Can CAD Market Grow in an Economic Downturn?6 Apr, 2008 By: Kenneth Wong
Some say technology will help architectural and manufacturing firms cope as budgets tighten.
The dreaded R word is making a comeback. Earlier this month, Federal Reserve Chairman Ben Bernanke conceded, "Recession is possible." While acknowledging it, he hastened to add, "A recession is a technical term defined by the National Bureau of Economic Research" ("Bernanke Says Recession Possible," April 2, 2008, Associated Press). For manufacturers and construction firms, the term is not just a metaphysical designation. They feel the pinch in weakening orders and rising prices of raw materials ("Manufacturing, Construction Weaken," April 1, 2008, Associated Press).
So how are the IT managers and CAD managers bracing for the inevitable economic slump? Some think loosening the purse strings for well-timed training and well-placed technology might help tighten their companies' operating margins.
According to the "2008 CAD Report" from Jon Peddie Research (JPR), "CAD software vendors saw combined revenues of $5,234.95 million in 2007"-- an astounding 20% increase from the $4,362.45 million reported for 2006. The analyst firm expects the CAD market to continue expanding with roughly an 11% compounded annual growth rate through 2012 -- "in spite of challenges in the U.S. economy."
The recently released report indicates that the CAD software market has been enjoying a "remarkable renaissance" during the past five years due to "advances that put 64-bit, multicore computers into the mainstream ... broadening acceptance of 3D techniques ... [and] the marriage of CAD visualization with information management."
Robert Green, a CAD management consultant and Cadalyst columnist, noted, "The main growth I've seen [in the last five years] is in upgrading 2D licenses to related 3D systems -- AutoCAD users going to Civil 3D, Inventor, or Revit comes to mind."
Wright-Pierce, a New England-based water, waste, and infrastructure management firm, is now in its second year of a transition from 2D to 3D. The firm's IT director, Ray Sirois, estimates that it will take two more years before Wright-Pierce begins building 3D models for all projects.
Sirois said, "We have spent more on training in the past few years in order to get employees up to speed with 3D modeling features in the software [primarily Autodesk's civil engineering solutions]."
Investing in Productivity Gain
Sirois says technology investment is contingent on the added tools' contribution to the company's profitability. "We are busy. We are growing new offices. Our clients like our approach to engineering their projects, they like our customer service attitude," he said. Under these circumstances, investing in CAD tools makes sense because "they draw things faster and better."
Green said, "If the CAD managers can find a way to get more work done in fewer hours by applying CAD/IT technology, then it is their duty to advocate such technology."
The JPR report notes, "In an industry known for a conservative rate of change, there is a significant shift taking place as smaller businesses are investing in new technologies to improve their processes and efficiency."
JPR Vice-President Kathleen Maher reveals that her optimism for the CAD software market is rooted in "the large-scale infrastructure projects that are already in place and the transition to new building techniques, such as BIM [building information modeling]." These, she points out, are "big ships that can't easily be turned back."
Elephant in the Room
As confident as she is, Maher said, "I don't want to be Pollyanna about this, either." The big ships, as she calls them, may have enough steam to sail through the next year or so, recession or not, but "if everything continues to look bleak, then some of the big ships will slow down."
In February, Forrester, another research firm, trimmed the projected growth of global technology purchases from 9% to 6%. "While it is by no means certain that the U.S. economy will in fact experience a recession, the risks of one are high enough to justify a more conservative outlook," said Forrester Vice-President Andrew Bartels ("Forrester Revises 2008 Outlook For US And Global IT Purchases," February 11, 2008, Forrester).
Nevertheless, Forrester predicts software investments "will do better than average. ... [Global] purchases of software products will grow by 8% in 2008, down slightly from 11% last year, but still strong."
One Region's Loss, Another's Gain
"Manufacturing in the U.S. has fundamentally changed -- there's no turning around," said JPR's Maher. "But most of the damage has already been done, so I don't think it's going to get worse."
The JPR report concludes, "Strong growth continues in the emerging economies that will offset contractions in the west." Maher said she's seen significant growth in the automotive sector in Latin America, India, China, and Africa.
The expansion is not limited to producing vehicles for the consumers in the West, but for domestic markets as well. "[The developed countries'] economies are growing to the point where their own citizens are able to buy," she noted.
In case of a recession, Sirois worries that there's not a whole lot of fat to trim because Wright-Pierce is already running a lean operation. He might resort to "buying some time by slowing the hardware upgrade investments" -- which should not be done three years in a row, he warns -- or "skipping a year or two of maintenance on your software."
His decision, he reveals, might have as much to do with the vendor's attitude as the product itself. "If the software vendor is listening to what is important to us -- seriously, like wide-area network interoperability issues -- then we'll continue investing. If a vendor does not seem responsive, we definitely would not renew a subscription with them. We would explore changing."
When facing tough times, Green advises, "Examine your processes and fix the problems you find so you can squeeze every little bit of productivity from your existing staff. To the extent that CAD/IT tools support these goals, make the investments. If training to achieve better standards compliance and process control supports these goals, then do so."
Sirois believes in voting with his wallet. When technology investment becomes scarce, he expects vendors to work harder to get his vote.