Creating Value in the Current Economy

November 1, 2011 · by Scott Simpson

Clients are looking for ever more creative solutions to their problems, but they also value predictability. Firms that can deliver results will be the big winners in the challenging economy.

The ongoing gyrations in the financial markets have made it clear that the economy has not yet returned to anyone’s definition of normal and may not for some time. While the public sector struggles to digest massive amounts of debt without a significant rise in tax revenue, the private sector has been able to regain profitability through aggressive cost cutting, particularly by means of staff reductions, despite very modest overall growth in the gross domestic product. Corporations are now holding a record amount of cash but are reluctant to invest for the long-term, preferring to adopt a wait-and-see approach. As a result, unemployment remains high even while profits are healthy. This is instructive, and there are important lessons for the A/E/C industry.

Widespread staff reductions are causing clients to take a close look at their overall space needs, correlating this closely with productivity. Few if any are planning for large-scale expansion and most are seeking ways to reduce the allocation of square feet per person across the board. Operations and maintenance costs are also undergoing scrutiny, since every dollar saved enhances the bottom line. When new projects are approved, schedules are tight and budgets even tighter. Contractors are cutting prices to the bone, and professional fees are going down as well. On the bright side, there is an increasing appreciation by senior management that space is strategic — that smart design can and should contribute to the bottom line by making measurable improvements in how organizations actually function.

New Business Model

In this context, design firms need to adjust their game plans. In addition to the usual issues of form, function, and aesthetics (the what), they also need to understand the business aspects of any given project (the why and the how). Why is the project being undertaken? How does it relate to the overall business mission of the client? What are the financial expectations of the project in terms of return on investment? How can projects be designed to enhance the processes, procedures, and outcomes that underpin the client’s organization? Far from being distractions or barriers to good design, these questions get to the heart of what drives client decision-making in today’s economy.

As projects become more complex, design thinking needs to keep pace. Buildings are not just empty, inert vessels. They should be designed to support and enhance human activity, and so they need to be responsive to change. The added complexity requires participation from a wider variety of experts, and with this goes an increased demand for effective team leadership. The skills that designers need to be effective must be broadened and deepened. It’s exactly the right time to re-evaluate the essential value propositions that design firms offer their clients.

In the past, architects were seen primarily as form givers, mostly concerned with program, function, and massing. In contrast, today’s clients are much more likely to view built space as either a cost center or a revenue generator. (Some developers actually refer to buildings as “vertical product.”) While it might not seem obvious at first glance, form and revenue are closely connected. But this is best expressed in business terms rather than design terms, which is something that most designers are neither equipped nor inclined to do.

The traditional view of professional practice is that “instruments of service” are what the architect gets paid to produce. Designers are paid to deliver discrete sets of documents (SD, DD, and CD) at pre-determined intervals rather than creating solutions to business problems. In fact, this attitude has been codified in standard AIA contract documents, where the phrases “problem solving” and “value creation” do not occur. And yet, that is what architects are really good at: solving multi-dimensional problems and creating new kinds of value in the process. Increasingly, the value is embedded in dynamic systems (such as mechanical, electrical, and plumbing), which have a huge impact not only in the upfront capital cost of a project but even more importantly in the long-term operations and maintenance cost. Yet traditional design thinking (and the fee structure that goes with it) makes no provision for this. Architects charge fees based only on near-term value (up to the date of substantial completion), completely ignoring the long-term value that in the real world dwarfs capital cost and actually increases over time, like compound interest. The benefits of smart design play out over many years.

New technology allows design professionals to study a much wider range of design alternatives more quickly and to analyze building components and systems with ever increasing degrees of accuracy and sophistication. Structure, lighting, air flow, water usage, and acoustics are just a few examples. This sort of analysis is not part of the standard model of architectural practice, but it should be because it’s a good way of expressing design value in business terms. Technology also allows architects to display design options in 3-D and 4-D format, giving clients a much better grasp of what’s possible and thus providing a better basis for decision-making. Technology can also be used to enhance both budget and schedule control as well as to model construction logistics. All of this greatly increases predictability, which is the holy grail for clients.

It’s important to note that none of these technological enhancements detracts in any way from design quality. In fact, the opposite is true — technology allows a significantly higher degree of creative thinking and in much less time than traditional methods would allow.

Architects need to adjust their business models to reflect these new realities. Design is not limited to making new objects; it also deals with systems, processes, and procedures that in the aggregate support a new way of delivering the goods. When dealing with clients, consultants, and contractors, it’s important to make these differences explicit so that they can be fully appreciated (and paid for). The chart below illustrates the essential differences between the traditional practice model and the emerging model of value creation in today’s highly competitive economy.

Rethinking Buildings

First and foremost, design professionals need to reset the deck, shifting the conventional perception of buildings as cost centers and replacing this outdated notion with the understanding that buildings are actually revenue generators. Also, buildings are not static; their functions and uses are likely to change dramatically over time, and they are increasingly interactive with users’ needs and preferences. In this context, architects are much more than mere form givers; they are creators of built environments that are consciously designed to respond to occupants and enhance productivity over a long period of time.

Sophisticated computer technology now allows design professionals to model building performance in advance, tweaking the details as needed to achieve optimum results. There is no need to subdivide the process into the traditional phases of SD, DD, and CD; professionals can now provide an integrated continuum of services that comprises the full spectrum of design, documentation, and delivery.

Design is where the essential value creation takes place, and this includes both the aesthetic and business dimensions. During the documentation phase, expect much closer coordination with construction managers, suppliers, and subcontractors, up to and including co-authorship of the technical documents (even to the point of eliminating the need for submittals and shop drawings). Delivery (the actual construction process) will become much more efficient by means of increased off-site prefabrication of key components as well as computer-assisted tracking of materials, schedules, budgets and overall logistics during construction. Essentially, the construction site will become a mini-factory, enabling projects to be completed in much less time with a much higher degree of cost control and a minimum of waste. Eventually, standard contractual relationships, including liability insurance, will catch up with these new practice realities, as has already happened in other industries.

The beginning of these trends is already evident. Building information modeling technology is fast becoming the industry standard for design documentation, as is LEED certification for sustainable design. Integrated project delivery, while still in its infancy, is producing consistently good results and is attracting more attention from owners.

Today’s economic reality simply demands that more be done with less. This is true across the board, from industry to government. This is actually good news for the design profession, but it must be understood and communicated in no-nonsense terms, with plenty of metrics to support the argument. Once again, it should be stressed that this new way of providing professional services in no way dilutes the value of creativity. In fact, clients are constantly looking for ever more creative solutions to their problems. But they also value predictability; they want to know what they are getting, by when, and how much things will cost. Those who can deliver results will be the big winners in our highly competitive economy.

 

Scott Simpson is a senior fellow of the Design Futures Council and a member of its executive board. He is a Richard Upjohn Fellow of the American Institute of Architects. With James P. Cramer, he co-authored the books How Firms Succeed and The Next Architect.

Post Comment

What's Your Role in the Interior Design Process?

Sep 15, 2014 · by Cameron Forte

Whether you are developing a new office building or simply redoing your current one, a proper interior design process is crucial to the success of the project. Read full »

Richard Tomlinson: Career Retrospective

Sep 3, 2014 · by Richard F. Tomlinson II

A partner from SOM shares lessons from a storied and prolific career Read full »

Global Market Share is Expanding for U.S.-Based Firms

Sep 3, 2014 · by James P. Cramer

U.S.-based multinational firms are thriving in a growing global market Read full »

Lessons Learned in the New “Un-normal” Normal

Aug 21, 2014 · by Albert W. Rubeling

A unique perspective on design and what makes firms successful Read full »

How Firms Succeed 5.0

Webcast: Future Ready

Topics

DI.net RSS Feeds

DI.net on Twitter

Research Support