Construction sales and backlogs are at all-time highs. Additional opportunities are expected with the highly anticipated government infrastructure deal. These are good times. However, winter is coming. Without radical change, companies will fall short of their short-term revenue goals and the industry will not meet heightened expectations. Strong backlogs and aggressive schedules will be compromised with the lack of skilled labor and laissez-faire attitudes on wholesale productivity improvements. This is a crisis in the making. What can be done to mitigate labor and productivity concerns in the short term and establish strategies for long-term success?
See Like a Three-Eyed Raven:
Whether you are a fan of Game of Thrones or not, there was one character on the show who was both creepy and intriguing. He was Bran Stark, a.k.a., the Three-Eyed Raven. Bran is blessed (cursed?) with the ability that lets him see past and present events without having to be there. In the show, the Three-Eyed Raven is the living history of the world and it’s his job to keep all the information safe and pass it on so that the world doesn’t completely forget about its past. The key villain in the show, the Night King, wants to destroy mankind and the memory of mankind, hence he wants to destroy Bran Stark who retains all memory. One of the classic Three-Eyed Raven quotes in the show that we should all learn from is, “If we forget where we’ve been and what we’ve done, we’re not men anymore. Just animals.” By understanding the events (and failures) of the past, we are able to alter future events by not making the same mistakes.
Seeing Our Past (Not So Good…)
Our industry is one of the oldest of all industries. We build amazing things, but we could be doing so much more. We are hurt by our reputation of having the 1) lowest productivity improvement in 50 years across all industries, 2) Inability to find, attract, and retain skilled labor, 3) Worst safety record, 3) Least amount of tech investments across all industries (excluding farming), 4) Most fragmented business model 5) Highest suicide rate, 6) The most bureaucratic, etc. We seem to succeed despite our history. Given the challenges on labor and productivity in front of us, can we come close to our potential?
Seeing Our Present (Challenges Ahead…)
According to Dodge Data and Analytics, total construction starts in 2019 will rise to $808.3 billion, up from $806.8 billion in 2018. New starts are generating record-high backlog for every sector in 2019. Even a low forecast for starts in 2019 produces record-high backlog for 2020. Looking at these forecasts, these are the good times! Larger GCs are investing more in R&D than ever before, but many GCs struggle to keep up with the work and resources available to do the work “right.”
We struggle with the “improvement paradox” of working hard just to keep up with current customer needs, and not committing enough of the right people (i.e. your best…) to focus on short/long-term process improvement. Our people may also push back on investments because they are too busy “baking cookies the same way they always have” or they are being asked to change too much, too quickly. Implementing new systems and process improvement can be time intensive and disruptive. The money to invest is there, but the people and time it takes to invest in real change is the challenge.
In its February 2017 whitepaper on construction productivity, McKinsey Global Institute highlighted the lackluster productivity statistics for our industry:
“…Construction sector labor-productivity growth averaged 1% a year over the past two decades….If construction productivity were to catch up with the total economy, the industry’s value added could rise by $1.6 trillion a year. That would meet about half of the world’s annual infrastructure needs or boost global GDP by 2%. One-third of the opportunity is in the United States, where, since 1945, productivity in manufacturing, retail, and agriculture has grown by as much as 1,500%, but productivity in construction has barely increased at all.”
The term labor shortage does not do the severity of the situation justice. It is not just a shortage of labor, it is the shortage of “skilled labor.” The industry can hire workers off the street (at rates higher than ever), but the years that it takes to find young people to learn the necessary skills, and then develop those skills, indicates a multi-year malaise of the situation.
Last year, the U.S. Chamber of Commerce and USG Corp. published data from Dodge Data and Analytics on construction’s workforce needs. The lowlights:
- Nearly two-thirds (61%) of all U.S. contractors report difficulty finding skilled workers.
- Over two-thirds (69%) of small firms reported difficulty finding skilled workers, compared with 59% of midsize firms and 50% of large firms.
- A significantly higher percentage of contractors in the U.S. Midwest (60%), West (60%) and South (58%) are concerned about adequate skill levels than contractors in the Northeast (41%).
- Almost all contractors (93%) say they are concerned about the cost of skilled labor.
- Almost half of all contractors surveyed said they expect this problem to worsen.
Across the country, the number of young construction workers declined by nearly 30% over the eleven-year period between 2005 and 2016, according to U.S. Census data compiled by BuildZoom, a contractor website with access to hundreds of millions of permits and license records.
Seeing Our Future (if we stay on the same path….)
The rapid decline in the availability of skilled laborers is detrimental for contractors and project owners alike, with a dramatic impact on overall costs. In “normal” times with a temporary shortage of labor, companies will increase wages to attract talent to meet demand. However, these are not normal times. The shortage of labor will last years. Increased labor costs will put pressure on contractor margins. Escalating costs will go straight to customers that they serve. Building owners will then be faced with increasing their costs to all consumers for their products (airports, laboratories, hospitals, schools, retail, etc).
Altering Our Future: Challenge the Status Quo like Billy Beane
Unlike the Three-Eyed Raven, Billy Beane is a real person. Billy was a former Major League Baseball player and general manager of the Oakland A’s baseball team. Billy’s story became widely known after Michael Lewis’s 2003 nonfiction book and subsequent film starring Brad Pitt called Moneyball. In the film, Billy Beane, faced with the franchise’s limited budget to attract name players in 2002, builds a team of undervalued talent by taking a new and sophisticated “sabermetric” approach to scouting and analyzing players based on their OBP (on-base percentage) while ignoring their perceived weaknesses. Billy Beane understood the failures of the past, as well as the limitations (his team’s budget) of the present. His innovative approach to baseball strategy, analytics, and player specialization changed how baseball is played. In December 2009, Sports Illustrated named Beane #10 on its list of the Top 10 GMs/executives of the decade in all sports. The movie, Moneyball, demonstrated the value of innovative thinking and the importance of implementing new processes to drive change and create solutions. It’s also a great example of having the courage to take calculated risks.
Advancing Productivity Must Be a Strategic Declaration in Your Business Plan
The keys to mitigating (not preventing) our industry’s issues center around 1) Understanding the history of our age-old industry and its weaknesses, 2) Focusing on measuring and improving productivity/processes within and across regulatory and company, and 3) Working with industry partners to rebrand and revitalize the industry.
The convergence of the forces cannot be altered in the short term. Mitigation is a multi-prong, investment-intensive strategy. To reduce risks, focusing on productivity improvements should be a strategic project on a company business plan. Productivity improvements are under the control of the company. It just takes recognition, a willingness to invest, and action.
Today, our use of KPIs (key performance indicators) to measure productivity is inconsistent at best. Likewise, the tools/methods to measure productivity are reactive and stale. Without tools to measure effectively, companies rely on intuition and historical data, sometimes resulting in knee jerk reactions. You can’t change what you don’t measure.
Dedicate some bright engineers (or hire a firm) to assess what you measure and how you measure. Often, we cannot see the forest for the trees. Because you are so busy, identify a team to assess and recommend better tools for your team. This demonstrates to your young and upcoming staff that you are serious about improving the tools. No young person wants to work in a company that is not investing in its people, processes, and technology.
- Predictive Analytics
Looking across our industry, there is a significant lack of standardization of tools and metrics used to measure productivity. In general, most companies of size use historical reports to evaluate how the project is performing, but not using predictive analytics to predict versus reactive reporting. Reactive reporting generally means yelling at the project manager when performance is suboptimal. Fundamental to any construction company is to ensure your project leadership has both current productivity “capture” tools, as well as, productivity “analytics.”
- Process Improvement
If the company wants to instill a can-do attitude and a culture of process improvement, it is critical for this to be a constant message. Construction companies are so busy doing what they have always done, they sometimes lose focus and don’t challenge workers (actual tradespeople), for ideas on streamlining what they do. I know there are nay-sayers who will say the trust does not exist between staff and the trades for that type of dialogue. Suits and trades must get together and collectively understand common goals.
- Better Tools
With construction labor accounting for 30% to 50% of a project’s total budget, keeping workers productive on value-added installation tasks is very important. However, as shown in industry third-party studies, the time workers spend on tools is only 50% for commercial building projects and only 27% for industrial projects. If we want to gain traction on eliminating non-productive tasks on construction sites, we need to give the field workers better tools and information to start and complete their work packages. The technology already exists. You are the bottleneck if you choose not to invest in it.
- Prefab, Modularization, and External Sourcing of Material
The merits of prefabrication and modularization are real. Adapting business processes to support as much prefab as possible has major potential. Obviously, prefab is a little more difficult for the one-of-a-kind products we develop. However, for repeatable assemblies/sub-assemblies, great strides can be taken to shorten product delivery.
Automation of tasks (e.g. new technologies, robotics, etc.), previously done by humans, holds the greatest promise for improving productivity but arguably is a concern for people who are already in the workforce or are considering it. Automation is going to happen. It is inevitable. Automation can improve the safety of a project site, as well as, eliminate repetitive, mundane tasks. This is no different than any other industry. However, by automating high risk or repetitive tasks, you allow humans to focus on what they do best, solving the real problems while keeping them safe. It should be branded accordingly.
Understand Your Role to Address the Skilled Labor Shortage Crisis: We All Can’t Do Everything, but
Everyone Can Do Something
The skilled labor crisis has limited short-term answers and many multi-year actions that must take place. Many of the long-term solutions involve support from the government (e.g. immigration reform). However, our industry has an image problem and it is up to us to attack this on all fronts.
Research has shown young people rely on their parents and schools to help guide them in their career choices.
Companies and trade associations do a fair amount of education (via career fairs for high schoolers and summer camps for younger people), but it is critical these same companies and associations push lobbyists and school districts to bring back industrial arts as required classes at the middle-school level. By the time a student reaches high school, it is too late. Many students have already narrowed down their career choices.
As critical as reintroducing industrial arts to schools, a major investment by companies and our trade associations needs to take place to remove the stigma that many parents have of our industry. Role-based marketing and rebranding on the merits of construction jobs are crucial. There is little, if any, public awareness taking place on improving our reputation. Without this marketing and education plan, are parents more prone to say these things?
Rather than this being the brand that is perceived, more focus must happen on educating parents and schools on the benefits of construction: opportunities for advancement, seeing the results of your efforts, comradery, great wages and benefits, exploiting new technologies on the jobsite, safety in the workplace, and job security.
In bad times, construction industry margins limit our ability to invest in the future, whether we have people available or not. The result, limited change that impacts our ability to keep up with demand and grow. However, these are not bad times. More than ever, it is critical we make strategic investments to improve those things that improve productivity in the short term and establish relationships that influence our industry in the long run. Making these investments will yield higher long-term margins.
We must see like a Three-Eyed Raven, plan how to mitigate what will occur, and act to combat the issues on a united front. With constrained schedules, lack of skilled labor, and lack of productivity improvements, it will be critical for your company to implement the technology that will be integrated within your key processes.
It is one thing to see the past, understand the present, and predict what may happen in the future. However, if you choose to simply understand without acting, you are the problem. Doing nothing is not an option. You must challenge the status quo like Billy Beane. You must apply a data-enriched organization. Data analytics can help you react to problems, predict future problems, and change processes accordingly. You must drive change, process improvement, and help to rebrand the industry. Only then, will a Three-Eyed Raven smile as he envisions the world ahead.