What engineering firms can expect in 2016
If you’re like most mechanical, electrical, plumbing (MEP), and fire protection engineering firm leaders or managers in the United States, this was a great year for your firm. What’s 2016 going to look like?
Here are eight trends we think you should be keeping an eye on and the messages to take away for your business.
1. 2015 was a record year for many MEP and architecture/engineering (AE) firms; 2016 will be even better. The public sector is spending again, the private sector is hopping like it’s 2007, and health care and educational institutions are seeing their endowments at record levels.
Message: Demand for your services will be off the charts-plan accordingly and choose your opportunities wisely.
2. It looks like the most recent federal budget will extend the tax credits for wind and solar energy projects and development. Both can be very attractive markets for MEP firms to diversify beyond the traditional vertical or buildings markets. As an added bonus these markets often pay faster than traditional MEP firm clients.
Message: Fortune favors the brave-this is your year to diversify.
3. The one big down market will continue to be upstream oil and gas. This is going to come back a lot slower than was anticipated last year.
Message: Don’t make an unhedged bet on the energy market. You always need to be in a sector that moves counter-cycle to the price of a barrel of oil.
4. The war for talent is back to pre-recession levels-and talent is winning! The labor market is as tight as it has ever been. The biggest challenge for your firm this year will be finding the right talent to allow you to take advantage of the market demands.
Message No. 1: You will be tempted to hire quickly-don’t. Remember: hire slowly, fire quickly.
Message No. 2: You’re going to have to pay a lot more for talent than you did last year.
5. The 2015 merger of KJWW Engineering Consultants (Rock Island, Ill., 2015 MEP Giants No. 24) and TTG Engineers (Pasadena, Calif., 2015 MEP Giants No. 31) sent shock waves through the MEP sector, creating a huge unified MEP capability from the West Coast through the Midwest. Expect to see at least one more mega-merger this year as the sector continues to shake out.
Message: Your competitive environment can and will change overnight. Scan your environment. Match it up with your strengths and weaknesses. Then figure out if you would be better off buying, selling, merging, or staying the course in 2016.
6. The MEP sector will consolidate at record pace next year as more firms decide to sell because they will be unable to engage millennials in their ownership transition programs. 2015 saw a record number of AE deals and we expect 2016 to see an increase of about 10%.
Message: The merger or sale of a competitor could provide an excellent opportunity for you to recruit key talent that is disaffected with the deal.
7. The rise in mergers and acquisitions (M&A) in this sector will result in more and more talent spinning off from the merged entities to start their own firms-either because they are forced out or because they see this as their once-in-a-lifetime opportunity to start their own firm. The problem? These smaller start-ups typically have low overhead and win work by charging lower fees, putting downward pressure on multipliers for the rest of the market.
Message: Build your competitive advantage around tough-to-replicate competencies, a powerful brand for expertise, and flawless execution. This will make you "sticky" with your clients. They will be reluctant to drop you for a low-cost, risky provider.
8. Speaking of flawless execution, this is the year that you will embrace lean design processes. Why? Because there will be so much work to do and you will have so many production constraints, that you will be forced to think outside the box on how to get the work done. And when you look at the most successful MEP Giants, they either are all using lean or are about to.
Message: Don’t wait for another job to blow up in your face due to 1950s project management philosophies. Figure out how to get lean.
Mick Morrissey is managing principal at Morrissey Goodale.