Sperry/MacLennan Architects and Planners sOURCE: This case has been prepared by Dr. Mary R. Brooks, of Dalhousie University, as a basis for classroom discussion rather than to illustrate effective or ineffective handling of an administrative situation. The assistance of the Secretary of State, Canadian Studies Program, in developing the case is gratefully acknowledged. Copyright q 1990 Mary R. Brooks. Reprinted with permission. In August 1988, Mitch Brooks, a junior partner and director of Sperry/MacLennan (S/M), a Dartmouth, Nova Scotia, architectural practice specializing in recreational facilities, is in the process of developing a plan to export his company’s services. He intends to present the plan to the other directors at their meeting the first week of October. The regional market for architectural services is showing some signs of slowing, and S/M realizes that it must seek new markets. As Sheila Sperry, the office manager and one of the directors, said at their last meeting: “You have to go wider than your own backyard. After all, you can only build so many pools in your own backyard.”
About the Company
Drew Sperry, one of the two senior partners in Sperry/ MacLennan, founded the company in 1972 as a one-man architectural practice. After graduating from Nova Scotia Technical College (now the Technical University of Nova Scotia) in 1966, Sperry worked for six years for Robert J. Flinn before deciding that it was time to start his own company. By then he had cultivated a loyal clientele and a reputation as a good design architect and planner. In the first year, the business was supported part-time by a contract with the Province of Prince Edward Island Department of Tourism to undertake parks planning and the design of parks facilities, from park furniture to interpretive centers. At the end of its first year, the company was incorporated as H. Drew Sperry and Associates; by then Sperry had added three junior architects, a draftsman, and a secretary. One of those architects was John MacLennan, who would later become a senior partner in Sperry/MacLennan. Throughout the 1970s, the practice grew rapidly as the local economy expanded, even though the market for architectural services was competitive. The architectural program at the Nova Scotia Technical College (TUNS) was graduating more architects wishing to stay in the Maritimes than could be readily absorbed. But that was not the only reason why competition was stiff; there was a perception among businesspeople and local government personnel that if you wanted the best, you had to get it from Toronto or New York. The company’s greatest challenge throughout this period was persuading the local authorities that they did not have to go to Central Canada for first-class architectural expertise. With the baby boom generation entering the housing market, more than enough business came its way to enable Sperry to develop a thriving architectural practice, and by 1979 the company had grown to fifteen employees and had established branch offices in Charlottetown and Fredericton. These branch offices had been established to provide a local market presence and meet licensing requirements during an aggressive growth period. The one in Charlottetown operated under the name of Allison & Sperry Associates, with Jim Allison as the partner, whereas in Fredericton, partner Peter Fellows was in charge. But the growth could not last. The early 1980s was not an easy time for the industry, and many architectural firms found themselves unable to stay in business through a very slow period in 1981–1982. For Sperry/MacLennan, it meant a severe reduction in staff, and it also marked the end of the branch offices. Financially stretched and with work winding down on a multipurpose civic sports facility, the Dartmouth Sportsplex, the company was asked to enter a design competition for an aquatics center in Saint John, New Brunswick. They had to win or close their doors. The company laid off all but the three remaining partners—Drew, Sheila Sperry, and John MacLennan. However, one draftsman and the secretary refused to leave, working without pay for several months in the belief that the company would win; their faith in the firm is still appreciated today. Their persistence and faith were rewarded. In 1983, Sperry won the competition for the aquatics facility for the Canada Games to be held in Saint John. The clients in Saint John wanted to build a new aquatic center that would house the Canada Games competition and provide a community facility that was self-supporting after the games were over. The facility needed to reflect a forward-thinking image to the world and act as a linchpin in the downtown revitalization plan. Therefore, it was paramount that the facility adhere to all technical competition requirements and that the design include renovation details for its conversion to a community facility sporting a new Sperry design element, the “indoor beach.” The Saint John Canada Games Society decided to use Sperry for the contract and was very pleased with the building, the more so since the building won two design awards in 1985: the Facility of Merit Award for its “outstanding design” from Athletics Business and the Canadian Parks and Recreation Facility of Excellence Award. Sperry had gained national recognition for its sports facility expertise, and its reputation as a good design firm specializing in sports facilities was secured. From the beginning, the company found recreational facilities work to be fun and exciting. To quote Sheila Sperry, this type of client “wants you to be innovative and new. It’s a dream for an architect because it gives him an opportunity to use all the shapes and colors and natural light. It’s a very exciting medium to work in.” So they decided to focus their promotional efforts to get more of this type of work and consolidate their “pool designer” image by associating with Creative Aquatics on an exclusive basis in 1984. Creative Aquatics provided aquatics programming and technical operations expertise (materials, systems, water treatment, safety, and so on) to complement the design and planning skills at Sperry. The construction industry rebounded in 1984; declining interest rates ushered in a mini building boom, which kept everyone busy for the 1984–1987 period. Jim Reardon joined the company in 1983 and quickly acquired the experience and knowledge that would ease the company through its inevitable expansion. John MacLennan, by then a senior shareholder in the firm, wanted to develop a base in the large Ontario market and establish an office in Toronto. Jim Reardon was able to take over John’s activities with very little difficulty, since he had been working very closely with John in the recreational facilities aspect of the business. Reardon became a junior partner in 1986. With John MacLennan’s move to Toronto in 1985, the company changed its name to Sperry/MacLennan in hopes that the name could be used for both offices. But the Ontario Association of Architects ruled that the name could not include “Sperry” because Drew Sperry was not an Ontario resident, and the Toronto office was required to operate under the name of MacLennan Architects. The Ontario office gradually became self-supporting, and the company successfully entered a new growth phase. Mitch Brooks joined the practice in 1987. He had graduated from TUNS in 1975 and had been one of the small number of his class to try to make a go of it in Halifax. The decision to add Brooks as a partner, albeit a junior one, stemmed from their compatibility. Brooks was a good production architect, and work under his supervision came in on budget and on time, a factor compatible with the Sperry/MacLennan emphasis on customer service. The company’s fee revenue amounted to approximately $1.2 million in the 1987 fiscal year; however, salaries are a major business expense, and profits after taxes (but before employee bonuses) accounted for only 4.5 percent of revenue. Now it is late August, and with the weather cooling, Mitch Brooks reflects on his newest task, planning for the coming winter’s activities. The company’s reputation in the Canadian sports facility market is secure. The company has completed or has in construction five sports complexes in the Maritimes and five in Ontario, and three more facilities are in design. The awards have followed, and just this morning, Drew was notified of their latest achievement—the company has won the $10,000 Canadian Architect Grand Award for the Grand River Aquatics and Community Center near Kitchener, Ontario. This award is a particularly prestigious one because it is given by fellow architects in recognition of design excellence. Last week, Sheila Sperry received word that the Amherst, N.S., YM-YWCA won the American National Swimming Pool and Spa Gold Medal for pool design against French and Mexican finalists, giving them international recognition. Mitch Brooks is looking forward to his task. With nineteen employees to keep busy and a competitor on the West Coast, they decided this morning that it is time to consider exporting their hard-won expertise. The Architecture Industry
In order to practice architecture in Canada, an architect must graduate from an accredited school and serve a period of apprenticeship with a licensed architect, during which time he or she must experience all facets of the practice. At the end of this period, the would-be architect must pass an examination similar to that required of U.S. architects. Architects are licensed provincially, and these licenses are not readily transferable from province to province. Various levels of reciprocity are in existence. For this reason, joint ventures are not that uncommon in the business. In order to “cross” provincial boundaries, architecture firms in one province often enter into a joint venture arrangement with a local company. For example, the well-known design firm of Arthur Erickson of Vancouver/ Toronto often engages in joint ventures with local production architects, as was the case for its design of the new Sir James Dunn Law Library on the campus of Dalhousie University in Halifax. In the United States, Canadian architects are well respected. The primary difficulty in working in the United States has been in immigration policies, which limit the movement of staff and provide difficulties in securing contracts. These policies would be eliminated with the Free Trade Agreement and the reciprocity accord signed between the American Institute of Architects and the Royal Architectural Institute of Canada, a voluntary group representing the provincial associations. Because architects in Nova Scotia are ethically prohibited from advertising their services, an architect’s best advertisement is a good project, well done and well received. The provincial association (Nova Scotia Association of Architects—NSAA) will supply potential clients with basic information about licensed firms, their area of specialization, and so on. NSAA guidelines limit marketing to announcements of new partners, presentations to targeted potential clients, advertisements of a business card size with “business card” information, and participation in media events. The provincial association also provides a minimum schedule of fees, although many clients view this as the maximum they should pay. Although architects would like to think that the client chooses to do business with them because they like their past work, the price of the service is often the decision point. Some developers prefer to buy services on a basis other than the published fee schedule, such as a lump-sum amount or a per-square-foot price. Although fee cutting is not encouraged by the professional organization, it is a factor in winning business, particularly when interest rates are high and construction slow. Because the “product” of an architecture firm is the service of designing a building, the marketing of the “product” centers on the architect’s experience with a particular building type. Therefore, it is imperative that the architect convince the client that he or she has the necessary experience and capability to undertake the project and to complete it satisfactorily. S/M has found with its large projects that the amount of time spent meeting with the client requires some local presence, although the design need not be done locally. The process of marketing architectural services is one of marketing ideas. Therefore, it is imperative that the architect and the client have the same objectives and ultimately the same vision. Although that vision may be constrained by the client’s budget, part of the marketing process is one of communicating with the client to ensure these common objectives exist. Architects get business in a number of ways. “Walk-in” business is negligible, and most of S/M’s contracts are a result of one of the following five processes:
1. A satisfied client gives a referral.
2. A juried design competition is announced (S/M has found that these prestigious jobs, even though they offer “runners-up” partial compensation, are not worth entering except to win, since costs are too high and the compensation offered other entrants too low. Second place is the same as last place. The Dartmouth Sportsplex and the Saint John Aquatic Center were both design competition wins).
3. A client publishes a “Call for Proposals” or a “Call for Expressions of Interest” as the start of a formal selection process. (S/M rates these opportunities; unless it has a 75 percent chance of winning the contract, it views the effort as not worth the risk.)
4. A potential client invites a limited number of architectural firms to submit their qualifications as the start of a formal selection process. (S/M has prepared a qualification package that it can customize for a particular client.)
5. S/M hears of a potential building and contacts the client, presenting its qualifications. The fourth and fifth processes are most common in buildings done for institutions and large corporations. Since the primary buyers of sports facilities tend to be municipalities or educational institutions, this is the way S/M acquires a substantial share of its work. Although juried competitions are not that common, the publicity possible from success in landing this work is important to S/M. The company has found that its success in securing a contract is often dependent on the client’s criteria and the current state of the local market, with no particular pattern evident for a specific building type. After the architect signs the contract, there will be a number of meetings with the client as the concept evolves and the drawings and specifications develop. On a large sports facility project, the hours of contact can run into the hundreds. Depending on the type of project, client meetings may be held weekly or every two weeks; during the development of working drawings and specifications for a complex building, meetings may be as often as once a day. Therefore, continuing client contact is as much a part of the service sold as the drawings, specifications, and site supervision and, in fact, may be the key factor in repeat business. Developers in Nova Scotia are often not loyal buyers, changing architects with every major project or two. Despite this, architects are inclined to think the buyer’s loyalty is greater than it really is. Therefore, S/M scrutinizes buyers carefully, interested in those that can pay for a premium product. S/M’s philosophy is to provide “quality products with quality service for quality clients” and thus produce facilities that will reflect well on the company.
The Opportunity
In 1987, External Affairs and the Royal Architectural Institute of Canada commissioned a study of exporting opportunities for architects on the assumption that free trade in architectural services would be possible under the Free Trade Agreement. The report, entitled Precision, Planning, and Perseverance: Exporting Architectural Services to the United States, identified eight market niches for Canadian architects in the United States, one of which was educational facilities, in particular postsecondary institutions. This niche, identified by Brooks as most likely to match S/M’s capabilities, is controlled by state governments and private organizations. Universities are known not to be particularly loyal to local firms and so present a potential market to be developed. The study reported that “post-secondary institutions require design and management competence, whatever the source.” Athletic facilities were identified as a possible niche for architects with mixed-use facility experience. Finally, the study concluded that “there is an enormous backlog of capital maintenance and new building requirements facing most higher education institutions.” In addition to the above factors, the study indicated other factors that Brooks felt were of importance:
1. The United States has 30 percent fewer architectural firms per capita than Canada.
2. The market shares many Canadian values and work practices.
3. The population shift away from the Northeast to the sunbelt is beginning to reverse.
4. Americans are demanding better buildings. Although Brooks knows that Canadian firms have always had a good reputation internationally for the quality of their buildings, he is concerned that American firms are well ahead of Canadian ones in their use of CADD (computer-assisted design and drafting) for everything from conceptual design to facility management. S/M, inspite of best intentions, has been unable to get CADD off the ground but is in the process of applying to the Atlantic Canada Opportunities Agency for financial assistance in switching over to CADD. Finally, the study cautions that “joint ventures with a U.S. architectural firm may be required but the facility managers network of the APPA [Association of Physical Plant Administrators of Universities and Colleges] should also be actively pursued”. Under free trade, architects will be able to freely engage in trade in services. Architects will be able to travel to the United States and set up an architectural practice without having to become qualified under the American Institute of Architects; as long as they are members of their respective provincial associations and have passed provincial licensing exams and apprenticeship requirements, they will be able to travel and work in the United States and import staff as required.
Where to Start?
In a meeting in Halifax in January 1988, the Department of External Affairs had indicated that trade to the United States in architectural services was going to be one positive benefit of the Free Trade Agreement to come into force in January 1989. As a response, S/M has targeted New England for its expansion because of its geographical proximity to S/M’s home base in the Halifax/ Dartmouth area and also because of its population density and similar climatic conditions. However, with all the hype about free trade and the current focus on the United States, Brooks is quite concerned that the company might be overlooking some other very lucrative markets for his company’s expertise. As part of his October presentation to the board, he wants to identify and evaluate other possible markets for S/M’s services. Other parts of the United States, or the affluent countries of Europe where recreational facilities are regularly patronized and design is taken seriously, might provide a better export market, given S/M’s string of design successes at home and the international recognition afforded by the Amherst facility design award. Brooks feels that designing two sports facilities a year in a new market would be an acceptable goal. As part of searching for leads, Brooks notes that the APPA charges $575 for a membership, which provides access to its membership list once a year. But this is only one source of leads. And, of course, there is the U.S. Department of Commerce, Bureau of the Census, as another source of information for him to tap. He wonders what other sources are possible. S/M looks to have a very good opportunity in the New England market with all of its small universities and colleges. After a decade of cutbacks on spending, corporate donations and alumni support for U.S. universities has never been so strong, and many campuses have sports facilities that are outdated and have been poorly maintained. But Mitch Brooks is not sure that the New England market is the best. After all, a seminar on exporting that he attended last week indicated that the most geographically close market, or even the most psychically close one, may not be the best choice for long-run profit maximization and/or market share.
QUESTIONS FOR DISCUSSION
1. What types of information will Brooks need to collect before he can even begin to assess the New England market? Develop a series of questions you feel are critical to this assessment.
2. What selection criteria do you believe will be relevant to the assessment of any alternative markets? What preliminary market parameters are relevant to the evaluation of S/M’s global options?
3. Assuming that S/M decides on the New England market, what information will be needed to implement an entry strategy?