Transcript: Construction Trends to Prepare for in 2018 - Part 1

Hello and welcome to the Constructor Podcast, The Best Way to Build It, episode number 55. I'm your host, Brittany Campbell-Turner, and this podcast is dedicated to helping property owners have certainty in their decisions about their construction projects. We talk about fostering trusting relationships, help you to understand how to lower risk, be under budget, and on schedule, and most importantly, exceed your end user's desires. Last week, you heard my interview with Peter Anchor-Sternie, Chief Marketing Officer at ISS, a firm that has over 500,000 employees. He spoke with us about the change that is happening in the facilities management realm, and how it is affecting the focus on recruiting and retention, and the use of technology like Internet of Things.

And last but not least, the importance of service management. So if you haven't listened to that episode yet, check it out at constructor.com slash ep54. In this episode and the next, we're going to do a recap of some of the episodes over the past year, 2017, that really speak to some of the overall topics we cover this year. So we established this year that there is a change happening in the AECO industry, so architectural engineering, construction, and operations. Well, to be quite honest, before there's a need for change, honestly, there has to be some issue or some concern why people even want to change in the first place.

So to understand a little bit more about the state of the industry, I spoke to Stephen Mulva, the Director of the Construction Industry Institute. And we'll let him start off the discussion by recapping some of his, I would say, most tangible points. I want to talk to people. They think that things have to change. And I've seen that change just within the last couple years.

I really believe we can be exponentially more efficient in what we're doing. I think we can do it for less cost and less time, and a lot more profitability for everybody who's involved. What we found out is that there's really two things going on that's limiting our industry First is our business model's not working. And second, the way that we plan and execute our operating system's not working either. And I think that's the thing that we realize is that the business model we've got and our approach to planning, design, and construction isn't working.

It's really not working for anybody. In fact, it's just too slow, too expensive. The crazy part about this is that owners will just say, oh, this is, it's too slow, it's too expensive. And then the contractors will say, you know, we're not making any money. And so you think, well, where's all the money going?

And the construction industry is one of the only sectors in the economy that has not improved its productivity in the last 50 years. You listen to that and you look at the stock market and do all these things and you're like, wow, we're not in a great place right now. We got to get on with something better. And that's a reference to my comments before about people are ready for this. I mean, everybody is ready for this.

We actually did a study probably about four or five years ago that from the early 90s to sort of the 2013, 2014 range, the cash flow, how companies got cash flows really decline. There was a 95% correlation in the early 90s between cash flow and construction projects to 20% correlation only a few years ago. And as we dug a little bit further, we basically found out that companies just said, look, we can't rely on those capital projects, folks, too unpredictable, too risky with much better certainty.

You know, we can improve our cash flow and our financials by buying an asset, by buying another company, by stock repurchase. All of these things are a lot less risky than taking on another capital project. And in fact, the number one reason why CEOs are fired is capital projects not meeting expectations. Steven does a really good job of laying out what the perspectives are on the industry from all aspects, the architect, engineer, contractor, and owner operator of the industry. So the next person I want us to hear from is Dr.

Dean Kashiwagi. He was a professor at Arizona State University and specialist in best value procurement. I want him to add to this perspective because when I spoke with him in my interview with him, he really had an understanding of what's happening in the industry because he's done so many studies and he talks about where he thinks the breakdown is actually coming from. For 25 years, we have run over 1900 tests in over 11 different countries. That's 98% customer satisfaction.

And we can count the number of failures on two of our hands. And we can clearly explain where the risk happened. So there's some things that owners have to understand. The first thing is if they're to improve, quote, their performance in the delivery of construction services, they must understand that they cause over 90% of all project time and cost deviation by thinking and making decisions. And this is not a subjective statement.

This is the proof of a 25 years of running 1900 test. Okay, 25 years of running 1900 tests. Dr. Dean has done his research. Okay, and Stephen Mova is also doing extensive research with CII as to where the breakdown is happening.

I want us to dig into this a little bit more to understand what they're seeing and basically give us a real good sense of the current way that we're operating. I guess the way to lead into the explanation is if you have management direction and control, if somebody is telling another party what to do, then within the other party, there are people telling other people what to do. So when you use management direction and control, you require more people in the environment to deliver the service.

You require people to tell other people, tell other people, tell other people what to do. And the question to ask yourself is, does this make the situation more complex and confusing or more simple? And the answer is it makes it more complex. And when you have complexity, you do not have transparency. And when you have complexity, then people are saying things are difficult and complex, everybody's thinking more.

And when you have people thinking more, these people are thinking because they're confused. And thinking always leads to decision making, and decision making always leads to risk. So in the traditional system, the problem you have is you have people who are thinking, making decisions, increasing risk, telling other people what to do, and when something goes wrong, everybody blames everybody else. What we've got now is a pyramid scheme. And all the negative connotations you can think about, pretty much most of them are applicable.

So think about this pyramid where the owner sits on the top and they're issuing command and control style from the top down. These are engineering specs, you guys better do this, this is how we pay for things, this is how we want to design, blah, blah, blah. But they're pushing this down through layer upon layer of a bunch of companies. So next underneath the owner, you've got CM firms or an EPC firm. Under them, you've got their subcontractors, under that distributors, under that suppliers, vendors, raw material companies, so on and so forth.

You might have conservatively eight to ten layers. Well what happens at every layer is you're accumulating overhead and you're accumulating inventory. All the things that, if you go to business school, they'll tell you like, don't manage your inventory, it'll kill you. Don't manage your overhead structure, that'll kill you too. So as overhead and inventory goes up, profitability goes down and the inefficiency goes up.

So we've got to get on a different business model and the modern economy is a platform or a platform or a platform. So again, I'll use an Uber example. But what Uber was smart about is they said, okay, we're just going to build this app, it's a thin platform, it separates the assets from the cash. So again, the assets being the drivers and the cars, the cash being the customers who have some money they want to go from A to B. So the question here is, well, what if in our industry, we used all our assets and I mean there's human assets, there's engineers and architects, there's assets like plant equipment, there's construction workers, there's cranes, there's insurance companies.

What if we applied this uniformly on a thin platform? So you didn't have this pyramid scheme, you didn't have this multiple markups, multiple overheads. Basically, what you do is you get much more efficient and profitable. Something like surety and bonding, for example. Most projects are in the neighborhood of 350 to 400% overinsured because you've got performance and payment bond requirements, you have safety and insurance, workers comp requirements at every level of pyramid.

Well, it's so overinsured that actually right now, if you have an accident or a claim, you end up in court because there's four different insurance companies all telling each other to pay and the judge basically has to say, okay, well, four of you all insured the same risk so you're just paying 25%. Again, horribly inefficient, that's time consuming, you probably have to get a legal counsel just to go to the court just so you can get that ruling, so on and so forth. So when you go to a thin platform, everything becomes much simpler.

The transaction becomes simpler. So Dr. Dean gives us a really great example of how bad the problem can actually get through an example he shared with me. What has happened to us over 25 years is we went around the United States and ran tests and then somebody from the Netherlands who had heard me in Israel and in Singapore, they were having a big problem in the Netherlands with the delivery of construction services. What they found out was all the major general contractors and subcontractors and with material manufacturers were colluding on every major government vertical and horizontal construction project.

And they would all meet, they had procured a castle, they had their own boards and the project would come up and they would determine which contractor would get the project. Then everyone else would bid, would bid higher. And when the project was awarded, then everybody received a payment for their efforts. And they would rotate this around. This went on, my perception, for three or four years and everybody knew it was happening.

Even people in the government knew it was happening. And finally, somebody who was unaware of what was acceptable in the delivery of construction services said that this is illegal and it resulted in a criminal investigation and police action. And so what happened was everybody came up with all their answers of why it happened and how to solve it. And the reason collusion actually happens is because the environment has to be non-transparent. Because if it's transparent, there's no reason to collude.

So when you have collusion, it's all as non-transparency. When you have non-transparency, profit margins go down, risk goes up, cost goes up. And so basically now, contractors cannot sustain themselves. So I believe the subcontractors or even the general contractors were operating on a 2% margin, which barely kept them alive. And the government started managing, directing, and controlling even more, which creates inefficiency.

Honestly, it all comes down to breaking down the walls, making a more transparent, a more thin platform to work off of. We're working in parallel and that's what you're talking about when we go to this thin platform and not in series. The main problem with OS1, the one we've currently got, Operating System 1, is I call it the Plan the Work Work the Plan. But the problem is it doesn't work. So it was designed for something that's 100% scope certain and you've got a lot of time.

I mean, there's very few of these types of projects. The only one that comes to mind right now is where EPA says to a refinery, okay, you've got to hit this environmental compliance target five years from now. And they say, okay, great, we want to minimize the cost. We got a lot of time to figure that out. But really, that's not how most projects go.

The other problem with the Plan the Work Work the Plan is we have data here. It says that most companies spend, most owners spend 32% of the time planning for a future that's really mostly uncertain. The very best business analysts at these owner companies or really anywhere can only foresee about two to three years ahead. And even that's variable in terms of what can you sell the product for, how many people are going to buy your new pickup truck or your new coffee or your diaper or whatever it is that you're making.

So what's happened is that the business cycle and the commodity pricing is totally variable. We've got this illusion with OS1 that what we're producing in the project is exactly spot on. We know exactly what the capacity is. We know everything about it. That's not true.

And other people who have done this, like software, for example, they've moved to agile management, agile scrum. If you have an agility to what you're doing, you can rapidly reconfigure and change with the business requirements. And that's what we call OS2. It's not sequential. OS1 is, okay, plan for 15 months, design for another 10.

Maybe you overlap that with some construction out in the field, but four years later you get your whatever you're looking for. And then the big problem with that is the business outcome isn't there. Like EPCs make 300% of their profits on 40% of their projects. So if you order an EPC's projects from most profitable to least profitable, what you'll find is that the bottom 60% lose 200% of the profits and the top 40% make 300% of the profits so that at the end of the year, 100% of the projects make 100% of the profits.

And so OS2 comes in and it's like, no, we're going to continually change what we're doing. We're going to plan and execute as we're going through. That's going to make us much faster. And it's also going to allow us to continually look at where the business is headed and we can better hit what the business requirements are going to be in the future because we don't actually know that as we're going into this. And we've done some work just real recently on this is to try to think about what's the right size of capacity that you should aim at.

And we're thinking the answer is 40%, which is just kind of crazy to the conventional way of thinking. So 40% of whatever the capacity is that the business analysts are telling you that they're going to need four years from now or three years from now. So if we put that in terms of just to make it easy, like an automotive assembly plant, they think they can make a thousand cars a month out of this thing. We could make a thousand cars and sell a thousand cars a month.

You should actually just build a plant for something that makes 40% of that. So 400 cars a month. And then what you can do is you can come along and build an identical plant, maybe next to it, maybe somewhere else in the world if you need another 40%. But you don't need to necessarily know that until you're partway through the first project and you're starting to sell some cars. We know at a minimum that whatever the thousand car estimate is, is 100% wrong.

But then here's the cool part is if you just repeat that design, you can get to 800 cars a month or 1200 cars a month or 1600 cars a month. You'll just see how the market pans out. Now people in the car making business say, well, that sounds kind of inefficient because it's always better to build bigger. We can get some bigger robots out there to weld the cars together and stuff like that. I would push back on that a little bit.

I think there is some element of truth to that. That's the six tenths factor that engineers are trained in. But they're discounting the economy of scale when you buy a lot more things or just the how much cost savings there is in not only the production, the construction, but also the maintenance, the ongoing life cycle part of this. Smaller things that are more off the shelf, that tends to be a lot more efficient for you as well. So if you build some of this agility into even what you're trying to build, like in terms of the percent capacity, you're going to have a much better financial outcome.

And I think that's probably the main objective function of OS2. Yeah, it's cool to build a project, but it's really not about cost and schedule and technical deliverables. It's about what does this do? What benefit is it providing to shareholders or your customers or the society if it's a public project? We understand that there is a focus on financial outcome, especially from the owner operator's perspective.

It really makes sense to truly work in an agile way, even from the business perspective, particularly in the way that they're ruling out the capital program. But let's talk about how that risk is distributed right now and then what the recommendations are from both Dr. Dean and from Dave Hughes. Buyers or owners cause over 90% of all project time and cost deviation. And of course, if they cause the risk and the deviation, the question now begets itself.

Well, why do they try to complain or blame contractors for causing time and cost deviation? I often joke about this. If a procurement group is working for an owner and they're procuring construction service, the question becomes, what is their number one objective and who to protect? And the answer is they should be protecting the contractor simply because the contractor is the one who causes the least amount of risk and it's the owner who's actually causing all the risk and never knew it. I think there's an opportunity to change the structure of the contracts within a construction project by helping clients manage more direct contracts.

If you consider how we do it now, there's clients who employ a design team and typically they will have a contract with each of those consultancies to work together to design the building. But when they go to onsite, they employ a general contractor, a main contractor, to manage all the subcontracts and actually manage all of the suppliers as well of all of the material that the client requires to build the building that they want. So I think there's an opportunity to make all that transparent, to change the structure so that the site manager and the contracts manager are actually, they're a service provider in the same way that the design team are.

So that's all direct contracts then with the client and the subcontractors. But you could actually go further, I think, and this would help try and get clients closer to the suppliers. When you consider that a client is effectively, a client is buying a piece of mechanical plant through at least two other agents, but in some cases three. So if you consider that they pay, whatever, $50,000 for a big piece of mechanical kit for air conditioning, say, well, the first person that actually buys that is the subcontractor and they'll put a percentage markup on that.

And then the main contractor will also put a percentage markup on that. And then the percentage markup on top of that for the construction costs as well. So the client's picking up costs all the way through when actually all he's paying for is the transfer of risk. So if the client could actually have a contract direct with the supplier, the manufacturer of the kit, he understands much more what he's paid for. And then you could use the blockchain to transfer the risk.

There'd be a cost associated with that. It's almost like insurance. But initially the payment would go to the manufacturer and they would hold all the risk on the piece of kit not being damaged. Once it was delivered to site and taken by the subcontractor, then they would take some allocation of that risk. And then once it was approved that it had been installed correctly, then the main contractor would take some allocation of that risk.

And then at handover, the client would take the risk. So I think that's where an integrated project contract comes into play, because blockchain is not going to be the panacea that's going to answer all questions about how we want to help increase productivity in construction. It needs to be a combination of things. But I think if we can move away from the adversarial contracting model and move towards an integrated project model, it makes a lot more sense. Flattening the supply chain, transferring the risk to the person who's actually, the company who's actually going to impact the quality level of the thing that's being issued, whether it be the material, whether it be the actual finished product, the service that's being issued, transferring that risk to the right entity, that is going to help so much when you have that transparency.

So I really appreciate Dean and Dave contributing to this discussion here. The review from Steven Mova, the last thing that you'll be hearing from him that he contributed to in our interview is about what the modern economy looks like. Are there a couple of implications there that we'll talk a little bit further about after you hear from him? This is where, you know, if we do move on to the modern economy, we can really accelerate business returns that are coming from that. And the current administration in the US talking about a trillion dollars of infrastructure, probably over a decade of time, a hundred billion a year.

But for a trillion dollars, they've prioritized this list of 94 projects. And I just look at that and I just get really discouraged. How can this country spend a trillion dollars and we get 94 projects if everything goes right? I mean, this list should be like 194, 294 projects. You would really start making a difference in society if you could do 294 projects with a trillion dollars.

I think we can just do a whole lot better. I think we can do a lot better for the companies. I think we can do a lot better for society, for infrastructure, so on and so forth. Both Steven Dean and Dave Hughes were able to lay it out. They are really in a modern economy and I think that all of them did an excellent job with laying the problem out.

And some of the solutions that we actually investigating to de-risk. If you want to hear more about each of the specific plans, whether it be the operating system 2.0, OS 2.0, you could totally go to Steven's episode. If you want to hear more about how blockchain can flatten the supply chain, you can totally go to Dave's and then Dean's as well when we're talking about the best value management approach. I will be sharing in the show notes exactly where you can find these episodes. But I'd like to transition here and talk a little bit more about some of the trends that I've been hearing about as it relates to the status and the stage that we're in in the AECO industry.

The first one, funny enough, I didn't really bring it up. I would say that often. It was more brought up to me. And what the topic is is generational impacts. I got to the point where I said, hmm, maybe I need to seek out someone that's really an expert on generations and what the trends are that are actually happening.

So I found a demographer, Ken Grondbeck, and he really lays out the lay of the land as it relates to the generational status that we're in. Populations. It's live births, migration, and deaths. It's as simple as that. So once you understand live births and fertility, migration, and that is immigrants coming and going, and death, you understand demographics.

When I speak, and I speak about 50, 60 times a year, I tell my audiences, 95% of the business decisions made in the United States are made on what? On money. I said money is a concept. Money is nothing more than an idea. Money has value because we all pretend it does.

We agree that it does. It's paper, it's electrons on a computer. Why would we want to be dealing with the symptoms when we can understand the cause? And the cause of money is people. Just to give you a quick rundown, the generations that we deal with are the GI generation.

They're born 1905 to 1924. These are the people that are currently 93 to dead. And then we have the silent generation that was born 1925 to 1944. It was a tiny, tiny generation because there was very few babies born during the Great Depression and very few babies born during the war because the men weren't here. And those are the people that are current elderly.

Those are the people that are 73 to 92. Then you have the baby boomers, which is a monster generation that refuses to die. In fact, they've really, really screwed up the death care industry. They're currently 53 to 72. Then you have Generation X, which as we described are causing all the problems, 1965 to 1984.

And they are 33 to 52. The generation behind them is very, very interesting. It's Gen Y, the millennials, are currently 13 to 32 years old. It's the largest generation in the history of our nation. It's 86 million up.

And almost two birth years bigger than the baby boomers. So what we have essentially is a barbell demography and a barbell economy, which means we have a large group of people that are 13 to 32 and we have a monster group of people that are 53 to 72. So many impacts that generations seemingly make on everything. And so now that we know the numbers, we have to recognize honestly what the building and infrastructure impacts are going to be from a generational aspect. So I'll let Ken recap what he spoke to us about and what we should be looking for.

Well, we know at one end with the baby boomers, we're going to need health care, elder care, and death care. We're going to need those things to be built because the current, the established footprint for that generation is for the smallest generation of the last 100 years. And those are the people that were born 1925 to 1944, the silent generation. And the generation that's about to fill in that elderly part of our population is the largest generation ever to retire. So I speak in Florida all the time and I freaked them out because I tell them, I said, you guys are nuts.

You don't have enough roads down here. You don't have enough roads. You don't have enough houses. You don't have enough storefronts. You don't have enough anything.

I said, on top of that, you know, everything elderly is going to overwhelm you and then you're going to have to support the people who support the elderly. So you're going to have to have low income housing. Where is it? Where are people going to live in tents? So construction industry is going to go ballistic.

Let's go to the other end of the population. Let's go to the 13 to 32 year olds. They're just now leaving home. Finally, finally, they're late to leave home, moving out of their parents' houses. And it's not their fault because their parents didn't leave the labor force.

Their parents held on because they didn't have enough money to retire. But now things are kind of working out. There's actually, you know, if you go to savings accounts, you know how much money is in savings accounts now? Nine trillion in 2009, I think we had a trillion. People have money.

We have plenty of money in the United States and the United States, the economy of the United States is going to spike and not look back for at least in my lifetime. So it's things are very, very good. So if anybody's thinking about capitalizing, investing, hiring people, taking chances, do it because there's nothing. The stars could not be aligned better. Go back to this group of kids that are 13 to 32.

There's 155 million housing units in the United States, 155 million. There are 330 million people in the United States when you count the illegals, and I do. The two largest parts of our population, the baby boomers at 80 million and their kids at 86 million are living together. One is moving out. Unless they're going to sleep on the ground, we have to build 25 million new houses.

When 25 million new houses get built, everything else gets built because it has to. You have to support them with everything, with services, with other kinds of buildings, with hospitals, you name it. So construction, I couldn't think of a better industry to be in. With the baby boomers, well, the most important part of their lifestyle is they're not going to die. They're not going to die like their parents die.

They're not going to die at three score and 10. They're not going to die at 70. 70 is the new 50. So right now, the baby boomers, this monster cluster of people is 53 to 72. When are they going to die?

The way health care is going, they're probably going to die bouncing off a 90. So you have 20 years of satisfying the baby boomers, even more than that. So what are they going to do? Over 55 communities. Have you seen some of the over 55 communities?

They're outrageous. They replicate cities. The boomers drive these golf carts that they've hot routed to make them look like 57 Chevy's. It's a new ballgame. It's a whole new ballgame.

They are not their parents. They're so not their parents that they're going to dress differently. You're going to have 90-year-old guys do an air guitar to Led Zeppelin, understanding them. What I tell folks is, Lee Iacocca, Lee Iacocca in 1960 is down on Woodward Avenue in Detroit. And he's looking at the cars the kids are building for themselves, which are lightweight two-door cars that are powerful and fun to drive.

And he's looking at the cars Detroit is building, and he's saying Detroit is building 6,000 square foot lead sleds. Kids will never buy. He said, we need to build a new car. He knew the baby boomers were coming. So they built the Mustang.

He would have been a hero if from 1964 and a half to the end of model year 65, he sold 100,000 units. He sold 700,000 units. And you know how many he could have sold? He could have sold five times that. It didn't anticipate the power of the boomers.

Well, that's exactly what's headed towards the construction industry, is the baby boomers are going to demand new structures. So build them. Some comments from my interview with Paul Doherty, president and CEO at the Digit Group. He talks about the need to think about why smart cities are required, the need to create disruption and plan for economic and policy needs is absolutely in our future. So listen to a couple of the comments that Paul made during my interview with him.

And then when you start to take into account that this is not just a US, you know, made up media thing or a business development term called smart cities, but it's an actual need on a policy level through some of the most powerful countries on earth, where they're going, you got to get this right, because it means our survival. And here's a case in point. Check out what happens in China. What we learned through policy and then through the demographics of reports like that came up from McKinsey and Company that said over 300 million people today, September 14th, 2017, over 300 million people are migrating from the Western provinces that are primarily agricultural based to the cities of the East Coast, where there's jobs in urban environments because they can't find work anymore, because the Chinese have mechanized their food supply chain so well that they don't need as many farmers.

Almost the entire population of the United States is literally walking, driving cars on planes and trains moving into already overpopulated cities looking for work. Now, if you can see how that can cause society problems and, you know, just disruption and all that stuff, the number one thing that you have to understand about the Chinese government is that their number one priority is to remain in power. When you have social instability, that threatens that. This becomes a high priority with the Chinese government. Now you start backing that into smart cities and you start to think, aha, so now all of a sudden you have ways of creating new jobs.

You start the flow of people heading to those bigger cities because it's a nice environment. And my job in China is to make Chinese people fall in love with a piece of dirt. Michael Bull, host of the Corporate Real Estate Show, goes into more detail about what is happening in the U.S. and from an investor's perspective. I think it, of course, depends on who they are, the size of the organization.

I think we suggest they look at their goals, their risk tolerance, and look at their investors or their company and make long-term decisions. You want to anticipate the market kind of skate where the puck is going, so to speak. You want to pay attention to the real estate cycles. We've been in a great cycle here for a while. So I think you want to watch that.

And of course, you want to pay attention to job growth, population growth, trends. I think you want to look at the market. A lot of times we'll look at a portfolio and analyze every property independently, depending on its lease structure, capital stack, the loans, when they're due, the interest rates. We'll look at the trends for occupancy and rate growth in market and in the subject property compared to its peers. And then we'll look at the goals, the facility itself, the age and its competition in the market, what new supply is coming on in the market so that investors can make decisions that are based on reality, that are based on facts, and not kind of back of the napkin.

Obviously, the urban, in-town cities overall around the US have done really well. A lot of people have moved in town. Millennials like it. Baby boomers like it. But at the same time, we're seeing some growth in suburban, kind of close-in city centers where people are kind of creating mixed-use environments that are in some of the suburban cities around the major markets.

So suburbia is not dead. And it's kind of reviving some of those markets. It's hard to build new supply in. The NIMBYs, the Not in My Backyard is there. And there's a barrier to entry in some of those markets that can make investing in office property or building a new development great if you can get in.

Zoning is a big issue in permitting in a lot of these markets. So I think you've got to look at each suburban or urban market on its own and compare it to your goals and your company's needs. But suburbia is not dead. It's a big issue in some of the suburban or urban markets where you have some of the major retailers that may have been a draw to some of those markets that are going bankrupt or closing up that haven't kept up with the new way of selling retail products.

And some of those tertiary smaller markets where Sears or Macy's closes, I think you might find some of those areas suffering. And you want to be careful where you're investing. Bruce Welty, the chairman of Quiet Logistics and Locus Robotics. Bruce speaks about some of the suburban retail markets that Michael mentions you should be cautious about. He speaks about property developers that are looking for opportunities to transition mall spaces into fulfillment centers.

Mall owners and developers come through our office trying to explore the idea of integrating these malls, these empty malls into the supply chain as distribution points or fulfillment points for e-commerce. And I find it interesting because for me it's sort of an unintended consequence of e-commerce internet that now we have all this space. But if you think about the problem, really, e-commerce is all about getting the product to the consumer quickly in a branded fashion. And that's a real difficult thing to do if you have just one big warehouse in the middle of Missouri.

We do have these malls, which are by definition close to the consumer. So the question is, can we put inventory into those malls, even some of the large anchor tenant malls, the JCPenney's and the Sears BroBuck that are being emptied out, and then turn them into sort of small localized distribution centers? And I think there's a lot of merit in that discussion. And I think we maybe will see that. You know, certainly we're having discussions with people about it.

This is an interesting time in the history of retail, as it really does call into question a lot of the decisions and a lot of the traditions that we've always had around what people do, with their time and how they shop and how products are presented. It's just, it's an interesting time. And I think that we're going to see evolutionary change. I don't think it's going to happen overnight, but I wouldn't be surprised if 10 years from now we'll look back on this and think, wow, that was really a meaningful inflection point in the history of retail.

It shouldn't be a surprise that as we're talking about generational impacts and corporate decisions that we're going to touch on the topics of jobs and technology. I talked with him a little bit about hiring and actually just job quality and how that relates to productivity as well. Before I play some of Bruce's recap statements here, I'd like to let you know that I do interject here in response to Bruce's comments about the job market specifically as it relates to millennials. So you'll hear my voice again, but this is actually part of Bruce's interview.

It's always a sensitive topic when you talk about productivity enhancements, because whenever somebody hears the word productivity enhancement, they think job loss. I've been alive long enough to see that there are lots of innovations out there that create productivity increases and a corresponding job loss. For instance, simplest of all examples might be a bulldozer or a backhoe, right? Clearly, if you didn't have those, then you could give 20 people a shovel and you'd have 20 new jobs. But I don't think anybody in our world aspires to that kind of job creation because I think we all think we have something better to do than to dig a trench.

So then you have to get into the quality of the job itself and you have to understand the different contributing factors to what make that job a good job or not a good job. And also what's happening in the world itself. If we didn't have bulldozers and backhoes, we couldn't build dams, we couldn't build roads, we couldn't build buildings as fast as we do, and all of those have a positive impact on society. So in our case, I look at this and I think, how is this affecting quality of life?

And our situation, it's pretty clear how it all works. In the world where everybody's decided that they want to have their products delivered to their doorstep for basically the same price as what they pay in a store, we have seen a change in many aspects of our supply chain because that particular function of picking, packing, and shipping is currently done by the consumer in a retail store. Free. And if you think across the globe, how many people are shopping at this very moment, that's many, many hundreds of millions of people.

And if we're not going to have that resource, which is free, available to us anymore, then we have to find a more efficient way to do that pick, pack, and ship within the warehouse and to have a lot of people to do that. And unfortunately, there just aren't enough people that want to do that job. It's not a particularly pleasant job. So when I think about our contribution to productivity increase, what I think we're doing is we're essentially making that job more pleasant. We're making those people more productive.

So we need fewer of them because we can't find them anyway. If you went out into any industrial park right now and that was just go to wherever Amazon has a fulfillment center and look at how many job openings are posted, it's crazy how it's driven up wages, which is a good thing, but it's also made it impossible for a lot of these companies to actually deliver in a timely way so the consumer gets the product on their doorstep. So it's really not a problem of robots replacing humans.

It's really just an improvement in the way we perform a function that's very, very difficult to do given the way labor is organized today. That's kind of how I look at it. And so that's kind of how we think about problem. The idea that we're somehow going to make a robot look like a human, behave like a human, move like a human is just sort of absurd in its face because really robots are better at doing things that humans are bad at doing and doing the things that humans are good at doing.

So why would we ever try to replicate one with the other? I think the robots that we're going to use will look, they might even be invisible to people. They might be underwater and they might be in dangerous environments. They might be in hazardous environments. They might be out there in the military field doing things that are dangerous to those soldiers.

Those kinds of things make sense to me, whereas most of the ideas having robot readers and robot receptionists and so on, that just doesn't make any sense to me. It's very frustrating to deal with a robot at any level today around human interaction. Things we're accustomed to expect from people who say answer the phone or try to help us. Hey, I just wanted to interject here because we found some data, real numbers about the job vacancies that I thought were relevant, both for construction and for warehousing.

So the first one, National Association of Home Builders, they did a survey and they found that the majority of young adults, 74% say they know the field in which they want to have a career. Of these 74%, only 3% are interested in the construction traits. The 26% of respondents who did not yet know the career path they wanted to get into, they were asked a follow-up question about the chance they might consider a number of fields, including construction traits, being one of them. Using a scale from 1 to 5, 1 meant no chance, no matter the pay, and 5 meant very good chance if the pay is high.

Construction traits got an average of 2.1, very low, with 63% of undecided young adults rating it 1 or 2, no or little chance, regardless of the pay. And 18%, 4 or 5, very good if pay is high. So that's the construction numbers. So the next situation you'd imagine is pretty similar. According to techproresearch.com, in March 2017, $26,000 was the average wage of an hourly warehouse worker.

In the warehousing and storage industry, the median age of a worker is 39.8 years. So it's also telling that 38%, a little over 38% of warehouse workers are over the age of 45. That's, you know, not looking good for the millennials, yeah? The last trend that I wanted to leave you guys with in this particular episode before we wrap up is the focus on well-building and sustainability. I really, really enjoyed interviewing Lee Stringer, the author of The Healthy Workplace, and Barbara Bochelon, the founder and CEO of the Sustainable Performance Institute.

There is definitely a focus on how to achieve the best results for the end user, how they can be more productive, how they can be more able to just simply contribute to what the business is hoping to achieve from an overarching perspective, overarching goals, revenue standpoint. And the two of them really go deeply into what this topic can certainly cover. But here are a couple snippets from my interviews with each of them. At the end of the day, our companies are run by people. There's a lot of AI out there.

I'm really optimistic about some, you know, some things that we can automate in my own day, frankly. But we're people and we just can't help it. We have, we stress out, we have an amygdala. It works this way. We, you know, it flares up at the least appropriate moment sometimes and really causes us to lose focus.

And we get tired and we need to eat and healthy food, not donuts, you know, kind of thing, which will help keep us on our game. I think just paying attention to that as a company, it's like the machine. Like we spend all this money on equipment in our company and just fine tune it and oil it on a regular basis. Really pay attention to what it needs to run as its maximum efficiency. And we don't think about our people in the same way.

And we should. You know, really what we do is management consulting, except our management consulting has a very specific focus. And I have had occasions where I've been in a room with CEOs and COOs and other executive leadership and have gotten challenged. What are you talking about? This is our core business.

This isn't sustainability because we'll talk about accountability and we'll talk about knowledge management or resource allocation, leadership capabilities. And really the answer is that there's a pretty fine line or maybe a very blurry line between core business excellence and sustainability, implementing sustainability in a company, because whatever your goal is, if your goal is not sustainability, it's profitability or whatever, you still need to have all of the culture and mindsets and actions within the company align towards that goal. And one of the big problems is in sustainability that is lacking, especially at the top leadership level, or there are disconnects, even when top leadership says we're going to commit to sustainability or reducing our carbon footprint.

That doesn't always translate down throughout the company to a concrete understanding of how everybody contributes to achieving that goal. So this is also a good excuse from a business development and marketing perspective to engage clients, as well as you know, a lot of companies, attraction and retention of talent and morale are huge issues. And sustainability is definitely one of those things that really gets people excited. And then the last thing we do is evaluate evidence. If you say that you deliver the best value to your clients, you can deliver high performance buildings, independent of whether or not they're lead certified.

What's the evidence that you do that? Do you set a target in the kickoff? When do you do energy modeling? If you do that, what analysis do you do for facades and thermal bridging? Like we look at specifically, you make a claim, how, what evidence do you have to substantiate that claim with lead in the marketplace?

You know, on one hand, it's been great because we've seen what it looks like for firms to kind of just like focus on the building itself. But it's also shown us that if you just do that, and you you're kind of looking at end of pipe solutions, like rating systems, and you're not looking up the pipe at the organization's culture and systems and processes, then you never actually cross the line. You get stuck in random acts of sustainability, purgatory forever. I'm so grateful to all of the guests that I've interviewed this year.

And of course, all of you who were mentioned in this episode, you'll be hearing from a few more in part two of the 2017 Constructor Podcast Recap next week. To summarize what I learned from the episodes that we mentioned today, first, we have to recognize the status of the industry. Change is happening. It's inevitable. And the need to lower risk must happen, especially from the owner's point of view.

We also talked about demography and the impacts on corporate real estate, buildings, and infrastructure, attracting millennials, recruiting and retention, and how the change in culture is affecting retail, but not only that, the economy on a whole and policy. And last but not least, we talked about how companies are looking at sustainability and health in their organizations. To give you some insight into what's coming up in Q1 of next year, we'll be talking about integration and design, we'll be discussing about smart cities, and more on blockchain.

As you all know, we did a five-part blockchain series. So to get a quick recap on that, next week, we'll be honing in on the 2017 episodes that covered the use of technology. That includes AI, AR, VR, Internet of Things, BIM, machine learning, and of course, blockchain as well. So look out for part two of the 2017 Constructor Podcast Recap next week. Thanks for listening to this episode and all year.

If you enjoyed it and learned something valuable, please share this episode with your friends and colleagues. You can also let me know if you enjoyed our discussion by connecting with me on Twitter at Brittany underscore CT, or find me on LinkedIn, or you can just email me too at Brittany at Constructor.com. That's B-R-I-T-T-A-N-I-E at ConstructRR.com. I mentioned in last week's episode that I'll be mentioning some brewings of what's happening in the new year. We already mentioned about some of the episodes that are taking place in Q1, but I will be giving a sneak peek on some events that I'll be hosting, some conferences, and some webinars that I'll be participating in soon.

So don't miss next week's episode as I'll be giving you some insight into what those things will be. So don't forget to subscribe at Constructor.com to get email updates from me. If you haven't already subscribed to the podcast, you can do so at iTunes, Stitcher, iHeartRadio, TuneIn, and Google Play. Please leave a review to show your support and let me know you're enjoying the podcast. I look forward to talking with you guys next week.

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