A developing trend is the rising number of A/E/C firms with technology-based subsidiaries or divisions. This extends beyond the common tools used by architects and engineers, such as 3D modeling, CADD and BIM, to owning technology processes and products used in project delivery, traditionally a reimbursable item or subconsultant service. This article outlines some of the benefits and challenges of this growing practice, with examples from the experiences of two industry-leading firms that have made this leap.
Opportunity Knocked
Environmental Science Associates (ESA) is a 700-employee environmental consulting firm. In 2021, it acquired 36-person Sitka Technology Group, which develops and manages knowledge infrastructure for conservation, restoration and sustainable development. With Sitka as the centerpiece, ESA launched a new Technology Services Group in 2022.
ESA began creating its own software products in hydrology, biology, field data collection and environmental documentation, hiring data managers and software developers. At the same time, in collaboration with Sitka talent, it provided data management services on several projects at a broader range, depth and scale.
Clients Spoke, They Listened
For 1500-person design, consulting engineering and infrastructure advisory firm Moffatt & Nichol, the decision to delve into technology-based products and services was a matter of listening. “If there’s a need and no one else in that space is filling it, your clients will tell you; you just have to listen to them,” says Eric Nichol, President & CEO. “Our clients had problems that couldn’t be solved in the engineering domain. The solutions they needed required technology that we didn’t have. So we made the decision 12 years ago to buy source code and create a development team.”
The way Nichol sees it, A/E firms are better equipped to provide technology solutions to their clients than a dedicated seller of hardware or software. “We have the knowledge of what our clients need and how we can help solve their problems. Technology firms will try to create a solution based on what the technology can do. A/E firms know client needs and how technology can meet those needs. Once you have that mindset, you can focus on solving their problems.”
Moffatt & Nichol is currently testing two other technology products related to ports and marine terminals.
Valuing Technology
There are myriad benefits to having a proprietary technology to offer clients, including:
- Differentiation. Most A/E/C firms remain focused solely on the professional services aspect of the industry. Branching into technology is, for the time being, a differentiator.
- Market Leadership/Vertical Integration. Going a step further by providing professional services and technology to a specific client market, a firm positions itself as a market leader.
- Revenue Growth/Diversification. A technology product leads to more revenue from a greater number of sources. Unlike other diversification strategies, this may not guard as well against a downturn because the A/E/C services and tech products are likely to be focused on existing core markets. However, it can increase ways to assist a client, extend the time revenue is earned in a project, and attract new and different clients interested in the technology product your firm offers.
- Intellectual Property Ownership. Developing proprietary technology services can lead to the creation of valuable intellectual property (IP), such as patents, trademarks or trade secrets. This IP can provide a competitive advantage and potentially generate additional revenue through licensing or royalties.
- Futureproofing. Firms that develop technology to meet emerging trends, such as digital twins and advanced machine learning, guard against commoditization and improve the likelihood of long-term sustainability.
- Recruitment and Retention. Having a technology offering is not only a differentiator for clients, it can also be an exciting, enticing feature that can help set the firm apart in recruiting and retention.
The Challenges of a Tech Product
Another benefit for A/E/C firms that provide technology solutions is becoming a gateway to value pricing. For firms seeking to base their revenue on the value of their work instead of the time they spend doing it, technology can provide an alternative to charging by the hour.
But it can be a double-edged sword. Technology vendors traditionally sell subscriptions or one-off products, so adapting an A/E/C firm’s operations to accommodate this can be problematic. Eric Nichol says, “Our biggest challenge has actually been our accounting system. Software sales and subscription revenue, coupled with 100% overhead development time, does not play well with how professional services think about business.”
The experiences of ESA and Moffatt & Nichol offer other tips for firms considering the leap into technology products:
Developing technology isn’t a part-time job. It can be tempting to try to take an existing employee adept at computer programming and let them take a stab at developing a software product. Nichol advises against this idea. “To succeed at developing technology, it has to be very purposeful,” he says. “You have to get out of the mindset that this can be a side job. It has to be all they do.”
It’s critical that the A/E/C side understands the technology side of the business. “Some of our firm leaders have been slow to understand and be able to pitch [technology] as part of what ESA does,” says Moulton-Post. “That has been a little frustrating – it’s a learning process of change management to integrate technology throughout ESA, inside and out.” Thus, the firm has redoubled its efforts to have Sitka’s people interact with its legacy employees and leaders to inform them about how the technology works and benefits a project.
The development side needs support and autonomy, not interference or heavy-handed “guidance.” “We’ve been at this for 12 years and we’ve learned a lot along the way,” says Nichol. “We hire developers who have no trouble explaining what they’re doing so everyone can understand. You have to hire the right people, give them the support they need, and check in with them all the time. You can’t micromanage it.”
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Richard “Rich” Friedman, Founder & President, Friedman & Partners, has worked in and consulted to the AEC and environmental industries for more than 30 years. He has worked with firms of all different sizes, including numerous ENR 500 organizations. In 2005, Rich co-founded A|E Advisors LLC, a consortium of national consultants serving the AEC and environmental consulting industries. He has conducted seminars and workshops for design and environmental industry professional associations and venues, including AIA, ACEC, AGC, NSPE, SMPS, and ArchitectureBoston Expo (ABX). He has been featured in A/E industry publications, including ENR, AIA’s Architect and Practice Management Digest, SMPS’ Marketer, NSPE’s PE Magazine, and ACEC’s Engineering Inc. Rich earned a B.S. from Cornell University and an M.S. from Penn State University, as well as an MBA from Babson College.