Productivity and Innovation in Construction

What is the reality of Canada’s construction industry? Is it constantly innovating and becoming more productive, making use of new technology and bettering its practices? Or is it resting on its laurels, perpetuating the status quo and simply reaping the rewards of strong demand? A couple of recent reports on the issue of productivity in the construction industry paint very different pictures. Let’s look at the views of both reports – that Canada is a productivity success story, and that construction’s global productivity is in a sorry state.

Two articles; two views

In its article, Constant innovation is key to productivity, the fall 2017 issue of Buildforce Canada magazine reports that industry is working hard to boost “…Canada’s already well-deserved reputation for productivity and innovation within the construction industry.” Buildforce asserts Canada implements “pioneering knowledge” of best practices such as “seeking out those processes and technologies that best ensure safety, keep quality high, and bring costs down.” The report says, “The Canadian construction industry has begun to increase its investment in innovative practices and establishing systems that foster innovative ideas and improvements.” However, no evidence or examples in the article back up these comments.

What Buildforce does offer is that the power to innovate comes from a corporate culture “that will allow it (the company) the freedom to generate the ideas that enable it to improve over time.” To improve value and be cost competitive, a company needs to “objectively measure its skills and capacity for innovation, and then give its workforce a tangible method and the tools for instilling innovation into its systems and processes,” the article asserts. “Innovation drives productivity because refining techniques and processes results in improvements.”

Contrast this optimistic Canadian view with a recent study conducted by McKinsey Global Institute (MGI) and reported in the August 19-25, 2017 Economist magazine feature, Construction: How to build more efficiently. The Economist article tells us: “The construction sector is one of the largest in the world economy, with about $10 trillion spent on construction-related goods and services every year. However, the industry’s productivity has trailed that of other sectors for decades, and there is a $1.6 trillion opportunity to close the gap.” In fact globally, the article continues, construction sector labor-productivity growth averaged 1 percent a year over the past two decades, compared with 2.8 percent for the total world economy and 3.6 percent for manufacturing.

Opportunity exists for innovators

MGI claims since 1945, US productivity in manufacturing, retail, and agriculture has grown by as much as 1,500 percent, but productivity in construction has barely increased at all. Without a huge change, the global need for infrastructure and housing will be hard to meet. But if the industry does rise to the challenge and approach other sectors’ productivity levels, the industry’s growth could be immense.

The reasons given for poor performance are many and familiar: poor project management, insufficient skills, inadequate design processes, and underinvestment in skills development, R&D, and innovation.

What changes need to happen to increase productivity?

The MGI study examined innovative firms and regions and concludes that, by acting in seven areas simultaneously, construction could boost productivity by 50 to 60 percent. The construction industry needs to: 1) reshape regulation; 2) rewire the contractual framework to reshape industry dynamics; 3) rethink design and engineering processes; 4) improve procurement and supply-chain management; 5) improve on-site execution; 6) infuse digital technology, new materials, and advanced automation; 7) and reskill the workforce.

It seems to me that in order to act on any of these areas, innovation will be necessary. Few reading this will likely disagree with any of the seven suggested actions, but the questions remain, how to innovate and where to begin?

MGI suggests: “Many barriers to higher productivity and ways of overcoming them have been known for some time, but the industry has been in deadlock. Most individual players lack both the incentives and the scale to change the system.”

New resources needed for innovation

Where do today’s players find the resources needed for R&D and innovation? Assuming we are all aware of the barriers for change, we should also be aware that there are forces lowering those barriers, and those are as MGI suggests, “…rising requirements and demand in terms of volume, cost, and quality; larger-scale players and more transparent markets, and disruptive new entrants; more readily available new technologies, materials, and processes; and the increasing cost of labor with partial restrictions on migrant workers.”

In summary, industry is being told that construction productivity must improve and that there is huge opportunity in making these improvements. We are also being told that the key to improved opportunity is innovation and that innovation must be part of industry’s culture. The Buildforce report provides a clue to the barrier to innovation when it quotes a productivity expert: “Unfortunately, despite many reports indicating the importance of innovation for Canadian firms, there are still very few resources for those looking to implement and develop this culture.”

MGI warns that resources must be found: “Construction-sector participants should rethink their operating approaches to avoid being caught out in what could be the world’s next great productivity story.” MGI’s research has provided a pathway where the work needs to be done, challenging industry to innovate, become productive and prosper, or be caught out.

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