The experts have spoken: We can and should be optimistic despite COVID-19

That point expressed by Dr Jan Mischke, Partner at McKinsey Global Institute, was one of the main conclusions of the virtual Town Hall on how the Coronavirus outbreak will shape the future of the construction industry.

Ulrik Branner, Executive and Board Member of LetsBuild, was the host of this insightful online discussion surrounded by an impressive line-up of panelists:

• Ann Bentley, Global Board Director at Rider Levett Bucknall
• David Philp, Global BIM/IM Consultancy Director at Aecom and Head of B.I.M at UK BIM Task Force
• Mark Farmer, Founding Director and CEO at Cast and Government MMC Champion
• Chris Hallam, Partner at CMS UK
• Arun Khehar, Oracle SVP Business Applications ECEMEA
• Dr Jan Mischke, Partner at McKinsey Global Institute

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“As the dust settles, I can quietly reflect on today’s fantastic experience. I for one am left with a sense of optimism for the future of our industry,” said Ulrik Branner after the event.

And he added:

“We are facing massive challenges and also tragedies and turmoil, and as an industry we will have very tough times ahead. But both participants and panelists talked about hope, about innovation, about collaboration and about using the crisis to excel.”

Without a doubt, seamless collaboration and improved communication are paramount for the industry’s effort to survive this existential threat. After all, we are only as strong as the weakest link in the chain.

“It’s really important to maintain good lines of communication and to collaborate with each other and try to find solutions out of this situation rather than to try and gain any kind of commercial advantage,” underlined Chris Hallam, Partner at CMS UK.

The unprecedented impact of COVID-19 on construction

The panel discussion kicked off with a unanimous agreement that the Coronavirus outbreak has an unprecedented impact on the construction industry.

“The pandemic is creating an unprecedented impact on our built environment not just here in the UK but also globally. But I think there’s positive things, as well. It’s forcing us to strive for more innovation and much more rapid solutions,” highlighted David Philp, Global BIM/IM Consultancy Director at Aecom and Head of B.I.M at UK BIM Task Force.

Anne Bentley, Global Board Director at Rider Levett Bucknall, also underlined that we live in uncertain times where there is an imminent need for information and increased collaboration.

Find out more: How to manage your construction sites during and after COVID-19

The big question, though, is whether this new wave of collaboration can be seen as part of a long-term strategy or just as a quick solution to a burning problem.

“I’m seeing much more collaboration in the industry. I think this might be collaboration in the face of existential threat rather than collaboration because people believe it’s necessarily a long-term strategy. But at the moment, we are seeing tremendous work being done by all sorts of people and organisations for the benefit of the whole industry. And to me that shows what we can do when we really have to,” said Anne Bentley.

As far as Mark Farmer is concerned, the Founding Director and CEO at Cast and Government MMC Champion believes that construction should see this crisis both as a challenge and an opportunity:

“As always when you have a downturn in construction it represents both challenge and opportunity. And I think we have to view it in that way, in terms of the choices the businesses have to make.”

Of course, it would be easier for all businesses to embark on their digital transformation journey under better circumstances where there would be less pressure on their shoulders. But at the end of the day, the goal remains the same. The construction industry needs to speed up the modernisation process. Especially, for smaller and medium players this need appears to be a matter of survival.

“The challenges are there with the medium and smaller players. There, we see huge cash flow issues. That is a major concern. We also see concerns about the unknown. How long will this continue? That could create a huge impact in the region (i.e. Middle East). And we believe the smaller players will have to do something drastically different or get absorbed by the bigger players in the industry,” pointed out Arun Khehar Oracle SVP Business Applications ECEMEA.

In the same tone, Chris Hallam referred to the arrival of technology giants to the construction industry:

“Coming out of the COVID-19 crisis, we might start to see disruption coming from technology giants (eg. Amazon). There may be an opportunity for some of the biggest companies to enter the industry. And I think it’s something that certainly the contractors need to keep an eye on really closely.”

What will construction look like after COVID-19?

This question is on everyone’s lips right now. It goes without saying that nobody can give a definite answer yet as there are a number of factors that will define the final outcome. One thing is sure, though. Everybody hopes that construction is in for a good recovery.

“We can’t afford to take our eyes off the longer term. We still have to think about the longer term. The route of how we get there might be different but we shouldn’t be changing these key objectives,” explained David Philp.

During the Town Hall discussion, Dr Jan Mischke presented a very interesting research, conducted by the McKinsey Global Institute, on the different potential scenarios for the day after COVID-19:

“Assuming that also the economic policy response is effective in terms of the support given to companies and to households, we would expect a V-shaped recovery where the economy in Europe tanks by about 10%. That is the biggest drop since WWII but then it actually comes back to where we left off from early next year already. In the construction sector, we would in this scenario expect to develop even slightly more positively or slightly less shocking than the overall economy because of public stimulus measures and because it is hard-hit but less hit than some sectors like retail or travel and so on.

The slightly more negative scenario is that in summer we find out that the virus has not been sufficiently contained, that the measures taken are not sufficient; there will be a resurgence of the virus and a renewed lockdown or a series of renewed lockdowns until we find a vaccine. In this case, one must assume that significant and lasting damage to the economic fabric with lots of bankruptcies, corporate debt fall-outs, and so on will have happened. We expect a contraction of the European economy of about 14%, peak to trough, and then an even stronger contraction of the construction sector of about 16% peak to trough, and then recovery only by late 2024. So essentially five lost years.”

Factors that could accelerate industry disruption

But, as it was already mentioned in the beginning, every crisis can also be an opportunity. Dr Jan Mischke suggested that in construction there is a 60% looming productivity opportunity waiting to be reaped. On top of that, there is another 20-40% cost savings opportunity as a result of the development of offsite construction.Source: McKinsey & Company

This rising opportunity is inextricably linked to the acceleration of digital disruption which, according to the McKinsey Institute research, is based on five main areas:

1. Increased digitalisation and investments into technology
2. Increase in offsite construction
3. Increased vertical integration
4. Accelerated consolidation
5. Acceleration in demand for sustainability

“The more innovative and more investing companies will have a lot to gain. And I think they will. I think the crisis will accelerate transformation and transition. And I think there are open doors by governments all around the world to change things,” concluded Dr Jan Mischke.

Interestingly enough, most of the Virtual Town Hall attendants shared the same view. As manifested by the live poll that took place during the discussion, 67% of the respondents pointed at increased digitalisation and investments into technology as the next area of interest for their businesses due to the Coronavirus crisis. Offsite construction and an increased demand for sustainability were the other two options that captured most of the attention with 35% and 23% respectively.

In addition, 50% of the respondents stated that their companies have already increased their investment or activity level to support this trend. That’s, undoubtedly, a very promising sign for the industry’s future.

Will the good changes stick?

That’s the million-dollar question at the moment. Will construction be able to safeguard the positive changes that will come with this crisis. Or as Anne Bentley smartly pointed out, will a lack of work lead to “another race to the bottom.”

According to Mark Farmer, a part of the industry will sooner or later return to its old habits:

“Unfortunately, I’m pretty certain we are going to see a return to probably a variety of different behaviours and responses. We are going to see some businesses who just go straight back to survivalist mode and you can’t blame them. Because at the end of the day they are going to be driven by necessity in relation to keeping their businesses going. But that survivalism is gonna be about short-termism, it’s going to be about stopping any potential investment they were making in innovation, maybe even in technology, all of the things that potentially are going to be part of the solution going forward.”

Ironically, this very approach could, in the long run, lead these businesses out of the market, given that it will be impossible for them to compete against the forward-thinking players.

But, thankfully, there will also be players who will invest more in modernisation and will identify the opportunity for a deep and meaningful change.

“We’ll see other businesses recognise that to survive this they will have to adopt modernisation in whatever form that takes; they’ll do whatever they need to in response to the issues they face on the coming projects and I think it’s very much a short-term immediate response phase. There is a longer-term business model change phase that comes after this, as well.

And then I think you see other businesses that grab this with both hands and see it as an opportunity just to completely accelerate what they may have already been doing or actually to move into a space of modernisation that they weren’t in before because they see it as a point of competitive advantage. Those businesses that will see it more as an opportunity have got more of a chance coming out the other side.”

Read also: How to stay connected with your teams as Coronavirus hits construction

In that sense, long-term investment and a long-term strategy are fundamental for the success of this transformational journey. Nevertheless, the construction industry should not overlook that these long-term investments to succeed, they need to bring value back to society.

As David Philp mentioned, the sector got to use this time to make sure that the projects we deliver are the ones that could have maximum value for society. In other words, those who focus on value can hope for better days.

“It’s not only about the cost of long-term investments, it’s about the value of them, as well,” added Anne Bentley.

We can and should be optimistic

As the entire world economy, construction is at the moment in the midst of an unheard-of crisis. However, there is room for optimism. After all, construction is one of the biggest contributors to the global economy.

“I see construction coming through as a powerful economic lever both in its own rights because of the amount of economy we contribute to but also a vehicle to deliver change elsewhere. Ultimately, I feel during this crisis construction has shown how good we can be and we should be optimistic that we are going to play a significant part in the upturn when it comes,” concluded Anne Bentley.

Now more than ever is the time for business leaders to come together and show the path to a more hopeful future for construction.

“I hope it’s (i.e. the pandemic) a perfect opportunity for us to actually rethink again and actually use this time for enlightened thinking as we speed up the modernisation process,” added David Philp.

So, this is an opportunity that should not go to waste if we want to see a construction industry that doesn’t return back to “business as usual”. It’s a unique opportunity for the sector to bounce back stronger than ever before and fight for more digitalisation, more sustainability, seamless collaboration, and less fragmentation.

With this message, we invite you to watch the entire discussion of our first Virtual Town Hall, just by clicking on the button below.