FYI, with a population of approximately 75-million, Turkey is the 18^th largest country in the world, based on population – with less than a quarter of the population of the United States.

(By the way, can you name the Top 10 countries based on population?  I think many of you would be surprised by some of the names or their ranking.  If you can, post them in the comments section…..no Googling allowed…..)

Turkish construction companies are now active in over 80 countries and the international billings for Turkish-based construction companies accounted for over $20-billion worth of their revenues in 2009.  In fact, in last year’s ENR ranking of the top contractors, 31 Turkish companies were included among the world’s top 225 international contractors.  All facts that honestly surprised me.

Compare that information with a personal anecdote. 

Yesterday, I had lunch with an engineer/friend/potential client.  He heads a relatively small structural engineering company with less than 40 employees in two offices.  During our conversation, he mentioned that next week he will be in Brazil talking with multiple companies about the possibility of doing work in that country – including some potential work related to the 2016 Olympics in Rio de Janeiro.

Why am I mentioning this?

Because this fact echoes what I often mention to my clients.  Don’t limit yourself by geography.  If you have an expertise – a true strategic competitive advantage, you are able to transfer that expertise, through relationships, virtually anywhere.  Don’t limit yourself to a small geographic or relationship circle.  Use those relationships and grow your company!

However, I agree that the primary focus of strategic planning is often marketing-based – which often leads to a discussion about what type of conclusions should be derived from a strategic planning effort.

Too often design and construction firms feel that strategic planning should just determine in which market segments (project types, geographic regions, client types, etc.)  they should pursue work based both on potential opportunities in those sectors as well as the firm’s strengths (perceived or actual).  But they are missing the most critical aspect of strategic planning.  Although such “directional” conclusions are critical, most strategic planning efforts fail to determine HOW these firms should win that work – which is the most critical conclusion that needs to be drawn.

Unfortunately, design and construction firm owners often feel that once their potential markets are determined (or verified), all they need to do is pursue the work within those sectors and they will win their share based on their agreed-upon strengths.  But, if that is how every other firm proceeds, then they all risk being perceived as commodities.

Therefore, the key component of any strategic planning effort in which I am personally involved is to determine a firm’s differentiators…….what separates them from their competitors…….what creates a strategic competitive advantage for the company. 

Companies need to identify those items that will provide clients with a greater value than their competitors.  Better processes.  Greater resources.  Innovative and/or proprietary technologies.  Superior methods.  Access to information.  Unique approach.  Specialized services.

If you don’t have these, you’re just like every other design or construction firm that lacks a competitive advantage and you will struggle to obtain your share of the work.  So, next time your company undertakes a strategic planning effort, make sure the #1 conclusion that you reach during the marketing discussion is HOW you are going to win the work!

Last Wednesday, Reed Construction Data (RCD) released their monthly construction industry snapshot and the news was GREAT for the A/E/C industry.  The non-residential construction starts for the month of November were quite impressive.  Take a look at these highlights:

• November 2009 non-residential construction starts were 7.0% higher than October 2009 starts (more than a 20% increase when the numbers are seasonally adjusted!)
• November 2009 non-residential construction starts were about 8% higher than November 2008 starts
• November 2009 non-residential construction starts were DOUBLE the June 2009 starts
• November 2009 non-residential construction starts were the highest monthly values in 2 years (except for the seasonally adjusted numbers in August 2008 and August 2009)

Based on these figures, it looked like it was time to start the party again!

But earlier today, the American Institute of Architects (AIA) issued their monthly Architecture Billing Index (ABI) report for November.  The ABI decreased by more than three points to 42.8 (down from 46.1 in October 2009) indicating a continued downward trend for design services.  With an average nine-month lag time between design billings and construction spending, this would seem to predict a continued decrease in construction activity for most of 2010.

What gives?  How can both of these reports be accurate?

Well, there are a number of reasons that may account for this.  Different organizations collecting the information.  Different methods for obtaining the values.  Different economists analyzing the data.  All of these could lead to contradictory information.

I actually think that both figures are correct.

In spite of a number of design and construction firms complaining that the federal stimulus funds have not impacted their firms, the evidence proves otherwise.  The bump in the construction spending reported by RCD can very well be due to the increased spending of federal dollars from the American Recovery and Reinvestment Act for projects that were able to spend the money quickly (and thus attempt to stimulate the economy). 

Although some of these projects may have been “shovel-ready” (as federal authorities wanted), most were probably projects that would have required limited design efforts.  Thus they still would not reflect a significant increase in architectural revenues in the ABI over the past few months – but yet would get to the construction phase quickly.  Projects such as highway repair/re-pavement, renewed streetscapes, and building envelope improvements typically involve less design time and, therefore, less design revenues – but they keep many construction tradesmen busy.  And based on anecdotal evidence from anyone driving around their hometowns or on the country’s interstate highway system, it appears as though such projects are quite prevalent.

So, what will happen with December’s numbers and into 2010?  I believe we will see the continued spending of design and construction dollars that had been allocated from the Recovery Act for larger projects that have not yet started in earnest.  This should drive up both the design billings and construction spending numbers.  But, the private sector will need to start to spend as well for us to really see growth in the A/E/C industry.  Otherwise, we may need additional public dollars to be allocated or the numbers will languish for a number of more months!

I am the first to admit that this is often difficult to do in an industry in which our clients often perceive one firm as a carbon copy of another, thus creating a commoditized market.  But, it is up to us to create and exploit such advantages.  Indeed, it can be – and is being – done by many design and construction firms. 

I’m not going to lecture about how many firms often feel that their advantage is “building on-time and on-budget”…..doesn’t everyone say that.  Or, that their firm “listens to the client”….once again, doesn’t everyone.  Rather I want to address a trait that many firms – both design and construction – often list as one of their competitive advantages.  They proclaim that they are “green” or “sustainable” or “eco-friendly”.

To tout this, they often point to the number of LEED Accredited Professionals on their staff or to the number of LEED Certified projects in which they have been involved.  Well, let’s be honest, very few firms can actually point to such statistics as reflecting a true competitive advantage (since by definition, it must be an attribute that you have that your competitors do not).  Perkins + Will and Mithun are two firms that come to mind that might actually be able to utilize this differentiator due to their leadership roles on the design side.  Most other firms have the same basic experience, insight, and knowledge as their competitors.

No, unfortunately, this competitive advantage has come and gone.  Last week, I witnessed it first hand on a small scale as I sat on a panel in front of a packed house discussing the virtues of non-technical personnel in our industry becoming LEED Accredited thus becoming more knowledgeable of sustainable attributes and approaches.  If you want to confirm this on a large scale, you have to go no further than today’s news.  Over 25,000 people – most from the A/E/C industry – are gathered in Phoenix at this year’s GreenBuild conference.

Please note that I am not suggesting that you don’t have your employees become LEED Accredited or that you don’t profile your involvement with sustainable projects and innovation.  Rather, I think you have to!  It’s needed just for your firm to compete intelligently in the marketplace.  My point is purely from a marketing perspective.  And, that is that the field has become level.  Building Green does not differentiate you.  It is just something that we all have to do!

AECOM, the $6-billion international building-industry service provider announced that they have acquired 100-year-old Ellerbe Becket, the US-based A/E firm that is a Top 25 firm with expertise in the healthcare and sports facility markets among others.

As mentioned in the previous post, in this economy, such opportunities are available in multiple market sectors and geographic regions and they can potentially represent smart business decisions for both the buyer and the seller.

This survey – and its resulting findings and report – examined a number of recent and current issues, trends, and statistics at US architectural firms.  Included in the report is information on sustainable design features, the impact of BIM on the profession, and diversity within design firms.

However, as you might guess, a dominant discussion in the report centers on the on-going recession in the A/E/C industry and the impact on US design firm.

One of the statistics in the report that caught my eye was the increase in US architectural firm billings during the period between 2006 and 2008.  Although the overall economy had a more-than-modest expansion of 14.3 percent during that three-year timeframe, the nonresidential construction industry experienced an even larger growth of over 34% (see graph) – greatly exceeding the economy as a whole.  As the graph also shows, this led to a corresponding increase of gross architectural firm billings of over 50% – and a net increase (accounting for consultant pass-throughs) of over 40% – thus surpassing even the robust growth of the overall nonresidential construction industry.

Combining that information with parallel labor statistics from the US Department of Labor which were also quoted in the report provides additional food-for-thought.  Payroll at US architectural firms during the six-year period from 2003 to the beginning of 2009 rose by approximately 20% (see graph).  (Note that this is less than the 60+% increase in architectural firm billings for a similar timeframe in the previous graph.)  The report further states that in the two quarters since the first of the year, architectural firms have had a reduction in payroll costs of over 12%.  But this still shows that current payroll costs have had a slight net increase of approximately 8% since 2003 – which can reflect increased salaries, increased staffing levels, or both.

I compare this information to numbers from a McGraw-Hill Construction US-industry outlook report that I saw summarized at a Society for Marketing Professional Services event earlier this week.  Backing out the residential numbers (which I acknowledge are a large percentage of the $’s) in that presentation, the total value of construction in 2006 was slightly less that $350-billion.  Similarly, for the same nonresidential sectors, McGraw-Hill is predicting revenues in 2010 to be slightly less than $320-billion – a drop of only about 8% from the 2006 values.  (It should be noted that the values within various market sectors are re-distributed from ’06 to ’10 with commercial projects taking a huge hit; public works ones growing substantially; and various institutional and utility projects staying pretty steady.)

But, what do all these statistics mean?  Take a look at the table on the right.  This is a summary of what I mentioned above.  Now, I am one of the first persons that feels that statistics can be “packaged” to present whatever information you desire.  However, a few things jump out at me.

The nonresidential construction industry had rapid growth just prior to the Great Recession with growth in billings at architectural firms even exceeding the overall industry numbers.  Now, once again backing out the residential market sector, the projected billings for 2010 are forecast to be similar to 2006 – the year immediately preceding that expansion.  Looking at the table, one would therefore assume the figure for Nonresidential Construction and Architectural Firm Billings would be approximately 17.7% and 12.5% respectively, above the base year of 2003.  However, as mentioned above, the payroll (i.e. staff) at architectural firms is currently at 8% above the base year of 2003.  Sooooooo? 

Well, assuming those facts are correct, most firms have already corrected their staffing levels to reflect projected future workloads.  However, did you over-react and let critical technical/operations staff go?  If your staffing level is correct – is your firm positioned accordingly?  Are you in the growing or stable market sectors – or are you stuck competing with more competitors for less work in overbuilt markets?  Is your overhead structure in line – or did you drastically reduce your marketing efforts in order to reduce short-term costs?  Sure, the A/E/C industry has been hit hard.  But, I’m guessing most of you reading this would be quite happy if your firm was performing similarly to how you did in 2006. 

Let’s make sure you didn’t, or don’t, overreact and that you continue to prepare for the future because it will be happening sooner than you think!

The plan (available here) opened with an overview of current conditions in the US construction industry.  It isn’t pretty.

Construction unemployment nationwide stands at 16.5%.  In addition, in 323 of the nation’s 336 metropolitan areas, construction employment has decreased in the previous twelve months, with four areas seeing a drop in excess of 30% during that timeframe.  Of the thirteen areas that experienced a growth in construction employment during that time, only one – Columbus, Indiana – saw a double-digit increase with a 14% rise in construction jobs.

Of course, AGC is not suggesting that we all move to Columbus to get jobs.  But rather, armed with these dismal facts, the organization of builders decided that they needed to come up with a plan for revitalizing the industry across the United States.  They presented it to both the administration and Congress with hopes for passage of any necessary legislation by the end of the year.

The resulting plan is actually a collection of recommendations and suggestions that the AGC envisions will help both the public and private sectors of the design and construction industry.  By changing certain tax rules, updating regulations and barriers, and extending some incentive programs, the AGC feels that private investment in private construction can increase in the short term.  In addition, they call for increased federal government investment in publicly-funded infrastructure as well as encouraging public-private partnerships for infrastructure improvements.  Lastly, they call for a reversal of various restrictive policies and regulations.  Then, in conclusion, the plan summarizes how such actions can stimulate the US construction industry.

Take a look at the plan.  It is well-researched, comprehensive, and forward-looking.  I basically agree with most of the recommendations – although I feel it may be difficult to accomplish in a short timeframe.  (I am also somewhat surprised by AGC’s recommendation that the ‘Buy America’ requirement in the current stimulus package be rescinded.)

But, it is an underlying theme in the report that I found most interesting.  It is how the design and construction industry impacts the entire nation – and, thus, the global economy.  At $1.072 trillion in construction in 2008, the A/E/C industry is responsible for 8 percent of the US’s Gross Domestic Product.  In fact, we are one of only two industries that are responsible for over $1-trillion annually (the other being healthcare – which may be experiencing some changes as well).  More importantly, the ripple effect of construction actually affects everything from manufacturing, to technology, to food service. 

Of course, it is for this very reason that the nation has often looked to stimulate the design and construction industry when experiencing a national economic slowdown.  From the creation of the Tennessee Valley Authority and the Civilian Conservation Corps during FDR’s time and the Interstate Highway System established by Eisenhower to the current stimulus package and the suggestions put forth in AGC’s blueprint, it is obvious that American leaders (both public and private) recognize the impact of the design and construction industry not only on the American people – but the global economy as well.

In one of the largest deals of the quarter, London-based Balfour Beatty announced on September 17th that they were acquiring US engineering giant Parsons Brinckerhoff in a deal reported to be worth $626-million, thus creating a design and construction company with over 50,000 employees worldwide. 

This past Thursday, two Massachusetts construction powerhouses – Suffolk Construction Co. and William A. Berry & Son announced they were combining forces.  Not only does this create a juggernaut in the New England market, it creates one of the 20 largest construction companies in the US with annual revenues of over $2-billion.

The pure design side is not immune to this activity either.  Recent deals have included Jaster-Quintanilla (structural/civil engineering firm) expanding their base within their Texas market and EwingCole (an A/E firm) expanding in their home office territory in Pennsylvania.  Both of these acquisitions are considered small or mid-sized deals in terms of dollar amount but they may dramatically affect the industry and competitive landscape within their geographic area.

And, it doesn’t appear that such activities will be stopping anytime soon.  Lately, I hear of potential merger and acquisition deals involving design firms, construction companies, and specialty contractors around the US on an almost daily basis.

But why is this happening now?  Perhaps the current economy is driving the owners of a number of closely-held firms to hang up their T-squares (those of you over 45, explain what they are to your younger co-workers) and retire.  Or, perhaps, for firms that have been consistently managed successfully and have funds available (or access to it), this reflects a great opportunity to acquire quality firms at an affordable price while expanding their service offerings, diversifying their market sector mix, or increasing their geographic reach.

Having said that, maybe those of you that are fiscally-able should be looking at acquisition opportunities to better position your companies as we gradually emerge from this recession.  Yes, there are opportunities in this economy.  You just may have to broaden your definition of an opportunity in order to see some good ones.

Last week, Federal Reserve Bank Chairman Ben Bernanke stated that the recession is “likely over”.  Indeed, the stock market has been performing quite strongly of late.  With last week’s closing above 9800, the Dow Jones Industrial Average has posted a 12.1% gain since the beginning of 2009.  Even more dramatically, this reflects a greater than 50% gain over the index’s low point in early March.  However, many other components of the economy are showing a more modest growth and the overall economy is expected to be weak for some time more.

But, perhaps this expansion of the stock market points to a market sector that A/E/C firms should target for opportunities as we emerge from this recession.  Although income-producing segments like speculative office buildings, retail, hospitality, and condos/apartments are still greatly dependent upon the capital markets and the actions of lending institutions, the higher education market is slightly less so. 

Many colleges and universities are strongly dependent upon their endowments for financial stability.  With many colleges heavily invested in the stock market, those endowments were crippled during the current recession.  In fact, recent reports noted the staggering loss of endowment dollars at most of the Ivy-league schools.  At some colleges, their endowment directly impacts the capital budget (i.e. building programs).  At other schools, it impacts other functions and programs that have had to access money set aside for those capital expenditures as their endowments decreased.

In either model, though, with their endowments creeping back up, perhaps colleges and universities will begin to allocate those increased dollars towards facilities projects – either directly or indirectly.  Don’t expend a dam break since many money managers at colleges will closely monitor expenditures in order to not replicate recent problems.  But the higher education sector might be a good market in which to strengthen your relationships in the near term.

All of those reports reminded me of my visit a few weeks ago to the World Trade Center site in Lower Manhattan.  Invited by a former classmate that is responsible for a major portion of that re-building effort, I jumped on that opportunity to not only stand on the ground that contains such historical significance but also to witness first-hand one of our generation’s largest and most complex building projects.

Author at Ground Zero

As we literally stood atop an exposed subway tunnel that often seemed suspended in air as it bisected the site, I was totally amazed at the technical and logistical challenges that the design and construction team have faced – and the challenges that they will continue to face.  Witnessing union laborers bending the reinforcing steel for the core walls of the recently re-named One World Trade Center building, watching crane operators maneuver dozens of cranes all over the site, and experiencing the safety precautions necessitated by the site’s close interaction with the general public, it was difficult not to be proud to be a member of this exciting industry that is able to solve these complex challenges on a daily basis.

But it wasn’t until we returned to the site office and we discussed the 3″ binder that serves as the project directory that the real challenge became evident.  Sure the structural issues associated with building a 1700-foot tower is almost unparalleled and the security systems that must be incorporated and coordinated are state-of-the-art.  But, the ability to form multiple teams, manage those teams, and interact among them, is arguably an even bigger challenge.  Of course, that didn’t surprise me since that is part of what makes the design and construction industry a professional service industry.  However, this is a skill that many architects, engineers, and contractors were never taught in college.  Unlike other professional services, the management, leadership, and communication education for most members of the A/E/C industry has been almost exclusively “on the job”.

Perhaps it is time to take a cue from our peers in the legal profession who are typically taught written and verbal communication, professional practice, and management as part of their formal education.  Sure you must first have the technical knowledge and skills to design or build a building, bridge, or tunnel but it is that ability to communicate, lead, and manage that separates good firms and good individuals from great ones!