This week, there was a glimmer of good news for Ontario architects: construction and architects have been included on an “essential services” list, allowing them to continue to operate during the COVID-19 shutdown. Nonetheless, as a slow-down of work takes hold, architecture firms are facing difficult decisions in the weeks and months ahead.
To gain insight on the situation, we spoke with business strategist Rowley Mossop. Mossop is principal of Innovia, a management consultancy that specializes in advising creative companies. Their client roster includes architecture and engineering firms of a range of sizes, operating in Canada and internationally.
Here’s what Mossop had to say.
On the current economic situation
We haven’t had an economic shock like this ever before. Most recessions are triggered by a failure in one function of the economy, like mortgage finance. This is unprecedented because it affects every sector of the economy—hospitality, food and beverage, bricks-and-mortar retail, industrial production, the supply chain for industrial production, the supply chain for construction, finance. Everything looks like it could grind to a halt.
So even if it is short, it’s not an economic shock like the others. And it’s also not necessarily going to be short. We’re advising our clients to use a four-month planning horizon. We see this as very serious challenge that’s going to be a marathon, not a sprint.
We expect that the firms that withstand this shock are going to be very different than they were before it started. The short-term decisions they make about finances, services, and people will shape their futures.
Act fast, but not in haste
We’re telling our clients to make fast decisions, but don’t make hasty decisions—and especially, pay attention to your long-term strategic goals.
In the pre-COVID-19 world, we’ve worked with a number of firms that have faced serious financial challenges. There’s a tendency to make big short-term decisions, and it’s worth talking to your professional advisors first.
Most firms that aren’t thinking straight will structure their layoffs to cost as little as possible, so they’ll let go of younger, cheaper staff at first, including new hires. Often we find a company will have made a round of big cuts, leaving it with its longest tenure staff, and pushing its brightest, hardest-working, highest-potential staff out the door. At the end of the process, it may find itself with a top-heavy, un-economic firm, without in-demand skills or talent.
It’s the kind of decision that looks right in the short term, but it’s absolutely wrong in the long term. There are different approaches that are respectful and build for the future.
Current risks
There are three significant risks that firms are facing now. One is simply the risk that current projects will be canceled, or put on pause. While construction sites are still operating, it may be that non-essential sites are shut down in the future. That’s already happened in Scotland. The whole permitting and planning process is on hold in most municipalities. It’s not unreasonable to think that in the medium term, projects will be suspended.
The second is payment risk. Everybody is conserving cash.
The third is pipeline risk. Two months of suspended services and a focus diverted from business development means an empty pipeline.
The future is still bright
Even though this is a really serious situation, everybody understands what’s going on, and everyone will be willing to listen to requests for a little help, and a little accommodation—that goes from employees to banks.
The fundamentals underneath the industry are really, really strong. Everything that happens in the real estate industry is driven by the cost of money, and population and job growth. Canada continues to grow and will absorb the shock. It may take months or years, but it will do so. And in the public sector, the need for infrastructure is not going away. There will be stimulus building programs.
The firms that survive will take a realistic view of what’s happening now, and put that view in the context of an urbanizing country that’s growing. Over the long term, demand will be there.
In short, we are advising our clients to make decisions now about today’s reality, but to do it with a long view in mind.
We took a first look at how firms are handling COVID-19’s impacts here, and offer further legal and financial guidance for architects during COVID-19 here.
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