Friday, September 26, 2008

Diagnosing the Gap

Why are architects and engineers less valued than other professionals? In my last post, I offered some pretty compelling evidence of the disparity between A/E firms and other professional service firms. The gap is apparent in more ways than simply lower fees. In talking with my colleagues (particularly those who like me have been around this business awhile) I know they just feel less valued by clients than they used to. They point to less loyalty, more pricing pressure, more onerous procurement practices, less collaboration, more unreasonable demands--to mention a few.

So how did we get here? I don't know that anyone can offer more than an informed opinion in response to that question. Here's my take:

Lack of differentiation. Fundamentally, it's the problem of the undifferentiated product. When clients have more options and see fewer differences between providers, commoditization inevitably sets in. It's a buyers market; they have the leverage and usually exercise it. And providers wind up feeling less appreciated. This trend is a natural phase in the product/service life cycle.

But what about other professionals? Aren't they subject to the same laws of supply and demand? Yes, they are. And other professions are complaining about many of the same challenges that we are facing. But they also have a few advantages that we don't (as I'll explain below).

Charging by the hour. Another factor that has contributed to this problem is our historic tendency to charge by the hour rather than on the basis of the value delivered. No doubt what we do is vitally important to society. But when we sell solutions in hourly increments it invites clients to try to squeeze out the same results (or adequate results) in fewer hours. True, we're moving increasingly to lump sum contracts, but the old stigma remains.

Greater willingness to negotiate price. Other professionals also seem less prone to negotiate down their price. Undoubtedly one reason we're feeling increased pricing pressure is that clients have learned how quickly many firms cave when asked to lower prices. Many A/E firm principals believe this practice is unavoidable if they want the work. But the best way to address client cost concerns is to negotiate scope, not price. Price establishes a sense of value. If we're willing to lower prices it suggests that we're not convinced our value matches the asking price.

Failure to adequately address strategic needs. One big advantage that many professionals have over us is that they help clients address their strategic needs. We tend to focus almost exclusively on technical needs. Strategic needs are those that affect the overall success of the client organization. They commonly relate to financial, competitive, political, or operational factors. Of course, our projects help meet strategic needs. But we often fail to make the connection. As a result, other professional firms have taken over some of the big-think, planning-oriented strategic roles that A/E firms used to fill.

I'm sure there are other contributing factors, but these seem to be at the root of the problem. So what can we do about it? That's what I want to address in subsequent posts. But the solution starts here: We have to believe we can do something about it. I see too many of my colleagues who seem resigned to accept things the way they are. It's a basic value equation--deliver more value and clients will reward us for it. You want to be more than good at what you do; you want to offer something clients can't get elsewhere. And, believe or not, that's not necessarily beyond our grasp.

Tuesday, September 23, 2008

What's Wrong With This Picture?

Architecture and engineering are among the most respected professions. But they are not among the most valued. Why would I say that? Consider the following evidence:
  • A/E firms have a labor multiplier well below that of other professional firms, such as attorneys, accountants, management consultants, and advertising agencies. The median in our industry is 3.0 compared to 5.0 for other professionals. The mark-up on labor costs is certainly one measure of perceived value.

  • Not surprisingly, A/E firms are among the least profitable of all professional service sectors. According to, only employment services and travel arrangement and reservation services have lower profit rates. Even administrative support services have higher profits!

  • Price competitions obviously contribute to lower profits. One survey found that 68% of A/E firms had participated in procurements where cost was the primary selection criterion. Imagine what it might be if we didn't have Qualifications-Based Selection rules in place.

  • Our clients are also less loyal than in other professions. A study by found that 88% of A/E firm clients were open to changing their current providers, the highest percentage among the professional service sectors they investigated.

  • Several client surveys concur that clients see little real differentiation among firms in our industry.

These facts lend credibility to the growing sense among us that our business is becoming increasingly commoditized. This was a pervasive concern even before the economic downturn. In an environment of tighter funding and more scrutinized spending, we can expect to have to work even harder to deliver distinctive value.

Why are our services less valued than those of other professions? I don't have any ready answers, but I do have some reasonable theories. In subsequent posts, I plan to outline what I believe to be at least a big part of the problem, and what we can do about it. I hope you will contribute to the discussion.

Thursday, September 18, 2008

Well, Duh!

Sometimes we fail to do the obvious things that would improve our chances of success. I'm certainly guilty of that. How about you? Maybe we haven't had the "Aha!" moment when it suddenly becomes clear what we should have been doing all along. Other times the better way is staring us in the face and we still don't act on it for whatever reason.

I was reminded of this yesterday as I delivered a couple of sessions at the Virginia Engineers Conference. One dealt with time management, the other was on persuasive communication. As I often do, I occasionally asked for a show of hands to see how many people or firms were doing the things I recommended. These included:
  • Planning one's activities for the week. Only about a third of my audience indicated that they took a little time at the start of the week to identify priorities and schedule activities. No wonder so many find themselves in the throes of "fighting fires" day in and day out. Stephen Covey's research found that the average corporation spends about 75-90% percent of its time on urgent activities, most of which are not considered important.

  • Managing non-billable time. Less than a fourth of attendees indicated that their companies "manage" the non-billable hours spent on activities such as business development or corporate initiatives. By manage, I mean determining the level of effort required, assigning people specific tasks, budgeting their time, and tracking how much time is actually spent. Billable hours, of course, receive this kind of attention. Why not the "investment time" critical to a firm's success?

  • Making documents skimmable. While everyone seemed to agree that their proposals and reports were probably skimmed rather than read by their target audiences, no one indicated that their firm designed documents to make them more skimmable! This is an obvious opportunity to set our proposals apart.

  • Using second person in proposals. Once again, no one raised their hand when I asked how many used the word "you" in their proposals (this was an audience of about 75 people!). This despite the fact that several studies over the last 30 years have reached the same conclusion: You is the most persuasive word in the English language. Why then is it banished from our most important persuasive documents?

  • Including an executive summary in proposals. Very few indicated they did this, something that I've routinely done for many years. I recognize that RFPs rarely ask for one, so the obviousness of this strategy may not seem apparent. But one large study found that executives read 100% of summaries in reports and similar documents (that's why they're called "executive summaries"), while only 10% read the body of the documents. Does this apply to proposals? I can't prove it, but will point to my 75% win rate as evidence that it at least seems to work.

  • Regularly soliciting feedback from clients. Everyone claims to provide great service to their clients, but only about a fourth of firms routinely ask clients how well they're doing, based on my informal survey. A major study by Accenture of service leaders across different industries found that they consistently do two things: (1) relentlessly manage the service delivery process (something rarely done in our industry!) and (2) routinely solicit feedback from customers.

There are undoubtedly many other obvious things we should be doing; these are just a few that came up in my presentations yesterday. It might be fun to compile a "Well, duh!" list of strategies that are inexplicably ignored in our business. Any you'd like to contribute?

Thursday, September 11, 2008

The Hard Work of Real Change

If there's one thing that characterizes leadership, it's the ability to affect positive change. We laud leaders who are visionary and inspirational, but ultimately what counts is what gets done. Here's where the old Woody Allen quote, "90% of success is just showing up," comes into play. Leading change is certainly a complex endeavor, but the first requirement for firm leaders is simply showing up. By that, I mean committing to the hard work over the long term to see change take root. The lack of this kind of management commitment, in my experience, is the number one reason change efforts fail (and the vast majority do).

When change is thrust upon us (such as in a weak economy) or the need for improvement becomes obvious, most firm leaders seek quick fixes. These include:
  • Training events
  • New policies or procedures
  • New assignments or positions
  • Reorganization
  • New technology

Unfortunately these tactics rarely, if ever, work. Not on their own, anyway. That's because real change doesn't take place in outward forms; it requires inward transitions. In other words, corporate change doesn't happen until individual change does. And that takes time, longer than many firm managers are willing or able to commit to.

I learned this firsthand as a manager. We had several change efforts going (too many, I'm sure). So when I felt we had made significant progress on one to shift my attention elsewhere, I'd soon discover we were backtracking where I thought we had reached a beachhead. I was repeatedly surprised to learn how much I needed to keep pushing to keep change going. You might call it the Sisyphus Principle, where the weight of doing things the old way is constantly threatening to undo the progress you've made--until the transformation has been internalized.

Leading that transformation requires more than smarts and starts. It demands hard work and endurance over the long haul. I've worked with a lot of companies that valued my experience and ideas to help them change and improve. But few have been able or willing to make the investment of management time and attention that was really needed. These firm leaders didn't necessarily lack the ability, just the availability. I've learned a lot about leading change efforts, but I've yet to discover any shortcuts.

So what should you take from this? First, set realistic expectations. If reaching your goals is important, consider how much effort is really needed. Then determine if you can commit that much time and attention to it. If not, scale back your goals. False ascents up the mountain of change not only fall short of the goal, but discourage people from committing to future change efforts.

Second, carefully budget time and attention. There's a limited supply. Firm leaders commonly over-commit then under-achieve when it comes to change. Manage change initiatives like projects, defining the tasks, manpower, time, and money needed to get the job done. Don't double-book. Whatever is committed to a specific change effort should be off-loaded somewhere else. Remember people are already suffering from mental overload. To keep the desired change at the forefront of their minds, you have to keep it constantly in the corporate conversation.

Finally, don't make promises you can't (or won't) keep. This is a matter of your integrity and credibility. Without it, you can never build the trust necessary to guide people through the transformation. In the end, trust is the bedrock on which sustained change must be built.