Deltek has published its second annual Architecture & Engineering Industry Report. The report looks into the state of projects across both industries after a tumultuous year. COVID has had a huge impact on A&E organisations across EMEA and APAC, the scope of this report.
Enterprise Times spoke to Neil Davidson, Regional Vice President EMEA & APAC at Deltek, about the findings.
Deltek has published its annual Architecture and Engineering industry study. The report shared with Enterprise Times covers EMEA and APAC. Deltek also publishes a report for North America, which was not available to Enterprise Times as of writing this article.
The report includes an introduction, executive summary and is divided into five sections with a conclusion. It is based on a survey of more than 600 decision-makers divided between the UK (29%), Australia (17%), Germany (12%), Denmark (9%), New Zealand (8%), Norway (8%), Singapore (8%), and Sweden (8%). While the study was conducted in Q1 of 2021, the financial responses related to 2020. The report also differentiates between pure architectural firms and those offering architectural and engineering services.
As with many other industries, the pandemic has highlighted the digital immaturity of many organisations. Only 18% of organisations see themselves as digitally mature or advanced, double from 2020. While 69% expect themselves to become at least digitally mature within five years, an increase of 14% from 2020 still leaves 17% laggards.
At 34 pages in length, the report has five main sections which look at:
- The business impact of the pandemic
- Technology trends
- Project management
- Business development
- Financial management
Davidson commented: “COVID-19 had a widespread impact on the architecture and engineering industry across the UK. However, we’ve seen some firms demonstrate how technology-led strategies have brought the adaptability and agility they need to emerge from the pandemic in a strong position.
“UK firms have an unprecedented opportunity to build on the momentum for change. Our research reveals a desire for digital transformation as businesses seek to address the operational shortfalls uncovered over the last 12 months, but there is uncertainty about the best way forward. Digital transformation is a journey, not a one-time fix, and by making strategic technology investments, every organisation can deliver positive changes to build on the opportunity in 2021.”
The business impact of the pandemic
The pandemic has an impact on 81% of projects. Of these, 22% were cancelled, 27% were delayed, and 20% were accelerated. Other changes included reductions in scope for some while others were expanded.
Firms needed to adjust to a new way of working. Nearly three-quarters of firms did so effectively managing to coordinate with clients (72%), managing project information (72%) and invoicing clients electronically (71%). The biggest discrepancy between architecture focused (62%), and A/E firms (70%) was in managing projects.
The report also highlights that many organisations have accelerated their digital transformation, although few have completed it.
While the digitisation of firms is increasing, only 4% describe their maturity as advanced. The UK is leading the other EMEA and APAC countries with 10%. There is still a huge disparity between the actual use of new technology and those who consider it important. For example, while 75% see data science as important, it is only used by 35%.
The research pulled out some interesting anomalies from the different countries surveyed. For example, only 16% of Singapore respondents prioritised identifying technology partners, less than half any other country. This, and other insights might have been more insightful if a qualitative survey had followed the quantitative one.
Are cost models evolving?
The top inhibitor to digital transformation is the cost. Enterprise Times asked Davidson why?
“We have to remember it’s been a challenging economic period. If you look at the World Bank forecasts of 3.3% growth across Europe and APAC this year, cost is a big focus for an A&E firm. Margins can be between the 3% and 12% range for these kinds of firms. When we look at our clients, they always make investment decisions extremely wisely and with great care. It’s more a function of just investments have to be extremely well justified and choosing the right technology in this industry is of paramount importance.”
Does this mean that Deltek will look to adopt value-based pricing in the future and share some of that risk?
“Yeah, we more and more see, risk share is a really important part of the commercial discussions that we have with clients as they’re making investments. Certainly, with our specialism, it’s something we’re comfortable discussing with clients and prospective clients to look at what the right commercial model is on, on any individual investment. Yes, we see that as a trend, and it’s important to find the right balance.”
Another top three issue was that 44% saw a lack of employee education on IT trends as a key factor. ET asked Davidson whose responsibility it is to address that.
“Enablement of people is always a collaboration between the operational teams and the HR teams. It’s just about what’s the enablement that needs to happen and what’s the appropriate technology for people to have knowledge of. You see, a lot of A&E firms are bringing next-generation technology into their client value proposition. You see A&E firms using artificial intelligence, drones, big data, to transform their offerings to clients, also, hiring people who didn’t grow up in the A&E sector from management consultancy and digital businesses.”
Is there not a responsibility on the employee as well?
“I would agree, as the workforce gets more dispersed, the employee has a responsibility to be picking up the right training that they need to enable them for the work on the client projects that are assigned to. That’s a good perspective.”
Project Management still offers challenges to A&E firms. While between 87% and 91% have between moderate and very high confidence in their firms’ abilities to report accurately on schedule, budget, actual cost and overall performance of projects, there are challenges. First, not all KPIs are tracked and secondly, there is concern that increasingly complex projects may hinder digitally immature firms. There are also concerns around the adoption of artificial intelligence. Again with no qualitative insights, it is hard to determine why.
33% cited a key challenge facing project management is staff shortages. This is highest in Germany (50%). Enterprise Times asked Davidson whether Brexit has had an impact on UK firms.
“I’m certainly not hearing from clients the impact of Brexit is specifically related to staff shortages. In general, there’s a big drive to bring more engineers through the education system in all European countries. Particularly with things like the infrastructure 4.0 initiative from the World Economic Forum. The number of graduates entering the engineering profession has long been a focus of organisations in the A&E.”
The survey highlights three top challenges currently faced by A%E businesses:
- Increased competition (38%)
- The increased cost of competing for projects (37%)
- Identification of new prospects (31%)
To address their challenges, firms leverage technology such as analytics (28%) and automation (25%) and several other initiatives. ET asked Davidson why costs are increasing as digitalisation should reduce them?
“Some of that can be a function of how competitive the tendering process is because it’s always a function of the win rate. If you’re winning one in three tenders, then there’s a lot of costs associated with the ones you’re not successful in.”
How does Deltek help customers with that challenge?
“One of the areas where we are supporting clients is in really helping to bring a central repository of the talent that’s available in the business. Who’s got availability? How can you match the skill sets of your global team to the right client project? Making sure that you’re matching that capacity, providing the CVs and the experience of those people digitally to the clients as part of the tender. Really looking to help to digitise that process to both source the talent and ensure it can be applied to the particular project you’re tendering for.
“The other area is understanding and having a myopic view of what your margin is. Look at that pre-tender, look at how competitive you can be, then tracking that through to delivery.”
This section looked at how finance teams are tracking KPIs. Many firms, sometimes nearly 50%, are not tracking or unable to track KPI’s such as average billing rate, collection period and margins. The report infers that this relates to the company as a whole, but Davidson confirmed that it related to project KPI’s. ET asked Davidson about this.
“The explanation of that is that businesses do track the KPIs at a company level. I haven’t met one A&E firm that doesn’t track operating margin, for example. What the survey saying is, can you track them at a project level? Businesses are all tracking these things, but can they get the level of granularity to allow them to diagnose the root cause of issues and make the pivots that they need to, you know, generate the operating efficiency?”
Enterprise Times what does this mean
The survey concludes with three key findings.
- AE firms must address the technology disconnect.
- They need greater operational transparency to help identify issues in projects before they become strategic issue.
- They need to capitalise on the change momentum. However, with 17% of AE firms not looking to digitise, can that significant segment change, or is it too late?
Davidson commented: “I hope that firms in the AE sector can use the survey and look at the benchmarks and at least assess where are we in terms of our maturity. It’s never too late to build a strategic plan together and look at where’s the transformation that’s going to be impactful for an individual firm. What we’re looking to do through the Deltek Project Nation is to serve up some best practice, serve up some data that allows those strategic discussions to take place in any AE firm. I encourage firms to look at the data, every firm’s different. The path forward for every firm will be different.”
The report is worth a read by any AE business leader. The Deltek maturity matrix can help organisations understand where they are. Although there is no objective formula that Deltek provides to assist with this, Davidson added: “That’s one of the first things we do when we engage with a client. We have some very advanced tools around that. We partner with our clients to say, Hey, where are you today in terms of maturity of business processes? Where are the most impactful things where you could deploy technology, whether that’s Deltek technology or other technology?”
What is missing from this report are more comparisons from the previous report, though to be fair pre-pandemic statistics would show a very different picture. Also, it would have benefitted from some qualitative research to explain some of the findings.