Aligning Market Strategies For Years to Come

Take cues from top A/E performers to learn how you can align market strategies for years to come, even beyond the currently rocky economic landscape.

Take cues from top A/E performers to learn how you can align market strategies for years to come, even beyond the currently rocky economic landscape.

Readers of national news and business journals alike are barraged with the same observation: The economy is in a recovery state and will not return to its prior health for some time. But the market as a whole — and subsequently the architecture/engineering industry — has suffered setbacks in the past. So why is this news? It’s not.

What people need today is depth. Since obvious news is old news, the real question at hand is something that goes deeper than how firms can stay afloat in troubled waters. Who wants that anyway? Staying afloat implies that a business will be able merely to make ends meet. On the other hand, being successful means a firm is growing in profitability regardless of the economic backdrop.

Every year, software company Deltek conducts a survey of its North American A/E customers to delve deeply into what top-performing firms are doing to rank in that upper echelon. Besides maintaining strong market position, focusing on technology investments, and anticipating expenses ahead of time, these are the firms that differentiate themselves by doing more than just staying in recovery mode.

Instead, high-performing A/E firms tend to have a different outlook, one that is focused on escalating what they already do well and breaking ground for tomorrow’s business.

In 2011, more than 400 firms across the continent responded to the Deltek survey by describing their current operations, profitability margins, and future growth strategies. The top performers were then delineated by two key aspects:

  • Those that posted a net profit greater than 15 percent of total revenues
  • Those that reported a net multiplier greater than 3.0

While many responding firms claimed success in one or the other criterion, the true top performers were those that could boast both metrics and back them up with unquestionably forward-moving indicators. Out of the more than 400 respondents, 39 firms met these two measures. And they prove undeniably that there are huge differences in the way top performers navigate North American A/E markets compared to the bulk of the industry.

Where the Growth Is

The top performing respondents to Deltek’s “2011 Clarity A/E” research significantly outperformed others, with an average 24.8 percent net profit margin compared to 7.1 percent for all other responding firms. In a market where double-digit growth is no longer assured, these metrics tell us that top-tier performers are doing a lot right.   

Across the board, the survey found that A/E firms are recognizing the importance of positioning themselves within the public infrastructure markets. This makes sense: With the election of President Obama in 2008, a major component of the White House’s long-term economic recovery plan involved creating millions of jobs dedicated to rebuilding and repairing national bridges, tunnels, and other government-funded structures. Since then, there have been continued murmurings of government injections toward infrastructure spending, leaving North American companies to position themselves for a piece of it.

Overall, high-performing businesses were seen to be even more optimistic about growth in the public sector than other firms. About 45 percent of high performers expect work here to grow, while just 5 percent expect it to decline. In contrast, 35 percent of the remainder group expect growth, and 13 percent anticipate declining work. It’s easy to guess that top performers probably have this confidence for a reason: They can back it up with top-tier performance.

There are two possible explanations for this difference. First, top performers know that public infrastructure projects will be a continued societal need regardless of political climate, so in spite of declining state and federal budgets, infrastructure will remain a priority for 2012 and beyond. Second, top performers are always ready for these types of high-award projects. These are the firms that aren’t waiting until money flows into the market to begin thinking of how to go after it; instead, they are looking ahead at the possibilities and anticipating their next moves.

To measure your firm against these high performers in terms of public infrastructure positioning, ask yourself: Does my firm have completed public infrastructure projects in our portfolio that we can use as a reference of our work? Are we leveraging tools that track public infrastructure projects so that we’re on top of potential projects even before they are posted? If not, then it’s time to begin positioning your firm to a state of stronger readiness for upcoming proposals, contract wins, and delivery strategies.

Residential Is Tricky

For most of the firms that responded to Deltek’s 2011 survey, the private and residential sectors were hotbeds of opportunity. Of the average firms questioned, 44 percent expected their work to grow in private-sector markets, indicating an incredibly bullish attitude permeating the industry.

But the aggressive pursuance of private-sector contracts was an idea not held by all respondents: Only 31 percent of the 39 high-performing firms expect their work to grow in this sector. Even more eyebrow-raising, only 8 percent of top performers anticipate growth in residential opportunities, a tremendous difference from the 26 percent of remaining firms that expect success in that sector.

This should set off some warning bells to struggling firms. Those that made it to high-performing status have proven that they possess a deep understanding of the industry landscape as a whole — something that has not only seen them through the past few turbulent years but also pushed them to the top.

The actionable advice is clear, if not exactly what firms want to hear: North America’s leading firms recognize that the private and residential spending has a strong potential to be flat at best in 2012, so they are focusing their strategies elsewhere. While each firm is unique (and therefore one market strategy doesn’t fit all), it’s important for A/E businesses to look where the salmon are swimming. This means emphasizing other markets that are currently blooming while keeping an eye out for a rebound in the private and residential sectors — essentially poising yourself to jump back into these markets at the first sign of turnaround.

International Importance

In 2011’s survey responses, there was a noticeable shift in the importance of international business to firms’ future strategic initiatives. Overall, there was a significant decrease in the percentage of firms that expected international business to be “Critical” to their individual portfolios. Even when broken down by firm size, the responses reflected the same viewpoint: International business expansion was a priority for someday down the road, not today.

Again, this is where the high-performing businesses stood apart from the herd. Within the top group, more firms recognized the importance of having an international strategy, with 38 percent considering these initiatives either “Critical” or “Very Important.” On the other hand, of the less strongly performing firms, only 20 percent confirmed those same goals. Equally interesting, 47 percent of the average firms stated that international business was “Unimportant” to their growth, a sentiment only 33 percent of the higher performers shared.

From these responses, we can surmise this: Firms that have continually maintained an average growth status didn’t feel international development was something to waste efforts on amidst the currently struggling market. Top performers, however, asserted that international development was a critical factor of future business; moreover, they believe that these strategies are integral to remaining a top performer in the industry.

The message here is one of diversification. High performers understand better than anyone else that to stay at the top, they need a diverse portfolio of clients and projects. In their eyes, refusing to cross international borders to chase that diversity would be a mistake. It’s an assumption that is both correct and a signature of top-performers’ nature.

As global economies continue to intertwine and become more dynamic, the winning firms will be the ones that follow the projects regardless of their geography. The ability to follow through with projects all over the world does much more than drive top-line growth: It insulates firms from targeted downward economic cycles by allowing them to shift their focus to where profitability is expanding.

Business Intelligence Is a Must

Technology is still a priority for A/E firms across the globe. With the majority of firms claiming that they plan to invest in information management systems during the next 18 months, many today are asking where the top performers could possibly differentiate themselves from the pack. After all, aren’t project management tools and mobile devices on everyone’s list for stronger performance?

Yes and no. Of course, streamlining processes through better project and resource management is going to be critical, and the same goes for mobile devices that improve company-wide communication and flexibility. Those are going to be trends that continue picking up steam even beyond 2012. Yet there is still something else that top performers are investing in that others have overlooked, and that technology is business intelligence (BI) reporting tools.

BI refers to a computer-based vehicle that delivers both insight and foresights by providing users with historical, current, and predictive views of business operations. That definition sounds fancy, something that businesses can apply whenever they have cash to spare. However, the common-sense tactics of before-rather-than-later that BI empowers isn’t optional; it’s merely a truer reflection of a success strategy for the 21st century.

This is a concept that top performers seem to have grasped. In Deltek’s survey questions regarding investment in BI reporting tools within the coming year, the 39 top performers accumulated a percentage that was twice as much as those in the average category (14 percent and 7 percent, respectively).

This disparity likely comes back to profitability at the project level. As margins get tighter, firms are looking more introspectively at the business to elevate efficiency. Because BI platforms and their complementary dashboards provide early warnings by putting critical data in decision-makers hands’, top performers were able to see the value of such tools. For those not experiencing as much rapid growth, the recommendation becomes clear: Before itemizing these resources as something your company can’t afford, weigh the costs of implementation with the overwhelming value it could bring in to the company in the long run.

From Good to Incredible

The A/E industry’s tentative state means businesses must look beyond the past recession. While it would be a mistake to ignore the monetary limitations of A/E clients completely, it’s vital that firms employ strategies to take the future into account.

To do this, companies need to focus a critical eye on their own performance and objectively evaluate the strategies used by top-performing competitors. To some, this is good news: Keeping an eye on the horizon means there is a light at the end of the economic tunnel. It also indicates that those with a more comprehensive viewpoint have the advantage over those who are solely thinking about next year’s profit margins.

Regardless of your firm’s position in current markets, the fact is that you can do more than just survive. By engaging in tactics that favor proactive rather than reactive positioning, firms of all sizes can continue to deliver world-class, innovative services for years to come.

Bob Stalilonis is a senior solution architect at Deltek. He has provided design and best practice consulting to A/E firms for more than 30 years. Deltek is ranked in the top 5 standout exemplars offering the most exceptional products and services in the design industry.