From New Normal to Next Normal

The good news is … that everyone is busy. Everyone I spoke with last week told me how busy with work they were. That’s the good news.

There could be bad news though, based on the reason for the good. Is everyone busy because of all the work they could not accomplish during the height of the stay-at-home orders? Are they busy because lay-offs and downsizing have reduced the amount of human capacity available to accomplish said work? Well, there seems to be a bit of that, but not as much as was expected. For the most part, companies are just happily, joyfully overworked.
Though the COVID-19 crisis will have far-reaching ramifications for years to come, it’s not the only force that will affect the glazing contracting business. McKinsey and Company, the famous research and consulting company, has just produced a look at the future of the construction industry. Though written mostly before the pandemic, it focuses on how coming disruption will reshape the construction industry. Its title? Not the new normal but the “Next Normal.”

The report focuses on how and why the $1.6 trillion construction industry must evolve and why it is ripe for major disruption. It cites some sobering statistics, saying that even though construction is the largest industry in the world, representing 13% of the global GDP, it has seen anemic growth rates of only 1% annually for the past 20 years.
And you and I know how the glazing contracting industry fares in this ecosystem. It often has among the lowest margins with the least increases in material cost. If the entire construction industry is anemic, the glazing portion is on life support.

The McKinsey report predicts nine changes that will significantly affect the way construction projects are delivered and it points disrupters to an estimated $265 billion pool of profit for the successful ones. It urges those in construction to develop ways to either lead in disruption or deal with it in order to be part of this “next normal.” Consider this assessment:
“Annual productivity growth over the past 20 years was only a third of total economy averages. Risk aversion and fragmentation as well as difficulties in attracting digital talent slow down innovation…,” says the report of construction. “Profitability is low, at around 5% EBIT margin, despite high risks and insolvencies. Customer satisfaction is hampered by regular time and budget overruns …,” it continues.

The report also lists the cyclic demand, low levels of capital investment, the high percentage of manual labor used and low barriers to entry as other reasons why the industry is ripe for change. It anticipates that change coming in four major forms:

  1. Industrialization—new technology
  2. New materials
  3. Digitalization of products and processes
  4. A new group of players, that is, new entrants to the business who don’t conduct it the same way as usual.

So our wild, wild west of an industry is about to get wilder for a while. We’ll go over what changes to expect next time.
SOURCE: The Next Normal in Construction: How disruption is reshaping the world’s largest ecosystem. © 2020 McKinsey and Company.