Don’t Waste a Good Recession
5 Minute Read
April 4, 2019
As uncertainty lurks in the future of construction industry spending, contractors have placed a focus on technology transformation as a key differentiator moving forward.
Amidst lower construction spending, labor uncertainty and an overall cooling of the economy, questions may simmer for contractors about how to set up and weather any potential recession or downturn. Hoarding capital for a future technology transformation or moving forward on system and process upgrades now offer two unique perspectives on how to best scale the next wave of technology adoption.
Both strategies mirror an effort to stay on top of technology and create efficiencies, especially in a time where some may pull back on spending in the information technology sector. Jason Pelkey, Gilbane Building Co.’s CIO, told Construction Drive that a long-term IT strategy doesn’t allow for volatility to turn it astray. “If you play the spike game where you fund technology only during the good times and you cut it way back during the recession times,” he says, “it creates a spiraling effect.”
With that in mind, contractors fall into three categories: those who move on technology upgrades when they see uncertainty looming; those who store capital to upgrade technology during a slow time; and those who follow the whims of the spike and stand pat with old technology and manual processes.
Companies in the midst of upgrades or future-proofing their technology by storing capital for upgrades during a slow time do so not for the sake of making change, but with the goal of creating greater efficiency, both for lean times and to handle a surge of growth.
Amazingly, there are still a large number of contractors that have not taken advantage of recent software and technology advancements like cloud computing and integrated construction management software platforms. With most industries advancing technologies at breakneck pace, those still resisting might find themselves at a competitive disadvantage to their peers that do modernize. The latter group is already realizing that a tech upgrade can have many benefits. Among them:
From providing a single source of data across entire project teams to improving cash flow by reducing time spent tracking and managing invoices to optimizing labor and equipment, the use of technology helps an industry that has traditionally been the least accustomed to technology find increased productivity and profitability.
A Hobson & Company study conducted with Viewpoint clients, for example, concluded that modernizing with an integrated enterprise resource management (ERP) system could be worth up to a 7 percent increase in revenue gains, 36 percent cost savings and 57 percent improvement in productivity for a firm with $10 million in annual revenue with a 5 percent gross margin that completes around 20 projects per year.
The cost of doing nothing doesn’t come cheap. For those companies hesitant to implement an integrated, cloud-based construction ERP solution, an Aberdeen Group report says 35 percent of those suffer from redundant data, 28 percent have systems that can’t track business processes and 23 percent lack the ability to collaborate, all while dealing with inaccurate data.
Investing in technology — or budgeting for a future outlay — ensures more efficient and doesn’t put a contractor in a tough spot when a lack of investment stacks upon a downturn to greatly reduce the ability to make an investment in the future of the company.
Not only are these companies at a working disadvantage now with slowed efficiencies, but the struggle will intensify when growth opportunities arise. Ross Finch, operations development manager for Encore Electric of Lakewood, Colorado, says they recognized an antiquated system rife with inefficiencies was holding back the 800-employee firm. “I’m convinced that our system was one of the reasons that we were able to retain more margins,” he says about the upgrade to a cloud-based ERP system designed for their specific construction needs. “It would have been so painful to have gone through that extreme growth with the old system.”
For the sake of the future — uncertain or otherwise — investing in technology while you still can create valuable opportunities to efficiently step ahead of competition. “We’re always trying to get 1 percent better or 5 percent better,” says Gregg Shoppman, principal at FMI Corporation. “Well, you’re not going to get there using the same methods, so you’re going to have to leverage better technology.”
We’re eager to hear what your organization’s technology strategy is. Have you already modernized to a cloud-based solution? Are you planning or in the middle of a transformation? Or, is your organization still making due with the systems you have in place? Let us know in the comments below.
5 Minute Read
April 4, 2019
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