MANAGEMENT FOR DESIGN
Summer 2018 Release
Should You Merge Your Business? Probably! Robert Peake, Director, Management For Design
In Australia there are approximately 10,800 architecture, engineering, planning and related consultant and design businesses*. Of these: ■■ 60% of practices have less than 5 people ■■ 80% of practices have less than 10 people ■■ 90% of practices have less than 20 people This is just under 10,000 businesses who have a heavy reliance on the principals to bring in the clients, recruit and manage the people, design and deliver projects and control the finances. Ultimately, it doesn’t leave a lot of headspace, time or capacity to build and grow the practice. It also doesn’t allow much time to deal with success and the increasing risks that result from demanding contract conditions, finding and retaining the right people, lower fees, investment needs, and the changes in an increasingly global economy. *Australian Bureau of Statistics Professional Service Businesses 2016.
The benefits of merging Merging—the coming together of two businesses and becoming a new business—is an increasing trend worldwide, an approach that Australia is slow to embrace. In our region, we are a long way behind what’s happening in other parts of the world—in particular, Asia and the US. In the past six years alone, approximately 600 architecture and engineering firms have been either sold or merged in the US. It is clear that the total number of architects, engineers and designers in Australia far exceeds the commercial demand for services. There are too many businesses competing for a diminishing service in an increasingly competitive market place. The number one concern for AEC leaders is the diminution of fees and services — the consequence of high and increasing competition for clients and projects from a myriad of sources. This includes other professions, the construction sector, the impact of technology and the forces of globalisation. The advantages of merging /combining your business in today’s increasingly competitive and oversupplied market place include: ■■ Increasing the client base ■■ Stronger and more talented leadership ■■ Increasing your skill base ■■ Increasing productivity ■■ Economies of scale ■■ Increasing the capacity to invest in technology, innovation and systems ■■ Building scale to engage experts in business ■■ Improving the firm’s competitive position ■■ Expansion into other geographic regions ■■ Adding new practice areas ■■ Greater capacity to devolve and spread the client relationships ■■ Diversification of work to mitigate the risk ■■ Sharing the workload and improving work / life balance ■■ Increasing your influence in the marketplace ■■ Succession and exit strategy.
The downsides AEC businesses, in particular, are different to most in that each has a clear identity, a distinctive design proposition and unique culture. Merging with another company and maintaining that uniqueness is ultimately seen to be especially difficult to overcome for many AEC business leaders. Below are a few of the primary reasons that Management for Design regularly confronts with businesses who are hesitant to merge: 1. Leaders not wanting to lose control of design and clients 2. Lack of outside trusted advisors — “who do I go to?” 3. Answering and being accountable to others 4. Inability to step away from the day to day 5. Not knowing where to start and how to go about it 6. Not knowing potential partners / targets 7. Culture of independence and freedom.
Learn more To find out more about he pros and cons of merging—and how you can make it work for your business—make sure you read our recent two part Business Journal series in full.
Read Part 1 | Read Part 2
Management for Design has developed a unique approach to executing an approach to developing and executing a merger strategy that, if implemented, effectively ensures alignment of strategy, brand, aspiration and results. At the core is a methodology and system to ensure successful execution that involves the key people in the business. For more information, contact Rob Peake on rpeake@m4d.com.au.
12 Reasons Why Architects, Engineers And Designers Underperform Financially Robert Peake, Director, Management For Design
12 Reasons Many Architects And Engineers Underperform Financially 1
Minimal business management expertise
2
Lack of accountability
3
Low expectations
4
Focus is design outcomes and not business outcomes
5
Managing the design process
6
Poor project and resource management
MANAGEME
Focus O You Do B
Managemen strategic, fin managemen maximise th architects, d engineers an professional Most leaders that are elevated to senior roles don’t have the necessary business management expertise.
7
Not handling scope creep
Lack of accountability can and does occur at all levels of an underachieving business.
If mediocrity is the goal—you will probably succeed.
We get it, it’s why you went into business, but that shouldn’t be the main reason and its bringing down the profession!
Most practices don’t have and adhere to a process, system or people for managing the design process.
As this is the key to sustainable business profitability one would think that most firms have this under control. Not so, unfortunately.
8
9
10
11
12
Lack of strategic planning and execution
Taking too long to elevate your key people
Tertiary education not matching the skills required
It’s not the people
Not reinvesting in the business
By helping yo practice effic you to plan e your time to best — build creating grea Our team ca everyday bus functions, fro accounting, information human resou
Over and abo strategic ins developmen succession, benchmarkin positioning.
Scope creep is often considered part and parcel of servicing the client—not additional to the service that was originally agreed to.
Our research shows that up to 70% of design businesses do minimal or no strategic planning.
This leads to great people moving on to other opportunities or establishing their own practice.
There’s more focus on design, idea creation and technology and less on what’s required for a successful and rewarding career.
Without the right leadership, culture and systems in place; it’s pointless bemoaning people’s lack of capability.
It’s not the time for taking profits out—you should be allocating a third of the profits for reinvestment in your business.
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1. Minimal business management expertise Most architecture, engineering and design (AED) leaders that are elevated to senior roles or directors positions don’t have the necessary business management expertise to manage, direct and drive a successful business that performs across the key business drivers of design, rainmaking, project delivery, people performance, strategy, innovation and financial management. Not only that—they don’t have a plan to gain this expertise, other than on the job training, or just surrounding themselves with this expertise.
2. Lack of Accountability Lack of accountability can and does occur at all levels of an underachieving business. Whether it’s partner to partner, partner to project leader, or project leader to the team—seldom are people held accountable for missing deadlines, unproductive work, rework or over budget projects.
3. Low expectations “If mediocrity is the goal you will probably succeed”. Expectations of business performance are often set far too low—and people do their best to barely achieve them. Most architects and engineers underperform financially, and seriously underestimate their capability and potential. They’re prepared to accept the status quo and not focus on innovation and performance improvement.
4. Priority, focus and effort is on design outcomes—not business outcomes We get it, it’s why you got into this business—to produce great work and be recognised for it. But that shouldn’t be your main reason, plus it’s bringing down the profession! What about building a great business, making an impact in the industry, and changing the way you work and your role in the project.
5. Managing the Design process Do you have a process, system or people in place for managing the design process /stage? Probably not, or if so, the process is more than likely unsophisticated and/or not adhered to. Considering that a clear, resolved design and central idea is the foundation for the on-going performance of a project, it would be expected that most businesses should have this under control.
6. Poor Project and Resource Management As project and resource management is the key to successful and sustainable business profitability, you would think that most firms have this under control... not so, unfortunately. There is downward pressure on pricing, and businesses are competing with a higher emphasis on attractive price rather than increased value. Yet, as well intentioned as these strategies are, these initiatives have made it even more challenging for firms to deliver projects profitably. Management For Design is often astounded by the lack of thorough and integrated systems in practice for managing resources and projects across the studio (i.e. a plan of work, what’s completed, what’s still to be done, who is working on what when, who is available, who is utilised and underutilised and what are resource requirements moving forward).
7. Not handling scope creep Scope creep for architects and engineers is typically considered part and parcel of servicing the client—and not additional to the service that was originally agreed upon. This often stems from the leadership, where the performance drive is design outcomes and not business outcomes. Lack of clarity around the service, a culture of over-servicing and lack of systems to manage scope are prevalent in an underperforming business.
8. Lack of Strategic Planning and Execution It’s no secret that many design-focussed businesses are superficial in their planning—concentrating on the design, fees, schedules, and day-to-day deliverables, rather than defining exciting, attainable objectives for the future that will motivate the key people and lead to high achievement. The strategic plan for many firms could be summed up as: a. Bring in as much work as we can b. Do our best to create a great design and satisfy the client c. Hope that we make some money Management For Design research shows that up to 70% of design businesses do minimal or no strategic planning. Of the remaining 30%, only one in three achieve clear and sustainable change in their business that leads to new markets, new locations, new client sectors, new design approaches, new ways of working, or improved leadership.
9. Taking too long to elevate your key people Decision making at the top is how most architects and engineers operate— across design, people, innovation, and finance. This tends to mean that key people are not involved in, or exposed to the key business decisions. It’s then difficult to proactively elevate the great people in the business. Procrastination rules! Often, this leads to great people moving on to other opportunities, or establishing their own businesses—and we don’t need more architect and engineering businesses, we need better!
10. Tertiary education is not delivering the skills required What’s happening in the tertiary education of architects, engineers and designers? There’s am increasing focus and emphasis on design, idea creation and technology, and less and less on what is required to have a successful and well rewarded career. When more and more of the required education is being left to businesses, is it any wonder why graduate salaries are so pitiful
compared to other professions? It’s difficult to see when this boat will be turned around.
11. It’s not the people Most of your people will actually have minimal impact on your business performance. Without the right leadership, culture and systems in place, it’s pointless bemoaning the lack of capability of your team.
12. Not reinvesting in the business We are currently operating in a buoyant economic environment – there’s more than enough work to enhance our built environment. Many successful businesses are delivering exceptional financial performance. This is the time to be reinvesting profits in mergers and acquisitions, investing in needed technology / systems, leadership, innovation and new ways of operating. It’s not the time for all the profits to be taken out of the business for the benefit of the owners or to pay taxation. Today, businesses should be allocating a third of the profits for reinvestment in the business.
If you liked this article, make sure to look at and share our 12 reasons why architects, engineers and designers underperform financially infographic here.
Do You Know Your Numbers? Gordana Milosevska, CPA, Director, Management For Design Are you an expert in business financials? As business leaders you are confronted with a myriad of financial information about your business — your income, your expenses, your profit margin, cash position and project performance. And that’s only the start! Your role as a leader is to regularly absorb this information and to make decisions in a timely manner. These executive decisions can then be converted into activities to be completed by your team. Your accountants and finance people then report these activities in a numerical way to produce your business report card. This will most likely be in the form of an income statement, a balance sheet and most importantly a cashflow statement.
You then turn to your Chief Financial Officer (CFO) to decipher and inform you about these numbers. That is, if you have a CFO! The role of your CFO is to describe back to you the financial impact of the decisions and associated activities that caused the numbers in the first place. The numbers are always a reflection of the decisions made and/or not made. So doesn’t it stand to reason that if we want to change the numbers we simply need to change the activities that caused the numbers? Where are your numbers today and where do you want them to be at the end of the year? How do you drive your business to succeed and deliver the outcomes that you are seeking?
5 steps to business success 1. Know your numbers The language of business is accounting. How do you know where you need to go if you don’t know where you are? 2. Set your KPIs Are you measuring your day-to-day activities? Have you set targets that align with your strategic plan? Analyse your data and select relevant metrics to help you define business success. For example, do you know your debtors days? This KPI has a direct impact on your cashflow and should be measured monthly. Do you know your % of technical salaries to fees? This is another valuable measure to use to keep your business in check. 3. Measure, measure, measure Management guru Peter Drucker is often quoted as saying that “you can’t manage what you can’t measure.” What gets measured is what gets done. If you are not measuring it you are not managing your business effectively. 4. Compare/benchmark You need to compare to how you are tracking year in year out as well as comparing your results with those of appropriate peers — that is, firms that are similar in size and business model to your own. 5. Take the right action — create change Of course, knowledge without action won’t benefit your business. You’ve got to use the information you gather to make smart strategic moves that will enhance your success.
Outsourcing your CFO The quality of your decision-making has a direct impact on the performance of your business. To make good decisions and outperform the competition you need the right information at your fingertips. An experienced and expert CFO can bring significant value to your business and ensure that you are set on and continue the path to success. And you don’t need to employ this role on a fulltime permanent basis. By supercharging your accounts, your CFO will become your trusted business advisor and empower the business leaders to see the big picture that impact at a micro and macro scale to protect and accelerate the company. Business analysis and decisions are able to be made with more confidence giving your firm the advantage over the competition. Outsourcing your CFO provides many business advantages, including: ■■ Business leaders are able to focus on core business activities and strategies to remain competitive ■■ Access high level technical resources ■■ Continuity of service, knowledge and financial management ensuring your business never misses a beat ■■ Cost savings for larger firms and affordability for smaller firms for whom a CFO was previously a prohibitive expense ■■ Independent and objective advice — no-one is protecting their job ■■ Data-driven analysis to guide decision-making any time and anywhere ■■ Certainty regarding up-to-date commercial and financial knowledge ■■ Tailored budgeting to ensure your profits are reinvested where they will have maximum impact for people and infrastructure
■■ Total confidentiality of client records ■■ Knowing where your business stands financially at any given time
In an environment where every dollar has a place and a purpose, outsourced your financial expertise to an experienced and expert Chief Financial Officer will enable your business to cohesively manage its bottom line. This will free you up to take the lead in your core of your business with the knowledge your finances are in safe hands.
Technology And Architecture, Engineering, and Design: Where Is It Heading? Dinesh Rajalingam, Head of Information Technology, Management For Design The advancement of technology is happening at an increasing pace, and as new tools and technologies are developed and released, they leave a wake of change behind them—with the potential to revolutionise the way we work in the industry. With this in mind, let’s look at some of the technology trends that will shape the way architects, engineers and designers will work into the future.
The Internet of Things (IoT) This is not recent technology—it’s has been around for some time, in many things that we use daily. The swipe card you use to access your work, security sensors in the parking garage, or temperature sensors throughout a building. Experts estimate that the IoT will consist of about 30 billion objects by 2020. How will this impact designers? The biggest change in this space is being witnessed in the retail and work space, and around connected homes, influencing the way people interact with the buildings and spaces they will occupy. Future designers will have to consider how to ensure buildings, spaces and the built environment will customise a solution for each occupant and individual. Buildings of the future will use facial recognition to identify an authorised person, unlock doors, adjust the lights and temperature to an individual’s preferences, and even connect with the coffee machine to have their choice ready and waiting by the time it takes the individual to move from one part of the building to the next. With a possibility space this diverse, buildings and spaces will use some form of digital solution to access, monitor, maintain and maximise the operation of all any facilities. These will include:
■■ Cladding, windows, or sun protection and weather protection that will selfadjust dependant on the level of sunlight. Not only that they will operate in conjunction with the heating/cooling system to ensure optimal conditions. ■■ Automation of waste handling and recycling – all syncing with third party contractors. ■■ Meeting rooms that turn glass walls opaque, for private meetings or turn walls into multi-purpose e.g. whiteboards, projectors, monitors, screens and interchangeable artwork.
AI and machine Learning Artificial intelligence (AI) and machine learning have been branching out into our everyday lives more and more in recent years. As systems improve and the reliability of their results increase, these tools will be increasingly integrated into the design process, with the power to solve complex problems and the ability to create many variations. All replacing, enhancing or replicating what was historically the domain of the “designer’. Through AI and machine learning, you’ll be able to fully unleash the power of your expensive design PC and software solutions. Using Big Data, parameters and constraints to empower the software to come up with many design variations far faster than any designer could. The underlying method is that the design is done via code—this is important because once you are happy with a design, that code can be codified, stored, repeated and altered – all making the design process far more comprehensive but also efficient.
Immersive Architecture (Virtual Reality, Augmented Reality and Mixed Reality) While the hardware and technology are still a bit too new to be truly useful in the actual design process, it is mature enough to impact the presentation and bid stages. Imagine walking into a presentation with a prospective client, passing the competing firm, as they exit with arms full of A3 printouts, USB keys etc. As you enter, you set down (a suitably powerful) laptop and pull out a pair of googles. You instantly have everyone’s attention. You can then talk your client through the design while they walk through the building and see the details from a first-person perspective. No prizes for guessing who gets the gig! In the future this concept could stretch to remote presentations, where you could meet your client within the virtual building, even if their office is on the other side of the world.
Robotics and 3D Printing While this may not have a direct impact on designers, it will change the way construction is done in the future. Robots will become smaller and faster, with embedded AI allowing for a degree of self-correction and autonomy. 3D printing will also get more robust, with a larger range of base materials available to be printed. In the future - your next home might even be 3D printed. And while it may sound a bit farfetched, it’s already happening here in Australia. Australian company, Fastbrick Robotics has a developed a prototype for a fully
automated robot (Hadrian X) for building houses using 3D printed bricks. The bricks are printed with channels for plumbing, electrical and other infrastructure, therefore drastically cutting down the time it takes to build a house.
Adoption of BIM The BIM (Building Information Model) is based on several principles that can be implemented with relative independence: ■■ Projects are designed using a unique 3D model which is modified throughout the project’s life. ■■ This 3D model is not only the volumetric surfaces, but also has metadata attached (like the material of the element) and parametric modifiers (like the height of a wall). ■■ The 3D model can be stored in a multi-client database, as well as in the cloud, to be accessible at the same time by several people. ■■ Multi-user permissions on the model can be defined to accurately reflect team member’s individual responsibilities on the project. ■■ All construction elements are classified using standard categories, namely the IFC. ■■ Libraries of construction products can be inserted into the model, and can even get actualisation if the product version changes. While these aspects are promising, adopting BIM design practices may create tensions with members of the construction team, who have historically been hesitant towards the shift. As the adoption of BIM grows, it’s looking likely it will be the mainstream tool to design and deliver architecture in the coming years and it presents an historic opportunity for Architects to lead and drive its adoption, working with the other design consultants to “encourage” the construction industry towards its use.
Conclusion Despite the increasingly fast pace of change of technology, there is no one trend that’s more valuable or dominant above the other. It’s crucial that business leaders, architects, engineers and designers take a holistic look to the horizon regarding how all these trends will fit within their own business.
When considering trends like the IoT, AI and Machine Learning, the industry need to understand how these elements will change the way design is performed, and their work is delivered, ensuring they are part of and lead the conversation from the start and are not tacked on at the end. Those who invest early in key technologies, and embed them within their workflow and processes, will without doubt benefit in the next 3-5 years, as these trends become more mainstream.
Apple Global Flagship Federation Square
A proposed Apple global flagship in Melbourne’s Federation Square has ignited debate over the commercialisation (and Americanisation) of public space. In December 2017, Apple and The Victorian Government announced plans for the store, designed by UK Architects Foster + Partners, to be situated on the current site of the Yarra Building, over looking the Yarra River. Approval of the plan was granted to Apple by Planning Minister Richard Wynne, however this happened without any public involvement or comment. Vanessa Bird, president of the Victorian chapter of the Australian Institute of Architects, argues that a detailed masterplan is sorely needed to ensure proposed changes to Melbourne’s Federation Square are successful. “Without due process we can’t conclude that we have achieved the right solution.”
Additionally, a grass roots organisation, Citizens for Melbourne, has formed and launched the Our City Our Square campaign, which “demands Fed Square remains Melbourne’s civic square, preventing its corporatisation by Apple.” The public debate looks to continue in the coming weeks. A motion to block the development will be tabled by the Victorian Greens in late February, with the support of City of Melbourne Council. To read Vanessa’s discourse in full, on ArchitertureAU click here, or to keep up with the work of Our City Our Square click here.
M4D Business Conditions Survey M4D recently released the results of our annual Business Conditions Survey, a survey that benchmarks real business conditions and analyses predicted outcomes for firms in the design and architecture industry. The good news is current conditions are very favourable for Australian businesses in the Architecture, Engineering and Built Environment Sector, according to our recent Business Conditions Survey, in association with Consult Australia. ■■ Increases in revenue and profitability drive business conditions higher ■■ Leading indicators, including forward revenue projections, point to minimal softening in the year ahead ■■ Employment continues to be solid but is constrained by the ability to find and keep talented and experienced people
HOW MUCH DO YOU EXPECT REVENUE TO GROW / REDUCE BY IN THE NEXT 12 MONTHS?
16% 17%
More than 40% Between 20-40% Between 5-20% Less than 5% We don’t expect growth Reduce between 0-5%
55%
Reduce between 5-20%
What are the major issues facing Australian businesses in 2018? Key points from the recent Management For Design Business Conditions Survey: ■■ Almost 90% of respondents expect their business to continue to grow over next 12 months ■■ 30% of respondents are very optimistic that business performance will improve over the next 3 years ■■ Nearly 20% of businesses are expecting exceptional growth of more than 20% in the next year ■■ Refining business operations and improving leadership capability will be the key drivers of improving business performance To read the complete report please click here.
Australia Has Too Many Small Design Firms - M4D In The Media Andrew Heaton, Sub-Editor, Sourcable
Back in the 1990s, then-Victorian Premier Jeff Kennett encouraged young people in that state to follow a dream of starting their own business. In design, many have done that. Indeed, 2016 data from the ABS shows that there are around 10,800 businesses which operate in the architecture, engineering, planning or related consultant and design sector.
Nevertheless, many of these remain small. According to the data, approximately 60 per cent have fewer than five people, whilst 80 per cent have fewer than 10 people and 90 per cent have fewer than 20 people. That, Management for Design (M4D) managing director Robert Peake said, is a problem. In a recent edition of his firm’s Business Journal, Peake wrote that the design sector in Australia has been slow to embrace a growing international trend toward mergers and acquisitions. In the past six years alone, that journal noted, around 600 architecture and engineering firms had merged in the US. As a result, Peake wrote, the number of architects, engineers and designers in Australia “far exceeds the commercial demand for services” and there are “too many businesses competing for a diminishing service in an increasingly competitive marketplace.” Read the full article on Sourcable here.
New M4D Team Members We’re happy to welcome two new systems analysts to the M4D team, Learnie Apiado and Gavin Varley. With a background in programming, Learnie has over 15 years experience working as a programmer analyst, bridging the role of programmer and system analyst. Learnie now provides our clients with comprehensive support, ensuring they’re confident in using, and able to take full advantage of their integrated systems.
Gavin has over ten years’ experience working in IT, defence and finance systems. As an active member of our Business Systems team, he helps clients with their ERP needs and problems; while assisting clients that use XERO, Vision ERP and other integrations to enhance their design and engineering businesses.
We’re also pleased to welcome Dave Clark, in a newly created Communications Manager role. With over ten years’ experience, working in design, communications and marketing, Dave has joined the business to oversee all M4D content, helping to shape the future of our dialogue with the architecture, engineering and design community, while building on our strong foundation of surveys, reports, journals, articles, and newsletters.
Reading List What They Still Don’t Teach You At Harvard Business School Mark H. McCormack A straight-talking must-read of powerful strategies for every executive headed for the top. Written in the same no-nonsense, hard-hitting manner that McCormack brings to his own fast-paced business and management style, this is mandatory reading for executives on every rung of the corporate ladder.
Just Start Leonard A. Schlesinger & Charles F. Kiefer with Paul B. Brown In a world where you can no longer plan or predict your way to success, how can you achieve your most important goals? It’s a daunting question. But in today’s environment, where change is the only constant, it’s a question everyone must answer.
Start with Why Simon Sinek In 2009, Simon Sinek started a movement to help people become more inspired at work, and in turn inspire their colleagues and customers. Since then, millions have been touched by the power of his ideas, including more than 28 million who’ve watched his TED Talk.
Astrophysics for People in a Hurry| Neil deGrasse Tyson What is the nature of space and time? How do we fit within the universe? How does the universe fit within us? There’s no better guide through these mind-expanding questions than acclaimed astrophysicist and best-selling author Neil deGrasse Tyson.
When Daniel H. Pink Everyone knows that timing is everything. But we don’t know much about timing itself. Our lives are a never-ending stream of “when” decisions: when to start a business, schedule a class, get serious about a person. Yet we make those decisions based on intuition and guesswork.
