Alarm bells are sounding regarding the current state of our engineering and construction industry. Industry representative bodies including the Australian Constructors Association (ACA) and Master Builders Association (MBA) are voicing concerns being raised across a wide range of forums. A surprising situation, at a time when industry demand across the residential and infrastructure sectors – while softening – remains at a generational high.
ACA in its provocatively titled publication “Disrupt or Die” recently highlighted the industry’s poor record with respect to long-term productivity improvement. In comparison with transport and manufacturing – with positive average rates of multifactor productivity improvement since FY 1990 of approximately 0.9 percent and 0.8 percent respectively – long term average construction industry productivity has actually declined by an average of minus 0.1 per cent per annum. Even more concerningly, productivity since 2014/15 declined over a period where demand for services was rapidly increasing. From a productivity perspective and with all other things being equal, with demand outpacing supply inputs one would have expected precisely the opposite to occur!
There is vehement agreement across the industry regarding the need to substantially improve productivity through reform of how projects are procured, delivered and governed. Poor project performance has resulted in a low level of technological investment in construction, in comparison with other industries. Consider for instance, the lack of real progress in overcoming the integration challenges associated with adopting 5D digital twin modelling throughout the supply chain. My suspicions are however, that the greater productivity challenge remains the size of the indirect administration, compliance and assurance related “burden” presently carried by each and every labour hour expended on site.
ACA has also raised the issue of industry culture, with mental health issues endemic in the industry. I refer in “The Steel Ceiling: Achieving Sustainable Growth in Engineering and Construction” to a behavioural barrier constraining the industry’s ability to transition from traditional adversarial win/lose contracting mentality, to a more inclusive, collaborative and attractive place for tomorrow’s business talent.
The Master Builders Association is raising widespread industry fears that the rising trend in home builder liquidations since 2021 will continue beyond 2023. With new builds supercharged by the previous Federal Government’s “HomeBuilder” program and overwhelmingly contracted on a fixed price basis, more builders are widely anticipated to collapse as lock-in contracts leave them unable to pass on the rising cost of labour and supplies.
From a business perspective, the pressure of margin squeeze is a daily reality for building contractors who typically take on a large chunk of client risk for small margins. Increased costs of timber and steel, plumbing and tapware as well as rising debt costs rapidly turn margins negative. This, in an environment where the return of high levels of immigration will boost underlying demand for housing, in a market with a historic deficit of supply.
With the construction sector now accounting for nearly 30% of all insolvencies in Australia and the rate of civil contractor troubles likely to rise, it appears we may be experiencing another industry recession.
What’s needed to get businesses and the industry through what looks like the next “bust” of the typical “boom” and “bust” cycle?
In tough times, industry leaders earn their money. And tough times call for resilient leadership. Specifically, seven key attributes of resilient leadership:
Values that toughen the business: Establishing values is not a democratic process: the leaders of the business have both the right and responsibility to set values in alignment with their vision, as a means of holding their organisation to account. Each time a leader brings up a conversation about values, a line in the sand is drawn: Each and every employee is compelled to consider whether they are a good fit based on the extent to which they’re aligned with the business values.
Present and on the court: There’s always plenty of people about with a ready opinion regarding what’s going on (and what’s going wrong). They’re the ones in the stands, observing the game. A leader is the one on the court, playing the game! The only one in that moment, with the view that matters.
Negotiation – “nasty” and “nice”: Leaders in engineering and construction must be able to effectively negotiate the hard issues, particularly when the stakes are high and the need to maintain a relationship after the deal is done of critical importance. In an industry largely controlled by a handful of clients and major contractors, one does not have an abundance of relationships to burn!
Engagement is not about you: Great leadership starts with effective communication, founded in the realisation that we have different – for instance “thinker”, “feeler” or “knower” based – preferences. The trick effective leaders learn is that communication is all about the recipient of the message!
Integrity is honouring your word: Business leaders who enable others to honour their word, hold the key to transforming the productivity and performance of their enterprise. Imagine a business is which there is 100% trust that every single person who commits to doing something, delivers that outcome by the time it was promised and to the expected standard. That’s the sort of business I for one want to be associated with….
Mindset – we can all lead: If you’re doubting whether anyone can be a leader, here’s a hint in the form of Lesson 1 of a typical MBA: “Effective leadership and management of others is underpinned by strong self-management”. In other words, anyone can show leadership by getting their own act together!
Vulnerability is strength: In tough times, vulnerability is the means by which effective leaders access courage in the face of uncertainty. Given the signs of what lies ahead, resilient leadership will be crucial in challenging times.
By the way, have you noticed the common thread of self-responsibility embedded within these Seven attributes?
As individuals we may not feel empowered to change our environment. Rest assured though; our collective resilient leadership can provide the power to transform the industry!
Author of “The Steel Ceiling: Achieving Sustainable Growth in Engineering and Construction” Wiley, 2023