Masonry Magazine February 1987 Page. 39
Owners, concerned about quality and safety, are requesting information about procedures in place to control substance abuse on the job. Contractors are finding that they need to publicize or market any preventive procedures they're using to combat substance abuse. Unfortunately, today's realities make this effort necessary.
The more competitive the industry becomes as it matures and as foreign contractors do more business in the U.S., the more important marketing will become.
The Computer-An Increasingly Valuable Construction Tool
Management information systems (MIS) are probably changing faster than any other aspect of managing a construction operation. Computer technology is now supplying information about the construction operation itself, not simply financial data. Computer software is available for job cost packages, estimating support, purchase order control and other information needed by project managers and field supervisors. Field supervisors use personal computers to process time sheets, purchase orders, material deliveries and percent complete. Electronic networking allows information entered in the field to be sent to the central computer, processed, and returned to the field manager as a complete-to-date job cost report.
Another significant trend in construction is the growth of personal computers. Sound programming, documentation and vendor support now make computer benefits available to almost everyone. As contractors grow geographically, the decentralization of management control means computers will probably process information at the local site. Computers in branch operations, computers in the field, computers in the home office are all necessary for information support. This decentralization is creating the need for more powerful personal computers as well as for connections to a central computer clearing house.
The application of technology in construction is just beginning. As technological advances make new, automated processes practical, the dependency on computer-driven information systems will increase. Robotics, electronically piloted equipment and trucks, sensoring equipment for monitoring stress and other programmed production methods tied into the central computer system will weave a tighter web of automated information control.
These forces are combining to make the MIS function an integral part-rather than a supporting function-of construction operations. Career opportunities in this area will be increasing as information technology develops. Many contractors are already using the efficiency of scheduling and project management systems as a marketing tool to help sell prospective customers.
Mergers and Acquisitions
Trends in the area of merger/acquisition are changing the structure of the industry and, eventually, those changes will affect all contractors. There is a tendency for divestiture of construction subsidiaries by large conglomerates. Large, publicly held companies are finding that the highly volatile construction industry can have negative effects on their annual earnings. Essentially, construction is a no-growth business and not very productive for publicly held firms. The industry may remain somewhat isolated from other industries which may force more interdependence among contractors to keep the industry strong. Some construction firms are recognizing these facts and spreading their risks by buying outside of construction but in construction-related businesses.
Tight underwriting restrictions by sureties today are accelerating the industry consolidation. Many firms find themselves with excellent opportunities but without adequate bonding capacity. Some firms solve this problem by merging or being acquired by another firm to get an infusion of capital.
There is a continuing trend in construction toward renovation or rehabilitation. Many large firms are either creating or acquiring divisions to perform these services. As a result, competition is increasing for small, local firms that have traditionally worked in this market.
Today, there are more construction firms in the U.S. than there is available work to support them. The economic law of supply and demand will even out this imbalance. With no forecast for construction activity to dramatically increase, the obvious balancing mechanism is to reduce construction capacity. That implies a continuing industry shake-out or consolidation.
More international contractors are entering the U.S. construction industry. European and Australian companies have penetrated the cement and ready-mix segment, the building materials segment and the aggregate segment by purchasing U.S. firms. Foreign firms are interested in the U.S. market because:
* Their home economies are stagnant.
* The U.S. offers a stable political environment.
* The Middle East market has virtually collapsed.
* Competition throughout the world for large projects has increased.
* Foreign companies realize they can compete in the U.S.
Research and Development
Research and Development spending for U.S. construction is only one-tenth of one percent (.001) of sales. Japanese companies, for example, invest up to four percent. Without more R&D investment, contractors may find themselves in the same non-competitive position as the auto and steel industries. U.S. contractors may have to band together in R&D efforts to meet this challenge from abroad an unprecedented move in the fiercely proprietary and competitive construction industry.
In response to the Tax Reform Act of 1986, more companies are going to elect Subchapter S status. Subchapter S status impacts the amount of taxes owed by a company and the amount of capital accumulated in the company. Although Subchapter S status makes it simpler and more tax efficient to take money out of a company, sureties will resist this change because many construction companies are already undercapitalized. Continuity planning alternatives may change the way banks and sureties look at the capital structures of contractors.
There is increased sensitivity to business continuation issues because:
* Bankers and sureties are focusing attention on the future to decrease their risk.
* Regulation, litigation and financial pressures have taken the "fun" out of construction for many owners who now want to get out of the business.
* Contractor/owners are reaching retirement age.
* Change of ownership is easier because the new tax law eliminates the capital gains tax differential.
* Family problems often cause attention to be focused on business continuity issues.
What Do These Trends Mean?
Based on current trends, the successful contractors in the future will develop effective management systems, increase productivity, market their work, plan strategically and involve employees in each process. The construction market looks like it will only become more competitive. Any edge a company can develop-from sophisticated information management to outstanding customer service-will help make its future much brighter.