Organizational Configuration For Optimal Application of Environmentally Sustainable Building Design

Entrepreneurial Field Studies
Gahl Spanier Insead MBA 2007
Entrepreneurial field Studies January-February 2007
Organizational Configuration for Optimal Application of Environmentally Sustainable Building Design

Submitting: Gahl Spanier Instructor: Michelle Rogan
Table of contents Executive summary........................................................................................................................................3 Introduction- definition and importance of sustainability.............................................................................4 Building design and construction process.....................................................................................................6 The existing landscape...................................................................................................................................8 Modification opportunities............................................................................................................................9 The research question ...................................................................................................................................9 Research method..........................................................................................................................................11 Choice of the interview questions ..............................................................................................................13 List of standard interview questions ......................................................................................................14 Results summary .........................................................................................................................................14 1. Main current challenges in implementing sustainable projects .........................................................15 2. Drivers of profit and loss for the developer........................................................................................15 3. Drivers of profit and loss for the architect..........................................................................................15 4. Suggested structural changes ..............................................................................................................16 5. Sustainability leadership and 6. Suggested dimension change in organization ..............................16 7. Opinions on integration options .........................................................................................................16 Result interpretation ....................................................................................................................................17 Results conclusion.......................................................................................................................................19 Epilogue- business model outline ...............................................................................................................20 Appendix A-The complete list of companies whose members were interviewed ....................................25 Appendix B- the interview questions and answers ....................................................................................26 Appendix C-Integrated design diagram .....................................................................................................38 Bibliography ...............................................................................................................................................39 Acknowledgements......................................................................................................................................40
Executive summary
Despite the relevance and urgency of addressing the environmental impact of buildings and building construction on the environment, sustainable design practices have been slow to develop; the common view is that they are too complex to be profitable in todays dynamic real-estate market. Traditionally, the design and construction process of buildings has been performed through the collaboration of three disciplines: developers, contractors and architects. The developers are typically contracted separately to the architect and the contractor. The architect is paid by the developer to create drawings from which the contractor will eventually construct the building, often following a competitive bid. I asserted that because sustainable design, in contrast with traditional design, requires more intensive cooperation from all involved parties, as well as the accumulation and management of a significant body of knowledge, integrating the architect and developer practices would be instrumental in facilitating sustainable design projects.
I have chosen to conduct a series of interviews with various professionals from the industry who have already been involved in sustainable design practices. The series of questions posed to each of them was intended to reveal the underlying problems and drivers of players in the industry with emphasis on developers and architect, and at the end to also pose the explicit question of whether integrating these two practices is possible, and whether it will indeed support sustainable design.
The results have shown relatively close match between anticipated problems in the industry and actual reported problems including obtaining, maintaining, and sharing knowledge across organizations; prohibitive design costs, and the challenge of creating effective cross-organizational design and construction teams. However, the candidates showed little inclination towards the idea the integration proposed. In fact many of them warned of the dire alignment conflicts and cultural differences between
the practices. Taking into account the specific warning and dangers, I proceeded to draft a business plan that derives many creative ideas from the various interviews Introduction- definition and importance of sustainability Recent developments and research have shown significant erosion in the capacity of the global ecological system to sustain the current level of human activity. If population growth and development trends are to continue, it is necessary to alter the way the earths resources are used.
The building industry is responsible for a major part of the resource use and abuse, particularly in industrialized countries where the high cost of labor and readily available capital encourages aggressive and mechanized development. Although it a relatively small part of the overall economy, the industry employed 11m people in 2005, or 7.9% of the workforce, and generated structures with an approximate cost of $1037bn, about 7% of total GDP. The industry impacts the environment both in the construction process, and, in the long-term, in the way that the constructed buildings use energy and create waste. In 2005, buildings were responsible for 40% of energy consumption and 7% of water use in the US. The construction industry generated 25% of the solid waste in the economy and 12% of the toxic waste; and households and commercial buildings generated an additional 14% of solid waste. With its relatively small workforce, base improvement in the industrys resource use could have great impact: predominantly in energy consumption and waste management, but also in water use and utilization (the potential for capture of storm water runoff is significant) and toxic waste containment.
Environmental sustainability in building design is hard to define precisely, due to the rapid evolution of applied technologies and the long-time horizon by which the sustainability should be evaluated. Nevertheless it is possible to define several broad sustainable design objectives.
Site utilization- The use of existing structures and infrastructure, and the arrangement of structure to optimize the advantages of the site climate while minimizing impact on local natural systems. Transportation- Ensure that occupants travel to and from the site has the smallest ecological footprint by encouraging use of mass transportation, car pooling, alternative fuel vehicles, bicycles, and walking -for example by installing bike racks and showers on building premises. Building system interaction- Coordinate different building systems so that they do not duplicate material and energy use, but rather complement each other in preventing environmental damage. Attentive material choice can decrease initial demands on HVAC1 and water systems. Energy consumption- Rely as much as possible on passive environmental strategies and renewable energy sources. Water use- Reduce and/or reuse storm water runoff from the site. Use water conservatively and efficiently, and minimize water use during construction. Environmentally preferable materials- Use materials that minimize negative impacts such as global warming, resource depletion, and toxicity for humans. The measure should be the life cycle impact of the material from the point its raw materials are extracted through to its transportation and eventual placement in the structure. Indoor environmental quality- The indoor environmental quality of a building has a significant impact on the health, comfort, and productivity of people who work there. Among other attributes, a sustainable building should maximize lighting from the sun, have plentiful ventilation, and avoid use of materials that emit toxins.
Although the current impact of the construction industry is severe, the methods mentioned above can greatly reduce the damaging effects. In addition, the technologies related to the listed objectives are improving rapidly, and if applied on a wide enough scale, can have significant effect on the environmental loads.
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Heat Ventilation & Air Conditioning
Building design and construction process There are multiple ways in which building are conceived and constructed throughout the world. What I will describe hereafter is a basic model that is the most common in the US and in Europe, and is most relevant for the research question.
As mentioned above, the design and construction of a building usually revolves around the transactions between three parties: the developer, the architect, and the contractor. Owners, engineering consultants, and subcontractors are subordinated to the main players respectively. The developer can be an individual or organization planning to occupy the building, or a commercial entity intending to rent or sell it. Typically the developer will contract with the architect to design the building, a process in which the architect, in consultation with engineers, produces proposals representing the way the building is to be constructed, in several stages, for approval by the developer. Following approval, the architect will prepare contract documents that the developer uses to evaluate costs, bid, and eventually sign a contract with a contractor to construct the building for an agreed-upon fee. This fee will be derived from the contractors separate agreements with an array of sub-contractors, and an agreed-upon profit calculation method. Once the contract has been signed, the contractor contacts the architect with any questions or clarifications required to complete the work. The architect must consult with the engineers (who he has hired) and respond in an accurate and timely manner. In addition, the architect will typically review the construction progress and inform the developer if the contractor has fulfilled his obligation before payment.
The process is divided into several stages. In the Programming stage, the developer with or without the architects input makes the set of decisions that define the functions of the building and their required general specifications, including a rough project budget. During the Schematic Design stage, basic massing and major access points to the project are defined by the architect. Next, during Design Development, more detail will be added by the architect in consultation with the engineers and the developer, and the building assumes its approximate final configuration. Also, the developer modifies initial pricing and budgeting. If the project is approved at the end of this stage, the architect will prepare the construction documents. These drawings and detailed specifications are submitted to the developer, who uses them to contract with a contractor for the construction of the building. Once the contract is signed, the architect provides additional information about the project as requested during the Construction Administration stage.
The existing landscape While the design and construction industry in most western countries adheres to the model previously described, several variants exist. Design-build practices- The most common practice in many developing countries, in which a client approaches a single entity, typically headed by an architect or engineer, which will manage both design and construction and deliver a completed project. Consolidated developer-builder- A developer has an in-house or partnership company with construction-management capabilities. In some jurisdictions this model is prohibited, while in others at least nominal separation is mandatory. Developers in-house architect- Typical for developers involved in many relatively simple improvement projects, the design practice in this case is completely subordinated to the development management. Integrated engineering and architectural practices- One firms offers architectural as well as a full or partial range of engineering services. This is the structure of the large architectural firms that first moved into the large-project sustainable design arena. Integrated client-developers- Large property-owning companies may run their own in-house development practice to continuously improve the value of their properties.
Modification opportunities In essence, design and construction practices currently work on variations of the triangular model of architect-developer-contractor shown in the image below. The premise of the model is to allocate to each party the risk and responsibilities it is most capable in handling. To the extent that the risks and responsibilities differ in sustainable design and I would argue strongly that they do the model should be altered accordingly. The general possibilities for manipulation are:
Redesign a node- Make a major change in the way a certain node internally operates and how it interacts with other nodes; for example, contractors could be publicly traded to reduce their business risk. Redesign a connection between two nodes- For instance, introduce a contract between the contractor and the architect (rather than triangulating through the developer) to ensure productive communication between them throughout the project. Connect/disconnect two nodes- Create or eliminate a connection between two nodes to foster cooperation or purge unnecessary activities and bureaucratic layers. For instance, the connection between the architect and the engineering consultants could be eliminated, with the engineering consultant reporting to the developer instead. Combine/separate nodes- Combine two or more nodes into one practice, to allow for intensive information and goal sharing, or to eliminate excess administrative staff for example, the integration model of consolidated developer-builder firms The research question The design and construction of sustainable buildings is in some ways very different from traditional design. Namely, this kind of practice requires a great deal of innovative activity and rapid application of previously untested methods. Consequently, a much higher level of synergies and cooperation between the various design and construction professionals is necessary.
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In contrast with the model of developers in-house architect depicted earlier I am anticipating an entity that combines the two disciplines not because the projects are small and simple but in order to face the challenging complexity of sustainable design.
It is my assertion that there are structural firm models that can increase cross-company cooperation and develop more innovative environments. More precisely, I would argue that the integration of the developer and architect practices would have a very positive impact on the capacity to engage and achieve technical and financial success in sustainable design projects.
Sustainable building projects are on the whole more capital intensive to design than the usual project. While they provide potential saving and government grants in the long run, they require more interactive design processes and vast specialized knowledge. Because the standard triangular relationship is designed around a one-time interaction between the architect and the developer, the architect often does not have a strong incentive to invest in developing the specialized processes. Furthermore, while the architect is typically unable to fund these relationship-specific assets, the developer is equally reluctant to provide support, because the new knowledge assets may eventually benefit a competitor who hires the same architect.
The major benefits that I propose may rise out of tighter architect-developer integration, associated with repeated interaction and access to professional resources, are as follows:
1. Economies of scale through standardization of both repeated architectural features and typical processes across many building projects. 2. Greater entrepreneurship potential due to combination of knowledge and funds to support action.
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3. Because more interactions are required between more parties for sustainable design, the transaction costs of interactions might become prohibitive. If the architect and the developer worked within the same organization, transaction costs will presumably be lower. For example when deciding to implement user-controlled lighting systems, the architect has the knowledge of how light is distributed in the space but the developer agents define how the space is used (and by whom).
On the other hand, such integration may impose major drawbacks: 1. There is a tradeoff between investments in specialized processes versus access to a large knowledge pool. That is, where both architects and developers have worked with numerous counterparts, they can draw on the information garnered from their varied previous experiences. 2. Conflicting perspectives due to the different cultures of the two professions might strain the coherence of a single company. Architects may put to much emphasis on creative design, while developers may be too oriented to the bottom line. If the two practices are combined, one profession might dominate the practice, thus overlooking important building factors and failing to implement a multi-faceted approach to building construction the common aspiration of green design in particular.
A key question is whether there are economic benefits in integrating architects and developers specifically to promote sustainable design. If the establishment of a repeated interaction allows better resource utilization, why wouldnt the integration of architect and contractor, or of all three entities, make more sense? Research method Because the research question - Will integration of developer and architectural practice make sustainable design and construction more effective and profitable? - proposes a configuration that
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does not yet exist, there is little empirical evidence to draw upon. Moreover, because a multidimensional change is expected, it is reasonable to also assume noisy unanticipated side effects. Architecture firms are usually private and few have publicly available records, while developers are jealous of their budget plans, which are often the core of their competitive advantage. Consequently, I relied on qualitative experience interviews to provide me with data.
I considered three possible sources: 1. Other industries that have undergone similar transformation as a result of similar emerging technological pressures (this would offer the possibility of obtaining hard data as well) 2. Opinion of participants in the building construction industry 3. Opinions of participants in the sustainable design and construction industry
I chose to concentrate on the 3rd group. After an initial research, I concluded that, while general assertions can be derived from other industries, still the circumstances of inter-practice relations in the construction industry are quite unique, and my research question is fairly specific. In addition, because the assessment requires differentiating between general parameters that will always favor the streamlining effects of integration, and those that are case specific (and might rule against integration), there will be a clear advantage to obtaining information from the construction industry, where I have expertise and am best qualified to differentiate between the two. I decided to specifically target the companies that are already experienced in sustainable design, because I assumed that companies in that group are most familiar with organizational challenges of sustainable design and have considered to some extent the option of integration. I would also get insight into whether companies in this sector have developed quasi-integration mechanisms that are specifically geared towards the realities of sustainable design.
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The companies that I contacted had to conform to the following criteria: 1. Architecture, development or construction company 2. History in creating at least one sustainable project, preferably one that conforms to a national standard such as LEED or BREEAM. 3. Priority to companies involved with larger projects, where the scale and complexity of system design could make integration especially beneficial
I have attempted to spread the companies participating over as large a spectrum of practices as possible, giving equal weight to architects, developers, and hybrid organizations. The complete list of companies whose members were interviewed is shown in appendix A.
Choice of the interview questions In trying to assess the possibilities of value creation from an organizational change, it was important for me to identify first the sources of problems existing in the practice, then to understand to what extent the solution I am proposing is intuitive, and finally to get an initial an reaction to the solution and a sense of the obstacles to its implementation. In order to achieve these three objectives, I constructed a standard set of questions that are pitched to extract the information in that order. For the majority of the interviews, I tried deliberately to stay vague about my own ideas, so as not to bias the interviewee. I took care to design the questions so they fit the multiple practices and geographies that I tapped, yet still tried to address some practice-specific dimensions in the questions, in order to facilitate a more material rather than general discussion. In the interview, I usually asked the candidates to describe their experiences with regards to a specific project. This allowed me to make the discussion more material as well. In most cases I found it beneficial to email the questions (with the exception of the critical last one) to the interviewees in advance.
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List of standard interview questions 1. What are the main challenges in sustainable design/LEED projects compared to similar, not sustainable projects? 2. Which design issues and processes drove profits and losses for the developer? 3. What are the main drivers of profit and loss for the architect in sustainable projects? What are the drivers of performance or deficiency in the practice? 4. Do you think that any of the problems you have mentioned earlier are related to the industry structure or the internal structure of architectural firms? 5. If you needed to hire a professional to be a key member of a sustainable project, who would you hire: An architect? An engineer? A different professional? 6. In the matrix below, where would you choose to make changes in your firm to promote sustainability?
Structure (new roles and relations b/w staff ) People (new skills)
Process (order of procedures, or definitions of project phases) Technology (automation or processes, learning databases
7. Does integration of architects with developers and/or builders makes sense? Would demand for business information or technical knowledge be the driver of that?
Results summary Following is a general description of the answers to the interview questions. The actual answers grouped by question and inclination (with regards to question 7) are shown in appendix B.
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1.
Main current challenges in implementing sustainable projects
The challenges described by the candidates span a wide range. The ones most mentioned were knowledge and expertise within the architectural firm, collaboration with other design professionals, client buy-in, and locating adequate construction expertise. To a lesser extent, inadequate base knowledge, government code relevance and government incentives, internal (architects) willingness to change, and non-repeatability of projects were mentioned. Finally, Legacy environmental issues with legal implications (like the toxins in the soil from previous tenants contamination) and segregation of developers decision process across numerous stakeholders may be related only to more specific cases. Availability of sustainable materials was mentioned several times as a strong past parameter that has been declining in importance as the number of environmental products in the market exponentially increases. 2. Drivers of profit and loss for the developer In this case there is no consensus about the actual drivers. Two main dimensions generated discussion. First, whether design cost could become large enough to outweigh the long-term benefits that an extensive initial design may offer. While candidate 2 claims that design is a fraction of the cost, candidate 3 elaborates that design costs are usually not capitalized and therefore may impose larger burden than their actual objective dollar value. Second, the candidates elaborated a list of external drivers, like government action, public opinion, and control, versus optimization of the return value of the sustainable systems. Because the external factors were mentioned at least as often, I conclude that these factors are large enough to annul the gains from sustainability and must be carefully considered. 3. Drivers of profit and loss for the architect There is more agreement on the drivers of architectural profits, spreading quite evenly between knowledge and experience, correct estimation of time and effort required, and integrated process with engineering consultants. Performance in the dimensions of knowledgeestimationdesign integration is
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probably highly correlated, because of the interdependence between them. Closer relation with engineering partners brings in better knowledge and hence capabilities to better estimate design durations2. Size of the project and size of the firm were mentioned as well: these have direct connection to the efficiency of the knowledge acquisition process through exploitation of recurring elements and specialization. Some interesting secondary drivers mentioned were the choice of whether to use government-sponsored sustainable design codes, and sustainable behavior in the architects own operation. 4. Suggested structural changes Answers to this question all concentrated again on the additional time and money that it would take to design and build a sustainable structure, as well as communicating this issue to the developer who is making the budgeting decisions. Candidate 8 even articulated the issue of added risk imposed on subcontractors, which is hard to manage for the developer.
5.
Sustainability leadership and 6. Suggested dimension change in organization
I must note that these two questions, which I hoped would yield interesting results, did not have the anticipated impact and provided little new information. Each practice had a tendency to suggest one of his members as the project leader, or else suggested the architect or mechanical engineers. I can definitely conclude that the actual expertise is not as important as the charisma to take a large team of people through a complex process. In terms of dimension for change, the answers spanned between people and processes. 7. Opinions on integration options Answers to this question ranged from outright disagreement to vague accord. Some candidates suggested alternative integration schemes (i.e. not between architect and developer). The disagreement was mostly founded on cultural and organizational differences that cannot be easily bridged, and on confidence that a competitive market of sustainable design services is essential in controlling cost. For
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An image of the integrated design process provided by one of the candidates and mentioned as the aspired or prevailing tool is provided in appendix C
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the most part, the supporters were looking for a tighter control on the actual construction execution; some thought this could be done more directly by integrating the architect with the contractor into a design-build service. Others believed that construction management, involvement by architect and developer is sufficient to retain control. It is commonly asserted that, compared to architects, developers had more executive power over the contractors, due to their stronger industry market power and their contractual relationship with the contractors. Result interpretation Overall, the results indicated that the idea of integrating architects and developers is likely to meet significant suspicion and resistance. An additional sample from the press further articulates this aversion: By their very nature, house builders and developers are not innovative - they are programmed to avoid risk and cut costs. Now is the time to innovate or die. We should use architects together with engineers to innovate new house-types. By fully crash testing these new house-types, developers can build with minimal risk, known performance and reduced build-time. Patricia Pyton, Zedfactory construction industry feedback report 2005 When answers are compared to the benefits and risks I anticipated, economies of scale through standardization was mentioned numerous times. It was not, however, given a lot of weight compared to investment in knowledge acquisition which seems to be at the present time a more serious barrier to sustainable design. Greater entrepreneurship potential due to combination of knowledge and funds to support action was absent from interviewees assertions. It seems that architects were looking for more fair compensation but do not seek to assume the profit-and-risk position of developers. One candidate (#9) mentioned that he would consider joint ventures, and that sustainable design commanded stronger performance incentives. Indeed many qualities of sustainable design - in contrast with traditional design - are
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quantitatively measurable and can provide an objective measure for performance incentives, as is also expressed in the above quote. For instance the efficiency of the heating system compared to minimum government regulation. However, a considerable qualitative (for instance esthetic spatial experience qualities) component remains in sustainable design. In the minds of most candidates, the architects mission retains its cultural contradiction with development.
With regards to repeated transactions, all candidates stressed the importance of team-building and identifying the parties with which ongoing relationships can be developed. However, considerably more emphasis was on repeated transactions with engineers who are obviously key members in the realization of sustainable projects.
The candidates voiced concerns about the integration of architects and developers, based on both the importance of competitive design service markets and critical cultural differences. The latter, as is clear in the quote above, received considerable attention.
Of the two drivers that were discussed for developer profitability tradeoff between design time and future gain, and the cost of externally driven complications versus benefits from more sustainable design the first is more relevant for the research question. The architect often provides the developer with tools to deal with government requirements or public opposition, but this is done on any project, sustainable or not, and integration is not necessary to coordinate such services. Conversely, cost controls were mentioned as the major driver for the architects profitability, but the issue of whether integration with a developer can improve cost control remains ambiguous. On the one hand, there is a consensus that developers have a bottom line expertise and orientation; on the other hand, it is questionable whether they are the best party to manage the tradeoff between design costs and overall project costs (both construction costs and long term operating costs can be reduced through a more extensive design
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process) . The drivers for cost mentioned by the architects - knowledge base, integrated work with engineers, processing project paperwork, and estimating design time - are all indirectly related to the developers actions. Knowledge can only be re-used effectively if the project is repetitive or in some other way modular, and close coordination with the engineers really depends first and foremost on allowances in the initial design time budget (which is controlled by the developer).
All candidates highlighted the importance of adequately supervising the work of the contractor, and some have suggested the alternative integration of the design-build model. The alternative brings similar fears of cultural misfits, organizational dissimilarities, and foregoing competitive markets. The question at hand is whether complete integration is required, or whether a more defined contractual relationship between the architects and contractor (which currently exists only indirectly through both parties contracts with the developer) such as through establishing contractually the architects obligation to coordinate with the contractor at an early stage or to allocate manpower to construction administration might provide similar results. For instance, Candidate #12, Living Homes, is a builder-developer who uses long-term contracts with two architects to construct standardized LEED-certified homes. A further question is to what extent sustainable design practices are going to keep evolving thus making it relevant to command close control over a dynamic team of contractors who are able to adapt to emerging innovations and appropriately charge premium for such work or whether the innovation curve will flatten and simple contracting will be sufficient to achieve the intended results.
Results conclusion From the results, I concluded that the hardships I intended to resolve namely, the need to invest in knowledge and expertise, the non-repeatability of the projects, and to create effective collaborative environments are all clear and present. Issues of the tradeoff between design cost and project cost as well as the imperative to communicate knowledge to the decision-making party, are also prominent.
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Still, the overall tendency of the interviewees is to further regulate the relationship between the architect and the developer: through more construction control, partnership with engineers, and adherence to prescribed environmental codes.
Because the results did not conclusively define what drives the costs for the developer, it is difficult to comment on whether an alignment of objectives exists between the two entities. While both parties will theoretically benefit from recurring projects that are simple to design, cheap to build and easy to sell, there are still open conflicts. Architects may prefer more complex projects which would give them more prestige in architectural circles or simply allow them the satisfaction of more control during the process. The sustainable design process always favors early decisions: the earlier a decision is made, the easier it is to integrate and optimize with respect to other components. However, developers understandably want to keep options open as long as possible: especially in larger commercial projects, decisions deferred to later stages can more precisely reflect the realities of the market.
I am now aware that solving the problems I anticipated and observed will take more than simply integrating the architect and developer practices, and moreover forming such relationship likely risks operational and cultural conflicts. However, I am still convinced that the methods by which building are conceived must be altered if sustainable design is to become a standard practice. Only the architect the developer and I might now add the engineer can at the outset define a product that is more repeatable, builds on existing knowledge and expertise, and can effectively be designed by a predetermined design team. Epilogue- business model outline Based on the results conclusion and other ideas that surfaced during the course of the project, I have drawn a rough business outline. Rather than elaborate on all business aspects at this stage, I chose to refer only to the organizational components that bear direct relation to the research question, or that have
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been raised by data gathered in the interviews. At this point, I would refrain from absolute commitment to full integration of architect and developer. Rather, I would like to create a business environment that bypasses the cooperation obstacles that are present under the prevailing system. 1) Objective - Limit the risks of investing too much in a one-time interaction between developer, the contractor and the architect. 2) Purpose The company exists to initiate environmentally innovative building projects and gain profit by their design development and resale. 3) Vision By providing diversified expertise and effectively contracting with collaborators, the company will be able to conceive building products that at the outset are simple, effective, and profitable. 4) Approach In the short term, the three independent business components in the company will engage in simple, small-scale sustainable design projects. The company will seek projects with significant repeatability. In the long run, a decision will be reached whether integration of all three or some of the components will benefit the firm. 5) Keys to successa) Ability to recruit the right talent b) Capability to obtain funding to create the organizational structure c) Acquisition and control of an adequate body of knowledge d) Developing key collaborative processes between the various business components. e) Creating long-term design and construction team collaboration. 6) Ownership and composition- The partnership will consist of an architectural practice, an engineering practice, and a developer practice. The business components will have long-term binding contracts that may allow some room for doing work outside the common collaboration or obtaining outside vendors if need arises. At the outset they will be managed as independent cost centers.( see diagram below)
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7) Start up -TBD 8) Product services and fees a) To avoid the complexity of managing properties, the company will focus on developing projects for final sale rather than on lease or rental. b) The company will use discounted methods (in contrast with commonly used payback) to the extent possible to calculate anticipated future gains from sustainable design, and will incorporate such gains into sale price charged. 9) Customersa) Customers preordering projects: institutions and large businesses. b) Customers interested in occupying developed projects: individuals and small businesses 10) Competitors- Like a standard developer, the company produces finished buildings (it only differs in the design and construction processes); therefore its competitors will be other developers. 11) Technology and facilities a) Technical capability is crucial both to retain connection between technology platforms and practice tools used by all parties and to house the anticipated body of knowledge. Investment in technical tools will be prioritized. b) Housing the three entities in the same premises will develop more cultural similarity and understanding. 12) Growth and trends - It is important to asses the anticipated future innovation; this will determine the need to train specific contractors and to determine the size and objective of the engineering business component. 13) Collaborators- The company will contract with a contractor who will be obtained through competitive bids to construct the building. The companys component business units will have separate contracts with each contractor. The company will evaluate the feasibility and liability constraints of performing construction administration; in any case, the contract will give the
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company some platform to monitor the activities of the subcontractors. The entity handling the construction administration is to be determined. 14) Strategy a) Redesign the building product so the costs of the initial interaction are reduced and its specificity is minimized. This should be done thorough multidisciplinary cooperation and initial planning of design process. b) Increase the probability of repeated interactions - The relationships between developer, architect, and contractor are defined via long-term or easily renewable contracts. Preferably the contract will connect all three parties and be specific about the roles of sub-parties (which should be competitively contracted). 15) Strategy implementation a) One possibility for addressing the loss of competitive market or the (more realistic) fear of the architectural unit becoming insufficient to serve a growing successful developer business is to arrange for the developer unit to contract with multiple parties. Because the investment in relationship specific assets is high it may be offset by the reduced risk to all sides if multiple contracts exist (see figure). Additionally, the need to contract with more than one party will likely motivate codification of the knowledge base, which will be a strategic benefit as well 16) Promotion TBD 17) Financial plan -TBD 18) Assumptions TBD 19) Business risks a) Disciplines are unable to work with each other because of objective misalignment b) One or more disciplines will not have the workforce or expertise to serve the other business components. 20) Forecast-TBD
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Appendix A-The complete list of companies whose members were interviewed3

Company name Company description Person interviewed Reference 1 2 3 4 5 6 7 8 9 10 11 12 13
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Geography
projects # of employees
# of Sustainable
Sheppard Robson Architects LiveArch NA The Prisco group NA Rose companies NA Common ground Morphosis HOK Former developer Living Homes Shepley Bulfinch
Architecture Firm with numerous sustainable projects Architecture Firm specializing in Sustainability Integrated architecture & engineering firm Integrated architecture & engineering firm NA Developer dedicated to sustainability Integrated architecture & engineering firm Low income housing city agency Innovative Architectural Firm International architectural and engineering NA Builder of standardized prefabricated Sustainable homes Architectural firm with increasing sustainability involvement
UK US US US NA US US US US US US US US
NA 12 200 NA NA NA NA NA 1600 10 NA 200
>5 >15 NA >5 NA NA >5 >5 >5 >50 NA NA >5
Alan Shingler Einron Schoefiled Billy Tindel Jason Kalwinski NA Paul Freitag Lindsey Piant Floris Keverling Buisman Tim Christ Mary-Ann Lazarus NA Steve Glenn NA
Please note that I have omitted company names from individuals who requested to communicate their personal views and not as representative of their firms.
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Appendix B- the interview questions and answers

Question 1. What are the main challenges in sustainable design/LEED projects compared to similar not sustainable projects? Against 3 Inclination4 Against Ref 1 Answer There have been two different codes to follow, they were more specific than the American version but it was more costly and more so complicated to get answers from all of them. Convincing the clients is not always easy Design Team members or consultants who are not knowledgeable or committed to sustainable design. Project design schedules that are based on old parallel work flows rather than new integrated work flows. This means that consultants, especially mechanical engineers, wait for the architect to provide them with building plans, sections and enclosure specifications before performing any substantial engineering design. A sustainable design process requires a collaborative, charrette-based design process with all consultants (site/civil/landscape, mechanical/plumbing, structural, electrical, acoustical, energy modeling, lighting/delighting, cost estimating) contributing on an equal basis from Against 6 the beginning of the project. In the last couple of years there has been a real positive shift in the sector. Things that were once very hard to find, materials, construction expertise modeling tools this is all very available in the market. One of the ways we are trying to develop sustainability is by developing inner city rather than Greenfield sites. This often brings up what you may call Legacy environmental issues i.e. some of the sites have to be cleaned of environmental contamination and has both operational and legal parameters than need to be taken into account. Because every situation is very specific government incentive do not always apply, or do not apply Against 10 directly. One of the hardest things is to diffuse environmental practices in the organization. We have teams that have come up with good methods to design in the sustainable sphere but it is hard to get buy-in from people
Decided based on candidate attitude with regard to question 7
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Question
Inclination
Ref
Answer who had become used to working in a different way for 15 20 years.
Against
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The main problem was LEED, the system is not very good and the process it sets is not necessarily directed at achieving the better goal. Putting the team together, making sure everyone was in line. We could not always count on the architect to do that. We also had to monitor carefully that they followed the LEED and that their actions did not jeopardize the credits. After that we decided we will try to avoid LEED if
Against
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we can. It costs more to use new materials, products and systems. (1-15% more of the project cost depending on the rating- silver, platinum etc.) We need to research and learn about these and that takes up a lot of time. You need to figure out what are the materials that come within the 400 mile radius. There is a lot of documentation that takes away the time from other
Alternative
project responsibilities. Educating client, construction manager, and contractors on use/performance of lesser known products and systems. 2) Getting past the misconception that green costs more. It does not. 3) Identifying and taking advantage of all integrated design elements and affects (i.e.
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increased thermal envelop and smaller HVAC load). The major challenge we face is the human factor when it comes to change. Its hard for people to accept change, let alone become excited about changing their current way of life (whether its how they operate on a day to day basis or how they approach their work). People in our office question the impact of the change and if its really the correct action. We are aware that integrated engineering is essential for LEED projects to work but the firm has been working on a parallel process until now and its hard to get engineers involved in programming stage when they
28
Question
Inclination
Ref
Answer are still caught up in older project in the construction phase. The firm has to change its scheduling procedures and we do not have a lot of support for that. Here in the middle of the country people are more conservative, they are less open to new ideas. On many materials there is only performance data for 5 years. Our clients in Kansas want guaranteed performance for 15-20 years this is unavailable simply because these products have not been
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around that long. The most prominent problem that we encounter is that our sources of funding are separated. There is one organization that is providing funding for our buildings and another that provides funding for our tenants. Because these are two separate departments its hard to make them appreciate investment in sustainable technologies, which is usually done
Alternative For
12 2
through upfront investment and payback on ongoing expenses. We want to learn to make out buildings faster and cheaper Staffing the school system has not caught up with the trends Customer buy-in Non repeatable projects Finding the right builder-educating them
For?
Getting collaboration of municipalities resistance in the construction community is the major one, new materials the other things is conformance to new comfort standards for instance we have skip stop elevators that stop every third floor and people walk up or down. Also all the windows are user operated (rather than centrally operated) owners were uncomfortable, they did not think users will be responsible enough to close the windows when they leave or when it
13.
Which design
Against
rains. They were also afraid of liability in case somebody falls. Well here in the UK the government has recently done many moves to enforce sustainability. There are differences between commercial and residential projects. Sustainability is seen more as a must have feature and often we are able to show that adherence to government required sustainability has an initial investment component that justifies a more
issues and processes were driving profits and loss for the owner/developer?
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Question
Inclination
Ref
Answer wholistic sustainable design.
Against
Owners and developers have very different financial objectives. One of a developers primary financial objectives is to reduce first cost, especially soft costs such as design fees which are not capitalized in the same way as hard construction costs, and therefore have a greater financial impact to the developer. Owners usually have long-term cost-of-ownership concerns, which developers do not developers are generally interested in selling the building rather than holding it and operate it. Owners can be enticed by long-term paybacks on sustainable design features such as worker productivity and satisfaction. Developers will not find these features enticing unless they can be shown to translate directly into higher rents, lower operational costs or lower vacancy rates, and thereby increased
Against
building value. What we have seen is that one of the main parameters is the degree of public control over the property. In situation where a property is partly or entirely controlled by public entity or entities, there are often a lot of complications. Sustainability often requires decisions that span vertically across organization this is often hard to achieve with rigid public organizations. Another aspect that we have been struggling with is how to bring sustainability to be really cost competitive. To make affordable housing that are environmentally sustainable. In many projects we are required to put several units that are affordable but the real challenge is to get whole project to be sustainable and affordable.
30
Question
Inclination Against
Ref 10
Answer We are trying to work on two dimensions , the life cycle benefit and we are providing all the data for that and the benevolent quality that really cannot be quantified , but at the end this is often what makes a developer choose to do a sustainable project.
Against
13
In general LEED certified buildings cost more initially, but save the money in the long run. For example commissioning (having an outside engineer come to the built project to tweak and adjust all building systems before it's put to use) this can cost 0.75% of the total project cost and some owners don't want that. We had a project owner who didn't
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want to do the LEED because of the need to pay for this commissioning. Energy efficiency first cost vs. payback. Modeling as a building design tool. Energy and daylight modeling require more time and upfront design cost but have tremendous construction cost and operation cost savings. Integrated design process and the level of detail and research required up front. This process is more involved and everyone needs to be at the table
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and on the same page with trade offs, costs, and long term benefits. Energy saving is what we focus on. Either by improving the envelop performance, or by improving building systems. A lot of value is added via the commission system5 , this looks like a redundant step but we found that this is really beneficial for the project especially with the added complexity and systems interaction in a LEED building We did not have any major issues. A place where we had some problems was HVAC balancing; this is something that does not often come up during design but could be a very big problem. It also has an effect of customer satisfaction. On one of our buildings the HVAC system was unbalanced for months and nobody knew why until the engineers picked it up and fixed it. It had negative effect on all building systems because everything is so integrated
A process by which an engineering firm that is independent of design team is verifying that the installation of a certain building system has been done according to specification.
31
Question
Inclination Alternative
Ref 12
Answer Our profits are driven by volume if we are able to obtain enough manufacturing capacity for the orders we get we can deliver faster.
For
Materials and methods are a big issue, design is usually only a fraction of the cost, we are competing with other firms that sell regular architectural
For
services We do calculation for every change of program we propose, we try to show that from an engineering point of view what we propose is better. In case of the stairs for instance we showed that this will actually have a social function people will meet each other on the stairs. We mitigated
23. What are the main drivers of profit and loss for the architect in sustainable projects? What are the drivers of performance or deficiency of the practice
Against
for ADA requirements via special dedicated ADA elevator. The profits and losses on a sustainable project are no different than any other project. Its all about selecting the right team of consultants. The individuals with the right skills are what can drive your success and failure.
Against
Typically architects underestimate the time and effort required to prepare LEED documentation. This generally comes at the end of the project, when budgets have been used up (or exceeded). Firms that have more experience in sustainable design, or have a more integrated process can save costs, because an integrated design process eliminates a great deal of costly re-work to correct construction cost overruns. Please see the
Against
10
attached diagram comparing integrated and traditional parallel processes. Educating our associates is a big factor and diffusing best practices. We do this through online information, whole day education events with case
Against
13
studies The amount of paperwork and research for products is large, most owners are not willing to understand that and pay for that, and it affects
Alternative
the profitability of the project. Additional hours spent in design research, report and modeling preparation, design changes as a result of modeling, and increased documentation requirements for LEED certification is not integrated into specifications and design. Schedule constraints often conflict with time
32
Question
Ref 7
Answer needed for proper design and modeling. The first LEED project we tried to do was not successful. It is mainly due to our learning curve with the LEED system. Learning about the new materials and methods was very time consuming The particular project we did a school building for a school district there was a cumbersome decision process. The trick was to address the decision to the right layer in the client organization Teams now collaborate with our other offices across the country leading to more efficient use of time, making our projects more profitable. The rule of thumb I always heard was the first project for any office tends to be a throw away, but it doesnt mean an office should stop trying to implement sustainable practices. Our Philosophy is by practicing sustainable operational procedures we will be more inclined to implement more sustainable products and systems into our project regardless of an imposed Sustainable
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requirement by an owner. We usually work with big architecture firms. Poultice and no Cook+fox these firms are really specialized in this field and as far as I know they do not have profitability problems with our projects We also work with smaller architectural firms; they typically have a knowledge gap that they have to fill up in the area. We try to support this by using a consultant community environmental center they are very helpful they do most of the studies and diagrams that are required to
For
understand sustainability potential. Profitability is generally driven by project size. We have done many homes and these projects are relatively simple to us but profits are highly dependent on the degree of design resistance we are encountering- often its quite significant and it pushes these projects into the red. If I could choose my future projects I would look for larger developments, usually working with a more professional client and able to leverage more duplication of techniques within the same project
33
Question
Inclination
Ref
Answer (because between two projects duplication is rarely possible in particular when attempting to maximize health and sustainability for a given situation). Regional friendliness towards sustainability is also a factor. We are not using LEED because it is an expensive process for us and for
For
the client We use what is called integrated engineering approach we work with the engineers early on, in the programming stage and we work very closely with them. Involving them before the massing of the building happens allows them to really feed us with their concept and really to integrate
32. Do you think that any of the problems you have mentioned earlier are related to the industry structure or the internal structure of architectural firms?
Against Against
their systems optimally. No, I think it does not matter. We refer to sustainability as part of our core business Both. Project schedules and fee structures have not caught up with the demands of a sustainable design process. And most architecture firms are led by the previous generation of architects they arent up to speed on sustainability, dont understand what it is about or why they should have to change anything about how they have been working for the last two or
Against
three decades. What we try to do in our firm is to have a very diverse selection of disciplines. We have individuals who themselves have combination backgrounds of project management, law, finance architecture and construction. Having many individual like this who has both formal and informal interaction and then knowledge sharing across our local business units allows us to achieve our goals.
Against
10
We are trying to green our firm even more than it is now, we are aiming to have all our professionals LEED accredited, we are trying to identify sustainability champions across the firm through which we can diffuse new best practices
34
Question
Inclination Against
Ref 12
Answer It's more about the industry, and understanding that fees have to be adjusted for the extra work invested in the documentation and research
alternative
Expectations to deliver products immediately in an email/internet based society often cloud the reality that good design takes more time. The investment in time and additional modeling as a design tool rather than a verification of what was already committed to paper and built has tremendous payback. Many firms are not equipped or experienced enough to move quickly through sustainable projects. Many developers and Owners do not understand the nuances of the integrated design process and how involved and time consuming it can be, but with great
Alternative
rewards and savings. The main factor still staying in our way here is not have a strong Sustainable Library or time allotted to research new ways of designing. Overall I think it is more about the individuals and their willingness to take the time.
Alternative
8 I will definitely change the organizational structure, the main problem is changing the way people work, finding the contractors who are willing to use the new materials. Its very hard for them because they take a lot of risk. While we understand this risk its hard for us to manage it and, you know they charge a 10% premium to protect themselves. I thing we
For
could save a lot of money if we could manage that risk. We try to work with Checklists and be more systematic. For a sustainable project it is very important to get started on things early so interaction of
41. If you needed to hire a professional to be a key member of sustainable project who would you hire? An architect?
Against Against
1 3
systems can be designed I would not hire a non architect , Architect are the only ones who are able to integrate sustainable features into the fabric of buildings A qualified, experienced energy modeling consultant, a delighting consultant with 3-D modeling capabilities, an experienced
Against
commissioning agent. People with multiple expertise and a person like that is always much better at understanding the different facets of the project
35
Question An engineer? A different professional?
Inclination Against
Ref 13
Answer The Engineers. In our library in Belfast, they drove the process, and took care of the documentation. Most of the sustainable features are related to their systems anyway, and if they know how to do it efficiently it's very helpful. Buro Happold who was our engineer office, use energy modeling and cycle cost analysis to conserve energy. Our building was more about being low energy building than about being sustainable. Also, we didn't really do the BREEAM (the English LEED) documentation, The engineers did, and we have a feeling it was much
Alternative
less paperwork than LEED requires. I would definitely choose a mechanical engineer, both in terms of the volume of input that he will typically have in a given project and with regards to the expertise and experience that is available currently in out
46. In the matrix below where would you choose to make changes in your firm to promote sustainability In the matrix below where would you choose to make changes in your firm to promote sustainability Structure (New roles and relation
Against
firm. I think none of these again we refer to sustainability as an architectural content and the challenge is really just to find the right individuals with the right knowledge who can give you the information you need. The
Against Against Against
3 6 13
process is still pretty much a classic architectural decision making. Process, most definitely. I am actively engaged in that right now People are always the key element that must be constantly maintained 1. (Structure) Delegate the documentation responsibilities to one person, probably a junior architect, and take the load off the project manager. 2. (People and skills) It can be helpful to have a person who has the knowledge of the new products etc, and not have to invent that. (Although this is something an existing staff person can acquire). In general it's more about the people who do the paper work and less about the design or the technology used that was a problem with LEED projects in our office. It didn't affect phasing or anything likes that, it's more about finding a person to focus on this issue.
36
Question b/w staff ) Process (order of procedures, or definitions of project phases) People (New skills) Technology (Automation or processes, learning Databases 51. Does integration of architects with developers and/or builders makes sense? Would demand for business information or technical knowledge be the driver of that?
Ref 12
Answer We are using technology a lot already, if we could get people who know better how to deal with out specific product we can improve.
Against
No I dont think this is beneficial or required
Against
Im not sure exactly what youre asking, but my firm is an integrated architecture/engineering/planning firm, and we are moving forward with an integrated design process initiative. Technical knowledge is the easiest problem to solve any one can learn anything they need to know about sustainable design - its not hard or mysterious. Changing traditional work patters in the design studio is
Against
much more challenging. No, I think its better to outsource the expertise to consultant from outside its easier to manage and expand your knowledge in that way. And you are only paying for the knowledge you use you, as a manager of a development firm cannot really make good decision about directions of knowledge acquisition for architects or other consultants. This is outside
Against
10
your core capabilities. This is really not relevant for us. We have regular contacts with our clients which typically ensure that we are able to provide the most sustainable project that the client is willing to pay for.
37
Question
Inclination Against
Ref 11
Answer I will usually refrain from that, as a developer we concentrate on the project initiation and project vision and then managing the project when it is done. As a principal it would be too time consuming for me to control an internal architectural department as well. We also gain a lot from the architects experience with other projects. The architect definitely needs to exert a lot of power and have a lot of inhouse capability to understand the running cost of his design team which can skyrocket, but as a developer I will not integrate an architectural firm, for the same reason that I dont integrate construction management,
Alternative
12
our organization is specialized and I would like to keep it that way. We are an already integrated contractor and developer in some way. Most of our components are outsourced to subcontractors and prefabricated. Whenever we receive an order it is tweaked to match a specific site by one of our affiliate architects. We strive to make this process as condensed and efficient as possible, and then it goes to final
For
fabrication and erection. This is the way to go, because then you have control over your costs over your allocation of effort to find the right materials and right methods that would be truly sustainable.., in many cases that we encounter the builder and developer are the same entity to begin with. But I will probably concentrate on partnering with the builders just because this is where the difference can be made.
38
Question
Inclination For
Ref 9
Answer We do a lot of construction management, this enables us to have a lot of control on the output, and I dont think we need to integrate more than that into construction. Regarding development ventures we as of yet have not had an opportunity to do something like that but we would if we get one. This is where the market is going. In general, we believe that the market will begin to 'incentivize' architects, connecting fees to performance. That is to say, when standards of environmental performance have been better established, we expect to see fee bonuses for architects and engineers based on meeting certain targets for energy conservation in their buildings. If a measurable economic benefit can be ascribed to a particular design solution, it follows naturally that the design team should receive some financial credit for developing the approach. This is a perfect example of how sustainability goals can be tied to the contractual structure and compensation. With regard to the inclusion of architects within development offices, I must say that this is a problematic issue. The culture of real estate development stresses the 'bottom line' to such a pervasive degree; it is difficult to imagine a scenario wherein an architect would not be compromised in their design vision by the constant focus on profitability. The narrow focus on profit does not stimulate innovation, but conversely, creates a more conservative approach, favoring the welltrod path over creativity and new thinking.
Appendix C-Integrated design diagram
A diagram demonstrating the differences between integrated and linear design as provided contributed by Billy Tindel.
39
Bibliography 1. http://www.census.gov/compendia/statab/ 2. http://www.zedfactory.com/pdf%20downloads/Perspectives_on_Innovation.pdf 3. David Gissen, Big & Green towards sustainable Architecture in the 251st Century 2002 Princeton architectural press 4. Patricia Pyton Zedfactory construction industry feedback report 2003 5. Bill Reed- Integrated and traditional design process (diagram) 6. LEED-Leadership in Energy & Environmental Design guide LEED NC version 2.1 Second Edition May 2003, USGBC Publications.
40
Acknowledgements I wanted to thank all those who spent time assisting me in this project including but not limited to Lisa Austin, Mary-Beth Burton, Tim Christ, Itai Davidov, Kimberley Epstein, Paul Freitag, Marscha Garcia Steve Glenn, Jason Kalwinski, Floris Keverling Buisman, Mary-Ann Lazarus, Joseph Mittlemann, Lindsey Piant, Michelle Rogan, Danielle Saint Luis, Yael Schoen, Einron Scheofield, Alan Shingler Gideon Sorkin, Phoebe Spanier, Billy Tindel and Ariel Wexler.

Organizational Configuration For Optimal Application of Environmentally Sustainable Building Design

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Entrepreneurial Field Studies

Gahl Spanier Insead MBA 2007

Entrepreneurial field Studies January-February 2007