A shift in mentality could help you stay competitive in the face of advancing technology.
The construction business can get complex and painful when you make a mistake in your planning and bidding. While most of us feel we have a handle on the construction cycle to the extent that we can avoid catastrophe, costs keep moving up. This forces many firms to up the bids, find alternative materials or become more efficient to overcome cost increases. In short, most of the variable dollars are related to either materials or labor costs.
It used to be a fairly simple process to anticipate labor and material costs and the alternatives to keep these costs in line for planning and bidding purposes. “Used to be” is the key point to focus on because this ability is disappearing and whole new methods of doing business will soon have a major impact throughout the industry.
Before we go any further on this topic, I want to recognize that contractors are facing negative variances in labor cost caused by worker shortages and the need to grab any potential worker that is breathing. I will not be addressing this specifically, even though some of the new methods in use may somewhat solve your labor issues.
A Change in Mentality
What got me thinking more about this topic was attending a Regional Business Outlook meeting where Howard Tullman made a presentation that was quite outstanding. Tullman is the executive director of the Ed Kaplan Family Institute for Innovation and Tech Entrepreneurship at the Illinois Institute of Technology. The presentation basically discussed how business and personal events would be impacted by technology, and the change in consumer behavior from a “possession” and “ownership” mentality to a “utility value” and “usage” mentality.
Actual pictures of contract work were used by Tullman to demonstrate how construction work would be more efficient, produce more consistent results and be more competitive as a result of both technology products and robots. Such technology could include driverless equipment and trucks; remotely controlled equipment; real-time data on equipment and fuel usage, potential maintenance issues, violation of safety standards; and many more.
It was quite an eye-opener, and I could picture work sites with fewer workers and more consistent workflow. It could get interesting if your competitors start investing in this type of technology.
Build Your Rental List
Now, let’s get back to the “utility value” and “usage” mentality for a moment, because taking this direction could help your competitiveness. You have the potential to reduce both fixed and operating costs even if you don’t plan to invest in the technology available.
What can you do to combat the technology being used by competitors? A lot, really, because if you review your equipment fleet to see where you could rent more rather than own and operate, the reductions in fixed and variable costs will materialize.
Every construction business owns some units it uses every day. You pay for them, maintain them, move them, insure them, make space for them and so on. I’m going to assume these are specialty units that are not readily available in the rental markets. If they are available as a standard rental item, however, I suggest you keep some core units and push off the owning and operating costs for the additional units to the rental company.
Add to the rental list any units that are not used at least 65% of the workdays in the year. That would be 170 days a year of usage. Following rental companies’ example, any unit not achieving 65% utilization should go on the short list to consider for disposition. (See “Manage Your Equipment Like a Rental Company to Maximize ROI”.)
To summarize, think about the “utility value” and “usage” concepts and rent whatever makes sense. This is especially applicable if your work takes you to locations where it is impractical to transport and maintain equipment that can be rented locally.
Change is Afoot
Even though you may not have investment plans to increase technology use, adopting a “utility value” and “usage” mentality can keep you on a better competitive footing.
Look at what you do every day. If you are doing the same things you were doing 10 years ago, it is time to examine ways to get more efficient and thus put more money in your pocket.
