Coronavirus’ impact on the A/E industry, June 15, 2020
Morrissey Goodale is providing A/E leaders with news and perspective on COVID-19 and its impact on the industry. Highlights this week include how the market outlook for this is looking bleak and companies need to adjust to this in their planning.
Morrissey Goodale is providing A/E leaders with news and perspective on COVID-19 and its impact on the industry.
National Industry Insights
- “Hope is the raw material of losers.” Admittedly not the most uplifting quote to start the week from one Fernando Flores. We use it when helping clients set strategy. It’s a call to action for them to get real about where their business environment is headed – which may not be where they hope it’s headed. It’s only with this understanding that they can craft a winning strategy. Hope is not a strategy.
- In setting strategy for the next three to five years leadership teams need to recognize that the non-Federal market for A/E and environmental services will contract and become much more competitive sooner rather than later. Here’s why (see the next three bullets):
- The outlook for the U.S. economy is bleak through 2021. GDP is predicted to contract 5.7% this year. The last time an annual contraction happened was in 2009 and that was 2.5%. Most A/E firm leadership teams have never experienced what’s about to hit their firms.
- State budgets and capital spending will be curtailed. Cities, towns, and villages will cut services and capital spending. The market for A/E and environmental services will shrink.
- And if that were not bad enough unemployment will remain stubbornly high through 2021, challenging household finances across the country. Starved of capital inflows because of financially strapped employees and suffering from lower earnings, many A/E firms will be compelled to sell or recapitalize, unable to continue their planned internal ownership transfer.
- This is the New Reality until there’s a vaccine or herd immunity. We can hope for a massive federal infrastructure stimulus plan to save the day. We can hope that a vaccine comes quickly. But hope is not a strategy.
- The next three years will favor two categories of firms. In the first category are the biggest, most well-capitalized firms that can reposition themselves or double down in those market sectors that will be relatively stronger– such as the federal, life sciences and industrial sectors. The second category consists of firms that have deep expertise in those growing sectors. The winning strategy for these firms is to play to their strengths and emerge on the far side of this recession stronger than they entered it.
- The strategy map for most other firms will need to be rewritten – and fast. It will need to recognize and exploit a shrinking, more competitive market. In a shrinking market, the only way to grow is by taking market share from competitors. That means better branding, marketing, and business development – in a time where traditional sales channels have been turned upside down. In a more competitive environment firms cannot operate like before – they will need to be Lean, agile, and digital to remain viable.
- Communications and capitalization strategies will also need to change. Leadership teams need to excel at remote communications and to engage their workforce and their clients. And they may well need to consider a new capital approach, very possibly with an outside investor or partner to retool their firms.
- Strategic planning, business planning – call it what you like – cannot be timid or incremental during these times. The business climate is changing like never before for the A/E and environmental industry. Hoping that your existing business model will be successful in the face of this massive change is not a winning strategy.
This article originally appeared on Morrissey Goodale’s website. Morrissey Goodale is a CFE Media content partner.