Construction Call to Action: Winter Is Coming

The construction industry is facing a demographic crisis that has been building for years—a crisis that has led to a labor shortage unlike anything the industry has experienced in the past. All of us have experienced this labor crunch firsthand at our companies, where filling open positions becomes harder each week. But the numbers are staggering when looked at from a macro perspective. In the U.S., there is a shortage of hundreds of thousands of workers across the industry. A U.S. Chamber of Commerce, www.uschamber.com, Washington, D.C., study in Q1, reported that 70% of construction companies are feeling the labor crunch. That labor shortage is a reality everywhere, but it is particularly pronounced in high-growth states. Colorado, for example, is projected to experience a labor shortfall of 30,000 workers—in one state alone.

Labor imbalances are nothing new in our industry. There is a natural ebb and flow to labor trends based on the cyclicality of so many sectors of the construction industry, but this labor crunch is not a cyclical blip in the balance of supply and demand. This is a fundamental imbalance that is driven by long-term demographic shifts:

See Like a Three-Eyed Raven:

My wife and I were one of a few million people hooked on the HBO series, Game of Thrones. One of the principal characters was Bran Stark, a.k.a., the Three-Eyed Raven. Bran is blessed(?) with the ability to see past and present events without having to be there. 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 the world doesn’t completely forget about its past. By understanding the events (and failures) of the past, he was able to alter future events by not making the same mistakes. Wouldn’t that be nice in our industry?

Seeing Our Past

Our industry builds 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, 4) fragmented business model, 5) highest suicide rate, etc. Given the growth we expect combined with challenges on labor and productivity in front of us and the growth we expect, can we come close to our potential?

Seeing Our Present

According to Dodge Data and Analytics, New York., N.Y., total construction starts in 2019 will rise to $808.3 billion. New starts are generating record-high backlogs in 2019. Even a low forecast for starts in 2019 produces record-high backlog for 2020. Larger GCs are investing more in R&D, 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 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, www.mckinsey.com, New York, N.Y., noted that

“… 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.

It is not just a shortage of labor, it is the shortage of “skilled labor.” The industry can hire workers off the street, but the years it takes to find young people to learn and develop those skills, indicates a multi-year malaise of the situation.

Last year, the U.S. Chamber of Commerce, www.uschamber.com, Washington, D.C., and USG Corp., www.usg.com, Chicago, Ill., published data from Dodge Data and Analytics on construction’s workforce needs. The lowlights:

  • Nearly two-thirds (61%) of 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.
  • Almost all contractors (93%) say they are concerned about the cost of skilled labor.

Across the country, the number of young construction workers declined by nearly 30% throughout the eleven-year period between 2005 and 2016, according to U.S. Census, www.census.gov, Washington, D.C., data compiled by BuildZoom, www.buildzoom.com, San Francisco, Calif.

Seeing Our Future

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. 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.

Altering Our Future

The keys to mitigating our industry’s issues center around 1) understanding the history of our industry weaknesses, 2) focusing on measuring and improving productivity/processes within and across the supply chain, and 3) working with industry partners to rebrand and revitalize the industry.

The convergence of forces cannot be altered in the short term. Mitigation is a multi-prong, investment-intensive strategy. Focusing on productivity improvements should be a strategic initiative on a company business plan. Productivity improvements are under the control of each company. It just takes recognition, a willingness to invest, and action. Key focus areas the construction c-suite must take now include:

1. Assess

  • Because you are so busy, dedicate some bright engineers (or outside firm) to assess what you measure and how you measure. Empower the team to assess and recommend better measurement tools. 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.

2. Predictive Analytics

  • Most companies of size still use historical reports to evaluate how the project is performing, but are not using predictive analytics versus reactive reporting. Fundamental to any construction company is to ensure your project leadership has both current productivity “capture” tools, as well as, productivity “analytics.”

3. 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.

4. 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. 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.

5. 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. For repeatable assemblies/sub-assemblies, great strides can be taken to shorten product delivery.

6. Automation

  • Automation of tasks, 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.

Understand Your Role to Address The Skilled Labor Shortage Crisis

The skilled labor crisis has limited short-term answers and many multi-year actions 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.

Companies and trade associations do a fair amount of education, but it is critical these same organizations 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.

More focus must happen on educating parents and schools on the benefits of construction. Things like: opportunities for advancement, seeing the results of your efforts, comradery, great wages and benefits, exploiting new technologies, a safe workplace, and job security.

Conclusion

In bad times, construction industry margins limit our ability to invest in the future, whether we have people available or not. 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 yields 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 new solutions within your key processes.

You can make an attempt to understand the past and the present, to help 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. 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 look forward to the world ahead.

Michael Oster is the founder of Gemba Technologies, www.gembatechnologies.com/. Gemba Technologies provides CIO services for the construction industry.