Archial redux

10 May 2011

Archial’s near death experience at the tail end of last year came as a shock to many; not least Archial’s 300 employees who endured a tortuous 5 day spell in administration waiting to hear their fate. Fortuitously however a Canadian white knight was waiting in the wings, Victor Smith, chief executive of the Ingenium Group. Smith had long harboured an interest in acquiring the business and their sudden collapse presented an unexpected opportunity… and a challenge.  Braving jet lag Smith jetted across the pond to see his latest acquisition at first hand, embarking on a whistle-stop tour of the firm’s key regional offices. Urban Realm was on hand at the firms newly opened Multrees Walk office for the Edinburgh leg of this trip to grill Smith on his plans.  Why Archial and as an agglomeration of many smaller practices how conducive will its digestion ultimately prove to be?

Ingenium’s purchase means more than 50% of the firm’s total business is now conducted outside Canada, a conscious effort to internationalise the business after finding it difficult to penetrate markets in Asia and the Middle East from their North American base. Smith believes a strong UK base for Ingenium will improve the firm’s global positioning and open up new opportunities for diversification, not least because with Europe on its doorstep and the working day of Beijing and New York both coinciding with our own make communication much easier. Smith added: “I had talked to a number of firms over a two year period, some were quite small and really their success was based on the individual personalities of one or two people and that just hasn’t been our culture. We’re a team based organisation. We’re looking for long term sustainability and it’s much healthier when you have a team of people that are all equally capable.

“Bigger is almost essential in being able to thrive and sustain an architectural practice in this day and age. There are some exceptions, there are some small specialist firms that are able to move around the world based on reputation but on the whole the world is gravitating toward larger firms. Certainly the number of projects in the £100m - £500m range is significant. If you can’t dedicate a team of 50/60 people to a single project you’re generally not going to be qualified to take those opportunities on. You’re not able to compete in the PPP or PFI world if you’re not able to have the financial depth to invest in some marketing. Unfortunately many smaller firms still operate as traditional, professional practices with little concern for business management. In these practices, partners have more or less equal interests and typically make decisions on a consensus basis. Profits are distributed, rather than retained within the company and each firm succeeds primarily on the basis of personal services and longstanding relationships. Architects as a group are some of the last to emerge into the modern age and employ corporate organisation structures, accounting practices and standards of governance. As a result, many experts that follow and advise the consulting community predict the death of the small and medium size professional practice in the near future.”

For Archial that means the future will be a period of “adjustment” and “stabilisation” as the firm strives to cover its costs over 2011. “I think Archial is in much better position now having gone through the administration process and no longer saddled with the debt and the requirement for public reporting that they once had”, observes Smith. “That’s lifted a great burden from their shoulders, now they don’t have to worry about trading as a publicly traded company; they can focus on operating as a successful architectural practice which is a different agenda.” Future worries, Smith believes, are more likely to stem from increased competition and lower fees, necessitating productivity improvements and the introduction of new technology. “It’s increasingly becoming a big company business and I think our goal is to intelligently build our business for the future but with a strong architecturally led orientation. There’s no value in the negative aspects of trying to rebuild the firm. I think we believe we can keep a stable organisation going forward. Inevitably there is some adjustment but I would hope we’re going to see a few new people added to the team as well.
As part of that adjustment Archial will amalgamate its London studios into a single office, a move which signals the end of Alsop Sparch, 14 months after the eponymous architect jumped ship to RMJM.

Remaining staff are being decanted to Archial’s existing Great Portland offices over the next few months as Archial CEO Chris Littlemore explained: “We are confident that the merger of our London offices will allow us to continue focusing our resources to our clients’ benefit and that simplifying our brand structure will allow our organisation to present a single cohesive identity to the UK and European market.” The challenge for Archial over the next year is to put in place the communications infrastructure and the technical systems necessary to share resources across different offices so that Smith can realise his ambition of having 2/3 full offices working on a single project seamlessly. “That’s the opportunity for an organisation like us, we’ll have people on the ground with the client who can talk to him face to face but they can draw from other resources from around the planet.

“Chris Littlemore and I have had a lot of conversations both pre and post acquisition and I think everyone understands what needs to be done,” explained Smith. “We all appreciate that this has been the assembly of many smaller companies, that there really does need to be a harmonisation of interests but I do think there are a lot of compatible personalities and cultures here.  I just think they need to have the management infrastructure to tie it all together.” Bob Hall, joint MD at Archial, added: ”In all instances the clients have stood by us I have to say in Scotland we’ve had a lot of support from private clients even Inverclyde Council supported us and contractors generally been very supportive generally across the board. We’ve lost nothing, no real live project We didn’t lose a live project at all. We got through the administration process within 4/5 days and all the directors had good links with the clients.”

Within Ingenium’s architectural group there are four major regional operations, of which Archial adds a fifth. Each of these groups is given autonomy to develops their own business plan for the year and manage themselves based on those plans. Smith sees his job as staying in touch, understanding what is happening and bring different groups together and maybe add a little bit of value.  Contrasting Ingenium’s approach with some of the other larger architecture practices, Smith says “we are a group of architects, we’re run by architects, I’m an architect, that’s our primary motivation. It’s not to build a financial empire; it’s to build an organisation which can deliver great buildings. I don’t see how an architectural practice can be run successfully by non-architects. Nor do I see that creativity, technical innovation, quality control and public safety can be adequately served by involving disconnected shareholders who are only interested in the next quarter’s financial results.”

The thorny issue of fees is one which has long troubled the profession, but not Smith. Rather than see it as a threat to survival Smith sees it as an efficiency driver: “It seems to me that the whole world is suffering from the same issue, whether you’re a manufacturer or a retailer or almost any other industry you’re seeing the cost that you can command in the marketplace declining. I think that’s just evolution quite honestly. That’s the way the world’s going. The only way we can respond to that is not by trying to put in place some bureaucratic restrictions on our fee structure but be able to respond to taking on board productivity and innovations. We have to do more with less and we’re going to have to do it better as well. Whether it’s better management systems, better tools and technologies or whether it’s just being able to concentrate our services in areas where there is real value to be provided to clients and not try and do the full range of services that we once did. We have to adjust to that reality rather than try to complain that it’s not the way it used to be.

“I think we’re going to see some big changes in our profession, We’re already seeing that it’s the larger firms that are able to be the most stable to continue on through some of the harder times that we’ve seen recently. There is all kind of reasons for that, we see the size of building projects has increased, the amount of risk is increasing, the cost of competing in some of these PFI projects is enormous and then to have IT systems and HR programs and marketing capability, it’s a very expensive proposition.”

To counter these impulses Smith is moving to internationalise Ingenium’s work. “We are privately owned” observes Smith, adding “we have more than a third of our employees as shareholders and I suspect before long we’ll have Scottish and English shareholders in our midst as well. What we’re really looking to build is a different kind of company. One which is a network of offices that are all connected and sharing work and that are all participating in the ownership and management of the firm.” Referencing some of Archial’s recent successes, such as the University of Glasgow’s  Small Animal Hospital, Smith said: “There is some great design work that has been done by this office and I think people in the rest of our organisation are quite impressed by that and want to see how we can involve some of those people in other places. It’s very remarkable what’s been done in the Scottish offices and I’d love to put teams together that combine Scottish architects with Canadian architects with American architects and so on.”

Intriguingly Archial are now one of the few practices to straddle both the American and British markets, as Smith observes:  “In America it’s a much different group, there’s not a lot of transfer between the UK and North America. There are very few that work across both markets, RMJM is the only one I can think of.” This stands in stark contrast to markets in the Middle East where British and American firms compete not just against each other but also a lot of Asian firms. Another unique aspect to Archial is its composition, formed from the acquisition of numerous smaller companies, Smith could think only of AECOM one of the largest consultations in the world, and Stantech but as Smith points out: “they tend not to be run by architects, they’re architectural and engineering practices run by business people.”
 
With that Smith had to head off to the somewhat less glamorous environs of Archial’s Birmingham base, but not before gazing out of Archial’s boardroom window at Edinburgh Castle. Having spent the weekend traipsing round the sights with his wife in tow Smith said: “It’s not the first time I’ve been here, but it really humbles you as an architect to see great buildings which have endured so long, we don’t think in those terms in quite the same way anymore.”