MBA: 'œMaking Better Architecture'?

December 9, 2008 · by Thomas Kerwin

A deeper understanding of the relationship between business management and architectural design can benefit any practice. Perhaps an MBA is in your future.

A deeper understanding of the relationship between business management and architectural design can benefit any practice. Perhaps an MBA is in your future.

It is not simply bad luck that few American design firms outlast their founders, let alone survive to establish second, third, or fourth architectural generations. Part of this lack of longevity is an evolving design aesthetic; what is today’s acknowledged state of the art may well become tomorrow’s museum retrospective. Even more daunting in terms of the ongoing success of the modern design firm is the fact that the actual business of architecture is often considered an afterthought.

Throughout the modern history of architecture, there has existed the noble if naive perception that the best design came from artists whose practice remained unsullied by the imperatives of business or finance. It is a mindset that often begins to take hold early in the design education process. After all, what committed architecture student would willingly interrupt precious studio time designing humanity’s future to attend this semester’s professional practice symposium or take time out to study boring business practices such as finance, real estate or contract negotiations?

Ultimately however, we find that many of these non-design aspects of our practice serve a fundamental truth: Civilization cannot benefit from great projects that fail to materialize because of a lack of economic insight, an inability to communicate with the client, or a failure to make sophisticated business judgments. Like it or not, these and other business methodologies have become essential cogs in the machinery of design and architecture. Indeed, when understood and practiced well, they become important techniques by which to guarantee design excellence as well as business success.

The firm I am a partner of, Skidmore, Owings and Merrill LLP, is one of the rare design businesses that have survived over a number of architectural generations. We are currently into our eighth decade. Design excellence and innovative solutions to building have played a crucial role in the success of the firm. It is a collaborative process tempered with the work of a succession of gifted managing partners. More than that, these partners worked successfully within a process that paired design and project management professionals, enabling them to test, challenge, formulate, and reformulate projects collectively both in terms of design and economics.

The process of integrating business and design skills is too important to leave to chance or luck. Which brings us to the following heresy: Architects, designers, and planners not only need to make business training a part of their education, but they should also think seriously about taking an advanced degree such as a Master of Business Administration. It was a step I felt I needed to take in 2005 when, after 10 years in the studio and 10 years as a project manager and managing partner, I enrolled at Northwestern University’s Kellogg School of Management.

Why did I need an MBA? It was certainly not because of a lack of mentorship at the firm; in my two decades at SOM, I was able to learn at the feet of some of our profession’s most brilliant and successful designers and managers. The decision to go for my MBA came from recognizing that, as a partner, I needed a deeper understanding and a broader vocabulary in a range of business-related issues.

I saw that an MBA offered a universe of strategic business skills that could prove invaluable in an architectural setting. These included sophisticated financial modeling methods and the ability to apply macroeconomic principles to the establishment and management of a global architectural practice. There were techniques that could prove to be business lifesavers. These included understanding the how’s and why’s of hedging against foreign currency risks and the various strategies by which to undertake complex, international, and multi-party negotiations.

For example, managers at SOM learn early on to insist on foreign contracts written with compensation terms specifying payments in U.S. dollars. This protects the firm from fluctuations in foreign currencies that are not fully predictable, especially over the course of projects that can last five to seven years. Given the current state of the U.S. economy, most firms are already in or looking to foreign markets for diversification of their practice. Insisting on payments in U.S. dollars is not always feasible for all clients for various reasons. A firm has a choice of not accepting the client or adapting to their payment terms. Put aside the fact that if a firm accepted payments in foreign currencies on jobs in recent history, it would have benefited from the weakening of the U.S. dollar. But how does a firm protect itself from the risk of currencies fluctuating the other way, which could happen in the future? Fortunately, many firms of size have chief financial officers or financial advisors who know full well about financial products available to hedge against currency risks. Banks offer these instruments to protect firms that may be subject to financial distress if a particular foreign currency devalues significantly. Beyond knowing that these products exist, how does one choose the right instrument? How does one evaluate the costs of these instruments against the risks associated with the endeavor?

The MBA program was no picnic. The two years I spent studying were difficult, time-consuming, and disruptive to my family life. They were also among the best, most satisfying and exciting times in my career. At Kellogg, I learned to use many of the same tools used by our most sophisticated business clients. I learned how various kinds of financing and staging could be invaluable to the design and development decision-making process. I began to understand how speaking the language of business could be a crucial advantage in helping us help clients formulate their own programs, as well as achieve the kind of comfort level that could maximize project value and extend the life of professional relationships.

How often, sitting in meetings with commercial clients, has an architect heard terms and concepts being discussed that were unfamiliar? Is an architect expected to understand financial terms or benchmarks like IRR and NPV and be able to create pro formas for projects? No. But does it give a client some sense of comfort that the design professional has an understanding of the values that drive their projects? Perhaps.

Ultimately, a deeper understanding of the relationship between business management and architectural design allows the release of pent up creative energy as well as the forging of a closer bond with clients whose underlying needs can be more easily understood and addressed.

Advanced business education can also be a powerful internal tool enabling a design firm to organize and run its office or offices with a greater degree of sophistication and profitability. For instance, when tasked with assisting the firm in repositioning our Shanghai office, the creation of a business plan was the first step in the process. One could probably read a book about business planning but would it be the right book? Would it come with discussion of real-life case studies of both failed and successful business plans critiqued by some of the top professors in entrepreneurship, finance, and organizational behavior? With a new plan for Shanghai, our presence there has been reinforced both with a renewed internal commitment and an enhanced business model that allows the firm to adapt and expand our services in a highly entrepreneurial environment.

Today and moving ahead, it will be increasingly necessary for architects, designers and planners who desire to work in a truly global economy to receive formal training in advanced business principles. It will similarly become more difficult for potential project managers who lack advanced business degrees to join firms that have recognized the advantage attainable from the fusion of design training and business education.

Thomas Kerwin is partner with Skidmore, Owings and Merrill LLP. Since joining the firm in 1986, he has participated in the design and construction of civic and commercial buildings in North America, Europe, and Asia. Kerwin received a Bachelor of Architecture degree from Ball State University and a Master of Business Administration from Northwestern University’s Kellogg School of Management. He is a fellow of the American Institute of Architects.

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