WHAT'S "REAL" ABOUT CORPORATE REAL ESTATE? TELECOMMUTING REVIEW, September 1994 SUMMARY: The rate at which large employers are rethinking their use of office space is increasing almost from day to day. Corporate facilities are being reexamined in light of options that are created by technology, made attractive by the financials, and reinforced by business process re-engineering efforts. The good news - and the potentially bad news - is that this change is what management critic Tom Peters described as "ready, fire, aim" - in other words, do it first and get it right later. In ten years of doing this newsletter and in twelve years of consulting on telecommuting and other flexibility issues, I have never seen a rush of activity like we're seeing now in the area of facilities redesign for office workers. It's like the Indianapolis 500 auto race: the starter has waved the flag, the drivers are rushing to their cars, and they're trying desperately to jockey into position on the track before someone else takes the lead. The difference between the facilities race and the auto race is that everyone knows where they're going in the latter and has a pretty good idea about how to get there. Last month I was asked to attend a workshop on "alternative workplace strategies" (AWS) that was organized by Prof. Frank Becker of Cornell University, ad hosted by Rodgers & Associates, the workplace-flexibility consulting arm of Work/Family Directions in Boston, MA. This workshop was one of a series organized by Becker in his role in the "Corporate Real Estate 2000" research project sponsored by the Industrial Design Research Council. [Ed. note: As a disclaimer, I should note that I have affiliated with Rodgers & Associates to jointly pursue selected consulting projects that draw on our collective expertise. Our respective businesses are remaining independent, and we are simply teaming up in what's termed a "strategic alliance" where it makes sense to do so for our own business and for the client.] The workshop was attended by a small but highly influential group of corporate real estate managers from well-known U.S. businesses. They included a major insurance company, an oil company, a Silicon Valley high-tech manufacturer, and two large telecommunications companies. I'm not naming the companies or the attendees because the workshop was conducted as a private forum, and the attendees' remarks were not intended for individual attribution. I don't think this omission makes much difference because their comments were very typical of what I have been hearing from many similar organizations across the country. The focus of the workshop was simple: what's going on today in these companies as they attempt to reevaluate their corporate real estate portfolios, their use of space, their use of technology, and their staffing practices - all in an attempt to cut operating costs, reduce product/service development times, attract and retain fewer but better workers, and meet the increasingly demanding expectations from shareholders and institutional investors. Several interesting themes emerged: 1. THE NEED FOR MORE ROBUST COST MODELS: One attendee said that his company was trying to assess the "total cost of convening the workforce," i.e., all things considered, how much does it cost to create and maintain the workplaces where the employees come to work. He argued that the "total cost" approach was needed because the traditional approach - limited to the facility itself and related operating expenses - probably underestimated the true costs. I think he's right. When working with a large consumer-products company in New Jersey recently, the chief financial officer told me that his motivation for wanting to try telecommuting was because "each employee is walking around with $20,000 imprinted on his or her forehead," meaning that the total cost of providing space for each employee was $20,000 - far more than just the cost of leasing or building the space and maintaining it. He listed several of the other components - parking lots, security, cafeteria subsidies, and the like. We need to take these even further, assuming we are willing to use a more timely and enlightened definition of what "convening the workforce" means. If we define "convening" to mean the electronic or virtual get-togethers, we also have to include the cost of laptop PCs, software, voice mail systems, audio and video conferencing, groupware, and electronic mail. In many organizations, we may be doing some cost-shifting, not just cost-cutting. For example, if these technologies are used to enable people to work together without being together - i.e., to convene electronically - then their cost must be included in these calculations. This doesn't lessen the attractiveness of office downsizing very much. It still costs a lot less to provide all the technology than it does to provide and maintain all the real estate. My point is only that if we're trying to calculate the "total cost to convene" we have to take an appropriately broad look at "convene" that recognizes how we get together electronically, not just physically. 2. DOES SPACE COST MONEY OR EARN MONEY: One manager said, "We went into our new facility with the assumption that it wouldn't increase our total cost for space." This might be the wrong metric. Maybe we should be measuring space cost as a percentage of revenue if we believe that space redesign enables or creates additional revenue. This may seem to be a bit of a stretch, but I think it's reasonable - especially if we believe that poorly-designed space prevents people from doing their best work. If you believe this to be true, the real test is whether you're willing to commit to these revenue increases in advance, i.e., are you willing to add another $50 million to the corporate sales forecast because that's the incremental revenue needed to create the $5 million needed for space redesign. I don't think many facilities managers would be willing to make this kind of commitment. 3. USING A DIFFERENT STANDARD: Facilities redesign projects - especially those involving nontraditional designs - seem to be held to a different standard than other corporate expenditures. On one hand, our corporate leaders talk about the need to constantly scrutinize incremental expenditures - but on the other hand we see multi-million dollar new-product launches and advertising campaigns that are not guaranteed to pay off but are done almost on an act of faith. 4. "MASS CUSTOMIZATION": The irony is that the organizations most likely to benefit from rethinking real estate (the Fortune 500 and their global equivalents) are the ones most likely to approach it the wrong way. They want a uniform approach that looks like every other kind of corporate policy - even though there's growing consensus today that there is no single best approach. A better way to think about this is to consider "mass customization" approaches in which a very broad corporate policy is set as a boundary, and then everyone is relatively free to innovate within that framework. It makes no sense to have rules where rules don't work - seeking uniformity across widely varying businesses, cultures, geographies, customer groups, and technologies just doesn't make sense. The realm of corporate real estate is quickly moving far beyond the traditional brick-and-mortar issue, and concerns about how many square feet of space to allocate to what level of employee. Smart companies can no longer afford to treat these space and facilities decisions as minor, inconsequential issues. They're making their way onto the main agendas for corporate planners - and it's long overdue. CONTACT: Prof. Frank Becker (607) 255-1950, Fax (607) 255-3542, or email: fd62@cornell.edu ________________________ Gil Gorden Associates 10 Donner Court Monmouth Junction, NJ 08852 (908) 329-2266 Fax: (908) 329-2703 Email: 74375.1667@compuserve.com David L. Peterson 235 West 56 Street, #11-F New York, NY 10019 (212) 586-5235 Fax: (212) 582-2038 Email: dlp@pipeline.com TELECOMMUTING REVIEW © Copyright. All Rights Reserved.