Does it pay to be mean?
A new study of medium-sized practices indicates they should improve their business strategies, but there's no need to panic
Medium-sized architectural practices - defined by the RIBA as those with six to 10 full-time equivalent (FTE) architectural staff - represent a major and growing share of the architectural practices in the UK. Yet their size is often seen as a handicap.
Although partners and directors are still heavily involved in project and professional work, administration and strategic planning becomes a more important issue than it is in small practices. In order to keep their level of staff constant and control overheads, workload has to be maintained. Small practices tend to do many small projects with inexperienced repeat clients, whereas large practices enter into strategic partnerships with contractors and corporate clients, able to sustain temporary losses. A survey of 52 medium-sized architectural practices throughout the UK examined the extent to which this sector has developed a distinctive strategic approach to the market.
Aims and objectives
The development of a business strategy is a constant process of analysis, choice, implementation and revision.
In the hierarchy of strategic planning, the definition of long-term objectives is the most general, but also the most crucial, starting point. The objectives of different practices vary considerably, yet their overriding task is to ensure their survival and to gain an advantage compared with other similar practices. In a survey by the University of Northumbria, 59 per cent of the practices based their definition of practice objectives solely on their practice philosophy, professional values and beliefs, and on the perceived strengths and weaknesses of the people within the practice.
Only 41 per cent of medium-sized practices consult market research publications to identify market opportunities and threats. None of the practices define their goals by reference to market research alone. This shows that, unlike other businesses, medium-sized architectural practices are driven primarily by internal motivators. Professional satisfaction is important, but the practices have to be wary of being ignorant of the growing competitive environment.
Effective business strategies work on a timescale of about five to 10 years. However, strategic objectives have to be translated into accountable day-to-day operations and both requirements have to complement each other. Most practices have identified clear management responsibilities for practice development issues and prepare annual business plans. These cover:
human resources and organisation plan; and ladministrative support/physical facilities.
The responses seem to reflect an awareness of the importance of short and medium-term planning, which is not necessarily a clear indicator for the existence of strategic planning, but it is evidence of a conscious business approach. Without a long-term strategy, practices face the danger of inconsistency and redefining objectives too often to achieve anything.
Another weak point is that less than half the practices bother to measure their performance. They appear to adopt strategic behaviour that can best be described as 'proactive ad hoc' - simply a cross between crisis management and piecemeal revisions to crisis management. Generally, there is no conscious rule as to which behaviour will be successful in which situation. Instead, a more proactive, systematic approach is seen as the most promising way of succeeding in a changing business environment.
The survey interrogates the particular activities and services on which each practice focuses, as part of its overall strategy. Most practices specialise in specific sectors - being able to provide the full range of architectural services within these sectors is seen as an important ingredient for success. Only a quarter of practices actually focus on provision and inhouse integration of other professional services. In this way, practices seem to emphasise 'traditional' professional roles.
This survey recognises an improving relationship between architects and clients. No less than 88 per cent of the practices view the repetition of business with existing clients as an important part of their strategic focus. On the other hand, clients seem to have developed more confidence in the services of architects, as 61 per cent was the median of fee income from repeat business. Larger practices (in the sample of middlesized practices) derive 72 per cent of their workload from existing clients.
In relation to net fee income, numbers of staff, profit and training days (for the period between 1997 and 2001) practice performance looks healthy, with fee income having risen in about 75 per cent of the practices. Compared with the Construction Consultants' Key Performance Indicators 2002, 4.6 training days per full-time employee is exceptionally high, where 83 per cent of construction consultancies spend fewer training days per FTE than the median of our sample.
Bigger and better?
The report compared the performance of the 20 practices in the sample with the highest fee income with the 20 practices with the lowest fee income. It is evident that margins are tighter for larger practices (16 per cent compared with 22 per cent). This seems to imply necessary changes in the practice's characteristics as they grow. Practice values shift from aiming for professional excellence and reputation to a much more successorientated approach. Strategic development and implementation, as well as the use of market research, are given a higher priority and aspects of efficiency and productivity become increasingly important.
Efficiencies lead to the employment of a higher share of non-professional staff, and 95 per cent of larger practices recognise their reliance on existing clients and make the repetition of business with them a vital part of their strategic focus. All these characteristics appear to be interdependent, suggesting that growth without an efficient, strategic approach cannot be sustained. Alternatively, growth and size enable practices to focus on the provision of other in-house professional services.
Increased turnover does not necessarily lead to increased profitability.
As a result of this lack of incentive to grow, many successful and long-existing practices choose to stay small and avoid the changes that size demands.
An important feature of successful practices is that practice values of aiming for both professional excellence and reputation (even at the expense of financial rewards) and seeing the practice as a business and aiming to increase revenue, do not seem to be mutually exclusive.
Market research plays a more vital role in defining successful offices' objectives, and management tools assist in this. Literature on business strategies of architectural service firms suggests that in order to be successful, practices should be distinctive - for every kind of problem, project and client, a different approach demands a certain (different) set of working methods, experience, organisational structure, marketing and resources. The findings of the survey do not support this argument. Practices that want to develop the ability to provide highly creative and innovative solutions for clients, require both an experienced base of reliable and co-ordinated services (for complex types of problems), as well as efficient procedures and solutions (for familiar problems), so that they can meet the economic expectations of their clients at the same time.
Practices performing this trick are common and usually very successful.
The key findings of the study indicate general trends rather than spectacular news, but it should help practices deduce that things are not too different or difficult 'out there'.
Having a distinctive, formal and implemented strategy in place clearly contributes to business success. Practices should be aware of what they are doing but a practice promoting only one aspect of its service provision/ abilities does not seem to work. Fortunately, there was no evidence that medium-sized practices are on the brink of extinction. In fact, they actually do well for 'being in the middle'.
Christoph Oschatz is a graduate architect studying MSc Project Management at the University of Northumbria at Newcastle. Dr Bob Giddings is an architect at the University of Northumbria. Email coschatz@ryders. com or bob. giddings@unn. ac. uk