Déjà vu for architects
Dec 06, 1999
I hate to say it. I thought the past was behind us. But the fact is some architects are repeating history right now. They’re getting ready for another fall. They’re making the same mistakes they made the last time they got into trouble. And they are going to have financial problems. In fact, some of the largest firms experienced revenue declines in 1999, in some cases by as much as a third. Many of those that didn’t decline had greatly reduced revenue growth. Profits are starting to slip. Some firms had double-digit accrual losses. Backlogs are down. Cash flow is not as bad as the accrual figures look (it never is in a decline situation) but collections are lagging. I don’t want to pick on architects any more than I do engineers or environmental consultants. But I think they deserve some special attention. There may be hope for some firms that have not yet dug themselves into too big of a hole. I want to save them if possible! Here’s my assessment of why we are seeing a number of architectural firms starting to have problems again: Most architecture firms never solved their management problems in the first place. Let’s face it, a strong economy has been the engine that propelled lots of companies to unparalleled success in the 90s, not good management. Many companies succeeded in spite of how they were run, not because of how they were run. Now that demand is slowing in some building sectors and supply is catching up, the underlying weakness of these firms’ management is becoming evident. Architects don’t like business. One of the reasons that many architectural firms did not address critical management problems such as organizational structure, ownership transition, institutional marketing, communications technology, and more, is the architects who own and run these firms don’t have a real interest in these things. They tend to be more drawn to projects than anything else. Their “pride of creation” comes from what they do for their clients, not what they do for themselves in terms of building a company. “Management is a bunch of B.S.,” many architects think (and say). “Let’s do some real work and design this next building. Who has the time (or the inclination) to do a decent business plan?” Many architecture firms are using dated incentive compensation plans that have not been overhauled. At one of the larger firms (a name I won’t mention), arguments over the incentive compensation scheme are threatening to tear the place apart. Managers of business units are paid based on the performance of their unit. Yet some of these units are geographically based. The company, meanwhile, needs to solve information technology, resource allocation, and marketing issues on a firm-wide basis. These initiatives cost money. The unit managers fight any expenditure at the corporate level because it raises their overhead burden and costs them bonus money. The company is at an impasse. It cannot do what it needs to do to manage itself at the size it has grown to! Architects are non-confrontational. Architects are nice people. They don’t like confrontation. They avoid it. Many are also dreamers who don’t always face up to the reality of the situation. As a result, the cost-cutting measures that are taken are too little, too late. Not enough cutting (something good is around the corner!), and not fast enough (we’re going to get the such-and-such job next week.). This really hurts a firm’s ability to deal with declines in workload and maintain some semblance of profitability. Too many architecture firms are over-reliant on rainmakers. Don’t get me wrong. I like rainmakers. I have advised some of our clients to hire one at one time or another to make an impact in a key market sector. But that said, I don’t want to see our architectural clients strictly rely on these rainmakers for work. It’s just not safe. These people quit and take big chunks of business with them. They go through personal crises and stop selling. They get mad at the rest of their partners and slow down. They may get sick or die. The bottom line is that by over relying on these rainmakers, too many firms ignore everything else they need to do to build up institutional marketing efforts that are not tied to one or a few key personalities. That’s dangerous! So there you have it. I’m sure a number of our readers disagree with me but the proof will be in the pudding. Save this article and tell me two years from now whether or not I was off base. I think you’ll find that I wasn’t! Originally published 12/06/1999
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Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.