The Last Normal Day: How Strategic Planning Can Address the Different Realities of the Post-COVID World
The most strategic thinkers are coming out ahead in 2021. Find out how you can get ahead of the competition with our latest insights about how COVID-19 is changing the E&C industry and ways you can leverage those opportunities.
By Jay Bowman
FMI’s research into previous downturns suggests that some sectors will get a boost and be able to capitalize on new opportunities, while others will be threatened. Pandemics historically force societies to reinvent and innovate, and construction and engineering (E&C) firms will need to do the same to compete and win. Here, we talk about the changes brought by the pandemic and how firms can position themselves to be competitive in 2021 and beyond.
Five Years of Change Overnight
2020 began on a high. In February, construction put-in-place (CPiP) spending hit a pre-pandemic peak of $1.44 trillion, building on years of expansion. As state and local governments shut down nonessential activity during March and April 2020, the country lost 22 million jobs.
“Construction lost 1.1 million jobs, which was half as many as lost in the last downturn over five years,” said Ken Simonson, chief economist at the Associated General Contractors of America (AGC). It was a “sharp and calamitous contraction.”
The immediate effects of shutdowns were unprecedented: Office buildings and malls were suddenly empty, as stay-at-home orders pushed e-commerce to $1 out of every $5 of retail sales. Demand for warehouse construction and cold storage started to soar, as delivery services like Instacart saw a 500% year-over-year increase in order volume and cold storage vacancies dropped below 10%.5 Stadiums were populated by cardboard cutouts, with the cancellation of sports events projected by Emsi, a modeling firm, to cost $28.6 billion in lost earnings through the end of November.
Nationwide, telecommuting policies and unemployment drove population movement. Among respondents to a June survey by Pew Research, 3% said they had moved due to COVID-19. At the end of 2020, mortgage purchase applications had risen year on year for 29 straight weeks, and private residential construction was strong, showing 14.5% year-over-year growth in October, at $637.1 billion in spending.
It was like riding out a months-long earthquake. Thirty-two percent of respondents to AGC’s monthly survey reported canceled projects in June 2020, growing to 75% of respondents by October. In the second quarter, GDP dropped by 31.4% on an annualized basis, only to shoot up 33.1% in the third quarter (on a quarter-over-quarter basis, the second quarter decline was closer to 10%). In the background, you had a turbulent presidential election and race to develop a vaccine for a notoriously tricky class of virus. Uncertainty was, and remains, the underlying constant.
Solid Leadership and Strategy as Predictors of Success in a Down Market
Strategic planning had a direct impact on profitability for E&C firms following the Great Recession of 2008, according to FMI’s research. Construction companies with higher profit margins during the recession prioritized deep, authentic client relationships; diversification of geographies, segments or services as a hedge against risk; and streamlined operations.
A key differentiator was the ability to put strategy into practice. In speaking with more than 150 engineering and construction executives, one of the things FMI heard was that the strategic decisions companies made were mostly the right ones — they just didn’t implement them fast enough.
About the Author
Jay Bowman is a principal with FMI. Jay assists a broad range of stakeholders in the construction industry, from program managers and general contractors to specialty trades and materials producers, with the identification and assessment of the risks influencing the strategic and tactical decisions they face. In this role, Jay’s primary responsibilities include research design and interpretation, based on developing an understanding of the context within which these organizations operate. Jay can be reached at [email protected]