Unlocking the hidden value of design services - Part 1

This might be shocking to hear but I believe the recession has been good to the design industry.

Don't take me wrong, I know from the inside how much design firms have suffered during the last few years. Many businesses have folded under the weight of overhead costs they could not eliminate or the debt they could not repay. For others, the lack of profitability seems to have permanently discouraged partners from investing in their firms and it has led many practicing designers to lose faith in the profession they have worked so hard to belong to.

When I started this blog over a year ago, I set out to explore how sanity in the design profession required such a fine balance between leveraging the magical experience of creating something new while remembering that what we create must have value to others. Understanding the post-recession re-tooling of creative professions was my goal and it all started with my first post “What’s in the toolbox?”

So why do I say that the recession has been good to design businesses?

Because now that designers are finally seeing an increasing number of interesting RFPs flowing-in as well as a steady rise in billings, the holders of equity in firms are realizing the full potential of their newly-acquired “recession-survival” skills: they have learned to appreciate the value of the information contained in financial statements, they have developed selling skills they never thought they had, and they are reaping the benefits of a focused strategic thinking.

The professional landscape has changed and designers are now guided by a new map.

I am surprised by how frequently these days designers mention their attendance to real estate and investment conferences, their active presence in social media platforms, their new-found curiosity for Gen Y'ers and Millennials, their interest in deploying financial resources in technology and their deeper understanding of metrics that help them run better performing businesses.

All these interests bring improvements to the economics of the design services industry, but I have also noticed that what I consider to be the best measure of success is often absent from the conversation, crowded out by all these new and exciting activities. I am talking about that one element that has been the foundation of so many designers’ careers: a satisfied client.

I think there is a real risk that the search for operational efficiency might become the Holy Grail of designers focused on surviving the next economic dip. If firms make the keystone of their mission to become well-oiled and lean machines, they might just crowd-out the Client. While I insist that the recession has made many design practices better managed businesses, designers should not forget that the success of their services results from contributing positively to the goals of their clients.

So what do we get from satisfied clients that return with more work?

• They increase the profitability of the business by reducing the cost of sales

• They become an active part of the firm's marketing strategy – providing referrals and tilting the needle of trust in the right direction for other potential clients

• They increase the intrinsic value of the business by solidifying the client portfolio and helping raise the backlog baseline

• And last but not least – they provide the most significant and elusive reward a designer can get: a compliment for a project well delivered.

Here's the challenge: design firms need to be professionally managed to succeed but if they seek efficiency solely by approaching design as a goal in itself, they will only survive until the paradigm is disrupted again. But the firms that approach design services as a dynamic and evolving process by which they leverage their client’s ability to succeed, those are the ones that will perpetuate the business.

As designers seek to define their value proposition in the current economic environment, they must strike the right balance between the cost of the resources they apply to each endeavor and the opportunity cost of those resources. It is only by striking the right balance that we can maximize the productivity of each creative professional in the organization and unlock the hidden value of our services.

Design professionals are particularly vulnerable to over-servicing and under-valuing their involvement in projects, and that risk increases exponentially when clients do not provide the adequate level of project management. By delivering effectively on the services that clients have bought we can achieve a baseline profitability, but by actively expanding the scope of work and up-selling services that are perceived as adding value to the project, then firms can truly leverage their resources to maximize the performance.

In my next post, I will explore examples of actions that leverage this new management approach and unlock the value of design services.

The essence of privacy: designing for individual needs

Not long ago privacy was a concept that related essentially to the physical world. All human beings need time to be with themselves: to rest, to reflect, to pray, to prepare mentally for the outside world or just to enjoy quality time in small groups. Finding a place to be alone or to enjoy privacy was not difficult. 

Then, in a short period of time our lives were taken over by an ever-growing dependency on the digital realm and rather than relating to the fulfillment of individual needs, privacy became instead a way to quantify the amount of personal information that we share with others, willingly or not.

If privacy is less and less a physical experience, how do we frame the need for privacy in todays built environment? Our homes are places where we can still affect some degree of control over what we share about ourselves, but how can we achieve it in the public environment: in the workplace, in leisure areas, in hotels or in cultural venues?

In his inspirational book "The Poetics of Space", french philosopher Gaston Bachelard wrote:

 "... the house shelters day-dreaming, the house protects the dreamer, the house allows one to dream in peace."

The complaint about lack of privacy is not a real one as most people knowingly accept some interference with their personal lives in order to benefit from the enhanced reality provided by our permanent sharing. I believe it is the ability to find some sort of personal space to be oneself without the involvement of others that can provide us with a sense of privacy. Even if we remain connected, we need to be in control of our environment. Privacy is probably shifting from the "alone-together" idea that used to be common in libraries, museums and churches, and moving towards a "together-alone" behavior where we can selectively connect to the wider community in some form of seclusion.

I wonder if the growing appeal of calm and serene wellness destinations does not come from this inner desire to be in a bubble where the outside world is kept somewhat at bay. It is not unusual to see people in spa relaxation areas with their smartphones or tablets. They might be enjoying leisure activities but also replying to a work email - but they still feel relaxed because there, they feel protected.

I used to think that being in an airplane provided me with a distance from the real world and for a few hours I was in privacy, even if the passenger next to me was clearly inside the most personal area of my proximity sphere, where usually no-one besides my family can stay for such a long period of time. But now we can connect to the world from the plane, and although I try to resist it, there is a sense of guilt in insisting to have those few hours all for myself.

So how do we address the design of public spaces to ensure that we create the "new privacy" that people seek?

The ability to personalize interiors is the bridge that separates public and domestic spaces, but as urban dwellers become more transient, empowered by the tools that have fostered globalization that allow them to be in multiple locations simultaneously, the challenges to the design of public spaces include trying to create those dreaming and reflecting places without interfering with the every-day life.

In "The Architecture of Happiness", Alain de Botton shares sensitive insights into the nature of human needs that we should keep in mind:

"What we seek, at the deepest level, is inwardly to resemble, rather than physically to possess, the objects and places that touch us through their beauty."

I take this to mean that if we can create a sense of identity between people and the spaces they inhabit, then we can trigger a positive connection. So much of what we call "connection" these days is so short-lived and superficial, that if we use the permanence of architecture as something that people can experience, then we touch them at a deeper level and imprint more memorable experiences. And if people experience that physical connection then we can start exploring new forms of privacy.

Relating this issue to the design of hotels is my immediate reaction as those are the spaces I deal with professionally, but I am interested in the public sphere in general. I always learn from watching how people behave in public and I've researched recent projects in the cultural field to make some sense of this important driver of design.

Charles E. Young Research Library

In the Fall/Winter issue of IIDA Perspective Magazine, UCLA Deputy Librarian Dr. Susan Parker leads an interesting tour of the recently renovated, high-tech and socially mediated facility, where physical books as well as technology and privacy held equally important places in the brief to designers Perkins+Will and Eva Maddox Branded Environments.

Perspective IIDA - Fall/Winter 2012 (pg. 14) 

I invite you to discover how relevant some of the aspects of this library's design are for wider thought about public spaces, but a particular comment stayed with me:

"We have a progression of spaces within the library, inviting people to explore and find areas that are relevant to them. That echoes the metaphor of discovery - of knowledge - that happens in the library."

It is so important to create the possibilities of self-discovery, as those will provide people with a sense of individuality, with the ability to customize their environment around their behavior, and ultimately enable that elusive sense of privacy. 

East Hotel - Hong Kong

Just recently I stayed a few days at East in Hong-Kong. East is part of Swire Hotels, owners of  The Upper House, which in a past blog post I elected as one of the game-changers in the hospitality market ("Hotels of the future: will they be comfortable?").

Entrance (from: SassyHongKong.com)

East is a wonderful example of a hotel where all spaces are able to retain the ability to treat each guest in an entirely personal way, where travelers that are focused on the reason for their trip can feel as if there is a little bit of home there, and still enjoy communal  areas in a very relaxed way. As I said before, most people have accepted to live with smaller intimacy spheres around them, so the answer to creating some privacy possibly comes from having a variety of contiguous spaces to satisfy different needs. It could be the ability to jump into a private call by moving away from the louder areas into small acoustically appropriate compartments and a diversity of seating layouts that can accommodate both formal and informal gatherings in the same space, allow for work, relax, alone or together.

Sugar Bar (from: swirehotels.com)

And in the guestroom, then more freedom is permitted to provide that variety, sometimes with a bit of gimmicks and otherwise just by providing natural and serene comfort with the focus on the bed, the lighting, the shower and in this case ... the view!

Suite (from: swirehotels.com)

How much does your building cost, Mr. Designer?

I recently watched the remarkable documentary: How much does your building weigh, Mr. Foster?

Led by a singular vision and determined rigor, for the last 30 years Norman Foster's practice has been at the nexus of innovation and aesthetics in architecture. Not only has he grasped with unusual clarity the multi-dimensional problems raised by modern urban development, but he has also consistently delivered design that is aligned with his client's goals.

In the movie, as we marvel at his mastery of the design process and his use of new light-weight materials at the Sainsbury Centre for Visual Arts, we are caught in a wonderful twist when Buckminster Fuller, the Yoda of the built environment, asks the Architect one of his incisive questions: "So, how much does your building weigh, Mr. Foster?".

Sainsbury Centre for Visual Arts (Norwich, UK - 1974-78)

The Architect did not have the answer, but once he found it, this insight was incorporated into his process and became another critical variable of design: an additional element of value to clients that seek his firm's expertise.

As I watched this, I thought of another critical question which so often turns designers and building consultants into masters of evasion:  "So, how much does your project cost, Mr. Designer?"

I do believe that it is the role of the design professional to challenge the Client's assumption, all of them, without exception. Clients, whether they are owners, developers or investors allocate a portion of their budget to hire talented and experienced consultants with the expectation that they will contribute to achieve or exceed the project return on investment. The perception of value will be ever greater the more the client feels that the consultants are sitting on his side of the table, looking at the problem with the same set of eyes, although with a different set of tools.  

It is a reality that increasingly fragmented technical disciplines dilate costs estimates to wide intervals that leave too much uncertainty in the project, and result in extensions of the decision-making timeline. This in turn increases the project costs for the consultants and initiates a spiral of negative value sometimes as early as the schematic phase of the project.

Integrated Project Delivery (IPD), a collaborative process between all consultants to optimize project results, is beginning to address this problem, but it is taking time to reach the base of the design services pyramid. Even in robustly managed projects, I have seen design solutions advance well beyond design development before cost assessments become an objective element of project management. Why do I think this happens?

• Maybe the client feels that it might constrain the creative impulses of consultants while they are focused on the conceptual aspects of the project?

• Or maybe project managers believe that strong concepts can always be budgeted down, but that budget-conscious designs can't be upgraded successfully?

• Or maybe designers are all too aware of the fact that when design documents are sent out to bid they will be inevitably simplified, and they pursue high-level concepts regardless as long as someone else is paying for their time?

• Or maybe the coordination of work between disciplines during the schematic phase is always seen as too time-consuming and ineffective?

These are all issues that PMs commonly address as part of project risk management, but in reality they are also the result of each consultant's very narrow view of their own scope and financial performance on the project. 

Until IPD becomes more commonly used, I believe that managing projects with a higher degree of effectiveness can begin with an improvement of communication and the implementation of a simplified set of tools. None of these notions are new for seasoned professionals, but I find that they often elude decision makers and less discerning consultants. An increased effort to communicate them can vastly improve project efficiency, especially in property renovations where the sequencing of activities presents more complex challenges than in new construction.

These are a few initiatives that I believe can improve project cost management:

• As many consultants as possible should be simultaneously involved at a very early stage, instead of staggering the appointments based on when the information will be  needed. This will reduce scope gaps, and eliminate empty layers of accountability. It requires some front-loading of soft-costs, but the impact in ROI is more likely positive than not. 

• Designers particularly must develop an ability to communicate the value in pursuing alternative solutions and in exploring innovative ways of approaching the building problem. This can result in constructive discussions with the client in regards to the deployment of project funds, and replace the often inaccurate use of benchmark percentages in budget allocation with more rigorous scope-specific budgeting.

• Explore collaborative platforms to manage communication and documentation. The cash-flow limitations that prevent many firms from investing in robust technologies, as well as the numerous international projects that integrate first world consultants collaborating in emerging economies with local partners mean that the use of full-blown BIM to achieve documentation consistency is still some time away. There are numerous cost-effective cloud-based technologies available to increase the intensity, timeliness and depth of communication between consultants. Setting-up project-specific media rich networking tools based on existing social media platforms, coupled with equally inexpensive video-conferencing tools is not complicated. But it does require a disciplined process and the implementation of strict quality control and quality assurance guidelines. I also find that this is an area where the millenial generation can become extremely valuable, and where their intuitive understanding of these tools can be leveraged to increase their sense of accountability and commitment to projects and to professional services firms.

• Transparency in project cost analysis. The complaint from Clients about consultant's inability to stay on budget is as common as the complaint from consultants that they don't have access to the project's evolving budget. In an age where business intelligence is so pervasive to most organizations even with the most basic accounting applications, it surprises me that so few projects have real-time budget dashboards. Regular updates of budget allocation by discipline with high-level values and reviews via web-conferencing could easily allow consultants to adjust their designs and documentation in real-time, before too many hours are spent proceeding in abortive directions, which consume both the client's and the consultants resources unnecessarily.

By implementing a few of these principles, and mostly if appropriate time is applied to communicating their importance to the project team, I think consultants will be in a better place to answer the dreaded question, and probably their projects will be more profitable. 

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 ...