As the engineering industry experiences a second year of economic stagnation, I’ve continued to think about how firms can strategically plan for a down economy, as well as why some firms survive while others struggle or fail. I’m frequently reminded of the importance of market diversity; and if diversification is such an obvious solution, why is it so hard to implement?
Firm leaders — especially those who also manage business development activities — tend to be optimists. We enjoy identifying “hot” markets, chasing new funding sources, and getting up to speed on technological trends. This tendency often mirrors many organizations’ strategic planning processes.
I have witnessed organizations strategically decide to move into a private market in an attempt to increase margins, while letting its public-sector work slip to the backburner. It’s difficult to argue against this scenario when a strong economy yields such high return; until, of course, the economy changes and you are left with little market diversification and a weak position in both sectors.
Market diversity can also be difficult to attain because of the very nature of our service industry: Our clients require specialization. How can we cost effectively adapt specialized services to multiple markets?
Sustaining market diversity and specialized technical expertise depends on how transferable these skills are among markets. The challenge lies in maintaining market-specific project managers who are capable of directing and informing the more technically diverse project team of the specialized and critical client needs.
A further complication toward achieving market diversity is our ability to keep pace with our clients’ needs — to be the kind of consultant or provide the delivery method they require. I’ve seen traditional design-bid-build give way to design-build and integrated project delivery, while design-build-operate or design-build-operate-finance have not yet seen wide acceptance. What should we be prepared for next? Predicting client business drivers can be risky and requires both flexibility and foresight.
If the last two years have taught us anything, it’s that we have to plan for the good and the bad. Evaluating your market diversity strategy against various economic conditions will help bring to light the interconnections among your target markets, not to mention help you make market and staffing decisions proactively, rather than reactively. My advice is to establish a balanced portfolio and stick to the plan, even in the face of higher-margin temptations.
Part of your strategic plan must also address the importance of cross-training specialized skills among markets. Condition your staff to be willing to take on a variety of challenges; diversify their portfolios and set expectations toward mobility. Also think about encouraging up-and-coming project managers to choose a market specialization, in addition to a technical specialization. This will position you for economic downturns, create technical depth within markets, reduce the need for duplicative skills, and create a stronger technical portfolio to aid in business development.
Creating a culture of mobility is always a challenge, but this culture will allow you to maintain well-trained staff. I have experienced internal redeployments of as much as 30 percent of excess staff from a down to an up market. Retaining talent provides you with a solid base when the market rebounds.
Finally, add delivery method or client delivery expectations to your plan. Understanding these expectations will require spending more time with your clients, figuring out their pressure points. You may also find that exploring alternative delivery methods will change who you work for — such as a general contractor. A design firm’s expertise working directly with governments and institutions is valuable to general contractors. However, think strategically about your partnerships; develop principal-to-principal relationships with the contractor and find a company that has a similar corporate culture and values. This pre-positioning will allow you to work proactively toward your market diversification goals and to make informed decisions when times get tough.
|Number of offices:||more than 40|
|Total number of employees:||2,000|
|Year firm was established:||1956|
|Gross revenue for last fiscal year:||$353 million|
Donald E. Stone Jr., P.E., is chief operating officer and service line leader for Infrastructure Engineering Services for Dewberry. He can be contacted at email@example.com.