Tuition Tuesday - Student Loan Debts & Past Due Rates Increasing

2 notable reports this week already regarding the impact that economic conditions are having on various types of credit (mortgages, credit cards, student loans, etc.), both from the Wall Street Journal and the Federal Reserve Bank of New York.

The first, from the Real Time Economics blog, shows that while U.S. household debt has declined 8.64% since it’s peak in the 3rd quarter of 2008 to $11.42 trillion, student loan debt is up sharply, rising 25% over the same period. This increase from $440 billion to $550 billion might be reflective of more people going back to school in the hopes of increasing their skills and value in a difficult job market. The report doesn’t indicate the reason for the increase, however the drastic increase certainly will affect future spending and compensation expectations. The graphic from this report showing this change is below:

Monday’s news was followed yesterday, by another report showing a steady climb in delinquency rates of student loans. The article says, “11.2% of students loans are more than 90 days past due”, and the delinquency rate steadily increasing. Credit cards are the only type of loan with higher delinquency rates, however those numbers have been declining for the last year.

We’ve set up an educational system - and an employment system - that requires students to take on incredible amounts of schooling, and in many cases the associated debt. It impacts the diversity of our profession and the economic condition of employees of every professional practice in the country.

The question for leaders of professional practices is simply this: Do you know the cost of education at the institutions you typically recruit from? If so, do you know the associated debt load or student loan payments made by graduates coming from that institution to your firm?

Once you know this information, the opportunity is to develop unique strategies for recruitment and retention that help minimize the pressure these individuals feel financially. As competition remains high for talented, committed employees, helping your youngest professionals and recent graduates can lead to significant increases in loyalty and retention. And that, is one of the best investments your practice can make in today’s economy.

Leading Change in Cities

This month’s GreenSource Magazine has a great interview with Jan Gehl, an architect and founding partner of Gehl Architects and a Senior Fellow of the Design Futures Council. For much of his career, Jan and his team have focused on the development of human-scale strategies to improve cities. Working globally in cities like Copenhagen, Melbourne, Seattle, New York, and Sao Paulo, the firm’s work integrates itself with what Jan calls “the people scale” to better understand how a city’s inhabitants live, work, and play.

In the interview, Jan says, “While there are a lot of planners and architects looking after the airplane and rooftop scales, the treatment of the people scale has been very distant. It is as if nobody has really addressed making good urban habitats for homo sapiens.” As I travel the United States and increasingly the globe to work with clients and meet with thought leaders, I’m struck by how true this is. Many American cities have pockets of good urban space — walkable, pedestrian-scaled, for varied uses — and yet they are just small pockets in an increasingly bland landscape designed for everything but homo sapiens.

It seems strange to need to suggest that architects, interior designers, and urban designers should focus more on how people actually feel in the spaces they create — regardless of the scale at which they work. And yet, we seem to have lost this important ethos as a profession.

About Working Faster

“Slow” kills professional practices. It brings death to careers. It is often defended for reasons that are about protecting the quality of design process and product.

The arguments against speed are often well crafted and well intended, yet they most often stifle progress and exhibit an attitude of denial, not innovation. These defenses trend toward academic statements that address old contexts of professional practices ignoring technology and new management science.

This is changing.

Evidence points to speed as a friend. In fact, it is unfolding as a new competitive advantage. Professionals must be light on their feet and cover ground quicker. This is one reason firms are abandoning centralized bureaucratic practices.

Ours is an impatient world, and it’s accelerating. You’ve got to be lean, quick, agile, fast — and good.

Why be a drag on your firm? Put some extra quickness in your step and get your brain to imagine a duality that includes both high-quality design and faster delivery. Put some velocity in your process and watch your value grow.

Fee Trends Not Always What You Think

“Recent interviews and fee negotiations have convinced me that it is a race to the bottom on fees,” a client just told me during a phone conversation. I know this is a very real feeling among many in the design professions. The truth is that it is increasingly common for professional practices to lower their fees to get scarce work. While it is a legitimate business model used to survive the economy, it is not fun. It is often not sustainable, either.

Regrettable quality problems often follow these hastily put together fee models. There are limits to how low fees can go and still serve clients’ needs responsibly. The good news is that there are tools and attitudes to adopt when you find yourself in this situation.

One of the DesignIntelligence benchmarks in real-time productivity, for example, measures best practice revenues per full-time staff. It is currently in the $172,000 range. But some firms are getting that number today. Others are still hovering around $100,000. The difference is in categorical commodity services provided by firms that range from high to low.

Those at the lower ends are feeling more squeezed and threatened. They know that it is difficult to deliver quality results to clients without resources. Moreover, it is common for firm partners to settle on low fees before negotiating tangible benefits to clients. There is measurable value in such overt services as schedule acceleration and reduced risk of project delay, optimal construction sequencing, and reduction in errors resulting in unbudgeted change costs.

The irony here is that fee trends are not always led by clients. Too often it is the practice leaders who panic and forget the value of their services, their brand, and their long-term measurable benefit.

Think Differently About Change

Climate change comes bearing gifts. While not welcomed offerings, these changes demand a vastly different approach in the way architects and designers think about their professional practices. Something big is happening.

Moreover, architectural careers have quit working like they used to. Climate change will affect the economy and the underlying tenets of roles and responsibilities in the making of buildings – and urban environments. The challenges brought about by climate change create new puzzles to solve. We can meet these challenges. There are many approaches.

The Design Futures Council will be hosting our 9th Leadership Summit on Sustainable Design Oct. 5-7 in Atlanta. Again this year we will bring together 100 delegates to share case studies, present deep understandings and practical experiences, and chart the future. Invitations were mailed last week to members and fellows of the Design Futures Council.

To be considered for one of the delegate positions, e-mail me at jcramer@di.net or Mary Pereboom at mpereboom@di.net. We are seeking thought leadership and a diversity of talents.

All of us need to catch on to what’s happening. We need to seize the opportunities brought about by change.

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.

How Long from Intern to Architect?

Today’s guest blogger is Matthew Arnold, who has been examining the duration and success rates of the Intern Development Program.

How long does an architectural internship actually take?

Official estimates range between three and five years, but that didn’t seem to be the case for any of the interns I knew or for that matter, any that they knew. I couldn’t find any hard data published anywhere, so I sent an e-mail to each of the U.S. NCARB-member boards asking what they could tell me.

Three boards — New York, Nebraska, and Oregon — furnished hard data in response to my request. New York provided records for all 15,088 actively licensed architects there. Nebraska and Oregon provided data for the actively licensed architects who had taken and passed the exam in their states, 626 and 800 individuals, respectively.

I made graphs of what they sent me, which you can fine here along with explanatory notes:

http://www.stairwaytoarchitecture.com/images/NY_STATE_REPORT.pdf

http://www.stairwaytoarchitecture.com/images/Nebraska_Report.pdf

http://www.stairwaytoarchitecture.com/images/Oregon_Report.pdf

The data show that the average time elapsed between graduation and licensure for architects licensed in 2009 exceeds public estimates. In New York it was 11.06 years; in Nebraska 10.89 years; in Oregon 8.96 years.

So as best as I can determine, the answer to how long it takes to become a licensed architect is 9 to 11 years. It is a rare intern who finds this surprising.

The trends in the data are disturbing, in particular the percentages of licensed architects whose internship was 5 years or less, between 5 and 10 years, and over 10 years in New York, as shown in this graph:

In New York in 1980, about three out of four internships took less than 5 years; today this is true for less than 10 percent of aspiring architects in that state.

Before 1980 it was rare for an internship to extend a decade or more in New York, but in 2009 it has become the rule: Half of all internships last at least that long. The trends are similar in Nebraska and Oregon.

There are still some states (New York among them) that do not require an NAAB-accredited degree in order to sit for the exam. These states typically require an (ostensibly) longer period of internship in order to compensate. If the duration of average internship for those with NAAB-accredited degrees is indistinguishable from those without one, the question as to the benefit of the degree in this regard is not an unfair one to ask.

Are three states a sufficient sample to enable us to draw any conclusions?

I’m an architect, not a statistician, but I think it is. These charts depict the professional records of slightly more than 16 percent of all currently licensed architects in the United States — about 1 in 6 of us. New York, Nebraska, and Oregon are distinct in population, geography, and economic characteristics.

I welcome additional hard data on this subject and expect it to support rather than contradict what shows up in the statistics from these three states.

Most states appear to rely on NCARB to maintain these records and are unable to provide them. NCARB tells me it cannot provide any information beyond what is posted on its Web site.

Is such an attenuated internship — amounting to more than 20 percent of a typical career — in the best interests of our profession? Why the discrepancy between what is necessary and what is (apparently) sufficient? Is this system functioning as designed? If so, why isn’t it functioning as advertised? Should we make any changes? What should we change? Are we really doing our best in this regard? Can we in good conscience as a profession continue to create false expectations in students and young professionals about their careers? These are only a few of the questions that the facts compel us to ask and answer.

There are more charts and a nascent discussion on this issue at my Web site. I will be happy to provide the raw data at cost to anyone upon request, and you can perform your own analysis.

Early next year, I’ll be asking the architects who sit on our state boards to obtain an accounting on this subject from NCARB. It’s time to take the future seriously. At the very least, we owe the next generation some honesty.

An Exceptional Book

We were delighted to read the December issue of IOMA’s Principal’s Report, which contains the first published review of our new book Change Design: Conversations About Architecture as the Ultimate Business Tool (2nd Ed.).

“Every so often a publication comes along that completely transforms your idea of what a book could be. Change Design: Conversations About Architecture as the Ultimate business Tool (2nd Ed.) is just such a book on several levels,” writes editor Ernie Burden.

He goes on to praise it as “an exceptional example of graphics and photography” but notes that it “transcends being simply an exercise in design and photography.”

The book highlights the role of design and innovation in transforming businesses and organizations. We couldn’t agree more with Burden’s assessment that it makes a great addition to your library.

What Are You Doing About Talent Today?

In these times of uncertainty, staff reductions, project cancellations, and clients demanding more for their dollar, what have you done to assure the happiness of your existing talent? The staff who have made it through cuts at your firm are likely among your most valued — that’s why they are still there. But what have you done to be sure they will still be there in the future?

In many organizations today, there are talented people who aren’t happy in their current roles. If the economy had continued to grow at a “normal” pace, they likely wouldn’t be working for you any more. However, because of the downturn, job security has been of utmost importance: Better to have a job you don’t like than not have a job at all. However, once the economy begins to turn, these people will leave at the first opportunity. In some cases it is already too late. Your only option is to encourage their professional growth, and maintain touch with them in coming years in the hopes they may someday return. In other cases, there are opportunities for you to re-energize their passions and talents around the future of your firm. I believe there are three winning strategies to keep these talented staff within your organization:

1. Be very clear with them about their future. With the future as fuzzy as it is, this may be uncomfortable. Times and situations do change. However, if you see people as future leaders in your organization, make sure they know it. Often times, leaders assume their most talented staff know they are valued and have a place in the future vision of the firm, yet this isn’t communicated. Set a clear path for them and provide them the training and development opportunities necessary to grow into the roles you see for them.
2. Embrace the power of mentorship. In the booming economy, senior leadership and key players within your firm were traveling quite frequently — often globally — and have the frequent flier miles to prove it. Now, many leaders are traveling much less, often as a cost-saving measure or perhaps the workload and client opportunities don’t necessitate the travel. This means the leaders in your firm — the talented people who have driven it to success — are now in the office. They have time to sit with younger staff and mentor them. Take younger staff to meetings with clients or community groups that you weren’t attending before. A quick coffee or lunch that wasn’t possible before because of travel is now a chance for mentorship. Senior leadership has a great opportunity today to prepare young leaders for the future.
3. Develop a meritocracy culture. Now more than ever, it is important to reward people for their contributions to your practice, particularly the most talented individuals in the firm who you hope to build your future practice around. Be upfront about your expectations and values and follow through by rewarding those who exceed them. If you challenge your staff to reach for new levels of service, expertise, and design quality you will motivate your stars to shine. This is particularly true for your younger staff. They want very clear expectations and clear outcomes. A challenge for any firm certainly, but those who believe in meritocracy will find great success.

Today’s professional practices require that we develop talent and teamwork both as individual skills and organizational capabilities. It is important to note that these strategies will help you retain and recruit all talent within the organization, not just those who aren’t happy. Firms and leaders who provide mentorship and focus today will be best positioned to win the war on talent tomorrow.

The War on Talent 2.0: Are You Ready?

It is hard to believe that just a few years ago, one of the biggest conversations within the architecture and design profession was the war for talent — or a shortage of talent. Firms couldn’t find enough workers to fill seats much less enough talented staff. Leaders were in short supply. A very limited supply of H1B visas were accessible to architecture and design firms. Times have certainly changed.

The conditions of today don’t need to be explained in detail. Unemployment in the profession is over 15%. Firms are struggling to keep even talented staff. Backlogs are shrinking or in some cases evaporating. Competition for new projects is fierce. Each situation is unique, but common pain is felt by all. However, it becomes increasingly clear that we all have two choices: We can be the victims of these economic and structural shifts or we can be inventors of strategic success and satisfaction.

A part of this success must be setting a vision and developing strategy for the new world of architecture, whatever that may be. The future condition is unknown, but we can control our attitudes and develop scenarios to allow for our success in whatever this condition holds. One future condition that is certain is that the role of talented design professionals will be even greater. And yet where will this talent come from?

The share of the U.S. workforce that has a post-high school education is not expected to rise in the next 20 years. This is a scary fact given the national high school graduation rate hovers around 50% in the nation’s fifty largest cities, and rises only to 71% in the nation’s suburbs. In some of our more diverse urban areas, where much of the diversity needed for the relevancy of our profession resides, the graduation rates drop to nearly 30%. According to 2007 Department of Education Statistics, only 31% of 8th-graders in the United States are at or above proficient levels in standardized math testing. These are just a few of the frightening trends surrounding the struggles of education.

In a Journal of Business and Psychology article titled “Attracting Applicants in the War for Talent: Differences Among Workplace Preferences in High Achievers,” the authors state, “Students with very high cognitive abilities and strong records of extracurricular activities prefer ‘investigative’ occupations involving analytical or intellectual activity aimed at problem solving and the creation or use of new knowledge.” This is terrific news for architecture and design. However, the fact is that only 10% of people are in the top 10%.

Rather than spending all of our resources chasing the top 10%, I recommend we spend more of them chasing the other 90%. We all want a slice of that top 10%. But by developing a vision and strategies that embrace new paradigms and dynamics within our profession we can begin to develop effective ways of recruiting from the 90% and developing them into the top 10%. If we don’t, competitors will. If we wait for the future to happen, it won’t be desirable. This is the opportunity to affect the future health of our organizations that we have been looking for.