I've been thinking a lot lately about the "Money, money, money ..." thread and its debate related to "supply and demand" as a factor in both firm profitability and individual compensation. As I've mulled over that thread, I've come to realize (remember) that the issue is way more complex than just "supply and demand".
Some of you may recall that in the past I've occasionally posted here about the work of Michael Porter - specifically his work dealing with competitive strategy within different industries. Even though Porter's research is focused on companies much larger than those typically found in architecture, I still believe his work offers some useful lessons to those of us engaged in professional practice.
In this article, Porter argues that the following five forces work together to define the level of competition - and therefore profitability - in any industry: . Threat of New Entrants . Threat of Substitute Products or Services . Bargaining Power of Suppliers . Bargaining Power of Buyers, and . Rivalry Among Existing Competitors
I commend this article to all who venture here ... and look forward to the ensuing discussion.
kickrocks
Jun 17, 15 5:18 pm
I'm not downplaying this topic but some of the points don't translate directly over. Architecture is essentially a service and the firms act like liaison or mediator selling it best they can. It doesn't operate alone like a company that controls input and output, like labor for software development and the final software package or raw resources for soda and the pallets of cans filled at the end of production line.
The final product production is turned over to someone else so that supplier bargaining power point can crossed out. Buyers do have power and that's well documented in the desire to pin one against each other for the lowest costs possible. It ties into the rivalry point, undercutting what would otherwise be required to run normal operations just to get by with anything. Competing on price doesn't work but the lack of differentiation would explain that. The article makes sense for bigger companies that tightly integrate the process or offer a one-package deal but it doesn't seem to work where design and construction are distributed out to separate entities.
I feel the better way might be to look at how hedge funds manage a big chunk of money and extract value from that by making the right decisions. Either actual profit in flipping or some sort of intangible gain (like having the biggest building or whatever) or the newest coolest thing in the city or social currency. No one wants something built that is a money hole and has no redeemable value.
The last section about identity and strategy is useful.
Good_Knight
Jun 17, 15 6:30 pm
Wow. This is the sort of thing that needs to be posted for all to read, think about, and discuss. An awesome thread, thanks for posting. Will read the article as soon as get a chance and maybe post my thoughts in reply. Nice work quizzical.
Jun 17, 15 9:16 pm
I agree with kickrock,
Traditionally product manufacturers in the software industry (for example) have a highly vertical integrated business model. Tech industry with mass production involves alot of high vertical integration because it tends to be cheaper when you are a big corporation. The scale of these big corporations allows for vertical business model. Smaller businesses like architecture firms or product manufacturers in that scale can have difficulty being that vertical. Well... in the smaller software businesses, that too have changed due to online delivery model using a server and online access.
Architecture firms are not a one-stop shopping for architecture, engineering, construction and development, usually. Software businesses like myself is basically a one-stop shopping but my building design business is not. My building design business can't get remotely enough cash revenue to do such and there isn't sufficient market to do so. My software business has global operational ties with very little incumberance if any for delivering aside from myself.
Some of that incumberance is self inflicted by the architecture community. Instead of national licensing, they made it a costly and pain in the butt way of going about professional practice. This comes in part from the philosophy of architects being like house visiting doctors and lawyers.... boutique businesses.
The whole economic model that established and built the occupations and business of these occupations are entirely different.
This isn't the end all of this discussion but a thought point.
BulgarBlogger
Jun 17, 15 9:26 pm
The final product production is turned over to someone else so that supplier bargaining power point can be crossed out.
I completely agree with this... Unfortunatley, not too many people think that gaining knowledge in something specific is glamorous... and architects would kill to obtain even a little bit of glamour, whether it be on a grandiose or micro scale. This is also true in the Medical Field; Doctors specialize all the time. Why do architects cringe at this idea? Its as if architects collectively believe that by specializing in something (which often involves greatly sharpening our technical skills and knowledge), that we would somehow lose our creative edge. Take a firm that has a "technical" and "design" department like SOM. If you ask any new graduate what department he/she would rather be in, I wager they would say- "the design department," because that is where all the creatice thinking happens. If you go u to the technical departmenr, you'll most likely see a bunch of draftspersons, consultants, and people with a bunch of work experience under their belts (possibly with gray hair)... I would assume that those in the technical department on average make more money than thise in the design department, although I am not sure of the exact figures.
Anyway, my point is that if Architects recoaimed their ability to really know their shit as they used to in the beginning part of the 20th century (for example) rather than claiming to know while getting the real answerz from their consultants, I think we would be getting paid a lot more...
kickrocks
Jun 17, 15 10:49 pm
The consultant would be the equivalent of a medicine specialist although their role is far less involved. Still the actual work is sent to a contractor or someone else so you introduce another middle-man between conception and execution. In relation to the supplier part, costs would go up because of the introduction of more specialized stuff, not streamlined buy-in-bulk procurement.
From a hedge fund company:
Successful hedge funds exhibit three basic characteristics: consistent alpha-generative security selection, portfolio management expertise, and business proficiency. Exceptional managers blend proprietary research with portfolio construction in a way that allows them to leverage their best ideas while maintaining sound risk management.
Security selection > design proposal with value and function that isn't a total gamble Portfolio management expertise > history of being able to execute in previous works Business proficiency > ability to set a cost that doesn't ruin itself or run over
Gotta know the market, the real world, and the profession. Someone can be good at design but it's impractical if no one is living in 2050 yet and not willing to pay for something so jarring. Or they go over-budget with something novel no one asked for. Or take really bad business deals only to screw everyone else because there's a new minimum low-ball expectation set.
Specializing isn't a problem but I think the artist ego has to be abandoned or fixed first before technical and design can merge into something seamless. Then you can cut out a bunch of needless consultants, reducing outsider costs, and leverage experience to turn the common materials (bulk is cheaper) into something different and worthwhile. The internal savings are profit if done right.
quizzical
Jun 17, 15 11:37 pm
kickrocks; Richard:
I hear what you're saying about this article and understand where you're coming from. However, after reading this sort of business literature for more than 40 years and trying to apply what I read to professional services, I've developed an approach that I find useful.
Because this article isn't tailored specifically to our world, it's important to pull back a little and focus more on the conceptual framework being offered -- and not focus too closely on specific examples or suggestions that might be more aligned with other industries. If you get too hung up the the details, you'll get wraped all around the flagpole and lose sight of what's really important - e.g. the conceptual framework.
I suggest that you reread the article with the above suggestion in mind. Then, think deeply about how this conceptual framework might apply to our world.
Carrera
Jun 18, 15 12:58 am
About mid-career I had a cottage up north, I also had a wealthy client I was design/building a factory for (old money). Knowing I was up there he invited us to his nearby cottage in a turn of the century super exclusive peninsula enclave, very secret… took him up on it just to see who lived there, but had trouble getting past the guard (guarded like Fort Knox)….finally told me to proceed so up the road we went… slowly, reading mailboxes… first three were: Armour, Kellogg & Heinz (similar followed)…I hit the brakes, turned to my wife and said “I made a big mistake in choosing a career.... what these people sell ends up in a toilet and what I’m selling lasts 100 years….(my client) sells soap….we don’t sell soap."
I've said this before, we don't get repeats....architects need to generate multiple fees for each project... architecture + engineering + graphic design + wayfinding + leasing + property management = getting paid 6 times for one thing.... if you don't, in some manner, you'll end up running a barbershop.... and you don't need a "conceptual framework" to run a barbershop.
Good_Knight
Jun 18, 15 1:25 am
^ mind blown, good and proper-like.
shellarchitect
Jun 18, 15 9:55 pm
Timely, just talked to the boss about additional services for wayfinding this afternoon
I've been thinking a lot lately about the "Money, money, money ..." thread and its debate related to "supply and demand" as a factor in both firm profitability and individual compensation. As I've mulled over that thread, I've come to realize (remember) that the issue is way more complex than just "supply and demand".
Some of you may recall that in the past I've occasionally posted here about the work of Michael Porter - specifically his work dealing with competitive strategy within different industries. Even though Porter's research is focused on companies much larger than those typically found in architecture, I still believe his work offers some useful lessons to those of us engaged in professional practice.
Here's a link to one of his summary articles "The Five Competitive Forces that Shape Strategy": http://www.exed.hbs.edu/assets/documents/hbr-shape-strategy.pdf
In this article, Porter argues that the following five forces work together to define the level of competition - and therefore profitability - in any industry:
. Threat of New Entrants
. Threat of Substitute Products or Services
. Bargaining Power of Suppliers
. Bargaining Power of Buyers, and
. Rivalry Among Existing Competitors
I commend this article to all who venture here ... and look forward to the ensuing discussion.
I'm not downplaying this topic but some of the points don't translate directly over. Architecture is essentially a service and the firms act like liaison or mediator selling it best they can. It doesn't operate alone like a company that controls input and output, like labor for software development and the final software package or raw resources for soda and the pallets of cans filled at the end of production line.
The final product production is turned over to someone else so that supplier bargaining power point can crossed out. Buyers do have power and that's well documented in the desire to pin one against each other for the lowest costs possible. It ties into the rivalry point, undercutting what would otherwise be required to run normal operations just to get by with anything. Competing on price doesn't work but the lack of differentiation would explain that. The article makes sense for bigger companies that tightly integrate the process or offer a one-package deal but it doesn't seem to work where design and construction are distributed out to separate entities.
I feel the better way might be to look at how hedge funds manage a big chunk of money and extract value from that by making the right decisions. Either actual profit in flipping or some sort of intangible gain (like having the biggest building or whatever) or the newest coolest thing in the city or social currency. No one wants something built that is a money hole and has no redeemable value.
The last section about identity and strategy is useful.
Wow. This is the sort of thing that needs to be posted for all to read, think about, and discuss. An awesome thread, thanks for posting. Will read the article as soon as get a chance and maybe post my thoughts in reply. Nice work quizzical.
I agree with kickrock,
Traditionally product manufacturers in the software industry (for example) have a highly vertical integrated business model. Tech industry with mass production involves alot of high vertical integration because it tends to be cheaper when you are a big corporation. The scale of these big corporations allows for vertical business model. Smaller businesses like architecture firms or product manufacturers in that scale can have difficulty being that vertical. Well... in the smaller software businesses, that too have changed due to online delivery model using a server and online access.
Architecture firms are not a one-stop shopping for architecture, engineering, construction and development, usually. Software businesses like myself is basically a one-stop shopping but my building design business is not. My building design business can't get remotely enough cash revenue to do such and there isn't sufficient market to do so. My software business has global operational ties with very little incumberance if any for delivering aside from myself.
Some of that incumberance is self inflicted by the architecture community. Instead of national licensing, they made it a costly and pain in the butt way of going about professional practice. This comes in part from the philosophy of architects being like house visiting doctors and lawyers.... boutique businesses.
The whole economic model that established and built the occupations and business of these occupations are entirely different.
This isn't the end all of this discussion but a thought point.
The final product production is turned over to someone else so that supplier bargaining power point can be crossed out.
I completely agree with this... Unfortunatley, not too many people think that gaining knowledge in something specific is glamorous... and architects would kill to obtain even a little bit of glamour, whether it be on a grandiose or micro scale. This is also true in the Medical Field; Doctors specialize all the time. Why do architects cringe at this idea? Its as if architects collectively believe that by specializing in something (which often involves greatly sharpening our technical skills and knowledge), that we would somehow lose our creative edge. Take a firm that has a "technical" and "design" department like SOM. If you ask any new graduate what department he/she would rather be in, I wager they would say- "the design department," because that is where all the creatice thinking happens. If you go u to the technical departmenr, you'll most likely see a bunch of draftspersons, consultants, and people with a bunch of work experience under their belts (possibly with gray hair)... I would assume that those in the technical department on average make more money than thise in the design department, although I am not sure of the exact figures.
Anyway, my point is that if Architects recoaimed their ability to really know their shit as they used to in the beginning part of the 20th century (for example) rather than claiming to know while getting the real answerz from their consultants, I think we would be getting paid a lot more...
The consultant would be the equivalent of a medicine specialist although their role is far less involved. Still the actual work is sent to a contractor or someone else so you introduce another middle-man between conception and execution. In relation to the supplier part, costs would go up because of the introduction of more specialized stuff, not streamlined buy-in-bulk procurement.
From a hedge fund company:
Successful hedge funds exhibit three basic characteristics: consistent alpha-generative security selection, portfolio management expertise, and business proficiency. Exceptional managers blend proprietary research with portfolio construction in a way that allows them to leverage their best ideas while maintaining sound risk management.
Security selection > design proposal with value and function that isn't a total gamble
Portfolio management expertise > history of being able to execute in previous works
Business proficiency > ability to set a cost that doesn't ruin itself or run over
Gotta know the market, the real world, and the profession. Someone can be good at design but it's impractical if no one is living in 2050 yet and not willing to pay for something so jarring. Or they go over-budget with something novel no one asked for. Or take really bad business deals only to screw everyone else because there's a new minimum low-ball expectation set.
Specializing isn't a problem but I think the artist ego has to be abandoned or fixed first before technical and design can merge into something seamless. Then you can cut out a bunch of needless consultants, reducing outsider costs, and leverage experience to turn the common materials (bulk is cheaper) into something different and worthwhile. The internal savings are profit if done right.
kickrocks; Richard:
I hear what you're saying about this article and understand where you're coming from. However, after reading this sort of business literature for more than 40 years and trying to apply what I read to professional services, I've developed an approach that I find useful.
Because this article isn't tailored specifically to our world, it's important to pull back a little and focus more on the conceptual framework being offered -- and not focus too closely on specific examples or suggestions that might be more aligned with other industries. If you get too hung up the the details, you'll get wraped all around the flagpole and lose sight of what's really important - e.g. the conceptual framework.
I suggest that you reread the article with the above suggestion in mind. Then, think deeply about how this conceptual framework might apply to our world.
About mid-career I had a cottage up north, I also had a wealthy client I was design/building a factory for (old money). Knowing I was up there he invited us to his nearby cottage in a turn of the century super exclusive peninsula enclave, very secret… took him up on it just to see who lived there, but had trouble getting past the guard (guarded like Fort Knox)….finally told me to proceed so up the road we went… slowly, reading mailboxes… first three were: Armour, Kellogg & Heinz (similar followed)…I hit the brakes, turned to my wife and said “I made a big mistake in choosing a career.... what these people sell ends up in a toilet and what I’m selling lasts 100 years….(my client) sells soap….we don’t sell soap."
I've said this before, we don't get repeats....architects need to generate multiple fees for each project... architecture + engineering + graphic design + wayfinding + leasing + property management = getting paid 6 times for one thing.... if you don't, in some manner, you'll end up running a barbershop.... and you don't need a "conceptual framework" to run a barbershop.
^ mind blown, good and proper-like.
Timely, just talked to the boss about additional services for wayfinding this afternoon