The purported demise of midsize engineering and architecture firms may be premature, according to a new study of ENR Top 500 Design Firm list trends over a 35-year span by a team of academics and practitioners.
The analysis contends that firms with revenue between $17 and $113 million, while making up just 7% of total industry revenue in 2011, maintained or increased their numbers and market share in key sectors since the late 1970s.
University of Colorado engineering professor Paul S. Chinowsky led the analysis, which appears in the September-October publication of the American Council of Engineering Companies, along with practitioners Colvin Matheson, Gerry Salontai, Rod C. Hoffman and Jeff Holcomb.
The group found that the number of midsize firms in the transportation sector remained steady since 1986, while those in the building sector increased by 11.6%.
"We now have concrete evidence that the deck is not stacked against the mid-size firms as so many clients in that size range and other industry prognosticators have been led to believe or convey," says Matheson, managing director of Matheson Financial Advisors. "There is competitive pressure from both the larger firms and the smaller firms, but it does not mean that well-run firms cannot survive, advance and do quite well if they stay focused on clients, markets, unique skills and project delivery."
Matheson says midsize-firm success "is based in large part" on the ability to stay focused on core competencies.
"While price competition has increased, these firms are simply able to deliver on both cost and expertise," he says. "Consolidation will certainly continue, but not everyone wants to be employed by a very large or mega firm, which means that leadership and talent turnover will benefit small and midsize firms."
But "it remains to be seen what the continued impact of alternative project delivery (design-build and P3) will be on these mid-size firms, given the costs of playing in these arenas should a firm’s investment in the opportunity not be successful," Matheson cautions. "The expense of chasing large design-build and P3 projects is both expensive and risky for mid-sze firms that may not be able to absorb the losses like larger and better capitalized competitors."
But he contends that "nimble business focus and strong firm capitalization will keep mid-sized firm regeneration pretty active, especially since mega firms can’t be everywhere."
Salontai, a San Diego-based management consultant and former CEO of Kleinfelder, says midsize firms that diversified by market and worked internationally fared better in growth and survival.
He says the study's next phase, which is set to conclude early next year, will focus on the business strategies of about 37 of the lists' high-growth mid-sized firms.