Productivity – The Only Way Out
Thomas C Schleifer, Ph.D.
There is a difference between cycles and trends. For example, the supply chain bottle neck caused by COVID is a disruption that will cycle away as China opens, truck drivers return to work, and the compressed demand caused by the COVID economic shutdown levels itself out.
The shortage of skilled labor, on the other hand, may have been exacerbated by COVID but is actually a long-term trend that has been haunting our industry for 25 years.
The Making of a Trend
- After World War II, the construction industry exploded as veterans returned to civilian life with education and home ownership financed by the GI bill. The transition from a war time economy to civilian consumption spurred industrial expansion, infrastructure creation, and home building on a scale never before seen in the United States.
- By the 70’s the baby boomers (born between 1946 and 1964) were coming-of-age just in time to take up the trades required to build this new civilian economy. It’s no secret that the baby boomer generation played a major role in the progression of our industry, supporting construction nation-wide through lifelong careers and offering hard-to-come-by skills obtained through decades of hands-on experience.
- But as time marched on to a new millennium, the first of the “boomers” began to retire followed by the bulk of the generation for the next 20 years. When the COVID pandemic broke in 2020 the last of the “boomers” seemed to opt for retirement. According to the U.S. Bureau of Labor Statistics, there were 313,00 job openings in the construction industry by the end of 2020, and by April of 2022, unfilled construction job openings jumped to a record high 449,000.
- The construction industry apparently did not appeal to the masses of Gen Y, Z, or the millennials in the same way it did to the post war baby boomers, so there were not enough replacements to take up the slack as an entire generation aged out of the labor pool.
- Finally, the ready supply of willing immigrants who used to eagerly seek positions in the good paying trades has been interrupted by restrictive immigration policies. (At the same time there was a crackdown on employment of undocumented immigrants.)
Management Paradigm Shift
Unlike temporary economic fluctuations like recessions and inflations, the skilled labor shortage trend is not cyclical but results from a demographic shift (a generation aging to retirement and a cultural preference shift away from manual labor toward white collar and other employment). This has persisted for 25 years and has only gotten worse, changing the entire outlook for the construction industry. We cannot wait out long-term trends nor do anything to make them go away. The only thing that we can do to keep our businesses healthy is to entertain a management paradigm shift that bends the arc toward increased productivity of the entire organizations and the remaining available individual workers.
Bending The Arc
The construction industry is still treating this trending shortage of skilled labor as if it were a temporary fly in the ointment. Contractors are competing for their competitor’s workers with pay and benefit incentives. They have initiated bonus programs for existing employees who recruit workers away from the competition. They are paying unsustainable wage increases to retain their existing employees lest they be lured away by the competition. But the only effective action that contractors can take to keep their businesses healthy in the face of this trend is to embrace a management paradigm shift that bends the arc toward the increased productivity of the existing workforce.
A management paradigm shift toward increased productivity and away from top-line growth is the only reasonable response to this unrelenting skilled labor shortage. The productivity of the entire organization as well as each individual worker must be addressed.
We define productivity as more output with less input. It’s that simple. What are the innovative management steps contractors might take to increase the productivity of both their organizations as a whole and their individual workers?
- Specialize – Only take jobs that you know your existing organization can complete efficiently.
- Training – Identify gaps in required skills created by baby boomers retiring. Invest in craft training and workforce development programs that guarantee the next generation of workers will be poised to fill the gaps.
- Mentoring – Ensure that you’re maximizing and retaining baby boomers’ knowledge by putting a mentoring plan in place throughout your organization.
- Leadership Development – Actively engage baby boomers in your efforts to address the leadership gap that will come with their imminent retirement. The transition to supervising and leading other employees is challenging. Put programs in place that will help younger employees develop the skills they need to confidently take on leadership roles.
- Innovate – Invest heavily in innovative production methods like Building Information Management (BIM), Machine Learning, Prefabrication, Mobile Devices such as mechanical scaffolding, Robotic Total Stations (RTS), Sustainable Building Materials. Use the right tools for the work
- Consolidate – Growth can be accomplished efficiently by the acquisition of the most productive existing contractors in the market (which includes their skilled workforce); not by competing for more work than your existing workforce can complete efficiently.
An increase in productivity is the only answer to the shrinking of the skilled labor force. This is a management paradigm shift in the construction industry that is overdue.
Tune in next week for more on training and mentoring in small and mid-size firms.
For a deeper look into the strategies and mitigation factors to help navigate our current business environment, read more here: DEFENSE MECHANISMS
For a broader view into risk management, read more here: MANAGEMENT & RISK
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