Today’s CEOs face a business environment that’s becoming increasingly complicated to read and adapt to.
Government responses to debt and deficits tops the list of forces engineering and construction CEOs need to contend with -- 77% are concerned they could threaten growth, and 39% are extremely concerned, even more than across the sample as a whole. That reflects the importance of governmental spending on infrastructure like roads and bridges to the industry’s prospects. Next up are over-regulation and geopolitical uncertainty. And not surprisingly, engineering and construction CEOs are much more concerned about increasing interest rates, which could be a damper on residential and commercial construction. These are risks which are largely outside of companies’ control, as is economic growth – the number one predictor of future growth for the sector.
This year, just 23% of engineering and construction CEOs expect the global economy to grow, down slightly from 28% last year. So it’s not surprising that near-term confidence levels have dropped this year. Only 27% of engineering and construction CEOs are very confident of growth over the next 12 months, down from 41% last year. Less than half of engineering and construction CEOs believe there are more growth opportunities for their company than there were three years ago, well below the overall average of 60%, while 64% say threats have increased.
And while confidence levels looking forward three years increase somewhat, engineering and construction CEOs are still notably less optimistic than their peers in other industries.
Slowing growth in China and low oil prices, with the resulting pressure on infrastructure investments in some markets, are undoubtedly having an impact on CEOs’ confidence levels. If China’s enormous emphasis on infrastructure spending slows dramatically, there will be a significant impact on the sector. In the USA, The USA (32%) and China (23%) are still the markets where the greatest number of CEOs expect growth, followed by Germany (17%). And the UAE is on the radar for 12% of CEOs as well, as is the UK (10%).
Customers, government, peers and investors are all on CEOs radar
As with most industries, customers stand out as the top priority, with 92% of engineering and construction CEOs indicating they have a high or very high impact on their business strategy. Next on their list are government and regulators with 68%, followed by industry competitors and peers (62%). And with financing always a concern, it’s not surprising that more engineering and constructions CEOs are paying attention to providers of capital too (51%, compared 41% of CEOs overall).
For engineering and construction CEOs, as for their peers across the sample, technological advances are most likely to impact stakeholder expectations. While the engineering and construction industry has historically been fairly slow to adopt new technology, recent advances have started to transform everything from surveying to building, where off-site manufacturing techniques are becoming increasingly sophisticated.
And the industry’s paying attention to resource scarcity and climate change too.
Technology isn’t the only trend driving change in the industry. Compared to the overall sample, more engineering and construction CEOs believe resource scarcity and climate change will transform wider stakeholder expectations of their sector (56% vs. 43% of CEOs overall). The built environment is a significant carbon emitter and the industry potentially has a strong role to play in achieving climate change goals. We’ve flagged “green building” as a growing trend in the industry in previous surveys, and its importance continues to grow for design firms, contractors and building materials companies.
Urbanisation also rates higher for engineering and construction CEOs as a force driving stakeholder expectations. New solutions are being sought for building in urban environments, with transportation and walkability increasing in importance.
Concerns around trust are growing
CEOs know that they must start preparing their businesses today for the more complex customers of tomorrow. They worry that not doing so could impact trust in their brand, creating a significant risk to the long-term viability of their business. Three-fifths of the engineering and construction CEOs surveyed are concerned about the lack of trust in business today – compared with 43% just three years ago.
“As we work in the construction and engineering industry, the responsible use of public resources has taken on greater significance – and for this reason, the group has created a new risk control department and a regulatory compliance unit, which is in charge of ensuring the efficiency of our recently-approved code of conduct.” - Manuel Manrique, President and CEO, Sacyr, Spain
For engineering and construction, bribery and corruption remains a key threat that can undermine the trust of both customers and governments. This year, more than a third of sector CEOs (37%) are extremely concerned that it could threaten growth. In New York City the problem was so acute that an investigative task force accused 50 construction workers and building inspectors of bribery in 2015. This is one threat that the industry can, and must, meet head-on, and some companies are taking pro-active steps to build trust.
Getting better but regulation, costs are barriers
Engineering and construction CEOs are addressing everything from people issues like workforce rights and wellbeing to operational concerns around how to partner and maximise societal value of R&D as they look to balance the needs of stakeholders. Managing the brand, defining and managing risks, and using technology stand out as areas receiving particular attention.
What’s holding them back? Regulation and costs, primarily. Engineering and construction CEOs say the top barriers to making changes are unclear or inconsistent regulation (48%), customers’ unwillingness to pay (44%) and additional costs to doing business (44%).
Technology is changing the construction industry
88% of engineering and construction CEOs plan to make changes – and nearly half plan to make significant ones – in how they use technology to assess and deliver on wider stakeholder expectations. One example for the industry is Building Information Modelling (BIM). By modelling a wide variety of data about a project in 3D, in real time, BIM helps improve efficiency throughout a project lifecycle. Many governments are strongly promoting or even requiring BIM, and it can help companies interact with customers too. For building materials companies, technology is also helping make production more efficient and less-resource intensive. And technology can help the industry meet stakeholder expectations in less visible ways, too. For example, new payment technologies can help cut waste and improve productivity, improving relationships with customers and supply chain partners.
But people make the ultimate difference
The construction industry is facing major skills shortages in many markets – 72% of engineering and construction CEOs are concerned that lack of skills could threaten growth. The global financial crisis hit engineering and construction companies particularly hard; many cut staff and have found it difficult to replace those skills, despite an improved outlook. This year 42% of engineering and construction CEOs plan to increase their headcount, down slightly from last year.
Engineering and construction CEOs are focusing most strongly on developing their people’s skills and adaptability. Many see it as a key responsibility for business -- more than three-quarters say business should help deliver a skilled, educated and adaptable workforce. Many believe government should contribute too – 58% say a skilled, educated and adaptable workforce should be a priority for government; only a stable tax system rates higher.
How should business be doing more in order to measure impact and value as stakeholder expectations evolve? Engineering and construction CEOs listed better measurement for innovation at the top, and the measurement of risk a close second.
There are several areas where Engineering and Construction CEOs are more likely to see a need to better measure their impact and value, including employee practices (51% vs. 39% of overall), business strategy (50% vs. 39% of overall) and organisational purpose (44% vs. 33% of overall).
When it comes to getting the word out more effectively, engineering and construction CEOs say they need to do more around their organisational purpose and environmental impact in particular, as well as their business strategy.
Fernando Gonzalez Olivieri, CEO, CEMEX, explains how all three can fit together: "...very recently we reviewed the company’s purpose, and we made a slight change. It used to be ‘Building the Future’. Now it’s ‘Building a Better Future’. Cemex is a company that embraced sustainability a long time ago – and we believe that sustainability is creating a new economy, a different type of economy, reshaping certain economic activities. And we’re saying that the first companies to understand and embrace this will be the companies that will be on top of the trend and doing better business than others."
The sector also has a major role to play in enhancing quality of life around the world which is not always fully recognised.
Manuel Manrique, President and CEO, Sacyr, Spain
Global Engineering & Construction Leader
Tel: +44 (20) 7804 4753