Blog

6 Years Later: Revisiting McKinsey’s “Imagining construction’s digital future”

6 Years Later: Revisiting McKinsey’s “Imagining construction’s digital future”

October 7, 2022

This is a guest article from Milwaukee Tool.

In the summer of 2016, McKinsey & Company released an article, “Imagining construction’s digital future,” 1 which would prove influential in years following to anyone looking to understand how the industry, “among the least digitized” (according to McKinsey Global Institute’s digitization index), might be disrupted with construction technology and automation via the “5 big ideas” outlined therein.

We’ll discuss those ideas in this article, contextualizing where McKinsey viewed the construction industry to be in terms of digitization some 6 years ago—and we’ll provide a current-day check-in to see where the industry has come in its digital transformation.

2015 McKinsey Industry Digitization Index: A sobering reality back then

“The construction industry is ripe for disruption,” began the McKinsey authors in their 2016 article summarizing the digitization index they’d conducted a year prior. “Large projects across asset classes typically take 20 percent longer to finish than scheduled,” while on average these projects they spoke of could result in construction cost overruns, 2 “up to 80 percent over budget.”

The reality of where the construction stacked up when compared to other business sectors in terms of digitization (and the affected productivity implications) sent a sobering message to construction owners and thought leaders across the industry.

Construction productivity was in decline in some markets since the 1990s, the McKinsey authors explained.

imagining construction's digital future

 

Compounded, they explained, the construction sector has not only been historically slow to adopt process and technology innovation, but also, simple process improvements (through technology and digitization adoption) that could have a tremendous impact on productivity remained, nonetheless, adopted in small supply. That is to say, the industry has for years relied on outdated, manual processes “often done on paper,” which leave critical project planning “uncoordinated between the office between the field.”

“The industry has not yet embraced new digital technologies that need up-front investment, even if the long-term benefits are significant,” they explained, with “R&D spending […] well behind that of other industries: less than 1 percent of revenues, versus 3.5 to 4.5 percent for the auto and aerospace sectors;” furthermore, there was meager spending in “information technology, which accounts for less than 1 percent of revenues for construction, even though a number of new software solutions have been developed for the industry.”

Despite the seemingly insurmountable, “Technological challenges” that McKinsey raised were looming over the construction industry, beyond the doom and gloom, McKinsey outlined “five ways the industry can transform itself over the next five years” (which we’ll discuss in more detail in the next section).

So, now, 6 years on, how has the industry fared? Have we taken McKinsey’s call to arms and used those “five big ideas” to execute on considerable improvement with how projects are done?

Disrupting construction: Five big ideas and how the industry stacks up, 6 years on

McKinsey outlined the following “five ideas […] grounded in innovations that are applicable to the construction sector”:

  1. Higher definition surveying and geolocation
  2. Next-generation 5-D building information modeling
  3. Digital collaboration and mobility
  4. The Internet of Things and advanced analytics
  5. Future-proof design and construction

Let’s dive in deeper and see how we’ve fared since then.

Higher definition surveying and geolocation

McKinsey’s big idea in 2016:

“Geological surprises are a major reason that projects that projects go over budget,” McKinsey explained, and therefore “New techniques [are needed] that integrate high-definition photography, 3-D laser scanning, and geographic information systems.”

Technologies they highlight include:

  • LiDAR, they explain, “represents an evolution in surveying” providing “optical lasers to detect thousands of points per second, with native 3-D output. LiDAR can be used for QA purposes, saving companies from expensive rework.
  • Construction drones can add “mobility,” deployed in tandem with LiDAR systems, allowing for “rapid digital mapping and estimating.”

Where we stand today:

A recent global study 3 estimates the LiDAR market to grow by $15 billion by 2030, surging by an estimated 30% growth rate.

Just last month, in fact, a digital twin company Matterport launched a high-precision LiDAR camera 4

“Today marks a pivotal breakthrough in 3D technology,” Matterport chairman and chief executive officer RJ Pittman said, noting that “digital twins have reduced project times by 30% and cut travel expenses by up to 50% through such solutions.”

While full adoption of LiDAR technology may be a point of intimidation for many, those trailblazers at the forefront of the industry will continue to use the technology, and improve it such that perhaps, one day, the use of it to prepare for construction projects will be far more normalized.

Next-generation 5-D building information modeling

McKinsey’s big idea in 2016:

McKinsey in 2016 wrote that the construction industry has “yet to adopt an integrated platform that spans project planning, design, construction, operations, and maintenance,” implying the imperative of software interoperability and asserting that the,

Next-generation 5-D BIM is a five-dimensional representation of the physical and functional characteristics of a project. It also considers a project’s cost and schedule in addition to the standard spatial design parameters in 3-D […] project planners can visualize and estimate the impact of a prospected change in design and project costs and schedule.

Where we stand today:

3D modeling remained an emerging trend this year, with BIM usage among those reported in JBKnowledge’s 10th Annual ConTech Report 5 remaining steady for the past 5 years. How it’s rolled into other technologies like GIS, or synchronizes with other key project data, like asset management, remains the problem to solve.

The digital twin concept McKinsey discussed in 2016 is one that industry leaders are coming together to solve, such as how to better connect and synchronize design, inventory logistics, payment processing, reality capture (like LiDAR), trade contractor prequalification, and more.

Further, Oracle Lab is delivering immersive experiences that allow industry leaders to partner with end users to develop, test, and validate technology and deliver real value that advances the industry.

Digital collaboration and mobility

McKinsey’s big idea in 2016:

“Process digitization means moving away from paper toward online, real-time sharing of information of information,” the McKinsey authors wrote in 2016, elaborating, “to ensure transparency and collaboration, timely progress and risk assessment, quality control, and, eventually, better and more reliable outcomes.”

Some of the ideas they projected included:

  • Design management
  • Scheduling
  • Materials management
  • Crew tracking
  • Quality control
  • Contract management
  • Performance management
  • Document management

Where we stand today:

Continued venture capital-backing has facilitated a wide variety of cloud-based, construction management apps to thrive.

Software interoperability and creating data hubs—i.e., whether one team’s cloud-based app place nicely with another team’s—remain the problems to solve. However, if we take a look at the robust app marketplaces of major construction software providers, like Procore® and Autodesk Construction Cloud®, it’s refreshing to see continued resources dedicated to creating integrations that make complicated workflows a little more streamlined, and equally exciting to imagine these commitments cascading through the industry. Companies like Ryvit, furthermore, provide integration solutions that help do the heavy lifting and ensure companies’ tech stacks are more streamlined.

The Internet of Things and advanced analytics

McKinsey’s big idea in 2016:

In 2016, McKinsey wrote that construction sites “generate vast amounts of data, the majority of which is not even captured, let alone measured and processed.”

The Internet of Things, they elaborate, is “a reality in many other sectors; sensors and wireless technologies enable equipment and assets to become ‘intelligent’ by connecting them to one another.”

They listed the following “several potential uses” of IoT and advanced analytics:

Equipment monitoring and repair. Advanced sensors can enable machinery to detect and communicate maintenance requirements, send automated alerts for preventive maintenance, and compile usage and maintenance data.

Inventory management and ordering. Connected systems can forecast and alert site managers when stocks are running short and when orders need to be made. NFC tagging and tracking of materials can also pinpoint their location and movement and help reconcile physical and electronic inventory.

Quality assessment. “Smart structures” that use vibration sensors to test the strength and reliability of a structure during the construction stage can detect deficiencies and then correct them early.

Energy efficiency. Sensors that monitor ambient conditions and fuel consumption for assets and equipment can foster on-site energy efficiency.

Safety. Wearable bands can send alerts if drivers and operators are falling asleep or if a vehicle or asset is stationary or nonoperational for a given window of time during shift hours.

Where we stand today:

Many of the prophesized technologies above, particularly about smart tools and digitizing inventory management, exist today. At Milwaukee® Tool, in addition to our engineers incorporating advanced machine learning and AI algorithms into our power tools to help protect users against dangerous events like kickback, we’ve rolled preventive maintenance features like those discussed above into the One-Key app, alerting users before their tools are due for service; further, utilization data can be pulled from tools like our digital torque wrench, and users can take advantage of advanced reporting functionality for QA/QC purposes.

Similarly, just as the Bluetooth tag market has rapidly changed since 2017, we’ve rolled advanced features like NFC and a built-in accelerometer into our next-gen tracking tag, which provide easier activation and a richer contextual history of where items were last used.

Furthermore, smart buildings are beginning to come on the scene, like the National Grid which “demonstrates how people counting sensors were used to provide reports on occupancy levels.” 6

Sustainable HVAC solutions like smart thermostats have also helped consumers save between 15 and 23% on their energy bills.

Lastly, heavy duty smart watches (like Garmin’s Instinct Solar) do exist to deliver pertinent health data and prevent exertion; however, more compelling construction wearables have started to develop, such as exoskeletons that can help enhance worker performance while dramatically increasing their heath and safety; smart boots like SolePower which measure user fatigue, provide emergency alerts (such as in the event of a fall), increase workflow transparency, and prevent struck-by incidents; smart hard hats that help reduce the risk of traumatic brain injuries, detect fatigue to signal when it’s time to take a break, provide proximity sensing to prevent accidents, and incorporate IoT data to drive insights; and smart AR goggles which can be used for everything from data visualization and multi-tasking to creating real-time training materials.

Future-proof design and construction

McKinsey’s big idea in 2016:

Finally, McKinsey urged the industry to adopt “New building materials, such self-healing concrete, aerogels, and nanomaterials, as well as innovative construction approaches, such as 3-D printing and preassembled modules, can lower costs and speed up construction while improving quality and safety.”

Where we stand today:

Sustainable construction and offsite construction methods remain top of mind:

  • Sustainable building materials like green concrete have emerged, while more eco-friendly construction equipment have begun to replace historically gas-reliant, emissions rich equipment with battery-powered generators and battery-powered jackhammers, to name a couple.
  • Furthermore, according to the ConTech Report, construction companies are innovating with:
    • Hardware technology (e.g., construction robots accounting for 32.1%, 3D scanners accounting for 28.8%, RFID and other equipment tagging devices accounting for 24.8%, virtual reality goggles accounting for 12.2%, and augmented reality devices accounting for 10.3%).
    • Prefabrication was considered by 46.7% as what they viewed as giving their company a strategic advantage.

Bottom Line

We’ve come a long way since McKinsey’s seminal 2016 article that pegged the construction industry as the 2nd to last digitized industry.

Where do we stand today? Certainly, more digitization is available; getting construction owners to have their teams adopt cloud-based solutions is of course top priority; furthermore, while construction revenue spending on IT has remained basically consistent, JBKnowledge reports, they note that “Construction companies that prioritize IT spending can recoup expenses relatively quickly,” elaborating, “Many contractors see double-digits in profit increase because of their investment in technology.”

But owners shouldn’t bear the brunt of the responsibility in leading the digitization charge; we in construction app development need to band together and work alongside construction owners and contractors alike to create data hubs that help us make better sense of the big data in front of us.

After all, even the largest tech companies haven’t fully figured out the interoperability problem. But we can start to figure it out together.


About the author

Lucas Marshall serves as a Content Marketing Manager for Milwaukee® Tool, where he and his team are responsible for raising awareness about the company’s SaaS platform, ONE-KEY™, and educating its users on inventory best practices through how-to articles, tutorial videos, interactive training materials, and more.

  1. Imagining construction’s digital future. (2016, June 24). McKinsey & Company. 
  2. Construction project cost overruns: 7 examples. (2020, October 20). ONE-KEY™ Blog: Construction Industry News, Trends, Insights. 
  3. Global Market Insights. (2022, September 21). LiDAR market revenue to value $15 Bn by 2030, says global market insights GlobeNewswire News Room.
  4. Matterport launches Pro3 camera from: Matterport. (2022, September 21). For Construction Pros.
  5. ConTech Report
  6. What is a smart building? (n.d.). The Occupancy Monitoring Solution | Measure Space Utilization | Irisys True Occupancy.