Architects, Your Real Competition Isn’t AI — It’s Business Complacency
Larry Fabbroni is an architect, strategic advisor, and Chief Innovation Officer for Practice of Architecture. Throughout his career, he has led efforts to reform studio culture and innovate practice. He earned his MBA from the University of Chicago’s Booth School of Business.
In 2017, as leaders in the AIA’s Young Architects Forum, we led the launch of the Practice Innovation Laband hosted a symposium that imagined new architectural practice models. At that time, we already felt that practice innovation was overdue in a profession that has not seen scaled disruption to its business model in over a century. Today, we are confident that there has never been a more critical time for the profession to embrace innovation.
Redefining Innovation
Henley Hall: Institute for Energy Efficiency by KieranTimberlake, Santa Barbara, California | KieranTimberlake’s research expertise creates value beyond a baseline labor model.
Currently, artificial intelligence dominates strategy conversations, but just as we saw back in 2017, larger patterns prompt calls for innovation. Talent attraction is increasingly challenging, disruptive technology continues to emerge, and actors from outside our industry show growing interest in the space.
While incremental innovation has long been a part of the profession, relatively few firms have adopted new practices that create value beyond a baseline labor model. Firms such as KieranTimberlake have shown that research expertise can do this. MASS Design has pioneered a mission-driven approach. BIG has taken on the role of architect-as-developer. Snøhetta houses a product design division. We could continue to list great firms that have pushed the boundaries of practice, but they represent exceptions that have yet to be recognized as new standards.
Indeed, the confluence of those factors that led to the original PIL continues to make the case that the time for scaled innovation is now.
A Melting Iceberg: Incremental Changes Depleting the Profession
Powerhouse Telemark by Snøhetta, Vestfold og Telemark, Norway | Photo by Ivar Kvaal | Snøhetta houses a product design division, innovatively presenting a alternative business model for firms.
One of the dangers of operating in a slow-moving industry is that change is difficult to detect and even more challenging to comprehend. If an iceberg loses 1% of mass per year, it’s tough to take notice, but the end result is catastrophic. This is what is happening to our profession. For newcomers, if it feels like there are increasingly more attractive opportunities elsewhere, that’s because there are. For seasoned professionals, if it feels like it’s become more challenging to maintain the same levels of prosperity, that’s because it has.
LessTalent
In some ways, the shift towards companies recognizing “talent” as their most excellent resource has bewildered architects: we have always relied on talent. However, the patterns of talent leaving our profession are concerning. We say “feel” because there is no significant data.
We spoke to Kendall A. Nicholson, Senior Director of Research at the Association of Collegiate Schools of Architecture, who confirmed that aggregated data on graduate placement does not exist. So we inquired about what placement looks like at several programs around the country. Omar Khan, Head of the Carnegie Mellon University School of Architecture, informed us that approximately 90% of students pursue a minor to expand their horizons, and that in 2022, nearly one in three graduates entered the tech sector. Khan stated that these opportunities aren’t just student-driven — large innovative companies increasingly seek the value that graduates of architecture schools will provide.
This increasing difficulty in capturing the talent that architecture schools are producing results in a shrinking and diluted talent pool. For a profession so reliant on human resources, this presents extreme risk.
Pay Gaps
In an increasingly expensive world, we are not able to compete for the best talent with emerging industries.
It’s easy to understand why a popular career pivot for architects has become UX design. Designing user experience for websites pays significantly better than designing the same for the built environment. According to Glassdoor, 2023 entry-level UX designers earned an average of K, while the AIA salary calculator suggests architecture grads can expect to earn an average of K.
The talent we do attract into the profession often loses interest when they experience low pay and long hours, all while most firms lack clear paths and criteria for advancement or compensation increases.
A Smaller Piece of the Pie
Examining data in isolation, one might conclude that the profession continues to grow; the number of architects has increased substantially over the last century, and this trend has persisted in recent years.
The problem with this growth is that the estimated share of the US GDP for Architectural Services has shrunk over time. This is not a manageable number to measure before 1999, when NCARB first aggregated local jurisdictional data. Due to limitations in industry economic data, we’re only showing data since 2011 for the purposes of this article.
In that time, the number of architects has grown, the market size for services has grown, but the share those services represent as a portion of the US GDP has declined — by 15% if we use US Census data to almost 30% if we use industry research data. To put it another way, architecture is a stagnant industry with a shrinking share of the economy.
It’s challenging to examine this data and emerge feeling confident about the profession, but there is a silver lining. The biggest impediment to innovation for architects is not a lack of talent, but rather the business model. Design thinking has been widely adopted throughout the world as a key component of innovation processes; however, the problem is that we operate in the realm of professional services, which inherently is not well-suited to promoting innovation. Reliance on that formula is causing our iceberg to melt.
The Tsunami: The AI Tidal Wave is Here
The Rwanda Institute for Conservation Agriculture by MASS Design Group, Rwanda | MASS Design has pioneered a mission-driven approach that creates value beyond a baseline labor model.
As we confront the exodus of talent, it is easy for both firm owners and clients to imagine AI bringing efficiencies and replacing “CAD-monkeys” with machines. However, any firm that wants to operate — and win — as anything more than a low-cost provider will need a strategy to increase value, not just cut costs. AI is merely part of the toolbox required to confront a perfect storm of forces.
Jobs will Disappear
Goldman Sachs predicts that as much as 37% of our industry tasks will be replaced by AI. Many see this as a pathway to lower costs and increased profits. However, that is short-sighted. Markets will adjust quickly and demand lower costs for services; additional new value will need to be articulated and proven, and this will only happen through innovation.
New Jobs will EmergeAI prophets often emphasize that technological innovation has historically led to net employment gains. Previous World Economic Forum estimates predicted losses of up to 85 million existing jobs worldwide, with parallel gains of as many as 97 million new jobs. However, these estimates were revised in the WEF 2023 Economic Outlook, which now anticipates a net loss of 14 million jobs.
This stark outlook signals an even greater need for architects to become more innovative. The 2024 RIBA AI Report indicates that 41% of architecture firms were already utilizing AI, though current tools are indeed just the beginning. Marketing, business development and content creation will be standard areas of AI deployment moving forward. Still, revolutionary changes will come in how we learn, not only to use new tools, but also to collaborate with digital agents. How will this happen? We can theorize, but it is not possible to know for sure until it arrives, so we need to have a plan before we can see the tidal wave from land.
The Alien Invasion: Outsiders Are Entering Our Orbit
VIA 57 West by BIG – Bjarke Ingels Group, New York City, New York | BIG has pioneered a new model for practice by taking on the role of architect-as-developer.
For years, we’ve heard cries that “architects gave away the role of master builder.” But how much did architects actually give, and how much was taken by innovative competition? This distinction is critical because the wagons are circling, and the AEC space has become ever more attractive to investors.
Venture Capital and Private Equity Investment
The numbers are often difficult to parse because architecture can impact so many verticals and does not operate as its own sector in the investment realm; however, the trends suggest a groundswell is underway.
A 2023 McKinsey report shows that construction tech deals nearly doubled from 2019 to 2022, growing by 85%. At the same period, the number of deals increased by 30%, indicating that interest continues to grow. An increasing size of deals also suggests a maturity of the market. As interest in infrastructure investments has declined from its high in 2020, and along with real estate, has been blunted by high interest rates, institutional investors continue to see opportunities in the AEC space.
Firm Acquisitions
AEC firms that deliver predictable returns have proven to be attractive targets for PE firms. In the second quarter of 2024, private equity firms accounted for over one-third of AEC firm mergers and acquisitions. For M&A deals, the industry has seen an increase in attractiveness with expanded infrastructure spending as a catalyst. However, this interest can also be tied to the lack of innovation that has resulted in an industry ripe for consolidation. M&A orchestrators generate large amounts of profit by streamlining operations, eliminating redundancies, and then stamping out competition. An entire community has been built around this, with AEC Advisors hosting an annual “Private Equity Summit” that brings together CEOs of AEC firms with PE investors.
Startups
As an extension of the growing interest from venture capital in the space, there is an upward trend in the AEC space being targeted for disruption by entrepreneurs who see an industry that represents a significant portion of the global GDP. AEC Works, a project of e-verse that catalogs AEC startups and investors, lists nearly 800 startups from around the world, with almost 200 identified as “architecture-focused.” The signal is clear: startups are looking to figure out how to do what you do cheaper, better, or perhaps both.
Combining this environment with depleted talent pools, a declining share of GDP, and revolutionary technology, it is a correct response to be alarmed. Significant change is inevitable. It is time for architects to see the same opportunities that investors and entrepreneurs see, and learn to navigate within these spaces.
The Great Opportunity
Throughout history, new actors have enjoyed a “leap-frog” effect and been able to surpass established incumbents to reshape industries, markets and economies.
From climate change to pandemic ripple effects, to the housing crisis, to generational shifts in the workforce, there are many forces that directly impact the work of architects and call for innovation. The need for new ways of designing and delivering different components of the built environment is ever-present and will be solved by teams that either include — and might be led by — architects, or those that do not. Most end users will only care if the resulting product is superior.
This time of tension is indeed a time of great opportunity. Architects who embrace innovation in pursuing new iterations of our dated business models may actually achieve what many of us have dreamed of from the start: to leave a positive mark on the world.
We think the future of the profession depends on it.
Top image: Powerhouse Telemark by Snøhetta, Vestfold og Telemark, Norway
The post Architects, Your Real Competition Isn’t AI — It’s Business Complacency appeared first on Journal.
#architects #your #real #competition #isntArchitects, Your Real Competition Isn’t AI — It’s Business Complacency
Larry Fabbroni is an architect, strategic advisor, and Chief Innovation Officer for Practice of Architecture. Throughout his career, he has led efforts to reform studio culture and innovate practice. He earned his MBA from the University of Chicago’s Booth School of Business.
In 2017, as leaders in the AIA’s Young Architects Forum, we led the launch of the Practice Innovation Laband hosted a symposium that imagined new architectural practice models. At that time, we already felt that practice innovation was overdue in a profession that has not seen scaled disruption to its business model in over a century. Today, we are confident that there has never been a more critical time for the profession to embrace innovation.
Redefining Innovation
Henley Hall: Institute for Energy Efficiency by KieranTimberlake, Santa Barbara, California | KieranTimberlake’s research expertise creates value beyond a baseline labor model.
Currently, artificial intelligence dominates strategy conversations, but just as we saw back in 2017, larger patterns prompt calls for innovation. Talent attraction is increasingly challenging, disruptive technology continues to emerge, and actors from outside our industry show growing interest in the space.
While incremental innovation has long been a part of the profession, relatively few firms have adopted new practices that create value beyond a baseline labor model. Firms such as KieranTimberlake have shown that research expertise can do this. MASS Design has pioneered a mission-driven approach. BIG has taken on the role of architect-as-developer. Snøhetta houses a product design division. We could continue to list great firms that have pushed the boundaries of practice, but they represent exceptions that have yet to be recognized as new standards.
Indeed, the confluence of those factors that led to the original PIL continues to make the case that the time for scaled innovation is now.
A Melting Iceberg: Incremental Changes Depleting the Profession
Powerhouse Telemark by Snøhetta, Vestfold og Telemark, Norway | Photo by Ivar Kvaal | Snøhetta houses a product design division, innovatively presenting a alternative business model for firms.
One of the dangers of operating in a slow-moving industry is that change is difficult to detect and even more challenging to comprehend. If an iceberg loses 1% of mass per year, it’s tough to take notice, but the end result is catastrophic. This is what is happening to our profession. For newcomers, if it feels like there are increasingly more attractive opportunities elsewhere, that’s because there are. For seasoned professionals, if it feels like it’s become more challenging to maintain the same levels of prosperity, that’s because it has.
LessTalent
In some ways, the shift towards companies recognizing “talent” as their most excellent resource has bewildered architects: we have always relied on talent. However, the patterns of talent leaving our profession are concerning. We say “feel” because there is no significant data.
We spoke to Kendall A. Nicholson, Senior Director of Research at the Association of Collegiate Schools of Architecture, who confirmed that aggregated data on graduate placement does not exist. So we inquired about what placement looks like at several programs around the country. Omar Khan, Head of the Carnegie Mellon University School of Architecture, informed us that approximately 90% of students pursue a minor to expand their horizons, and that in 2022, nearly one in three graduates entered the tech sector. Khan stated that these opportunities aren’t just student-driven — large innovative companies increasingly seek the value that graduates of architecture schools will provide.
This increasing difficulty in capturing the talent that architecture schools are producing results in a shrinking and diluted talent pool. For a profession so reliant on human resources, this presents extreme risk.
Pay Gaps
In an increasingly expensive world, we are not able to compete for the best talent with emerging industries.
It’s easy to understand why a popular career pivot for architects has become UX design. Designing user experience for websites pays significantly better than designing the same for the built environment. According to Glassdoor, 2023 entry-level UX designers earned an average of K, while the AIA salary calculator suggests architecture grads can expect to earn an average of K.
The talent we do attract into the profession often loses interest when they experience low pay and long hours, all while most firms lack clear paths and criteria for advancement or compensation increases.
A Smaller Piece of the Pie
Examining data in isolation, one might conclude that the profession continues to grow; the number of architects has increased substantially over the last century, and this trend has persisted in recent years.
The problem with this growth is that the estimated share of the US GDP for Architectural Services has shrunk over time. This is not a manageable number to measure before 1999, when NCARB first aggregated local jurisdictional data. Due to limitations in industry economic data, we’re only showing data since 2011 for the purposes of this article.
In that time, the number of architects has grown, the market size for services has grown, but the share those services represent as a portion of the US GDP has declined — by 15% if we use US Census data to almost 30% if we use industry research data. To put it another way, architecture is a stagnant industry with a shrinking share of the economy.
It’s challenging to examine this data and emerge feeling confident about the profession, but there is a silver lining. The biggest impediment to innovation for architects is not a lack of talent, but rather the business model. Design thinking has been widely adopted throughout the world as a key component of innovation processes; however, the problem is that we operate in the realm of professional services, which inherently is not well-suited to promoting innovation. Reliance on that formula is causing our iceberg to melt.
The Tsunami: The AI Tidal Wave is Here
The Rwanda Institute for Conservation Agriculture by MASS Design Group, Rwanda | MASS Design has pioneered a mission-driven approach that creates value beyond a baseline labor model.
As we confront the exodus of talent, it is easy for both firm owners and clients to imagine AI bringing efficiencies and replacing “CAD-monkeys” with machines. However, any firm that wants to operate — and win — as anything more than a low-cost provider will need a strategy to increase value, not just cut costs. AI is merely part of the toolbox required to confront a perfect storm of forces.
Jobs will Disappear
Goldman Sachs predicts that as much as 37% of our industry tasks will be replaced by AI. Many see this as a pathway to lower costs and increased profits. However, that is short-sighted. Markets will adjust quickly and demand lower costs for services; additional new value will need to be articulated and proven, and this will only happen through innovation.
New Jobs will EmergeAI prophets often emphasize that technological innovation has historically led to net employment gains. Previous World Economic Forum estimates predicted losses of up to 85 million existing jobs worldwide, with parallel gains of as many as 97 million new jobs. However, these estimates were revised in the WEF 2023 Economic Outlook, which now anticipates a net loss of 14 million jobs.
This stark outlook signals an even greater need for architects to become more innovative. The 2024 RIBA AI Report indicates that 41% of architecture firms were already utilizing AI, though current tools are indeed just the beginning. Marketing, business development and content creation will be standard areas of AI deployment moving forward. Still, revolutionary changes will come in how we learn, not only to use new tools, but also to collaborate with digital agents. How will this happen? We can theorize, but it is not possible to know for sure until it arrives, so we need to have a plan before we can see the tidal wave from land.
The Alien Invasion: Outsiders Are Entering Our Orbit
VIA 57 West by BIG – Bjarke Ingels Group, New York City, New York | BIG has pioneered a new model for practice by taking on the role of architect-as-developer.
For years, we’ve heard cries that “architects gave away the role of master builder.” But how much did architects actually give, and how much was taken by innovative competition? This distinction is critical because the wagons are circling, and the AEC space has become ever more attractive to investors.
Venture Capital and Private Equity Investment
The numbers are often difficult to parse because architecture can impact so many verticals and does not operate as its own sector in the investment realm; however, the trends suggest a groundswell is underway.
A 2023 McKinsey report shows that construction tech deals nearly doubled from 2019 to 2022, growing by 85%. At the same period, the number of deals increased by 30%, indicating that interest continues to grow. An increasing size of deals also suggests a maturity of the market. As interest in infrastructure investments has declined from its high in 2020, and along with real estate, has been blunted by high interest rates, institutional investors continue to see opportunities in the AEC space.
Firm Acquisitions
AEC firms that deliver predictable returns have proven to be attractive targets for PE firms. In the second quarter of 2024, private equity firms accounted for over one-third of AEC firm mergers and acquisitions. For M&A deals, the industry has seen an increase in attractiveness with expanded infrastructure spending as a catalyst. However, this interest can also be tied to the lack of innovation that has resulted in an industry ripe for consolidation. M&A orchestrators generate large amounts of profit by streamlining operations, eliminating redundancies, and then stamping out competition. An entire community has been built around this, with AEC Advisors hosting an annual “Private Equity Summit” that brings together CEOs of AEC firms with PE investors.
Startups
As an extension of the growing interest from venture capital in the space, there is an upward trend in the AEC space being targeted for disruption by entrepreneurs who see an industry that represents a significant portion of the global GDP. AEC Works, a project of e-verse that catalogs AEC startups and investors, lists nearly 800 startups from around the world, with almost 200 identified as “architecture-focused.” The signal is clear: startups are looking to figure out how to do what you do cheaper, better, or perhaps both.
Combining this environment with depleted talent pools, a declining share of GDP, and revolutionary technology, it is a correct response to be alarmed. Significant change is inevitable. It is time for architects to see the same opportunities that investors and entrepreneurs see, and learn to navigate within these spaces.
The Great Opportunity
Throughout history, new actors have enjoyed a “leap-frog” effect and been able to surpass established incumbents to reshape industries, markets and economies.
From climate change to pandemic ripple effects, to the housing crisis, to generational shifts in the workforce, there are many forces that directly impact the work of architects and call for innovation. The need for new ways of designing and delivering different components of the built environment is ever-present and will be solved by teams that either include — and might be led by — architects, or those that do not. Most end users will only care if the resulting product is superior.
This time of tension is indeed a time of great opportunity. Architects who embrace innovation in pursuing new iterations of our dated business models may actually achieve what many of us have dreamed of from the start: to leave a positive mark on the world.
We think the future of the profession depends on it.
Top image: Powerhouse Telemark by Snøhetta, Vestfold og Telemark, Norway
The post Architects, Your Real Competition Isn’t AI — It’s Business Complacency appeared first on Journal.
#architects #your #real #competition #isnt
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