Companies in the AEC industry will find the answers to their biggest 2015 challenges will have to come from within. Their tests will lie in responding to volatile markets, handling the talent crunch, and mitigating growing enterprise and project level risks, according to Kent Goetjen, PwC Engineering and Construction (E&C) leader.
- The dramatic change in commodity pricing, particularly oil and gas, means companies need to think about how those changes will affect their businesses in both the short term and the long term. What is that going to do to future projects? Will it delay projects? Will it stop projects? And those effects will have an impact on the amount of work out there. The key, Goetjen says, is to make sure you have strategies that can react whether things expand or contract in your particular niche area. Those short term and long term strategies will need to help you grow business and maintain profitability while also accounting for volatility in the marketplace. Goetjen characterized the profit margins and the competition for work as very difficult. So, when things contract, it impacts the entire marketplace.
- Attracting and retaining talent isn’t going to get easier. Goetjen says the industry is in a generational change. That makes it important for companies in the AEC industry to handle the problem in a three-pronged approach. You have to attract the younger folks while retaining experienced people. But you also have to benefit from those people approaching retirement.
- While AEC has always been about managing risk, it’s going to become even more important. Not just risk at the project level, but also at the enterprise level.
“The market is trying to find the best person to put the projects in place and you’ve got to make sure as a company that you deliver against that and do not impact your reputation, because that then impedes the ability to get new work,” Goetjen said.
But, there are also the new risk challenges for the AEC industry like cyber security. As the industry follows suit with others to increase it’s productivity by using technology, a host of new security challenges arise. There are also many different kinds of risks in today’s marketplace that you have to think about so that you don’t loose competitive advantage. The goal, Goetjen says, is increasingly one of protecting the brand.
The keys? Proper planning and involving your management team in the process. Make sure you communicate the plan throughout the organization and that you involve your professional advisors and stakeholders.
Buying & Selling the AEC Industry
Goetjen says he expects consolidation within the AEC industry to stay ‘active.’ Companies continue looking for ways to maintain their strategies and their people, so if they can expand their areas of specialty by acquisition, either in a different country or in their market within their own country, they’ll continue to do that. Larger firms might also decide not to stay in a particular niche. Components they want to divest themselves of then become acquisition opportunities for others.
Companies will also be looking to acquire firms that can perform and that can also add to their existing service capabilities within their current markets or in new ones where they see growth.
Small Staying Small
Small companies, those with fewer than 10 employees, won’t figure prominently in the continued merger and acquisitions in the AEC industry, even though many might be at stages where they’d like to be bought up. Goetjen says small firms would have to have a particular niche, or customer relationship, or something in a particular area that makes them attractive to acquire.
“When you think about an AEC firm,” he says, “You’re buying people and their skills. So what is it that makes them unique and what is it that makes them attractive in that particular local market?”
A large company could just send 10 of its own people into a new market, instead of acquiring an existing small company. For small construction companies with an owner who wants to retire, the question becomes one of who will be there after the retirement. It’s going to be the other people in the organization that will determine the business value.
Adapting to the Megatrends
Goetjen emphasizes adapting strategies to deal with global megatrends. Successful companies will be those that can react to the megatrends and develop long term growth plans that take advantage of the changes to come. The megatrends are outlined just below.
[otw_shortcode_accordion number=”5″ item_1_title=”Shifts in Economic Power” item_1_content=”China, India, Brazil, Russia, Indonesia, Mexico and Turkey economies growing to more than double those of US, Japan, Germany, UK, France, Italy Canada by 2050.” item_1_opened=”closed” item_2_title=”Demographic Shifts” item_2_content=”Aging populations in developed countries and expanding, younger populations in developing countries. Changes in workforce availability, pressure to maintain social programs, pressure to increase jobs, retooling workforces.” item_2_opened=”closed” item_3_title=”Accelerating Urbanization” item_3_content=”Megacities will develop power that will rival national governments and access to information will accelerate.” item_3_opened=”closed” item_4_title=”Climate Change & Resource Scarcity” item_4_content=”Energy demand up 50%, and water needs up 40% by 2050. Traditional farming challenged. Sustainability at odds with resources for economic growth.” item_4_opened=”closed” item_5_title=”Tech Breakthroughs” item_5_content=”Nanotechnology, and the combination of Internet, mobile devices, data analytics and cloud computing transform business.” item_5_opened=”closed”][/otw_shortcode_accordion]