“We had to ride it down and ride it back up.”
Jon Buggy flashed a smile as he sat last October amid construction work at the downtown Minneapolis office of Ellerbe Becket. The local-landmark architecture firm is celebrating its 100th anniversary this year, and its new, clean-lined offices are due to be completed this spring. For the past four years, Buggy has been the Minneapolis office’s managing principal—which is no longer the same as being the firm’s CEO. That’s one of the changes that Ellerbe has undergone during a tumultuous decade.
Friends and colleagues describe Buggy, who has been with the firm for two decades, as upbeat and enthusiastic, a consensus builder. The compliments are striking when you consider that Buggy has been in the unenviable position of helping Ellerbe Becket make the hard choices needed to survive a punishing series of financial setbacks that started washing over the firm in 2000. By 2005, the firm had lost a lot of its confidence and half its revenue, dropping from $102 million to barely $50 million over five years. The downturn transformed the firm—and the role of the Minneapolis office.
Ellerbe Becket is definitely on the ride up now. The firm’s revenues hit $90 million in 2007 and $111 million in 2008. It now has offices in Washington, D.C., Kansas City, Dallas, and San Francisco, as well as in growing overseas markets in the Middle East, including Qatar and Dubai.
What Ellerbe Becket had to do was redesign and rebuild itself for a new era where competition is fierce and global, and where a centralized company structure no longer works for a large architecture firm.
Minneapolis is still home to the largest of Ellerbe Becket’s seven offices, but it’s no longer the headquarters. In fact, there are none, as such. Ellerbe’s CEO, Rick Lincicome, is based in Washington, D.C., though he spends much of his work time on the road. He camps out in conference rooms of the various offices as he meets with clients, woos new ones, and sells his vision to the employee-owned firm.
Managers follow his example, devoting most of their time to working with clients and leading project teams. The firm has invested in technology—lots of it. Workers at a project site in the Middle East can modify plans in real time with their colleagues in Minneapolis or Kansas City, then present changes to clients the next morning. When needed, employees also can be tapped to work with different offices, or in different practices. For example, a corporate-interior designer can be brought in to give a fresh perspective on the public spaces in a new health care facility.
Ellerbe Becket’s architects, engineers, and interior designers have continued to build a portfolio of complex, high-profile projects, often beating larger competitors for the work. The firm scored a major breakthrough in the Middle East in 2002, when it completed the breathtaking Kingdom Centre in Riyadh, Saudi Arabia. In early 2006, the firm was selected to design the University Hospital, a 400-bed, 1.5-million-square-foot medical-teaching facility at the Healthcare City complex in Dubai.
The firm’s health care practice has been the cornerstone of its business since nearly its beginning: It did its first project for Mayo Clinic, which is still a client 95 years later. Lincicome sees health care as a large part of Ellerbe’s future as well, especially as countries in the Middle East and other emerging markets demand world-class medical facilities.
But perhaps the biggest thing Ellerbe Becket’s management is doing doesn’t involved building, but razing. “We have spent five years breaking down the barriers in our company,” Buggy says of a conscious decision by the principals to change the corporate culture.
He stresses that the firm has wonderful people, but had struggled through decades of boom-and-bust cycles as it tried various approaches without getting everyone on board with any of them. But now, Buggy says, massive changes in technology and communications—along with a new generation of employees and a greater awareness of the global marketplace and the nimbleness it requires—are creating an esprit de corps among employees across the offices. The message: Be colleagues, not competitors.
Ask Buggy about the company’s strategy as it heads into its second century, and he says simply, “It’s not about being bigger, it’s about being better.”
Ellerbe Becket now has 450 employees—fewer than half the 1,100 workers it had at its peak in 1991, when its $114 million in annual revenues was enough to make it a regular contender on various top-10 rankings of architectural firms in the country. By 1998, revenues climbed to $122 million, even though the number of employees dropped to 750.
Ranking criteria have changed over the years, and mergers and acquisitions mean that many architecture-industry players have grown while others have disappeared. Trade publication Architectural Record, which started its rankings three years ago, put Ellerbe Becket at number 41 in 2008, based on $82.5 million in revenue in 2007. (Ellerbe officials won’t confirm revenues for the years just before 2007.) Minneapolis-based Hammel Green and Abrahamson, now Minnesota’s largest firm, ranked 37 with $90 million.
Why the drop from its ’90s heights? Among other things, the firm appears to have grown too fast. At the same time, the expansion had engendered a culture resistant to changing with the market.
“It’s sort of a case study in a company that has created many challenges for itself,” says former Ellerbe CEO John Gaunt, now the dean of the University of Kansas’s School of Architecture and Urban Planning. He believes that the biggest challenge was growth.“It’s a firm that got larger than it should have gotten, given its culture,” Gaunt says. “There’s always a resistance in a firm that has been in place for a long time to change.”
Much of that culture can be traced to Tom Ellerbe, whose father, Franklin Ellerbe, founded the firm in 1909 in St. Paul. When Franklin died, Tom took the reins and held on tight until he retired in 1966, remaining an influence on the firm until his death in 1987.
It seems ironic that a man who was known as an entrepreneur and innovator left behind a firm so resistant to change. “It was a true patriarchy,” Gaunt says. “There was no strategic plan. [Tom Ellerbe] knew what he wanted to do and did it. At the end of World War II, he hired veterans and put them to work and trained them in the firm. He created a professional family. He was the professional father.” The progressive Ellerbe provided good salaries and benefits, and ultimately gave employees an ownership stake in the firm.
Gaunt believes the string of management turnovers that followed Ellerbe’s death came in part because employees were looking for another Ellerbe and no one could live up to his memory. Board Chair Jock Holliman, general partner of Arizona-based venture capital partnership Valley Ventures, is more blunt, saying Ellerbe’s good wages and benefits and its employee ownership set-up had created an entitlement mentality. Holliman was recruited by friends in Minneapolis to join the Ellerbe board in 1994, bringing his investment background with him. He says that while employees in the ’70s and ’80s knew the firm needed sweeping changes to survive, they removed the CEOs who made them.
In 1983, Ellerbe lost $3 million, falling so far into red ink that the bank stepped in force it to reorganize its finances and restructure its operations. It was a move that many credit with saving Ellerbe’s corporate life. Luckily, the firm also had an overfunded pension plan. By replacing it with a 401(k) plan and setting up annuities for vested employees, the company brought in needed cash, while the reorganization plan reined in costs. Holliman says the bank’s decision to bring in outside board members was also a key to the company’s survival and success. (The board now includes four outside members and three insiders: Lincicome, Buggy, and Bill Crockett, who heads Ellerbe Becket’s sports facilities practice.)
With the firm back on its feet, the board brought in John Labosky as CEO to grow the firm again. Labosky engineered the 1988 merger with Welton Becket, a Los Angeles–based firm with an office in New York. But he was ousted just as it came together. (Labosky is now president and CEO of the Capital City Partnership, which works to improve and develop downtown St. Paul.) Gaunt, who took over, supported the merger, seeing the opportunity for increased business and name recognition on both coasts and the scale to compete in global markets. But while the merger looked good on paper, its actual structure and functioning was less solid.
“I loved going to L.A.,” Gaunt recalls. “They had a nice office in Santa Monica. We would have a nice lunch. We were all sitting out there talking and I asked, ‘Tell me, do you guys feel that you’re part of something larger than this office?’ The response was no. That was very meaningful to me.”
The California office chafed at taking orders from the Midwest, and people in Minneapolis chafed at sharing resources with the new offices. Without broad support for anyone committed to making the deal work, key people left. Within a few years, the L. A. office closed.
Gaunt was replaced as CEO in late 1993, on his return from a business trip to Korea, though he offered to remain with the firm. While he was surprised at the time, he says that he understands the decision now, and notes that it led him to his dream job at the University of Kansas. His successor, Bob Degenhardt, a mechanical engineer by background, sought to expand construction services in order to create a strong design-build practice.
“They could have avoided a lot of that pain and heartache if they had not backed off from that,” Degenhardt asserts. “It’s a huge revenue stream.” Others say that with a host of powerful construction companies in the Twin Cities market, adding construction services required too much capital—and put Ellerbe Becket in competition with firms that could be clients or partners on projects.
Ellerbe Becket’s current design-build work exists primarily via a separate company, Ellerbe Becket Construction Services, which provides cost estimation and other services for building projects. Based in the Minneapolis office, it contracts out and manages the actual construction work. A kind of design-build practice takes place when Construction Services partners with Ellerbe architects on a project.
In early 2001, the board asked Degenhardt to become president while Lincicome became CEO. Degenhardt’s primary role was to develop the international market. He quit in November after it became clear that 9/11 would slow that development.
In a way, he got out just in time.
Buggy candidly outlines the causes of Ellerbe Becket’s early 2000s crisis, which he dubs “the triple tsunami.”
“The first wave hit in 2000, when the dot-com industry collapsed,” he says. This happened just as the firm was growing its work designing data centers, which had promised to be a lucrative and steady revenue stream.
The second wave came when Ellerbe’s largest corporate client suddenly downsized. State Farm Insurance completed a massive campus in Woodbury, but soon closed it—an more importantly, decided to shift from building its own facilities to leasing all its space. That effectively ended a significant business for Ellerbe.
Wave number three: The firm invested heavily in international expansion. It won contracts in Russia, South Korea, and Indonesia, only to have all three economies experience sudden downturns that delayed or killed projects.
On top of that came the 9/11 attack and the accompanying downturn. The result was a national slump in commercial design that the American Institute of Architects called the worst since the Great Depression.
Lincicome, a 30-year Ellerbe veteran, was aware of the situation when he was offered the top job in 2001. He knew the best that he and other Ellerbe managers could do was cut costs and try to contain the damage. By the end of 2003, layoffs had reduced the number of principals from 60 to fewer than 30. The key remaining principals gathered with Lincicome in the firm’s Kansas City office that winter to determine the firm’s future.They crafted a plan not just to rebuild, but to learn from the failures, expand on the successes, and create something new.
That meant, among other things, a more open management structure. Rather than having the CEO manage the Minneapolis office, Ellerbe named Buggy in 2005 as the managing principal in Minneapolis. Lincicome also worked on a plan that included keeping the firm’s solid Midwestern focus on strong client relations. “You’ve got to be visible to those clients, particularly if you’re looking to expand into a new area,” he says.
In 2005, six principals in the Kansas City office, including managing principal Dave Orlowski, left to work for Ellerbe’s high-powered competitor, the HOK Sport division of HOK, the largest U.S.-based architecture and engineering firm. Kansas City had been the main office for Ellerbe’s own sports facilities practice. Orlowski, who remains at HOK along with a few other Ellerbe veterans, says that he has nothing but respect for the people at Ellerbe. He and his colleagues were just reacting to frustration and better opportunities.
“For five or six years, competing against HOK, in some ways it was like beating your head against a wall,” he says. “It was like David and Goliath.” Orlowski believed that “in order for the practice to recognize some success, we needed to diversify [the office], not only in higher ed but in health care. I was encouraging them to relocate people from other offices.”
One problem, he says, was that everyone in the health care practice was firmly entrenched in Minneapolis. The loyalty and low turnover was a tribute to the quality of life in the area, but a hindrance to creating an integrated global firm. (In recent years, Ellerbe Becket has sought to spread its health care practice across several offices.)
Though Ellerbe Becket filed a lawsuit against HOK at the time, Lincicome says the defection turned out to be a great opportunity to bring new blood into management and to diversify the firm’s sports facilities practice. With numerous new professional arenas and stadiums recently completed, and taxpayers questioning the need for more, the firm is shifting more attention to collegiate facilities, where it also can build relationships and make its pitch for other campus projects.
Having worked for the firm during the Weldon Becket merger, Lincicome says he is using what he learned in his efforts to integrate the firm now. “You have multiple touch points,” he says. “You have to have all the office directors aligned.”
As Lincicome, Buggy, and their fellow Ellerbe managers take a transformed firm into its second century, the plan is to continue to grow in reputation and revenue. Lincicome and Buggy say the goal is to be a leader in key areas, such as health care, energy and technology, higher education, and sports facilities. And with major successes, particularly in the Middle East, they feel they’re on solid footing in the global market.
“We work where our clients are,” Buggy says. “We go to their sites and camp out. We pick up their DNA.”
It’s not about the rankings now, the Ellerbe managers say—it’s about the work. “That’s why we all got into this,” Buggy says. “We love to design buildings.”
And now Ellerbe is building itself as well.