Strategies for Professional Engineering Firms during Economic Recession

Abstract

Professional engineering firms are exposed to unpredictable business cycles owing to fluctuations in the macroeconomic environment. The National Bureau of Economic Research NBER has monitored U.S. business cycles since 1929 by mapping changes in national economic activity using a complex set of macroeconomic variables. It has been observed that after every long expansion, there is an economic recession, usually lasting 11 to 12 months on average. Thus, every professional engineering practice firm operating in our market economy can expect recessionary conditions sometime during its existence. The Business Cycle Dating Committee of the NBER confirmed that the United States has indeed been in a recession since December 2007. There are clear indications that it will last much longer than the typical recessions of the past half century owing to structural shifts in the economy resulting from the increasing globalization of economic activities. As a consequence, professional engineering firms are likely to see adverse movement in output, employment, and company profits and, eventually, depressed stock prices for the listed companies. As most engineering firms are small businesses, even minor changes in their market niche and economic environment tend to have farreaching impact. A firm cannot meet the challenges of recession using yesterday’s strategy if it expects to be in business tomorrow, and its very survival may depend on the ability to adapt to changes in the external environment. Therefore, engineering practitioners and firm managers need to develop specific tailored strategies to succeed in the marketplace during the recessionary phase of the economic cycle. An economic recession is broadly defined as an overall slowing down of economic activity measured by peak-to-trough declines. One common and often-cited definition characterizes recession as “two consecutive quarters of declining gross national output.” An economic recession affects various stakeholders of a firm, including employees, managers, partners, customers, suppliers, company shareholders, and the community at large. However, a recessionary economy is similar in one way to a booming one: business still needs to create value for its customers and shareholders. The businesses that use economic recession as an opportunity to focus on strategic leadership and to establish competitive advantage usually create higher shareholder value. Building lasting value is both the greatest challenge and opportunity, requiring the leadership to focus on long-term plans, stick to core competency, become cost competitive and more rel-