What’s Unfair about Competition?

Lunch at the Hyatt Regency Dehli, New Dehli, India

A few weeks ago I was in New Delhi, India, where architectural services cost about a fourth as much as they do in North America. This low-cost option has been perceived as the driving reason for the outsourcing phenomenon of the past decade. Some view this as unfair competition.

North American firms have contracted for parts of their technology services to be accomplished overseas. This has created an around-the-clock service model. China and India have become the global leaders and the preferred choice for outsourcing services. Today, some North American and European professional practices have their own captive “insourcing” operations in India and Asia to support their other offices where labor and overhead are often much more expensive.

There are parallels in other professional practice areas. In the management consulting and technology field, U.S.-based management consultancy Accenture says that its firm in India will grow by more than 5,000 staff this year and will surpass 55,000 in India alone. And it predicts continuing growth that will not only serve the growing needs of India but significant parts of the developing world and developed world as well.

There is much more to this story than low cost/high quality talent, however. And this difference is not just about low cost. It is the high level of diligence and work ethic among professionals in India. Little waste in process, focused attention, lean overhead, very latest technology, and speed. Executives travel to client offices via coach class, even for a 15-hour flight. When they book their hotels, it is two to four people per room. They are eager to please, and their enthusiasm for the future of the design professions is contagious. This lean overhead, high work ethic culture has redefined outsourcing of architectural services. We believe it will continue to do so.

While the building information modeling skill levels in India have become legendary in just a few short years, the innovative nature of Indian professional practices is not just a story of technologically advanced practitioners in architecture and engineering.

Indian professionals have catalyzed fundamental change during the world’s recession. They have found new ways of meeting client needs, including meeting those that clients didn’t even know they had. They are eager imagineers of the future of professional practice.

Global innovators see opportunities that others are missing. They find service niches that are changing the face of the architectural and engineering business. Furthermore, they are matching their capabilities and quickly adapting to the world’s changing markets.

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.

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.

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.

A Time for Leadership

I recently have been rereading “Building Community:  A New Future for Architecture Education and Practice” — more commonly known as “The Boyer Report” — written by Ernest Boyer and Lee Mitgang. This project, led by the Carnegie Foundation in partnership with the AIA, AIAS, NCARB, ACSA, and NAAB, was initiated in 1987 and published in 1996. Many of the profound observations made by the report are as applicable today as they were 15 years ago. I believe that as a profession we still have a long way to go in addressing, much less meeting, the charges set forth by the authors. It is in many ways disheartening that we have failed to deal with these vital issues as a profession and yet slightly encouraging that the same issues remain at the forefront of discussions in many leading institutions and professional practices across the country.

I have been particularly struck by the last of the seven goals set forth by the authors, that of service to the nation. This motivational section takes a  profound look at the role architecture and design can have in the creation of better neighborhoods, communities, and nations. As the authors so eloquently state,

In this time of continued uncertainty for our profession and for our planet and its people I believe it is time for us to step forward into the role that Boyer and Mitgang challenge us to achieve — that of vocal and knowledgeable leaders. Now more than ever, the vision and talents of our profession are needed in our communities. Design thinking can and should be at the forefront of decisions we are making about our future. Rather than sitting on the sidelines hoping that the past returns or bemoaning the current state of affairs, we — collectively and individually — must lead. We can contribute greatly to the discussions. I firmly believe this is the opportunity our profession has been looking and waiting for. It’s time for leadership!

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.

An NCARB Lesson from Chicago: It’s Time to Think Growth

Let’s face it, the economy is not going to improve dramatically anytime soon. Architects and designers have been in an economic bubble that has proven to be unsustainable from several viewpoints: the developing world, macro and micro economics, real estate credit markets, and green and sustainable design.

Nevertheless, it is time to look at a new growth attitude. Here I’m talking about growth in quality, growth in green, growth in regenerative systems, and growth in our personal human relationships. At last week’s National Council of Architectural Registration Boards (NCARB) annual meeting in Chicago, there was a good deal of chatter about systematic, stratetic processes that are being put in place that will result in sustainable delivery systems. SOM’s presentation on the Chicago 2016 Olympic proposition was a case in point. With the marketplace changes, architects and designers can create not just incremental gains but exponential leaps by recognizing how professional practices are adding value to future opportunities. New and higher mental set points need to be established that focus on the changing marketplace. You will discover a richness of opportunities just below the surface.

Indeed, there can be growth in your value proposition — in your relevance to the clients of tomorrow. It’s time to create clarity about all the factors that affect your professional practice and understand that the problems and issues you have today are not insurmountable. In fact, they will give rise to new growth.

The unexpected lesson from NCARB in Chicago: It’s time to dislodge your professional practice from the rut and into the tango that is integrated project delivery. This is where the NCARB annual meeting had more than average relevance — apply some or all of these tactics and you’ll not only make the design professions more efficient, the planet greener and safer, but you’ll also get on track for superior success.

A Source of Optimism in These Crazy Times

In a recent issue of Inc. Magazine, best-selling author and management guru Jim Collins was interviewed about thriving in light of the current economic “crazy times.” As someone who has made it his life’s work to study organizations, Collins exhibits a remarkable - and reassuring - energy about the future. When asked about the source of this optimism, he said,

“A lot of it has to do with the young generation. A general at West Point told me, ‘This is the most inspired and inspiring generation to come through West Point since 1945.’ I see the same thing with the young people who come to work for me. They have a sense of responsibility and service and a lack of cynicism that is remarkable and wonderful. It’s an ethos, and it’s collective. That’s what’s really powerful. It’s connected technologically. It’s not grandiose, but there is a fundamental assumption of being part of a much larger world and a much larger set of aspirations. The world can be a really awful, brutal, turbulent place. And yet I’m hopeful precisely because of this generation of kids. I really think we ought to just give them the keys as soon as we can. Let them run it.”

I think if we were to examine those architectural practices weathering the downturn most successfully, we would see the same optimism for the future - and for much the same reason. Leaders who remain connected to their staff and take time to mentor - and be mentored - are positioning their firms to retain the most talented staff and recruit even more as they continue to grow and succeed.

Firms are only beginning to develop strategies for engaging the collective ethos of the young generation. I am hopeful that as they begin to do so, we can overcome some of the cynicism that at times overshadows our profession and instead put the energy we all share toward improving the future.

Coming from a leading thinker like Jim Collins, this is reaffirming to my work both as a graduate student and with clients across the country. As a member of this young generation, I spend a growing amount of time studying our ethos and talking with fellow designers and architects who see the world in the way Collins describes. The many talented young professionals across the country are constantly energizing me, as are the leaders of firms that allow them to thrive. As with Collins, they too are the source of my optimism and excitement about the future.

I’m interested in any initiatives or cultural qualities of firms that have been successful in beginning to focus on this issue or ideas about how they may do so if they haven’t already. Strategic optimism in the face of the turbulence of daily news is contagious and elevates the profession and all those within it and affected by it.