Taking bold steps for lasting...
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Dubai| November 6th , 2018
Taking bold steps for lasting
transformation
GHASSAN ZIADAT, VP – MAJOR PROJECTS, MCKINSEY & COMPANY
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This presentation will examine where construction AI solutions are
starting to emerge; explore a few specific use cases; and look to the
horizon for a map of its future possibilities. Today’s construction leaders
can no longer afford to ignore the potential implications of AI, and as with
many digital leaps, early movers will reap the largest benefits.
Course Description
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Ghassan Ziadat
Vice President – Capital Projects & Infrastructure Major Projects
Leads McKinsey’s work on major projects in the Middle East, bringing more
than 30 years of experience in delivering major infrastructure projects—
including airports, railways, roads, bridges, and general urban regeneration.
Has deep expertise in project design, program management, value
engineering, and public-private partnerships.
More: https://www.mckinsey.com/our-people/ghassan-ziadat
Presenter
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1. Technology landscape for E&C sector
2. AI as a different way to approach projects
3. Digital transformation
The purpose of this presentation is to convey technical knowledge to the conference
participants.
The presentation also contains slides with text that summarises the content of the
presentation and the main learning objectives.
Learning Objectives
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Contents
The productivity challenge: A call for technology disruption
The digital landscape
Steps for lasting transformation
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Construction constitutes 13% of Global GDP but productivity growth remains dramatically low
9.514.0
2014 2025
3.6% p.a.
9.5
(13%)
64.5
(87%)
2000 2010
170
1995 2005 20150
190
110
120
130
140
180
150
160
200
Construction
Total economy
Manufacturing
SOURCE: OECD, WIOD, GGCD-10, WorldBank, US BEA/BLS, Turkish National Statistics Bureau, Singapore National Statistics Agency, Malaysian Statistics Agency,
Rosstat, McKinsey Global Institute Analysis, Global Insight; ISSA
1 Real (2005 USD) gross value added per hour worked by persons engaged, indexed 1995 = 100, 20-year CAGR
100
Global GDP Global productivity growth trends
USD, trillions Real gross value added per hour worked by persons engaged,
indexed 1995 = 100
9.5
(13%)
74$
Trillion
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SOURCE: OECD; WIOD; GGCD-10; World Bank; BEA; BLS; Turkish National Statistics Bureau; Singapore National Statistics Agency; Malaysian Statistics Agency; Rosstat; IHS; ITF; GWI;
McKinsey Global Institute analysis
Lagging construction
productivity costs the
global economy $1.6
trillion a year
1 Assumes construction sector output remains constant and current workers are re-employed in other sectors at the total economy productivity rate.
Total productivity differential, 2015
Real gross value added per hour, 2005 $Average
productivity
Construction sector
Total economy
Economic value lost as a
result of productivity gap1
($ trillion)
Global
37
25
$1.63
63
34
$0.5840
31$0.46
2116$0.44
Central and
South America
86$0.05
63$0.03
3420
$0.07North America
EuropeAsia Pacific
Africa
Middle East
~1/3of lost value globally in the
construction sector comes
from North America (primarily
the United States)
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7 key levers were identified that could improve productivity by 50-60%
Cumulative
impact
Potential global productivity improvement1 from implementation of best practice
% impact on productivity
1 The impact numbers have been scaled down from a best case project number to reflect current levels of adoption and applicability across projects, based on respondents to the McKinsey &
Co Global Construction Industry Productivity survey who responded agree or strongly agree to the questions around implementation of the solutions
Enabler
8 - 9%
6 – 10%
8 - 10%
7 - 8%
Gap to Total
Economy
Productivity
SOURCE: McKinsey Global Institute analysis
48 - 60%5 - 7%
14 – 15%50%
1 2 3 4 5 6
Regulation Collaboration
& Contracting
Design &
Engineering
Supply Chain
Management
Onsite
execution
Technology Capability
building
7
External forces Industry dynamicsFirm-level operational
factors
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The productivity challenge: A call for technology disruption
The digital landscape
Steps for lasting transformation
Contents
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All project lifecycle phases ~ 2400 firms
We mapped the construction technology investment
landscape over the last 10 years…Back-office Digital CollaborationOn-site Execution
Drone Enabled
Yard Inspection
Off-site Fabrication
Value Engineering
Productivity Management
Design Simulation
Virtual learning
3D Printing
Machine Learning
Deep Learning
Equipment Management
Portfolio Planning and Management
Risk Management
Design Management
Process Simulation
Testing and Training
Robotics/Automation
Predictive Assessment Performance Equipment Marketplace
Constructions Materials Marketplace
Labor and Professional Marketplace
Bidding Process
Contract Management
Manpower Optimization
Compliance
Materials Management
Real-time Monitoring
and control
Progress Tracking and
Performance DashboardsQuality
Control
Resource
PlanningEstimating
CRMCapital Financing
Project Scheduling
3D Modeling
Laser Scanning
Document
Management
BIM
2018
2400
Constellations
$18B
North America
Firms
Clusters
Investment
Geo center
of gravity 85%
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Constellations of new solutions and use cases are emerging
around proven technologies – will accelerate impact
Drone Enabled
Yard Inspection
Off-site Fabrication
Value Engineering
Productivity Management
Design Simulation
Virtual learning
3D Printing
Machine Learning
Deep Learning
Equipment Management
Portfolio Planning and Management
Risk Management
Design Management
Process Simulation
Testing and Training
Robotics/Automation
Predictive Assessment Performance Equipment Marketplace
Constructions Materials Marketplace
Labor and Professional Marketplace
Bidding Process
Contract Management
Manpower Optimization
Compliance
Materials Management
Real-time Monitoring
and control
Progress Tracking and
Performance DashboardsQuality
Control
Resource
PlanningEstimating
CRMCapital Financing
Project Scheduling
3D Modeling
Laser Scanning
Document
Management
BIM
Digital CollaborationCONSTELLATION 4:
ARTIFICIAL
INTELLIGENCE &
ANALYTICS
Back-officeCONSTELLATION 5:
MARKETPLACES
On-site Execution
CONSTELLATION
3: ROBOTICS
CONSTELLATION 1:
3D PRINTING &
MODULARIZATION
CONSTELLATION
2: TWIN MODELS
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Construction remains the most active phase: AI and VR/AR
are starting to gain momentum
Note: Early Stage VC, Late Stage VC, M&A and PE transactions included in analysis
Use Case Category
Concept & Feasibility
Design & Engineering
Pre-construction
Construction &
Commissioning
Operation &
Maintenance
Overarching
# Companies with
Transactions
Number of
Transactions
Total Transaction
Value ($M)
Average Transaction
Value ($M)
Back Office
% Founded in Past 5
Years
Small all around
Niche market –
established, small,
and expensive
Large but well
established
Very large market
growing quickly
Medium-to-large
market growing quickly
Very young category
Very established,
niche market
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57 605655545352 5850 5921 51
220
38 4822 28 432523 696361 684630 40390 26 3127 65 66 856462
240
80
40
140
160
60
20
180
0
200
120
100
500
6724
400
4237 443533 34 36 4932 41 474520 29
Quality Control
Equipment Marketplace
Design ManagementProject Scheduling
Laser Scanning
Risk Management
BIM
Compliance
Labor and Professional Marketplace
Document Management
Bidding Process
Process Simulation
Contract Management
Construction Materials Marketplace
# of transactions
3D Modeling
Value Engineering
Productivity Management
CRM
Capital Financing
Portfolio Planning
and Management
Estimating
Machine Learning
Progress tracking and Performance Dashboards
Deep Learning
Testing and Training
Design Simulation
Companies founded in last 5 years, (%)
ERP
Predictive Asset Performance
Robotics / Automation
Materials Management
Manpower Optimization
Equipment Management
Drone enabled yard inspection
Virtual Learning
Real-time monitoring and control
Off-site Fabrication
3D Printing
Resource planning
Transactions driven by established use-cases (e.g. document management)
and talent acquisition (e.g. Machine Learning) Concept & Feasibility
Design & Engineering
Construction Back Office
Operation & Maintenance
Construction & Commissioning
Pre-construction Overarching (AI/ML)
SOURCE : McKinsey Startup and Investment Landscape Analytics
Size of bubble = number of
companies addressing that use-case
N = 2361 unique companies
1 Total number of transactions in past 5 years, includes PE/VC, M&A and private placements. Does not include debt financing
2 Number of companies with transactions in the past 5 years, companies with multiple use cases are counted towards each use case (total is not MECE)
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Some
technologies
we are
excited about
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Artificial intelligence
Twin models
Robotics & 3D printing
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Artificial intelligence can revolutionize the way we approach projects
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1
Refining quality control and claims management.
Neural networks can help owners and firms alike understand the likelihood that a contractor or subcontractor will file a claim,
enabling owners and firms to proactively allocate contingencies and deploy targeted mitigation plans.
Boosting project monitoring and risk management.
These applications would dramatically reduce decision-making cycles in a construction project from a monthly basis to a daily
basis—through full automation of the project scheduling and budgeting update on the combination of BIM, AI, drone, and laser
capabilities.
Constant design optimization.
These applications can recommend to engineers and architects the use of a specific design, such a structural solution based
on various criteria including total cost of ownership, execution timeline, and likelihood of construction mistakes during
execution.
Building commercial excellence and a competitive edge.
Supervised and unsupervised learning algorithms can boost an E&C firm’s project win rate, enhance margins, and ensure
project value
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AI adopters with a proactive strategy have significantly higher profit margins
1 Firms that are big data and cloud services users and report their strategic posture toward AI to be: “Disrupting our industry using AI technology is at the core of our strategy,” “We have changed our longer-term corporate strategy to address the AI threat
or opportunity disruption,” or “We have developed a coordinated plan to respond to the AI threat or opportunity but have not changed our longer-term corporate strategy.”
2 Operating profit margin for selected sectors as a share of turnover, for continuing operations and before exceptional items.
-5 50 1510 20-10
Self-reported current profit margin2
Difference from industry average (unweighted) (percentage points)
AI adopters with proactive strategy1
Non-adopters
Partial AI adopters or experimenters
High tech and telecommunications
Automotive and assembly
Financial services
Utilities and resources
Transportation and logistics
Consumer packaged goods
Retail
Education
Health care
Building materials and construction
Professional services
Travel and tourism
SOURCE: McKinsey Global Institute AI adoption and use survey; McKinsey Global Institute analysis
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The productivity challenge: A call for technology disruption
The digital landscape
Steps for lasting transformation
Contents
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We are seeing change …. but there’s still so much untapped potential!
SOURCE: Capital IQ, Gartner IT key metrics data 2012
02008 20122010
5
3
7
2
1
6
4
2006 2014
8765430 1 2
1 Based on data of top 20 E&C companies by market value Globally 2 Top 20 companies by market value
Consumer
discretionary
Industrials
Aerospace
Automobile
Chemicals
& Energy
Construction
IT spending
% of revenue spent on IT
Software/internet
Banking/finance
Education
Professional services
Media/entertainment
Telecommunications
Insurance
Healthcare providers
Transportation
Pharma/life sciences/medical
Utilities
Industrial electronics
Consumer products
Manufacturing
Retail/wholesale
Food beverage processing
Chemicals
Construction
Energy
Database
CONSTRUCTION
Hospitality
Healthcare
Government
Personal and local services
Entertainment and recreation
Retail trade
Education
Transportation and warehousing
Real estate
Mining
Chemicals and pharmaceuticals
Utilities
Oil and gas
Advanced manufacturing
Wholesale trade
Finance and insurance
Professional services
Media
ICT
Basic goods manufacturing
Agriculture and Hunting
Level of digitization
MGI industry digitization index,
2015 or latest available data
R&D investment
% of revenue spent on R&D
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There are a few enablers that
will make digital successful
in construction delivery
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▪ Digital participation needs to be part
of the bidding contracts for all project
participants
▪ Digital project emulates an IPD
(Integrated Project Delivery) setup,
this needs to be leveraged in the
contracts to prevent emergence of
claim culture
▪ All project participants need to work
with one shared data backbone in
one system
▪ Even the early conceptual design
needs to be done in at least 3D BIM,
otherwise the amount of later rework
will be prohibitive
▪ Data will need to be made available
to all project participants, with up
from agreement from all
Supportive contract strategiesStrong data foundation Building core capabilities
▪ Invest in training of staff as the
traditional project management roles
will shift to digital
▪ Hire new talent and integrate with the
core team to develop a digital unit
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Building capabilities is the
biggest challenge
for digital transformations
26%
63%
Transformations where
the company did not invest
In developing leaders x 2.4
Transformations where
the company invested a
great deal in developing
leaders through
the transformation
Organizations that invest in
developing leaders through the
transformation are
~2.5 % of transformations that
were very or extremely
successful
times more likely to succeed
skill gaps as a hindrance to driving digital transformation.
McKinsey Global Survey 2014:
The Digital Tipping Point; survey among 850 C-level executives
difficulty finding talent
as the #1 challenge
77% of executives we interviewed mentioned
“The skills needed go beyond pure IT to include specific
technologies, such as social media or mobile, as well as the
analytic skills to drive value from [big] data”
The Digital Capabilities your Company needs, MIT Sloan
Management Review
Out of 12 possible challenges to meeting priorities for digital
programs, leaders selected
SOURCE: McKinsey Transformational Change Survey, Digital Academy
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Questions to address
along the digital
transformation
journey
How do we generate
insights from data
Data
collection
What is the value
at stake?
Digital
strategy
Is our IT infrastructure
and organization set
up appropriately?
IT infrastructure
and org
What digital solutions
are going to enable us
to capture the value?
Digital
ecosystem
What types of
decisions do we want
to make with the
support of analytics?
Advanced
analytics
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McKinsey has extensive experience in digital and in capital productivity
digital engagements in the last
three years
of our digital work is in
technology transformations
capital productivity and
infrastructure engagements in
the last eight years
areas of cutting-edge
expertise across 22 industry
sectors and 12 functional
areas
digital designers and
developers with McKinsey
Digital Labs
regional roundtables
as part of McKinsey’s
Global Infrastructure
Initiative, with dozens
of senior leaders from
engineering and
construction joining
the discussion
Boost in construction sector productivity possible
through seven levers, as identified in MGI’s 2017
report Reinventing Construction: A Route to Higher
Productivity
ranking by Kennedy of capital
projects and infrastructure
consulting practices
years in business
economic research,
McKinsey Global
Institute (MGI) was
created in 1990
ranked private sector
think tank by University
of Pennsylvania think
tank guide
Groundbreaking areas
of research, including
productivity,
competitiveness, and
growth
… and we invest in research that’s on the cutting edge
of many sectors, including construction
Unparalleled digital and capital productivity
practices …
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Follow us:
Ghassan Ziadat
Vice President –
Capital Projects &
Infrastructure Major
Projects
Latest insights:
00 971 2 6942582
Dubai
McKinsey & Company
https://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights
@McKinsey_CPI
Linkedin.com/showcase/mckinsey-capital-projects-&-infrastructure