COVID-19 has hit societies worldwide, with more than 117 million cases reported internationally in early March. A number that continues to rise. While governments and companies worldwide continue adjusting, there is still so much to do.
The construction industry is more important now than ever, from building hospitals in China in just a few days to donating life-saving equipment. The industry is playing a crucial role in responding to the crisis, and ultimately in the recovery from it. Construction accounts for 13 percent of global GDP. If the currently limited availability of workers is freed up, it could boost the recovery and simultaneously meet our pressing construction-related needs.
Of course there is a dark side, too. Construction sites in many countries have closed down. Those that have remained open have had to deal with disrupted supply chains and operational constraints.
Companies that weathered the 2008 financial crisis typically put full focus on productivity (including cost reduction), quickly redeployed resources and made bold moves (including early divestitures and acquisitions in recovery) to prepare for the future. Leaders invested heavily in digital technologies, differentiated their portfolios and offerings, and cleaned up their balance sheets.
The effects of COVID-19 on construction demand, supply and dynamics
In addition to the short-term impact of an economic downturn on construction demand, the crisis is also expected to affect supply and demand in the long term. This will result in lasting shifts in investment patterns. While a high degree of economic uncertainty remains, research from the McKinsey Global Institute suggested that economic activity could have been back on track by early 2021 – had the virus been contained within a few months and had the right economic policies been implemented. The study suggested longer-term lockdowns or other severe constraints, even intermittent, could result in a severe and sustained economic downturn, with economic activity not returning to 2019 levels until 2023 at the earliest.
The loss of income and lack of consumer confidence have a negative impact on the demand for residential construction and renovation. With the value of buildings and infrastructure closely linked to GDP, the need for new construction activity is highly sensitive to GDP growth, even in longer-term models. A four-year slump, for example, could significantly reduce construction’s share of GDP beyond the initial contraction. The pandemic also creates a crisis in the workplace. Construction workers may not be able to reach work sites from home or abroad and must adhere to protocols that reduce productivity in the near future.
Short- and long-term trends
Short term: increased digitization
Organizations across the industry are switching to remote working. Designers and engineers for example are relying on digital collaboration tools now more than ever. Contractors are looking to online channels to track employee well-being through apps, order construction materials, manage scarce resources more accurately, and maintain their cash flow.
Long-term: strengthened consolidation
Construction professionals want to reap sustainable benefits and support investments in IT, talent, R&D and technology. In addition, companies and investors will increasingly look to consolidation for much-needed resilience on their balance sheets.
Long-term: vertical integration
Construction professionals are increasing their efficiency by implementing standards and stricter control over design and execution. In a post-crisis world, vertical integration (which may include a return to greater reliance on direct labor) is a possible path to greater resilience.
Long term: further investment…
… in technology or digitization as well as innovation of building systems. The construction industry was facing a shortage of skilled workers before the crisis. Having proven to increase productivity in 4D simulation, digital workflow management, real-time progress recording and advanced scheduling optimisation, the case for digital tools is strengthened. Research firm McKinsey expects more companies to invest in automation of on-site and back-office processes.
Long term: increase in off-site construction
Construction in controlled environments has never made more sense than in a world that requires meticulous management of personnel movement and interaction. In addition to existing advantages in quality and speed, such a rationale plays into emerging off-site construction,
Long term: acceleration toward sustainability,…
… including designs for healthier living. A slow shift in demand is emerging. Consumers are leaning towards sustainable buildings and communities as well as healthier lifestyles in general, such as access to local amenities and outdoor spaces, higher air quality standards, and recycled and sustainable materials.
Seven steps towards success
1. Accelerate the rollout and acceptance of digitalization
There is no time to experiment with a perfect road map. Organizations must instead push for proven remote applications. For general contractors, that means optimal collaboration, especially online. With so much remote work, it is no longer possible to walk into a colleague’s office and ask which construction specialist should receive a request for a quote. This needs to happen digitally and everything has to be transparent to all parties at a glance. How? With 12Build Matchmaker. Matchmaker enables your company to see in one concise overview which construction specialists have been requested, whether they have already responded and from whom you can expect a quote.
12Build makes it easy for construction specialists to view documents for a project, without the need to carry around a USB stick at all times. The most convenient aspect about it? Safe and sound, everything is stored in the cloud, so you and all your colleagues can access important documents from anywhere.
2. Invest in the culture and skills needed to work in the new normal
Balancing performance and health is critical at any time, and it’s even more important in this day and age. Construction professionals need to invest to eliminate not only the risks associated with remote working, but also the fears among staff regarding job security and productivity. There is no better time to upskill the entire workforce than now.
3. Keep an overview of your entire business
In a world where construction prices may be under pressure, companies must use their entire scope to stay able to act and react to ever changing situations. The solution? A central control function that can quickly identify and respond to needs in the business.
4. Strengthen supply chain resilience
Most construction companies have already assessed their supply chains for vulnerabilities early in the crisis. Now they need to look at options for strengthening weak links, such as building inventory, identifying backup distribution channels as well as recruiting direct labor. Not only will this ensure minimal risk, but also boost productivity.
5. Reallocate capital and resources
In order to sustain a post-crisis rebound, construction companies need to determine their business priorities. In many cases, responding to COVID-19 can provide opportunities to take long-overdue steps. While companies’ choices differ, they’re all likely to include choices about where to deploy capital, resources and capabilities in the most economical way.
6. Look for opportunities to move work to another location
Suppliers and construction specialists should look to pre-assemble elements in a controlled environment. In the longer term, players may look for more important building elements to modularize or build off-site. Such shifts could help building material manufacturers collaborate in designing new product features that could facilitate off-site operations. In addition, off-site construction can contribute to sustainability goals by reducing material waste, noise and air dust, and enabling circular building systems.
7. Get (figuratively) closer to customers
Customer preferences are undergoing a profound change, namely towards online retail, remote working and sustainable communities. Therefore, it is more important than ever to stay close to current (and future) customers.
A healthy and productive construction industry is vital to an immediate crisis response and to overall economic recovery. This industry will look very different from what it used to. Now is the time for construction companies to prepare for their role in a more productive and resilient industry. Want to know how 12Build can help you digitize and automate? Then contact us and we’ll be happy to explain it to you.