Business of Engineering

Top five strategies to deal with turbulent times in the engineering industry

How engineering firms plan for, analyze, and react to the expected and unexpected will define their future success.
By Simon Goodhead, PE, The Coxe Group, Atlanta February 7, 2019
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The current economic times are challenging design firms. Many engineering firms are forging ahead assuming growth will continue and will deal with a downturn if one arrives. Other firms are hesitant to commit to growth as they anticipate a downturn or reduction in construction activity for their markets. Firms that do not plan, whether in a growth mindset or a risk adverse mindset may be challenged in the near and long term.

Firms looking to add staff due to project needs are finding engineering talent is in short supply. To combat those shortages, firms are raising salary pools as they bring staff in from other companies. The salary changes may imply pay discrimination or long-term changes to operating costs, both sensitive items to operations.

To further add to the economic challenge, not all firms are seeing increases in project fees to offset the rising salary costs, so they are employing higher utilization expectations to ensure productivity is increased and operating profit is maintained. A risk of excessively high utilizations is inadequate time for and attention to nonbillable activities, such as marketing, business development, and training/development. Items such as quality assurance and quality control, coordination, and communication may also be at risk.

Pausing in a market that has more work than people is not typically high on the list of things to do by firm leaders. Looking at the real economic drivers of your firm, and observing the workload, project delivery practices, and behaviors are important. The following are five strategic choices that engineering firm leaders may want to consider when looking at their company strategy and planning for the unexpected

1. Know your differentiators

There are key strengths in an engineering firm. How those strengths measure against other firms and what makes your firm unique in the marketplace require two things: a good understanding of your market and the ability to self-reflect. We often overestimate our strengths against the market, which can lead to misplaced approaches. Being honest about the firm’s status is the only to make good strategic choices.

2. Know your indicators

Many owners and leaders use metrics and indicators to look at a firm’s health. It’s important to use “lagging” indicators—such as profit and loss and balance sheet data. These indicators inform management about the firm’s history. Equally important are leading indicators that can provide clarity to future performance. Think about what metrics are being reviewed to identify future improvements, test your position against external factors, and act as those leading indicators. Do you know your staff and your client’s perception of you? Who is looking and listening at the start of your value chain?

3. Test your firm against the market

With the right indicators, changes in the market can be detected early. For example, when looking at the revenue for a large project or companywide utilization, good results can mask underlying challenges that may be coming within vertical markets or geographic hubs. A holistic view and projecting forward can allow for the needed analysis and tests that can indicate when rapid change is needed. How fast technology changes is extremely important, especially 5 years from now—are the changes you are making accommodating those disruptions in the business? When it is determined that your firm is not diversified adequately in terms of vertical or geographic markets, consider investing in that diversification and technology now as returns for new markets may take years to build up. Starting to create resilience now will lead to future market strength that cannot be achieved in an undiversified portfolio.

4. Respond decisively 

When analysis shows the need for change, preplanned responses can allow for rapid change. Preplanning may sound militaristic; however, the concepts around what to do for engineering firms can prevent crises in the organization and capitalize on situations that would ordinarily leave a firm on the back foot. How quickly you can respond will determine success for the firm. The resources with which you respond are also important: Consider your cash flow and what the balance sheet looks like to enable the chosen responses.

5. Deploy deftly

Perfect prior planning and preparation will prevent poor performance. Many within engineering firms are all for change as long as they aren’t the ones who have to change. First, it is important to consider how to execute those plans and how changes can be implemented. Deploying the planned response should allow for the appropriate level of change management. You already know how your personnel performs; knowing how they will react to change is just as important. Managing the change within the firm and becoming fully engaged with those plans quickly is an essential part of the strategy.

While there isn’t an exact answer, following these key points may help as engineering firms head toward uncharted territory in the market and the economy. Don’t only make choices for 2019, but think of the future as well.

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Simon Goodhead, PE, The Coxe Group, Atlanta
Author Bio: Simon Goodhead is a principal consultant with The Coxe Group, a national management consulting firm that specializes in architecture and engineering firms. He enjoys the built environment and the business of design. With The Coxe Group he provides ownership, strategic and operational insights that help firms achieve their potential.