Strategy for Success in 2022 – An Unpresented Market
For the entire year this blog will be trying to help construction professionals fashion a response to the four factors that are affecting the 2022 construction market: (1) Inflation (2) Shortage of skilled labor (3) Supply chain interruptions (4) Materials shortages due to COVID caused production disruption at the source of supply. Today we will look closely at the mid-sized construction company’s most effective strategic response to labor shortages in 2022.
Industry Wide Shortage
Everyone is suffering the same shortage of skilled labor. Contractors, both large and small, were competing for skilled laborer well before the pandemic. All the info we have gathered makes the same point; the large contractors are winning the competition simply because they can afford it. The mid-sized contractors we talk to report that key employees are slipping away at an alarming rate, going to work for more money, better benefits, and better working conditions than the mid-sized contractors can afford to offer. Pirating employees from the competition is certainly not the solution for the vast majority of contractors.
A few weeks ago, we discussed the systemic causes of the current construction skilled labor shortage:
- Baby boomers have seen the recent COVID pause as an opportunity to retire, and they are not returning to work. Boomers were the largest single generational segment of construction’s labor force.
- The competition for labor across the economy has erased the construction industry’s traditional wage advantage as all employers in every industry have been forced to increase pay and benefits to attract scarce workers.
- Young people are no longer attracted to construction because they seem to consider physical labor as dirty and dangerous, and they can find easier, more comfortable employment elsewhere.
- The anti-immigration bias that has become more popular in recent years is limiting the availability of new immigrant labor that was historically a source of both skilled and unskilled construction labor. We have forgotten that immigrants built America.
- The decline of the organized labor movement reduces the number of apprentices in programs managed by unions.
Planning for 2022
Everyone in the industry recognizes that there is no quick fix for the system-wide causes of the labor shortage outlined above. The entire industry would have to conjure up the will to change immigration policy in Washington, buoy up the union movement, lure the baby boomers back out of retirement, and wet a younger generation’s appetite for hard work. What are the chances of that happening in time to solve our labor shortage problem in 2022?
What Can Be Done?
If you are a billion-dollar construction firm – you can use growth to expand beyond this labor- shortage dilemma. Industry consolidation (where the big guys take more and more of the work away from the smaller regional contractors) is happening at a rapid rate as owners and government agencies bundle larger and larger projects and award contracts to large contractors who appear more capable of completing bigger jobs.
So, if you’re a mid-sized or smaller regional contractor all this optimistic talk about the expanding 2022 construction market may be a cautionary tale. Ramping up in 2022 when you are plagued by a persistent shortage of skilled labor will increase your risk of not completing jobs on time and on budget. This may lead to a loss of reputation into 2023 and beyond and a weakening of your company’s capital position as you try to collect final payments or slog through litigation resulting from late project deliveries.
In this post-pandemic construction market, still plagued by persistent labor shortages, rampant inflation, and supply chain interruptions, the mid-sized or smaller contractor needs to design a 2022 business strategy that focuses on profits rather than sales. In the near term, you cannot compete against large contractors who have enormous capital bases that allow them to fund dramatic inflation in both wages and materials while they wait for markets to normalize.
But mid-sized contractors have an ace in the hole. Because they are smaller, more focused, and flexible; they can specialize in a segment of the industry that they are better at than the competition. They can focus on jobs that are their specialty and sell their expertise to owners, government agencies, and the big contractors that would rather hire them than attempt to develop a competitive expertise in the smaller contractor’s specialty.
For 2022, growth is not the strategic solution for mid-sized contractors – specialization is. (This has been a mini course in strategic planning.) We need to plan for the market conditions we are entering – not the ones we are accustomed to.
(More next week.)
Just released my latest book The Secretes To Construction Business Success Published by Routledge https://bit.ly/3G9ornf.
For a deeper look into the Labor issues, read more here: LABOR ISSUES
For a broader view on organizational change, read more here: ORGANIZATIONAL CHANGE
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