Low productivity in engineering and construction firms

Source: Beating the low-productivity trap: How to transform construction operations

This is a great article from McKinsey highlighting the relative poor performance of engineering and construction firms versus other sectors. Key take-aways are:

  • Engineering and construction firms are professional services organisations that use their distinctive know-how to provide specialised forms of business support to clients, from the initial idea to execution.
  • To improve margins the focus should be on profitability rather than on utilisation
  • Clients are looking for higher-quality and more cost-efficient solutions grounded on more productive technologies and methods. Engineering and construction companies able to bring such value-enhancing solutions to clients will likely enjoy better margins
  • Internal challenges leading to sluggish innovation and reluctance to change:
    • Shortfalls in accountability primarily due to unclear organisational structures
    • Talent management focused on hiring experienced engineers rather than looking for talent from other sectors
    • Reinventing the wheel with many functions being risk averse and reluctant to share best practices
    • Failure to adapt to new technology with most companies reliant on legacy systems
    • Problems utilising resources due to internal silos
  • External challenges
    • Fragmented value chains with differing priorities
    • Extensive subcontracting with unreasonable risk allocation and lack of incentives to improve ways of working
    • Complex portfolios with international expansion and different business environments and partners making it difficult to standardise
    • Competitive pressure, increasing legislation and projects subject to constant comment making steady improvement difficult and transformational change almost impossible
    • Coping with complexity with bigger projects and more demanding clients

To boost margins and productivity, McKinsey recommends:

  • Articulate a clear set of values and targets. There should be hard metrics such as cost efficiency and productivity but also cultural based and employee-commitment metrics
  • Build a development program for project managers to promote excellence and encourage constant improvement. The curriculum should include:
    • Project planning
    • Contracting strategy
    • Performance management
    • Change-order management
    • Project risk management
    • Contract Maangement
  • Create an integrated data system that shows the most important project metrics so that managers can track estimates
  • Encourage speedy risk mitigation and decision making. The goal is to manage the overall risk profile of the organisation.
  • Make project delivery teams more accountable
  • Standardise systems and practices. Designers learn to optimise for loads and stress, project managers must add cost efficiency to the list of priorities
  • Create an integrated and transparent performance management system with the budgeting process incorporating an awareness of risks
  • Minimise the number of changes using a stage-gate process based on:
    • Strengthen the business case
    • Study the owner’s designs
    • Implement ‘cold eye’ and constructability reviews
    • Establish a post-mortem process