A trend I’ve noticed in the last few years is the rising number of A/E/C firms with technology-based subsidiaries or divisions. This extends beyond the common tools used by architects, scientists and engineers, such as 3D modeling or CADD, to owning technology processes or products used in project delivery that have traditionally been a reimbursable item or subconsultant service.

This issue of The Friedman File 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 with 21 offices across California, the Pacific Northwest, and the Southeast. In late 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 its new Technology Services Group in 2022.

For ESA President and CEO Leslie Moulton-Post, the acquisition was a logical step in an area of practice becoming increasingly more reliant on technology. “We’re an environmental science company at our core,” she says. “We do a lot of field collection, and we’ve advanced from paper forms to tablets and drones. With new technology tools, you can collect data faster, put it on the cloud, and get it back in real time. Further, increasing the scope of scale of your data management, analytics and visualization capabilities not only increases efficiencies, it unlocks greater insights and better solution options. As all this technology exploded, and as we needed to handle more data on a much bigger scale, we put a strategy in place to become a more technology-focused organization.”

ESA began creating its own software products in hydrology, biology, field data collection and environmental documentation, hiring data managers and software developers to get it off the ground. At the same time, it was teaming on multiple projects with Sitka Technology Group, which was providing data management services similar to what ESA was developing, but at greater range, depth and scale. Merging forces was the natural evolution for both firms – for ESA to grow its technology services area, and for Sitka to expand its reach.

“When we decided to see if we could bring Sitka in house, we knew that they would make us a stronger tech-enabled firm and get us to where we wanted to be faster,” says Moulton-Post. “They’ve done that; they’ve been a powerful addition. They’re also great businesspeople, and they’re consultants as well. This is important because we don’t just sell our clients hardware and software; we sell them solutions.”

Moulton-Post adds that ESA is committed to using open-source code that a client or community can build on. Its customized technology platforms are tailored to a client’s specific needs, and the firm provides subscription management services when requested.

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 simple 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 your clients,” 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 is. “We have the domain knowledge of what our clients need and how we can help them solve their problems. Developing the technology is secondary. Technology firms will try to create a solution based on what the technology can do. But we know our clients’ needs and how the technology can meet those needs. Once you have that mindset, you can focus on solving their problems, not on the bells and whistles.”

Moffatt & Nichol’s technology offerings include FlexTerm, which is the outgrowth of a simulation and emulation software product called FlexSim CT (which stands for “container terminals”). Moffatt & Nichol, the ENR #1 ranked firm in marine and port facilities, jointly developed the product and then purchased it from FlexSim (now Autodesk) in 2012.

FlexTerm’s capabilities have allowed Moffatt & Nichol to provide its maritime clients with the fast-growing tool of digital twinning. And while the FlexTerm product was initially intended exclusively for container ports, they found it is also useful for optimizing rail, ferry and wind port facilities.

Moffatt & Nichol employs more than 50 developers, with about 40 in Spain and 15 in Southern California. The firm 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. As illustrated by the experiences of ESA and Moffatt & Nichol, a technology component extends the client relationship from traditional design services to the actual implementation of those solutions – which can make a firm an indispensable resource for its clients.
  • 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 the same existing core markets. However, it can increase the number of ways to assist a client, extend the period of time that revenue is earned in a project, and attract new and different clients interested in the technology product you’re offering.
  • 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. Moulton-Post says, “In our strategic plan, we recognize that being a tech-enabled firm is our future. This includes establishing a culture and mindset around technology and innovation, in addition to providing a specific technology product.”
  • 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 a technology solution is that it can be 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, this can be the motivation they need to escape the trap of charging by the hour.

But it can also 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 a few other tips for firms considering the leap into a technology product:

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 [the 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.” For this reason, the firm has redoubled its efforts to have Sitka’s key people interact with its legacy employees and leaders to communicate and 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 it. 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.”

Does your firm offer a proprietary technology in addition to your A/E/C services? Are you considering such a move? I’d love to hear your experiences and thoughts on this topic. You can write me at rich@friedmanpartners.com or call me at 508-397-9213.