good design makes a difference positioning your firm for the end of the economic downturn march 17,...

Good design makes a difference

Positioning Your Firm for the End of the Economic DownturnMarch 17, 2009

Presented by

Kermit Baker, PhD., Hon. AIADoug Gordon, Hon. AIATim Milam, AIAPeter Piven, FAIA

Good design makes a difference 2

Moderated byDouglas E. Gordon, Hon. AIA, has

been editing and writing on architectural technology and practice for 30 years for the AIA, Architectural

Technology, Architecture, Architectural Record, the AIA

MEMO, and AIArchitect; the latter in print and electronic form and for which he currently is executive

editor. As the staff director of the AIA Practice Committee in 1990, he

organized the Institute's "Managing Rapid Change" initiative to help

architects face the then-ongoing severe recession.


Presented byKermit Baker is the Chief Economist

for the American Institute of Architects in Washington, D.C. In

this capacity, he analyzes business and construction trends in the U.S.

economy and examines their impact on AIA members and the

architectural profession. Kermit originated the AIA’s Architectural Billings Index as well as the AIA

Consensus Construction Forecast Panel. Kermit received his Masters

degree in Urban Planning from Harvard University and holds a Ph.D.

from Massachusetts Institute of Technology in the same field. In

2002, Kermit was named an honorary member of the AIA.


Presented byTim Milam, AIA, Partner, is

FXFOWLE's Managing Director. With over twenty years of experience as

an architect and manager in both the public and private sectors, Tim is

responsible for contract administration, project management oversight, and general management

of the firm. His duties include strategic planning, contract

negotiation, human resources, as well as staffing and recruiting. He

chairs the firm's steering committee and is a key member of the

management committee. Tim received a Bachelor of Architecture

from the University of Kentucky and a Master of Urban Planning from City

College. Tim can be reached at (646) 292 8202 or via email [email protected]


Presented byPeter Piven, FAIA is the Philadelphia-

based Principal Consultant of The Coxe Group, Inc., the oldest multi-

discipline firm providing management and marketing consultation to design professionals. A founding principal of

The Coxe Group, Mr. Piven has helped architects and other design

professionals improve their practices in the areas of overall organization,

strategic planning, valuation and ownership and leadership transition,

marketing, project delivery, partnering, financial management,

and merger/acquisition assistance. Peter Piven lives and works in Philadelphia where he can be

reached at (215) 952 2781 or via email at [email protected].


Poll

How many are attending at your location today?


Poll

How many employees are there at your firm?• sole proprietor (1 person)• 2-9 employees• 10-19 employees • 20-49 employees • 50-99 employees• 100 or more employees


If you wanted only one question answered today, what would that question be?

To ask a question … click on the “question mark icon” in the upper-left corner of your screen.


Business Trends and the Outlook for Architecture Firms

Kermit Baker, Chief Economist

The American Institute of Architects


Agenda

• Business Trends in Design and Construction

• Comparison of Current Downturn to Previous Nonresidential Construction Recessions

• Nonresidential Construction Outlook for 2009/2010


• Housing market yet to begin recovery; home prices down about 20%-25% from peak.

• Stock market declines wipe-out gains of past decade.

• Business payroll declines total 4.4 million since downturn began; unemployment rises to 8.1%.

• Architecture firms lose 18,400 positions since August, 2008, or 8.2% of total payrolls.

• U.S. economy dragging down most international economies.

Outlook for Economic Expansion

Annual GDP 2007 2008(e) 2009(f) 2.0% 1.1% -2.5%

Economic Environment Remains Very Weak


Business Conditions at Design Firms: AIA Architectural Billings Index


55.854 54.2

50.2

42.641.1

46.1

41.2

35.3

53.4

57.9

51.951.8

46.5

34.2 33.3

30

34

38

42

46

50

54

58

62

Jan'07 Apr Jul Oct Jan'08 Apr Jul Oct Jan'09

Architecture Firm Billings Have Fallen Dramatically Since Late 2008

billings scores since 2007index: 50 = no change from previous month

Source: AIA Architecture Billings Index


30

35

40

45

50

55

60

65

70

Jan'07 Apr Jul Oct Jan '08 Apr Jul Oct Jan '09

Billings

Inquiries

Inquiries for New Projects, Likewise, Have Softened Considerably

billings scores since 2007index: 50 = no change from previous month



Commercial/Industrial Billings Turned Down in Early 2008; Institutional Activity Has Recently Weakened

25

30

35

40

45

50

55

60

65

70

Jan '07 Apr Jul Oct Jan '08 Apr Jul Oct Jan '09

ResidentialComm/IndInstitutional

billings scores by firm specialization; Index: 50 = no change from previous month



Business Conditions Have Deteriorated at Firms In All Regions

25

30

35

40

45

50

55

60

65

70

Jan '07 Apr Jul Oct Jan '08 Apr Jul Oct Jan '09

NortheastMidwest

SouthWest

billings scores by region; Index: 50 = no change from previous month



Comparisons of Current Conditions to Previous Nonresidential Cycles


30

35

40

45

50

55

60

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb

2008

2001

Current Downturn is Starting Off With Much Sharper Declines Than 2001

billings scores during first year of downturnindex: 50 = no change from previous month



-8.7

-11.0

-4.5-3.7

-2.4

-4.9

-22.8

-33.5

-7.9

-19.0

-33.4

-3.0

-35.0

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

Nonres Total Commercial/ Industrial Institutional

Early 1980s (1980:1) Early 1990s (1989:3) Early 2000s (2000:1) Current (2008:1)

This Downturn is Starting Out as Severe as Any Previous Nonresidential Recession

Total percent declines in construction starts from peak to 4 quarters after peak, 2000$

Source: McGraw-Hill Construction

Note: 2009-1 figures estimated by McGraw-Hill Construction


By Standards of Previous Cycles, Current Nonresidential Downturn Still Has a Distance to Go

Cycle Time Period

Nonresidential Total

Commercial / Industrial Institutional

Early 1980s (1980:1-1982:4)

-27.5% -33.6% -12.1%

Early 1990s (1989:3-1993:1)

-30.9% -47.8% -7.3%

Early 2000s (2000:1-2004:1)

-24.9% -29.2% -20.6%

Current(2008:1-2009:1)

-19.0% -33.4% -3.0%

Percent change in construction starts, constant 2000 dollars

Source: McGraw-Hill Construction


NonresidentialConstruction

Outlook:

2009-2010


AIA Forecast Panel Sees Steep Drop in Most Nonresidential Categories in 2009, With

Additional Declines in 2010

Source: AIA Consensus Construction Forecast Survey for 2009 and 2010 conducted in Dec., 2008.

annual % change; 2000 $

-11.2%

-17.7%

-11.2%

-5.1%-5.0%

-8.8% -8.4%

-1.9%

-20%

-15%

-10%

-5%

0%

5%

Total Nonres. Commercial Industrial Institutional

20092010


-17.7% -17.5%-19.2% -20.2%

-8.8%

-11.1%

-6.6%

-12.2%

-25%

-20%

-15%

-10%

-5%

0%

5%

TotalCommercial

Office Retail Hotel

20092010

Commercial Outlook: All Sectors Off in 2009 Followed by Further Declines in 2010

Source: AIA Consensus Construction Forecast Survey for 2009 and 2010 conducted in Dec., 2008

annual % change; 2000 $


Most Major Institutional Categories Expected to See Downturn in 2009, But Beginning to Stabilize by 2010

Source: AIA Consensus Construction Forecast Survey for 2009 and 2010 conducted in Dec., 2008

annual % change; 2000$


Prospects: Growing List of Federal Programs to Deal with Economic Downturn

• Troubled Asset Relief Program - provides $800 billion pool to draw on to prop up undercapitalized financial sector.

• American Recovery and Reinvestment Plan - $787 billion stimulus program to help revitalize economy.

• Homeowner Affordability and Stability Plan - $275 billion to help homeowners overstretched by high mortgage payments, and to generate more lending for home mortgages.


Summing Up- Design firms entering second year of very sharp

downturn; steepest declines in commercial/ industrial categories.

- Current nonresidential downturn shaping up to be as serious as any of the past 50 years.

- 2009 projected to see double-digit percentage drop in nonresidential construction activity. Further declines forecast for 2010.

- Federal initiatives expected to provide a floor for economic decline and generate recovery by late 2009 or early 2010.


Repositioning Your Firm

Peter Piven, FAIA

Principal Consultant

The Coxe Group, Inc.


Agenda

• The bad news and the good news• How architects have been affected• How architects have responded to date• Initiatives to improve and evolve the firm• Ideas and suggestions for overall strategy,

markets, clients, and organization and operations


The Bad News1. We are in the midst of a worldwide economic

downturn.2. Financing will be harder to get … by clients

and ourselves.3. The markets are tenuous; most clients are

wary.4. Firms are down-staffing. 5. Profitability will likely decline … for most.


The Good News

1. There are and will be opportunities.

2. The government has approved a stimulus package.

3. Talent is available and more will be.

4. There are things you can do to position or reposition yourself.


How Architects have been affected

+/- 5 % are in trouble

+/- 5% are just fine

+/- 90% are concerned and have taken steps


Initiatives to improve

1. Restructure organization and/or operations.

2. Pursue different delivery methods.

3. Redirect marketing efforts.

4. Promote sustainability.

5. Seek public funding opportunities.

6. Enhance existing relationships.

7. Establish new relationships.


1. Restructure org and ops• Bench concept: fewer people, less space.• Share promo, photo costs with contractors.• Introduce or move more strongly into BIM.• Add disciplines to improve competitiveness.• Revisit office standards and graphics.• Invest more in research.• Change ownership to qualify as WBE.• Create minority-owned firm to provide project

management services.• Seek new and redistribute existing talent.


2. Pursue different deliverymethods

• Establish relationships with developers.• Act like a broker: put developers with

clients with access to funds.• Push design/build.• Partner with contractors; join design/build

teams.• Promote Integrated Project Delivery.• Move to developer mode.• Push AEC capability.


3. Redirect marketing efforts• Open a virtual branch office.• Improve collateral materials, incl. website.• Increase visibility by publishing and

speaking.• Expand geographic range: pursue work

abroad.• Partner with other firms to remain lean.• Connect with engineers.• Create a stricter “go-no go” protocol .• Leave markets with little expertise.


4. Promote sustainability

• Promote infrastructure analysis.• Promote tenant improvements: renovations and

LEED services.• EBOM: Existing Building Operations and

Maintenance.• Develop prototype LEED-certified small homes.• Incorporate LEED requirements into the

planning process.• Install photo-voltaic system as demo.


5. Seek public funding opportunities

• Seek sole source procurement projects.• Types: senior living, transportation, schools,

healthcare, military.• Create MBE to do project mgmt. for large,

publicly funded infrastructure projects.• Assist private-focused clients to seek publicly

funded work.


Important ARRA features • $4 billion for Public Housing Capital Fund• $4.24 billion for DOD facilities • $8.8 billion for education-related expenditures• $5 billion for Weatherization Assistance • $4.5 billion to increase energy efficiency in Federal

buildings• $3.2 billion for Energy Efficiency and Conservation

Block Grants• $6 billion in loan guarantees for renewable power

generation and transmission


6. Enhance existing client relationships

• Assist clients to ready projects for the turn.• Provide sketches, feasibility studies to help

clients develop projects.• Assist clients with grants and fund raising.• Develop projects in phases.• Help clients take advantage of reduced

construction costs, get “shovel ready.”• Offer retainer strategies to spread fees.• Move down the food chain from building

owners to building managers.


7. Establish new relationships

• Forge new alliances to expand geography; generate regional alliances.

• Team with out-of-town firms that can use our expertise.

• Connect with some engineers.• Establish relationships with lenders, realtors,

builders, even estate planners.• Transport expertise to new end-users.


Ideas and suggestions reoverall strategy

• Even while dealing with pursuing work for the near term, position the firm for where the leaders want it to be in 3 years and beyond.

• Consider affiliation strategies from project-based to strategic alliances to mergers and acquisitions.

• Understand the financial underpinnings of markets and clients, and use it to help clients develop strategies for their facility needs.

• Expand services to include things that improve clients’ likelihood of success.


Ideas and suggestions re markets and marketing

• Be aggressive in seeking/creating/ instigating project opportunities.

• Sustainability is a high priority.• Planning opportunities are stronger than

architecture, and publicly funded work is stronger than private in some sectors.

• Alliances can broaden geographic coverage and strengthen service offerings.

• Be selective; avoid temptation to go after anything and everything.

• Follow market trends closely, and make the necessary moves to change position early.


Ideas and suggestions re clients

• The easiest source of work is clients with whom the firm has already worked.

• Sustain relationships with clients: past, current, prospective, and stay connected at many levels.

• Offer to do work in small increments.• Encourage clients to capitalize on current

construction cost reductions.• Offer incentives to get things moving (but not to

the extent of devaluing the work).


More ideas and suggestions re clients

• Help clients understand how the things that differentiate the firm benefit them.

• Expand the firm’s network to include those who influence and help clients.

• Consider becoming a client by becoming a developer; remember it requires financial understanding, market understanding and forecasting, funding sources, risk, and focus.


Ideas and suggestions re organization & operations

• Position the firm for where the leaders want it to be in three years and beyond.

• Find ways to develop and capitalize on such things as WBE/MBE status.

• Assess talent and make changes where improvement is warranted.

• Use the down market period to increase technical and technology proficiency.

• Strengthen expertise, either in-house or through affiliations.• Accelerate efforts towards LEED accreditation.


GOOD LUCK


Poll

Are you currently:

• Repositioning Your Practice • Considering Repositioning• Neither


FXFOWLE ARCHITECTSRepositioning: Lessons Learned

Tim Milam, AIAPartner, Managing Director


Agenda• Repositioning Example 1: Short-Term Strategy

(resulting from an unexpected change in the market)

• Repositioning Example 2: Long-Term Strategy

(in anticipation of a change in the market)

49


Repositioning Example 1: Pursuing NYC Residential Sector in 2001

50


Challenges

• After 9/11, commercial high-rise development in NYC slowed drastically

• Developers responded by adapting to residential market – where demand was still strong

• How to secure work in this new market with limited experience?

51


Initial Steps

• Identify partner and key team to lead efforts

• Research current residential market sector

• Analyze similarities between residential and commercial high-rise; understand differences

52


Implementation

• Strengthen existing relationships with Clients who are also venturing into new sector

• Collaborate with firms which have expertise • Review work to determine if any past projects might be relevant

OR any components of projects might be useful• Use employees’ individual experience in sector; add new

employees with the experience• Use expertise in sustainability, local knowledge, technical

expertise, quality assurance and client service as marketing tools

53


Timeline

• 2002: Started design for 1st residential project (The Helena) – for existing client

• 2003: Started design for large residential development (Archstone Clinton) – for new client

• 2005: Construction of The Helena completed; Received 6 new commissions

• 2006: Started design for first international residential projects (India, Dubai)

• 2008: Construction complete on 4 residential projects including Archstone Clinton

54


Results

• Successfully adapted to residential work – which became busy sector until recent downturn

• New design opportunities with different building type• Increased opportunities, new clients • Implemented sustainable design • Expanding services: interior architecture, LEED

55


Repositioning Example 2: Developing International Practice

56


Goals

• Develop practice in an alternative market to offset anticipated downturns in US economy

• Pursue and secure work that offers greater design opportunities and the possibility to expand services into other sectors

• Expand firm’s sustainable design goals outside US• Leverage international work to reposition our brand in

the US


Initial Steps

• Get buy-in from firm leadership: time/effort/$ • Identify partner to lead efforts: requires giving up other

commitments; a willingness to travel extensively; a long-term position with slow results

• Conduct extensive research• Identify useful connections and alliances (networking)• Develop strategic plan

58


Implementation

• Cast wide net, then focus on specific geographic areas• Be adaptable to different expectations from clients, working processes;

cultural differences; business practices, etc.• Enter open competitions – and use work product for marketing to other

clients• Review work to determine if any past projects might be relevant OR any

components of projects might be useful• Be willing to hire a business developer with connections in targeted

areas • Attend international conferences/events• Set up regional office, relocate employees

59


Challenges• Remote clients and project locations• Differences in: culture, construction materials and

methods, business practices, liability/insurance• Branch office complications: communication, recruiting

& training staff, etc.• Unpredictable results• Getting paid in a timely manner – OR getting paid at all• Current economic recession – is GLOBAL

60


Timeline

• 2005: Developed plan & started implementation; received first commissions (master planning and feasibility studies)

• 2006: Hired full-time business developer and set up office in Dubai; started design for large projects

• 2007: 12 new commissions; expanded services• 2008: Expanded office in Dubai; started design of first

bridge project; started work on major project in Saudi Arabia• 2009: Readjusting to economic slowdown – different

geographic areas and project types

61


Results • Projects in various countries – with a concentration in

Dubai/India/Saudi Arabia

• Lots of press, new opportunities, expanding client base

• New opportunities in US – using international experience

62


“Our vision of the future is to achieve a position in the industry where we are able to define the design issues for projects independent of current fashion; where we are known for, respected for, and sought out for the quality of our design; where we are acknowledged in the industry as leaders in design and environmental sensitivity.”

from FXFOWLE’s Strategic Plan 1996


Questions and Answers

To ask a question … click on the “question mark icon” in the upper-left corner of your screen.


Poll Which of the following lessons have you've learned from this discussion (check all that apply):

- I now have a better understanding of the current economic climate and the probable impact of the economy on my practice.

- I can take action to position my firm for the end of the economic downturn.

- By taking proper and timely actions with respect to my practice, I will respond to reap the benefits of the next upward economic swing in any way.


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CES Credit

AIA members and nonmembers should report 1.5 learning units and download certificate of course completion via online form http://info.aia.org/aia/CESCertificate.cfm at the conclusion of the live webinar. The URL will be available until March 23, 2009.


InstructorsKermit Baker, PhD., Hon. AIA

Chief Economist


1735 New York Ave., NW

Washington DC, 20006

Email: [email protected]

Peter Piven, FAIA

Principal ConsultantThe Coxe Group, Inc.201 Queen StreetPhiladelphia, PA 19147Phone: (215) 952 2781Email: [email protected]

Tim Milam, AIAPartner, Managing DirectorFXFOWLE

22 West 19th Street

New York, NY USA 10011 Phone: (646) 292 8202


Douglas E. Gordon, Hon. AIA

Executive Editor, AIArchitect


1735 New York Ave., NW

Washington DC, 20006

Phone: (202) 626 7344



Thank you for joining us!

Positioning Your Firm for the End of the Economic Downturn

good design makes a difference positioning your firm for the end of the economic downturn march 17,...

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