Architects have shown great reluctance to commit to business plans, but all practices need one, especially those hovering between corporate and micro models, says Chris Littlemore
Two billion pounds of fee revenue in UK architecture is shared by 33,000 Arb-registered practitioners and 25,000 chartered architects. The vast majority are in ‘small’ to ‘micro’ firms according to CBI classification. The CBI has four categories of business: Micro, with 1-10 employees and less than £1.6m revenue; Small, with 10-50 employees and revenue between around £1.6m and £8m; Medium, with 50-250 employees and revenue of £8m-£40m; and Large, bigger again in each regard. The AJ100 group is almost exclusively medium, small or micro by this measure. Only a rare handful falls into the large category – even when combined with parent companies outside the UK.
While we may think architects are unique in this regard, we are not. This country’s law and accountancy professions may have larger total fee revenues and so more professionals, but they have similar profiles of scale with very few large practices and a multitude of micro firms. Such scale differential is universal across the service sectors. The underlying difference between large and small is one of business management and control.
Differences in scale
Having practised in small, medium and large scale businesses for the last 30 years, the advantages of scale are clear to me – but these come with a cost that can be supported by sufficient fee revenue from larger projects that require a large resource. Business support in marketing, CPD, management and finance, quality control, IT, HR and R&D all contribute to the large business model, enabling greater sector depth, geographic capability, and a wider mix of staff. In short the colour variety and complexity that comes from a large firm in my view outweighs the relative simplicity of the micro practice intellectually, financially and in terms of capability.
There are however clearly disadvantages to large practice and traps for the unwary. The very process of growth and control of large numbers can be fraught with risk and itself requires resource. The knotty problems of financial scale, cash-flow, project profit control, long term funding and a generally commercial approach are difficult for many, who prefer the smaller ‘lifestyle’ business approach of the micro business. But all need some form of management and planning. The rigours of a commercial structure and control don’t have to get in the way of creativity and the highly personal approach and contribution that can come from this model.
Addressing market issues and controlling management and cash-flow tightly provide the framework for successful practice. A small firm that starts to become larger (or vice versa) presents an issue for the medium sized group, which practitioners in this space should be aware of. There is a gap between the five per cent of chartered practices which employ 45% of RIBA members, and the massive 86% of firms employing less than 20 staff.
These firms face the toughest challenges, especially after four years of decline. As well as the basics of cash-flow management and cost control, a firm of more than 15 people needs rigorous systems of control and management and business support. These are similar in quantity and cost for companies 10 times this size. The businesses in the zone in transition are perhaps ‘middle ground’ practices which are neither ‘corporate’ nor ‘lifestyle’. They have the requirements of the former, but often cannot really afford to perform them properly, and so potentially lack efficiency and control. Nor can they react as quickly as a smaller group.
There could be 200-300 architectural firms in the UK in this category who are too small to profess large scale resource and capability, but are big enough to warrant and require all the systems of a corporate organisation. They perhaps find themselves trapped in this gap.
Caught in the middle
They could be corporate wannabes hampered by lack of funding, succession, geography and growth; or they could be lifestyle wannabes wishing to shrink and specialise in a particular niche of building/client type or geography, but trapped by their own legacy of leases, debt and succession barriers. The middle ground practice faces the biggest challenge to address the fallout of the longest recession in living memory, the technological change of design delivery and competition in the market.
I am concerned for practices that are not rigorously managed, especially now. Many architects fear business planning and indeed 60% of practices have no plan, but it is needed more now than ever. Without plans, in our understanding of the word, we would be found professionally negligent in designing a building; yet these vast numbers of intelligent professionals are leaving their business matters, livelihood and ability to influence their own future to chance without a plan.
The only way to manage any business is by planning and constant modification, watching and predicting market needs and constantly controlling and adjusting. None of this is strange to anyone who has designed a building.
Whether in large, micro or middle ground practice, I urge all practitioners to spend some time on practice management issues: form a business plan in the short, medium and long term and constantly monitor and review it. Those in the middle zone are most vulnerable. There are many firms in this position. I sincerely hope next year’s RIBA benchmarking survey demonstrates a vast uplift in awareness and presence of the business plan.
Architect Chris Littlemore is CEO at Archial, the UK arm of The Ingenium Group, which employs 225 architects and 780 staff globally and has a net turnover of £70m