Change or die: Delivering value in a changing marketplace

Adapt, innovate, grow. These mandates are driving change in every type of firm, whether the mission is assisting clients with new product development and introduction, supporting global expansion, or helping them respond to a changing regulatory environment. Engineering firms are no exception.

Across industries and regions, owners’ needs and perspectives concerning value have evolved significantly in the past several years. For example, some of the key current business trends that are taxing traditional approaches are:

• Globalization: Gone are the days when a firm could remain just a niche local or regional player. Global markets and globalization of the supply chain are changing ownership, market strategies, business processes and economics in every industry.

• Shorter project life cycles: Clients need to develop and bring projects to market faster to achieve competitive advantage, and realize return on investment.

• Increasing sensitivity to costs: Global competition, industry consolidation and increased scrutiny of budgets have intensified demands for accountability.

• Industry consolidation equals client consolidation: Like most industries, the AEC industry is experiencing high levels of mergers and acquisitions. This is resulting in fewer, larger clients with more complex demands.

Engineering firms are challenged to keep up with their clients, and they need to make fundamental changes in their business models to assure their own sustainability. Less than a decade ago, most firms believed that if they delivered good technical design, and provided consistent delivery, their position with clients was secure.

Now, owners are looking for cheaper, better and faster. Firms must respond by changing their identities and core competencies if they want to continue as valued service providers. Service offerings go well beyond design to planning, consulting and finance, and management services, and can include a total outsource proposition. Service offerings need to be continually reviewed and revamped, in cycles frequently as short at two to three years.

In trying to meet these new challenges, fundamental business models of many engineering firms are under stress. Vertical as well as horizontal integration is required to align a firm’s delivery approach with the client’s business. Firms are having to address identity, ownership and capital structure, and even their culture to remain relevant. Engineering firms are seeing themselves supplanted by other types of firms who can demonstrate financial and other management skills. Financial and management consultants are replacing the consulting engineer at the head of the table as the valued adviser and manager of significant projects.

The changes facing consulting engineers require a new look at leadership. The conservative, risk-averse engineer who has built a loyal, longstanding client base and staff now needs to look beyond the historical success formula and development a new leadership initiative.

Many firms struggle to develop the skills in their organizations to provide leadership and required management for success in the future. Succession plans increasingly include marketing, finance and operational expertise from outside the conventional engineering firm boundaries—leaders who know the client’s business, be it industrial facilities, real estate, consumer products or pharmaceuticals.

Keys to success

A number of successful consulting engineers have transformed their businesses’ identities, services and operations so that they are well-aligned to remain a valued partner with clients as they progress. The successful firms that make this transition address these critical success factors through the following:

• Brand transformation: An evolved or new identity is required for achieving the desired position in the marketplace. A successful new brand assertion can support new pricing strategies and the ability to compete effectively with those further elevated on the supply chain.

• New operating model: A different organizational design and processes for delivering service are strategically developed, addressing value from the client’s perspective. A clean-slate approach to cost may include offshore or other outsourced design or other support; a proactive partnering with the client co-investing in its next generation of business needs; or multidisciplinary teams that band and disband.

• Need for cultural change: Successful cultural change is driven by an unconstrained look on the part of firm leadership at client values. Engineering firms must commitment to assuring that their beliefs, values and actions are consistently aligned with those of the clients served. Cultural change is reaffirmed by changes in recognition, rewards and development opportunities, and a consistent set of messages from firm leadership. Cultural change is cited by firm leaders as the most challenging and fundamentally important aspect of business transition and transformation.

• More robust capital structure: Many consulting engineering firms have been traditionally managed with a view that, as a service business, they have minimal needs for growth capital. This assumption has proven outdated as firms wanting to assure sustainability and a strong market position face geographic expansion; investment in technology; and accelerated time-to-market with new products and services achieved by acquisitions. Requirements to service internal ownership transitions can also compete for capital with the needs of the enterprise, and surface the limitations of the existing structure.

Willingness to assume risk and an acknowledged need for timeliness has driven an increasing number of firms to consider sale or business combination, as well as new capital partners such as private equity firms.

Andy Grove, Intel’s founder and leader, proclaimed over a decade ago: Grow or Die, when the company faced a paradigm shift due to market changes and obsolescence of its then core technology. The company successfully navigated through this transition, and Intel continues as a global leader. The message is clear, whether your firm is a large diversified or smaller niche player: embrace change, whether offensive or defensive, as an opportunity.

Engineering firms need to keep in mind the mandates that drive changed—adapt, innovate and grow.

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