MANAGEMENT FOR DESIGN FIRST QUARTER E-MAG 2020
Business Conditions Survey: Confidence & Economic Outlook According to our recent Business Conditions Survey, there is an increased level of uncertainty amongst the leaders of architecture, engineering and design businesses compared to 12 months ago. There is a change in the levels of optimism about the economy and business conditions moving forward compared to 12 months ago. Only 15% of our respondents expect the economy to be growing over the next 12 months. The remaining respondents—slowing, declining or stagnant! HOW CONFIDENT ARE YOU ABOUT THE GROWTH PROSPECTS OF YOUR COMPANY IN THE NEXT 12 MONTHS?
10% Very Optimistic That Business Will Significantly Improve and Grow Cautiously Optimistic That Business Will Significantly Improve and Grow The Business Will Face Difficult Conditions
90%
Unlike previous years, only a very small proportion of respondents are very optimistic that their business will significantly improve and grow. (5% this year compared to over 30% last year and the previous years) And ominously, 10% of respondents believe that their businesses will experience difficult business conditions. This compares with the previous year where only a nominal proportion of businesses expected difficult conditions. Adding to this downturn in confidence levels, a high proportion (25%) of respondents expect their profit margin to decrease! This compares with 14% in 2018 and 7% in 2017. On a more positive note, 35% of our respondents expect to increase their profit margin, although this is lower than the previous year (45% in 2018). Looking out 3 years, one-third of our respondents expect the economy to be growing and two-thirds (65%) expect the economy to be slowing, stagnant or declining. Not confident! If you would like to purchase the full report, please click here.
WHAT DO YOU EXPECT TO HAPPEN TO YOUR PROFIT MARGIN OVER THE NEXT 12 MONTHS?
35%
40%
Increase Decrease Stay the Same
25%
HOW DO YOU PERCEIVE THE ECONOMY IN THE NEXT 12 MONTHS?
15%
25%
Growing Slowing Stagnant
40%
20%
Declining
LOOKING AHEAD FOR THE NEXT 3 YEARS, HOW DO YOU PERCEIVE THE ECONOMY?
5% 25%
35%
Growing Slowing Stagnant Declining
35%
What can your business financials tell you?
As a business leader you’re confronted with a myriad of financial information: your income, your expenses, your profit margin, cash position, and project performance—and that’s only the start! But over and above the numbers, what can these financials tell you, to enable you to make powerful business decisions? Take our finance assessment and evaluate your ability to read beyond your numbers and significantly impact the success of your business.
Business Foundations Most architects, engineers, and designers start their practices with little to no experience of running and building a business. Typically, the initial focus is on design, project delivery, and servicing client requirements—with a mind on winning new clients and new work. However, there is a myriad of elements of managing, controlling, and building a business that founders and principals require to become successful owners and leaders. So, what are these elements that will create and build successful Architecture, Engineering, and Design (AED) businesses, with satisfied and well-rewarded leaders? Our work with architects, engineers, and designers has identified common themes, which set practices up for success—The Business Foundations of Architecture, Engineering, and Design.
The foundations are: 1. Purpose and Direction 2. Leadership 3. Team 4. Systems 5. Project and Resource Management 6. Financial Control and Profitability 7. Managing Risk 8. Marketing, Communications, and Brand 9. Design, Innovation, and Delivery 10. Succession
1. Purpose and Direction Our research indicates that up to 70% of design business don’t have a clearly articulated plan identifying where their business is and where it’s heading. That’s seven out of ten people at the leadership level, who don’t have a clear vision for their business. So, if the leaders are not clear about where the business is heading, then how are their people expected to be on board and in line with the business’ direction! To start, you need a clear understanding of where your industry is heading. You should be at the forefront of the industry and have a picture of what will be required into the future. Secondly, you need a clear understanding of what you are great at and what your focus will be. For your business to thrive today and into the future, you need to be great at something that the market has a demand for. And a key element of that for architects and designers is market expertise. Your strategy needs to be built around what drives your business—what will lead you to success now and into the future. How does your company win work? How do you generate the work? What is your expertise? How are you positioned in the marketplace? How do you develop the concept and design? How do you deliver the work? What sort of people do you need to have around you? How do you become innovative? And finally, what sort of financial management control do you need? A strategy is built around the answer to these and other related questions. A strategic plan with clear and concise strategic objectives and clear plans for implementation, only needs be 3-4 pages. The key element is to have a clear path, something that you are all aligned with as a leadership team, that you’ve communicated with your key people, and everyone is on board with.
2. Leadership Architects in a leadership position are typically talented and experienced at designing, nurturing clients, and delivering projects. However, they often lack expertise around establishing, running, and growing a successful business. As a leader, you need to balance the time you spend in the business—which is doing the work—and the time you spend on the business and how much time you spend on yourself. As a rule of thumb, you should spend at least half a day, to a day, on your business each week. Whether that’s nurturing and mentoring your key people, developing systems or developing a marketing program. None of this comes overnight, this takes time, experience and learning from others.
Great leaders of architectural businesses: • Collaborate • Delegate • Expect responsibility and accountability • Empower people • Promote trust in their people • Constantly reinforce the value that they bring • Have a focus on performance and profit • Share information and rewards • Have a clarity of purpose
3. Team Your team is comprised of the people that are in your business, as well as the team that is outside your business. And the people outside your business are just as important as the people inside your business. These are people like your mentors, your business advisors, your accountants, your lawyers, your consultants etc. Your responsibility is to find and nurture those relationships. When building your team, you need to hire for cultural fit first—and skills second. Finding people who are aspirational and share common attributes to your practice is most important. Quite often, the mistake businesses make is hiring for skills and not cultural fit and often that comes down to who you put in charge of hiring. There are typically 4 things that your people look for: 1. Who do I report to? 2. What do I need to do? 3. How will I do it? 4. And how well did I do it? Develop clear performance criteria around the expectations, and review performance against progress; what’s working and what needs to be improved. It doesn’t have to be complicated! Additionally, spending time with your key people on business management is essential. You need to educate and mentor—no-one else will do this for you. Perhaps a monthly management meeting, or directors’ meeting, where you can bring people in and expose them to conversations and give them responsibility for some of the actions that you require.
4. Systems Your system is a set of behaviours that are performed consistently in your business. It’s the way that you do things, it’s not a piece of software. Some of the systems you should have in your business include: • Ensuring you have the right fee • Managing your time and projects • Tracking project performance • Ensuring you will be paid • Ensuring your people are fully utilized • Managing your financials
These should all be systems—they should be performed consistently the same way each time. They should be a set of behaviours that you routinely follow. For example, this is the way we recruit, and this is the process that we go through. These are the questions that we ask, these are the qualities that we’re looking for, this is how we induct, this is how we review performance, etc. That’s your system. By having strong systems in place: work is more consistent, less re-work is required, profitability is improved with increased efficiency and scope control, less frustration is experienced, extra time is created for leaders to be entrepreneurs, and client management consistency is improved.
5. Project and Resource Management Project and resource management has far less to do with people than you’ve been led to believe. If you want to make an impact in this area, your effort needs to be on developing a consistent way of working and then reinforcing and supporting that approach. In our experience, the level of project management expertise in architecture, engineering, and design firms is “poor”—and unfortunately, this lack of expertise is not addressed early on. Ask yourself “How do you manage projects across the studio and each project?” Great project management is fundamental to business success in our industry. Your projects require a plan around the work required, tasks, start and end dates, the time it’s going to take, assignment of resources, milestones, per cent complete, etc. The more complex the project the more detail is generally required. You should be tracking your progress every week—as a minimum.
So, what is Resource Management? • Who is working on what and when? • Who is available when? • Who is over and underutilised? • What are the resource requirements moving forward? • How does this tie into billings now and into the future? • How do regular reviews happen? Unfortunately, most architecture and design firms don’t have an effective system that they adhere to for managing resources across the studio. As a business, you should have a clear picture of the workload moving forward. An effective and comprehensive resource plan ensures you’ve got the right number of people to complete the work, but also have the right people to grow the firm.
6. Financial Control and Profitability As you may know, profitability is a very good indicator of the effectiveness of your business and your business management. Achieving a 20% profit—that’s income less expenses—(before tax) should be your benchmark. That’s realistically achievable for any AED business. A strong profit allows you the ability to take on the work that you want to take on, work with clients you want to work with, and say no to projects and clients. It allows you to attract, reward, and remunerate the best people, whilst also investing in marketing, technology, growth, and training. Strong financial performance and profitability allows you to be in control of your business.
Financial control is about having at your fingertips the measures or information that will drive, or should drive, your decision-making going forward. The ability to forecast your future work allows you to project out your resourcing—the resources that you’re going to require and typically, that means people. Now, all this information is irrelevant unless you review it. You need to set up a regular monthly meeting, with someone who can interpret the information and understand the financials.
7. Managing Risk While Risk Management might not be the most engaging subject for leaders of Architecture, Engineering, and Design businesses, it’s an essential concern that you can’t avoid—and something you need to manage effectively. But, what does Risk Management mean? • Surrounding yourself with the right expertise • Adopting strategies and systems to minimise your risk and exposure • Effective quality control to keep yourself free of unwanted and unnecessary disputes While this can be an extensive subject, key issues most businesses encounter are categorised into three main areas. 1. Business Structure and Legals 2. Clients, Fees and Fee Negotiation 3. Insurances Ask yourself, does our business have the appropriate expertise, the strategies, systems, and effective quality control to minimise and manage our exposure. While some risk is out of the control of the business, most of the risks that a firm might encounter can be managed, reduced or eliminated.
8. Marketing, Communications, and Brand Your marketing effort has a singular focus, and that is to win work. When thinking about marketing, you need to ask yourself whether this is a valuable use of your time and resources and whether it will move your business forward in your ability to win work. Further, you must think about marketing in two elements—business development and communications. Business development is how you’re going to win work. Communications is how you’re going to build and raise awareness about your business. As a starting point, you should have a marketing strategy with a documented plan that’s agreed upon amongst the leadership team. It should document key areas that will move you forward towards your plans. You need to articulate your value proposition, identify your keys to success, your revenue projections by sector and what investments you need to have in place. Another aspect of increasing market awareness is communications through social media. It allows you to advocate and develop an online community that will contribute to the positioning of your business moving forward.
9. Design, Innovation, and Delivery Effective design management should be one of the core values of your architecture and design practice. However, when Management for Design delves into this subject and asks business leaders to explain and articulate their processes, they tend to struggle with their response. What’s required is to find the right balance for your practice. Typically, the larger your business is or becomes, the more you will rely on a way of working that is consistent, methodical, and aligned with your studio culture—that’s business. Effective design management finds a balance between creative freedom and consistency.
10. Succession Firstly, there are two elements of succession: Leadership Succession and Ownership Succession. Leadership succession is around developing your leaders—the next generation—the people that are going to take on the role of growing, building, and controlling your business. Leadership succession is often far more complex and challenging and should happen before ownership succession. The problem with leadership succession in our industry is that it’s often more difficult than in other industries. Quite often the leaders are the key initiators of design and client relationships, and they’re not necessarily skills that you can educate or develop people on. These traits are inherent in leaders in our profession and therefore they find it difficult to let go of decision-making around clients and design. Leaders feel that this is where they can most effectively contribute to the business. However, the greatest contribution you can make in your business could be the development of those that take your business forward. There is a great personal and financial reward in leadership succession. If you can change your thinking around leadership succession, you’ll be ahead of many other AED practices. Start with transitioning your decision making, your client relationships, and your design decisions. Give your people exposure to business management and give them clear expectations and responsibilities.n
Our financial and business management experience can maximise the potential of architects, designers, engineers, planners and other creative professionals. We believe everybody should focus on excelling at what they do best. Talk to us about getting the most from your business. Email Robert Peake rpeake@m4d.com.au.
The Future of Engineering 2030 What does the future look like for our industry in 2030? How will our work change throughout the next decade and where will we be by the end of this decade? If you aren’t thinking about these questions now, you are already behind the pace. In this article, we identify some of the biggest changes we expect to see in the next 10 years and ways your firm can adapt and benefit from them into the future.
Development of Artificial Intelligence Artificial Intelligence (AI) is encroaching on our everyday lives—affecting what we do and how we do it. As these systems and technologies develop and become more reliable, they will be integrated into design processes with the power to solve complex problems and the ability to create limitless variations—replacing, enhancing, or replicating the work that was previously completed by the designer. Your firm must be prepared to embrace change and be flexible to new approaches to working. You need to be thinking ahead and be open to the possibilities of technology. To do this, you will need to stay current with new and emerging technologies every year, including software, applications, languages and programs. Artificial Intelligence will have the capability to think ahead and make more and more decisions that are currently performed by humans. Our machines will have the capacity to design, complete project planning, do the economics on projects, and assist in just about everything we do. Audio inputs will allow us to describe our concepts and designs verbally so that the system can then produce a myriad of physical documents and solutions. The role of the engineer will be profoundly impacted by technology over the next 10 years. The underlying methodology is that design is initiated and developed via sophisticated coding. Once the options are developed and tested the resultant solution can be codified, stored, repeated, and altered. The design process will not only make the design process far more comprehensive, but also far more efficient.
Gen Z’s will be taking over As the next generation – “Generation Z” - becomes more influential (and begins to take over) a new culture will emerge in your firm. This generation will have a new way of doing things that is quicker, easier, more considered. They will, however, be more demanding and have higher expectations. Conversely, clients will also have the same expectations—they want the project completed quicker, more effectively, more sustainably. They will demand that work is performed perfectly the first time, and they want to pay less for it.
As a leader of your firm, you need to be thinking of ways to address this and get ahead of the fast-paced changes that are evolving. Perhaps focus on incremental changes, such as eliminating time-recording and replacing this with the achievement of agreed objectives. Hours worked is irrelevant to Gen Z’ers. Ultimately, you must be willing to change your current business practices and embrace the new ways of working that an in-demand and changing talent pool will be seeking. In essence, they will be the leaders and drivers of change in the coming future. Leadership transition will be extremely important Ownership transition will be different in the next decade and it is something that your firm will need to have a strong focus on into the future. Research has indicated that the retirement (transition) age in the industry continues to increase, and leaders have become less willing—or less able—to transition their businesses to the next generation, while the younger generation doesn’t necessarily see the value of buying into existing firms. It is now time to rethink your approach to ownership transition. Your firm won’t continue to develop or progress without the involvement of new leaders. Begin involving “millennials” in key decisions for your firm, let them brainstorm ideas and ways to move your business forward. Have a regular “millennial” meeting, where you discuss things that will drive your business forward and improve the current ways of working and strategies. Entrust millennials now - engage them in leadership decisions. There is a great personal and financial reward in leadership succession. If you can change your thinking around leadership succession, you’ll be ahead of many other Engineering practices. Start with transitioning your decision making, your client relationships, and your design decisions. Give your people exposure to business management and give them clear expectations and responsibilities. The New Industrial Revolution Advanced technologies are changing the way things are designed and made. The changes are so profound that many people call it a new industrial revolution. Generative design, virtual reality, robots, interconnected systems of sensors, 3D printing or additive manufacturing, and biological synthesis will all play a part in the formation of the built environment of 2030. What are your firm’s capabilities, how will your systems adapt, and how are you upskilling and broadening your capabilities in these areas? As a leader in your firm, you need to be cognisant of the value you provide to your clients. Your firm is not the work you do, it’s the solutions you provide—regardless of how they are achieved. Where there is change there is opportunity. Rather than these technologies replacing jobs, the scope of engineering’s influence will continue to grow. As such, engineering is poised to experience a renaissance—new applications and jobs will be popping up around every corner, especially in disrupted industries.
M4D Business Systems Selector
Management for Design is excited to announce the launch of our Business Systems Selector, coming early next year. With this unique tool, architects, engineers, designers, planners, and consultants can enter information about their business practice, processes, and priorities, to find out which system software will be best for their business. To find out more and ensure that you are notified as soon as the Business System Selector goes live, please contact Callum Bruce cbruce@m4d.com.au.
Consult Australia Leaders Conference Now in its seventh year, the annual Consult Australia Leaders Conference has been designed to provide a unique learning, networking, and sharing platform for senior leaders from within built environment consulting firms in Australia (and the Asia Pacific region more broadly). Management for Design Principal, Robert Peake, attended this year’s conference, which featured discussions and workshops with a diverse range of speakers.
The theme of the conference was The Built Environment 2030 and covered topics including new technologies, digital standards, education, non-linear career paths, humanitarian considerations, diversity, and commercial structures. From the conference, a few key points that emerged.
Change will be a constant in the future of work. Craig Rispin, Futurist from Future Trends Group, shared his vision of the world and the engineering industry of 2030, highlighting several key trends. He mentioned that into the future many people will have up to 17 different careers over their lifetime and firms will move to people on-demand models. This changing nature of work was also reflected in a presentation from Kim Seeling Smith, CEO of Ignite Global. Research on the future of work. People are increasingly looking for employment that focusses on the experience, has purpose (do well by doing good), and encourages collaboration (the end of management). Reinforcing these themes was Ryan McCarthy, Managing Director of Stryker, who having already implemented sweeping changes, proposed that 3 out of 4 people are not being engaged in their role and the effect this has on productivity. He stressed that you need to “find people’s natural talent, empower them, and foster their strengths.” Technology is changing every aspect of the profession. Advancing technology was an overarching theme throughout the conference and a crucial part of the uptake of new technologies will be the adoption (or lack thereof) of new digital standards. This topic was addressed by a panel featuring Simon Vaux, Director Digital Engineering, Infrastructure and Place, Transport NSW; Neil Greenstreet, Manager Digital Technologies, Natspec; and Dr Liming Zhu, Research Director, Software and Computational Systems, Data61 | CSIRO. The panel considered the available digital standards - why they are there (and why there’s so many!), which ones we should be using, and is there still space for competitive advantage amongst all these standards?
Education is not addressing the needs of the industry. While this point wasn’t the focus of any specific presentation, it became clear that the current education for engineering students is not preparing them adequately for the industry. There is a lack of business, collaboration, and enterprise knowhow amongst graduates, which ripples out into the future of the industry. Additionally, universities are failing to attract a truly diverse range of students, to bring perspective and different points of view. It remains unclear, whether the need a shift in education will occur—it requires industry leaders to be more vocal about their requirements. After-all, technology aside, the future of engineering is in the people who are yet to even enter the profession.
Reading List Art’s Principles Arthur Gensler Art’s Principles reveals the blueprint behind one of the most successful professional services firms, giving career-minded individuals the tools they need to excel in business. The book covers the essentials of leadership, talent acquisition and operations, while outlining the creative strategies that propelled a small business into one of the largest and most admired in its industry.
When All Is Said & Done Neale Daniher Neale Daniher sat down to pen a letter to the grandchildren he’ll never get to know. And then he kept on writing. In 2013, the AFL legend was diagnosed with Motor Neurone Disease- a cruel and incurable condition. He had a choice. He could spend his remaining time focused on himself, or he could seize the opportunity to make a better future for others.
Man’s Search for Meaning Victor Frankl Internationally renowned psychiatrist, Viktor E. Frankl, endured years of unspeakable horror in Nazi death camps. During, and partly because of, his suffering, Dr. Frankl developed a revolutionary approach to psychotherapy known as logotherapy. At the core of his theory is the belief that man’s primary motivational force is his search for meaning.
Zero to One Peter Thiel The great secret of our time is that there are still uncharted frontiers to explore and new inventions to create. In Zero to One, legendary entrepreneur and investor Peter Thiel shows how we can find singular ways to create those new things.
