Monday, May 11, 2009

Does Recovery Mean Business as Usual?

After many months of increasingly gloomy economic news, we're now hearing stories that the decline is nearing an end. A growing chorus of experts (the same ones who did not foresee this recession) are saying we will hit bottom later this year. Then the recovery will begin in earnest.

In the past, recoveries following recessions always took us to new heights in terms of prosperity, and usually rather quickly. There are few such rosy predictions this time. The vast majority of economists think this will be a long, slow rebound, with more than a few troubling uncertainties in its path.

For example, what happens when most of the stimulus funding ends next year? Will the economy be strong enough to stand on its own? What about all the other bad debt? We've focused on the subprime mess, but there are other losses (prime mortgages, credit cards, commercial real estate, to name a few) still to come. How much will the continued increase in unemployment stifle economic growth?

But for all you optimists out there, let's assume that recovery proceeds as anticipated. Does that mean a return to business as usual? I think not. This recession, more than any I've experienced in my 35 years in our profession, has been a wake-up call. I don't expect most businesses or agencies to emerge unchanged, and that includes our clients. They will be more frugal, more demanding, more risk averse, more results oriented. This will create new challenges, and new opportunities, for A/E service providers.

I certainly don't have any credentials when it comes to predicting the future, but below are some ways I suspect our business will be changed, in the next few years at least:

  • Clients will be more cost conscious. This is perhaps stating the obvious, but there are several factors at work here. The aforementioned uncertainty surrounding this recovery is one cause. There is also the humbling consequences of past profligacy that recently visited many companies and government agencies. These clients are revamping their policies, practices, and systems, including how they do business with vendors. Expect more pricing pressure and more onerous contracts and purchasing requirements.

  • Some clients will seek closer alliances; others will hold us at arm's length. These differences have long existed, of course. But the roles are likely to change in coming months. Some clients will close ranks, working with fewer providers (and probably squeezing fees in the process). Others will adopt more dispassionate procurement systems focused on getting more value for the dollar and showing less favor for existing relationships.

  • Firms that master customer focus will fare best. This is another truism that has long been with us but will gain strength in the near future. As clients look for better value, they will find it among those firms that best serve them. That means creating exceptional customer experiences, providing business value (not just technical solutions), and organizing our operations around target clients and markets.

  • The best firms will capitalize on the short-term labor surplus. We know from demographics that the current availability of talent won't last long. Return of economic stability in the A/E business will also mark the return of the talent shortage. So smart firms are casting the net now while the fishing's good, even if they don't presently have the work. They know it will pay off big later.

  • Improved productivity will finally become a management priority. Productivity in the AEC industry has trailed other industries over the last 25 years, and few have seemed concerned about it. I think the convergence of the above factors (and others) will change that. Savvy firms will respond to client calls for more value for the dollar by implementing more efficient delivery processes. We've had the technology to do this for some time, but have struggled to reshape human activity to take full advantage of it. Emerging market demands will help at least the better firms finally get over the hump.

Whether these predictions come true or not, I'm confident that it won't be business as usual. This presents both threat and opportunity to your firm. So what is your firm doing to retool for the new normal? I'd be interested in hearing what you think will change coming out of this recession and what your firm is doing about it.

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