Yogi Berra. That’s the infamous quote from none other than Yogi Berra, American baseball icon. If you are in the construction industry, that may be how you feel if you lived and worked through the “Great Recession” and again now in the Covid-19 Pandemic: Is this really happening? The difference is that this time, the impact on entire supply chains across the globe has been so severely disrupted, it really is unprecedented. It’s not déjà vu.
Failing to Plan Now is Planning to Fail Later.
The construction industry ecosystem is widely regarded as the single largest industry in the world, at 13% of global GDP. In a June 2020 analysis titled The Next Normal in Construction, McKinsey & Company drew several conclusions. If your organization is in the construction industry, or anywhere along the construction supply chain (e.g., architect, product supplier, equipment dealer), take note:
- No industry is immune to the global forces of Covid-19-driven change, including U.S. construction.
- All trends that were driving disruption have been accelerated due to Covid-19 and other factors.
- Our construction clients at Kraus-Anderson Insurance are having their value chain disrupted, some much more so than others. The construction industry tends to be fragile to economic cycles, more so than other industries. Cyclical demand generally leads to low capital investment.
- Big shifts in the way projects are getting delivered are occurring. You should pay attention to changing customer demand, changing construction inputs and characteristics, and changing market rules and regulations that will drive:
- Product-based approaches (e.g., modular senior housing);
- Specialization (e.g., CM/GCs that focus only on their primary market sectors);
- Value-chain control and integration with industrial-grade supply chains (e.g., Fastenal);
- Consolidation (e.g., mergers and acquisitions);
- Customer centricity and branding (e.g., The KA/Cub Foods Standard Grocery Store Building);
- Investment in technology and facilities (e.g., smart buildings);
- Investment in human resources (e.g., to address scarcity of skilled labor and repurposing others);
- Internationalization (e.g., offsite production means international manufacturers and distributors will enter);
- Sustainability (e.g., new lightweight materials, carbon footprint awareness).
- At Kraus-Anderson Risk Innovation, we believe if construction companies do not have a specific and written strategy for addressing disruption (i.e., reinventing their business) by October 2021, they are exposed to undue corporate risk.
Action Step?
There is just one critical step for construction-related businesses: research and plan for a reimagining of your business. Be well!