A point of reference
Welcome back to work. Those of you who took long Christmas breaks may still be readjusting to the realities of working life. And architects probably reacted wryly to a DTI survey at the start of the year that showed that flexible working hours would be the 'perk' valued by the highest proportion of the working population.
Architecture is a notoriously unforgiving profession and the latest benchmarking survey conducted by architectural management consultancy Colander shows that this is not changing for the better. Too many people, especially in senior positions, are working too hard, and they are not working effectively.
However, the purpose of the report is not simply to slag off the profession but to set a level of benchmarks that practices need to achieve for successful operation, and to help them identify their own strengths and shortcomings. This, the third AJ/ Colander benchmarking survey, follows the pattern of its predecessors.
As well as providing participants with the benchmarking survey, it also gives each practice an inter-firm comparison, comparing its performance to the other (anonymous) participants that are nearest to it in terms of size and activity.
Chris Andrews of Colander says:
'We are seeing increasing evidence of the need to improve all aspects relating to people management. This means not just paying people more, but getting to the heart of what motivates and rewards professional people.'
The findings of the benchmarking survey are confidential to those practices that took part (and paid for the privilege), or to those who would like to buy copies of the report. But we can give a few glimpses into the authors' conclusions here.
These findings arise from the responses of the participating practices, set against benchmarks that Colander has developed using its experience and management expertise. The profile of participants shifted slightly this year, so that although there was still an excellent spread of practice sizes - from the very small to the large - the proportion of large practices increased showing their confidence in the process and their belief in its validity. In total, the survey covers nearly 3,700 working architects, between one-fifth and one-sixth of the working population. There were also several entries from Ireland.
Rising pay From the responses, the authors make some telling points in their executive summary. 'One of the key pressures has been the unabated increase in the whole salary package, ' they write, 'which we welcome as we have long been concerned about the overall low rates of reward attributed to the profession. However, these rising costs of employment, combined with a shortage of talent, mean that efforts to increase productivity must take priority. We are also aware of the concerns about costs of PI, but figures reported are too early to give us useful measures. We will be concentrating more on this next year.'
The importance of salaries is emphasised by the fact that these represent the lion's share of expenses - more than two-thirds of total expenses are represented by salaries in Colander's calculations, which exclude shareholder directors' salaries and bonuses.
Having seen salaries rise substantially during the past year as a percentage of costs (and they have risen most sharply for partners/ directors), and with no expectation of this trend reversing, Colander is particularly concerned about the pressures that this will put on other expenditure. In particular, it says: 'It is already worrying that less than one per cent of salary costs (or 0.5 per cent of total expenses) is spent on training'. Not only has this percentage fallen, it is also low in relation to other professions. The authors believe that there is a clear correlation between low expenditure on training and low profitability. They find that twothirds of the practices with belowaverage expenditure on training are below the average for their combined measure of profit (a measurement developed by Colander, which it believes is the most even-handed way of measuring profit).
Low expenditure on training does not suggest a huge commitment to the staff 's development, and this is reflected in worryingly high levels of turnover, and the reasons given for this. Colander identifies 21 per cent of practices (the same proportion as last year) as having a 'worryingly high' level of staff turnover, with more than 20 per cent of staff being replaced in a year. The average percentage of all fee earners (excluding Part 1 and Part 2 students, and contract staff ) leaving their employment in any one year is a whopping 18 per cent.
The reasons for leaving (as identified by employers) are also depressing, since in nearly one-third of cases they cite 'more opportunities', a damning indictment of the career development opportunities that are offered within the practices.
Another mystery is that 14 per cent of those leaving large practices do so for 'more pay', yet are leaving the practices that are traditionally the best paying. Does this mean that their value is not recognised within their own practices, and that the only way to get a pay rise is to move practices?
And it seems odd that so many are leaving for more money at a time of rapidly rising pay, plus - another new observation - a high rise in add-on benefits. These, which can be anything from mobile phones and share options, to paid overtime, are worth an average of £2,403 a year to non-fee earners, £5,481 a year to fee earners, and a staggering £53,480 to partners/ directors. The most popular benefits are professional subscriptions. For fee earners these are followed by bonuses and professional examinations, whereas for partners and directors they are the material assets of a PC, a mobile telephone and a car.
Recruitment costs While the high level of turnover indicates high levels of dissatisfaction, it is also a substantial cost for practices, since the cost of recruitment extends well beyond the cost of advertising (the most popular method of recruitment). The ratio of applications to interviews for fee earners is 17:4 and the ratio of interviews to job offers is 4:1. This represents considerable management time but is still only the tip of the iceberg, since all new starters work at well below peak efficiency and require considerable additional management input for some time. And even this discounts the important hidden factors of loss of morale, loss of continuity on jobs, weakening of links with clients and stress for project architects.
So how is all this reflected in the way that practices work, and the money that they bring in? Hourly charge-out rates have risen, which, says Colander: 'In the light of salary increases is good news, provided the quoted rates are actually achieved.'
However, this qualified pat on the back is followed by an admonition.
'By contrast, ' says the report, 'the number of assumed chargeable hours for partners or directors is disappointing.' The problem, finds the report, is that they are doing too much chargeable work, which means that either they are working ridiculously long hours or they are neglecting the management and promotion of their practice, or both.
Colander has set a benchmark for the number of chargeable hours that partners/directors should do. Last year, 33 per cent of them exceeded it;
this year, 42 per cent are doing so. Perhaps they feel they have to justify their large salary increases, or pick up the slack that is generated by their high turnovers of staff? This could well be a vicious circle. With partners/directors slaving away on projects, they will not have the time to sort out staff development that could reduce the proportion of leavers.
Misguided marketing Perhaps if the partners/directors were not working so hard, they could pay more attention to marketing. They could spend more on it, and they could spend it more effectively. This has been a bugbear of Colander since its first Bench Mark Report. It has set a benchmark for the percentage of turnover spent on marketing and nearly half of all practices fall below it.
'As a result, ' says the survey, 'practices are having to spread a meagre budget too far, with commensurate results.'
But even worse is the fact that the marketing spend seems to be poorly directed. Many of the practices with below-average profit are spending within the benchmark range on marketing, and a substantial proportion are spending above it. Clearly this is not effective; either it is not helping them to win work, or they are winning the wrong work.
The study also finds that far too much marketing expenditure is project specific, although this proportion has reduced. Caroline Cole of Colander comments: 'The architectural profession is still amazingly unsophisticated in its use of marketing - few practices recognise that marketing and selling are different and those that do have a tendency to waste their efforts with poorly targeted activities that bear no relation to an overall business strategy.'
If your marketing spend is low, then it cannot be easy to address a lot of markets. Yet this is what far too many practices are doing. The survey finds that half of practices work in more than eight sectors, which means they are spreading themselves very thinly. And the authors are also concerned that more than a fifth of practices are targeting work in three sectors or fewer. Not only does this make them vulnerable to market changes; they also tend to be the least profitable practices.
Picking the right sectors is crucial, since some represent a far higher percentage of a practice's profit than they do its fees. These are shown clearly on a bar chart in the report, but you will have to buy a copy in order to find out. Or better still, sign up to next year's survey (to be launched in March) and get all the benefits that participating brings. These include not only the inter-firm comparison and the report, but also the knowledge about your own practice that participation will bring.
The next few years will not be easy - it will pay to be in fighting shape.
lCopies of Bench Mark Report for Architects 2002 are available from Colander BM 2002 at a cost of £350.
To order a copy call 020 8771 6445 or email caroline@colander. co. uk