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.

Live Your Life - The Holstee Manifesto

Holstee is an organization was founded in 2009 by two brothers who are passionate about sustainability and wanted to pursue this lifestyle and its links with innovative design. They have produced a variety of products including shirts, wallets, and jewelry - you can find more of their products here. To help its customers understand the ecologic impacts of the product they sell, Holstee has developed a series of badges which describe the key sustainable elements of each product. They have also taken great care to address issues of shipping and packaging - two significant issues for the sustainable product realm. And if this wasn’t enough, Holstee has committed to using 10% of all sales as micro-loans to entrepreneurs in developing countries.

Holstee has tied this all together with their manifesto. Not only graphically pleasing, but also contains powerful beliefs which guide the organization. Not only has it generated a decent amount of press, but it also makes their consumers aware of who they are and what they believe.

What if you were to develop a similar “manifesto” for yourself as a design leader? What would it say?

How about for your professional practice or organization? What bold public statements are at the core of your work - define the essence of your practice? Are they different than your personal beliefs?

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.

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.

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.

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.

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.