A/E industry’s new future and reality

Morrissey Goodale is providing A/E leaders with news and perspective on COVID-19 and its impact on the industry. This week, they discuss how no one could have predicted the state of the world in 2015.

The question everyone got wrong

Was from 2015 when they were asked, “Where do you see yourself in five years’ time?” Nobody got it right. Not even close. No one envisioned themselves in the middle of a pandemic, working remotely and wearing a mask in public. None of us anticipated the pandemic (even those of us who saw the 2011 Paltrow/Damon movie, Contagion).

And any five-year strategic plans put in place before March of this year “missed” the pandemic, also. They did not envision the New Reality for their firms specifically or the A/E and environmental industry overall. The pandemic exposed the weakness of the simple five-year plan. Everyone has had to recalibrate. Now, with greater volatility and socio-economic uncertainty, it makes zero sense for CEOs and their teams to base their strategic or business plans around a specific date or year in the future.

Instead, CEOs and their teams need to plan for two phases of the new reality. Each phase is characterized by a distinct set of conditions– (a) global and national socio-economic, (b) A/E industry, (c) relative competitive position, and (d) firm-specific (in terms of performance and capitalization). Each phase will present a different set of opportunities and challenges.

Phase 1 of the new reality is here and now. It’s the pre-vaccine environment. Planning for this phase is immediate, urgent, and short-term in a world that is still in turmoil. As an industry that’s deemed essential, we’ve thrived and shown remarkable resiliency thus far in this phase. But as the industry burns through record backlog and project owners wrestle with their own new fiscal realities, the second part of this phase, beginning in 2021, is going to be more challenging for many firms.

Growth opportunities in this phase will be driven by the pandemic itself and related market disruptions. For example, with state and local budgets being slashed, there will be an accelerated move on their part to outsource services. A/E and environmental firms that anticipate and plan for these outsource opportunities will thrive relative to the competition that does not.

Phase 2 of the new reality is the period post-vaccine. The current conventional wisdom is a vaccine release is sometime in 2021 (can someone please move this up on the schedule?). Instead of certainty and a return to “normal”, this phase will be characterized by even more socio-economic confusion and flux. Is the vaccine working? What are its implications? When will industries and end markets return to pre-pandemic levels? When will it be “safe” for our workforce go back to our offices and will they even want to? A vaccine will not signal a return to “normal”. Instead, it will usher in a new era of questions and uncertainties. To make planning more challenging, this phase will not have definitive start or end dates, but is likely to overlap with some challenging fiscal conditions in 2021 and 2022.

Growth opportunities in this phase will be driven by post-pandemic realities. Almost every existing facility type will need to be redesigned and every new facility will need to be reimagined in a post-vaccine world. This phase will favor those design firms that plan and invest in being market leaders or subject matter experts. They will achieve and then exploit a first-mover advantage in this era of redesign and reimagining the built environment.

Planning for your firm’s New Reality will be neither simple nor easy, but it’s necessary. Too many firms are still stuck in the past, hoping for a return to normal. But hope is not a strategy. The starting point in planning for the New Reality is not to ask, “Where will our firm be in five (or three or even one) years’ time?” Instead, the questions to be answered are “How will we be successful in a pre-vaccine New Reality and post-vaccine New Reality?”

The pace of industry consolidation ticked up in August. After spending much of the summer tracking down 19%, the 12-month rolling average of design and environmental firm deals ended the week down just 14% after robust deal-making in the dog days of summer. We saw an impressive number of deals in all service sectors, including architecture, infrastructure engineering, facilities design, and environmental services.

This article originally appeared on Morrissey Goodale’s website. Morrissey Goodale is a CFE Media content partner.

Original content can be found at www.morrisseygoodale.com.

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