Iceberg Logic

Like buildings, icebergs come in all shapes and sizes. They can be beautiful and also a little mysterious. On average, only about 12 percent of an iceberg’s volume sits above the water line. What’s visible is quite small compared to the whole. The part that really matters, the part that provides buoyancy, is hidden from view, though we can sense its presence.

This is not a bad analogy for how design is often perceived. Architects tend to focus most on form and aesthetics — what you see is what you get. But a building is so much more than that. It’s impossible to tell just by looking at a building what it cost to construct or how much it takes to operate or how efficient it might be in terms of space utilization. Unlike cars, buildings don’t come with dashboards that provide real-time feedback about speed, fuel consumption, oil pressure, and so forth. But perhaps they should.

Studies have shown that over a building’s useful life, the original capital cost accounts for only about 12 percent of the total — just like an iceberg. The true cost (and the real value proposition) lies below the waterline  — out of sight and out of mind. It’s territory worth exploring.

Capital cost matters a great deal, of course, because it’s most often the gating issue that determines whether or not a project gets built in the first place. But it’s only a small part of the overall picture and, considered by itself, tells us relatively little. Capital expenditure reflects market dynamics at a given point in time. The cost of labor and materials can vary significantly over a relatively short period. To be meaningful, first cost must be measured against something. When considering the location, size, and program of a building, savvy owners understand that it’s not what you spend up front, it’s what you get back that counts. That’s why building lots in prime locations cost more and why zoning regulations matter so much. The largest possible structure built on the best available site will naturally generate the most cash flow and hence create the highest value. It will also consume more energy to operate and cost more in staffing, taxes, and maintenance. All these factors and more go into calculating the underlying value stream of a project. And it’s this underlying value — the part below the waterline — that provides the buoyancy needed to float the project.

Design matters, and of course this includes form, function, and aesthetics. But there’s more to it than that. For too many years, true value creation has not been part of the design dialogue between owners and architects. Remember that design can be both a verb and a noun — a process as well as a thing. The how is often just as powerful as the what. Great designers are always on the lookout for hidden meanings and new ways to inject something extra into the equation. For example:

• For a new office building, an architect managed to design a floor plate that was 90 percent efficient compared to the expected 84 percent, delivering more useful area (and resulting revenue) per square foot.
• For a new dormitory, an architect managed to include one additional floor while still respecting the height limit imposed by zoning. This created space for 50 additional beds, making it possible to finance the project.
• For a new hospital, design for nursing unit that required fewer staff to run efficiently saved $1 million in staffing and operational costs annually while still improving overall outcomes for patients.
• For a new hotel, compelling design helped raise the average occupancy from the normal 75 percent to nearly 85 percent. This increased sales in the restaurant, lobby bar, and shops.
• For a multi-tenant research lab, sophisticated metering systems allowed the tenants to monitor their individual energy use, saving more than 10 percent each year.

You get the idea. These are all real stories from real projects that have won multiple design awards. They were successful in unexpected ways because the design teams took pains to truly understand the owner’s underlying value proposition and roll it into their design approach. By considering all these factors, they were able to create more thoughtful, sophisticated solutions.

The lesson is clear: Focusing only on form, function, and aesthetics is forgetting the 88 percent of the iceberg that sits below the waterline. Ignore it at your peril.

The Design Decade

We seem to have a habit of thinking in 10-year cycles. The 1970s are remembered for the oil crisis and stagflation, the ’80s brought us Reagan tax cuts and the fall of the Iron Curtain, and the ’90s saw the invention of the Internet (which we called the “information highway” back in the day) with the resulting dot-com boom (and bust). But what of the first decade of the 21st century? There does not seem to be a convenient nickname for it. The zeros? The aughts? The Os?

Endings are also beginnings. As the inaugural decade of the 21st century is closed out, the curtain rises on the next. A lot of people are relieved to see this one recede into the rear view mirror, as it was difficult on many fronts.  We started off with a crisis that failed to materialize: Y2K, which predicted the world-wide crash of computer systems. This was followed in short order by a real but unexpected disaster on Sept. 11, 2001, that marked the beginning of an era in which world-wide terrorism became an undeniable fact of life. Two wars and unprecedented prosperity followed. Then the Great Recession, which, in addition to wiping out homes, jobs, and 401(k)s, shook our collective sense of self confidence to the bone. And let’s not forget the tsunami in Sri Lanka, reminding us all of nature’s incredible destructive power.

Yet despite it all, we are still substantially better off than we were 10 years ago.

Looking back, it seems that the first decade of the 21st century will be remembered most for establishing global connectivity. We now understand that a coal-burning power plant in Shanghai not only pollutes China but also Canada, and it’s painfully clear that a bunch of unpaid mortgages in Detroit and Phoenix can tank a pension fund in Ireland. Cell phones have become ubiquitous and can be loaded with hundreds of “apps,” including cameras, games, texting, twittering, and GPS (allowing us no excuse to get lost anymore).  With Google we can find out just about anything we want at any time. And as Tiger Woods knows all too well, real privacy has ceased to exist. All this has happened in an astonishingly short time.

So while life is more complicated, challenging, and dangerous, we can be comforted by the fact that we are all in it together, for good or for ill, which in turn creates a huge incentive for mutual cooperation.

Global connectivity also alters our sense of scale, as things that once seemed far away and relatively unimportant, like a hurricane in Louisiana, now really hit home. Everyone everywhere has become our neighbor, and that may be the biggest revelation of all.

Global connectivity has tremendous implications for the A/E/C industry. The buildings we produce consume huge amounts of natural resources to construct and maintain, and they are responsible for nearly half of all carbon emissions — far more than any other source, including transportation. Wise use of our natural resources is essential if future generations are to survive and thrive.

It’s clear that design is not just about creating objects but also processes. More than ever, society can benefit by adopting the designer’s problem-solving mindset when grappling with issues, be they in health care, education, the economy, or even politics.

This first decade was difficult in many ways, but it also opened new doors.  For designers everywhere, it’s a profound leadership opportunity.

Prepared for the New Normal

According to official statistics, the deepest recession of the past 40 years is now behind us. The GDP is growing, the Dow has cracked 10,000, and interest rates remain at historic lows, keeping inflation in check.  Wall Street is even paying big bonuses again.

Yet to most people, the tangible effects of the recovery remain elusive.  Unemployment has increased over the past six months, the dollar has lost significant value on the currency markets, and many sectors of the economy (especially commercial real estate) remain fragile.  Is this what a recovery is supposed to feel like?

Unfortunately, yes. The economy may have bottomed out and experienced something of a bounce, but it’s certain that the boom years of 2005-2007 will not be returning any time soon. While it’s true that panic has subsided into caution, the credit markets remain deeply chilled, if not frozen. While some clients are doing planning new work in anticipation of a more robust recovery, very few new projects are getting the green light, and this state of affairs is likely to pertain for the foreseeable future.  Under these circumstances, a slow-growth, cost-sensitive economy is beginning to look like the new normal.

What’s a design firm to do?

Like it or not, get ready for increased competition. Significant layoffs in the profession have spawned a new generation of small, nimble design firms with low overhead. These new firms, often headed by well-regarded professionals with significant experience, can be formidable competition.In the past, perhaps a dozen or so contenders would be chasing any given project; these days, that number can easily double or even triple. Clients are increasingly price-sensitive, so expect significant downward pressure on fees. You will have to price your proposals accordingly, and when successful, execute the work with relentless efficiency. There will be little if any wiggle room.

This will almost certainly require a leap in technology, and specifically BIM, which can be used for all phases of the work from design through construction administration. Sophisticated users of BIM have found ways to create significant efficiencies in the documentation process and have even been able to eliminate the need for shop drawings during construction. Now that the GSA (as well as several states, including Texas and Wisconsin) have mandated BIM deliverables for all projects, the tipping point has clearly been passed. If you have not already done so, it’s time to get on board. Make use of your downtime to acquire the software and institute a firm-wide training program, as BIM capability is fast becoming a gating issue during the selection process.

This is also the time to invest in personal client contact. Brochures, mailings, and press releases about design awards have their place, but nothing beats a face-to-face discussion between real people. Remember that your clients are in the same leaky boat as you are: They are worried about volume, cash flow, and expenses, so anything you can do to ease their burden will be appreciated. Sometimes this is as simple as clipping an article about how to save on energy or maintenance cost and sending it along. Let your clients know that you are thinking about them and that you are a source of good ideas — both now and for the future. When they are ready to build again, they’ll remember this courtesy.

It’s also a good time to review and refine your value proposition. What is your firm really good at? How can you demonstrate that with hard data?  Which clients can benefit most from your particular skill set? Those are the ones you should be talking to. Put away your shotgun (though it’s tempting to go after any project that comes up, regardless of fit), get out your rifle, and take very careful aim. Your marketing dollars are precious, and you can’t afford to waste them. Think high impact:  What are the things that clients need to know that you can provide? What sets you apart from the competition? How are you going to communicate this clearly and convincingly to each and every prospect? Get in the habit of doing this, because it’s the best way to position your firm for long-term success, regardless of the state of the economy.

Above all, remain optimistic. Nobody likes a complainer. Don’t focus on problems — anybody can do that.  Instead, insist on finding solutions. Design is inherently about value creation, so make that part of your brand.  nd stay patient. The recession may be technically over, but its effects will linger for a while . Eventually, pent up demand will create more opportunity than you can handle. The U.S. economy, despite its recent bumps and bruises, is still more than twice the size of Japan’s (No. 2) and four times the size of China’s.

Like a good sailor, you need to position your sailboat to take advantage of that next puff of wind.

Problems with Pricing

One inevitable effect of the recession is that more firms are chasing fewer projects. Hence, the odds of success are greatly diminished, and those firms that do win new commissions often have to discount their fees, sometimes substantially, in order to secure the work. To compound the problem, firms that have shed staff are spawning their own competition. The same qualified people who used to be employed can now compete on a much lower cost basis, which further drives down prices.

Since most projects have a lifespan of several years, this not only affects profitability in the near term, but it has long-term consequences as well. When the recession subsides and work becomes more plentiful, projects that suffer from low fees run the risk of becoming orphans. To recover financially, firms will be tempted to concentrate on the newer, more profitable projects at the expense of the older losers. This can cause quality problems, ultimately affecting the overall reputation of the firm.

In this challenging economic climate, careful consideration of fees is critically important. If you are forced into taking deep discounts to secure new work, don’t just give up the ship. Instead, the prospective loss must be well managed. Decide in advance how much you are willing to risk — and lose — in order to do the work. Budget the loss just like any other cost, and then stick to the budget. Don’t let the losers get out of control. Remember that each dollar of loss must be earned back later with profits from new work, so every loser places a very heavy tax on your future.

Despite low fees, never stint on quality. Whether or not a project eventually makes money, it must be done well. Each job done is a brick in the wall — it becomes a permanent part of your professional reputation. You cannot afford to install any defective bricks because they will be there for all to see for years to come.

Finally, and most important, avoid competing on price wherever possible. Every firm has a value proposition. What’s yours? Be able to communicate it clearly and convincingly to clients as well as your own staff. Demonstrate why choosing your firm is a smart decision and how you can deliver more value than the competition. Be specific. Remember that a low price is not always a bargain … it’s the results that count.

Global Design: The Architect’s Dilemma

While the recession still rages in the A/E/C industry, there is a bright spot, which is the amount of international work currently being undertaken by U.S.-based design firms. Over the past 10 years, the fee volume of overseas projects has grown by a compound rate of 30 percent per year.  More than $1.5 billion in design fees are now earned on foreign projects, and for some firms this can be as high as 30 percent to 40 percent of their total revenue. International contracts greatly extend the influence of U.S.-based architects, providing unique opportunities for collaboration and outsourcing, but there is a hidden cost that poses a significant long-term challenge to the health of the profession.

When working overseas, most architects typically provide only the SD and DD services, with local firms handling the CD and CA phases.  Since SD and DD generally represent only 35 percent of the A/E typical fee, this means that the vast majority of the fee volume (65 percent) is reserved for foreign firms, which can often provide those same services at a much lower cost. It follows that an office which is heavily dependent on international work will experience a significant shift in the need for talent — more designers and fewer technical staff. Over time, architects who concentrate primarily on overseas work could well see their technical capability severely eroded. To compound the problem, those doing foreign work often rely on outsourcing to produce models, renderings, and even some of the design documentation.

Over time, the implications hold significant long-term dangers for the profession. The CD/CA process has traditionally been fertile ground for training new staff. Where else will newly-minted graduates learn the nuts and bolts that are necessary to complete their training? How will they get this experience if CD/CA is not done in their offices? Furthermore, if architects concentrate only on the up-front design at the expense of CD/CA, they risk morphing into graphic designers (concerned primarily with aesthetics) and will gradually forfeit their claim to providing responsible control over the documentation process as well as protecting the health, safety, and welfare of the public. This is the very foundation of licensure.

This trend bears close watching. A cautionary tale is provided by Clayton Christensen in his book The Innovator’s Dilemma, in which he recounts the fundamental changes in the steel industry that were brought about by the advent of “mini-mills” several decades ago.  In the beginning, overseas producers took on the high-volume, low-margin business, while the high-end, technically sophisticated steel was still rolled in the United States. However, in the course of only a few years, the overseas mills became much more innovative, efficient, and productive, eventually supplanting all of the major U.S.-based producers. Now most of our structural steel is imported rather than exported, with a corresponding decline in our asset and knowledge base.

Could this be the future of the design profession? Only time will tell. In the meantime, firms that are tempted to take on too much international work should carefully balance their portfolios with domestic projects that offer opportunities to provide a full range of professional services, especially CD and CA. International work can be exotic and even intoxicating, but it cannot be the whole meal. Like a healthy body, a healthy firm requires a balanced diet.

Let’s Believe in Our Own Future

Scott Simpson

While no prediction is ever 100 percent correct (including this one!), we do know this: Sooner or later, the current recession will subside. When it does, things will be different. The conditions that existed between 2003 and 2007, which created unprecedented prosperity worldwide, will not be returning. It follows that the successes of the future will not look like the success of the past.

Over the next five years, the A/E/C industry will undergo a profound transformation, powered by the three primary game-changers of building information modeling (BIM), integrated project delivery (IPD) and Leadership in Energy and Environmental Design (LEED). BIM is a technology, IPD is a process, and LEED is an attitude. Individually, each is very powerful.

Together, they combine to exert huge leverage for change. All three are at the tipping point; there is no turning back.

BIM provides a way to connect the silos of expertise that have traditionally divided the design and construction process. The increased transparency of who does what makes the interdependency among all the key team members painfully obvious. The traditional model of design/bid/build promotes a culture of self-defense, with each player on the team incentivized to consider individual interests first and team success second. With BIM, this is no longer possible; it creates a whole new sociology of design. Ironically, BIM promotes both creativity and predictability in equal measure. It’s a powerful design tool yet equally adept at demystifying design documents, bridging the gap between design intent and project execution from conception to creation.

IPD takes this a step further, substituting a single, inclusive contract that aligns the interests of the owner, architect, and construction manager. What a concept! The benefits are as obvious as wheels on luggage. IPD invites a whole new approach to decision making. Since IPD represents a truly integrated team, all the key players are at the table from day one. The traditional sequential approach no longer applies. With IPD, all the brainpower in the room can be focused like a powerful lens on the problem at hand (much as parallel processing does for computing), which leads to better, faster, and more creative solutions every time.

LEED symbolizes a profound social and political shift from an economy based on consumption to one based on the wise stewardship of shared resources. In the past, the winners were the ones who made the most or consumed the most. With sustainable design, values have shifted 180 degrees, inspiring us to ask how we can do more with less. Over the useful life of a building, even small improvements in energy use, water consumption, and air quality create huge benefits. Sustainable design is like BIM and IPD in that it forces us to recognize our interdependency — no one can win unless everybody wins. It creates an unbreakable bond of mutual interest.

As we consider what’s next, it’s important to keep in mind that design is both a noun and a verb — a thing as well as process. It’s also about creating value. As currently configured, the A/E/C industry is acknowledged to be hugely inefficient. About 37 percent of all construction materials end up as waste, some 30 percent of all projects do not meet budget and schedule, and more than 90 percent of clients believe that design documents are insufficient for their intended purpose.

A conservative estimate is that of the $1 trillion spent on construction each year, $300 billion is wasted. But here’s the good news: We can view that waste as a resource. By using new technologies, processes, and attitudes (BIM, IPD, and LEED), the waste can be re-deployed, funding innovation. The result will be better, healthier buildings, constructed faster, for less. Everybody benefits — owners, architects, constructors, and the public.

This is a natural and inevitable outcome of the post-recession economy, which will demand a new accountability for value creation. The downturn imposed a certain discipline. It made us much more cognizant of what we do, how we do it, and what we spend. Viewed correctly, this discipline, which seemed harsh at first, is actually refreshing. It opens the doors to new ideas, and as designers, ideas are our stock in trade. Going forward, we should behave as if we believe in our own future. The rest will follow.

Opportunity Knocks: Advice to New Graduates

A new class of architecture graduates is about to enter the profession, and the timing couldn’t be worse. The economic crisis has affected nearly all industries and markets, and design is hardly immune. Firms across the country are reporting rapidly diminishing backlogs, scarce prospects for new work, and significant staff cuts, even at the senior levels. Those firms that are weathering the storm, at least so far, are not hiring. The next generation of designers has a lot to offer: They are tech-savvy and full of ideas; they care deeply about the environment and are convinced that design can make a difference. Unfortunately, many of them also carry a heavy load of debt. There’s a real risk that this next cohort of talent could fall victim to the bad economy and leave the profession altogether. What’s a young graduate to do in these troubled times?

Start by recognizing that while things are tough, the sun still comes up every morning. Stay calm. The economy is down but not dead. Much of your success will be dictated not by circumstance but by attitude, and this is something over which you have a great deal of control:

1. Know that your education is a long-term investment and that nobody can repossess it, no matter how much money you owe.

2. Remember that when you start at the very bottom, the only way to go is up. From this, you will gain great resilience and self-confidence.

3. Understand that design school is as much about a way of thinking as it is about making objects called buildings. Use this to broaden your perspective.

4. Recognize that lots of things get designed — both products and processes. It doesn’t necessarily have to be about bricks and mortar to matter.

5. Investigate programs such as the Peace Corps, Habitat for Humanity, or the U.S. Agency for International Development. There’s a need for your skill set out there somewhere.

6. No matter what, don’t waste your downtime. Consider travel, which is always enlightening.

7. Get a job on a construction site … any job will do. This will open your eyes in ways you cannot begin to imagine.

8. Build a house on an abandoned lot with recycled materials. Show the world that good design can be had at any price.

9. Maintain your sense of humor and stay optimistic. Nobody likes a whiner.

10. Realize that this may be the first but it’s certainly not the last recession you’ll ever encounter, so maintain perspective.

11. Poverty is not fatal if you do it right. Stay alert … you might actually learn something.

12. Study history: What great buildings were created during severe economic times? (Hint: the Empire State Building and Rockefeller Center are two examples.) Emulate.

13. Consider extending your education into law, business, environmental science, public health, etc. Concerned about cost? See Item 1.

14. Assume that you’re immune to the bad economy. Decide to get a job, and one will appear. Good intentions are very powerful, and luck does play a role.

15. Be humble and grateful. Remember that there are lots of people in the world who are much worse off than you are.

16. Keep dreaming and sketching. Maintain a diary or a journal, then convert this into a best seller (a novel, movie script, pop song, or opera will do!). Remember that J.K. Rowling was a welfare mom when she wrote the first Harry Potter book, and now she’s richer than the Queen of England — literally.

In other words, don’t let yourself be defined by a job. Keep thinking like a designer. Designers are problem solvers. They are open to new ideas. They understand systems. They appreciate how the big picture depends on the smallest details. And they know that what they do makes a difference … at any age.

Never Waste a Crisis

Charles Dickens had it right: this is the worst of times, but also the best of times. The effects of the current economic crisis have been sudden, broad and deep. Construction financing is as scarce as hens’ teeth, and many projects have been put on hold or cancelled outright as a result. Design firms across the country are facing rapidly diminishing backlogs and scant prospects for new work. Collecting fees has become more difficult. The first round of layoffs predictably affected primarily younger staff, but now the staff cuts are beginning to reach into the senior levels. Before the recession ends (do we still call it that?), a wave of consolidation will likely sweep the industry: mergers, acquisitions, and perhaps more than a few bankruptcies. One thing is clear: we know that the widespread prosperity of 2003-2007 (when the stock market reached an all-time high) cannot return to “normal” because it was built on false premises: loose lending practices, exotic investment derivatives that not even Wall St. experts fully understood, huge deficit spending by Congress, and in some high profile cases, outright large-scale fraud. Those conditions cannot be repeated, nor would we wish them to. Instead, the time has come to examine the lessons learned, clean up the mess, and re-tool. A sustainable future can only be built on a sound economic foundation.

While it might sound counter-intuitive, this is a period of unprecedented opportunity for savvy design firms. Clients will be looking to save money, both on capital cost and operational cost, and to find ways of getting more productive use out of the space that they already own. They will not tolerate sloppy design or inefficient practices. Those who are building will be looking for ways to speed up the process, build wisely, and eliminate waste. Best-of-class firms will respond accordingly. Fortunately, there are three compelling value propositions that the design profession can bring to the table: BIM, IPD, and green design.

Over the past several years, the imperative to embrace sustainable design has clearly passed the tipping point in the mind of the public. More importantly, it has also been embraced by the business community. Some of the smartest firms on the planet (such as Kleiner Perkins in Silicon Valley) have recognized the potential of an emerging market in “green tech.” They see huge opportunities and big profits ahead. With the equity and real estate markets in a steep decline, investors will be looking for growth in other areas, and green technology can provide it. Expect an explosion of innovation in the coming years. Because each dollar of energy cost saved goes right to the bottom line, much of this new technology will be “self funded.”

BIM is another idea whose time has come. It’s more than a clever piece of software; it has the potential to actually change the “sociology” of design-the fundamental way that individuals and teams deal with one another during the course of a project. By providing a common place to store information, by providing a platform for “multiple authorship,” and by providing for the transparent sharing of information that bridges the traditional professional silos, BIM has the potential not only to greatly enhance overall design quality, but to control budgets and schedules in the bargain. With BIM, the old saw of “time, money, quality…pick any two!” no longer holds. Clients want all three, all the time, and with BIM, designers can deliver the goods.

The third important innovation is IPD, or Integrated Project Delivery. This is not a warmed-over version of fast-track or design-build; it is a fundamentally different way of engaging the Owner, Architect, and Construction Manager to work together collaboratively in producing a project. It takes better advantage of all the brains at the table, aligning the disparate interests with the mantra that “we all work for the project.” IPD has the potential to reduce or eliminate much of the repetition and waste that is endemic to the design and construction process. Imagine, for example, building without the need for bidding, shop drawings, or submittals. In an economy that spends better than $1 trillion per year on construction, gaining efficiencies of only 10% (well within reach), will produce $100 billion in savings each year, which is triple the amount paid in architectural fees. Think about it.

The good news is that all three of these process innovations are readily available. The bad news is that it seems we have to be in crisis mode before we’re brave enough to take full advantage of them. By nature, architects are pretty good at inflicting change on others, but remarkably reluctant to embrace change in their own profession. The current crisis has brought its share of hardship, but it also presents an unprecedented opportunity. In today’s economy, design firms either re-tool or they risk going belly up.