Diversify Your Firm’s Project Portfolio
Conditions cycle over time, it’s never to early to plan

by Paul Eagle

Summary: It has been many years since the profession has seen this deep a trough in business conditions. Nonetheless, points out Perkins + Will Managing Director Paul Eagle, planning for long-term success requires developing a long-term view that recognizes the cyclical nature of construction markets and, therefore, the profession of architecture. He offers his insights for developing a plan for diversification.

“The virtual evaporation of significant new construction projects in New York City is deeply hurting the architectural profession, forcing firms to lay off employees, cut their fees, diversify their practices, and search for work in other cities and countries.”

Although the quote above sounds as if it came from last week’s Crain’s, it is actually the lead for a story by David Dunlap in the New York Times Region Section on July 5, 1990. Dunlap’s article goes on to bemoan the unrented 27 million square feet of high-rise office space in Midtown Manhattan and decries the fact that the big development plans for New York City—such as Columbus Center on the old New York Coliseum site, the Trump City development along the Hudson, and South Ferry Plaza at the South Ferry Terminal—may never get built. When the economy is receding, it seems as if we will never see cranes being set up at a construction site again. The fact is, as many of us who have lived through more than a couple of downturns understand, this isn’t the case. Both Columbus Center and Trump City did get built and continue to thrive.

Unfortunately, it’s not what struggling firms can do now, it’s what should they have done two years ago

Although the cyclical nature of the economy provides comforting news for long-term thinkers who have faith that the profession will rebound, it provides little solace to the practices struggling to keep staff paid and offices afloat as clients cancel jobs and the rapidly downward spiral of fees reaches unimaginable depths that sink below break-even levels. So what can struggling firms do to shelter their practices and the profession through these very difficult times? Unfortunately, the answer is what these firms should have been doing two years ago, when the primary focus for most firms was how to win the war for talented professionals. In good times, firms must take the long view, strategically assessing how to diversify market sectors and service offerings, and for larger firms, geographical reach.

Hard marketing begins during good times
Every business knows the appeal of low-hanging fruit. The “over the transom” work, the referrals from existing clients, and the slam-dunk shortlist pursuits—low capital marketing outlay that relies on a solid customer base—all represent a tempting break from hard marketing strategy. However, just as our financial advisors remind us to diversify our investment strategies despite the promise of large returns from a single source (thank you, Bernie Madoff), we are lulled into complacency by the success of our repeat work in proven markets. Unfortunately, this has resulted in many firms handicapped by deep project portfolios in slowing or stalled markets and skinny résumés for other market sectors that may be less impacted by the downturn.

It’s cold comfort that the current state of the industry is a cyclical reset, not a bottomless descent

Diversification of market sectors and service offerings is the lesson learned from previous recessions. During the late 1980s, when our profession was experiencing robust times, the then-president of HOK, Jerry Sincoff, looked to expand the facility programming group (which primarily was engaged in developing programs for project work under contract), into a consulting practice that offered strategic planning advisory services that tied a client’s business drivers to facility development plans. When the downturn of the early 1990s hit, and the bricks and mortar projects slowed, clients instead invested available funds to conduct feasibility analyses and alternative development strategies. These advisory services both generated fees for the practice and helped to keep HOK connected to existing clientele through times of sparse project development.

Perkins+Will took a similar strategic approach to the market in the late 1990s. With a strong base in health-care and higher-education design, the firm developed a 10-year growth plan that promoted diversification across markets, disciplines, and locations. In the last 10 years, the firm has expanded its work in K-12 education, science and technology, corporate, commercial and civic, and aviation and transit market sectors. In addition, service offerings expanded from two (architecture and interiors) to five (adding brand strategy, strategic planning, and urban design). Finally, expansion into Asia, Europe, and the Middle East expanded the reach of the firm’s services. All of this growth and expansion occurred while still maintaining a watchful eye on strategically expanding the firm’s core health-care and higher-education offerings.

Growth requires strategic diversification
Although both of the above examples describe large companies, the same search for diversity and innovative approaches can be applied by any size or scale of firm. In fact, all of the large firms today began as small firms that specialized in one particular project type—for Perkins+Will, it was K-12—and grew as a result of diversification.

There is cold comfort in recognizing that the current state of the industry is a cyclical reset, as opposed to a descent down a bottomless tunnel. The pain will be minimized for those practices, large and small, that have learned the lesson of practice diversification. For those who have not, it is never too late to start.