China overtakes US as largest construction market

A recent article in the Financial Times noted that in 2010, China spent more than $1 trillion on new building projects, overtaking the United States. Comparatively, investments in construction - both private and public - decreased in the United States from roughly $1.5 trillion in 2005 to $983 billion in 2010. Decreasing opportunities in the United States - and increasing opportunities abroad - are of no surprise to most architecture firms in the US and firms of all shapes and sizes are now working in overseas markets.

Since 1998, Greenway Group, on behalf of the Design Futures Council, has conducted the Multinational Design Firm Fee Survey, which examines the 30 largest exporting architecture firms headquartered in the United States. Nine firms have held a spot on the Top 30 list for the past 12 years:

• Arquitectonica
• Cannon Design
• Gensler
• HOK
• Kohn Pedersen Fox Associates
• NBBJ
• Perkins + Will
• RTKL
• WATG

Fee growth by firms in the DesignIntelligence Top 30 US-Based Multinational Design Firms has taken place every year for 12 years without exception - and we expect 2011 to be no different. The annualized growth rate for the DI Top 30 in their non-US based revenue is 29.9%. A report released by Global Construction Perspectives forecasts that China will account for 20% of total construction by 2020, up from 14% today.

We believe that developing resilient strategies and engaging foresight scenarios is critical for firms engaged in international work, and for those exploring opportunities in these markets. Is there money to be made? Of course. But for inexperienced firms, there may be more to be lost. Are the design opportunities unique? In many cases yes.

The design professions, particularly the A/E/C community, have a tremendous opportunity to impact future development of cities, whether in China or in another slice of the $97.7 trillion global construction market over the next decade. How globalization continues to shape our practices - and how we in turn shape our environment - is a constantly developing paradigm of practice. We may not know exactly how, but we certainly know that within the challenges of global practice lay numerous opportunities for growth, prosperity, great service, and meaningful design.

What Just Happened?

A Brief History of the 21st Century and What It Means for Design

A mere 10 years ago, our biggest worry was Y2K. We were bombarded with dire predictions about computers going crazy at one second after midnight on Jan. 1, 2000, snarling all things digital and randomly rearranging our e-mail, financial records, and air traffic control. Some people even canceled their New Years travel plans, fearing that their jumbo jet could become hopelessly lost in the heavens. Alas … didn’t happen. But in the intervening decade, a lot of other stuff did.

With 9/11, the prospect of systematic terrorism on U.S. soil was thrust onto center stage. This was followed in short order by a war that seemed to be over within months but hasn’t ended yet. Then a huge surge in the stock market created historic levels of new wealth, which in turn fueled unprecedented growth and prosperity worldwide, especially in China. Awareness of global warming also made an appearance, just in time to cast a pall over the burst of industrialization. Then, of course, the Great Recession, from which we learned that if enough people in Florida get behind on their mortgage, an entire country can be bankrupted (Iceland). Who knew?

While all this was going on, nerds from Stanford (Larry Page and Sergy Brin) and Harvard (Mark Zuckerberg) were pulling all-nighters inventing Google and Facebook, which allow us to find out pretty much anything we want to know on a 24-7 basis and then share it (along with our most intimate secrets) with thousands of our closest personal friends.

Toss in a few natural disasters (tsunamis, hurricanes, and volcanoes), and just for good measure, add the very real prospect of nuclear proliferation, courtesy of Iran and North Korea. That’s a lot to digest in just a few years.

What have we learned from all this?

The key lesson is connectivity. Politics, finance, commerce, weather — everything is intimately intertwined, we’ve come to understand. Even a very small change, like a degree or two in the average temperature of the ocean, can have huge consequences. As a result, we have developed a new appreciation for systems thinking and the power of context. From this, a different kind of economy has emerged — one that is more about creating networks and experiences than making tangible things. In turn, individual effort is being supplanted by the power of teams, with a focus on partnering, value creation, and collaborative learning. Indeed, mass collaboration is the only way we can succeed from here on out.

Why is this so important for designers? Because design thinking is what creates the interface between technology and people. Design helps us deal with change, making disruptive innovation possible. Case in point: Technology made Internet banking plausible, but it was the design of the ATM that made it accessible and then pervasive. Ditto for cell phones, iPods, and e-books.

Access to huge amounts of information would be meaningless without a way to organize, manage, interpret, and apply it. The amazing tools that have been developed in the past 10 years are merely a preview of things to come. For example, now that the human genome has been decoded, the possibilities for inventing new medical therapies are literally boundless. Google maps already keep us from getting lost, but pretty soon they’ll actually be doing the driving as well, knowing in advance which motels have vacancies.

And what about buildings? Today, they are relatively inert, but in the future, they’ll develop thinking properties, manufacture their own energy, adjust their heating and cooling systems automatically as weather and occupancy change, and even make more coffee when the pot runs low. They might even become kinetic, swiveling on their foundations to catch every available solar ray or gust of wind, essentially becoming very large, self-charging batteries in which people happen to live and work. Design will make all this, and much more, possible.

Throughout history, various classes of leadership have emerged to shape society and culture. There have been religious leaders (pharaohs and popes), military leaders (kings and generals), business leaders (industrialists and financiers) and even artistic leaders (from the Renaissance to rock-n-roll). Because the world has become so complex and interconnected, the next generation of leaders must include a new kind of priesthood: design thinkers.

We’ve already seen how powerful design can be when applied to improving mundane products such as vacuum cleaners and luggage. How much more pervasive will it be when applied to whole systems, such as health care, education, or even government? Could designers create a justice system that is swift, fair, and inexpensive? Why can’t going to court be as simple as renting a car?

You get the idea. Design, which is both a verb and a noun, is about process as well as things. This is powerful stuff. Design enables us to explore the unimaginably small (via the Large Hadron Collider at CERN) and the immensely huge (via the Hubble telescope), plus everything in between. It’s how we envision and invent. Most important, it’s essentially optimistic. Design thinking assumes successful outcomes and carries a conviction that there is always more than one way to solve a problem. Design is also democratic. It’s about what works, and anybody can do it. Design transcends borders and is not inhibited by cultural or language barriers. A great idea travels fast and is easily adopted and adapted.

But here’s a question: What will we call the great designers of the second decade of the 21st century who will provide the new ideas, strategy, and leadership that are so desperately needed? Will they be architects? Architects are creative, to be sure, but to be truly effective, they also need to develop an appetite for risk and entrepreneurship.

Perhaps it’s time that design thinking is applied to the design profession itself. How should we be training the next generation? What do they really need to know? How fast can they learn it, and by what means? How can design thinking be broadened to include other disciplines, such as finance, politics, and medicine? Why not think of business managers as process designers, law enforcement officials as designers of secure neighborhoods, and public health officials as designers of our collective good health? Getting the right answers starts by asking the right questions, and designers can lead the way.

Leaders for Today’s Challenges

Each day I get asked about — or find myself in a discussion about — executive level leadership. Both the American Institute of Architects and the National Council of Architectural Registration Boards are looking for their next chief executives. Several of the largest firms in the country are also considering transitions in their leadership brought about by economic, demographic, and opportunity shifts in their professional practices.

These search and selection processes give us pause. The stakes are high. How should these organizations determine the best leaders?

Whatever else the leader’s role in an association or professional practice, there are 10 base essentials. When these foundational characteristics are present, the organization functions with energy and competence to serve its mission. Here is what I believe is essential.

1. Leaders act as both visionary and key day-to-day resource for overcoming difficulties. They set the tone for the can-do culture of the organization.

2. They develop and conceptualize the organization’s tactical plans to accomplish strategic ambitions. They develop and keep clarity around goals. This develops strategic optimism.

3. Communications are sincere, open, and energized. The leader is not intimidating and has the wisdom of perspective, good humor, and agility to work with a diversity of situations.

4. Leaders are able to manage demanding schedules, and their agenda is always focused on what matters most.

5. They listen and then coach every situation they find themselves in.

6. Financial matters are monitored, measured, and communicated, and these leaders tend to consistently bring in the bottom line — no matter the excuses of the day.

7. There is an ambassadorial quality about them. They are sought out to problem-solve and inspire along the way while building bridges.

8. Today’s issues are never ignored, and there is a sense that the longer-term plans can be realized through today’s actions – no matter how painful.

9. Resilience is manifested in the language of the leader who is prepared for inevitable surprises.

10. Accountability is never shirked and the leader takes final responsibility for results and outcomes. This is a stand-and-be-counted attitude that becomes contagious in the life of the organization.

Leadership is demanding. Great leaders are rare. These 10 characteristics are framed by lifestyle and attitude. Leaders are not perfect, but they have an uncanny knack for applying sensible, inspired, day-to-day actions that make all the difference.

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.

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.

Raising Our Young

There has never been a time in human history when strategic foresight was more needed. The American Institute of Architecture Students delivered a good dose of it last week. In fact, the AIAS Forum in Minneapolis was an exemplar in several ways.

The Twin Cities’ below-zero temperatures and deep snow did not cool the Forum participants’ expectations that this would be a relevant and dynamic session. More than 500 students participated, 20 of whom were vying for elected office in AIAS.

As the students energetically took over the Hyatt Regency Hotel, there was an organized and spontaneous discussion on meaningful change and overcoming difficulties. Furthermore, there was palpable passion for the future brimming with ingenuity. The emerging environmental leadership was at once sophisticated and convincing.

There is a saying that you can tell a lot about the future of a profession by studying how well that profession is taking care of its young. This meeting is one positive indication. The AIAS experience included leaders of the profession such as the presidents of AIA, ACSA, and NAAB as well as the president-elect of NCARB. All were in attendance providing programs, speaking, coaching, and listening. They were actively engaged in table-top exercises, too. And none of them seemd the least bit inconvenienced by the timing of this event over the holidays. (The meetings began Dec. 29 and ran through Jan. 1.)  They did not dominate but were jump-starting conversations on future opportunities.

George Miller, the president of AIA and a partner at Pei Cobb & Freed architects in New York, illustrated how students can transcend the current economy and get involved in the profession with examples. His was an upbeat assessment of the future of the profession. NCARB President-Elect Ken Naylor pointed out how Intern Development Program credits can be earned under newly revamped NCARB rules. (The new “Emerging Professional Companion” outlines how AIA Learning Units equal one qualifying IDP hour and how in one year online activities and exercises can be used to gain 225 training units — nearly a year’s worth of IDP experience, very helpful for those interns who are currently unemployed.)  NCARB is showing its responsiveness in this economy, and this is a good thing.

The student leaders at AIAS Forum are an impressive lot. Keeping them engaged in the profession is one of the most strategic actions that AIA, NCARB, and the rest of the profession can do. And this is real foresight for the future.

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.

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.