It’s Not Unusual
Hard to believe that July is happening while I am still waiting for April, May and June to occur. The only thing usual during this time is the unusual, and the only thing ordinary is the extraordinary. I will explain.
The ordinary things we usually do—the haircuts, the beverage sipped from the coffee shop table, sending the kids off to summer camp—they are all quite unusual now due to the world’s microscopic guest star—and I don’t mean guest star in a good way. Just about everything we do has been disrupted.
And like any good open, laissez-faire ecosystem, disruptors are ripe to take advantage of the change. The report I first mentioned two weeks ago in this blog shows that. Titled “The Next Normal in Construction” and authored by McKinsey & Company, the report talks about the underperformance of the construction industry as a whole and anticipates nine shifts it expects will alter the way construction projects are delivered. As bounty, it dangles a $265 billion annual profit pool before the disruptors and cautions that, to survive, existing companies must respond.
So what are the nine shifts it portends?
- A product-based approach, in that more and more structures and the services that build them will be delivered and sold as “standardized” offerings and that more and more of these structures will be modular.
- Specialization. Even within subcontractor specialties, such as glazing, companies will start to specialize more in certain segments and target areas. We’ve already seen this in architectural firms that pretty typically specialize in a subspecialty. You will continue to see this trend grow in the glass industry, as well.
- Value-chain control and integration with supply chains. McKinsey says that companies in construction will make moves to own and/or control activities in the value-chain. The report cites design and engineering, component manufacturing, supply-chain management and on-site assembly as examples. It’s no secret that this is already happening in the glass industry as traditional methods give way to design-build, design-assist, delegated design and integrated project delivery. Direct buy and labor-only jobs are examples of this, as well, and we will only see more of it in the future.
- Consolidation. Enough said.
- Customer-centricity and branding. Though this shift seems a bit more ethereal than the others, it is quite real. McKinsey expects construction brands will grow and stand for product and service quality, value, delivery timing, reliability and service and warranties. You don’t need me to tell you how common this already is and how the larger “uber-fabricators” have already positioned their companies as one-stop-shops for customers.
- Investment—in technologies and facilities. The popularity of modular construction will increase, as will the use of advanced technology, fueled by increased R&D.
- Investment in human and other resources. In short, high-tech products and equipment require in-house high-tech employees. If we think attracting industry talent is difficult right now, try attracting industry digital talent. It barely exists.
- Internationalization. As the contract glazing business becomes more standardized, the barriers to operating internationally decrease. What began as a slow anomaly nearly 20 years ago, is now the norm in the contract glazing business. Glazing contractors often compete against companies from Canada, Europe and elsewhere. This trend will accelerate and continue.
- Sustainability. Evaluating and mitigating physical climate risks will take on ever-increasing importance. We are already seeing that firsthand with the focus on net zero buildings, new energy building codes, life cycle analysis and more.
Here’s a look at the factors leading to the disruption and what McKinsey predicts as outcome. You can click on the chart below for a larger, clearer version:
The report predicts that a “winner-takes-most” dynamic will emerge and that companies that fail to adapt will see both margins and market share erode until they go out of business. It further projects that nearly 50 percent of the current construction market is threatened by these disruptions and that the COVID-19 crisis will accelerate the change.
Even when the pandemic is over, we will not yet be done with the usual becoming unusual—at least in the contract glazing business.