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The new age of

engineering and
construction technology
Capital Projects and Infrastructure July 2017

Jose Luis Blanco


Andrew Mullin
Kaustubh Pandya
Mukund Sridhar
The new age of engineering
and construction technology
New technologies are transforming all stages of the engineering and
construction process. Heres what companies need to know about
the evolving landscape.

The engineering and construction (E&C) industry preconstruction, construction, and operations
is at the cusp of a new era, with technology start- and management). These include activities such as
ups creating new applications and tools that managing performance or monitoring safety. We
are changing how companies design, plan, and then examined investment patterns to determine
execute projects. By providing advanced software, if solution providers are shifting their resources
construction-focused hardware, and analytics to different applications, since this could provide
capabilities, these innovative start-ups are hints about tools that may soon hit the market.
eliminating many of the problems that have dogged
the E&C sector for decades, including difficulties This article focuses on current and future use
compiling and sharing project information. cases related to the construction phase of projects
Such improvements could not come at a better because that is the most complex and time-
time, since construction projects are becoming consuming phase in the E&C process. As part of
increasingly complex and expensive, putting our analysis, we also reviewed data from McKinsey
managers under greater pressure to improve costs, Global Institutes Construction Productivity
timelines, and efficiency. Survey, which received responses from more than
200 senior E&C executives. The survey data helped
Many E&C companies have begun incorporating us understand common challenges that arise when
new construction technologies into their daily companies deploy and scale up digital solutions, as
activities, but most of their efforts have focused well as possible mitigation strategies.
on software tools for digital collaboration. The
reasons for this narrow focus vary, but some The technological transformation at
players hesitate to expand into any other area engineering and construction firms
because they have traditionally struggled to Construction-technology start-ups have garnered
deploy new tools at scale, limiting their impact. $10 billion in investment funding from 2011
The modest returns theyve seen to date make through early 2017. To gain a more detailed view
these companies reluctant to explore additional of this strong market and its evolution, we first
productivity-enhancing technologies, especially identified all tools and solutions that construction
those requiring substantial investment. Other technology start-ups have developed. We then
companies are simply unfamiliar with tools and determined how each tool addressed or eliminated
solutions in areas beyond digital collaboration. problems throughout the course of E&C projects
looking at both the phase in which they are used
To help E&C companies navigate the landscape and and the particular problem they solve (Exhibit 1).
develop more effective deployment strategies, we
analyzed more than 1,000 construction-software Start-ups are most likely to develop tools
start-ups and their products. First we identified and solutions for the construction phase, with
common use cases for which software tools are about 1,000 companies offering products for
being developed across all project phases (design, it. There are 11 major use cases for this phase,

2 The new age of engineering and construction technology


CDP 2017
The new age of engineering and construction technology
Exhibit 1 of 4

Exhibit 1 Construction-technology use cases span the entire project life cycle.

Design

Digital design: Assist with document control and integration as design progresses from sketches to
construction documents

Preconstruction
Estimating: Construction relationship Market intelligence: Marketplace:
Automate and management: Gather and analyze Create a platform
improve the Provide dashboard for Information gathering from for stakeholders to
accuracy of bid business-development past projects and prequalify, evaluate,
estimates pipeline competitor performance and select partners

Construction
Design Scheduling Materials Field Equipment
management management productivity management
Visualize drawings Create, assign, Identify, track, and Track crew Track and
and 3-D models and prioritize tasks locate materials deployment in manage
on site, on mobile in real time across the supply real time construction-
platforms Track progress online chain Manage project equipment fleet
Update blueprints Immediately deliver staffing across
in the field with work plan and skilled trades
markups, schedule to all workers Track on-site
annotations, and productivity at a trade
hyperlinks and worker level

Quality Contract Performance Document Safety


control management dashboard management
Inspect remote Update and track Monitor project Upload and Track and report
sites through contract-compliance progress and distribute safety incidents
pictures and checklist performance documents across the job
tags shared Update records for all Provide automated Search all projects site
through app client and contractor dashboards created across phases Alert workers
Update and track communication from field data Share information on safety
live punch lists regarding contract Generate manpower across sites procedures and
across projects to terms updates and view provide tips live
expedite project Track vendor past reports on
closure prequalification and handheld devices
liens and manage
payments

Enterprise-resource-planning systems

Operations and management


Work-order Remote Predictive Mid to small Asset management with
management monitoring of analytics for project an ongoing record of
building systems system management facility performance and
management maintenance backlog

The new age of engineering and construction technology 3


including those related to enterprise-resource- integration (Exhibit 2). We also found that many
planning systems, which are used throughout start-ups are simultaneously developing tools for
construction. By contrast, fewer than 200 multiple construction use cases in the same cluster.
companies created products for the design, Only 13 percent are developing cross-cluster tools
preconstruction, or operations and management and solutions.
CDP 2017
phases. When we looked at use cases for the
The new age of engineering and construction technology
construction phase more closely, we found On-site execution
Exhibit 2 of 4
that they fell into one of three clusters: on-site The first cluster contains use cases that relate to
execution, digital collaboration, or back-office one of the most important aspects of construction:

Exhibit 2 Technology offerings for the construction phase primarily address


use cases in three main clusters.

Offerings by use case

Enterprise-resource-
Back- planning systems Document Digital
office 200299 management collaboration
100199

Design
Equipment management
management 100199
100199

The approximate number of


companies addressing each use
case is shown within the circles
Performance
Scheduling management
0100 0100

Contract
Materials On-site management
management execution 0100
0100
Quality
Safety control
0100 Field 0100
productivity
0100

4 The new age of engineering and construction technology


on-site execution. In this area, E&C companies and artificial intelligence with other tools,
typically encounter many difficulties, ranging from including GPS and building-information
low productivity to delays in material shipments. modeling (BIM). While most tools in the
Construction-technology start-ups have tried to on-site execution cluster fall into these areas,
mitigate some of the most pressing problems by construction start-ups have also developed
developing tools and solutions that assist with the products to assist with many other on-site
following activities: activities, including supply-chain logistics.

Field productivity. Some new tools enhance Digital collaboration


field productivity by tracking crew deployment E&C stakeholdersincluding architects, engineers,
in real time, including the number of active and foremenare more numerous and widely
working hours for each team member. For dispersed than those in most other industries.
instance, some tools track employees by They need to communicate and align frequently,
analyzing data from wearable GPS devices, since certain changes, such as a seemingly
while others ask workers to enter data about minor modification to a materials order, could
their activities, location, and hours into mobile significantly increase timelines or costs if made
devices. Other field-productivity applications too late in the game. That explains why many
help companies to manage project staffing construction-technology start-ups have focused on
across skilled trades or to monitor on-site tools that promote digital collaborationthe online
productivity at the trade or worker level. With exchange of informationthroughout all E&C
one tool, for instance, foremen can immediately project phases. Some of the most compelling tools
retrieve data on actual project hours, budgeted relate to the following use cases:
hours, and remaining hours.
Design management. E&C staff often need to
Safety monitoring. Other on-site tools involve update blueprints and other project documents
safetyalways a major concern for E&C while on site. Rather than returning to the
companies. Many applications facilitate the office to complete such tasks, as these workers
tracking and reporting of safety incidents across would have done previously, they can now make
job sites; others allow managers to distribute changes in the field. For instance, one mobile
safety alerts and tips to the entire workforce. platform lets staff add markups, annotations,
and hyperlinks to blueprints.
Quality control. Some new applications
help managers inspect remote sites by Contract management. These tools help staff
providing pictures and image tags, while with many critical tasks. For instance, workers
others allow them to update and track their can use them to update contract-compliance
punch lists in real time. The use of GPS checklists or collect information about client
during projects, particularly those related and contractor communications that occur
to transportation, has already increased the when contract terms are renegotiated.
accuracy of project specifications. This, in
turn, increases efficiency and accuracy during Performance management. With these
on-site execution. In the future, leading E&C tools, managers can update and immediately
companies hope to create autonomous quality- share information (including workforce data)
control systems by combining new technologies in the field, particularly during the crucial

The new age of engineering and construction technology 5


preconstruction and construction phases. Some field productivity, with 29 percent of companies
performance dashboards can automatically developing tools for one or both of these areas. Only
import field data, simplifying the process of 8 percent were developing document-management
collecting information. tools, and few focused solely on this application.

Document management. Many start-ups are Together, these trends indicate that venture and
creating tools that let E&C companies upload investment activity centers on field productivity
documents, track changes to them, and record and site-performance managementthe two
all decisions made about their content. In some areas that McKinsey identified as needing the
cases, document-management tools can also most improvement in our report Reinventing
serve as a permanent repository, giving E&C construction through a productivity revolution.
firms easy access to past records. Tools that help with these tasks could thus
contribute substantially to the bottom line. For
Back-office integration instance, global labor-productivity growth in
Back-office integration, involving functions such construction has averaged about 1 percent annually
as accounting, finance, and human resources, can over the past two decades, compared with 3 to
help companies to access and exploit valuable 4 percent across other sectors. If E&C companies
project data on finances, costs, and schedules. can close this gappartly by using new tools and
All too often, however, analysts fail to mine this solutionsthe industrys output would increase by
information because it is not easily accessible. $1.6 trillion per year.
Start-ups have developed solutionsmostly
designed from an accounting perspectivethat Our investigation also revealed that companies
give foremen and other staff members immediate are applying new hardware and software solutions
access to real-time back-office data. Some tools, for to many use cases, sometimes by forming
instance, allow general contractors to see which partnerships with large equipment manufacturers.
change orders an E&C companys customers have Consider a few examples:
approved, including those for which they have not
provided payment. Many back-office use cases Predictive analytics. Every construction
focus on scheduling, managing equipment, and firm is a giant repository of data. Start-ups
enterprise resource planning. are now taking advantage of this information
by creating new applications that can collect
Construction technologies that are thousands to billions of records from all source
gaining momentum systems. These solutions apply advanced
From 2011 through 2016, construction-technology analytics and machine learning to databoth
players received the greatest amount of investment structured and unstructuredto optimize
(from venture capital and other sources) for decision making for multiple topics, including
document-management use cases ($1.7 billion), workloads, staffing levels, and strategies for
followed by equipment management ($1.4 billion) minimizing inefficiencies.
and enterprise-resource-planning systems
(Exhibit 3). But when we restricted our analysis Project monitoring enabled by drones and the
to new companiesthose founded over the past Internet of Things (IoT). Some start-ups are
five yearswe discovered that the most popular using these technologies to improve 5-D BIM
use cases involved performance management and the process companies use to create digital

6 The new age of engineering and construction technology


CDP 2017
The new age of engineering and construction technology
Exhibit 3 of 4

Exhibit 3 Newer start-ups are most likely to invest in performance-


management and field-productivity tools.

Largest Smallest

Cluster and use case Number of Number of Total % of companies


companies investments amount founded within
invested invested last 5 years
Digital collaboration developing tools

Design management

Document management

Contract management

Performance dashboard

On-site execution

Quality control

Safety

Field productivity

Back-office

Equipment management

Operations and management

Scheduling

Materials management

Preconstruction

Enterprise-resource-planning systems

representations of physical structures and then these technologies to new areas, however. For
consider this information in combination with instance, Bechtel now uses drones for precision
cost and scheduling data. Companies most surveying, safety compliance, and other tasks.
frequently use drones to capture site images and
aerial survey data, while the IoT primarily helps Safety monitoring enabled by wearables and
with monitoring equipment and preventive virtual- or augmented-reality tools. Many
maintenance. Some companies have applied E&C companies are beginning to deploy these

The new age of engineering and construction technology 7


technologies to increase safety. For instance, programs. While these pilots typically proceed
Redpoint Positioning and Skanska use indoor smoothly, companies often encounter obstacles
GPS technology to mark hazard zones and during large-scale rollout because leaders
activate safety warnings. In the future, we ask employees to introduce new tools into
expect to see even more innovation. Virtual- work flows without explaining the benefits
reality safety walk-throughs, for example, may or providing sufficient training. On-site
become the default solution for companies that crews and foremen therefore consider the
want to assess potential hazards. tools a headquarters-driven imposition that
complicates their jobs. Frontline workers
Strategies for deploying construction may have these misconceptions because E&C
technology at E&C firms: The journey to a software programs have traditionally focused
next-generation operating model on improving back-office functions, not on-site
Although most E&C firms have already deployed productivity. In other cases, E&C companies
construction-technology software tools for struggle to move from the pilot phase to large-
multiple use cases, many fail to obtain full value scale implementation because they do not invest
from them. Even when a company successfully in training field workers, especially general
pilots a new tool, large-scale adoption may be contractors and subcontractors.
difficult or quickly lose steam. In other cases,
technology initiatives fail to produce noticeable Lack of compatibility with legacy systems. New
improvements in key performance metrics. Our technologies deliver the greatest value when they
review of data from McKinsey Global Institutes seamlessly integrate with existing enterprise
Construction Productivity Survey revealed that systems. For example, field-data-collection
three factors may be responsible for these issues: applications that automatically connect to
cost systems can provide real-time visibility
Insufficient commitment. Many E&C companies into productivity, allowing managers to make
feel pressured to adopt digital solutions, immediate adjustments. Although some third-
especially if their competitors deploy them, party providers can help E&C firms incorporate
because they want to demonstrate their new tools into legacy systems, most do not
commitment to innovation. But leaders often provide complete solutions. In other words,
struggle to sustain their digital initiatives companies must ask different providers to
once they are past the excitement of the launch complete various parts of the integration process.
stage because their attention and resources
are pulled in many different directions. That A few E&C players have already taken action to
means companies often see lower than expected address these challenges. For instance, Bechtel
returns from their digital investments and established a firmwide process for testing new
thus have little incentive to keep funding them, technologies, integrating new solutions into
especially if budget pressures increase. work flows, and generating more innovative
ideas. Similarly, JCE invested in a software
Difficulties with company-wide rollout. As program and other assets to support tools that
with any new technology, E&C companies rely on the Internet of Things. These companies
generally evaluate construction tools in pilots, are the exception, however, since many E&C
determining their impact and identifying players simply introduce new digital tools without
any glitches before investing in large-scale educating workers about their benefits or altering

8 The new age of engineering and construction technology


organizational structures. The lack of support may difficulty adopting more innovative solutions. To
explain why technology efforts often score early overcome these difficulties and create a successful
gains but quickly lose momentum. next-generation operating model that incorporates
digital elements, we suggest that companies take
To get past these common challenges, companies the following tactical steps (Exhibit 4).
should follow a next-generation operating model
that incorporates the following elements: Creating a focused digital strategy and organization
Rather than deploying numerous tools at once,
A focus on the client journey. Rather than companies should take a more reasoned and
developing digital solutions for specific strategic approach to construction technology. We
functions, such as back-office workers or front- suggest that they first establish a performance
line employees, companies should focus on baseline, benchmarking themselves against
optimizing the entire customer journey. They companies in relevant industries, segments, or
should also ensure their organizations are well projects to identify the most important areas for
equipped to provide customer support that improvementfor instance, engineering activities,
aligns with how customers want to interact with construction productivity, or indirect costs.
the organization. This may require redesigning
existing roles or creating new ones. After the benchmarking exercise, companies
should identify improvement levers by considering
A full suite of digital levers. Companies will some basic but frequently overlooked issues, such
obtain the most value if they implement multiple as the bottom-line performance improvements
digital levers in combinationfor instance, a mix they hope to achieve. They should also quantify
of digital tools, robotics, and advanced analytics. the commercial benefit associated with each
lever and prioritize those that deliver the
A new management system. An embedded greatest improvement. Finally, companies must
management system will ensure the consolidate their findings into an implementation
sustainability of the new operating model. plan with a realistic timeline to stay on track.
Incentives and digital-enabled transparency
are critical tools to help managers accelerate As companies deploy solutions, all functions must
the adoption of new technologies. be involved, from the front line to top management.
That means leaders will need to assess their
A cultural transformation. Cultural organizations realistically, determining whether
transformation and capability-building they have the capacity and skills needed to
programs enable E&C companies to become implement new tools. They must also incorporate
more agile and quickly adapt to evolving digital solutions into their internal processes, since
client needs. employees might otherwise stick with their familiar
routines. Similarly, leaders must examine their
The prospect of building a next-generation current IT systems, determine whether new tools
operating model may seem daunting, especially for can be integrated smoothly, and make any necessary
companies like E&C firms, which tend to encounter upgrades or changes before a program begins.
similar issues across multiple projects. Since such
businesses often have established processes for Throughout implementation, top managers
dealing with perennial problems, they may have must clearly demonstrate and emphasize their

The new age of engineering and construction technology 9


CDP 2017
The new age of engineering and construction technology
Exhibit 4 of 4

Exhibit 4 Engineering and construction companies should follow four steps


when deploying digital tools.

Create a focused digital strategy and organization

Determine performance goals and identify digital tools that help achieve them
Appoint a group or leader to take responsibility and drive results
Analyze current IT systems and determine if they can support new tools

Identify gaps and set timelines for resolving them

Turn projects into test labs

Identify potential use cases and launch tool pilots during projects

Measure key performance indicators, celebrate success, learn from failures,


and encourage widespread rollout of promising programs

Let data lead the way

Revise fundamental business processes to support digital solutions

Simplify the process for piloting and deploying digital solutions

Increase investment in digital solutions

Contemplate M&A deals with technology companies

Identify potential investment partners

Establish listening posts in the industry

support for new initiatives. For instance, CEOs E&C companies with strong digital skills might
should ensure that specific teams and leaders are have an advantage when implementing complex
responsible for implementing the digital strategy, solutions across their organization. Other players
monitoring results, and ensuring that initiatives might find digital initiatives more challenging and
achieve scale and maintain momentum. should consider implementing individual solutions

10 The new age of engineering and construction technology


in sequence, rather than undertaking a more daily work flows by collecting targeted data sets
comprehensive digital transformation. and investing in the capabilities needed to glean
insights from them. Since analytics solutions also
Turning projects into test labs require specific skills, such as those related to data
The best E&C companies view every project as an science, E&C firms must expand their recruitment
opportunity to test and refine new digital solutions base to attract such employees, who are in short
in partnership with clients and contractors. If supply. Several major E&C players have already
frontline workers identify a problem in the field, begun hiring chief digital officers and additional
for example, they should discuss possible digital data scientists.
solutions with E&C leadership and then pilot them
during the project. To monitor results, project Increasing investment in digital solutions
teams must establish key performance indicators Construction technology is advancing rapidly,
and share them periodically with the leaders compressing development schedules for new tools
who oversee digital programs. If a tool produces and significantly increasing their cost. Unless E&C
lackluster results or fails to hit the mark, leaders firms back their commitment to innovation with
should work with the team involved to identify and a substantial investment, they are unlikely to stay
resolve problems while the pilot is still under way. on the cutting edge. Since every digital initiative
carries some degree of financial risk, E&C
Later, leaders should publicize successful results, companies should approach owners, developers,
encourage widespread rollout, and advise other subcontractors, and technology providers,
teams deploying the tools. These efforts will asking about partnerships or co-investment
help overcome company-wide communication opportunities. Bechtel, for instance, recently
gaps and may generate enthusiasm among other entered into a partnership with the software
staff. Some companies have appointed chief company Rhumbix to improve its field-supervision
innovation officers or chief digital officers to platform for large construction projects.
lead these large-scale programs. In some cases,
this is a new role. For instance, Atkins recently To identify the best prospects, E&C companies
appointed its first chief digital officer to lead the should establish listening posts within the
development and integration of new and emerging industrya network of experts who can advise
technologies across the company. The appointment them about the most promising solutions.
of chief innovation officers and chief digital Finally, companies should consider mergers and
officers should address one of the most important acquisitions with technology partners to bring
obstacles that executives noted in the McKinsey digital skills in-house, since this will give them a
Construction Productivity Survey: a lack of role in driving innovation.
internal processes to support innovation.

Letting data lead the way


Many of the best construction-technology tools Construction-technology start-ups have developed
incorporate data from both past and ongoing hundreds of tools for use cases across the project
projects into their decision-making algorithms. life cycle, ranging from design management to
As these tools become more prominent, E&C firms scheduling to safety monitoring. In the future,
ensure that they incorporate analytics into their well see even more tools emerge, particularly

The new age of engineering and construction technology 11


for use cases related to field management and to change. Above all, they will need to alter
performance management. With the role of fundamental aspects of their organizational
construction technology growing so rapidly, structure, corporate culture, and IT systems, with
and new use cases emerging constantly, E&C the goal of seamlessly integrating new tools into
companies that do not invest in the right tools risk daily work. With this support, their new tools will
being left behind. give them an edge that no amount of human effort
can replicate.
The companies that place the right bets now will
probably be the industry leaders in the next ten Jose Luis Blanco is an associate partner in McKinseys
Philadelphia office, Andrew Mullin is a partner in the
to 15 years if they match their greater investment
Toronto office, Kaustubh Pandya is a consultant in the
in technology with a company-wide commitment
San Francisco office, and Mukund Sridhar is a partner
in the Singapore officee.

12 The new age of engineering and construction technology


Contact for distribution: Jose Luis Blanco
Phone: +1 215 594 4571
Email: Jose_Luis_Blanco@McKinsey.com

July 2017
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