WEF Shaping The Future of Construction
WEF Shaping The Future of Construction
WEF Shaping The Future of Construction
REF 110116
Contents Preface
3 Preface The first report of the World Economic Forum’s Future of Construction Series
– The Future of Construction: A Healthy Outlook and How to Make It a Reality
4 Context and Objectives of – will be published in the first quarter of 2016. As input for discussion, this
the Report document includes the Executive Summary of the report, as well as its first
chapter, Introduction: The Construction Industry – Time for a Transformation.
5 Executive Summary
The remaining chapters – on companies as the spearhead of transformation,
7 1. Introduction: The the industry’s need to collectively drive transformation, the government’s need to
Construction Industry – encourage and enable this transformation, and the way forward – will be part of
Time for a Transformation the full report.
13 Abbreviations
14 Endnotes
15 Contributors
17 Bibliography
Scope
This report is the first publication of a multi-year project for
guiding and supporting the Engineering & Construction
(E&C) industry during its current transformation. The report
describes the industry’s present state, assesses relevant
global trends and their impact on the industry, and devises
an industry-transformation framework with key areas
for development and action. It also features many best
practices and case studies of innovative approaches or
solutions, and offers a view – at different points of action,
such as at the company-, industry- and sector-level – of
how the future of construction might look.
The project’s subsequent phases and reports will deal
with specific topics or will explore the subject in-depth by
geography.
Audience
This report is aimed at all firms active along the construction
value chain, including suppliers of building materials,
chemicals and construction equipment; contractors; and
engineering, architecture and planning firms; as well as
project owners and developers.
Governments are another target audience, as they not only
have an impact on the industry via regulation but also act as
the main procurer of most infrastructure projects.
Finally, this report is also aimed at members of academia
and civil society, in view of the socio-economic importance
of the construction industry. The industry will rely on
effective collaboration with all stakeholders for its future
success.
The Engineering & Construction (E&C) industry strongly Compared to many other industries, the construction industry
affects society, the economy and the environment as a has traditionally been slow at technological development. It
whole. It touches the daily lives of everyone, as quality of life has undergone no major disruptive changes; it has not widely
is heavily influenced by the built milieu surrounding people. applied advances in processes such as “lean”.1 As a result,
The construction industry serves almost all other industries, efficiency gains have been meagre. In the United States over
as all economic value creation occurs within or by means the last 40 years, for example, the productivity of construction
of buildings or other “constructed assets”. As an industry, labour has actually fallen.
moreover, it accounts for 6% of global GDP. It is also the
largest global consumer of raw materials, and constructed Given the sheer size of the Engineering & Construction
objects account for 25-40% of the world’s total carbon industry, even a small improvement would provide substantial
emissions. benefits for society. To capture such potential, this report
presents an industry transformation framework (Figure 1),
Multiple global megatrends are shaping the future of listing 30 measures, including many best practices and case
construction – trends related to markets and customers, studies of innovative approaches. Some of the measures can
sustainability and resilience, society and workforce, politics be adopted by private companies on their own, while others
and regulation. Consider just two developments: first, the require collaboration with their peers or with other companies
number of disasters reported last year amounted to three along the construction value chain. In addition, some of the
times the number in 1980, such that certain major hazard- measures can be adopted by government alone, acting both
mitigation endeavours are needed; second, the population as the regulator and as the major owner of infrastructure
of the world’s urban areas is increasing by 200,000 people projects.
per day, all of whom need affordable housing as well as
social, transportation and utility infrastructure. Such trends
pose challenges but also offer opportunities; either way, they
require an adequate response from the industry as a whole.
economy, society and environment The construction industry is the largest global consumer of
resources and raw materials. It consumes about 50% of
global steel production10 and, each year, 3 billion tonnes of
1.1.1. Societal relevance raw materials are used to manufacture building products
worldwide.
Construction is one of the first businesses that humankind
developed, and it continues to shape our daily life in unique About 40% of solid waste in the United States derives from
ways. Virtually all other businesses rely on the construction construction and demolition.11 Throughout the world, such
industry to provide and maintain their accommodation, plants waste involves the significant loss of potential valuable
and infrastructure, and almost everyone relies on construction minerals, metals and organic materials.
to some extent for housing, work and play. For almost
the entire population of the world, quality of life is heavily As for energy use, buildings are responsible for 25-40% of
influenced by the built environment.6 the global total. In Europe, buildings account for 40-45% of
energy consumption in society, and thereby contribute hugely
Hence the value of improving the quality of construction, to the production of carbon dioxide.12
increasing its sustainability and reducing its cost. Any
endeavour serving any of those causes is likely to generate
welcome benefits – whether for families investing in their
first private home, or governments embarking on a giant
infrastructure project.
1.2.1. Market and customer trends upgrading or replacing – an immense opportunity, and
responsibility, for the construction industry. The vast
As demand in emerging countries rises, the industry must “infrastructure gap” cannot be bridged by public-sector
identify how these new markets can benefit best from the money alone. Private capital is needed, so the trend in
technological advances and increased safety standards infrastructure construction projects is for PPPs. One other
being applied in developed countries, while taking into notable development is the increasing occurrence of
account local market conditions. infrastructure megaprojects, even though such projects have
a poor record historically in terms of on-time and on-budget
An increase in global competition will certainly produce delivery, environmental footprint and public support.13
winners and losers as strengths and strategies differ
between companies and countries. Many Asian construction 1.2.2. Sustainability and resilience trends
firms, on the basis of their cost advantages, put great effort
into securing construction contracts abroad. Most Western Increasingly, sustainability is becoming a requirement rather
markets, such as the United Kingdom’s, are characterized than just a desirable characteristic, and its pursuit is bound to
by a high degree of fragmentation, which impacts on their affect both the construction process and the built asset itself.
level of innovation and their ability to access foreign markets. The construction industry produces an enormous amount
Eventually, the firms with strong processes in place and the of waste, so the more efficient use and recycling of raw
ability to adapt their business models to new markets will materials (i.e. establishing a circular economy), even a small
prove to be the winners. Many of the others will disappear. improvement, offer huge potential benefits. New priorities
One particularly challenging area is that of infrastructure. are emerging accordingly, including optimizing space, for
Currently, fast-ageing infrastructure assets can jeopardize example, and ensuring more efficient methods of heating,
economic growth, and demand proper maintenance, cooling and lighting. The industry is increasingly involved
The various political challenges relate to regulation, John M. Beck, Executive Chairman, Aecon Group, Canada
bureaucracy, instability and corruption.
1.4. The industry is ripe for and All of this significant potential is ready for release. New
opportunities are emerging as transformative developments
capable of transformation reshape the Engineering & Construction industry – from
innovative technologies to revolutionary construction
Given the construction industry’s societal, environmental techniques. Productivity and efficiency will surge. It is up
and economic importance, even small improvements in to the industry to embrace these new opportunities more
performance will make a strong impact in all three domains: vigorously and change the way it has traditionally operated.
– Societal. A mere 1% reduction in construction costs Other industries, such as the automotive industry, have
would save society about $100 billion annually25 – a sum already undergone radical and disruptive changes, and their
equal to the entire global cost of cancer drugs. In fact, digital transformation is now well under way. Construction
the possibilities go far beyond that: the vision formulated companies need to act quickly and decisively: lucrative
by the UK government for 2025 is of a 33% reduction in rewards await nimble companies, while the risks are serious
the initial cost of construction and the whole-life costs of for hesitant companies. Witness the shake-up that digital
built assets.26 photography brought about in the affected sector.
– Environmental. According to the United Nations Given all the megatrends and internal challenges, the
Environment Programme, by harnessing the capacity construction industry should take action in several areas.
of the building sector, many countries can cut emission A comprehensive approach is outlined in the industry
rates cost-effectively and achieve energy savings of transformation framework shown in Figure 5.
more than 30%. The target set by the United Kingdom’s
construction industry for 2025 is a 50% reduction of The framework structures the various areas of action
today’s level of greenhouse gas emissions in the overall according to responsibility. Initially, the transformation relies
built environment.27 on the initiatives of individual companies – the adoption of
new technologies and processes, business-model innovation,
– Economic. The global shortfall in infrastructure capacity refinements to the corporate culture and organization, and
is expected to reach $15-20 trillion by 2030. According so on. Individual action is not enough, however, in such
to the B20 Infrastructure & Investment Taskforce, closing a highly fragmented and horizontal industry: many of the
that worldwide infrastructure gap could create up to 100 challenges need to be tackled collectively – the industry as
million additional jobs and generate $6 trillion in economic a whole has a responsibility also. It needs to establish new
activity every year in the long run.28 Up to 30% of this forms of collaboration, or to improve existing forms. Finally,
boost could come from improvements to construction governments have a large role to play as well, in their dual role
projects and to asset operations. as regulators and clients.
Shaping the Future of Construction – A Landscape in Transformation: An Introduction 11
Figure 5: Industry Transformation Framework
The full report, including chapters 2-4 that discuss the steps
all stakeholders must take, will be launched in the first quarter
of 2016.
B20 Business 20
BCG The Boston Consulting Group
BIM Building and Information Modelling
E&C Engineering and Construction
GDP Gross Domestic Product
HSE Health, Safety and Environment
O&M Operations and Maintenance
PPP Public-Private Partnership
R&D Research and Development
TCO Total Cost of Ownership
TSR Total Shareholder Return
UN United Nations
UN DESA United Nations Department of
Economic and Social Affairs
UNEP United Nations Environment
Programme
1
Lean in the context of construction is described in The 21
For a detailed assessment of such risks in infrastructure
Boston Consulting Group, 2015a. projects, see World Economic Forum, 2015b.
2
The Boston Consulting Group (in a forthcoming report 22
According to The Boston Consulting Group, 2015b, the
2016) has outlined the key technological developments and median TSR of the Engineering & Construction industry has
the potential impact and implications for key stakeholders. trailed the S&P 500 in three of the past five years.
3
See The Boston Consulting Group, 2015a. 23
Based on The Boston Consulting Group 2015c.
4
Kats, 2003 explains how an initial upfront investment of 24
For instance, in a survey of almost 15,000 companies from
$100,000 to incorporate green building features into a $5 enterprises in the United Kingdom, innovation activeness was
million project could lead to savings of $1 million over the consistently ranked as one of the lowest priorities. See HM
lifetime of the building. Government, 2014.
5
The German national initiative on energy transition, 25
See imshealth, 2015.
Energiewende, included a module focused on buildings, 26
See HM Government, 2013 and United Nations
Plattform Gebäude. The key recommendations were
Environment Programme, 2009.
developed jointly by the construction industry and the
government, and were incorporated into a national action 27
See HM Government, 2010.
plan, Nationaler Aktionsplan Energieeffizienz (NAPE). 28
See B20 Australia, 2014.
6
This is especially true, of course, for the more than 100
million people employed in construction worldwide.
7
This calculation is based on 2014 data from IHS, 2015,
Oxford Economics, 2015 and World Bank, 2015.
8
See Global Construction Perspectives and Oxford
Economics, 2013.
9
This estimate applies specifically to public-sector investment
into infrastructure. The effect is lower in emerging markets,
because of the generally lower efficiency there of public-
sector investment. See International Monetary Fund, 2014.
10
See World Steel Association, 2015.
11
See Environmental and Energy Study Institute, 2014.
12
See United Nations Environment Programme, 2007.
13
See Flyvbjerg, Bruzelius and Rothengatter, 2003.
14
See World Economic Forum, 2015a.
15
See UN Department of Economic and Social Affairs
Population Division, 2014.
16
See United Nations Human Settlements Programme, 2014.
17
Further infrastructure needs are, for instance, in
transportation and social infrastructure.
18
Particularly in fast-ageing countries such as Japan, a heavy
push towards these technologies is under way.
19
For a view on the potentially negative impact that a
general workforce gap could have on national growth, see
The Boston Consulting Group, 2014. The impact will be
particularly severe where the cause is undereducation.
20
See Setar, 2013.
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