Productivity in the engineering and construction industry has been stagnant for decades. The proliferation of digital solutions has made it difficult for users to develop a coherent strategy. Companies who are able to successfully navigate the new digital landscape are on the brink of a transformation that will see top performers reduce overall project costs by 20-45%. However, digital transformations require developing digital capability across all aspects of the organization. Therefore, each entity involved in the industry must understand its critical challenges in order to guide its path to increased digital capability.

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Tim McManus, Vice President, Capital Projects & Infrastructure | May 15, 2018
Digital and Innovation Strategies for the
Infrastructure Industry
SMART CITY WORKS INFRASTRUCTURE WEEK
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2. Outline/Overview
Trends in the Industry
Advancements of Digital Applications
Implementation of a Digital Strategy and Key Enablers
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company
is strictly prohibited

3. Outline/Overview
Trends in the Industry
Advancements of Digital Applications
Implementation of a Digital Strategy and Key Enablers
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company
is strictly prohibited

4. 4McKinsey & Company
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
Construction constitutes 13% of Global GDP
but productivity growth remains dramatically low
1 Real (2005 USD) gross value added per hour worked by persons engaged, indexed 1995 = 100, 20-year CAGR
Global productivity growth trends
Real gross value added per hour worked by persons engaged, indexed 1995 = 100
Global GDP
USD, trillions
0
20142012200219981996
110
2006
120
20001994 2004 20102008
150
130
160
200
140
180
170
190
14.0
9.5
20252014
3.6% p.a.
64.5
(87%)
9.5
(13%)
9.5
(13%)
74$
Trillion

5. 5McKinsey & Company
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
Total economy
Construction sector Economic value lost as a
result of productivity gap1
($ trillion)
Global
37
25
$1.63
63
34
$0.58
40
31
$0.46
2116
$0.44
Central and
South America
86
$0.05
63
$0.03
34
20
$0.07
North America
Europe
Asia Pacific
Africa
Middle East
~1/3
of lost value globally in the
construction sector comes
from North America (primarily
the United States)

6. 6McKinsey & Company
… and more digitized sectors are seeing an opportunity to improve delivery of capital projects
SOURCE: Capital IQ, Gartner IT key metrics data 2012
1
0
7
6
5
4
3
2
2012 20132007 20112006 20102008 2009
76432 81 50
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
R&D investment
% of revenue spent on R&D

7. 7McKinsey & Company
SOURCE: BEA; BLS; US Census; IDC; Gartner; McKinsey social technology survey; McKinsey Payments Map; LiveChat customer satisfaction report;
Appbrain; US contact center decision-makers guide; eMarketer; Bluewolf; Computer Economics; expert interviews; MGI analysis
…but construction is currently among the least digitized industries; only
slightly better than the hunting industry…
MGI industry digitization index, 2015 or latest available data
1 Based on a set of metrics to assess digitization of assets (8 metrics), usage (11 metrics), and labor (8 metrics); see technical appendix for full list of metrics and explanation of methodology
2 Compound annual growth rate
Relatively low
digitization
Relatively high
digitization
Digital leaders within relatively un-digitized sectors
Overall
digitiza-
tion1
Digital
spending
Digital
asset
stock
Intera-
ctions
Business
proces-
ses
Trans-
actions
Market
making
Digital
capital
deepen-
ing
Digital
spending
on
workers
Digitiza-
tion of
workSector
ICT
Media
Professional services
Finance and insurance
Wholesale trade
Advanced manufacturing
Oil and gas
Utilities
Chemicals and pharmaceuticals
Basic goods manufacturing
Mining
Real estate
Transportation and warehousing
Education
Retail trade
Entertainment and recreation
Personal and local services
Government
Healthcare
Hospitality
Construction
Agriculture and hunting
Assets Usage Labor

8. Outline/Overview
Trends in the Industry
Advancements of Digital Applications
Implementation of a Digital Strategy and Key Enablers
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company
is strictly prohibited

9. 9McKinsey & Company
Technology is the most promising lever for productivity improvement …
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 MGI Construction Productivity Survey who responded “agree” or “strongly
agree” to the questions around implementation of the solutions.; 2 Range reflects expected difference in impact between emerging and developed markets.
SOURCE: McKinsey Global Institute analysis | Reinventing Construction: a Route to Higher Productivity
Productivity challenge can be solved by addressing all seven levers of best practice1
Impact on productivity (%)2
Regulation Collaboration & contracting
Enabler 8-9%
Design and engineering Procurement and supply-chain management
8-10% 7-8%
On-site execution Capability building
6-10% 5-7%
Technology
14-15%

10. 10McKinsey & Company
100
38
130 146 156
369
286
244
2424
30
200
0
300
100
50
80
20
10
400
0
60
70
90
40
2017
50
16
Funding amount
USD millions
12
09
10
20
10 11
16
2008
6
72
12 13 14
82
55
15
48
No. of rounds
SOURCE: Tracxn Construction Tech Startups Reports, February 2017 and January 2018
YoY Funding in Construction Tech (2008-17)
Venture capital has started heavily investing in construction technology …

11. 11McKinsey & Company
… creating the need
to develop an ecosystem
strategy to be successful

12. Outline/Overview
Trends in the Industry
Advancements of Digital Applications
Implementation of a Digital Strategy and Key
Enablers
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company
is strictly prohibited

13. 13McKinsey & Company
The digital tools are starting to cluster into three types of solutions… N=1863 unique
companies
Size of the bubble indicates the
number of companies addressing
the particular use case
Cluster Map
Digital collaboration
cluster (“Team”)
Matl’s
Mgmt.– 197
5
6
8
7
3
12
11
13
1
Construction
Back Office –
476
2
Precon-
struction
– 322
Scheduling – 153
4
Doc.
Mgmt.
– 277
Design Mgmt. – 169
Performance
Management – 118
Contract
Management – 53
9
Ops &
Mgmt.
– 309
10
Safety
– 294
Equip.
Mgmt –
226
Quality Control
– 25
Field
Productivity
– 168
Back-office and relatively
isolated tasks cluster (“Office”)
On-site and mobility
cluster (“Field”)

14. 14McKinsey & Company
Collecting and ‘owning’ data will be imperative for owners
Tech companies understand
that data is an asset and have
built their business models
around it
The business model of the
future will need to monetize
data
Owners need to collect macro
and micro data about their
projects as well as link it to
external market trends
Worker
productivity
3D Laser
scans
Equip & labor
location (GPS)
Permit
records
Land prices
Portfolio planning
analysis
Historical cost
Historical
schedule
Cashflow
statement
Project
profitability
Office Field Team
Material
tracking /
RFID
Input devices
(progress)
Work records
Equipment
productivity
External sources Macro-project and portfolio data
Micro Project data
Commodity &
labor catalogs/
prices
Work schedules
Building codes
Weather
Manufacturer
offerings
Pre-fab progress
Regulatory /
permitting
Banks / lending
Economic
indicators
Insurance, risk
As-builts
Design
Cost
records/
invoices
3D Models
Contracts
Change
orders
Quality/hand-
over records
Email /
communica-
tion records
Project
deliverables
Equip & labor
location (GPS)
Digital
reporting
Meeting
records
Document
control
platform
Organized, cleansed,
and intelligently linked data
OPTIONAL

15. 15McKinsey & Company
Questions to address along the digital transformation journey
What is the value
at stake?
Digital
strategy
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
How do we
generate insights
from data
Data
collection
Is our IT
infrastructure and
organization set
up appropriately?
IT infrastructure
and org

16. 16McKinsey & Company
Companies must understand their current digital capabilities to design a digital journey that will
address their key challenges
▪ Limited investment in digital
and innovative industrial
solutions
▪ Lack of digital management
appointments and clear
digital strategy
Digitally emerging
▪ Some investment in one-off
digital solutions for
common challenges
▪ Basic technological
capabilities established
Digitally advanced
▪ Large investments in
scalable digital solutions
across projects and project
phases
▪ Advanced technological
capabilities well-rooted in
the organization
FrameworkProfile
Digital capability
Marginalimpact
Digital nascent
▪ Limited investment in digital
and innovative industrial
solutions
▪ Lack of digital management
appointments and clear
digital strategy

17. 17McKinsey & Company
Select E&C companies are starting to implement organizational changes to
capture digital and innovation opportunities
SOURCE: Linkedin search, Press search, Industry experts
Chief digital officers
Chief innovation or
transformation officers
▪ Chief Innovation officer
▪ Future Fund
▪ Test bed sites
▪ Rhumbix partnership
▪ Brick & Mortar Ventures
▪ IBM Watson analytics
▪ Engineering Project
Health Diagnostics
(EPHD)
▪ Digital OEN (Ops
Excellence Network)
▪ Extensive IOT and
wearables pilots
▪ Internal ecommerce
▪ Lots of frugal tech
innovation
Pilots, investments and collaborations
NOT EXHAUSTIVE

18. 18McKinsey & Company
The journey to get there consists of three main steps
Enterprise transformation
▪ Decide best approach to scale the impact (e.g.,
potentially separate digital project unit)
▪ Hire new talent and integrate with the core team to
develop a digital unit
Project enablement
▪ Identify suitable projects
▪ Run agile rollouts and adapt based on learnings
Strategic direction
▪ Develop overall strategy & top priority innovations
▪ Develop transformation road map, change story, and
approach
Strategic
direction& control
▪ Develop overall strategy
innovations
▪ Set clear objectives
▪ Develop transformation road map
▪ Shape story and communicate
▪ Install transformation
management
1
Project
enablement
▪ Define digital project selection
criteria and scope
▪ Identify suitable projects
– Fully digital projects
– Injection of digital application
(use cases)
▪ Run projects in waves
▪ Adapt based on learnings
2
Enterprise
transformation
▪ Develop implementation plan
▪ Install digital project unit
(potentially a newco)
▪ Assessment of IT infrastructures
3

19. 19McKinsey & Company
Setting up the right organization to support any digital transformation is key
CEO
Digital officer
as coordinator
▪ Develops and
coordinates execution of
digital strategy, but does
not own
Digital officer
with CoE
▪ Develops digital strategy,
and owns company-wide
center for specific scarce
competencies
Digital officer with BU
and P&L
▪ Full P&L and resource
ownership
▪ Extensive digital
competence and
resourcing
Digital officer with
development capabilities
▪ Responsible for
development of digital
solutions and driving internal
process digitalization
CDO IC1 IC2 IC3 IC4
CEO
CDO
+ CoE
IC4IC3IC2IC1
CEO
IC2IC1 IC4IC3BU IC2
CEO
IC1 IC4IC3
CDO
+ CoE
Coordination Platform / IT ownership Solution owner App experts

20. 20McKinsey & Company
The model for implementation can come in three forms, which can be tailored
or combined based upon your digital aspiration
Description
03
Operations + digital
Full-scale operational
excellence transformation in
parallel with a full-scale
digital transformation
Big-bang / Agile
02
Full transformation with
multiple solutions
implemented as quickly as
possible in an “agile” manner
to reach scale quickly
01
Pilot & expand
Rolls out digital solutions and
strategy gradually overtime,
test and learn through pilot
program, then expand

21. 21McKinsey & Company
For more information get the reports or contact me
Tim McManus
Vice President, Capital Projects & Infrastructure Practice
Navigating the digital future: The disruption of capital projects
McKinsey Capital Projects & InfrastructureMcKinsey_CPI
www.mckinsey.com/industries/capital-projects-and-infrastructure
McKinsey & Company, Boston
+1.617.312.8677
Tim_McManus@mckinsey.com
Tim McManus
www.mckinsey.com/industries/capital-projects-and-infrastructure
How advanced analytics can benefit infrastructure capital planning
McKinsey Capital Projects & InfrastructureMcKinsey_CPI