From electrified highways to supertall towers, our built environment is changing dramatically. Developing the necessary assets to provide housing, generate energy, and support mobility for growing populations requires some of the world's most creative thinking.
The construction industry has made great strides forward in recent years, but challenges remain and new ones are emerging. Globally, an annual infrastructure investment of $3.9tr will be required until 2035 to keep pace with projected growth and bridge existing funding gaps. Construction productivity remains low, costing the global economy $1.6tr a year, but projects are becoming larger and more complex, further complicating efficient project delivery.
McKinsey & Company established the Global Infrastructure Initiative (GII) in 2012 to help identify and scale innovative ideas across the global value chain, with the hope of sharing and pooling expertise to solve what seem to be intractable issues. At our recent GII summit in London, 200 senior leaders gathered to reflect on progress and outline a path through the challenges ahead.
Three major imperatives emerged:
While digitising infrastructure projects has been an ongoing discussion, participants agreed that the industry has reached a turning point, with increasing evidence that professionals are taking digital opportunity seriously (see Figure 1).
Three primary catalysts for this change were identified as:
Despite growing momentum, the consensus is that there is significant room for improving current processes, tools, capabilities and operations. There are a number of significant benefits to be had from large-scale digitisation, but successful digital transformation will require examining the whole project lifecycle from an end-to-end perspective.
There is, for example, much excitement around the theme of modular construction, which has demonstrated both cost and time benefits for productivity. However, to realise the full potential of this method, the industry will require a new operating model that incorporates prefabrication and modular components; technologies such as 3D printing; and collaborative contracts that not only accommodate but incentivise this type of approach. The construction industry needs to adopt standardised, interoperable modules that work across asset classes while maintaining the ability to customise projects based on the requirements of the end users.
Automation and analytics present additional opportunities throughout the project lifecycle. For instance, these tools can provide close to real-time progress updates through automated feeds, allowing pre-emptive identification of any performance issues. Analytics can also improve site selection and ensure that project design can meet accurate estimates of future capacity and service needs.
The opportunities are huge, but success will only come when all stakeholders – including regulators, project owners, engineers and contractors, technology providers, and suppliers – can collectively align and agree on a new way of working.
Participants at the GII summit identified two specific action points to help the industry work together:
The future of engineering and construction may be focused on unlocking the potential of digitisation, which will also require rethinking relationships across the supply chain. Within traditional frameworks, contractors often carry disproportionate levels of risk, leaving little room to pilot new technologies that, over time, could substantially improve project outcomes. Incentives are misaligned – and, ultimately, innovation suffers.
More collaborative contracting models can help align all stakeholders with shared levels of risk, clear expectations, and real incentives for collective problem-solving. Such models will be critical in reconfiguring supply chain and project dynamics to encourage innovative approaches, for example modularisation.
Although the value of stakeholder collaboration has been recognised for some time, its success in practice has been limited. Some mining, oil and gas, and private healthcare projects have presented promising examples of collaboration, however, the public sector has found this to be more challenging.
With this in mind, GII summit participants agreed that monetary-only attempts at collaborative contracting will not work. In addition to financial incentives, all parties involved must engage in transparent conversation that sets challenging yet realistic objectives and establishes what a win really looks like.
Progress will only be incremental if collaborative contracts are approached on a project-by-project basis. GII participants emphasised the need to standardise approaches across projects and sectors.
The infrastructure industry is facing labour shortages, a skills gap and an ageing workforce. The successful transformation of these organisations and their construction projects will be reliant on a pipeline of talented, diverse project leaders. Apprenticeships, mentorship and training and development investment can all play a significant part in fostering the next generation of leaders.
To nurture the best and brightest talent, these leadership development programmes must be inclusively diverse. In the USA, women hold only 14 per cent of executive management positions in transportation, logistics and infrastructure organisations. Two ways to achieve a more diverse workforce are by setting diversity targets, and demanding the same of one's supply chain, and ensuring fair hiring and good promotional practices.
The new processes and systems created by technology across all industries will demand new skills and, in many cases, entirely new roles. Rather than resulting in job cuts, instead technologies can often signal a change in job description. For example, the digitisation of core engineering There are significant benefits to be had from large-scale digitisation but successful digital transformation will require examining the project lifecycle from an end-to-end perspectivetasks means that engineers can spend more time anticipating and mitigating issues rather than addressing unexpected ones.
Hence, engineers may need to move from being discipline specialists to project integrators. Business leaders can no longer think about digital talent as sitting only in the IT function; it must be integrated throughout the project teams.
To this end, the infrastructure industry now needs to compete with the technology industry when it comes to recruiting talent. Articulating the societal and economic benefits of infrastructure can help to build a compelling case in attracting younger and digitally aware professionals. As one summit participant explained: 'You don't need a hundred [data scientists]; one two or three could make a huge difference to your business.'
However, the skills in demand are not just data science or programming skills; project leaders need to be more than just good engineers – they need to be strong leaders. With the requisite leadership training and resources needed to inspire their teams, project leaders can play a key role in nourishing culture and building trust among all project stakeholders.
These capabilities are not to be underestimated, yet they rarely receive the attention they deserve. While all GII survey respondents who have undertaken digital transformation have focused on processes and systems, only 36 per cent of respondents also focused on talent management and just 27 per cent on corporate culture. Without prioritising the right organisational talent and structures, even the most promising digital initiatives are unlikely to succeed.
These initiatives will be challenging, but the need for more efficient, productive infrastructure is more acute than ever. However, we need to change the definition of a successful project. Today, the industry defines this as a project that comes in on time and under budget. Likewise, a project that is late or over budget is deemed unsuccessful. While these are both essential criteria, this simplistic lens at times loses sight of the benefits an asset will provide. For example, a ten-year project that is delayed by one year often faces intense scrutiny; but we rarely celebrate when that same project halves commute times and lowers air-polluting emissions.
Projects frequently lack a short, crisp articulation of objectives, including environmental, social and economic outcomes. By focusing solely on cost and schedule implications during the design and construction stages, project owners risk making decisions that do not deliver on these outcomes, so the projects true benefits are overlooked and underdelivered.
Additionally, the long-term nature of major projects often means that original concepts can be outdated by the time a project reaches the commissioning stage.
Analysing planning processes, designing and building flexible assets that can serve multiple uses and identifying diverse revenue streams will all be critical factors in ensuring infrastructure projects deliver their intended benefits over the long term.
The next generation of leaders – by embracing digitisation, collaboration and talent management – is set to transform the planning, financing, building and operation of critical infrastructure. Progress, however, will only be achieved with action from all stakeholders.
Steffen Fuchs, Tony Hansen, Tim McManus and Holly Skillin are senior partner, director of the Global Infrastructure Initiative, vice-president of major projects and head of external relations for capital projects and infrastructure at McKinsey & Company globalinfrastructureinitiative.com