The Acquisition That Changes Everything 

A lot of my strategy and scenario planning work with clients over the past decade has been driven by the question “How will the design industry be disrupted?” This essentially translates to “What disruptive technology will upend our industry?” These strategy discussions tend to take place exclusively at the board level where there is (presumed to be, but in reality, not always) the greatest ability for “big picture” thinking.

Inside job? Often the conversation starts with whether game-changing disruptive technologies emerge from “within” the industry itself—with one or (more likely) a consortium of design and environmental firms rolling out a new tech-enabled business model that renders the prevailing industry modus operandi of selling time or expertise for money obsolete. When you look at the leading global design and environmental firms, they are as well managed as any firm could be. However, it’s precisely the way decisions get made in successful firms that sows the seeds of their eventual demise. Most managers don’t know when to—or are unable to—depart from the “Principles of Good Management” and instead embrace the “Principles of Disruptive Innovation” as described in The Innovator’s Dilemma. This to me suggests that while our industry will continue to innovate and improve—how we do our work and create value for clients—we will not create the disruptive technologies for self-transformation.

Knock, knock: Or will the disruptive technology that remakes our industry be the result of external forces or actors? Are we the taxi industry before Uber arrived? Or are we too busy printing paper maps, blind to what the GPS engineers at Garmin are cooking up? Or are we throwing a party to celebrate one million buggy whips produced as a black Model T pulls up outside? 

Trojan horse? More than a few industry leaders are concerned that we’re stumbling into obsolescence, given our symbiotic relationship with the providers of the software systems we use to do our work. On the one hand, we sign NDAs with clients and competitors and teaming partners to vigorously protect our trade secrets. On the other hand, we willingly yield all of our cumulative institutional knowledge—our most valuable asset—to these software providers. Machine learning allows them to scrape all of our disparate paper (boomers and older generations are still writing ideas, passwords, calculations, and meeting notes on stickies!) and other data assets (for example, the 200 individual budgeting spreadsheets that your PMs are using for their projects right now that are not centralized or visible anywhere in your systems) and consolidate them into usable, accessible digital data. Ostensibly this is being done for design and environmental firms to become more efficient. It could also result in design and environmental firms being replaced by them down the road. Is our collective body of knowledge being slowly and steadily syphoned off to be deployed against us by our supposed tech partners? Have we invited the disruptors inside the gates without placing any demands on future spoils? In the words of the Gallaghers, “Definitely Maybe.”

Biggest Bang Theory: I figure another highly plausible scenario is the introduction of disruptive technologies via an extraordinary acquisition or recapitalization of one of the 20 largest global design firms or one of the 10 largest U.S. design firms. At that scale, any acquisition or recapitalization would be in or around $10 billion. If it’s an acquisition, it would be made by a software or technology strategic acquirer. If it’s a recapitalization, it would be by venture capital not private equity. Regardless of whether the entry point is an acquisition or recapitalization, the intent will be the same—an outsized return on investment through the disruption of the $10 trillion global design and construction industry. How?

Pygmalion: The classic Eliza Doolittle makeover. On day one, the new owners acquire about 1% market share of the global design and construction industry (leaves plenty of room to grow). And they now have a global brand and likely the best-managed firm in the industry. One that owners, employees, and vendors recognize. They quickly remake the firm from the top down, digitizing every internal and market-facing feature possible. Concurrently, they infuse every aspect of the firm with artificial intelligence and machine learning to capture all proprietary current and historical datasets—of clients, prospects, projects, operations, permitting, supply chains, costs, construction timelines, vendors, talent, regulations (zoning and otherwise), risks, vendors, contracts, consultants, competitors, politics, public sentiment, etc. They augment the proprietary data with off-the-shelf data sets. All the while, they are investing to grow this remade global design firm almost exclusively through acquisitions that provide them with either (a) country knowledge or (b) niche industry segment competencies. Each acquisition yields new proprietary data sets that are immediately connected internally. Concurrently, the new owners set about lobbying national, state, and local regulatory entities (a la Uber) to amend licensing and registration requirements for design and construction professionals. 

The killer app: After 24 months of development, the entity that was formerly a global design firm is fully transformed into a new app that lives on your phone along with your Sweetgreen and Spotifyapps. Let’s call it the Buildit app (because the brand name tests well with users globally). With its accumulated and continuously improving knowledge of all aspects of global design and construction, the app identifies the most efficient design and construction supply chain for any particular project. Tell Buildit (in writing or voice command) what project you want designed and when you want it built, and it gives you (a) a price (not an estimate), (b) financing and payment options (multi-currency including crypto), and (c) a date for the project to be operational. (Note: It sometimes gives you the answer “Cannot be built” if the project is not feasible due to zoning, etc.—saving you the time and expense of having a design or planning firm find that out.)

Knowledge isn’t power: Knowledge applied is, though. Buildit dramatically reduces costs for the project owner by eliminating the biggest inefficiency in the current design process—the design firm. Its whole premise is that the designer is an expensive middleman, an unnecessary source of friction. So this killer app disrupts the design and environmental industry itself. Instead, it bypasses the design firm and connects the project owner directly with the means of production—the digital, knowledge, and physical assets—which are all now housed—and constantly being optimized and updated—by a single owner/aggregator. It erases the pricing power of individual firm brands by directing workflow to the most appropriate set of digital or human resources globally. Want to build an addition for your home? Use the Buildit app. Does that moveable bridge need replacing? Pull out your phone. New hospital wing is approved to go? Click the app to get it done. Whether you’re a private individual, a director of facilities, or VP of design and construction, you no longer need to waste time searching for the “right” designer. There is only one designer, and they are totally focused on you. Gone are the days of getting multiple impossible-to-compare apples-to-oranges bids. Forget having your business goals compromised by your designer’s inability to meet simple schedule and budget promises. No more tedious contract negotiations. No need to deal with designers who work just one way and ignore innovations or technologies that may be better for your project. No more second-guessing whether your designer knows the optimal specs or can secure the best construction materials at the best price. 

Implausible? Maybe. But then, imagine going back to 1994 (seems like yesterday) and trying to explain the concept of Amazon to a Sears Roebuck executive who’s about to mail out this year’s catalog. Or explaining a kangaroo to someone who has never been to Australia.

Questions or comments? How do you think our industry will be impacted by disruptive technologies? Email or call Mick Morrissey at [email protected] or 508.380.1868.

What’s the Big Idea?

Is your AE firm doing great things for people and the planet? If the answer is yes, chances are that your clients need more of what you do. They need you to grow—and not just a little bit.

Let’s say your growth goal is to double revenue in the next five years (not an unusual target). Since well-positioned AE firms (presumably, ones like yours) will likely continue to be in high demand for a while, you can probably count on anywhere between 10% and 20% growth from your existing book of business. So where is the rest going to come from? How are you going to fill that sizeable hole in your doughnut?

You’re going to need some big ideas, and they’re going to have to come from somewhere. Unfortunately, based on what I’ve been observing lately, AE firm leaders are not:

  • Thinking big enough
  • Being creative
  • Challenging the status quo

If you’re not seeing it, I am—and on daily basis.

When presented with the challenge of growing their AE firms, leadership teams are coming up woefully short, failing to recognize significant opportunities and to grasp major possibilities. Sure, they can get their heads around operational issues—there’s plenty that bugs them about how work gets done (or doesn’t get done), and they have no problem pointing those things out. But when it comes to brainstorming needle-moving growth strategies, they tend to think in modest, incremental steps, and sometimes it doesn’t even reach that level (“Let’s add a part-time grant writer!”). It’s not that strategic thinkers don’t exist in your firm. They do. In fact, I can’t think of a single AE firm I’ve worked with in the past 30 years that doesn’t have at least two or three. But all too often they are outnumbered—not by skeptics, but by cynics (and the trip between the two can be a quick one).

Yet in spite of it all, you can still get big ideas to flow in your company. Here’s how:

  1. List your strategists. These are your folks who are practiced at thinking long-term and contemplating the big picture. They pay attention to the markets and the future, and they are good at coming up with ideas.
  2. List your builders. Builders are the ones who can take an idea and make it better. They are good listeners, and they are not afraid to say they don’t understand something (a quality that is very good for ideation).
  3. List your contextualizers. While they may not be futurists, they have institutional knowledge that can help ground big ideas and help make them become possible.

Then put your strategists, builders, and contextualizers into a “Big Idea Think Tank” and ask them to brainstorm the following:

  1. What does the world need from us?
  2. How could we serve that need?
  3. Who’s the buyer for what we might deliver? State government? Federal government? The county seat? A private entity? Who are we serving?
  4. What required skills do we already have and which ones might we need to acquire? Could we partner up with those skills?
  5. From a human resource perspective, how would we pull this off?
  6. What’s the ask? What financial investment would be needed?
  7. What’s the revenue expectation and for when?
  8. What’s the risk assessment? The assessment isn’t just about our risk tolerance; it’s about our firm’s ability to do deal with risk.

It’s not necessary to work out every detail in the brainstorming phase. Just turn the team loose and tell them to go as far as they can. Then figure on conducting research to fill in any blanks that might remain.

One more thing—before you turn them loose, set up these ground rules for the session(s):

  1. No idea is a bad idea.
  2. The phrase “devil’s advocate” is strictly prohibited.
  3. Listen for comprehension, not agreement.
  4. If you think it, say it.
  5. If you are confused, voice your confusion.
  6. Use “and,” not “but.”

So what are you waiting for? Go get those big ideas!

Interested in learning more? Call Mark Goodale at 508.254.3914 or send an email to [email protected].

Market Snapshot: Bridges (Part 1)

Weekly market intelligence data and insights for AE firm leaders.

  • The bridges category of construction includes bridges and vehicular or pedestrian overhead crossings. It is reported by the U.S. Census Bureau’s Value of Construction Put in Place (CPiP) Survey under the highway and street category.
  • In 2022, total bridge CPiP accounted for 17% of total highway and street CPiP ($109 billion).
  • According to the American Society of Civil Engineers (ASCE), there are more than 617,000 bridges across the United States, and over 40% are at least 40 years old.
Highway and Street Market Breakdown

Market Size*: $18.3 billion
*Based on Value of Construction Put in Place (CPiP) – 2022 (U.S. Census Bureau)

Bridges – Design and Construction Value
  • Industry economists forecast bridges construction activity to increase in 2023. Whether the increase will be by single or double digits will be dictated by public agencies’ ability to appropriate funds and release project opportunities.
  • The percentage of bridges in good condition has been trending lower, while the share of bridges in fair condition has been trending higher. 
  • Across the 50 U.S. states, over 230,000 bridges need repair and rehabilitation work as these structures reach the end of their useful life. 
  • Bridge management and structural inspection programs are in the process of being optimized, becoming a relatively profitable discipline.
  • Innovative prefab and accelerated bridge construction (ABC) methods, while faced with challenges, will enable the work to be performed in a more cost-effective manner and with minimum traffic delays. 

In next week’s issue, we’ll look at trends and hot spots for this sector. To learn what’s ahead for other markets, check out Morrissey Goodale’s 2023 Market Outlook for the AE Industry. Click here to access recording and materials.

To learn more about market intelligence and research from Morrissey Goodale, schedule an intro call with Rafael Barbosa. Connect with him on LinkedIn.

Weekly M&A Round Up

Slowdown continues: Deal-making in the first quarter of 2023 looks more like a reversion to the pace we saw in Q1 2021 than an acceleration from where things were in Q1 2022. Last week we reported 14 deals in DE, MA, MS, MD, CA, MI, SC, VA, and abroad. You can check all the week’s M&A news here.

Searching for an external Board member?

Our Board of Directors candidate database has over one hundred current and former CEOs, executives, business strategists, and experts from both inside and outside the AE and Environmental Consulting industry who are interested in serving on Boards. Contact Tim Pettepit via email or call him directly at (617) 982-3829 for pricing and access to the database.

Are you interested in serving on an AE firm Board of Directors? 

We have numerous clients that are seeking qualified industry executives to serve on their boards. If you’re interested, please upload your resume here.

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