Innovating in response to evolution and change in professional practices
In this issue of DesignIntelligence we focus on issues of human resources and executive compensation. Benefit, bonus, and compensation practices and policies in professional practices are evolving and modifications are unfolding; a phenomenon driven by new technologies and improved systems of lean management. Innovation is a key consideration as firms experience evolution and higher profits in their professional practices.
All this change can be good. However, for some there is also a downside and this can lead to unintended consequences that disrupt short term progress and otherwise harmonious human relationships. Let’s examine what’s behind the compensation changes in leading practices today with some corresponding actions that you can take some satisfaction in.
Everywhere in our AEC Industry, innovation is accelerating. We’re learning that certain advantages accrue to the firms who adapt to new tools and software systems faster than the pack of average firms.
There is a fair dollop of optimism over the future and one of the reasons is that today’s technology choices provide new leverage to human talent. Of course, these choices can become disruptors too, but in most instances technology enhancements are enabling the achievement of faster and better results that will benefit professionals and their clients.
The economic recovery in 2014 is giving a shot in the arm to firms who want to invest in the resources to put in place new processes, technologies, and talent. Just two years ago good positions were hard to come by. Today it’s an altogether different story. Now, the majority of firms find themselves with vacancies and some are aggressively hiring. A recent Design Futures Council Roundtable discussed the new era approaching zero unemployment in the fields of architecture, engineering, design and construction. The supply/demand economic principle is beginning to cause a trend toward a (slight) rise in salaries, sometimes with the development of significant bonus levels and profit sharing.
What’s next? First, understand that the economic recovery is benefiting the owners of firms and their executives first — those who have often taken the biggest risks to stay strong during the recession. Readers of DesignIntelligence will recall that some professionals significantly lowered their own base pay in order to reduce overhead and conserve resources. Some froze salaries for three years. Now, economic benefits come to those who were diligent to survive and to keep their organizations strong in the face of the recession. Moreover, there is now a pent up expectation that salaries and bonuses will begin to rise at a faster clip. At this time however, the base compensation tables in DesignIntelligence show that base compensation is largely flat from 2009-2014. Don’t let this discourage you as there is more happening than what appears on the surface.
Philosophically we believe that it’s time that firms advance compensation levels significantly to those who are in the entry points of the profession. This can have the effect of making the profession more attractive to the best and brightest young talents. Is the money/investment available? Yes, in most firms it is available and it should be seen as a priority to strengthen the authority of the architect and engineer in the future. Investment in young talent is strategic. Entering 2014, professional practices report gross revenues per FTE has now surpassed $180,000 and trending to further increases. Surely this bodes well for future professional’s base salary as well. This can be achieved it seems to us because it is the smart and strong youthful staff working with good firms with new machines, new technologies, and robots who will deliver value strengthening the design enterprise. Just as we invest in new technologies it is time to invest in young talent beyond status quo levels.
What is the correlation between compensation and innovation? It seems to be significant. Case studies by the Design Futures Council show how innovation improves productivity by creating new and deep specializations. Innovation also leads to the practical invention of new tools — both hardware and software of course but also new and better management systems. Thus the marketplace is being significantly and permanently altered (and, in most instances, enhanced) by these changes. The design professions could benefit considerably, but the full potential has yet to be realized. Architects and other design professions find themselves trending towards an epoch that will be leaner and faster, which is all good; until it displaces productivity traditionally handled by humans, after which we may face a sobering reality, indeed. The future marketplace will most likely no longer need journeyman architects. Change caused by innovative systems and tools will disintermediate vulnerable positions. This is especially true in technician roles. Wherever there are tired professionals who are not rapidly adapting to change, you can expect one form or another of change on the horizon. Thus, we see early retirements and a migration toward the less stressful “safe” careers where compensation is often lower, with commensurate responsibility and status. Safe careers in the AEC Industry are increasingly scarce. The irony is that these positions will not only be lower on the food chain with lower pay but often the most stressful of all. The reason? Loss of control over one’s own future.
An otherwise capable professional who ignores new software, systems and collaborative solutions can become irrelevant within a year or less. Most will agree with this but in practice it is hard for all of us to get out of ruts we have become comfortable with. And change is all around us. Can you imagine your life without smart phones, weather satellites, tablets, 3D printing, Google? All these innovative tools have disrupted careers and caused job descriptions to be enhanced, changed or in some cases eliminated.
Economic vitality and relevancy of design professionals in today’s context has the potential toward being enhanced to exciting new levels. Professional practices reliant upon strategic innovators or fast adopters of innovation will have ongoing competitive advantages so long as they have human talent to orchestrate and manipulate the new paradigms for maximum benefit.
There are at least four baseline considerations that will bring new health to firms during this time of strategic change.
1. Meritocracy, not tenure, brings out the best performance in professionals. The more repeat experiences with corresponding habit patterns a person has, the more they will be likely to dig themselves into a hole. These habit patterns can have diminishing returns. Profitability can shrink from 15% to 5% quite rapidly if wasted time is not addressed. This is why continuous improvement attitudes embraced by professionals will underpin a firm’s strategic profit power. You have no doubt heard the phrase “culture trumps strategy.” It’s true. But the opposite is also true and the meritocracy culture can advance strategy faster and better; in this context, compensation in each position is often in the top quintile. We see very few firms in the top quintile of performance who do not have a meritocracy system in place. The worst trap is to have an A-grade cost base alongside a B-grade staffing model.
2. Organizational health is necessary to achieve design excellence. A firm can’t achieve the potential of its design talent when that organization is poorly managed. Yet, a sizable number of organizations admit that they are weak in business management (including finance, operations, and marketing). If this trend is tolerated by owners, firms will lose more often than they will win in this time of tough competition. Formerly strong organizations will find that their culture lacks confidence and persistence, and eventually be overcome by fear and/or worry because business management is sub-par.
3. Robust internal communications in professional practices are mandatory, but (still) rare. As new knowledge unfolds, communication is important to expand learning potential. Improved communication often only requires 3 percent new and focused effort by leadership. Strategic innovation is enhanced when the whole team experiences timely and robust communications. Great internal communication is possible in every professional practice. Furthermore, it is achievable in a surprisingly short time; a world of difference can unfold in under two months. Rigor in internal communications needs to be a priority and there will be noticeable ROI.
4. Self-doubt can be a good thing — if it’s short term. For leaders who supervise staff, the biggest competitor is often themselves. Cynical views of the future are a destructive and self-limiting characteristic. Some professionals miss out on opportunities to transform themselves and their organizations. Instead, they are leaving it up to the underperformers to define the culture of the organization. This can result in the creation of a path to nowhere.
We live among vast arrays of contradictions today. It’s exciting and scary at the same time. Perhaps you have heard the story that 82 percent of people say things are getting better and 82 percent say things are getting worse. And yet always we learn that it’s the response to events — not the events themselves — that determine both our future and our satisfaction in the present. In other words, it’s possible to create the future we want. It’s a self-fulfilling expectation.
In our management consulting experience we have come to understand that many firms have the potential to experience high revenue growth and correspondingly best of class profits and salary rewards. Nonlinear shifts all around us will have a tendency to branch out the architecture, engineering and design professions. Because of this we expect to see new horizons for professional service firms. Boundaries that formerly defined our AEC Industry are being stretched into new forms and services. Some firms considered as “best places” to work are enhancing their current assets and technologies and human resource policies that favor new delivery experiences of higher value. These firms are demonstrating why it’s such an exciting time to be in our industry.
Will innovation and change lead to a new golden age of professional practice? There is a growing body of leadership who believe that this is achievable. Moreover, their vision is being translated into new entrepreneurial business models.
These new models will attract talent and that talent will no doubt be compensated in the top two quintiles and beyond. Without top-tier compensation practices, professionals by default will opt out of the big leagues of successful decision makers in the new AEC economy.
James P. Cramer is founding editor of DesignIntelligence and co-chair of the Design Futures Council. He is chairman of the Greenway Group, a foresight management consultancy that helps organizations navigate change to add value,