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 ...
