Transcript Blog- The Global Impact of COVID-19 on the Engineering , Construction and Operations Industry
On this episode of Industry Insights by SAP, Josephine Monberg interviews Shenaz Bilkis, Global Industry Director, Construction & Real Estate at SAP. Shenaz discusses the short and long term impacts of the coronavirus pandemic on the EC&O industry and how technology can help aid in the recovery from this crisis.
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Hey, all of our great listeners of our podcast industry insights by SAP. Today we are focusing on how industries are being impacted by our current global pandemic. And today we are taking a closer look at engineering, construction and operations. To do this I have with Shenaz Bilkis, who’s the global industry director of construction and real estate at SAP. So thank you for being with me Shenaz.
So before we dive deeper into this specific industry and take a closer look, can you tell all of us who’s listening a little bit about what you do at SAP?
Yeah, my pleasure. So like you mentioned, my name is Shenaz, I am based out of Singapore and part of the engineering, construction and operations industry business unit. So we call it ECO IBU. But in essence, the work we do is very responsible for setting the industry strategy right, for both construction and state. Uh, we do this by working with our customers to understand the future needs of the industry and marrying that with our knowledge of SAP solutions where to focus our industry, development. Once we have that focus area identified me then work with our internal development teams or partners to deliver the solutions that add value for our customer. So that’s, that’s really what we do.
And you said that you were in Singapore, so how’s, how’s the situation there right now?
Uh, that’s a, that’s a good question. You see at the very beginning for, we had the model of response, right? Our, our numbers were lower like 10, 12. Um, the measures seems reasonable, not very strict. And then what started happening was people still kept going on holidays and we have a lot of input cases and we suddenly saw a spike in the numbers. So the measures got stricter and stricter and now suddenly we have these worker dormitories, you know, foreign workers who come to Singapore and basically build the city, um, do a lot of construction work and a lot of the other, um, blue collar kind of work in the country. And they live in dormitories where it’s, you have a lot of people in one room. So the space is not a lot and they have a, so the case is in those dormitories are, are, are, are really increasing at a pretty high rate and as precaution, the governments have even tightened the measure. So I don’t know if you’ve heard of, you’ve got something called a circuit breaker. So what can we do is the only go out when you have to get food. Okay. If we need exercise, right. But beyond that, we’re asked to stay at home and if we have to go out, go, go alone, wear a mask and that sort of thing. And the circuit breaker is now extended until 1st of June. So, yeah. Yeah. Accidental times.
Yeah, for sure. At SAP we’re kind of used to I think working virtually, but how’s it going on the personal front, sitting and working from home?
That’s a good question. I’m saying here, right, because it’s a global role and a lot of my interactions happen with colleagues pretty much all over the world. Um, I never really went to office five days a week. There was never, so I would only go to office two to three times a week, especially if I have to double, um, meetings with some of our colleagues and of course with our customers. Right. So from that point of view, from a, you know, work from home perspective, nothing significantly has changed because I typically work from home anyway, early morning calls and late night calls because it’s a global role though. Um, oftentimes, I don’t know if you have those days, but there are those days where you just need to sit down and you know, just get stuff done, right. Focus and you, you can be distracted. So office for me is a bit far. It’s, it’s a bit of a travel time. So I would just go to a nearby cafe and get my work done and nobody’s disturbing me and I’m just getting my stuff done. I’m pretty productive. Unfortunately with the circuit breaker, I cannot meet home. Right. Because all of this one’s so close. It’s not that I can sit at a cafe or Starbucks and do my work and I have a one-year-old at home.
Oh, that’s what I was waiting for. Ya.
Yeah. That’s the punch line.
All right, well good to know that you’re safe and you’re healthy. Um, so let’s take a look at engineering, construction and operations. So what’s happening in the industry you focus on, um, what are you seeing in terms of impacts?
Right? So you have to think of the impact for two separate kinds of industries, right? Because within ECO you’ve got the construction segment and you’ve got the real estate and the impact is slightly different and the considerations are slightly different focus in these industries. Having said that, if you know, is getting impacted just like any other industry, right? We’re not, we’re not alone in that. Looking at the construction industry and looking at some things that are happening in the short run, what we are seeing is a good amount of project delays, right? And that is also the extent of that delay where we’re seeing 30 to 90 day delay, not like complete cancellation of projects, which is a good thing, right? You, you, you won the projects to continue, but um, they extent that did, it really depends on the kind of regulations we’re seeing a different authority in some countries.
For example, in Europe it stands to ride nothing. All construction projects are at halt. But in some countries like North America, there are some essential construction work that’s still ongoing. And that also comes with its challenges, right? So we’ve, we’ve had some conversations with our customers where for our remote work, if you have UTT bonds your, that you’re building in a remote facility, um, they don’t have space for the workers and the engineers to lock because all the hotels are fields. So where are you going to put it? So either you have to have long travel time for these employees to travel to those sites or on the owners or the people who commissioned those projects have to make some arrangement. You can, you can imagine that’s the best scenario, right? So that’s what’s happening in terms of projects that are running and there’s only a handful of those.
And for projects that are not really running, that’s on standstill, we are looking at project delays after 30 to 90 days. Right. The other thing that we’ve heard around construction is people don’t want to come two sides, right, for obvious reasons. But what’s more important is they get a lot of family pressure because your loved ones don’t want to go in case, you know, you get infected and there’s a risk to your life. So you, you know, some, some essential workers who need to be onsite don’t feel comfortable being onsite. And a lot of the, the companies that they’ve talked with are really focusing on that health and safety and that security of course, you know, because you can’t have all the workers site because of social distances, you have to stagger shifts, meaning fewer people on site and you know, longer time to complete the same work.
Again, needing to delay in project and project to delays costs money. And, uh, you know, there are legal implications that, so it will be very important for, for contractors, for general contractors to issue notices to um, customers because their payment is usually my stolen base and obviously they won’t be able to get any, any of the short term milestones, right? So having that communication going off to the customers, uh, rather sooner than later, it’s going to be critical to kind of help mitigate some of the financial risks and damages that you would see. And the other key area that we see the construction companies are facing is labor shortage. And that’s for obvious reasons. But the problem with labor shortage in construction is anyway, there’s a labor shortage in construction COVID or not, you have a shortage of skilled labor and that is getting compounded now because you, you don’t have a lot of workers onsite for various reasons, right?
20% of the workers, um, are not on site because of the social distancing and safety assessment. safety for projects that are running. So that’s what you need. The construction side of things. There’s all the short, some things that are happening when you look at real estate. However, things are pretty different, right? Because when you talk about real estate, you’re thinking about commercial properties like walls, um, you know, the, the, the companies that manage walls, um, you’re, you’re talking about office space, you’re talking about fair housing space and depending on where your portfolio is along these, you know, different kinds of commercial properties, realistic properties, the impact the customers are feeling a little bit different, right? So if you’re thinking about kind of industrial real estate or are companies with investments in warehousing facilities and things like that, you’re, you’re seeing a little bit of a rise in demand.
Um, because people are, you know, doing, going more online that they’re shopping and that their needs and so on. Of course, overall that retail has declined, but people are still, at least people like me, I still do some shopping online, right? You have that getting their groceries delivered online and you have this like peaking warehousing capacity. But that’s part of the challenge because you can’t have a staff on those facilities. You need to clean those systems properly. So there is, that’s operations and maintenance challenges that they’re facing. Retail on the other hand, it’s complete shut down. Right. There are, there are, um, so he didn’t work. I have a tenant if I have, if I have a mall and in that mall that has several shops in those shops of tenants, um, me as a real estate firm or an Avenue because the tenants um, you know, the Rent now if the tenants aren’t making any money, the tenants are going to go, Hey, I can’t pay you guys because I don’t have money to pay you.
And that you can imagine how that goes. Right? Yeah. They actually have pretty sharp shock when it comes to direct revenue, direct Castro and a lot of the things, a lot of the times companies taking pay cuts at an executive level to kind of mitigate that risk. Doing a lot of, um, kind of campaigns and doing a lot of supports for the, for the tenants do portion the rule in the short term because in the long run you need your tenants, right? You can’t not help them, it’s just not going to work as long. Yeah. Um, and on the, there’s the other segments in office space that we also see some, some shifts, right? So what’s happening around there is a lot of the corporate companies like SAP for example, I don’t know what’s happening there, but a lot of the corporate companies are kind of closing on their expansion plans. Maybe not doing a lot of ’em, a new, uh, you know, renting out new office space or increasing that. That is having also short term impact in your rental income for office properties. But long term we have to see how the kind spans out. So you have to think of the different subsegments and how your portfolio is to really then have a deeper insights and give it
Let’s look a little bit more at the longterm impact. And also I think the role that technology plays in all of this. I mean, it’s clear that it is impacting the industry. What do you foresee happening longterm? What should companies do to get ready? And, uh, what’s the role technology plays in all of this?
Right? So let’s talk about longterm, right? All the conversations that we’ve had with different customers, working, construction and real estate, the outcome, over longterm is relatively positive, right? They don’t expect a sharp shock. And the reason is I didn’t think of the construction and think of what’s happening to the global population. Now we are experiencing the greatest migration in human history. Um, what that means is two thirds of the world’s population, we’ll be living in cities by 2050.
So think about that for a second, right? 75% of the buildings that you see today in 2015 doesn’t exist today. What could exist in 2015? So if you look around you, you double what you see and then you definitely get again. So what that means is there’s tremendous growth in the sector. So long term there won’t be, that’s significant. In fact, shot down, we might see some distressed firms, you might see some in any activity for those distressed firms due to cashflow constraints and so on and so forth. But longterm because there is demand, there will be not a lot of impact in a way for real estate, right? The real estate companies, customers that we’ve spoken to have a same kind of positive kind of an outcome. They do see vacancies increasing in the short term for, for their leasing properties. Right. But long term, um, they don’t see that it’s going to be a big impact.
You know, you, you, you have a lot of, a little bit of dystopian view of the world, uh, with three of the stage where people talking about, Oh, you know, more people would work from home and um, you know, you will need as much office space. But at the same time even it may be true that more people will work from home. You might see a little bit more distance in terms of how the desk serving space. So overall, the surface area of space that you need and offices would probably not teach. Right. So again, for real estate, we don’t expect a lot longterm deep impact, shock, shock in the short time for sure. But you know, depends on how long you’re talking about when you say long longterm, but things will save lives. What would be important, however, is planning will to ramp up operations.
And that applies both to construction real estate, right? So if you think about a construction project, you have to kind of de-mobilize all the resources and put things on hold. You have to kind of secure all your material on site so that they don’t get stolen. You have to have the right kind of inventory and when you come back you have to check properly that you have the right inventory, nothing went missing. And then you have to plan out how you read, mobilize your resources here, covenant to your people, your tools and your materials, how you order them in a way to, unplug your side, but you have a phased approach to get that planning, uh, to, to do that planning well and get the sites operating again. And the same goes in real estate, right? Whether it be retail walls, whether it be office space, companies has to have to have to think well about how do you get people back to work in a seamless way.
A lot of the real estate companies are thinking about kind of a staggered approach. They’re talking about how their lifts, um, work in tendon, how they’re going to stagger, how people, you know, get to the top floor and reading like operational day to day things. And for that a lot of the real estate companies are doing scenario planning to understand, you know, when do you ramp up? How have you ramp up, how fast, how slow. Um, and, and, and, and that scenario planning will be critical in, in how the ramp of operations, right? Because that’s connected with your, uh, ancillary services that you provide in such a facility. this ramp up. This is where technology like, to answer the second part of your question, this is really where technology will be a critical role in making sure you are able to do appropriate planning and you’re able to ramp up those operations in a, in a seamless way.
Yeah. And just very briefly, lastly, what, I mean, we always talk about kind of what we all want to help during this crisis, right? So what’s SAP doing to help? How can companies in your industry get help from SAP?
Alright, so there are a number of fee offerings that if, if he has, um, has been pretty quick, uh, to react to, right? One or two of your box for if you had this moment is helping customers, right? With empathy and the care and support them to get out of this situation. And we do this in a number of ways, right? One of the things that we’ve done and our customers to leverage on is the Ariba solutions that’s been given for free, right? It really helps them to be part of the network and source materials and plan that ahead of time, um, and have a more reliable supply chain of materials. You can put pens and so on and so forth. And, and that’s, um, and there are a few other fees sets SAP has offered to customers, uh, that they can leverage right, to, to help get out of this crisis. But having said that, our approach to the situation is, you know, empathy and first priority is really the health and safety of just our employees, but also that you know, our customers and Darren are healthy and safe
and we have a whole website dedicated to those. So if you’re listening and you’re wondering how you can learn more, go online, check it out, see what free offers you can take advantage of. And Shanaz thank you so much for joining this episode of the podcast and making us a lot smarter about what’s going on in your industry. So thank you for that.
You’re welcome. It’s my pleasure. Thanks for having me.
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