Profit Through Productivity
Improving the productivity agenda is becoming increasingly important across the Scottish economy. Given the scale of the construction industry in Scotland and the significant contribution that it makes to the wider economy, it is critical that it continues to address areas where increased productivity can be achieved. Productivity impacts on both the cost to the client and the bottom line profit for the industry.
Forecasters anticipate that clients (public and private) will have less access to resources in the future, but are also likely to have increasing needs. Therefore the emphasis has to be geared to doing more with the fewer resources available to us.
This scenario demands business to recognise and respond to changing circumstances by innovating, becoming more efficient and more productive, to maintain and grow their profitability.
The productivity challenge
Productivity, defined as output per worker or perhour worked, is a critical driver of international competitiveness and sustainable economic growth. Across the economy as a whole, Scotland’s productivity performance is weak, and has been for some time. Internationally, Scotland sits in the third quartile of OECD countries and has a lower level of productivity than many other smaller EU countries. The Scottish Government has set a target for Scotland’s productivity to be at least equal to OECD top quartile performance – increasing it to this level (30%) would boost GDP by circa £40bn.
- The construction industry is perceived to have experienced a prolonged period of decline in productivity – although there is evidence of major productivity improvements either at individual project or company level.
- Latest available figures show construction productivity (£50k per worker) to be slightly above the Scottish average (£46.7k per worker).
- Even relatively small improvements in productivity could drive significant gains for the Scottish economy – if productivity levels increased in line with the 30% Scottish Government growth target, this would boost construction GVA by £2.6 bn.
- Productivity impacts on business and industry competiveness, both at home and abroad, especially when entering international markets and competing with foreign companies seeking to enter UK/Scottish market.
- Due to a lack of measurement methods and recognised performance ‘best practice’ the magnitude of the productivity challenge in the construction industry is largely uncertain – at Scottish, UK or international level.
- At an industry level, there is a widening productivity gap between the economy as a whole and the construction industry; in Scotland, construction sector productivity has declined since 2008, remaining significantly below 2008 for GVA per construction worker.
The construction industry has a range of unique characteristics that creates issues and challenges for increasing productivity across the sector:
- Diverse and fragmented stakeholders: ranging from owners, builders suppliers and manufacturers to specialist contractors.
- Segmented processes: including planning, financing, design, engineering, procurement, construction, operations and maintenance.
- Divergence of teams: most project teams bring together a huge range of different contractors, often on a transactional basis to deliver the individual project.
- Focus on cost: construction clients are often not the asset user or customer which places the focus on short-term construction cost rather than lifetime value when driving project team focus and relationship building.
- Image: construction work suffers from some negative perceptions which make it difficult to attract and retain skilled workers and graduates.
- Lack of strategy: there is little cohesion within our industry to provide an industry-wide strategy to improve construction efficiency.