Why It's Imperative That AEC Firms Implement Guided Innovation

Forbes

02-04-2025

Claire Rutkowski is Chief Information Officer at POWER Engineers. getty
In recent years, the architecture, engineering and construction (AEC) industry has experienced paradigm shifts driven by factors such as labor shortages and technological advancements .
The AEC industry is grappling with these issues at a time when workers are arguably more needed than ever. Consider the civil engineering field. According to the American Society of Civil Engineers' ' 2025 Report Card for America's Infrastructure ,' grades varied 'from a B in ports to a D in stormwater and transit.' Moreover, the report explained that while 'evidence points to improvements throughout infrastructure's system-of-systems, nine categories remained within the D range—a clear sign that more needs to be done to improve the health of America's built environment.' Given the pent-up demand, private equity firms have stepped into the picture. As noted by Zweig Group , 'M&A activity in the AEC industry surged in 2024, driven by private equity, regulatory investments, and strategic acquisitions.'
Both the talent gap and private equity investments are, I've observed, forcing AEC firms to innovate and leverage new technologies. If you're a leader at an AEC firm, however, it's important that you first achieve organizational agility. Without organizational agility, your firm will likely struggle to innovate, effectively integrate new technologies and ultimately remain competitive.
In my experience, many AEC firms are not organized in a way that promotes innovation—many have rigid structures where cross-collaboration is limited. Such structures stifle innovation. For instance, some AEC firms have traditional, hierarchical role structures where risk mitigation is the key priority. Road people talk to road people, water people talk to water people and so on. Others still use outdated workflows and legacy systems that slow down decision-making and limit collaboration. Technical debt is rife.
AEC firms that lack organizational agility will face challenges when it comes to internal and external innovation. Even if they are able to innovate, they will likely face difficulty implementing those innovations in-house or selling them to clients.
To achieve organizational agility for your AEC firm, I first recommend moving away from the industry's standard hourly billing model as much as you can. This is admittedly a gradual shift, but you should start right away. Adopt an outcome-based pricing model, where you charge clients for the results you generate for them. Why make this move? Because the traditional hourly billing model essentially penalizes AEC firms as they become more efficient. For instance, you and your team could develop an in-house solution that enables you to work faster, but because you're charging clients by the hour, you face internal resistance to using the solution. That internal resistance results in wasted investment. Or, if you end up using the solution, you'll get paid less.
Additionally, you should set a clear innovation strategy that brings out your firm's unique strengths—and that balances efficiency-related innovations with the development of new products and services. Both types of innovations are, in my view, crucial for AEC firms. Depending on the circumstances, you might opt to focus more on one over the other. For example, during an economic downturn, you might decide to invest more in efficiency-related initiatives.
As part of your innovation strategy, you need to delegate who is responsible for innovation at your organization. I've observed that AEC firms tend to take one of two approaches when it comes to delegating innovation. The first approach? Making innovation everyone's job. This approach might sound appealing, but there are some problems with it. One is that in practice, when something is everyone's job, it tends to become nobody's job. There's also the problem of people innovating on the wrong things in a desire to stand out. That's how a firm can end up with thousands of reports that team members have deemed "crucial." The second approach is creating a standalone innovation department. This approach makes select employees responsible for innovating, but the department can end up becoming isolated from the rest of the business. Moreover, a standalone innovation department can stir up internal competition—those employees could start seeing other teams as rivals. In my view, the solution is a hybrid approach of guided innovation. A dedicated team should set the firm's strategic direction and then approve employees' ideas that align with that path. Mistakes AEC Firms Should Avoid Along The Way
As your organization becomes more agile, you'll have greater capacity for innovation and technological advancement. However, there are key mistakes you should avoid along the way.
For one, avoid technological innovation and advancement for the sake of it. You don't always have to reinvent the wheel. Don't hesitate to purchase existing, off-the-shelf solutions that another company has developed. For example, if your company needs an internal messaging tool, there's no point in developing your own version given that such tools already exist. Instead, direct your innovation efforts to your firm's 'secret sauce' —its unique value proposition. An example would be a transportation firm focusing innovation on tools that speed up routing and layout instead of tools that generate proposals more quickly.
Another mistake is chasing shiny things. Innovation should be purposeful and well-thought-out rather than reactive. If you rush to implement every new type of technology and approach because they're trending or appear impressive, then you risk investing time and money into solutions that ultimately won't move the needle for your firm.
Finally, it's a mistake to think that innovation doesn't have unintended consequences. It does. For example, say you and your team create a new asset management solution for your clients. That solution is not a one-time project; it's subscription-based and would require you to implement new contracts and a new billing system. It would also likely require you to bring in outside expertise, specifically a product manager with experience working at a software company, to step in and oversee the packaging and pricing of that solution. Additionally, such a solution would fundamentally change the nature of your firm's relationships with clients, making them more ongoing. Really think about a proposed innovation all the way through to make sure it's something you can support before proceeding.
Ultimately, despite the challenges of becoming organizationally agile and, in turn, more innovative, it's imperative to do so for survival. If your AEC firm fails to innovate, you risk losing market share to your competitors or being disrupted by new entrants, such as large technology companies. But through strategic, purposeful innovation, you can future-proof your AEC firm.
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