The Path Forward for Construction: How to Cope With Rising Inflation
Inflation has soared to heights not seen since the 1980s, in part due to the economic shutdown of the pandemic. While businesses across the United States are facing the challenges of endlessly rising costs, the construction industry is bearing the brunt, with no predictable end in sight.
In fact, per Vistage’s recent research, nearly all (96%) construction CEOs are experiencing increased vendor prices as a result of inflation. Eighty-seven percent report higher costs for raw materials and other inputs. Construction executives are being forced to pass through these price hikes to consumers and raise prices in response—84% anticipate their prices will increase over the course of the next year (even more than the 76% national average).
In addition to skyrocketing inflation, construction business leaders are also battling the headwinds of prolonged supply chain slowdowns and continued labor shortages. This requires heading back to the drawing board to rethink everything from hiring and retention strategies to investments, compensation, and benefits offerings in pursuit of new and creative solutions for unprecedented levels of economic uncertainty.
In times of economic instability, construction CEOs should increasingly shift their focus to areas in their control. Following are three top considerations for managing through inflation.
1. Think big picture
As the construction industry faces a nationwide backlog of demand outpacing supply and talent availability, efficiency is more important than ever. Construction leaders can actively invest in their business in the form of cost- and time-saving technology and software that increases productivity and reduces project time. While it may cost more upfront, the end result benefits employees and customers and the pay off will follow suit.
Steve DeWeese, vice president of construction for Elder Construction Inc., says, “We are focused on becoming more efficient and taking costs out of the business where we can. We’ve invested in the training and development of leadership. But we’ve also invested in software to drive more efficiency in the ways we manage projects and provide a better client experience.”
2. Hiring starts with retention
According to the recent HBI Construction Labor Market Report, the construction industry needs 2.2 million net hires in the next two years to keep up with demand. While hiring and recruitment strategies are crucial during labor shortages, construction CEOs should also dedicate equal time and money to their employee retention efforts. Quit rates continue to be high as employees participate in “The Big Upgrade” and seek roles with higher pay, more responsibility, increased flexibility and better culture. The costs of finding, hiring and training new talent have never been higher, and having the right people on staff makes all the difference during difficult times. Construction CEOs who adjust internal salary bands, offer programs for leadership development, and invest in upskilling/reskilling can see a more engaged workforce. Employees who feel valued by their organization will not need to look outside the walls of their current company for an “upgrade.” Investing in current staff can unlock powerful cost savings in the long run.
Jessica Meyer, president and Owner of JEM Group, says, “The key to hiring and retaining great people is to talk to your people all of the time. Stay connected. Make sure that they know that they matter, that they have a career path, that they are an important part of your organization.”
3. Seek low-hanging fruit
Construction CEOs can look for cost savings opportunities wherever possible. There is no better time to review contracts with top vendors and identify opportunities to price freeze, end or renegotiate. Have conversations with employees. Oftentimes, they can quickly point to items that are no longer useful and could be chipping away at budgets over time. Cutting these small costs adds up over time and can help the company to withstand volatile pricing and ensure money is being spent in places that actually have an impact.
CEOs can also evaluate customer relationships. Letting go of clients can be challenging. But customers who aren’t the right fit can drain resources that could create more profitable opportunities.
Despite grueling industry challenges, there is a bright light for construction: Vistage research shows 41% of construction CEOs expect to increase revenue in the year ahead. Similarly, a 2022 Deloitte survey of U.S. executives and other senior leaders in construction found that 91% of respondents characterized the business outlook for their industry as somewhat or very positive, 23% higher than last year. Driving this business confidence is the expected strong performance of the residential segment.
Construction holds a promising future, as demand remains strong with 103,000 net residential construction jobs added over the last 12 months. CEOs who manage thoughtfully through ongoing inflation, talent shortages, and supply chain slowdowns stand to benefit from a booming market and will be best poised to tackle challenges for years to come.