Uncertainty is the theme for construction companies in 2019 as inflation, trade disputes and a host of other risks threaten to thwart the industry’s growth streak in 2020 or soon thereafter.
December's lower-than-expected construction spending, reported this week, sparked volatility in the stock market, and federal data released last week showed that after April through June’s impressive 4.2% growth rate and July through September’s 3.4%, gross domestic product slowed to expand by only 2.6% from October through December.
When a cooling of the economy is evidenced by a combination of risks and hints, companies typically reel in their budgets, which often leaves technology investments left hanging in the balance.
Setting the strategy
But ups and downs are inherent to the economic cycle, said Jason Pelkey, Gilbane Building Co.’s CIO, and it shouldn’t come as a surprise that growth is gearing down after the industry's extended period of expansion. Ideally, a long-term IT strategy accounts for this and looks more like a straight line that cuts through the volatility.
“If you play the spike game where you fund technology only during the good times and you cut it way back during the recession times, it creates a spiraling effect,” he told Construction Dive.
Contractors’ best bet, then, Pelkey said, is to maintain a “deliberate and judicious” focus on funding tools that can improve productivity across the enterprise and expand into different areas.
“We have to focus on getting tech a little bit bigger piece of the pie while we have the pie money."
Michael Oster
Founder, CEO at Gemba Technologies
For example, Gilbane’s adoption of the Triax Spot-R network began as a safety initiative, he said, but broadened into an exploration of how the internet of things could be leveraged to get full value out of data and save field workers time by automating things like time and attendance.
Riding the wave
Last year, IT leaders at construction firms took economic growth in stride. The construction and trade services sector led all U.S. and Canada sectors in IT spending growth with a 5% increase in operational budgets compared to a 2.8% average, according to a Computer Economics study.
There’s more room for growth, though, according to Michael Oster, founder and CEO of the IT and CIO consulting firm Gemba Technologies, as long as companies can break the habit of lamenting that there isn’t enough time, money or staff to change.
“We have to focus on getting tech a little bit bigger piece of the pie while we have the pie money,” he said in a recent webinar.
With revenue and margins at elevated levels, Oster said, the time is right to fund new solutions for both the front and back office that can lower operating costs and help make a company more competitive.
And such investments during a boom time can create a ripple of productivity improvements that carry into a subsequent downturn, according to Pelkey. These benefits may go unnoticed while the economy is strong, but they pay their dividends the minute that resources tighten up, he said.
Tempering spending
Although it took a small dip at the end of last year, construction backlog is high by historical standards, according to the most recent Associated Builders and Contractors report, sitting at 8.9 months for the fourth quarter of 2018.
As keeps coming, contractors can afford to be ambitious and a little bullish in their strategies, taking on R&D and sampling new products to see what might work, Christian Burger, president of Burger Consulting Group, an IT firm that works with contractors, told Construction Dive. But the belt will tighten, he said, at which point priorities will have to shift away from this experimentation toward products with proven value add.
One of the steps that contractors can take ahead of a downturn, according to Burger, is to assess the value of the software products they’re using and take an inventory of the durations of those licenses to identify any that could be pulled back if it came to that.
When new contracts are needed, it’s best to license a software as a service solution (SaaS) for a year without a commitment beyond that, he said, until resources for 2020 can be assessed.
Process improvements amid distractions
Perhaps the best use of time and resources now, Burger added, is to improve processes around existing technology so that nothing stands in the way of a product’s value to the company later on.
But there’s a lot in the marketplace to distract from this underlying goal.
An influx of venture capital funding to the construction technology space resulted in unique innovations, and an overwhelming pool of more than 2,000 vendors. While contractors may be tempted to dabble with new products, these can’t add value if they’re applied on top of “antiquated, outdated, inefficient business processes,” Burger said.
“If you're a little bit out of shape and … all you do is keep buying more gym equipment and gym memberships, but you never go, what is that doing?”
Christian Burger
President, Burger Consulting Group
Trimming down on process inefficiencies should start at the most basic level, he said, by automating things like timecards, invoice routing and purchase orders or by streamlining training and use of existing products like enterprise resource planning platforms. These comprise the base of the pyramid, the consultant said, and should receive the bulk of IT’s efforts before moving on to “the next cool thing.”
Plus, construction tech startups are on far less stable ground than contractors. Nearly 80% aren’t making any money at present, Pelkey estimated, and the odds are against their survival during a downturn. “Nobody’s going to have the money to spend on them anymore if they haven’t already proven their case,” he said.
Room for innovation?
Individual contractors may not have the purchasing power to keep some of the promising project management, collaboration and other digital tools afloat, but AEC software powerhouses like Autodesk and Oracle do. Oracle’s purchase of cloud-based project collaboration tool Aconex made headlines in 2017, and Autodesk in January absorbed bid management platform BuildingConnected after acquiring PlanGrid and Assemble Systems.
When the $275 million BuildingConnected deal closed, Autodesk CEO Andrew Anagnost told Construction Dive that construction is his firm’s next growth area, whatever economic storms may come. “In the last downturn, the construction industry continued to invest in technology,” he said, “and there was a very simple reason why it did: The most digital player, the one that can respond the most quickly, is going to be the one that survives and wins when the projects get more competitive.”
Provided it’s not as severe as the Great Recession, tipping into a down cycle may not be such a bad thing for contractors, according to Burger, and won’t necessarily preclude innovation. When companies have to narrow down the platforms and programs they’re running, they’re forced to consider how their tech strategy could be executed better or differently, he said. A downturn could also take some pressure off of the labor shortage as well, and free up focus on initiatives other than staffing.
