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Top 4 Challenges Facing The Construction Industry

Robert Leeds

Population growth statistics paint a rosy future for the construction industry. With the global population predicted to hit 9 billion by 2050 – and two out of every three people living in cities by 2050 – the demand for construction has never been greater. Worldwide, construction is already one of the largest industry sectors, accounting for more than 11 percent of global GDP and expected to grow to 13.2 percent by 2020, according to a 2014 PwC report.

But focusing on this strong demand obscures a more precarious reality. Underlying challenges in productivity, profitability, performance, labor, and sustainability could derail the industry’s growth.

Today, the construction industry is at a crossroads. Companies that address these challenges head-on and re-imagine their business processes will be poised for significant growth. Businesses that fail to take the challenges seriously, however, will face an uphill battle for viability.

Challenge #1: Poor productivity and profitability

Currently, the barriers to entry in construction are low, creating a saturated marketplace with heavy competition. This competition is shrinking profit margins and constraining essential reinvestment in new technology and better business practices. Stagnant construction labor productivity is compounding this problem. While other industrial businesses have benefited from a 100 percent increase in labor productivity, productivity within the construction industry has remained stagnant over the last 50 years.

Why is productivity stagnation? According to a Construction Owners Association of America (COAA) study, 63 percent of direct labor time on mega-construction projects is spent waiting for materials and equipment, traveling to the area, taking early breaks, and planning how to do the work. This lack of productivity is reflected in the bottom line, where typical margins for construction companies range between 2 and 8 percent. Consequently, construction companies find themselves trapped between shrinking profit margins and stagnant productivity, unable to generate the profit necessary to invest in critical technology.

Challenge #2: Project performance

The opportunities in construction are growing, but so is project complexity. With companies already operating under razor-thin profit margins, a single production surprise can wipe out profits for the whole company. Design complexity compounds this problem. As designs become larger and require greater efficiency, construction companies struggle to keep up.

The lack of on-time and on-budget projects is telling. According to an Accenture study, only 30 percent of large projects in the energy industry are delivered on budget, and only 15 percent of projects are completed on time. Worse, the 2015 KPMG Global Construction Survey found that more than half of all construction companies experienced one or more underperforming projects in the previous year.

Challenge #3: Skilled labor shortages

The construction industry is bracing for a dramatic reduction in workforce. The Associated General Contractors of America (AGC) found that 74 percent of the total respondents believe there is a crunch in skill trades, and 53 percent said they were unable to hire construction professionals such as supervisors, estimators, and engineers.

Prior to the recent recession, the U.S. construction market consisted of two generations: the traditionalists and baby boomers. Now, the workforce has split into four generations: traditionalists, baby boomers, Generation X, and millennials. This present labor diversification is a challenge because of stark differences in work ethic, attitude, outlook, and behavior between the generations, reports PwC. Traditionalists have nearly all left the workforce and baby boomer retirement is in full swing. Furthermore, the recession drove many skilled craftsmen to leave the industry and never return. By 2020, millennials are expected to represent half of the global workforce– many with little to no experience or interest in the construction industry.

The combination of increasing project complexity and decreasing experience is a risk multiplier, increasing the risk of deliverable delays, quality construction problems, and employee safety concerns.

Challenge #4: Sustainability concerns

The construction industry is the top global consumer of raw materials. The industry generates between 25 to 40 percent of the world’s carbon emissions. This volume of natural resource utilization is not sustainable and could compromise the environment for the sake of growth. Climate change and water management are two environmental issues that pose a growing challenge to the construction industry. Achieving targets for global carbon dioxide emissions reduction will be a major challenge for the construction energy in rapidly developing countries like India and China. Smart planning and sustainable design could reduce energy consumption and pollution, but require a new approach to project management– an approach that the construction industry on a whole is not yet prepared to undertake.

Next steps: Embracing disruption and preparing for the digital future

The construction industry is at an inflection point, analogous to the move from landline telephony to cellular technology. Digital technologies are disrupting the industry, providing new opportunities to address the challenges of poor profitability/productivity, project performance, skilled labor shortages, and sustainability concerns. Digitization of the construction industry is not a question of if or when—the changes are happening now.

The industrialization of construction and the application of proven manufacturing technology and best practices will help companies drive reliable outcomes and improve margins. Digitization will increase productivity, eliminate waste, and mitigate the adverse impact of on-site surprises.

Digitization will change most everything, including the competitors and the barriers to entry. The end result: a more productive and profitable industry that builds more sustainable assets. Construction companies must take steps now to join the digital future and stay ahead of the competition—or risk being left behind.

To learn more about how to tackle these challenges, read Building a Sustainable World, How to survive and thrive in a digital construction economy.

 

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About Robert Leeds

Robert Leeds has been with SAP for four years and has over 16 years of business development and marketing experience with enterprise software across a variety of industries and lines of business. Prior to SAP, he held a variety of positions across small software start-ups, acquisition agglomerations, and large tier 1 technology companies. Robert’s goal is to help customers understand the value of SAP’s solutions in the terms of their industry.

Meet The Co-CEO Who Has Recycling Going Digital

Darren Hunter

For many of us these days, walking a few extra steps to a recycling bin has become automatic. But is the effort making a difference? What happens to those newspapers and paper packages after they’ve been placed into recycling?

Thanks to single-stream technology, fiber recovered from businesses and households is directly reused in modern paper mills. And at the epicenter of efforts to create value from these types of recovered fibers is Mayen, Germany-based WEIG Group.

The WEIG Group also has companies in Paraguay and is organized into three strategic business units that are integrated along the value chain: recycling, carton-board, and packaging.

The WEIG Group deals with 1 million tons of paper annually, produces 700,000 tons of recycled carton board, and creates packaging for both food and non-food products. That’s good news for both the environment and customers who value products made from recycled materials.

Not surprisingly, the WEIG-Karton unit and its packaging partners recently won the highly coveted European Sustainability Award of Pro Carton, announced during a major conference of manufacturers in Cannes, France last year. WEIG-Karton was highlighted for both the replacement of plastic and the impressive amount of recycled carton-board that is ultimately reused for new packaging.

Now the company is successfully combining the latest technology with its leadership role in protecting the environment. In the Leaders Run Live Executive Series, WEIG Group co-CEO Moritz Weig states that technology plays a huge role in evolving its business model of being a customer-driven business. To get there, the organization needs to grow and evolve across the value chain, as well as interact much more within business units and networks.

Weig said that the company also needs to better understand the dynamics of the market and react much more flexibly to customer demands. He believes that they are on a very good path to reaching this goal with the successful implementation of a next-generation ERP suite. “Our customers can communicate much faster with us, directly provide data to us, and leverage information provided by us,” Weig said.

The business is operating on one integrated platform, and with this transparent and consistent data structure, the company can now define benchmarks that were not possible before. Subsequently, Weig believes that better data has made for faster “live” business decisions.

For more on how businesses can make a difference in the world, see Be The Change: Promoting Corporate Social Responsibility.

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About Darren Hunter

Darren Hunter works in the Customer Newsroom at SAP. His areas of expertise include storytelling, speaking engagements, covering events, interviewing SAP customers, partners and stakeholders and creating engaging content for worldwide distribution and enjoyment.

Electronic Signatures: Ready For Prime Time After 148 Years

Alicia Rudolph

Electronic signatures (e-signatures), the concept of using a signal or process to show signing intent, has been around for a long time. In fact, the New Hampshire Supreme Court ruled in 1869 (Howley v. Whipple 48 N.H. 487) that Morse code broadcast over telegraph lines could serve as an enforceable signature under state law.

Over the years, laws and technology have continued to evolve. But it was not until the new millennium that the U.S. government made physical and electronic signatures legally equivalent. On July 1, 2000, President Clinton e-signed the Electronic Signatures in Global and National Commerce Act (ESIGN) and established a legal framework for using electronic documents.

Strong growth for e-signature technology through 2020

Electronic signature technology has grown significantly since ESIGN went into effect, especially in the U.S., where the practice has been widely adopted by the e-commerce, financial services, and insurance sectors. P&S Market Research expects the demand for the technology that enables e-signatures to sustain a compounded annual growth rate of 39.2% through 2020.

Three factors are encouraging companies to invest in this aspect of digital transformation: efficiency, compliance, and traceability.

Electronic signatures promote efficiency

Paper-based workflows and signature-management processes are time-consuming and unreliable. Workers often need to transport or print physical documents, capture a legible signature, and then scan, fax, or mail the completed document to another location for further processing.

With e-signature solutions, documents can be signed and returned online in minutes. For example, businesses can integrate e-signature management with procurement processes to simplify digital transactions and more quickly execute agreements. Other signature-dependent activities, such as human resource onboarding, can be similarly streamlined to reduce paper, increase productivity, and accelerate decision-making.

Electronic signatures ensure compliance

Traditional workflows create exposures by making potentially sensitive information easier to access. It is not unusual for business documents to include personal information, pricing details, proprietary business terms, intellectual property, and other highly sensitive data. If this information is subject to local and regional security and privacy regulations – such as ISO 27001, SSAE 16 SOC 2, PCI DSS, or HIPAA, for example – any compliance failure can lead to expensive penalties and legal entanglements.

Solutions for e-signatures are designed for compliance. Encryption and tamper-conspicuous measures ensure that sensitive information is kept secure at each step in the signing process. Rules built into the software can quickly check deliveries and verify that all required paperwork is complete and signed.

Electronic signatures improve traceability

Lost or misplaced documents drive down efficiency while increasing costs. Many companies implement paper-based audit trails to verify document processes, deter fraud, and correct input errors. While paper auditing is well entrenched in the business world, cloud-based document management and signature solutions are becoming more attractive to a range of companies, from large multinationals to small- to medium-sized enterprises (SMEs).

On-premise and cloud-based solutions are increasingly affordable and easy-to-implement. Documents that live in an electronic environment are easier to track during signing since the underlying software can automatically create clear audit trails, certificates of completion, and tamper-evident seals. E-signatures can be marked with time, geo-location, and unique identifier tags to create a level of visibility not possible with physical signatures.

As businesses further embrace digital transformation, they will continue to look for affordable enabling technologies. And the demand for e-signature solutions and related digital transaction management systems will continue to grow and improve the user experience while taking time and cost out of essential processes.

Want to learn more?  Listen to the SAPRadio show Digital Transformation with eSignatures: Beyond the Obvious, featuring panelists from DocuSign, EY, and SAP. And follow @SAPPartnerBuild on Twitter.

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Alicia Rudolph

About Alicia Rudolph

Alicia Rudolph is presently part of the Strategic Ecosystem Marketing at SAP. She is passionate about leveraging Social Media as a way to drive business for partners and customers alike.

Taking Learning Back to School

Dan Wellers

 

Denmark spends most GDP on labor market programs at 3.3%.
The U.S. spends only 0.1% of it’s GDP on adult education and workforce retraining.
The number of post-secondary vocational and training institutions in China more than doubled from 2000 to 2014.
47% of U.S. jobs are at risk for automation.

Our overarching approach to education is top down, inflexible, and front loaded in life, and does not encourage collaboration.

Smartphone apps that gamify learning or deliver lessons in small bits of free time can be effective tools for teaching. However, they don’t address the more pressing issue that the future is digital and those whose skills are outmoded will be left behind.

Many companies have a history of effective partnerships with local schools to expand their talent pool, but these efforts are not designed to change overall systems of learning.


The Question We Must Answer

What will we do when digitization, automation, and artificial intelligence eject vast numbers of people from their current jobs, and they lack the skills needed to find new ones?

Solutions could include:

  • National and multinational adult education programs
  • Greater investment in technical and vocational schools
  • Increased emphasis on apprenticeships
  • Tax incentives for initiatives proven to close skills gaps

We need a broad, systemic approach that breaks businesses, schools, governments, and other organizations that target adult learners out of their silos so they can work together. Chief learning officers (CLOs) can spearhead this approach by working together to create goals, benchmarks, and strategy.

Advancing the field of learning will help every business compete in an increasingly global economy with a tight market for skills. More than this, it will mitigate the workplace risks and challenges inherent in the digital economy, thus positively influencing the future of business itself.


Download the executive brief Taking Learning Back to School.


Read the full article The Future of Learning – Keeping up With The Digital Economy

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About Dan Wellers

Dan Wellers is founder and leader of Digital Futures at SAP, a strategic insights and thought leadership discipline that explores how digital technologies drive exponential change in business and society.

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Why Millennials Quit: Understanding A New Workforce

Shelly Kramer

Millennials are like mobile devices: they’re everywhere. You can’t visit a coffee shop without encountering both in large numbers. But after all, who doesn’t like a little caffeine with their connectivity? The point is that you should be paying attention to millennials now more than ever because they have surpassed Boomers and Gen-Xers as the largest generation.

Unfortunately for the workforce, they’re also the generation most likely to quit. Let’s examine a new report that sheds some light on exactly why that is—and what you can do to keep millennial employees working for you longer.

New workforce, new values

Deloitte found that two out of three millennials are expected to leave their current jobs by 2020. The survey also found that a staggering one in four would probably move on in the next year alone.

If you’re a business owner, consider putting four of your millennial employees in a room. Take a look around—one of them will be gone next year. Besides their skills and contributions, you’ve also lost time and resources spent by onboarding and training those employees—a very costly process. According to a new report from XYZ University, turnover costs U.S. companies a whopping $30.5 billion annually.

Let’s take a step back and look at this new workforce with new priorities and values.

Everything about millennials is different, from how to market to them as consumers to how you treat them as employees. The catalyst for this shift is the difference in what they value most. Millennials grew up with technology at their fingertips and are the most highly educated generation to date. Many have delayed marriage and/or parenthood in favor of pursuing their careers, which aren’t always about having a great paycheck (although that helps). Instead, it may be more that the core values of your business (like sustainability, for example) or its mission are the reasons that millennials stick around at the same job or look for opportunities elsewhere. Consider this: How invested are they in their work? Are they bored? What does their work/life balance look like? Do they have advancement opportunities?

Ping-pong tables and bringing your dog to work might be trendy, but they aren’t the solution to retaining a millennial workforce. So why exactly are they quitting? Let’s take a look at the data.

Millennials’ common reasons for quitting

In order to gain more insight into the problem of millennial turnover, XYZ University surveyed more than 500 respondents between the ages of 21 and 34 years old. There was a good mix of men and women, college grads versus high school grads, and entry-level employees versus managers. We’re all dying to know: Why did they quit? Here are the most popular reasons, some in their own words:

  • Millennials are risk-takers. XYZ University attributes this affection for risk taking with the fact that millennials essentially came of age during the recession. Surveyed millennials reported this experience made them wary of spending decades working at one company only to be potentially laid off.
  • They are focused on education. More than one-third of millennials hold college degrees. Those seeking advanced degrees can find themselves struggling to finish school while holding down a job, necessitating odd hours or more than one part-time gig. As a whole, this generation is entering the job market later, with higher degrees and higher debt.
  • They don’t want just any job—they want one that fits. In an age where both startups and seasoned companies are enjoying success, there is no shortage of job opportunities. As such, they’re often looking for one that suits their identity and their goals, not just the one that comes up first in an online search. Interestingly, job fit is often prioritized over job pay for millennials. Don’t forget, if they have to start their own company, they will—the average age for millennial entrepreneurs is 27.
  • They want skills that make them competitive. Many millennials enjoy the challenge that accompanies competition, so wearing many hats at a position is actually a good thing. One millennial journalist who used to work at Forbes reported that millennials want to learn by “being in the trenches, and doing it alongside the people who do it best.”
  • They want to do something that matters. Millennials have grown up with change, both good and bad, so they’re unafraid of making changes in their own lives to pursue careers that align with their desire to make a difference.
  • They prefer flexibility. Technology today means it’s possible to work from essentially anywhere that has an Internet connection, so many millennials expect at least some level of flexibility when it comes to their employer. Working remotely all of the time isn’t feasible for every situation, of course, but millennials expect companies to be flexible enough to allow them to occasionally dictate their own schedules. If they have no say in their workday, that’s a red flag.
  • They’ve got skills—and they want to use them. In the words of a 24-year-old designer, millennials “don’t need to print copies all day.” Many have paid (or are in the midst of paying) for their own education, and they’re ready and willing to put it to work. Most would prefer you leave the smaller tasks to the interns.
  • They got a better offer. Thirty-five percent of respondents to XYZ’s survey said they quit a previous job because they received a better opportunity. That makes sense, especially as recruiting is made simpler by technology. (Hello, LinkedIn.)
  • They seek mentors. Millennials are used to being supervised, as many were raised by what have been dubbed as “helicopter parents.” Receiving support from those in charge is the norm, not the anomaly, for this generation, and they expect that in the workplace, too.

Note that it’s not just XYZ University making this final point about the importance of mentoring. Consider Figures 1 and 2 from Deloitte, proving that millennials with worthwhile mentors report high satisfaction rates in other areas, such as personal development. As you can see, this can trickle down into employee satisfaction and ultimately result in higher retention numbers.

Millennials and Mentors
Figure 1. Source: Deloitte


Figure 2. Source: Deloitte

Failure to . . .

No, not communicate—I would say “engage.” On second thought, communication plays a role in that, too. (Who would have thought “Cool Hand Luke” would be applicable to this conversation?)

Data from a recent Gallup poll reiterates that millennials are “job-hoppers,” also pointing out that most of them—71 percent, to be exact—are either not engaged in or are actively disengaged from the workplace. That’s a striking number, but businesses aren’t without hope. That same Gallup poll found that millennials who reported they are engaged at work were 26 percent less likely than their disengaged counterparts to consider switching jobs, even with a raise of up to 20 percent. That’s huge. Furthermore, if the market improves in the next year, those engaged millennial employees are 64 percent less likely to job-hop than those who report feeling actively disengaged.

What’s next?

I’ve covered a lot in this discussion, but here’s what I hope you will take away: Millennials comprise a majority of the workforce, but they’re changing how you should look at hiring, recruiting, and retention as a whole. What matters to millennials matters to your other generations of employees, too. Mentoring, compensation, flexibility, and engagement have always been important, but thanks to the vocal millennial generation, we’re just now learning exactly how much.

What has been your experience with millennials and turnover? Are you a millennial who has recently left a job or are currently looking for a new position? If so, what are you missing from your current employer, and what are you looking for in a prospective one? Alternatively, if you’re reading this from a company perspective, how do you think your organization stacks up in the hearts and minds of your millennial employees? Do you have plans to do anything differently? I’d love to hear your thoughts.

For more insight on millennials and the workforce, see Multigenerational Workforce? Collaboration Tech Is The Key To Success.

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