AEC’s Greatest Challenges Ahead of 2023

If you’ve followed Stambaugh Ness for any length of time, you’re undoubtedly familiar with the book The Anticipatory Organization by Daniel Burrus. We incorporate anticipatory thinking into our business and often reference the process in our blogs and webinars. When you adopt anticipatory thinking, you’ll be proactive with conducting research and leveraging this knowledge into actionable strategic plans and business development strategies.

With the economic uncertainties brought on by inflation, rising interest rates, staffing challenges, and the recent election, Stambaugh Ness set out to provide information and resources for AEC firms as they enter into planning for 2023 and beyond. We kicked off with a town hall featuring Daniel Burrus, author of The Anticipatory Organization, followed by a session with noted economist Anirban Basu.

To prepare for our third program in the series, AEC Outlook: A Focus on the Future, we set out to get a pulse on architecture, engineering, construction (AEC), environmental, and related firms. We surveyed firms and asked about their greatest current challenges, expectations for a recession in the next six months, the impact on their revenues, and how firms prepare during these disruptive times.

As of this writing, the survey is still ongoing, but here’s a short preview in advance of the AEC Outlook: A Focus on the Future program, where we’ll provide a deeper dive into the data.

AEC Firm Challenges: It Is Still About Talent

What are the greatest challenges facing your firm right now? That’s what we wanted to know, although we went into the survey expecting recruitment and retention to be the most common responses.

We were right.

Eighty-five percent of firms so far have identified Recruitment of New Staff as one of their biggest challenges – even with the current state of economic uncertainty. Just over half of the respondents to our survey identified Wage Growth and Retention of Key Staff as major challenges. When looking at the top five challenges, the only non-human resources-related challenge is Overall Project Profitability, coming ahead of Cost of Benefits.

Firms also identified Inflation Driving up Project Costs, Differentiating from the Competition, and Delivering Projects Already Under Contract as key issues they face.
Demographics do not help here. As Baby Boomers continue retiring and the number of graduates entering the workforce declines, companies are experiencing significant challenges at both ends of the age spectrum. Most firms are struggling to find quality new employees. When coupled with The Great Resignation and the challenges associated with keeping the staff they have, it is no wonder that more companies are worried about delivering projects under contract than they are about landing new commissions.

Will the Anticipated Recession Impact Firm Revenues?

Only 12% of survey respondents do not believe there will be a recession over the next six months. To date, almost 60% of participants anticipate a recession during this period, but a significant 29% are unsure.

Whether there is a recession or not, most AEC firms in our survey do not believe that their revenues will be impacted, at least over the next six months. Just under two-thirds of participants anticipate no downturn, with 17% expecting declining revenues. The balance are unsure.

Economic recessions typically impact engineering and architectural firms in the early stages, as projects are scaled back, placed on hold, or altogether canceled. Construction firms are generally affected later in recessions, as they typically go into downturns with backlogs that help them in the early stages. However, their work drops off the longer a recession lasts, mirroring the early-stage declines experienced by design firms.

Most companies in our survey are on the engineering and architecture side of the business, so we do not see skewed results from contractor backlogs. Design firms are busy, and backlogs are healthy, so the fact that 60% of companies don’t anticipate declining revenues correlates directly with the identified greatest challenges of finding and keeping talent.

How AEC Firms are Positioning for 2023

We asked participants who are anticipating a recession and/or expecting declining revenues how they are positioning their firms to prepare.

Improving Financial Performance was the top answer, which correlates with the common challenge of Overall Project Profitability.

Roughly half of the survey respondents identified Pursuing More Project Opportunities in Existing Market Sectors and Strategically Hiring Staff to Drive More Growth Opportunities as top strategies to position for the next six months. Companies are also looking elsewhere for work, as more than 40% identified Pursuing Project Opportunities in New Market Sectors as a strategy they are currently embracing.

In prior economic downturns, many firms embraced seemingly counter-intuitive approaches like reducing marketing staff and cutting fees to mitigate declining workload and revenues. Based on these preliminary survey results, many companies have learned their lessons. Forty percent of participants selected Expanding Marketing Efforts as one of their current strategies, while more than one-third chose Raising Fees. Not one single respondent plans to reduce fees to prepare for a downturn. Perhaps it doesn’t make sense to get rid of staff working to land new work or devalue your services, after all!

Companies are also rethinking how they use their talent, as roughly a quarter of firms are Expanding the Seller-Doer Approach and Cross-Training Staff in Other Areas to mitigate any potential negative impacts due to economic conditions.

What is the AEC Outlook for 2023?

To see the final survey results, as well as hear from Stambaugh Ness subject matter experts about the things we all need to be paying attention to as we head into 2023, be sure to watch our program, AEC Outlook: A Focus on the Future.

And if you are looking for guidance as you develop your business strategy for 2023 and beyond, please reach out to me to discuss how Stambaugh Ness can bring our industry-leading knowledge and talent to benefit your company.