Rightsizing Building and Construction
Key Challenges for the Building and Construction Sector
Uncertainty is the major challenge facing the building and construction sector, and it comes from several directions. Inflation is hitting B&C businesses hard across the board, with material costs on the rise. People costs are rising too, with a shortage of workers and real problems retaining employees, many of whom have exited the industry. Further challenges arise as legislation increases — particularly around sustainability — and businesses are forced to spend more to hit targets and comply with new regulations.
The B&C industry traditionally has lagged others, and this tardiness leaves businesses scrambling to catch up. Sustainability is an important issue in both the processing and manufacturing of raw materials, as well as in the design of buildings.
Digital transformation presents an opportunity to address some of the design issues, and again, the sector is falling behind in the race to reap the benefits that digital can bring.
Life is becoming more complex for B&C businesses as the sector increasingly does not stand alone — the energy industry is a vital component of the smart cities of the future, with electric vehicle infrastructure, green energy and water economy all adding new dimensions.
“A total infrastructure approach demands a totally new way of looking at the B&C sector — we have the insights and experience to deliver this.”
— Maxime Julian, Partner, Paris
The digital transformation sector comprises many of our clients. With our help, they are increasing digital connections and using technology to decrease costs and maximise the potential of data as a business tool.
Private equity has historically been wary of building and construction, viewing it as a cyclical industry that is national in focus and vulnerable to regulation. L.E.K. Consulting brings new insights into private equity that counter the negative perception and can allow investors to seize opportunities.
Relocation is a promising opportunity for value-add, and we are actively helping manufacturers move from Asia-Pacific to Europe. We are also working with European players, guiding them to new markets and better margins in the US.
Crucially, the year ahead offers much potential for mergers and acquisitions. Size is becoming ever more important — businesses need to retire the ‘one country, one specialism’ approach, and move toward a broader international model instead. While increasing size will help transform companies, improving areas like distribution will need real investment and scale to enable this positive change.
Changes within the civil engineering sector will also be important in the year ahead as players move away from specialisms towards a broader expertise. A good example is road builders transforming into competent businesses that are capable of building roads and energy infrastructure, water infrastructure, and green landscapes. This total infrastructure approach — moving away from narrow segments — will be an important trend over the next 12 months.
We have experience across the entire value chain. The sector is going through change and bringing specialisms together. The areas that need to be brought together are all areas that we are experienced and practiced in. And we have a powerful global perspective on the industry that is of real benefit to more locally focused companies.
The experience we bring from other teams in other sectors is of great value to our B&C clients too. Here at L.E.K. we are great at sharing knowledge and insights as well as developing our own specialisms. Digital transformation and sustainability are both more vital for businesses than ever — we have well-respected centres of excellence for both, while also being well-practiced within the building and construction space.