Finding talent is getting harder, under-charging for our labor is a problem, as is focusing too much on box revenues. There are answers.
For the most part, things are looking good for our industry. However, the area that is troublesome, and that is predicted to be even more problematic over the coming years, is labor access and utilization.
Today, for most integrators, sales are strong and profits are flowing again. Revenues are up. They also highlight obstacles to our profitability. They point out that finding talent is getting harder, under-charging for our labor is a problem, as is focusing too much on box revenues. As an industry, we’ve been talking about these concerns for years!
We’ve all experienced these issues in one form or another. The consumer pushes back because of an implicit belief that the value is in the boxes, so many firms discount or work within under-quoted, fixed-labor timelines. This practice hides the reality that, ironically, the primary value is the people, not the boxes.
These are old habits and a very fragile backdrop for any company wanting to run a sustainable and profitable business. The reality in CE is that, on average, 65% of the hours paid are not billed. In the construction industry that figure is 57%. This gap is not just because many are not charging enough for labor, but also because of how we utilize our labor. We keep our guys going in slow periods, finding jobs which may include shop work, then we go into overdrive in the peaks, paying for OT, and pushing our guys beyond their effective capacity. Given Parkinson’s law, ‘work expands to fill the time available’ so our efficiencies suffer in the quieter periods. In the peaks, our cost per hour and vulnerability to mistakes and misses go up.
Recently, in discussions with a mid-size construction firm, I was amazed to learn of their frustrations with finish carpenters and trades. They have the same paradigm. No one wants or can afford to lay off in quieter times, for fear of losing good people, and everyone is running around trying to compress serious demand into limited capacity in peak times.
Now consider that we haven’t even begun to experience the predicted shrinkage in capacity that is ahead of us with a retiring generation on one end and a re-framed younger generation on the other. The re-framed generation is attracted to newer, more exciting professions like software development rather than older more steady professions like the trades. Even those entering the trades are doing so with different objectives. Largely, they are attracted to the idea of being entrepreneurs, considered sexy and cool; many are not attracted to long term, loyal employment.
So where does this leave our industry, or the construction industry at large? We are short on labor now, we are not charging enough for our labor, and we are still dependent on box revenues. If you are committed to your business, you may want to give these factors serious consideration. Evaluate your current labor practices including finding trusted partners to reciprocate when you are in the peaks or valleys, ensure you are charging enough for your labor and highlight metrics in your business that help you track overall effectiveness.