Editor’s Note: The content below is an excerpt from a report conducted by Associated General Contractors (AGC) and engineering and construction industry management consultants FMI. The full study also includes useful discussion of results relating to recession preparations, contractors bringing design services in-house, and changes in risk management priorities and practices. Now in its third year, the annual survey polled 100 contractors who are involved in AGC’s Risk group. The survey was done in December 2018. Key findings from the study, “Update on the Evolving E&C Risk Environment: The 2019 AGC/FMI Risk Management Survey,” are available through the FMI website (fminet.com).
Top Risks Today
For the third year in a row, lack of qualified talent was the top risk for study participants, with the limited supply of skilled craftworkers being the biggest challenge for 80% of respondents (Fig. 1). The limited supply of field supervisors became the second most critical risk (44%) and reflects the ongoing demographic shift of baby boomers cycling out of the industry.
Fig. 1. Survey respondents cited a limited supply of skilled craftworkers and field supervisors as their top risk concerns for 2019.
While talent is a top concern, some executives are optimistic and feel that a younger generation may be just what the industry needs. Brad Barringer, CEO of B.R.S., Inc., a privately owned general contracting firm in North Carolina, says, “We’ve found that young people are different than they were 20 years ago. Today’s young people want the opportunity to take responsibility and take on new leadership positions. Twenty years ago, you wouldn’t have put a young person in a foreman position until he/she had at least five years of experience. Now, we’re putting people in a foreman position with no more than two years’ experience, and they’re doing great.”
Training and developing professionals have quickly become strategic priorities for many engineering and construction (E&C) firms, but, unfortunately, many firms still struggle with talent development. Per FMI’s most recent talent development study, the overall results of learning and development programs remain mixed. We believe one apparent reason is that many E&C firms still treat training as an opportunistic or one-off “skills problem” for an individual or group of professionals, when in fact it should be tackled as a systems issue. Said differently, winning the war for talent requires a holistic, long-term planning approach. Learning and development must be integrated into a comprehensive talent management program that purposefully links the organization’s vision, strategy, key roles and skills needed to make progress on its business objectives. This approach requires leaders to think strategically about the company’s future and to ask questions such as:
• What do I want my company to look like five or 10 years from now?
• What must our culture, talent processes, and systems look like to achieve that vision?
• What skills and competencies will my people (and future hires) need to demonstrate to achieve my talent aspirations?
• Given my talent aspirations, am I investing in the right skills and competency development to create a pipeline of top-tier talent?
• Have I created a culture where feedback and learning are core expectations and a part of everyday work?
Addressing such questions will help industry executives systematically plan for retaining and developing future talent. This is particularly critical as E&C firms face looming losses between 14% and 20% of certain employee groups, including executives, field managers, senior managers, and project managers over the next few years due to attrition or retirement.
Front-line field leaders are managing thousands of dollars in client work daily and can make or break a construction firm. In a world where construction clients are highly cost-sensitive and risk-averse, skilled front-line leaders are the most essential differentiators. Nevertheless, FMI’s observations suggest that very few companies are properly prepared to transition field leadership from one generation to the next.
Mark Breslin, CEO of United Contractors, a highway construction company based in Johnston, Iowa, confirms this point. “Most of the crew on every job in the U.S. and Canada are going home soon and they are never coming back,” he says. “No organization that I know of is fully prepared for this situation. Maybe 25% are actively working on it with a plan of action, 50% are aware of it and talking about it, and 25% are simply doomed and won’t know it until it is too late.”
Taking a strategic approach to talent development will help ensure that the right people are ready at the right time to enter leadership and/or ownership roles. Risk managers and human resource (HR) leaders should both have a seat at the executive table to tackle this critical issue in the context of a comprehensive, strategic enterprise risk management program.
Future Risks
Rumblings about a recession that may lie on the horizon are starting to make company leaders a bit nervous, but many are too busy keeping up with current work to start thinking about contingency planning. In fact, the constrained labor situation, in conjunction with material price increases, compressed project schedules, and ongoing margin compression, is creating more risk for E&C firms today — precisely when they find themselves at the top of a robust market. As we like to say, “Contractors don’t starve to death; they die from gluttony. They take on too much work, too fast, with inadequate resources, resulting in financial trouble when they run out of cash.”
Our research indicates that a potential economic slowdown is top of mind for most contractors. In 2016, just 8% of survey participants listed an economic slowdown as a perceived risk. Today, that statistic has jumped to 58%. With growing concerns about the consequences of a potential downturn, some organizations are considering proactive steps to reduce risk and limit exposure.
Paul James, senior vice president of risk management and general counsel at Bond Brothers, a full-service construction management and general contracting company in Medford, Mass., states, “One of the ways we mitigate a downturn is through business line and geographic diversity. One of our very purposeful initiatives in recent years has been to follow what we think is a good and deep vein of work, and [we] continue to expand geographically to help resist some of the implications of one market sector slowing down due to economic forces. We plan over multiple years, and we also have a five-year plan, which is a subset of the multiyear plan. Our growth is intended to be very controlled and very planned, and that helps at least to some degree with a potential downturn.”
Fig. 2. Economic slowdown, field supervision, and strategic agility are the top three future risks perceived by survey respondents.
Looking to the future, executives remain very concerned about field supervision (46%) as well as their organization’s “readiness/strategic agility” (39%) to adapt to a fast-changing business environment (Fig. 2). With the continued influx of information technology into the E&C industry and the rapid development of new technologies and innovations, contractors struggle to identify the tools that will help them stay relevant. To make matters worse, most contractors invest only 1% or less of their revenue in research and development (R&D), trailing most other industries.
While strategic agility is a rising concern for many, there is also a growing comfort with the implementation of new technologies and processes within organizations. According to a recent study conducted by AGC and Sage, an enterprise software company based in Newcastle Upon Tyne, England, “Firms are adopting a variety of approaches to replace workers or allow for use of workers with less training than before. Nearly one-third of respondents (32%) report their firms are using methods to reduce on-site work time, including lean construction, BIM, and other virtual construction techniques, or off-site fabrication. Twenty-eight percent of firms are investing in labor-saving equipment, including drones, robots, 3D printers and laser or GPS-guided equipment. And 18% of respondents report adding specialists, such as architects, BIM or lean construction personnel, drone or other equipment operators, data insights or IT personnel. Two-fifths (41%) of firms use lean construction principles on their projects and/or in their operation, while one-fifth (20%) of respondents expect an increase in the number of their firm’s operations that involve BIM.”
Patrick O’Connor, vice president of risk management and counsel at Chicago-based construction company Walsh Group, takes this new perspective. “One of the biggest risks today is not leveraging technology or refusing to be an early adopter of the ‘next big thing.’ There will be major technological disrupters in this market, and the company that’s slow to pick up on them is essentially diminishing its position in a very competitive industry,” he says.
Today’s fast-paced E&C environment is pushing firms to reinvent themselves to keep up with the competition and remain relevant in the future. Status quo productivity will not suffice. The demand is for a better approach to designing, manufacturing, and constructing projects, and it requires a tight focus on the present while also keeping an eye on long-term positioning.
And while technology and innovation are clearly industry disruptors, the most important thing to remember is that the core success of a business — its people — remains its greatest asset. To remain relevant and win in the future, E&C firms must prioritize technology strategies to create innovative corporate cultures and change antiquated mindsets.
Hoover is content director, FMI Corp., Raleigh, N.C. She can be reached at [email protected]. Kennedy is general counsel of the Associated General Contractors of America (AGC), Arlington County, Va. He can be reached at [email protected]. Howsam, CRIS, LEED AP BD+C is a principal with FMI. He can be reached at [email protected]. Menard is market research associate with FMI. She can be reached at [email protected].
