Editorial: The A/E business for the New Year

This article first appeared in The Zweig Letter (ISSN 1068-1310) Issue # 990 Originally published 1/14/2013 (Doing the same thing but expecting a different result.) I just got asked why I came back to ZweigWhite in 2010. Aside from the fact that the firm was in trouble and had my name on its door – and that my high-paid writing gig was in jeopardy – I love the people in this business. I have said it for years and I mean it with every ounce of my soul that I don’t think there is ANY business or industry filled with nicer, more ethical, more creative, and more intelligent people than the A/E/P and environmental business. But that doesn’t change the fact that I get frustrated with you for being poor businesspeople and weak managers. Which brings us to the topic at hand: It’s 2013 (isn’t is supposed to be 1988 or something?) and for 2013 the overwhelming majority of firms in our business could sum up their overarching strategy with a single idea: IF the economy continues to get better, they’ll have a “good” year (at least better than 2012). Doing the same thing and expecting a different result is never going to get you where you want to be – where your real potential is. Here’s some of what I’m continuing to see: 1) Firms are overstaffed and top-heavy. Overall firm-wide utilization rates in the range of 55- to 57 percent are the norm. That stinks. Not too many years ago, 67- to 70 percent was the norm. But during the hard times we laid off our lowest-paid design and technical staff, stopped hiring at the entry level, and now have too many “heavyweights” who aren’t carrying their weight. On top of it, we’re still carrying too many unproductive principals who aren’t selling and expensive overhead people in areas such as HR, organizational development, marketing and finance who aren’t doing a very good job earning their keep. This acceptance of low utilization is a huge part of the underlying weakness of the leadership of companies in this business. There aren’t many companies in this business I couldn’t find fat to cut out if I was asked to do so. 2) We keep talking as if “better” project management is the key to our woes and then our interpretation of that is more bureaucracy that actually hampers productivity and profitability. Whether it’s too many meetings on small jobs, a bad training session taught by someone who isn’t an effective PM, ridiculous copycat manuals filled with PM procedures that don’t get used, or more people reviewing timesheets, most of this nonsense is doing little to make us more money. 3) We have got to raise fees. I always get a kick out of it when someone tells me it is impossible to get better than a 3.0 raw labor multiplier on a job and then I see other firms serving the same market getting 3.5 or 3.8 multipliers. The way you’ll make money in this business is by charging better fees! And that takes creativity with respect to what you’ll do for your clients relative to what they’ll pay you, as well as a willingness to just ASK for a decent fee in the first place! Better fees – not trying to manage too-small budgets – is a much easier way to make money in this business. 4) We keep accepting 90-day average collection periods as “normal.” They aren’t acceptable in any business besides ours. And the only reason we think 90 days is OK is because we remember when our ACP was 105 days! I love hearing about how great a firm’s financial management is and then I see these ridiculous numbers. It’s not normal! Lawyers and public accountants wouldn’t accept it. I wouldn’t accept it at ZweigWhite, and you are our client base! The difference between a 45-day and a 90-day ACP is whether or not you are happy with a 90-day ACP – PERIOD! 5) Finally, we can all see where our “industry” is heading – integration of design and construction services. Most clients just want their completed project. Yet we do a really poor job managing construction people, activities, and projects. Contractors will keep taking a bigger and bigger piece of the pie because they are comfortable placing bets with limited information (we never seem to have enough information) and are also willing to stick their necks out to do something they may not have already done 500 times before (we aren’t). And A/E firms that try to lead design-build jobs or do at-risk construction projects usually do poorly at it. We just aren’t hard-edged enough and willing to push hard to get the desired results. To conclude, 2013 probably will be a better year for most companies in our business. But that success may well be because the economy is getting stronger and not because of anything we’re doing as individuals and as firms to make it happen. And that’s sad. Mark Zweig is the chairman and CEO of ZweigWhite. Contact him with questions or comments at mzweig@zweigwhite.com