Practice- or Business-Focused? "Both" May Be the Best Answer
May 21, 2020
Historically, architecture and engineering (A/E) firms have been led to believe that in order to be successful, they have to choose between two approaches for operating their business. The first approach is to be “practice-centered.” This means that your primary concern is the work you produce. You want to create award-winning designs and really push the boundaries of your craft. The second approach is to be “business-centered,” meaning that you do good work, of course, but that you’re more concerned with generating profit and growing the business.
The need to make this choice has often been promoted by well-meaning consultants who truly believe that you have to commit the bulk of your resources and attention to one side of the business or the other. If you don’t, they say, you’ll never achieve the level of success you’re capable of. And with this artificial dividing line have come a number of assumptions, like the belief that practice-centered firms are less profitable because they put a great deal of unbillable time into projects in order to produce spectacular results.
Defining an A/E Firm’s Focus
To capture the degree of a firm’s practice or business focus, a company called the Coxe Group developed a diagram with four quadrants. At the upper left are practice-centered practices and at the lower right are business-centered businesses. Those are the industry extremes.
The other two quadrants show practice-centered businesses (lower left) and business-centered practices (upper right). The goal of consultants was to get as many of a firm’s principals as possible into either the exclusively practice or exclusively business quadrants in order to make it easier for the firm to reach decisions on key issues.
This, of course, was a good business model for consultants! They worked with firms to help them pick their focus and implement changes accordingly. Then they left and the firm had to wrestle with the aftermath. Later, when the firm decided it needed to refocus or switch to the other focus, they called the consultant back in for some “realignment” work.
The Reality: There’s Nothing Wrong (and Everything Right) with the Gray Area
It’s been our experience that most firms naturally fall into the gray area between being practice-focused or business-focused. We’ve also learned that that’s OK. In fact, the reality is that the operational decisions that firms have to make are rarely entirely practice-related or entirely business-related.
Consequently, a better and higher goal for owners is to understand that a firm’s practice/business orientation is naturally fluid, and that that fluidity should be embraced rather than battled. As long as you have people on your leadership team that can see both sides, you’re able to come to conclusions that help the firm succeed. Not surprisingly, avoiding “groupthink” is very beneficial!
A good example is the availability of the Payroll Protection Program (PPP) related to the COVID-19 pandemic. Exclusively practice- or business-centered thinking would each take a firm down very different paths regarding whether to take out a loan with its employee-retention requirements. But being able to look at the issue from different perspectives can help a firm choose the right path.
"The numbers confirm that merging practice-focused and business-focused perspectives produces the strongest results."
Critical Systems and Business Focus
Accounting is, for obvious reasons, considered to be an element of a firm’s business side. And if a firm’s accounting system is its “core,” there’s a natural inclination for the organization to be business-centered.
A product like Factor AE, on the other hand, which does play a role in accounting, actually helps break down the dividing line between practice and business. It does this by enabling better project management as a way to drive better financial results.
If you scope and set up and execute projects correctly in Factor AE, you’re very likely to produce good work and hit your revenue objectives. In other words, you make both your practice-centered and your business-centered people very happy!
Balance is the Key
Many of the business management systems on the market today are handed to accounting departments who are tasked with setting them up. Consequently, when the system is implemented, the business side tends to dominate the practice side.
What we’ve found is that in order to use a system like Factor AE effectively, you need to set it up with input both from people who are practice-centered and those who are business-centered. So, project managers need to have as much say as accountants.
When that happens, the seamless interface between Factor AE and QuickBooks means that the interests and concerns of both sides of the house are addressed. And as principals start to see the positive numbers produced by this collaboration, the notion that the firm has to choose a practice orientation or a business orientation quickly dissipates.
Our Shift in Perspective
We have to admit that we used to buy into the “pick your focus” mentality. We felt that the most successful firms were those that had the deepest alignment in one of the Coxe quadrants. Today, however, we’re seeing that the most successful firms are those that balance the two focuses the best. And the emphasis here is on “seeing.” The numbers confirm that merging practice focus and business focus produces the strongest results.
It’s important to note that the larger a firm gets, the more likely it is to become business-centered. That’s because the need for controls and organizational structure takes you in that direction. Fortunately, awareness of this change can enable you to counter it by ensuring that practice-centered input continues to be invited and valued in decision making. Using a system like Factor AE helps, as well, since it enables and encourages a more distributed approach to firm operations rather than the outdated “command and control” approach.
At the end of the day, right-brained and left-brained people can never fully divorce themselves from that mindset. Fortunately, with the right A/E firm business management software, they don’t have to.
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