Ingram's 250 Industry Outlook Assembly
Executives in leadership roles, almost by definition, have considerable experience in their fields. They’ve been around; they’ve seen a lot.
Virtual Assembly Participants: Ken Block, Block Real Estate Services; Ramin Cherafat, McCownGordon Construction; Dennis Curtin, RE/MAX; Andy Deister, Russell Stover' Mark Dohnalek, Pivot International; Mayor Carl Gerlach, Overland Park; Don Greenwell, Builders’ Association; Nathaniel Hagedorn, NorthPoint Development; Don Hall, Jr., Hallmark; Darren Hawkins, YRC Worldwide; Michael Hoehn, Automatic Systems, Inc.; Karen Hogan, Turner Construction; Sam Huenergardt, AdventHealth; Marco Ilardi, V2 Ventures; Jeffrey Jones, H&R Block; Mike Kiley, Security Benefit; Ray Kowalik, Burns & McDonnell; Dan Krueger, Honeywell; Brad Lager, Herzog Contracting; Mark Larrabee, Arvest Bank; Mike Maddox, Crossfirst Holdings; Bill Massey, Performance Contracting Group Paul Neidlein, JE Dunn Construction; Bob Page, University of Kansas Health System; Chase Simmons, Polsinelli PC; Jeff Simon, Husch Blackwell; John Snyder, Dentons; Erin Stucky, Blue KC; Greg Swetnam, Kessinger/Hunter & Co.; Darren Taylor, GEHA; David Toland, Kansas Secretary of Commerce; Qiana Thomason, Health Forward Foundation
None of them, though, has ever seen a year like this one, thanks to the COVID-19 pandemic.
State-mandated restrictions on business activity, and disruptions in global supply chains, cast doubt on the prospects of a quick economic recovery. Across business sectors, many companies still struggle; in some, iconic brands have gone under. And the U.S. small business count will plunge by tens of thousands before the health crisis subsides.
Against that backdrop, a few dozen of the region’s most influential executives offered their insights into the extent and impact of the pandemic, and from their observations emerges a rough image of what recovery in this region might look like. From what was one of the most vibrant periods in U.S. economic history (as of January) to the depths of despair in March, there are now glittering signs of recovery as the final quarter of the year approaches. This, despite a self-imposed national recession, with some metrics bordering on Depression-era figures, that deflated American business.
But not all of them. Some sectors have been thriving, some have plowed ahead at a flat-growth pace. The pandemic has produced some silver linings, regional executives say. Most see indications that recovery isn’t just coming, it’s inevitable. Now, it’s a question of timing.
Why the optimism? Well, it varies by sector, and not every perspective produces rays of sunshine. But if you look at some of the region’s pillars of commerce, some common threads emerge to suggest a recovery in the making—with some common caveats, as well.
This report takes a sector-by-sector look at their assessment of the damage done, some of the lessons they’ve learned and applied to their own organizations, and what’s needed to continue rebuilding the regional economy.
Don Greenwell, president of the Build-ers’ Association, cited multiple shifts in business that will underpin growth going forward. Among them, he said, were “decentralization of supply chains, which will reduce systemic risks and afford re-onshoring of some jobs; more people and businesses considering medium-sized cities, like Kansas City, as more livable and desirable; broader adoption of technology tools, which will increase efficiency and ease of working and learning; and gaining a better understanding of connection and that it really, really matters what we sow.” In some cases, response to the pandemic has changed corporate culture, even for those who would have boasted about the strength of that culture in January.
“Managing through the pandemic has brought our leadership team, which was already very close, even closer,” says Ramin Cherafat, CEO of McCownGordon Construction. “After implementing the many changes and requirements as a result of COVID-19 so quickly, it’s taught us that with a laser focus we can move faster to make significant decisions than in the past.”
For the sector overall, shifts are coming in manufacturing, data-center, and federal markets, said Karen Hogan, vice president for Turner Construction. “There is a potential that the commercial market may reduce as we figure out what the new in-office work environment looks like,” she said. “As more companies may move to a remote-work option, this may reduce some need for many corporations. I don’t see much impact in the KC market moving into 2021, and we see a potential resurgence in construction activity in late 2021 with projects that were delayed from the pandemic and presidential election.”
At design/construction giant Burns & McDonnell, “our marketing costs have plum-meted, which has helped offset our lower revenues,” said Ray Kowalik, chairman/CEO. “We are learning better ways of conducting business that are more cost effective. I think many of those can continue even post COVID.”
For Ken Block, managing principal at Block Real Estate Services, new growth will come as a result of a shared organizational work ethic. “We will get through this,” he said, “and our hope is to continue to make deals happen in the commercial real-estate market both in Kansas City and beyond.”
“From a real-estate perspective, the impact is dramatic,” said John Snyder, national real-estate practice chair for the Dentons law firm. “Our hospitality clients faced an unprecedented drop-off with single-digit occupancy rates. The retail and restaurant industry was decimated. How tenants use office buildings may have changed forever. Online retail, logistics companies and data centers thrived. Affordable housing demand is at an all-time high.”
More broadly, he said, landlords faced rent collection issues, tenants sought rent relief and lenders were faced with an overnight deluge of forbearance requests, despite the aid from the federal CARES Act and its Paycheck Protection Program.
“The pandemic will clearly leave its mark,” said Greg Swetnam, office brokerage leader at Kessinger/Hunter & Co. “In the short-term, many corporations are pushing the pause button because nobody knows the exact impact of the disease. I think the biggest challenge will be helping our clients figure out how each specific industry will best utilize their space.” It will be polarizing for tenants, he said, “from those that need more space to accommodate social distancing to those who need less space due to a work-at-home vs. work at the office environment.”
One of the areas most visibly affected by consumer responses to the pandemic is the housing sector. There, the tea leaves suggest activity among builders (and, by extension, mortgage lenders), will spike in 2021. In addition to safety for the employees and clients of Re/Max Mid-States and Dixie regions, says owner Dennis Curtin, “our biggest hurdle is lack of inventory. Historically low interest rates and COVID-19 have resulted in greater-than-normal buying activity, adding to an already short supply of housing.”
In health-care delivery, changes in the way providers and caregivers interact with patients have been profound, with potentially long-lasting impact. Within the AdventHealth Mid-America region, says CEO Sam Huenergardt, nursing and clinical teams may have been scared and overwhelmed, “but they come here every day and change lives. While we’ve restricted visitors, they’ve played the role of family member, friend and companion for many patients. They’ve learned to communicate with patients’ families virtually or by phone. They’ve prayed and held hands with scared patients while they themselves were facing a deadly virus.”
CEO Bob Page of the University of Kansas Health System witnessed a similar impact on caregiving. “This pandemic has further solidified the level of collaboration and planning across our campus,” Page said. “We have worked well together for years, but the pandemic brought us even closer together allowing us to look at everything through the lens of what was right and best for the community, patients and staff. Another silver lining is the way the health-care community in the city has come together to understand what each of us is experiencing and to work together to ensure the people of the community have the resources they need.”
On the insurance side, Erin Stucky said the leadership at Blue KC expanded coverage for telehealth services, and even offered free telehealth services to community members not insured by the firm. “We’ve seen higher adoption of telehealth as members discover that virtual healthcare visits are safe, easy, and convenient,” she said. “Blue KC had 15 claims for virtual care visits in January and February and 60,000 total claims for virtual care by the end of July.”
Such market forces are compelling internal change, executives say. “Much of what has happened in 2020,” says GEHA president/CEO Darren Taylor, “has allowed us to accelerate the pace of some very positive changes. Things we wanted to get to before, but just needed the impetus to change more quickly like facility planning, work force of the future, proactive care man-agement and virtual enrollment events.”
Qiana Thomason, chief executive with the Health Forward Foundation, said it’s time to right-size funding in the region, “as there’s been considerable disinvestment in our bi-state public health funding for many years.” Missouri ranks 44th and Kansas ranks 40th in public-health spending per capita among states, she said, “We’ve got to fix this, especially since we’re now clear that public health and our economy are inextricably tied.”
At Russell Stover, CEO Andy Deister is already seeing big changes in consumer spending, with implications for the way products are marketed, delivered and sold. “Many more consumers are purchasing online and consumption is taking place at home,” Deister said. “This means a significant shift in categories that people are now more comfortable buying on line vs. going to traditional retail and they are increasingly interested in categories that make consumption at home more enjoyable.
More, better and/or indulgent food and drink. Home improvement, entertainment, personal/family/pet care are all categories consumers are thinking more about.” There’s also a psychological aspect to growth going forward, grounded in the reason executives do what they do—to support their families. That drive has taken on a new importance as many have spent more time at home working remotely.
“I believe that most people have taken the opportunity to spend more time enjoying their family,” says Marco Ilardi, CEO of the digital marketing and data analytics firm V2 Ventures. “I know we have had to change the activities we were used to sharing together and come up with new ones. It has been great to have opportunity to see my girls every day.”
Mike Maddox, chairman of Crossfirst Bank, sees “an opportunity for industries to come together to help each other recover and we are starting to see this happen. Companies are collaborating with industries impacted by COVID-19 to help them pivot and develop additional solutions.” But, combined with the wave of civil unrest wracking the nation, there is an incentive for business and the public sector to more closely align to create conditions for regional growth. “Long-term, our region must focus efforts on developing ways to rebuild our cities, economy, and society in ways that are more inclusive and more resilient,” Maddox said. “This will attract the creative talent needed to compound innovation that will bring additional business to our region.
Mike Kiley, chief executive officer for Security Benefit Corp., said it’s time for regional leaders “to think big and put our future first. We have to be smart about how we structure incentives too. Taxes are important, but we can offer other incentives like a faster approval process, which may be critical to some companies’ looking to relocate here.”
Even with the dramatic drop in employment in the spring, only half of which has been drawn back into the work force, “labor has become our No. 1 issue, collectively, and the current challenges bigger cities face do present an additional opening for this region to gain some ground,” Kiley said.
Jeffrey Jones, the chief executive for H&R Block, is encouraged by what he’s seeing from business, starting with his own team. “During a crisis like the pandemic, companies are evaluated based on how they live out their purpose,” Jones said. “To endure and be effective, you must respond in ways that are true to your purpose. At H&R Block, that means we took steps during the pandemic that continually reinforced our purpose to provide help and inspire confidence in our clients and communities everywhere. That was our north star. That’s how I led and how I encouraged everyone to lead.”
Arvest Bank’s chief executive here, Mark Larrabee, noted the limits of public-sector responses at the state level. “Unlike the federal government, the states do not have an ability to run deficits and must maintain a balanced budget,” he observed. “Revenue at the state level is under pressure from lower sales-tax receipts and the impact of higher unemployment on tax withholding, so the ability of states to increase expenditures is not likely.” But, as Kiley noted on labor, Larrabee says “there is tremendous opportunity for Kansas City to attract a work-from-anywhere-work force, given our low cost of living, affordable housing, and vibrant downtown combined with big-city cultural amenities. We can out-big the Bigs and out-small the Smalls.”
Jeff Simon, Husch Blackwell’s managing partner, sees the challenges facing business through a legal lens, and offers a caution, given the increased volumes of work for the business and finance practice group there. “The pandemic has hit some folks harder than others, and broadly speaking, we anticipate that capital will be harder to access,” Simon said. “We work with both lenders and borrowers to develop new credit facilities and to restructure existing loans. There will be a lot of the latter in the coming months.”
Chase Simmons, chairman at Polsinelli, PC, is seeing the same thing with the business-law unit, along with additional work in the firm’s prominent health-care practice, employment-law group and public-policy team. “Our lawyers have seen a plethora of legal issues arise throughout the pandemic, that have continuously evolved and changed, sometimes by the hour,” he said.
Darren Hawkins, president and CEO of YRC Worldwide, had a similar take. “Americans are realizing how important protecting our national supply chain is to their daily lives,” he said. “It will be a while before anyone takes getting what you need in a timely fashion for granted.” Looking inward, some executives see a black-swan event of this magnitude as a whetstone to keep operations sharp.
Herzog Contracting CEO Brad Lager is among them. “When times are good, many companies do things a certain way because they have always done it that way,” Lager said. “The challenges of 2020 have forced us to re-think our approach to many activities, really understand why we do things in a certain way and challenge each other to find better ways.”
For Nathaniel Hagedorn, whose North-Point Development has seen explosive growth nationally for the past decade, a key is being correctly positioned ahead of a crisis like this. “Fortunately, our firm is focused on industrial real estate, and with e-commerce, things have been booming, so it is hard to keep up with all the demand,” Hagedorn said. “There were certainly hurdles on the capital-raising side early in the pandemic, but fortunately through long-standing relationships that were built when times were better (or more certain at least) those partners stood by us through the uncertainty of the crisis and allowed us to continue to grow during this time.”
Manufacturing Mark Dohnalek, president/CEO of Pivot International, sees long-term shifts in employer-employee relations as a lever for growth. “If as a company, you do the safety-conscious actions, I do believe people will feel better about who they work for the longer term,” he said. “Those firms that took proper and health-focused steps and approaches to this, I believe, have built a strong team realizing they are working for a people-focused firm in keeping the balance of business and people in proper alignment.”
Michael Hoehn, president of Automatic Systems, Inc., said that “2020 has provided an opportunity to rethink everything—who we are, why we’re here, and how we’re going to make a difference. These opportunities may be unwelcome when they arrive, but they are critical to our long-term growth. I think it can be healthy for the team to get knocked off of autopilot from time to time.”
At Honeywell, which now employs more than 5,000 people, engineering fellow Dan Krueger says “we will continue to see shifts in how we approach supply-chain resilience, the proliferation of the industrial internet of things implemented in connected factories, and use of AI, machine learning, and deep learning applied to the manufacturing space.” The re-humanization of manufactur-ing through use of technology tools like augmented reality and extended realities, Krueger says, “will help us unlock hidden knowledge of our work forces and hand
that knowledge on to future generations.”
Even the public sector will reap benefits from operational changes imposed by COVID-19, says Overland Park Mayor Carl Gerlach. “The way local government communicates, engages, and interacts with our constituents has steadily evolved over the past decades,” he said. “The pandemic accelerated many changes out of necessity, we have strived to adapt and accommodate residents’ changing needs and expectations.”
David Toland, Secretary of Commerce for Kansas, says an unanticipated benefit of stay-at-home orders and remote working is that “tinkerers in garages and at dining room tables may finally have the time to pursue the next big idea. We need to identify those entrepreneurs, provide them with a system of supports and nurture them as they grow. The next big ideas are being created right now; it’s our job to foster this spirit of innovation with tangible growth tools.”
The pandemic, he said, has amplified a huge range of emerging opportunities throughout the economy. “The silver lining is that many of these opportunities align directly with Kansas’ strengths as a state,” Toland said. “As a result, there is a lot of interest right now in investing in Kansas, in both urban and rural areas. Our business development and recruitment pipeline is stronger than it’s been for many years, because firms are looking at Kansas as a prime location to put down roots—with a skilled work force and infrastructure that reaches the world.”
For business and civic leaders, this region is at a true inflection point, executives say. “I think KC has an incredible opportunity to continue the momentum of the past 10 or so years, and keep things moving forward when others are trying to recover,” said Paul Neidlein, president of JE Dunn Construction’s Midwest Division. “This will require a political and public will to think beyond the short term and really concentrate on the greater good to the metro and how we maximize business retention and growth while increasing a population that supports the broader tax base.”
Better communication amongst the private and public stakeholders can, and should, come with a focus on partnering with areas of need, Neidlein said, pointing specifically to affordable housing and education. “We must make it clear that we are a welcoming community for individuals of all backgrounds, and we are open for business to those that want a better place to grow their companies.”
Hallmark’s executive chairman, Don Hall, Jr., says that “what distinguishes leaders during Covid have been those who have focused on their employees’ safety and confidence, dealt with the immediate challenges of keeping their businesses afloat, recognized that it was not a matter of hunkering down until the storm is over, but a time to embrace long-term systemic changes and proactively drive toward a new post-Covid future.”
At his own company, the challenges of the past six months “have accelerated every existing trend and required a candid reassessment of everything you do, an intentional focus on innovation and collaborative problem solving in the moment. These will be a very useful skills for a post-Covid world.”
At the end of the day, says CEO Bill Massey of Performance Contracting Group, “we’ll get through these unprecedented times. As a company, and as KC as a whole, we have the strength and resolve to over-come adversity.”