in a number of emerging sectors, including logistics, pharma and data centres. What was very apparent, unfortunately, is that our domestic home building sector still lags behind global trends when it comes to embracing technology or innovating this traditional function. For many firms, lean principles were adopted over the past decade or two and any improvements since then have been reactive at best and lacking in any real impact.

At a time when risks are already high for developers and margins are still tight for main contractors, productivity initiatives beyond basic waste reduction might seem like tomorrow’s problem, but this is short-sighted.

Strategically, action in the following seven key areas can boost productivity by 50-60%: reshape regulation; rewire contracts, rethink design; improve procurement and supply chain; improve onsite execution; infuse technology and innovation, and re-skill workers.

Of these seven areas, regulation is the one that is largely outside the control of individual firms – although engagement with department public consultations and professional representative bodies is massively important. In the current marketplace of competitive tendering, contracts have less potential for negotiation than most firms will have been used to in the past. The remaining five areas can be worked on gradually by individual firms and their designers, not all at once of course. Strategic hiring is a smart way to tackle technology gaps, however, there needs to be an appetite for improvement by owner/managers. In the home building sector unlike with FDI-led construction, a building firm is unlikely to have a knowledgeable client raising the bar and demanding the highest global standards.

It is worth noting that, according to this report, the single most impactful productivity boost is to move to a manufacturing-style production system, specifically offsite and modular construction. The McKinsey findings highlighted that such an engineered approach to building can boost productivity by up to 500% – this cannot be ignored. We will be talking more about this throughout 2018 and would love to hear from traditional home builders transitioning to offsite construction.

Ian Lawlor
086 3625482

Director / Business Development
Lotus Investment Group