Wednesday, July 25, 2012

What's in the toolbox?

There is a lot of soul-searching going on inside design firms these days in face of one of the greater challenges the design industry has ever experienced.

Design businesses have seen hard times before, and past industry cycles have generally triggered incremental improvements to management, but this tidal wave that combines an economic recession with deep changes in the paradigm of real estate development has proved to be a much more disruptive experience and one that requires a different set of tools to retain competitiveness.

Designers are facing an economic downturn, the pressure of fast-pace technological innovation, new project management methodologies, evolving construction practices, and most of all a new owner's dilemma. This time around, design firms will not find a growth model just by making managerial changes: the paradigm has shifted, and organizational changes will have to closely monitor the evolving economics of real estate asset management.

Design activities have at its core a search for new archetypes, and more than ever before new archetypes are also needed in the organization of design. Taking a cue from the movie The Matrix, I think it is time we choose the red pill ...

The business model for architectural firms, interior design firms and associated disciplines is one that has evolved mostly from the inside out - in its essence, the designer’s value proposition is to add value to the built environment and to those seeking to profit from it. But business strategies have been hit by a high level of market volatility coupled with a significantly reduced availability of capital for new construction and property renovations. So instead of billing a premium to sell talent and expertise, design firm Principals find themselves spending a higher portion of billable time performing marketing and business development, and the rest of the time they often feel  they are merely ensuring that the harsh reality of uncertainty does not contaminate the very essence of the creative process in the midst of their teams.

Revenues are down, but so is morale - and without a jolt of transformational initiative, no amount of continued strategic business review can seem to revive the business.

Management level discussions focus around how to survive the current period and how much profitability can be sacrificed to retain existing teams, but it is a fallacy to plan for a future where design services will be provided in the same way they were before 2007. Some firms have been evolving through more or less successful combinations of organizational changes and technology investments. Such examples include progress towards building information modeling and integrated project delivery processes, which the larger portion of firms does not have yet the scale to embark on. But the challenge I hear the most these days is the difficulty to adapt project cost structures to highly competitive fee levels, ensuring quality in the creative product, in the documentation process and in construction administration services.

Basically, where can designers cut costs without abdicating entirely of the premium that derives from talent and experience, and without increasing risk levels in the project delivery?

To succeed, designers will need to interpret at a faster pace the signals of change in the industry, and they will have to make hard decisions about how to evolve their organizations in order to stay competitive. The assessment of the paradigm shift and how it affects each firm must be performed in a well-planned but flexible format, and in a disciplined and frequent way. The challenges that design business managers face today are essentially a difficulty in benchmarking their operating margins, in forecasting revenue given the volatility of the overall market, in defining target market share and in catching up with firms that have a scale advantage.

I have found a good amount of inspiration in the ways to achieve a dynamic and adaptive organization in a very competitive and evolving marketplace in two recently published books:

  • One is the narration of the notable turnaround of Ford Motor Co. (Alan Mulally and the Fight to save Ford Motor Company). What Alan Mulally did at Ford sets an example for all businesses and provides a very inspirational guide to point a company in the right direction. As I distilled it, leaders need to assess the context, understand the risks, outline the goals, define a path to achieve them and then, they need to focus their efforts in removing all the barriers that prevent their teams from performing at the highest level towards those goals.
  • Another source is a publication by The Boston Consulting Group: “Adaptive Advantage -Winning Strategies for Uncertain Times”, which expresses thoughts on competitive advantage in the following way: “Sustainable competitive advantage no longer arises exclusively from position, scale, and first-order capabilities in producing or delivering an offering. All those are essentially static. So where does it come from? Increasingly, leaders are finding that it stems from the “second-order” organizational capabilities that foster rapid adaptation. Instead of being really good at doing some particular thing, companies must be really good at learning how to do new things.” More than just incrementally improving the project delivery model, better performance will come from the speed at which design firms can adapt to the shifting business paradigm. So the million-dollar question for design firm leaders is: what are the factors that influence this shift and what capabilities must we deploy to build a sustainable competitive advantage in the design services industry?

Stated in a simpler form: what is in the designer's toolbox to develop winning strategies, achieve growth and profitability in this uncertain market?

                                                                              Richard Stine - The World of Richard Stine

Each designer and each firm has its own toolbox, based on its history, culture, size and management style. And many tools can be used to achieve a winning strategy. From my successful experience running an international design firm during the recession, I believe that there are 5 key aspects that must be addressed:

Discover new ways to unlock value in design services.
This means understanding that there is a need at all levels of the organization to perform “deeper” services:
  • Don’t just sell design, sell value.
  • Don’t just sell ideas, sell solutions.
  • Don’t just sell services, become a partner to your client.

Advance and diversify capabilities.
Specialization often means that premium value can be extracted from expertise and strong relationship with clients, but we must keep in mind that clients talk to us about today’s solutions while they are looking into the future at upcoming problems they want to solve. Designers must anticipate how they will solve those problems. It is about understanding what the market will want, but also how we can deliver those solutions effectively, efficiently and economically. The discussion about what capabilities are needed to succeed tomorrow and what resources will be necessary to obtain them is critical. It must happen with a sense of urgency, but in a disciplined and measurable way, one that will seek a high return on investment for the firm. More complex systems and processes are expensive to implement and service diversification brings often difficult authority delegation and requires the addition of talent, but if they result in a sustained pricing premium then it is an investment worth considering.

Leverage business intelligence to increase performance.
Today information exists everywhere and at all levels of the firm, but few designers work tirelessly to preserve and extract all the value they can from the knowledge that is created every day. Every idea that is tried leads us closer to success in this project, but it will also help us fail better next time. Every working hour leaves behind a wake of value that must be harnessed and made available to the organization. Leaders must find ways to connect the dots and establish systems where performance can be assessed through the prism of the existing information and knowledge.

Align the artistic vision behind solid business goals without limiting the creative process.
Design firms are businesses and there is no safer path to success than a solid, inclusive, realistic business plan supported by robust and disciplined financial management. However, this is just the baseline than ensures we provide the basic creative service value. The premium value we all aspire  to deliver comes from intangible factors that design leaders must impart to their organizations to achieve successful growth:
  • Inspire the team to define a vision beyond the client’s horizon
  • Engage seniors to better understand market needs to ensure the success of our client’s endeavors
  • Use the modern marketing toolset to increase the ability of the firm to influence 
  • Educate all designers to communicate the intangible value that resides in the emotional component of design: if all designers speak a language of value, then the premium will be easier to deliver.

Define a Vision and turn it into a Culture
Successful leaders don’t just plan and execute alone or in committees: they engage the seniors, they include the juniors, they mentor by default, they encourage training and education. Vision in a black box is no more than a short-term plan, but Vision in a transparent box can become a Culture, and when a positive Culture pervades an organization, then growth and performance become the natural mode of work: the firm will retain talent, it creates opportunities for careers and it increases the value of the business.

So these are my building blocks for the new normal. Now, it's time to get to work ...

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