Business of Engineering

Nine key factors for A/E businesses in 2021

Morrissey Goodale is providing A/E leaders with news and perspective on COVID-19 and its impact on the industry. This week, they highlight nine things that lay ahead in 2021 and what will be key for firms.

By Morrissey Goodale January 11, 2021
High-rise commercial buildings in Chicago, along the Chicago River. Courtesy: CFE Media and Technology

Morrissey Goodale is providing A/E leaders with news and perspective on COVID-19 and its impact on the industry. This week, they highlight nine things that lay ahead in 2021 and what will be key for firms.

The screen writers for the 2020 season of “The A/E industry” delivered drama galore last year.  And 2021 is shaping to be more of the same. Many of the plot lines from 2020’s annus horribilis will continue to play out well into the new year.  And there will be new developments this season to keep us all on the edge of our seats. Let’s take a quick preview.

1. Last year was a record profit year for many A/E and environmental firms. We benefitted from being an essential industry with robust demand in most markets. Even firms that underperformed operationally in 2020  (and most of them were perennial underperformers) caught the wave and had banner years due to reduced expenses and forgiven PPP loans. A question that leadership teams need to ask themselves is “Were we successful in spite of or because of the pandemic?” By and large, the tailwinds from 2020 are carrying many firms into the new year.

2. Industry backlogs are close to all-time highs. This is a similar situation to where the industry was immediately pre-pandemic. This dynamic is still a head-scratcher for many CEOs who kept expecting their backlogs to dwindle in the second half of last year. But thankfully for most firms, they didn’t. CEOs are in general feeling cautiously optimistic about the year ahead – much like they were last January!

3. Stress and burnout continue to take a toll. Industry professional and technical staff – whether working from home or in the field – have been living through what has seemed like a never-ending disaster movie since March. They’re working longer hours, managing more projects, and are burned out. Those with kids at home, with elderly or immune-compromised family members, or those whose families have been directly impacted by the virus have endured incredible stress. The pandemic has taken a toll on morale and commitment. Impact varies regionally. For example, many designers in the Northeast and California haven’t seen the inside of an office or met in person with a colleague or client in over ten months, while in Texas and  Southern states offices are close to full. However, you can see it and feel it everywhere – employees are becoming less connected with their firms. It’s particularly noticeable in older employees and managers who feel like they have aged ten years since the last Superbowl.

4. The cavalry is not coming to save us. A constant refrain from clients is, “We cannot find good people to hire.” Everyone from Tuscaloosa, Alabama to Trenton, New Jersey is looking for the same unicorns – talent with three to ten years’ experience and great interpersonal skills. They’re hard to find, hard to recruit out of their current gig, and quick to move on to some new life adventure once you get them on board. The ACE Mentor Program and others have done stellar work in addressing the shortage of talent in our industry – but the pandemic has exacerbated the crisis.

5. Everyone is trying to figure out their digital strategy. Recognizing that technology will continue to replace pesky employees and believing that this same technology will liberate them from the death spiral of commoditization – “industry leaders” are searching high and low for the Holy Grail of digitization. The largest firms will figure it out first – a handful already have. These firms will continue to direct their growth and M&A investments away from traditional design services and into technologies. Most firms however will be disappointed to learn that they lack the capital, culture, and requisite business savvy to deploy tech successfully. In the big picture, the arc of the A/E and environmental industries bends toward digital. We are on our way to becoming an IT/digital industry run by designers.

6. Small firm owners have had enough. If you thought it’s been a tough year for managers and employees in their 50s, try spending some time with firm majority owners in the same age bracket. For many, the pandemic has exposed their complete lack of an internal leadership transition option. They see no way out (not to be confused with the AWESOME Kevin Costner movie of the same name) internally. At the same time, the pandemic has accelerated their exit plans. They’re burned out and stressed out after a year like no other. With robust backlogs and strong trailing 12 months of profit, many are seeing this as the perfect time to sell (top of the market?). And they are flooding the market – potentially driving down firm pricing. They know that any acquirer for their firm will want them to stick around for about three years after the deal is done. They are already imagining a sweet retirement in 36 months free of all of the stress of ownership. And who can blame them?

7. The speed at which private equity (PE) continues to remake the industry is astonishing. Consider this. PE accounted for 27% of the 302 A/E deals done in the U.S last year, 32% of the deals in the second half of the year, and a jaw-dropping 38% of Q4 deals. In our first weekly M&A Update of 2021, a full 42% of the deals involve PE. We are watching the industry transform rapidly from an employee-owned model to an investor-owned one.

8. Infrastructure bill on the horizon. With a Democratic administration in the White House and Democrats controlling both houses, the chances are higher the industry will benefit from meaningful targeted infrastructure investment in the next two years. Beyond the obvious funding of water and transportation projects, there will likely be emphasis on clean energy and coastal resiliency investments.

9. 2021: The year of the vaccine. Light at the end of the tunnel. The two-dose vaccines are here. The single dose versions will hit the street this quarter. The vaccine heralds a “return to normalcy”. But we all know that there is no going back to the way business was pre-pandemic. A/E leadership teams are updating their strategic business plans accordingly. They are making decisions about how to take advantage of the opportunities in play in 2021/2022 to capitalize on the flux that will be play as the vaccines are deployed. And they are now able to put some pretty good timing about when the “post pandemic” world will be the new reality and plan for it.

Everything is in place for 2021 to be better than 2020 for the country and the industry. But we should heed the words of the great philosopher Yogi Berra: “The future ain’t what it used to be.”

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

Morrissey Goodale