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Does Your A/E Firm Have the Right Amount of Organization Structure?
June 18, 2020
Small architecture and engineering (A/E) firms have historically followed a “command and control” model where the owner or principals are very much involved in day-to-day operations and the details of individual projects. The upside to this approach is that it gives management confidence that things are being done the right way and that clients are happy with the work. The downside is that owners only have so much bandwidth, and that limitation often keeps firms from growing much beyond 25 employees.
For firms that have decided to pursue growth and start to move into the headcount range of 25-40, something has to change. Some degree of more formal organizational structure has to be implemented in order for there to be consistency in how projects are managed, how resources are allocated, how authority is delegated, etc. The result is that a firm starts to separate itself into smaller operational units. This can be helpful, as the change can lead to higher-quality work and less time spent dealing with one-off issues that arise.
Two Challenges Caused by a New Organizational Structure
While structure can be a good thing, it can also produce certain issues that then have to be addressed. One of these is the development of “silos” within the organization. Groups start to believe, to some degree, that “everything is about them.” They begin to focus more on what’s necessary for their unit to achieve success and less on how the firm as a whole succeeds.
When this occurs, owners who thought it was a good idea to delegate some responsibility now fear they’ve gone too far. Consequently, they feel the need to regain control by shrinking the firm back down. And this type of yo-yo growth pattern can go on indefinitely.
We’ve learned from the A/E firms that we work with that the key to avoiding this situation is seeking balance: enough structure to improve operations but not so much that hardened silos develop. As Art Gensler, founder of the largest architectural firm in the world, put it, you need to have a “One firm, one culture” mentality.
The second challenge posed by too rigid an organizational structure is that it makes it difficult to manage a firm during an economic downturn. Many firms today have benefitted from the unprecedented stretch of prosperity our country has experienced, and have been able to ignore issues caused by their silos. However, as COVID-19 and other factors have driven the U.S. (and much of the world) into a recession, the problems and inefficiencies with silos have been exposed.
"Focusing on what’s best for firm growth gives people a better understanding of their role in the organization’s success, and as a result, it reduces infighting and '"turf wars.'"
Silos as a Barrier to Decision Making
One of the keys to surviving a downturn is being able to make smart, firm-wide decisions. Unfortunately, the structure that many firms had put in place to improve how projects are handled is now inhibiting good decision making. What cost-cutting measures should be taken? Where should marketing resources be focused? Which clients will have the most work going forward? Who are the best people to handle that work? The right answers are harder to come by when the firm’s different units are all “defending their turf.”
For example, if a particular “studio” exists to serve a specific market (healthcare, higher ed, etc.) and that market has crashed, people outside that unit might argue that it should be eliminated. But there may be key leaders, top talent, and important institutional knowledge within that studio that should be retained. So, management has to realize that making layoffs simply along something like market sector lines is rarely the right move.
And market sector organization is common, in part because clients like to hear that the A/E firm they select is an expert in their area. But the advice we give to clients is that the behind-the-scenes operation of your firm doesn’t have to be dictated by the face (structure) you show your clients, and neither does your response to a recession.
Crossing Boundaries to Survive a Downturn
When difficult economic conditions arise, our observation is that firms that put together the best teams for each project—regardless of what department a person is pulled from—get through the tough times in the best shape. In other words, collaboration takes precedence over structure. By breaking down barriers, at least temporarily, decision-makers have greater visibility into who can help the firm deliver great work quickly and cost-effectively.
And this is true regardless of the type of “org chart” that is in place. Rather than a market sector approach, some firms organize by service line (design department, mechanical engineering department, etc.). Here again, managers and employees can come to see their allegiance to their group as more important than their allegiance to the firm in general. And this development can be exacerbated by the fact that clients may view the contribution of one group as more important than that of another, even though that’s not true.
Still, other firms use what’s called a matrix approach in which a person with expertise in a particular type of project shepherds the job from start to finish. This person pulls in resources from various departments as needed to complete the work. But here again, territorialism can rear its ugly head if the dividing lines between departments are too deeply ingrained.
Structural Flexibility: Critical in Good Times, Too
A willingness and ability to break down the “walls” of an organizational structure as needed is important in good times, as well. Whenever structure starts to impede the flow of information, hurt communication, and make a firm less agile, it’s important to take action.
This can be easier if instead of rigid boundaries, firms embrace the concept of “soft control,” in which employees at all levels are encouraged to develop an ownership mentality. Focusing on what’s best for firm growth gives people a better understanding of their role in the organization’s success, and as a result, it reduces infighting and “turf wars.”
Financial Management Software That Defies Silos
One of the ways firms can avoid becoming too siloed is to use financial and project management software like Factor AE that doesn’t easily accommodate that type of organizational structure. It is possible to create a departmental structure in Factor AE and QuickBooks, but you have to jump through some hoops. And that’s intentional. Creating boundaries in a firm based on finances is one of the quickest ways to form silos that are very hard to dismantle.
So, we encourage firms to run projects the way they want to and make themselves attractive to clients in whatever way works, but when it comes to making important decisions, “One firm, one culture” is the ticket.
Defy Silos with Factor AE
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