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Behind the insights: Two partners talk about our new construction research

Behind the nine shifts we expect to radically change the industry.

As people from some parts of the world begin to return to physical places, including employees to work and children to school, the need for the right infrastructure is more important than ever. And with construction taking the prize as the world’s largest economic ecosystem—worth some $13 trillion annually—it’s no surprise that many efforts to kickstart economies for the next normal are being shaped by public policies that focus on investment in infrastructure projects.

To understand the industry and its challenges, we sat down with two authors of our new research, The next normal in construction: How disruption is reshaping the world’s largest ecosystem. Jan Mischke is a partner with MGI, and leads its work on infrastructure, construction, and real estate globally. Maria João Ribeirinho is a partner and leads our work in the engineering and construction sector.

Jan and Maria
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Why did we want to pursue this research?

Maria: Transformation in construction is long overdue. Its productivity and profitability lag behind comparable industries such as agriculture and car manufacturing, resulting in projects that are long and costly. In 2017 we talked about the need for action—for organizations to digitize the value chain and answer global needs for housing and infrastructure.

Fast-forward three years and it seems that change is beginning, and because of COVID-19, the construction industry is accelerating its transformation. Players are learning through necessity that remote collaboration can be effective and that modular approaches can help solve challenges resulting from supply chain disruption and requirements for physical distancing. And, their agility could pay dividends—for organizations that can act quickly, there is an opportunity to capture a share of a new $265 billion annual profit pool.

What should organizations do to capture that opportunity?

Jan: A set of nine shifts are radically changing construction projects. They’re a combination of sustainability requirements, cost pressure, skills scarcity, new materials, industrial approaches, digitalization, and a new breed of players such as digitally-focused start-ups, incumbents moving into new areas, and those backed by investment-fund capital. Productization and specialization will drive the shifts—for example, a focus on hotels, offices, or housing, creating customer-focused brands.

Maria: We should also talk about modular construction. It’s becoming popular for residential and commercial projects, shedding preconceptions about poor quality. It offers cost-effective repeatable solutions, with the benefit of learning from past projects. And it’s very much enabled by the application of digital tools and analytics, from intelligent design to sensors that monitor and improve building performance.


We began this research before COVID-19. How has the pandemic affected our findings?

Maria: When we began our research in late 2019, more than 75 percent of respondents agreed that the nine shifts were likely to occur, and more than 60 percent expected them within five years. We knew COVID-19 would affect sentiment with projects being potentially paused or canceled, and so we followed up to see what changed. Not only did two-thirds believe that it would accelerate transformation, but half have already raised investment towards enabling it.

What is the role of public policy in this discussion?

Jan: There is a strong role for public policy to play in improving performance in the industry—and as many governments design stimulus packages that include construction, this might be the right time to step ahead. A shift in the industry could raise labor productivity as much as 60 percent, translating into more affordable housing and higher-quality infrastructure, as well as higher wages at a time when they are badly needed.

Governments can help facilitate the transition. As typically the largest spender on structural works, they can change procurement requirements to favor or mandate investment in modern methods of construction or standardized building codes that allow for better scale and repetition. Governments can also develop a pipeline of projects that would allow companies to compete on cross-project innovation and scale, rather than starting every project from scratch.

Any closing thoughts?

Maria: In some ways the pandemic has refocused people's attention on the environment. And, finally, this might be the time to get more serious about sustainability commitments and shift the industry. The global conversation about climate change is putting increasing pressure on the industry to reduce carbon emissions, and policymakers have an opportunity to set firm sustainability requirements in construction as part of any stimulus packages they may be launching.

Jan: One final point: As the construction industry moves into the next normal, all participants in the industry should act quickly—history tells us that during a downturn, organizations that act quickly are able to move further and faster in recovery.

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