ConstructionPro Week, Volume: 6 - Issue: 10 - 03/10/2017

MGI 2017 Construction Productivity Survey and Report - 10 Root Causes of Poor Productivity

Last week in our blog highlights, we announced the availability of a construction productivity survey by the McKinsey Global Institute (MGI).  This week we take a closer look at the survey and the 168-page report. The survey was international in scope involving more than 75 MGI employees from eight offices worldwide. In addition, the MGI staff consulted with more than 45 internationally known productivity experts, consultants, academics, economists, researchers and practitioners, including AGC’s Ken Simonson, Lean Construction Institute founders Greg Howell and Greg Ballard, productivity expert John Borcherding of the University of Texas and Stanford’s Paul Teicholz. 


MGI surveyed 5,000 construction-industry CEOs representing asset owners, engineering and construction firms, suppliers and other institutions such as construction consulting firms, academics, and industry associations. Participants were asked to rank the relative importance of root causes of low productivity, and indicate what their companies were doing to address them.


The report notes there are two basic contractor groups:

  1. Highest productivity: industrial infrastructure, civil construction and large-scale building contractors, and
  2. Lowest productivity: trade contractors.

When these larger contractor groups subcontract out work to trade contractors, the productivity of the larger contractors tends to drop.  Therefore, the report notes, efforts to improve productivity needs to be applied to both groups. 


The report finds that market failures and dynamics vary between the two groups, as follows:


“For heavy contractors, suboptimal procurement criteria by public and private owners (focused on reducing initially offered prices and offloading risk) combined with, in some cases, corruption or inexperience among buyers—particularly in the public and residential sectors—have nurtured an environment of misaligned contractual and incentive structures. This has led to hostility and change orders rather than productive and trusted collaboration.  The results of the Survey confirm this picture of lack of alignment across the industry.  For example, contractors and suppliers identified misaligned contracts as the most important root cause of low productivity, while the top root cause cited by owners was inefficient on-site execution.


Key issues for smaller specialized trade contractors and subcontractors include information asymmetries that reflect the fragmentation of this part of the construction sector, and the geographic dispersion of projects that compromise the cost transparency of projects for owners and make it more difficult for contractors to benefit from scale. Furthermore, small and specialized trade contractors offering higher-productivity solutions are held back by competition from contractors using less productive but cheaper informal labor and by regulations such as heterogeneous zoning and building codes. Many players in the industry benefit from today’s market failures, earning a substantial share of revenue and profits from change orders and claims, and reducing exposure to competition in an opaque market.”


10 root causes underlie construction’s poor productivity

The report first looks at the historical record, focusing on ten root causes that impact productivity.  Most of us believe that poor productivity stem from on-the-job management and labor issues, or what the MGI report categorizes as “firm-level operational factors.”  However, as seen from the report, these factors account for only four of the ten root causes:


      External forces

  • Increasing project and site complexities
  • Extensive regulation, land fragmentation and the cyclical nature of public investment
  • Informality and potential for corruption distort the market


      Industry Dynamics

  • Construction is opaque and highly fragmented
  • Contractual structures and incentives are misaligned
  • Bespoke or suboptimal owner requirements


      Firm-Level Operational Factors

  • Design processes and investment are inadequate
  • Poor project management and execution basics
  • Insufficiently skilled labor at frontline and supervisory levels
  • Industry underinvests in digitization, innovation, and capital


In future coverage of this report, we’ll look at some of these causes in more detail, and review the seven ways that the report recommends for addressing them, which the report claims can boost productivity by 50-60 percent.  Visit the McKinsey site here for more information or to download the complete report.




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