Structural and cyclical changes for A/E firms 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 discuss the structural and cyclical changes facing A/E firms.

By Morrissey Goodale October 19, 2020

Morrissey Goodale is providing A/E leaders with news and perspective on COVID-19 and its impact on the industry. This week, they discuss the structural and cyclical changes facing A/E firms.

The pandemic has changed everything. So, your business planning for 2021 – including revenue and market forecasting and operations and management thinking – needs to change too. And fast. You can delude yourself that all will be good because your “backlog is holding for now” and that you “haven’t seen a slowdown yet.” But unless you are one of the 14% of firms that grows through a crisis or a recession, chances are you’ll need a new approach for next year. Consider these seven steps.

1. Structural vs. cyclical changes in 2021. The pandemic is inducing both of these – for your firm, the A/E industry, and your markets/clients. Structural changes are those that are permanent or have long tails. They are vaccine-agnostic. The pandemic has accelerated the structural changes that were already reshaping our industry (remote working, industry consolidation, technology-infused professional services, commoditization). Cyclical changes are those that are in play now and will continue until a cure is found and widely adopted in society. They are largely economic. It’s important that you distinguish between both types of changes to navigate 2021.

2. What’s the most important cyclical change facing your firm and the A/E industry in 2021? Next year, the market for A/E and environmental services will shrink for the first time in a decade. The fiscal condition of most state and local governments will be more challenged next year. Likewise, huge swaths of the commercial markets will see declines. This cyclical change will reverse post-vaccine. And an infrastructure stimulus plan in 2021 will benefit some markets in the short term. But until then, it’s going to be a knife fight between you and your rivals for market share.

3. What are your two most important strategies for success in a smaller market? First, you must protect your existing client relationships. That means intimately understanding the changes that your clients are facing (see bullet 6 below) and offering them services and solutions to match their new needs. Critically, you have to find new ways to connect with them in these socially distant times— ways that your competitors are not using and that reinforce your relationships (see bullet 10 below). Second, you have to take market share away from incumbents. That means smartly and aggressively amplifying your digital brand and finding new ways to sell at a time when traditional business development activities are in flux. It also implies making smart acquisitions to shut out/eliminate aggressive competitors and/or strengthen your market position.

4. What is the most important structural change facing your firm and the A/E industry? It’s the new reality of doing business in a socially distanced world. The importance of offices will be diminished forever. This is a massive challenge with respect to building and sustaining your firm’s values and culture in 2021 and beyond. It’s tougher to do this when traditional in-person methods of building social capital have been replaced by endless, mind-numbing, attention deficit-amplifying “video meetings.” And this dynamic will become particularly corrosive should you have to make layoffs next year. You need to go beyond video to engage your remote workforce.

5. Your 2021 revenue and earnings plan starts and ends with your clients. You need to understand what structural and cyclical changes they are facing and invest your resources (capital, people, time, brand) accordingly. Your client managers and business unit leaders have the primary responsibility for gathering and interpreting this intelligence. They need to talk with every client before the end of this year to establish how their habits, patterns, decision-making revenue models and priorities are being changed by the pandemic. This market information then must be factored into each business unit’s forecasts and rolled up for the enterprise financial plan.

6. Interrogate every forecast. Do not let your business unit leaders “straight-line” their revenue and earnings projections from 2020. The 2021 plan for every business unit needs to be built on these eight questions first:

  1. How will this target market be different next year than before?
  2. What are the structural and cyclical changes facing this market?
  3. Will the market grow, flatline, or decline? Why?
  4. Are we “in” or “out” of this market next year? Why? (Justify the investment)
  5. How will we create and deliver value in this market?
  6. Do we have a winning strategy and leader?
  7. What new services/solutions will be needed that we must sell and deliver?
  8. What existing services/solutions should we stop selling?

Only after these questions are answered should revenue and earnings projections be discussed.

7. 2021 will be a year like no other for your firm. For sure, there will be opportunities for both growth and “safety.” But these will be outweighed by more threats and risks to navigate than ever before in a smaller market. Your success will depend on understanding the structural and cyclical changes facing your firm and your clients, retooling your business accordingly, and prosecuting the plan for 12 long months.

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

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