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Case Analysis for Sperry/MacLennan Architects and Planners

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a. Describe the situation discussed in the case.
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Case 3-2: Sperry/MacLennan Architects and Planners

In August 1988 Mitch Brooks, a junior partner and director of Sperry/MacLennan (S/M), a Dartmouth, Nova Scotia, architectural practice specializing in recreational facilities, is in the process of developing a plan to export his company's services. He intends to present the plan to the other directors at their meeting the first week of October. The regional market for architectural services is showing some signs of slowing, and S/M realizes. As Sheila Sperry, the office manager and one of the directors, said at their last meeting, "You have to go wider than your own backyard. After all, you can only build so many pools in your own backyard."

About the Company

Drew Sperry, one of the two senior partners in Sperry/MacLennan, founded the company in 1972 as a one-man architectural practice. At the end of its first year, the company was incorporated as H. Drew Sperry and Associates; by then Sperry had added three junior architects, a draftsman, and a secretary. One of those architects was John MacLennan, who would later become a senior partner in Sperry/MacLennan. Throughout the 1970s, the practice grew rapidly as the local economy expanded, even though the market for architectural services was competitive. With the baby-boom generation entering the housing market, more than enough business came its way to enable Sperry to develop a thriving architectural practice, and by 1979 the company had grown to 15 employees and had established branch offices in Charlottetown and Fredericton.

These branch offices had been established to provide a local market presence and meet licensing requirements during this aggressive growth period. But the growth could not last. The early 1980s was not an easy time for the industry, and many architectural firms found themselves unable to stay in business through a very slow period in 1981-1982. The company laid off all but the three remaining partners: Drew, Sheila Sperry, and John MacLennan. However, one draftsman and the secretary refused to leave, working without pay for several months in the belief that the company would win a design competition for an aquatics center in Saint John; their faith in the firm is still appreciated today.Their persistence and faith was rewarded in 1983. Sperry won the competition for the aquatics facility for the Canada Games to be held in Saint John.

Sperry had gained national recognition for its sports facility expertise, and its reputation as a good design firm specializing in sports facilities was secured.

From the beginning, the company found recreational facilities work to be fun and exciting. To quote Sheila Sperry, this type of client "wants you to be innovative and new. It's a dream for an architect because it gives him an opportunity to use all the shapes and colors and natural light. It's a very exciting medium to work in." So they decided to focus their promotional efforts to get more of this type of work and consolidate their "pool designer" image by associating with Creative Aquatics on an exclusive basis in 1984. Creative Aquatics provided aquatics programming and technical operations expertise (materials, systems, water treatment, safety, and so on) to complement the design and planning skills at Sperry. The construction industry rebounded in 1984; declining interest rates ushered in a mini-building boom, which kept everyone busy for the 1984-1987 period. Mitch Brooks joined the practice in 1987. The decision to add Brooks as a partner, albeit a junior one, stemmed from their compatibility. Brooks was a good production architect, and work under his supervision came in on budget and on time, a factor compatible with the Sperry/MacLennan emphasis on customer service. The company's fee revenue amounted to approximately $1.2 million in the 1987 fiscal year; however, salaries are a major business expense, and profits after taxes (but before employee bonuses) accounted for only 4.5 percent of revenue. Now it is late August, and with the weather cooling, Mitch Brooks reflects on his newest task, planning for the coming winter's activities. The company's reputation in the Canadian sports facility market is secure. The company has completed or has in construction five sports complexes in the Maritime Provinces and five in Ontario, and three more facilities are in design. The awards have followed, and just this morning, Drew was notified of their latest achievement-the company has won the $10,000 Canadian Architect Grand Award for the Grand River Aquatics and Community Center near Kitchener, Ontario. This award is a particularly prestigious one because it is given by fellow architects in recognition of design excellence. Last week Sheila Sperry received word that the Amherst, N.S., YM-YWCA won the American National Swimming Pool and Spa Gold Medal for pool design against French and Mexican finalists, giving them international recognition. Mitch Brooks is looking forward to his task. The partners anticipate a slight slowdown in late 1988, and economists are predicting a recession for 1989. With 19 employees to keep busy and a competitor on the West Coast, they decided this morning that it is time to consider exporting their hard-won expertise.

The Architecture Industry

Architects are licensed provincially, and these licenses are not readily transferable from province to province. Various levels of reciprocity are in existence. For this reason joint ventures are not that uncommon in the business. In order to cross provincial boundaries, architecture firms in one province often enter into a joint venture arrangement with a local company. It is imperative that the architect convince the client that he or she has the necessary experience and capability to undertake the project and to complete it satisfactorily. S/M has found with its large projects that the amount of time spent meeting with the client requires some local presence, although the design need not be done locally.

Architects get business in a number of ways. "Walk-in" business is negligible, and most of S/M's contracts are the result of one of the following five processes:

1. A satisfied client gives a referral.
2. A juried design competition is announced. (S/M has found that these prestigious jobs, even though they offer "runners up" partial compensation, are not worth entering except to win, since costs are too high and the compensation offered other entrants too low. Second place is the same as last place. The Dartmouth Sportsplex and the Saint John Aquatic Center were both design competition wins.)
3. A client publishes a "Call for Proposals" or a "Call for Expressions of Interest" as the start of a formal selection process. (S/M rates these opportunities; unless it has a 75 percent chance of winning the contract, it views the effort as not worth the risk.)
4. A potential client invites a limited number of architectural firms to submit their qualifications as the start of a formal selection process. (S/M has a prepared qualification package that it can customize for a particular client.)
5. S/M hears of a potential building and contacts the client, presenting its qualifications.
The fourth and fifth processes are the most common in buildings done for institutions and large corporations. Since the primary buyers of sports facilities tend to be municipalities or educational institutions, these are the ways S/M acquires a substantial share of its work. Although juried competitions are not that common, the publicity possible from success in landing this work is important to S/M. The company has found that its success in securing a contract is often dependent on the client's criteria and the current state of the local market, with no particular pattern evident for a specific building type.

After the architect signs the contract, there will be a number of meetings with the client as the concept evolves and the drawings and specifications develop. Therefore, continuing client contact is as much a part of the service sold as the drawings, specifications, and site supervision and, in fact, may be the key factor in repeat business. Developers in Nova Scotia often are not loyal buyers, changing architects with every major project or two. Despite this, architects are inclined to think the buyer's loyalty is greater than it really is. Therefore, S/M scrutinizes buyers carefully, interested in those that can pay for a premium product. S/M's philosophy is to provide "quality products with quality service for quality clients," and thus produce facilities that will reflect well on the company.

The Opportunity

In 1987, a report entitled "Precision, Planning, and Perseverance: Exporting Architectural Services to the United States" identified eight market niches for Canadian architects in the United States, one of which was educational facilities, in particular post-secondary institutions. This niche, identified by Brooks as most likely to match S/M's capabilities, is controlled by state governments and private organizations Universities are known not to be particularly loyal to local firms and so present a potential market to be developed. The study reported that "post-secondary institutions require design and management competence, whatever the source" (p. 39). Athletic facilities were identified as a possible niche for architects with mixed-use-facility experience. Finally, the study concluded that "there is an enormous backlog of capital maintenance and new building requirements facing most higher education institutions". Although Brooks knows that Canadian firms have always had a good reputation internationally for the quality of their buildings, he is concerned that American firms are well ahead of Canadian ones in their use of CADD (computer-assisted design and drafting) for everything from conceptual design to facility management. S/M, in spite of best intentions, has been unable to get CADD off the ground, but is in the process of applying to the Atlantic Canada Opportunities Agency for financial assistance in switching over to CADD.

Under free trade, architects will be able to engage freely in trade in services. Architects will be able to travel to the United States and set up an architectural practice without having to become qualified under the American Institute of Architects; as long as they are members of their respective provincial associations and have passed provincial licensing exams and apprenticeship requirements, they will be able to travel and work in the United States and import staff as required.

Where to Start?

At a meeting in Halifax in January 1988, the Department of External Affairs had indicated that trade to the United States in architectural services was going to be one positive benefit of the Free Trade Agreement to come into force in January 1989. As a response, S/M has targeted New England for its expansion, because of its geographic proximity to S/M's homebase in the Halifax/Dartmouth area and also because of its population density and similar climatic conditions. However, with all the hype about free trade and the current focus on the United States, Brooks is quite concerned that the company might be overlooking some other very lucrative markets for his company's expertise. As part of his October presentation to the board, he wants to identify and evaluate other possible markets for S/M's services. Other parts of the United States, or the affluent countries of Europe, where recreational facilities are regularly patronized and design is taken seriously, might provide a better export market, given S/M's string of design successes at home and the international recognition afforded by the Amherst facility design award. Brooks feels that designing two sports facilities a year in a new market would be an acceptable goal.

In his search for leads, Brooks notes that the APPA (Association of Physical Plant Administrators of Universities and Colleges) charges $575 for a membership, which provides access to its membership list once a year. But this is only one source of leads. And of course there is the U.S. Department of Commerce, Bureau of the Census, as another source of information for him to tap. He wonders what other sources are possible.

S/M appears to have a very good opportunity in the New England market because of all its small universities and colleges. After a decade of cutbacks on spending, corporate donations and alumni support for U.S. universities has never been so strong, and many campuses have sports facilities that are outdated and have been poorly maintained. But Mitch Brooks is not sure that the New England market is the best. After all, a seminar on exporting that he attended last week indicated that the most geographically close market, or even the most psychically close one, may not be the best choice for long-run profit maximization and/or market share.

Solution Preview


Sperry/MacLennan Architects specializes in recreational architecture mainly in designing and building pools. The company has achieved a name for itself in the Canadian sports facility market and needs to plan for the coming winter's business. The company has won awards for honor for pool design. Its pool designs have been acclaimed and have performed better than French and Mexican architects. However, the partners of Sperry/MacLennan Architects anticipate a slowdown in business in 1988 and there is a forecast that in 1989 there might be a recession. In this background Sperry/MacLennan Architects have decided to enter the export market. The architectural market is such that having local partners is desirable and contracts are awarded on the basis of five ways namely referral, a design competition, call for proposals, invitations to submit qualifications and contacting potential buyer personally,

Presently, Sperry/MacLennan Architects is exploring opportunities to export its services to the United States. For this purpose it has received recommendations from a market report "Precision, Planning, and Perseverance: Exporting Architectural Services to the United States". This report has identified eight market niches for Canadian architects in the USA. One of these facilities is an educational facility in post secondary institutions. The proposition is that Sperry/MacLennan Architects should build athletic facilities in the USA. Because the Free Trade Agreement that came to force in January 1989, it will become increasingly easy to expand into the USA. Sperry/MacLennan Architects is considering New England for its expansion because it is close to S/M's home-base in Dartmouth. Sperry/MacLennan Architects have other options and wants to consider them properly before they decide to enter New England. There are other areas ...

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