What does the future of the construction industry look like? Significant disruption is almost certain, but so too is opportunity, says Brian Moore of FMI Corporation during a recent webinar hosted by the American Concrete Institute (ACI).
Moore points to three trends in particular that will either make or break your construction firm over the next decade: the ongoing labor shortage, growth of megaprojects and the implementation of technology.
“These forces will come together to create significant disruption,” he says.
And while the idea of “disruption” is always scary, Moore sees this next chapter for the construction industry as an exciting one, specifically for those companies who can find a solution to these major disruptors.
“We really think there is opportunity to gain a competitive advantage among these challenges,” he adds.
1. Labor Still the Biggest Challenge
The unemployment rate nationally is the lowest in history, meaning anyone looking to hire is already looking at a shallow talent pool. Couple that with low output per worker growth due to low investment in technology, and the construction industry is looking at real labor constraints going forward. Moore doesn’t expect that to change any time soon.
For the last several decades, the manufacturing sector has invested significantly in technology to significantly improve the output of its workers. A less capital-intensive industry, the construction business, however, has historically grown by employing more people, not buying more equipment. It’s easier to hire more labor when the economy is good and lay-off employees when it falls than make big capital investments in technology and equipment.
The industry, Moore adds, has also found it easier to simply raise costs and prices than invest in becoming more efficient.
That trend must change going forward, however, as construction activity is only expected to grow. And companies who are unable to find labor will be constrained by what types of projects they can take on and, therefore, how much they can grow.
So, what can you do? Moore offers three solutions:
- Develop a bigger pool to draw from by banding together as an industry to attract more talent, or go at it alone and grow talent locally.
- Beat the competitors by recruiting, hiring, onboarding, developing, managing performance, compensating and retaining better.
- Change the math—More dollars per worker x a larger number of workers = greater output.
2. Megaprojects Will Shakeup Mid-Size Firms
Projects are getting larger, faster and with little room for failure. In one influential study, Bent Flyvbjerg, an expert in project management at Oxford’s business school, says that globally, megaprojects make up 8% of total global GDP.
To meet the demand for these projects, companies must look for alternatives for project delivery. Two options that have already emerged are design-build construction and prefabrication.
In traditional project delivery, the project owner manages two contracts between the designer and the contractor who also oversee contracts with subconsultants and subcontractors. Design-build project delivery involves a single contract where the designer and contractor work together as a team from the beginning.
According to the 2018 Project Performance Review from The Charles Pankow Foundation and Construction Industry Institute, design-build projects “are delivered faster and with greater reliability in cost and schedule performance” compared to alternative delivery methods.
The review found that design build projects are 1.9% less expensive than construction manager at risk (CMR) on a cost per square foot basis and 0.3% less than design-bid-build (DBB). Design build projects are 13% faster than CMR during the construction phase and 36% faster than DBB. From design through final completion, design-build projects are delivered 61% faster than CMR and 102% faster than DBB.
Furthermore, market research by FMI predicts 18% growth in design-build construction by 2021, with fewer traditional low-bid projects and nearly half of the market utilizing design-build.
Prefabrication or modular construction is another emerging delivery method, which consists of preassembling components of a structure offsite at a factory or warehouse to be transported to the final jobsite.
Prefabrication is already used in several manufacturing-related sectors, but it is expected to grow in construction because “it allows companies to finish projects more quickly and efficiently,” according to a recent blog post by Monroe Engineering.
The concrete industry is already leading the way with prefabricated panels, which make constructing a building easier and more efficient. A mega-warehouse in Toms River, N.J., for example, was recently completed in 14 days using 217 custom-made precast concrete panels.
Moore expects this growth in megaprojects, however, will be a setback for mid-size firms that are finding it a more difficult path for sustainable growth.
“Growth in megaprojects will lead to more large firms and smaller firms carving out a niche to remain competitive,” he notes.
Moore also anticipates an explosion of foreign-based firms looking to the U.S. as a safe haven from risk abroad and a market of opportunity.
3. Construction Tech is the Present
Technology will infiltrate the construction industry more quickly in the next decade than it has in the previous five decades, Moore says.
For one, companies are increasingly looking to technology to solve their people problems.
“We are taking a carbon-based workforce and augmenting it with a silicon-based one,” Moore says.
Venture capitalists also see the construction industry as one ripe for a digital transformation, investing nearly $1 billion in construction technology in the last year. This means that the prospect of construction technology is no longer science fiction; much of it already exits, and it is beginning to be deployed today.
“Our industry, our national economy is demanding it,” Moore adds.
How to Take Advantage of Disruption
So, what can you do to emerge as a winner in the next age of construction? Moore says you must start preparing for the change of tomorrow today. He offers the following tips:
- Start with your workforce. You must have good people strategies in place.
- Build a bigger balance sheet. Be too big to fail.
- Build a better portfolio by diversifying market dependencies.
- Develop a plan to understand and invest in technology.
But most importantly, Moore concludes is simply asking yourself: “Are you prepared for the future?”
