Week of March 5, 2001
  Snapshot from the Field

Construction Industry Survey:
Surging Profits, Sluggish High-Tech Uptake
By JACK LYNESite Selection Executive Editor of Interactive Publishing

ALEXANDRIA, Va., and CHICAGO -- It's no surprise that it's boom time for U.S. construction contractors. Some observers, though, may be startled by the sluggish high-tech uptake documented in Insights in Construction, a newly released study of the industry. That study depicts a sector that's keeping cutting-edge technologies at arm's length - with the arm in question resembling that of Shaquille O'Neal:
        Less than 30 percent of general contractors and even a smaller percentage of specialty contractors are using Web-based project management, e-commerce, imaging technology or human resources databases, reported the study, Insights in Construction. Generated by a joint survey by the Associated General Contractors of America (AGCA at www.agc.org) and Deloitte & Touche (www.us.deloitte.com), the Insights in Construction report also documented significant cognitive dissonance vis--vis human resources.
        Eighty (80) percent of respondents rated "shortages of skilled labor" as "the biggest challenge facing the construction industry over the next five years." That more than doubled the survey's No. 2-rated biggest challenge, "environmental concerns." But the survey noted, "Less than half the respondents report using, or planning to use, incentive programs to attract or retain workers."

What if you tried to build it and the crew didn't come? Although 80 percent of contractors said the industry's "biggest challenge" is "skilled-labor shortages," less than half are using or planning to use worker-retention incentives.

        The thought-action gap was particularly puzzling in light of previous AGCA/Deloitte & Touche surveys, said Keith Flanigan, a partner with Chicago-based Deloitte & Touche and Insights in Construction's primary author.
        "The sluggish movement toward adopting these human resources programs is surprising, considering that labor availability was a top concern of respondents in the 1996 survey as well," Flanigan noted.
        "Contractors have been contributing to a strong economy, but are still facing a number of business issues, especially labor shortages, that have to be addressed," said Stephen Sandherr, executive vice president and CEO of Alexandria, Va.-based AGCA, the largest, oldest U.S. construction trade association, founded in 1918.

Have Profits Peaked?

The AGCA/Deloitte & Touche survey has been conducted every four years since 1992. The 2000 survey gathered information from 1,258 respondents, 894 of them general contractors and 364 specialty contractors.
        Other highlights from the 2000 Insights in Construction report: A profitable present: Almost 80 percent of responding contractors categorized their 2000 profits as "moderate" (1-10 percent) or "high" (more than 10 percent). 2000's results, however, marked a slight downturn from the 1996 survey, when 83 percent of respondents reported high or moderate profits, the highest-ever level recorded in AGCA/Deloitte & Touche's quadrennial surveys.
        A not-so-profitable future?: While 80 percent of respondents "believe in the continued strength of the economy [for 2001]," 80 percent said they expected 2001's gross profits to either stay the same or decline. The reason most often cited for the anticipated profit leveling: "margin compression caused by increasing labor and materials costs."
        Foreign competitors turn up the heat: Non-U.S. companies are one of their "strongest competitive pressures," U.S. contractors said. At the same time, less than 10 percent of surveyed firms "are willing to expand internationally or through acquisitions because of domestic workloads."

Cost Cuts, Process Upgrades
Not Yet 'High Priority' Items

Coping with a not-so-profitable future: Despite 2001's anticipated profit flat-lining, the report noted, "Cost reduction and business process improvement initiatives still have not yet been elevated to high-priority levels." That, however, "is an advantage for contractors who have focused on these initiatives," the report added.
        Happy customer, happy everybody: For the first time since 1992, survey respondents voted "customer satisfaction" as the "primary indicator" of business success. "Net income" and "gross profits" were the top success indicators in the previous survey in 1996.
        The big are big on benchmarking: More than half of surveyed larger contractors -- defined as those with more than US$100 million in annual revenues -- were using benchmarking. Another 25 percent of larger contractors said they planned to use benchmarking in the future. Said Flanigan, "The need to improve operations and implement quality improvement programs to sustain profitability is catching on with some leading contractors."

        Some technologies are more equal than others: The industry is embracing other less cutting-edge technologies, the study noted: "Over 95 percent of general contractors are using accounting and job-costing applications. The use of other project management-related applications, such as project scheduling, project budgeting/control and project estimating, has increased since the 1996 survey to over 80 percent usage in 2000."
        The entire report is available on Deloitte & Touche's Web site.


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