Construction businesses should be shifting their focus to three key areas to drive profitability. This includes, corporate governance and structure, operational efficiency and disruptive innovation – all with a lens of sustainability. BDO outline how construction business owners can consider these in the year ahead.
It’s no surprise that the Australian construction industry has experienced steady growth over the last three years, with average revenue CAGR increases of 10% as highlighted in the BDO Growth Index 2021. However, with the sector relying on government investment and a growing population, profitability growth has decreased by 3% over the last three years.
With 2020 in the rear-view mirror, the construction sector has come through a pivotal period with many organisations being driven to change as a result. Construction businesses are now shifting their focus to three key areas to drive profitability:
- Corporate governance and structure,
- Disruptive innovators, and
- Operating efficiencies.
Overlaid with all decisions in the sector is a new lens on sustainability. This includes building spaces that are sustainable into the future and encompass a large degree of wellness considerations.
In this article, we discuss these three growth drivers and how construction business owners and operators can consider these in the year ahead.
1. Corporate governance and structure
With BDO’s findings highlighting that 66% of mid-sized construction companies are privately-owned, nearly two-thirds of which are Australian-owned; owners and operators should be looking at formalising a new structure and way of doing business. As Australia’s construction companies grow, there has been a need to shift from a culture of being a ‘family-owned and operated’ business towards a more corporatised structure. The overall impact of this is ensuring future risks are mitigated and succession of the business is clearer for those owners looking to exit.
These construction companies need reliable advisers with the depth and breadth to enable them to navigate a period of significant growth. This means restructuring family businesses with solid executive teams who are equipped to deal with best practice in corporate governance, including functions for management and oversight, revisiting the structure and skill set of the Board, strong management of stakeholder relationships, and examination of risk management frameworks.
Many family-owned construction companies are proud of the past achievements of their organisations, and their people and culture. With a transformation period driven by growth, it is critical to these businesses that their people can embrace change, especially when it ensures future success.
For some home-grown, family organisations, it is time to consider personal exit strategies as foreign investment becomes a more compelling and viable option.
This is highlighted in the BDO Growth Index’s fastest-growing construction business, Daiwa House Australia Pty Ltd – who has made a significant investment in the acquisition of the Australian detached residential construction company, Rawson Homes, over the past five years.
2. Disruptive innovators
Many construction businesses have turned their heads to disruptive innovation, particularly in the digital and technology advisory space. This may include the development of a patented product used to enhance the safety/sustainability of their projects, data analytics on workplace health and safety initiatives, streamlining processes and improving productivity, use of digital twins and more. It is an exciting time for the industry as construction companies begin a new way of doing business, improving their performance through digital technologies. With the Federal Government investing $1.2 billion in their digital economy plan, mid-sized construction businesses are set to benefit - with allocation of $170 million to allow firms to write-off intangible assets, as well as accelerating the use of Artificial Intelligence – a technology being adopted by the construction sector.
For construction owners and operators trying to assess where to start on their digital and technology journey, assessing the full-value chain for pain-points and alliances where they can collaborate is a good place to start. Construction companies should also be looking at what big trends are driving their sector forward. For example, with sustainability being a future critical success factor, owners and operators should be looking at technologies where they can cut consumption, reduce waste and use resources that are less destructive to the environment. When it comes to creating efficiencies, looking at areas on the value-chain that can be streamlined, or shared with partners through digital means. While undertaking digital and technological transformation can seem like a daunting prospect for incumbents, construction companies can start on a digital and technology journey through a smaller, more iterative process.
3. Operating efficiencies
We have all learned a lot about doing business through the challenges of COVID-19 – the construction industry learning more than most - where operational efficiencies were key to sustainable business through lock-downs and restrictions. Many businesses embraced these changes to adapt to a new way of working which was previously considered ‘impossible’ or ‘unachievable’. This included introducing flexibility to on-site roles which have historically been set working hours. Construction companies have reconsidered the way they and their clients use space. They have also adapted workspaces for offices and project designs to suit the changing demands.
As a result of COVID-19, three priority areas for construction businesses will be:
- Safety - While safety has always been a priority for the construction sector, COVID-19 has instilled new ways of ensuring safety on-site, whilst also highlighting how extra hygiene measures can reduce absenteeism.
- Talent acquisition - With borders remaining closed, a tight labour market means that construction companies will need to find ways to attract the right talent. Leading construction companies will be looking at how they can promote a more diverse workforce, offer incentives and promote a strong culture. For some, the uptake of technology will remove the need for some roles, but also means that upskilling the workforce will also be needed.
- Supply-chain responsiveness - Many construction companies are still overcoming constrained supply chains as a result of COVID-19. With supply chain issues resulting in longer construction timelines and higher costs, construction owners should be looking at where they can source their products and where developing relationships with a wider network may be beneficial.
Did you know? The construction and logistics sector is the fastest-growing sector in Australia for mid-sized businesses. Find out who made the top five in the 2021 BDO Growth Index, in collaboration with Commonwealth Bank.
If you are a construction owner/operator assessing how you can boost your growth in the year ahead, contact our Real Estate and Construction team for advice on your next steps.