Construction Chart Book, 5th Ed.

The Construction Chart Book: The US Construction Industry and Its Workers 5th Edition, (2013), a free download, is a valuable resource for building product executives. Published by The Center for Construction Research and Training*, it is a trove of information about construction industry employment demographics and trends. While most useful, perhaps, for economists, insurance companies, safety officers, and policy makers, it contains nuggets that can help you digest new product opportunities and paths to market.

Consider the following from the Main Findings of the report, with my comments:

About 80% of construction payroll establishments had 1 to 9 employees.
You surely don't have time to send sales reps to these small firms, so your marketing communication or distributors better find a way to reach them.

About 12% of construction firms used day laborers; 22% of employer firms had no full-time employees on their payroll, and 8% hired temporary workers through temporary agencies.
With a transient work force, you better support your customer by offering products that are simple to use and hard to screw up, and training programs that can be given quickly on the job site.

Construction employment is expected to grow by 1.84 million wage-and-salary jobs, or 33%, between 2010 and 2020, more than double the 14% growth rate projected for the overall economy.
Where will all those new employees come from? Beyond normal efforts to build brand awareness among newcomers to the industry, manufacturers should also consider ways to recruit the new work force by training them and creating networks to connect trained installers to potential employers among your customer base. I wonder, however, what effect robotics and construction automation will have on this trend; perhaps not much within 5 years... but after that?

About 2 million construction workers in 2010 were born in foreign countries.
What can you do to transfer brand loyalty across borders?

More than 75% of Hispanic construction workers were born outside the United States.
Your product labels, installation instructions, advertising, and field representatives may need to be bilingual.

Between 1985 and 2010, the average age of construction workers jumped from 36.0 to 41.5 years old.
At some point, the trend will reverse. Are you able to communicate with digital natives?

Union members in construction have advantages in educational attainment, wage and fringe benefits, training, and longer employment tenures, compared with non-union workers.

Look for opportunities to partner with unions for training, etc.

The number of fatal injuries in construction dropped to 802 in 2010 from the peak of 1,297 in 2006. The decrease in recent years was mainly due to the decline in construction employment during the economic downturn.
In other words, fatalities haven't significantly decreased. Everyone in our industry has a moral obligation to improve safety.  How can your product, its packaging, the tools required to install it, etc, create a safer workplace? Make the contractor's chief safety officer your ally.

In 2010, overexertion in lifting caused 38% of the work-related musculoskeletal disorders among construction workers.
Lighter weight material? Improved packaging? Simplified lifting and installation procedures? These are important product enhancements.

* Published by CPWR – The Center for Construction Research and Training, produced with support from the National Institute for Occupational Safety and Health grant number OH009762.

Dodge Momentum Index

Momentum Index
The Dodge Momentum Index is a new 12-month leading indicator of construction spending for nonresidential buildings. Its data is derived from first-issued planning reports in the United States–McGraw-Hill Construction’s Dodge Reports. Because projects in planning may proceed architect selection, it is an earlier indicator of trends than is the AIA Architectural Billing Index.

While the index now predicts an upturn in construction sometime next year, its steady decline throughout 2011 and the first quarter of 2012 suggests that there will be continued stress in the industry in the short-term future.

The New Normal?

If you can't depend on an expanding market, will you be able to grow your business in a time of economic stability? Most of Chusid Associates' clients are growing now. Through innovation, new product launches, identifying untapped niche opportunities, expanding globally, etc.  Call Chusid Associates to discuss how you can profit from stability, too. +1 818 774 0003.

Good News for 2012

The Architecture Billings Index climbed to 52.0 in November, marking the first time it has cleared 50 since August (a score above 50 denotes an increase in billings and below 50, a decrease). The inquiries score hit 65.0, up considerably from 57.3 in October. This could portend increased sales opportunities for 2012, since architectural work precedes construction.

These presentations from Hanley Wood's recent Foundations conference provide eye-opening research, challenge conventional wisdom, and will give you plenty to think about as you plan your next move:

The New Now: Marketing and Media for Construction
Frank Anton, CEO, Hanley Wood, LLC

Charting the Course of a Nonresidential Construction Recovery
Kermit Baker, Chief Economist, The American Institute of Architects

Housing Hits Bottom
Mark Zandi, Chief Economist, Moody’s Analytics

The Chaos Scenario
Bob Garfield, Editor at Large, “Advertising Age”; Co-host “On the Media” produced by WNYC and distributed by NPR; Author, “The Chaos Scenario”

Hanley Wood Housing 360: Insights Into Home Ownership
Kent W. Colton, President, The Colton Housing Group and Senior Fellow, Harvard University Joint Center for Housing Studies

Hanley Wood Housing 360: Insights Into Home Ownership Executive Summary
The Colton Housing Group, Kent W. Colton, Ph.D., Gopal Ahluwalia and Jay Shackford

5 Trends in Commercial Design
Ned Cramer, Editorial Director – Commercial Design Group, Hanley Wood, LLC

Residential Design Trends
Boyce Thompson, Editorial Director – Residential New Construction Group, Hanley Wood, LLC

Hot and Not: The Latest Trends in Housing
Jonathan Smoke, Executive Director - Research, Hanley Wood, LLC


For those of you struggling with the economy, take not -- some firms grow even during declines.  I received this today in an email from a client:
Sorry for the lack of communications from my end! We have been inundated with an unprecedented level of sales - forcing us to deal ONLY with the moment. We have set several sales records this summer, and we are poised for our largest sales year since 1927. We are on a recruitment drive for two new employees to start, and two more planned for later this fall. All good, but this leaves NO time for keeping pace with marketing and product development.
The foundation for their growth included repositioning the company into new markets, reducing operational costs, trimming unnecessary expenses, embracing digital media, and listening to their customers. I trust that their work with Chusid Associates was also a contributing factor.

Keep focused. Stay optimistic. Learn from businesses that are struggling, but learn even more from businesses that are growing.

Create your Own Recovery

Many economists are now saying that there will be no general economic recovery in the short term. However, Chusid Associates continues to work with building product manufacturers that are making their own recovery by becoming more competitive, launching breakthrough products, taking advantage of niche growth opportunities, and getting better results from their sales and marketing investments. Stop waiting for another construction boom, and create your own. MD-June2011graphCrop
New construction starts in May fell 6% to $376.1 billion (annual rate). Nonresidential building plunged 12%, retreating after its improved pace in March and April. Substantial declines were registered by hotels (down 64%) and transportation terminals (down 59%) after each had been lifted in April by the start of several large projects. More moderate declines in May were reported for offices (down 8%) and schools (down 7%). Helping to cushion May’s nonresidential downturn were gains for manufacturing plants (up 35%) and healthcare facilities (up 15%). Residential building in May dropped 7%, reflecting more weakness for single family housing as well as a pullback by multifamily housing from its elevated April amount. Nonbuilding construction in May climbed 5%, boosted by a 68% jump for electric utilities that featured the start of a $2.0 billion solar power facility in Arizona. The public works side of nonbuilding construction decreased 10% in May.

For more information, read here for the full press release on construction start statistics.

Life-cycle assessments of products

This is an encore of an article Michael Chusid wrote 20 years ago. To a limited extent, increased attention to environmental sustainability have increased focus on life cycle performance of buildings. LEED, for example, requires buildings to be commissioned to ascertain that mechanical systems perform as required. Also, the "cradle-to-cradle" concept encourages examination of the flow of materials from extraction to re-purposing.

Operational costs typically, 
exceed construction costs.

Tools that can help architects make life-cycle assessments of products

The architectural community too often disregards the life-cycle costs and operation of buildings. This attitude is not expressed overtly but nonetheless permeates architectural practice:
  • We grovel before a project's bid price and all but disregard a building's cash flow, the streams of operational and maintenance expenses, financing, revenue and tax consequences, which spell economic success or failure to a building owner. 
  • When designing an addition or renovation, we too often fail to involve the building's maintenance staff in a serious discussion about their resources, schedules, and experience with the building's existing materials and systems.
  • We rarely retain qualified building maintenance consultants on our design teams.
  • And frequently, we pass along a hodgepodge of submittals and call it an Operation and Maintenance Manual without considering whether the accumulation really communicates.
Over the economic life of a building, operation and maintenance costs will typically equal or exceed first costs. And when we consider how a maintenance program can affect a building's resale or salvage value, the importance of building maintainability becomes even more apparent.

Building Economics
Building design and product selection decisions should be made with benefit of life-cycle cost analysis. Recently issued ASTM standards provide the building industry with clear guidelines for performing an economic analysis of building designs and components. In a life-cycle cost study, each future cash flow must be adjusted for anticipated inflation and escalation and then discounted to a present value. When performed manually, these time-consuming calculations limit the use of life-cycle cost analysis. New computer-based programs, however, make it much easier to conduct life-cycle installations.

Even though calculations have been simplified, a building life-cycle cost investigation still remains difficult because reliable data on product longevity, maintenance schedules, and operation and maintenance expenses are difficult to obtain. How soon will a roof really be repaired or replaced? How frequently will various types of door operators require servicing? How will the selection of a sealant or weatherstripping affect energy use? Such information is not contained in the typical references found in an architectural office, but a new family of facility management publications and references is beginning to fill this gap. For example, Means Facilities Maintenance Standards [now out of date] discusses the mechanisms that contribute to building deterioration, and building maintenance scheduling and management.

Architects must also take more initiative to discuss maintenance issues with their clients and consultants and to collect and analyze the maintenance history of their buildings. This information must then be transmitted to the drafters and specifiers who actually make product decisions.

Product Data
Although building product manufacturers and trade associations are a primary source of product information, few offer well documented data on their product's life-cycle performance, offering only inconclusive laboratory testing or anecdotal case studies to document their claims. They claim they are unable to predict a product's life-cycle because of conditions beyond a manufacturer's control, such as environmental conditions or maintenance procedures. Yet these variables can be quantified and applied to a sampling of historic product performance data. The resulting analysis could be used as a valid basis for predicting product performance and comparing product alternatives.

Some manufacturers have responded to the need for better information about product life-cycle costs. USG Interiors, Inc., for example, offers a computerized comparison of relocatable partitions and drywall partitions. called DesignAid for Walls, the program enables a designer to consider the economic impact of partition relocation, financing alternatives, tax benefits and accelerated depreciation, and the escalation of waste disposal costs associated with drywall partition remodeling. A similar USG DesignAid program compares several floor construction and wire distribution systems to determine life-cycle costs vis-a-vis workstation relocation. [Chusid Associates wrote both DesignAid programs.]

Building productivity is
also a life cycle factor.

Operational Assurance
Since many architects assume "building maintenance" means "janitorial services" or occasional redecorating, it would be useful to introduce a new term into our professional patois. "Operational assurance" is a concept more familiar to industrial engineers who must assure that manufacturing equipment is kept at optimum operating capacity. An operational assurance approach to buildings must consider the building operational goals and specify systems and products in view of their longevity and the ease and cost of their maintenance, repair, and replacement. Operational assurance can be applied not just to mechanical and electrical systems, but to the building envelope, finishes, and other architectural components as well.

Capability in operational assurance planning would enable an architectural or engineering firm to differentiate itself from its competitors and position itself for growth in industrial, commercial, or institutional markets. Maintenance programming, value engineering, training of the building staff, and post-occupancy evaluation also could be lucrative extended services and could lead to a continuing relationship with a client.

Have a question you'd like us to answer?
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By Michael Chusid, Originally published in Progressive Architecture, ©1991.

Building Product Careers

This is an encore of an article Michael Chusid wrote almost 20 years ago. The construction industry is, once again, experiencing a down phase of its economic cycle. If I wrote the article today, I would not be as sanguine about the stability of jobs with product manufacturers; many manufacturers have had to lay-off staff or switch from boots on the ground to some form of online marketing.

As opportunities for traditional architectural employment appear to he declining, many architecturally trained people are having to face involuntary career adjustments. If you are in this situation, you should be aware of opportunities for architects in the building product industry.

This industry is a large and robust sector of the construction economy and consists of manufacturers, trade associations, independent sales agencies, and distributors. Many architects find it hard to contemplate careers outside of design firms. To overcome this mind set, compare architects to engineers. It is widely recognized that engineers can succeed in industry as well as in consulting firms. In the same way, the communication, technical, aesthetic, and organizational skills acquired through architectural education and practice can qualify you for positions in building product sales, technical service, and management.

Who, for example, is better suited to make sales calls on architects than a fellow architect. While salespeople without construction background can spend years learning the language of architecture, it is already your native tongue. With your training you will not only understand your product, but also how your product contributes to the overall success of your customer's design. If you are selling windows, for example, you will be able to talk not only about glass and aluminum, but also about how the fenestration can reinforce the designer's concept. You can roll out the tracing paper to help solve detailing problems. The ability to see the total project as greater than the sum of its parts will enable you to establish better rapport architects - to be not only their sales representative, but also their consultant.

Your architectural skills will also find applicability in building product marketing. You have been trained to understand the big picture and to organize myriad small details that are necessary to accomplish a vision. Your communication and presentation skills will give you the edge in presenting your ideas and communicating them to corporate management as well as to your customers. Even your draftsmanship and aesthetic training will be called upon to help you create effective product literature and advertising for your product.

Product research and development may appeal to the more technically inclined. Product design is similar in many respects to building design. It begins with defining the performance requirements for the new product and developing alternative solutions. But while most architectural designs are one-of-a-kind structures and are not tested until occupied, product designers often have the opportunity to build prototypes to refine ideas and test a product's performance. Your understanding of construction materials and methods will be enhanced by an increased appreciation of the nature of materials and manufacturing processes.

Building product manufacturers also need architecturally trained individuals to serve as project engineers. With construction technology becoming more complex, consulting architects increasingly delegate detailing responsibility for building systems to manufacturers. Project engineers must evaluate the building and contract requirements and must design appropriate solutions compatible with their firm's capabilities. Individuals in these positions also act as in-house consultants to provide trouble-shooting, make field inspections, obtain code approvals, and respond to special inquiries about a product's performance or suitability for proposed applications. Your knowledge of the way buildings work will be tested daily.

Working for a manufacturer in a particular area of building technology, such as roofing or curtain walls, can enable you to develop a degree of expertise not normally obtained in architectural practice. You may eventually be able to return to practice with an attractive area of specialization.

Experience as a principal of a design firm can be parlayed into a management role in the building product industry. While the product is different, you must still recruit and manage staff, marshal resources, watch the books, and supply the vision that gives a business direction.

The same entrepreneurial drive that leads many architects to start design firms has prompted others to launch building product businesses. Architects have developed many new building products when they recognized product ideas, stylistic trends, or construction problems not satisfied by existing products. And some have gone on to found companies to manufacture or market their product ideas. As in any industry, most of these new businesses fail. But others have succeeded and range in size from small custom mill work shops to leading manufacturers like Kawneer, founded by an architect who first patented metal window frames. Before launching your own building product firm, you may want to spend a few years working for an established company to learn the territory. But even if all you are launching is your own career, look for a company with a commitment to quality and training, who will provide opportunities upon which yon can build.

In general, economic rewards and job security in building product firms are at least as good or better than in architectural practice. If you decide to make a career shift into the building product industry, take your architectural sensitivities and passions with you; you will not stop being an architect just because you no longer work in a traditional practice. The building product industry influences architecture through the invention and dissemination of new technology, new building systems, the economic and political clout of major national and international manufacturers, and the persuasive powers of advertising and sales. During your career in building products, you will make significant contributions to the success of hundreds of buildings. A career in building products will still enable you to leave your mark on the quality and future of architecture.

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By Michael Chusid 
Originally published in Progressive Architecture, Copyright © 1992

Economy: Half Full or Half Empty

Many people compare the current rate of construction to its peak in 2007. From that perspective, our industry has had quite a tumble.

But look more closely at the vertical axis of the graph. These numbers do not reflect the absolute number of starts. Instead, they are an index, where the number of starts in 2000 is equal to 100%. From this perspective, the economy is only down about 10 percent since a decade ago. Not too bad considering that we have fought two wars abroad, one at home, and had a massive screw-up in the banking system.

The rate of starts has been steady for the past three years. There are a lot of advantages to a steady economy, and companies that innovate can still grow in market share. The trouble is, that economies seldom stay steady for long.

Here is McGraw-Hill's most recent market summary:
February Construction Slips 4 Percent
New York, N.Y. – March 16, 2011 – At a seasonally adjusted annual rate of $404.9 billion, new construction starts in February fell 4% from the previous month, it was reported by McGraw-Hill Construction, a division of The McGraw-Hill Companies. Nonresidential building lost momentum for the second month in a row, and the public works sector retreated after its elevated pace in January. Meanwhile, residential building in February was able to register modest growth. For the first two months of 2011, total construction on an unadjusted basis was $55.9 billion, down 9% from a year ago.

The February statistics lowered the Dodge Index to 86 (2000=100), compared to readings of 90 in January and 95 in December. For over a year, the Dodge Index has hovered between 80 and 96, with the average for all of 2010 coming in at 88. “The pace of construction starts continues to fluctuate within a set range, as the gains for one month are taken back by weaker activity in subsequent months,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “Compared to the declines witnessed from 2007 through 2009, the overall volume of activity has steadied in a broad sense, but this period of low-level stability is turning out to be extended. Given various countervailing factors in the environment, this fluctuation within a set range is likely to continue a while longer. On the plus side, job growth seems to be picking up, vacancy rates are beginning to recede, and interest rates remain low. At the same time, financing for construction projects from the banking sector has shown only modest improvement. And, the tough fiscal climate being faced by federal, state, and local governments has added further constraints to public construction programs.”

Nonresidential building in February dropped 5% to $132.3 billion (annual rate), retreating for the second straight month after December’s heightened activity. For the commercial categories, office construction in February fell 30% from the prior month, which had been lifted by groundbreaking for four office projects valued each in excess of $100 million. The office category in February did include the start of one project valued in excess of $100 million – the $125 million modernization of the General Services Administration headquarters building in Washington DC. Hotel construction also reported a substantial February decline, falling 37% after the prior month had been boosted by the start of a large convention-center hotel in Washington DC. Warehouse construction stayed weak in February, sliding an additional 13%, while store construction edged up 1%. The manufacturing plant category in February climbed 54%, aided by the start of a $500 million cellulose ethanol plant in Kansas.

For the institutional categories, healthcare facilities dropped 27% in February, continuing to settle back after the brisk pace of contracting reported at the end of last year. Whereas December featured the start of six large hospital projects valued in excess of $100 million, and January had two such projects, the largest healthcare project in February was the $73 million clinic portion of the $360 million Cleveland Medical Mart and Convention Center in Cleveland OH. The educational buildings category decreased 12% in February, reflecting the downward pull arising from tight state and local budgets. Providing some support in February were the start of two large high schools, located in Virginia ($66 million) and Pennsylvania ($60 million), as well as groundbreaking for a $55 million medical research facility in Texas. The smaller institutional categories were able to register gains in February. The transportation terminal category jumped 310% after a depressed January, helped by the start of a $200 million bus depot in New York NY and a $143 million transit hub renovation in St. Paul MN. Amusement-related work climbed 92% in February, led by the $287 million convention center portion of the Cleveland Medical Mart and Convention Center. Moderate January gains were posted by public buildings, up 9%; and religious buildings, up 5%; relative to weak activity in January.

Nonbuilding construction, at $151.5 billion (annual rate), slipped 9% in February. Highway and bridge construction dropped 27% from January’s exceptional amount, which included the start of a $1.5 billion project to add new lanes to the LBJ Freeway in Dallas TX. The February pace for highway and bridge construction remained a slight 1% above the monthly average for 2010, as the waning support from the federal stimulus act is only just beginning to have a dampening impact. Decreased activity in February was also shown by river/harbor development, down 52%; site work and mass transit, down 34%; and sewer construction, down 13%; following the gains each category reported in January. Water supply construction was the one public works category able to show improvement in February, rising 51%, with the boost coming from the start of several water treatment plant projects located in Washington state ($51 million), Oklahoma ($47 million), and New York ($45 million). The electric utilities category had a strong February, surging 46%, as the brisk activity witnessed during 2010 for this project type has yet to slow down. Large electric utility projects that were reported as construction starts in February included a $2.4 billion coal-gasification power plant in Mississippi and a $1.4 billion wind farm in Oregon.

Residential building in February moved up 2% to $121.1 billion (annual rate). The strength came from the multifamily side of the housing market, which advanced 67% in February after a brief loss of momentum during January. Large projects that were reported as February starts included a $140 million apartment building in Secaucus NJ, an $87 million apartment building in Chicago IL, and a $58 million apartment building rehabilitation in Minneapolis MN. Murray noted, “Multifamily housing is turning out to be one of the few near-term bright spots for the construction industry. While rising from a very low amount, multifamily housing in 2010 grew 12% in dollar terms, faster than the 6% gain reported for single family housing, and it’s expected to see another double-digit increase in 2011.” Single family housing in February slipped back 7%, as the modest improvement that seemed to re-emerge towards the end of 2010 paused. The single family slowdown in February was widespread by geography, with all five regions showing reduced activity – the Midwest, down 2%; the South Atlantic, down 4%; the South Central, down 7%; the West, down 8%; and the Northeast, down 21%.

The 9% decline registered by total construction on an unadjusted basis for the first two months of 2011, compared to 2010, was the result of a mixed performance by major sector. Nonresidential building was down 21%, reflecting this pattern by segment – commercial building, up 6%; manufacturing building, up 483%; and institutional building down 37%. Last year’s nonresidential total included the start of two massive projects during the January-February period – the $3.0 billion transit hub in lower Manhattan NY and the $1.1 billion airport terminal project at Los Angeles International Airport. If these two large institutional projects are excluded from the 2010 statistics, then the year-to-date change for 2011 would be the following – institutional building, down 18%; nonresidential building, down 5%; and total construction, down 2%. Nonbuilding construction during the January-February period of 2011 was up 9%, helped by this year’s early strength for electric utilities, while residential building retreated 14% year-todate. By geography, total construction during the first two months of 2011 performed as follows – the Northeast, down 34%; the South Atlantic, down 30%; the Midwest, down 6%; the West, up 5%; and the South Central, up 17%.

Useful perspective is obtained by looking at twelve-month moving totals, in this case the twelve months ending February 2011 compared to the twelve months ending February 2010. On this basis, total construction is down 3%, due to this pattern by sector – nonresidential building, down 10%; nonbuilding construction, no change; and residential building, up 1%. By region, the twelve months ending February 2011 showed this behavior for total construction – the South Atlantic, down 16%; the Northeast, down 6%; the Midwest down 1%, the South Central, up 1%; and the West, up 4%.

PR - Silver Cloud in Recession

Most construction industry publications depend on contributed articles written by building product manufacturers or their PR consultants. The need for contributed work has grown in this Great Recession (what's so great about it?) as publishers have trimmed staff. On top of this, many manufacturers have had to cut back their expenditures for PR.

There is an upside to this downturn. It is easier than ever to place stories in the trade publications.

Publicists usually have to call editors. But in recent weeks, I have gotten calls from an unprecedented number of editors looking for content. They include magazines focused on:
  • Architectural design
  • Specifications
  • Sustainable building
  • Canadian construction
  • Interior construction
  • Structural engineering
  • Concrete repair
  • Jobsite management
  • Hospital construction
PR is surprisingly affordable. 

And wonderfully effective.

I invite you to contact me to discuss how you can take advantage of this boom in editorial opportunities. Call Michael Chusid at +1 818 774 0003.

Another Magazine goes Online Only

Masonry Construction is the latest trade publication to drop its print edition and become online only. This trend has important implications for advertising and PR.

An announcement from its editor explains:
Being nimble and quick on your feet are necessary when business prospects become challenging. As unpleasant as they may be, sometimes changes are necessary. Masonry contractors know this as well as anyone. The publishing environment has been very similar the past couple of years. So we are moving in a different direction and have ceased publishing the print edition of Masonry Construction magazine. But along with this, there is also good news: Masonry Construction will still appear in various electronic formats to keep you up to date about the masonry industry.
No doubt the Great Recession was a factor, but it also reflects changes in how the industry gets its information. Watch for Masonry Construction and others to start publishing for mobile devices that contractors can read in the field.

G'day, USA: Australia's James Hardie is making a splash in the U.S. market

This is an encore of an article Michael Chusid wrote almost 20 years ago. Since then, the construction industry has been increasingly globalized. However, most of their observations about the North American market remain the same.

Hardie saw a previous recession as a great time to invest in a new market -- a potential that also exists in our current economic malaise. The firm has sold off its gypsum board and irrigation interests, but has established a solid brand and market leadership in the fiberboard category.  

There is good news about the U.S. construction products industry: We enjoy a productive and flexible work force and an excellent safety record. Our designers are open to new products and techniques. We are adventurous, ambitious, and independent. And, despite the recession, our economic prospects are robust enough to merit substantial investment.

That is the decidedly upbeat view as seen from  Australia, home of James Hardie Industries Ltd., whose U.S. subsidiary is rapidly becoming a major  player in the North American construction products industry. In just five years, Hardie has become a significant supplier here of gypsum board and a range of fiber-cement products. The company has quickly earned a reputation for quality products and efficient production. Sales at its U.S. unit, which also markets irrigation products and sprinkler fittings grew 21% to $145 million (US) in the fiscal year ending in March.

Hardie's trek into the U. S, market has not been without a few bumps, however. Hurt by the construction downturn and severe price-cutting in the gypsum market, the U.S. unit lost $14.5 million last year. The company has had a tough time, especially at first, getting U.S. contractors to try its high-cost fiber-cement products. And it took a few missteps to make Hardie realize it had to Americanize its marketing operations to be successful here.

Things are just now beginning to shape up. Don Manson, president of the Mission Viejo, CA-headquartered unit, says both sales and profits improved "significantly" in the first half of this year, thanks mostly to growth in the fiber-cement business. "I'll be very surprised if we're not profitable in fiscal 1994," Manson says.

If so, the U.S. unit will be on its way to following in the rather large footsteps of its Sydney-based parent, one of Australia's leading industrial manufacturers and a dominant producer of cladding there. For most of James Hardie's 100-year history, the company's chief product had been asbestos-cement board, popular in Australia's hot, humid coastal cities. But when health concerns about asbestos surfaced, Hardie switched in 1980 to a wood-fiber cement board. It retains most of asbestos' desirable properties, but it is stronger and easier to work with.

Coming to America
About that same time, the company began to diversify through a series of acquisitions and product developments. It grew into a billion-dollar company, but its development was limited by the size of its home markets of Australia aid New Zealand, whose combined population of 20 million is less than California's.

"The question then was, do we expand into other activities or do we take our knowledge to other parts of the world? We chose to do the latter," says Manson, formerly head of Hardie's New Zealand unit. "We had extremely good products and technology, so it was a question of how to capitalize on it. We looked to the United States because we saw somewhat similar building practices, an extremely large population, and a relatively common language."

Another factor was the mid-1980s collapse of Johns Manville, a leading U.S. supplier of asbestos-cement products. "We saw a vacuum here for [non-asbestos] cement panels," says Pat Collins, technical services manager for Hardie's U.S. building products division. Also, the U.S. market was not entirely new to Hardie. The company had already made inroads by bringing in its irrigation and sprinkler products in the 1970s.

Hardie's expansion into the United States began in earnest in 1987. That year Hardie bought a gypsum quarry and a gypsum board plant in Las Vegas and another plant in Seattle. It also began exporting some fiber-cement products to the United States, though by 1990, it was making those products at its Fontana, CA plant.

At first, the company combined the gypsum and fiber-cement operations, but it later reorganized them into two divisions. "They are separate businesses," Manson explains. While gypsum board is a price-sensitive commodity product, the high cost fiber-cement products are more proprietary and require missionary work to sell. And while Hardie's gypsum boards are marketed on the West Coast and exported to countries such as Korea, the fiber cement products are sold in the Sun Belt.

The company makes three types of fiber-cement products: siding, backer hoard, and roofing shingles. They are sold mostly in niche residential markets where their unique properties can be marketed at a higher cost. The backer board has shown the most market growth and potential. It can command a small premium because it provides the smooth finish necessary with vinyl flooring, and its water impermeability makes it ideal behind ceramic tiles in wet areas.

The roofing shingle has had a relatively high penetration in California, but Hardie won't be able to expand the market North until it perfects the shingle's freeze/thaw properties. The siding, which has had slow growth, has faced tough competition from other cladding, mostly wood, because of cost and aesthetic reasons. Its main selling point is its long life, and that's not as much of a concern in the United States as in Australia.

Though the Fontana plant is now running at only half its 100,000 tons per-year capacity, Hardie sees  enough market potential to warrant buying land near Tampa, FL for a second fiber cement plant.

Hardie has met with some frustrations, though. It has had difficulty getting U.S. contractors to get past their low-cost mentality and try Hardie's fiber-cement products. "The acceptance has taken a little longer than we anticipated," Manson says. "Even though our product may be clearly superior, if the tradesman has been used to doing things a certain way for 20 to 30 years, he's not going to change quickly.

"It has taken until this year. But now it's really coming on." U.S. sales of Hardie's fiber-cement products grew 14% in fiscal 1992 and that division cut its losses 15%. "And that's being achieved against a depressed economy," Manson says.

Fitting in
Hardie's initial projections underestimated the U.S. demand for fiber cement shingles, mainly because shingles are not popular in Australia. Such predisposed outlooks are one of the hazards of transporting a business from one country to another. Despite their similarities, Australia and the United States have much different marketing environments.

"It's taken five years to come to terms with and fit into American culture," Collin says. "The slowness in getting to that stage was due to Australian attitudes and traditions trying to be imposed onto American culture. It doesn't work. We had to become an American company run by Americans."

And that is exactly what Hardie became. The building products division, for example, is now run by an American, vice president and general manager Louis Gries, and a management team recruited from U.S. firms. Collins is one of the few Australian expatriates still in the United States. Both he and Manson, a New Zealander, see their roles as transitional and temporary.

One adjustment Hardie made after a few years in the U.S. market was to decentralize its marketing organization by putting senior staff in regional offices, rather than have them manage from afar. "That's made a powerful difference," Manson says.

As Collins explains it, a decentralized structure is not a necessity in the smaller Australia. But in the United States, it's a must. "This country is so large that we can't talk about just one country from a marketing or manufacturing point of view," he says. "In each place it has to be carefully done to fit the local requirements and culture. It's 50 different countries really."

Another difference Manson has observed in the U.S. market is its cavalier attitude towards quality. Australians, by contrast, are a less mobile people and tend to use higher quality building materials to build homes for a lifetime. "It surprised me that the expectations of consumers are not great here," he says. "I see enormous homes with high prices, but the quality is not dramatic.

"Our backer board is an excellent product, but it gets covered by tile and is out of sight. It's hard for the builder to justify an additional cost. How do you [charge a premium] when it's coming out of the builder's profits?'

The answer, says Mike Going, Hardie's U.S. marketing manager until his recent return to the New Zealand unit, is aggressive marketing that will convince contractors and home buyers that quality is worth the extra cost. "Hardie must foster an aggressive and creative marketing vision while at the same time doing all the small things that have to be done to carry out a successful marketing program."

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By Michael Chusid, Originally published in Construction Marketing Today, ©1992

Good News for the Building Industry

Home Depot just announced that they will be hiring 60,000 seasonal employees for the spring season, as it is their equivalent to other retailers' Christmas season.

It is very uplifting to see the world's largest home improvement retailer anticipating so many sales this spring season that they will need these additional 60,000 employees.  Kudos to you if your product is already on their shelves! (If your products are already on their shelves, you should give them a call to see if they need more.)

Use long-term cost benefits to your advantage

This is an encore presentation of an article Michael Chusid wrote about 20 years ago. It's message is still current.
I often encounter price resistance when selling my company’s top-of-the-line building products. Even though I explain that the product lasts longer and has lower operating costs, many customers can’t see past the initial costs. How can I overcome this sticker shock?—D. N. S. , sales manager

Developers and building owners think of their projects as an investment. In addition to construction costs, they analyze operating costs, potential income, and resale value. To overcome price resistance, present your product as an investment instead of an expense.

In some cases, this can be done by focusing on how your product adds value to a building. Developers recognize this principle when they spend extra on building finishes or fashionable interiors. Their investment is repaid by making it easier to sell the property or attract higher rental income.

Other products can be positioned as expenses necessary to protect a property’s income potential. A major hotel chain, for example, invests in backup air-conditioning equipment because they realize their inventory of rooms is worthless if they can’t guarantee comfort.

Tout up-front savings
Another approach is to emphasize the “first cost” of your product. In addition to purchase price, this includes the design, construction, and financing costs necessary to put your product into service. You can sell the first-cost benefits of your product if, for example, it costs less to install or enables faster completion of a project.

A still broader view of costs is a lifecycle cost analysis, which considers the cost of owning a product, not just purchasing it. This is significant because the total of a building’s maintenance, energy, insurance, tax, interest, and other ownership expenses usually exceed construction costs.

Life-cycle affordability is key
Life-cycle cost analysis has long been used by mechanical engineers; it is fairly simple to compare the cost of additional insulation or more-efficient equipment to projected energy savings. But in recent years, life-cycle affordability has become increasingly important. Environmental concerns, for example, have shifted attention from construction costs to issues such as energy consumption and building materials disposal. Institutions like the Army Corps of Engineers have begun to require life-cycle cost analyses of proposed projects. A recent publication from the American Society for Testing and Materials, ASTM Standards on Building Economics, establishes procedures for investigating the life-cycle costs of building materials. And computer programs have simplified the extensive number crunching required for life-cycle cost calculations.

Many manufacturers claim life-cycle benefits in their advertising, using bar charts to show how their products’ costs compare to competitors. Such claims have more impact if your customers can examine the supporting data. You can use computerized presentations to show them results for a specific product.

USG Interiors is one company that uses computerized life-cycle cost analyses to position its relocatable office partitions against lower priced conventional drywall partitions. The program considers such variables as the client’s tax bracket, material and labor costs, project size and complexity, mortgage terms, and the accelerated depreciation allowed to relocatable partitions. It also asks the customer how often remodeling will occur. The program then compares the life-cycle benefit of USG’s reusable partitions with the demolition costs of removing drywall partitions. This gives USG a powerful sales tool to use with financially oriented customers who may not perceive the product’s technical or aesthetic benefits. In addition, getting the customer to say yes to all the input data increases his acceptance of the program’s conclusions.
From a life-cycle cost analysis prepared by Chusid Associates.
Are your products priced right?
Conducting a life-cycle cost analysis for your product can be a fruitful marketing exercise. For example, do you know what factors most affect the affordability of your product and your competitors’ products? Can you substantiate product durability or quantify maintenance costs? Would your products be more affordable if there were more demand for salvaged or recycled components?

A life-cycle cost investigation I once conducted for a water-conserving plumbing system helped the manufacturer establish a competitive price for its product. Another time I compared the life-cycle costs of 12 roofing systems. Even though my client’s roofing system had outstanding durability, the study showed its high initial cost was not offset by low life-cycle maintenance costs. This insight helped clarify the manufacturer’s marketing alternatives.

While life-cycle costs can be an important sales tool, you must still tailor your presentation to each individual customer. Many price objections are simple requests for more information or reassurances. Other objections may be based on unquantifiable concerns about performance, appearance, or reliability. Bringing out a technical looking spreadsheet could confuse some customers or miss their main concerns.

For some customers, delivering a job for the lowest initial cost will always outweigh life-cycle considerations. But in other cases, a life-cycle cost argument may be just what is needed to close a sale. It can help customers justify to themselves or to their clients the decision to use a more expensive product. Or it can be a subtle way of pointing out a competitor’s shortcomings. Most importantly, it can change the focus of a sales presentation from the cost of your product to the value of your product.

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By Michael Chusid. Originally published in Construction Marketing Today, Copyright © 1994

No Recession Here!

With the right products, effective management and creative marketing, building product manufacturers can profit and even grow through a recession.

One of our clients (you'll forgive me if I can't disclose which) just shared that its plant is running three shifts and has orders in-hand for most of its capacity for the rest of the year.

They are not coming out of a recession. They never went into one.

Architectural Billing Index Improving

The most recent Architectural Billing Index report shows rising inquiries (for proposed projects) and work on hand (billings) at architectural firms. Since design work precedes construction, the Index is a predictor of future construction activity.

The lag between architectural billings and construction activity is reflected in the AIA Consensus Construction Forecast. It sees a 2 percent construction spending decline in 2011, followed by a 5 percent gain in 2012. 

While these are encouraging trends, an AIA survey of its members reflects continuing uncertainty about the economy. Nearly two-thirds (62 percent) thought that a growing number of architects will look for career opportunities outside of the architectural profession in 2011. If you are looking for employees, consider hiring an architect.

Architectural Billing Index Rises

The Architecture Billings Index (ABI) rose more than three points in November to reach its highest mark since December 2007. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending.
The American Institute of Architects (AIA) reported the November ABI score was 52.0, up from a reading of 48.7 the previous month. This score reflects an increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 61.4, down slightly from a mark of 61.7 in October.

"While this is heartening news, it would be premature to say the design and construction industry is out of the woods yet,” says AIA chief economist, Kermit Baker, PhD, Hon. AIA. “We continue to hear a wide mix of business conditions, with a good deal of it still indicating flat or no demand for design services. Once we see several months in a row of increasing demand we can feel safe saying we have entered a recovery phase. Until then, we can expect continued volatility in business conditions.”

Key highlights include:
* Regional averages: Northeast (51.1), Midwest (50.9), South (50.5), West (48.7)
* Sector index breakdown: multi-family residential (54.3), commercial / industrial (49.8), institutional (49.3), mixed practice (45.8)
* Project inquiries index: 61.4 About the AIA Architecture Billings Index

The Architecture Billings Index (ABI), produced by the AIA Economics & Market Research Group, is a leading economic indicator that provides an approximately nine to twelve month glimpse into the future of nonresidential construction spending activity. The diffusion indexes contained in the full report are derived from a monthly “Work-on-the-Boards” survey that is sent to a panel of AIA member-owned firms. Participants are asked whether their billings increased, decreased, or stayed the same in the month that just ended as compared to the prior month, and the results are then compiled into the ABI. These monthly results are also seasonally adjusted to allow for comparison to prior months. The monthly ABI index scores are centered around 50, with scores above 50 indicating an aggregate increase in billings, and scores below 50 indicating a decline. The regional and sector data are formulated using a three-month moving average. More information on the ABI and the analysis of its relationship to construction activity can be found in the White Paper Architecture Billings as a Leading Indicator of Construction: Analysis of the Relationship Between a Billings Index and Construction Spending on the AIA web site at

Industry Optimism About the Construction Market Returns

McGraw Hill Construction posted the following article, brightening the construction market future:

Industry Optimism About the Construction Market Returns

Prospects for AIA Show in 2011

The AIA Show website shows that there are still many unsold booths for their May 2011 gathering in New Orleans.  This means you can still get good booth locations if you decide to exhibit there. But by most accounts, the AIA's show in Miami earlier this year was sparsely attended by architects.

What are the prospects for the upcoming event?
Attendance may be a bit better this year:
  • The economy has begun to turn around a bit, (I hope.)
  • New Orleans is more centrally situated for most of the country.
  • Who wanted to go to Miami in the summer, anyways?
  • I think many architects are curious to see how New Orleans is being rebuilt (at least I am).
Attendance may be up the show has new management -- Hanley Wood. HW's magazine, Architect, will become the official publication of AIA as of January. I suspect Hanley Wood will be pouring lots of resources into building the show this year.

Unfortunately, I don't see that yet. Their website, just six months before the event, is still little more than a place holder saying, "Continue to check back for more details."

Where to spend your marketing budget?
HW has other challenges. When AIA produce the event, it could tap into its members' sense of community. Now, the AIA Convention is at risk of being seen as just another of HW's events for architects. This is a weak position. For example, I don't go to HW's CONSTRUCT trade show because it is a major trade show (it isn't), but because I identify with the Construction Specifications Institute (CSI) community that holds its annual meeting at CONSTRUCT. If CSI relocated its annual meeting to another event, I would follow my tribe.*

HW's architectural show will now have to compete against its other events for architects -- CONSTRUCT and their new virtual trade show, And will architects still traipse half-way across the continent if they can get all their continuing education credits from Hanley Wood University?

Booth prices begin at $4200 for a 10 x 10 ft booth. (Of course, renting space is less than half the cost of exhibiting.) It is unlikely HW will discount prices. Perhaps you will be able to negotiate a frequency discount if you exhibit and advertise in their magazines?

Should you exhibit at AIA or any tradeshow this year? 
The answer is no longer an automatic "yes". You have to look closely at the fundamentals: What do you want to accomplish? Does the show provide the right audience? How can the show leverage the rest of your marketing budget?

Many of my clients have done the math and have budgetted for trade shows in the coming year. For some, it may mean a smaller booth. One the other hand, one of my my clients has a new product launch that will benefit from a live demonstration. They are increasing their trade show participation because it is more economical than sending crews across the country for demos.

Reduced attendance at a show does necessarily mean reduce effectiveness. The World of Concrete (also a HW event) had significantly lower attendance in 2010; but those who came were there to buy and not just for a junket in Vegas.

I still believe trade shows have an important function, even in the digital age. It will be interesting to see what the next few years bring. 

* Prediction: HW will merge the AIA and CONSTRUCT shows into one super-sized event. Let's hope so, it would make for a more rational industry.