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Engineering and construction firms are under massive pressure to deliver more for less. Has the time finally come for the sector to start innovating?
The status quo in the construction industry is unsustainable. Engineering and construction companies are under mounting pressure to do more with less, to be more innovative and to become more efficient. Yet costs and complexity are rising, risks are poorly aligned and capabilities are becoming outdated. The need for change is clear. The path to change is somewhat less so.
Start with the demand pressures. Governments and businesses are under incredible pressure to deliver new infrastructure and transform existing assets. But they only have so much capital available. And it's not enough to cover everything. So project owners are looking to cut costs, drive efficiency and get more for less. They do not have the elasticity for cost overruns or delays. Which means they are looking for construction partners to become much more efficient, innovative and reliable.
The need for change is clear. The path to change is somewhat less so.
Pressure is also coming from the workforce. In order to attract the talent of the future, engineering and construction companies need to be experimenting, piloting and adopting new methods and ways of working. Digital natives are not looking to spend their careers conducting boring manual processes. They want new technologies, better visualization, greater innovation and more digitally-enabled workplaces. As older employees start to retire, the pressure will be on to transfer knowledge and ways of working to these newer generations of employees.
The problem is that — generally speaking — the construction industry is going backwards on innovation. Whereas many companies in other non-tech sectors tend to spend 2 to 3 percent of revenues on innovation, many construction and engineering companies don't spend anything at all. According to KPMG's Global Construction Survey 2023, less than half of E&C sector organizations have invested in PMIS (Project Management Information System) or basic data analytics technologies.9 Fewer still have adopted BIM, mobile platforms or drone technologies.
To be fair, most construction companies are facing significant challenges to innovation. Margins remain razor thin. Few have the available capital to invest into transformational technologies, particularly if there is no clear path to recouping the cost over a series of projects. Since most projects today are structured as fixed-price turnkey contracts, much of the technology and innovation risk falls onto the construction company — which is fine for well-understood projects like office buildings, but more challenging when it comes to more complex projects in, for example, the energy sector.
Most E&C companies are also ill-prepared to take on new technologies and drive innovation. Construction companies have historically struggled to attract digitally-savvy talent capable of transforming the organization and sustaining innovation. Many of the foundational elements required to enable new technologies — like cloud computing, data analytics and digitized processes — are lacking. Even if construction companies had the capital to invest in innovation, they would still struggle to transform.
Reset 2025
For a variety of reasons — economic, political and social — we expect the pressure on construction companies to grow exponentially this year, particularly within sectors where public demand is exploding. Construction companies serving the energy and infrastructure sectors will likely come under the greatest pressure to innovate. So, too, will those operating in markets with very scarce resources.
On the plus side, we see a rapid democratization of technology helping drive adoption across the construction sector. Software solutions are becoming more affordable and accessible with leading vendors now offering 'light' versions of their core solutions, supported by key adoption tools such as check lists and startup guides that make the solutions more accessible to more employees. Similarly, access to new AI tools and functionality is rising rapidly as these technologies become embedded into existing solutions and tools.
There have also been positive developments on the contracting and risk side with a growing number of owners now opting for cost reimbursement contracts that allow them to properly understand, assess and allocate risks in a more transparent and effective way. And that is encouraging construction leaders to explore and propose new approaches and technologies as they build their bid.
We expect the pressure on construction companies to grow exponentially this year, particularly within sectors where public demand is exploding.
Our advice is to start building the foundations that will be required to drive value from your technology investments.
Our prediction and advice
We expect this trend to start slowly within key sectors but then accelerate rapidly across industries and markets as value is proven, owner awareness increases and competition heats up. In some markets, the pace of change will likely be driven by the bigger E&C General Contractors who will work with their suppliers and subs to implement new technologies that enable better collaboration and project management. Adoption will also be driven by the structuring and uptake of new contracting models that provide appropriate incentives for innovation.
With this in mind, our advice is to start building the foundations that will be required to drive value from your technology investments. Get control of your data. Recruit new talent and build key capabilities. Assess and enhance your supply chain with a focus on suppliers who share your quest for innovation. And consider whether your operating models are still fit to drive the innovation you require.
The reality is that innovation is one of the only sustainable ways construction companies can start to do more with less (without eating into their already meager margins). It's time to start innovating.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
