johns manville platinum educational session · source: the drive toward healthier buildings 2016...

12016 ICAA Convention & Trade Show | JM Platinum Educational Session

Reading the Tea Leaves | September 29, 2016© 2016 FMI Corporation

Johns Manville Platinum Educational

SessionReading the Tea Leaves—

Adjust, Adapt, Act

2© 2016 FMI Corporation

Ability to “See” the Future is the Catalyst of Progress



Industry Context

6

23

49+

11

25

6.8x‘07

32%

‘90

‘82

‘75

• Ninth year of growth

• Prosperity amidst uncertainty

• Uneven recovery

• Energy, Industrial, Civil Infrastructure Demand

7

64

Magnitude of

Downturn

Duration of Downturn

Years to Rebound

# of Downturns

since 1964

Prior Three Industry

Downturns

‘75

‘82

‘90

‘07

‘75

‘82

‘90

‘07

US Recessions

Residential

Non-ResidentialTotal E&C



Trends Impacting Construction



2016 Trends in the Construction Industry (1 of 2)

• Availability of labor at all levels

is a major concern.

• Megaproject proliferation and

the trend toward joint ventures.

• Technology advances too quickly

to become table stakes.

• The strategic significance of risk

management.

• Mergers and acquisitions:

remaining strong in many

sectors.



2016 Trends in the Construction Industry (2 of 2)

• Abundant low-cost natural gas

is creating tailwinds.

• Succession issues threaten the

continuity of many firms.

• Commercial building segment

continues to be a buyer’s

market.

• Business intelligence is all

about knowledge.

• Organizational effectiveness is

a growing concern.



International Focus on U.S. Building and Infrastructure Market is Unprecedented



Construction Industry Forecast



0%

1%

2%

3%

4%

5%

6%

7%

8%

$- $50 $100 $150 $200 $250 $300 $350

Co

mp

ou

nd

An

nu

al G

row

th R

ate

(th

rou

gh

20

20

)

Construction Spending Put in Place 2020 (USD Billions)

Multifamily

Single Family

Residential

Improvements*

Power

Educational

Highway

and

Street

Health Care

CommercialTransportation

Manufacturing

Office

Lodging

Amusement and

Recreation

Communication

Religious

PS

Water SupplyS & WD

C&D

*Improvements include additions, alterations and major replacements. It does not include maintenance and repairs.

U.S. Markets Construction Overview



2016 Highlights

• High-volume nonresidential segments in 2016

– Power ($93.9 billion)

– Highway and Street ($91.3 billion)

– Education ($86.4 billion)

• Strongest percentage gainers in 2016

– Lodging (18.0%)

– Office (16.0%)

– Amusement and Recreation (8.0%)

– Power (8.0%)

• Weakest segments in 2016

– Public Safety (-5.0%)

– Water Supply (-4.0%)

– Sewage and Waste Disposal (-3.0%)

Total Put in Place

Year %

2014 10

2015 11

2016 5



Recovery Concentrated in Select Metro Areas



U.S. Markets Construction Overview

New

England

4% Mid-

Atlantic

13%NE

Central

12%

WN

Central

8%South

Atlantic

14%

ES

Central

5%

WS

Central

25%

Mountain

8%

Pacific

11%

Private

58%

Federal

3%

State and

Local

39%

By U.S. Census Region

100%

U.S. Construction Spending, $ Billions Source: FMI Corporation

U.S. Nonresidential Buildings Construction Spending Segmentation Source: Global Insights, FMI Corporation, U.S. Census Bureau

Building markets include both residential and nonresidential

By Public and Private

80%

40%

Total Construction

Building Markets

Nonresidential

Buildings



Other Commercial

Retail Commercial

Office

0

20

40

60

80

100

120

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Co

nstr

ucti

on

Pu

t in

Pla

ce

U.S. Markets Construction OverviewNonresidential - Commercial

U.S. Nonresidential Commercial Buildings Construction Forecast, $ BillionsSource: FMI Corporation

Forecast

Lodging



Religious

Public Safety

Educational

0

20

40

60

80

100

120

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Co

nstr

ucti

on

Pu

t in

Pla

ce

U.S. Nonresidential Institutional Buildings Construction Forecast, $ BillionsSource: FMI Corporation

Forecast

U.S. Markets Construction OverviewNonresidential - Institutional

Health Care



The overall economy has grown

by $4 Trillion since 2007 while

the construction industry has not

recovered to 2007 spending

The E&C industry has declined as

a % of the overall economy. What

are the implications of an

industry downturn prior to a full

recovery?

Has the Industry Lost its Place in the Broader Economy?



A Persistent Recovery Amidst Global Chaos

$14,237.2

$17,078.3

$18,444.1

$901.0

$910.8

$1,141.4

$-

$200.0

$400.0

$600.0

$800.0

$1,000.0

$1,200.0

$1,400.0

$1,600.0

$-

$5,000.0

$10,000.0

$15,000.0

$20,000.0

2008 2009 2010 2011 2012 2013 2014 2015 2016*

U.S. GDP and Construction Spending

and Major Political/Economic Events

Arab Spring

Syria Civil War

Libya

Saudi Arabia

Yemen

Iran Nuclear

Deal

Panama

Papers

Russia –

Ukraine

Greek Debt

Crisis Occupy

Wall St.

Brexit

Oil

$28.50

EbolaTPP

Europe

Terrorism

ISIS

$15

Min

Wage

Black Lives

Matter

GD

P in

$ m

illio

ns

Co

nstr

ucti

on

PIP

in

$m

illio

ns



Reading the Economic Tea Leaves



NRCI Third Quarter 2016

Overall Economy

Overall Economy Where We Do Business

Our Construction Business

Nonresidential Building Construction Market Where We Do

Business

Our Expected Backlog

Cost of Construction Materials: Higher

Cost of Labor: No Change

Productivity: Lower



Above 50

Below 50

30

40

50

60

70

De

c-0

7

Fe

b-0

8

Ap

r-0

8

Jun

-08

Au

g-0

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Oct-

08

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b-0

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9

Jun

-09

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Oct-

09

De

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0

Jun

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g-1

0

Oct-

10

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b-1

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1

Jun

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1

Oct-

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b-1

2

Ap

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2

Jun

-12

Au

g-1

2

Oct-

12

De

c-1

2

Fe

b-1

3

Ap

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3

Jun

-13

Au

g-1

3

Oct-

13

De

c-1

3

Fe

b-1

4

Ap

r-1

4

Jun

-14

Au

g-1

4

Oct-

14

De

c-1

4

Fe

b-1

5

Ap

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5

15

-Ju

n

15

-Au

g

15

-Oct

15

-De

c

16

-Fe

b

16

-Ap

r

16

-Ju

n

Source: AIA

Architecture Billing Index (ABI)



Anticipating the Next U.S. Recession and E&C Downturn

Perhaps some combination of the following

• Presidential and congressional elections

• Major domestic or European terror event

• Rising energy prices and core inflation

• Premature/over action by the Fed on interest rates

• Commercial Real Estate Bubble / Debt

• Another European debt crisis

• Failure to pass TPP

FMI best ‘guess’ is barring an unpredictable event, a general recession followed by a

relatively mild E&C industry downturn more than likely within next two years and most likely

in second half of 2017 or first half of 2018



NRCI Third Quarter 2016: Predicting the Next Recession

3%

19%

40% 38%

0%

10%

20%

30%

40%

50%

EOY 2016 2017 2018 After 2018

Q3 NRCI panelists noted trends regarding when and why we may experience the next recession.

Q3 2016 NRCI Survey Word CloudPanelist remarks highlight:

• Overbuilding in select markets

• Rising labor and material costs

• Resources / people limiting growth

• Instability overseas

• Interest rate manipulation

• Election / political influence

• Generalized uncertainty

• We are due

Nearly 80% of respondents do not expect

a recession until 2018 or thereafter.

Several panelists commented on their

health backlogs and anticipated

continued expansion in the coming

years.



What Trends Does the Future Hold?



Healthier Building Trends: Features

Source: The Drive Toward Healthier Buildings 2016 SmartMarket Report, Dodge Data & Analytics, 2016

61% - Enhanced

Ventilation

40% - Layout

Encouraging Physical

Activity

30% - Transparency of

Product Information

Owner top-three interests in healthier building features:

Common features used in more than 50% of all projects:

1) Better lighting/daylight 5) Acoustical comfort products

2) Thermal comfort products 6) Exclusion of certain materials

3) Social spaces 7) Occupant controls

4) Air quality products 8) Mood-enhancing spaces



Productivity Gains Will Happen Through Accelerated Tech/Lean Process Adoption

Technological advances in pre-con and construction ops pivotal to maintaining competitive position

• Building Information and Modeling (BIM) is key to construction scheduling optimization

• Job-site technologies to work faster, smarter and safer are expanding at an accelerated pace

Implications

• Tech-savvy firms becoming more essential and less elective

• Talent selection and development needs to factor willingness to embrace and capacity to apply new practices

• Without clarity of long–term direction, every innovation looks important and represents a potential distraction versus benefit

Adoption of these tools does not

necessarily translate to productivity

gains or margin expansion



Expect More “Building Manufacturing” Through Prefabrication

Use of prefabricated building components on the rise

• Higher quality

• Improved job-site performance

• Ideal for repetitive sections

• Architectural style NOT compromised

Implications

• Less skilled labor on jobsites

• Changing playing field - who will be contracting the work?

• Competencies in manufacturing process required

• Heightened ability to collaborate across trades



Talent, Generations & Future Leadership



Jobs and Unemployment (1 of 2)

0%

2%

4%

6%

8%

10%

12%

0

20

40

60

80

100

120

140

160

19

70

19

71

19

72

19

73

19

74

19

75

19

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19

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78

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20

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11

20

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20

13

20

14

20

15

20

16

Un

em

plo

yme

nt

Em

plo

yme

nt

(Millio

ns)

U.S. Employment U.S. Unemployment Rate

Employment and Unemployment Rates | 1970—2016



Jobs and Unemployment (2 of 2)

11 1

4

9

17

9

46

13

52

21

-3

20 2

3

3

17

26

23

31

-15

60

21

42

41

12 13

41

25

25

14

23

45

50

27

-7

38

17

0

11

4

10

33

65

48

18

13

37

-6

-18

-6

11

-6

-30

-20

-10

0

10

20

30

40

50

60

70

20

12

- J

uly

Au

gu

st

Se

pte

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uly

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be

r

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20

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Jun

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20

16

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uly

Au

gu

st

Employment in construction Month over month change, thousands Construction added 199,000 jobs over

the past year.



Dynamic Construction Industry Employment: Gains Less Losses

-500

0

500

20

06

Q1

20

06

Q2

20

06

Q3

20

06

Q4

20

07

Q1

20

07

Q2

20

07

Q3

20

07

Q4

20

08

Q1

20

08

Q2

20

08

Q3

20

08

Q4

20

09

Q1

20

09

Q2

20

09

Q3

20

09

Q4

20

10

Q1

20

10

Q2

20

10

Q3

20

10

Q4

20

11

Q1

20

11

Q2

20

11

Q3

20

11

Q4

20

12

Q1

20

12

Q2

20

12

Q3

20

12

Q4

20

13

Q1

20

13

Q2

20

13

Q3

20

13

Q4

20

14

Q1

20

14

Q2

20

14

Q3

20

14

Q4

20

15

Q1

20

15

Q2

20

15

Q3

20

15

Q4

00

0s

The dark blue line charted below represents

quarterly net* job gains / losses within the

construction industry between 2006 and 2015.

*Gross Job Gains – Gross Job Losses

The latest BLS projections estimate a

14% increase across total industry

employment between 2014 and 2024

(519,500 jobs / 1.3% CAGR).

Ga

ins

Lo

sse

s



Growth Impediments Due to Talent Shortages

Availability has become a top

impediment to performance

• Recession created industry exodus

• Baby boomers retiring

• Slowdown in U.S. immigration

Implications

• Top strategic leader focus – how do we

attract and retain an “unfair”

advantage of a limited talent pool

• Understand what is required to attract

and effectively leverage Millennials

• Internal development of talent

• Can applied technology produce more

with fewer people?

61% believe the lack of skilled

labor will impact competitiveness

and / or slow ability to grow

The E&C industry downturn occurred

when Millennials were coming of age



Boomers are Retiring, Millennials are the Future

Majority of industry leadership retiring in the next five to seven years

• Gen X insufficient to cover the gap

• Millennials think and work differently but understand and can apply technology

• Millennials feel disenfranchised, not attracted to construction

• Millennials will be our customers in 10 to 15 years

Implications

• Leadership needs to quickly learn how to understand, leverage effectively this generation

• Mentoring and stretch assignments critical

• Clarifying a company’s purpose and direction critical

Aging baby-boomers retained ownership

through the past decade, largely forgoing the

opportunity to transition ownership to GenX

and are now behind the curve for a time-based

transition….



2016 ICAA Survey Results



Survey participants indicated installers to be the most difficult position to find and recruit in today’s market.

2.98

3.52

4.05

4.43

5.14

6.55

1 2 3 4 5 6 7

Senior Leaders

Project managers

Field management

Estimators

Sales

Installers

19%

4%

25%

10%

23%

19%0-4%

5-9%

10-15%

16-24%

25-30%

More than 30%

What is the turnover rate per year you are

experiencing with installers?

Level of difficulty (1=least difficult, 7=most difficult)

Which positions are the most difficult to find and recruit today? Weighted average scores: Q1, Q12

Source: ICAA survey



Overall, challenges in recruiting, developing and retaining installers are expected to continue in the next two to three years.

4%

4%

2%

19%26%

25%28%

48%45%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Challenge today Challenge in the future

5 - Significantly

more

4

3 - About the

same

2

1 - Significantly

less

How big of a challenge is it to recruit, develop and retain installers today and how will recruiting, developing

and retaining installers change in the next two to three years?Q2, Q3

Source: ICAA survey

• Overall, survey participants

indicated the current challenge of

recruiting, developing and retaining

installers will continue to be a

challenge in the coming future (i.e.,

two to three years).

• More than half (55%) of survey

respondents that indicated the

challenge of recruiting, developing

and retaining installers will stay

about the same or be less

challenging in the next two to three

years were from the Southeast or

Southwest.

• Whereas, all survey participants

from the Northwest indicated

recruiting, developing and retaining

installers will be a greater challenge

in the next two to three years.



Internal employee referral programs were perceived to be the best source for hiring quality installers.

2%

4%

8%

8%

13%

21%

29%

29%

31%

75%

Local civic and

community groups

Vocational schools

Posting on your

company's website

Hiring agencies/

recruiters

Social media

External referrals

Online recruiting tools

Job posting board/

resources

Being an employer

of choice

Internal employee

referral program

What are your best sources for hiring quality installers? Choose up to three. Q8, Q9

Source: ICAA survey

2%

12%

18%

33%35%

It can all be

accomplished in

a few hours

Three or more

months

Two to seven

days

One to two

months

One week to

one month

What is the average amount of advance time you need

when hiring installers?

• Traditional means for hiring individuals such as

posting on the company’s website or hiring

agencies/ recruiters were not favorably viewed by

survey respondents.

• Sixty-eight percent of respondents believe the

average amount of advance time needed when

hiring installers is between one week and two

months.



The Great Place to

Work: How to Build it,

How to Keep it, and

Why it Matters

—Michael Burchell and

Jennifer Robin

Great

Place to

Work

Camaraderie

Trust

Pride

A Great Place to Work



Survey participants believe that competitive wages are the number one strategy to retain quality skilled installers.

14%

18%

20%

37%

53%

57%

59%

61%

92%

Structured career

development/coaching

Performance feedback

Social events and

team lunches

Training opportunities

Paid time off

Incentives or bonuses

Overtime

Benefits packages

Competitive wages

What are the top strategies you are using to retain

skilled installers? Select all that apply. Q9

Source: ICAA survey

Training

opportunities

2%

Social events and team

lunches

2%

Overtime

4%

Structured career

development/

coaching

4%

Other

6%

Benefits

packages

10%

Incentives or

bonuses

15%

Competitive

wages

57%

Thinking of the strategies you selected in the question

above, which one strategy do you believe is the number

one reason you are able to retain quality skilled installers?Q10

Source: ICAA survey



Poor work ethic and a lack of punctuality were indicated to be significant factors in installers being asked to leave.

2%

2%

4%

6%

12%

16%

35%

55%

61%

Language or cultural barriers

Lack of overtime

Too much overtime

Required travel

Workplace relationships

Wages

Skills/experience levels

Attendance

Attitude

When installers leave, either by choice or are asked to leave, what

are the most common reasons why? Select all that apply. Q11

Source: ICAA survey

Respondent suggestions for better recruiting,

developing and retaining of top installers

“Only hire motivated installers if you can find

them.”

“Take care of what you have; be flexible and

understanding.”

“Treat your people with respect.”

“Show appreciation for employees, both in the form

of pay and respecting their time away from work.”

“Take care of your good employees.”

“Offer unlimited overtime for those who want it.”

“Make sure your pay scale is equal to others in

your area.”

“Make sure you operate a great place to work and

grow for everyone”

“Be prepared to spend time to find the right

person.”



Nearly 90% of new installers found by survey participants require significant training.

60%

29%

8%

0%

2%

0% 10% 20% 30% 40% 50% 60% 70%

1 - Significantly need to train

2

3

4

5 - Fully trained and ready to go

What is the average skill level of the new installers you are finding?Q4

Source: ICAA survey

“Due to the economic slump we are having no difficulty

finding qualified sprayer laborers or others.”

“Spend the time on training

properly, and making them know

they are part of the team.”

“Develop a training program for

non-experienced insulation

installers.”

“Hire unskilled installers and train

them.”



Along with the challenges in recruiting, developing and retaining

installers, training will be highly important for new installers hired. Current and future challenge in recruiting, developing and retaining installers by geographic locationQ2, Q3, Q14

Source: ICAA survey

North Midwest

Northeast

Northwest

Other

South Midwest

Southeast

Southwest

2

2.5

3

3.5

4

4.5

5

2 2.5 3 3.5 4 4.5 5

Ch

alle

nge

in

th

e f

utu

re (

1=

sig

nif

ica

ntl

y le

ss c

ha

lle

ngin

g, 5

=sig

nif

ica

ntl

y

mo

re c

ha

lle

ngin

g)

Challenge today (1=significantly less challenging, 5=significantly more challenging)

Circle size represents the average skill level of new

installers. The larger the circle the less training needed.

1 - Significant

need to train

5 - Fully trained

and ready to go

to work

Other includes Western Rocky Mountain area, Western

Canada, Midwest.



Capturing the Future’s Advantage

• Now is the time to get

ready

• Agree on the facts

• Get your strategy straight

• Find new sources of

people

• Cultivate talent—at all

levels

• Train leaders

• Make your company a

staying place

• Think jungle gym, not just

career ladders

• Embrace a technology POV

• Give customers an excuse

• Find a penny



Presenter

As FMI’s practice leader for business development, Cynthia works with industry organizations to position them to capture market share and grow profitably. She helps construction industry organizations stand out from the competition by discovering their differentiated platform. Working in tandem with project teams to create winning strategies, she has served industry associations, contracting firms and industry suppliers.

With a strong conviction that marketing and business development starts at the top of an organization, Cynthia works with company presidents, sales, marketing and business development executives to help create a strategic vision. Cynthia then works one-on-one with companies to ensure that their strategic vision is translated into a competitive advantage in the marketplace and that the full market benefit is achieved.

Cynthia is a highly rated instructor and speaker. Her presentation style and knowledge of the construction industry make her a sought after speaker for industry events across the country for such programs as Construction Selling Skills, Presentation Skills, Competitive Marketing for Contractors, and Managing Key Accounts.

Cynthia holds a bachelor’s degree in business administration, with a minor in economics, from Fort Lewis College. She earned her master of business administration degree in finance and marketing from the University of Denver.

Cynthia Paul

FMI Corporation

210 University Boulevard,

Suite 800

Denver, CO 80206

Tel: 303.377.4740

Fax: 303.398.7291

E-mail: [email protected]

Website: www.fminet.com

johns manville platinum educational session · source: the drive toward healthier buildings 2016...

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