Service integration comes of age

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1 Industry white paper Service integration comes of age Five ways this approach to workplace management drives business value Lynn G. Kious Martin Chapman VP, Real Estate Services, Americas VP, Real Estate Services, EMEA As businesses emerge from the recent economic downturn, corporate real estate teams like all functional units within an organization remain under pressure to streamline costs. Forced to think critically about how their organization s space is being utilized and maintained, workplace professionals are showing a renewed interest in the concept of service integration and the value of creating stronger ties between buildings and business goals, people and workspaces. One recent survey showed 80 percent of global organizations expect to purchase service lines as integrated or fully integrated lines within the next 3 5 years.1 Some in the industry have gone so far as to suggest: Corporate Real Estate must align with business or become obsolete. Clearly, integration is a workplace management strategy whose time has come; one that can help organizations create business value if they are willing to think differently. global workplace solutions

2 Service integration comes of age Think differently to leverage the benefits of service integration To take advantage of the opportunities presented by integration, organizations and their service providers need to think differently about building value. The building or portfolio of buildings must no longer be considered merely a financial asset, but rather an enabler of the business. And to create the greatest value, the complete lifecycle of the building must be considered in an organization s workplace strategy: Acquiring the building, designing the building, fitting out the building, running the building, retrofitting the building and disposing of the building. In practice, that means creating a closer collaboration between real estate, facilities management and other functional units within the organization such as human resources and information technology to support the goals of the business. By taking a holistic view of the workplace, strategies can be designed to maximize its value; to reduce occupancy costs, increase utilization, enhance productivity, create memorable customer experiences and even reduce an organization s carbon footprint. No matter how its value may be measured, organizations today have high expectations for service integration. In a 2013 survey conducted by Global WorkPlace Solutions in partnership with PeopleWise, industry professionals said they expect the integration of outsourced services across different service lines to deliver a 12 percent reduction in cost and increased value of 28 percent.1 2

3 Service integration is gaining momentum 3 5 years present 44% 80% 44 percent of multinational organizations currently integrate or fully integrate real estate services percent of organizations expect to purchase service lines as integrated or fully integrated lines within the next 3 5 years 1. Five ways service integration can drive business value The concept of integration is not new. A decade ago, CoreNet Global, the world s leading association for corporate real estate and workplace professionals, service providers and economic developers, predicted that by 2010: Real estate functions... will be performed in the context of enhancing worker productivity and company competitiveness through a fully integrated infrastructure that will include human resources, information technology, real estate and other support functions. Therefore, managing the entire portfolio of business enterprise resources will require skills of the corporate real estate executive beyond real estate. 2 The report also predicted that the competitiveness of corporations would require integrating real estate with all business processes; shifting additional functions and the risks associated with them to service providers. It hasn t happened yet but the tide is beginning to turn. There is a growing body of evidence pointing to the benefits of an integrated service model. Moving forward, organizations and their service providers who embrace and support a holistic view will be positioned to create business value through: Reduced total occupancy costs Improved utilization Enhanced talent recruitment, productivity and retention Better customer experiences Reduced carbon footprint 3

4 Reduced total occupancy costs Every organization wants to reduce occupancy costs, and with good reason. Total Occupancy Cost (TOC) is typically the second highest operating cost for any organization. Companies that successfully reduce TOC have one thing in common: They understand that the true cost of occupancy involves much more than consideration of rent. For example, one global real estate team thought it secured a great deal on a building in Singapore only to discover that the money saved by signing a low-cost lease was far outweighed by the facility s high energy and operational costs. In another case, a company reported customers avoided like the plague its flagship 250,000-square-foot building because, as it turns out, the facility wasn t conveniently located near public transportation. In each case, the cost to secure the building was relatively low and on paper impressive. But when the true cost of occupancy became clear, the great deals weren t so great after all. Calculating the true cost of occupancy requires real estate teams to think differently beyond rent and depreciation giving consideration to a number of factors like the cost of: Rent and depreciation Capital replacement and renovation Office services Maintenance Utilities Housekeeping Security Project management 50% Rent and depreciation 14% Capital replacement/ renovation 10% 6% 6% Utilities 3% Security 5% 3% 3% Housekeeping Project management Other Office services Maintenance Once a truer cost-of-occupancy picture begins to take shape, one of the most effective ways to reduce cost is to share information across functional units within the organization the cornerstone of successful service integration. By creating stronger ties between buildings and business goals, people and work spaces, corporate real estate teams can have an increasingly significant impact on business performance. Imagine the efficiencies that can be created. A facilities manager may consider postponing a costly chiller plant upgrade if he knows the company may exit the space during an upcoming lease break. Or, a real estate lead may reconsider a plan to consolidate five floors of workspace into three if she knows consolidation will require the costly addition of a new HVAC infrastructure to support the more densely populated floors. This type of coordination represents a fundamental shift in the approach to workplace management. In the integrated service model, success is no longer measured by the ability of real estate teams to drive transactions or by facility managers to create building efficiencies. Instead, success is measured by the ability of cross-functional teams to emerge from their silos to share data, insights and coordinate efforts to deliver successful business outcomes. 4

5 Improved utilization With more than half of every workplace empty, 3 and two thirds of all meeting rooms unoccupied, organizations must make it a priority to drive unneeded, unproductive space from real estate portfolios. Service integration can help businesses ensure they re making the most efficient use of space, particularly in today s rapidly changing business and workspace environments. Ten or twenty years ago, real estate teams may have simply calculated a space requirement at one desk per person or measured utilization by counting people. Today, that approach is no longer valid, for two reasons. First, as corporate real estate teams become increasingly lean, there are often fewer people on the ground to personally witness and report on utilization. One organization, with buildings in 80 countries, had a real estate manager in each country to oversee operations until a few years ago when the positions were eliminated as part of a cost-cutting measure. In challenging economic times such moves are understandable, but they come with increased risk. When there are no longer eyes and ears on location to monitor utilization, inefficiencies can go undetected. Second, even in cases where people are on location and can monitor building use, today s workplace dynamics demand a different approach. As offices, cubicles and desks are replaced by collaborative work spaces and technologies that allow employees to participate remotely, planners need more sophisticated ways beyond people counts to measure utilization. For example, facilities management tools such as occupancy sensors can detect heat and movement to determine if and when a space is being occupied. Those same occupancy sensors can also be used to create a more efficient level of service delivery. Here s one example. In a terminal at London s Heathrow airport, the public toilets are outfitted with occupancy sensors. The toilets are cleaned after a certain number of uses whether it takes eight minutes or eight hours to reach the required number of uses. The result is a win-win; janitorial services are executed more efficiently and the customer s experience is a positive one. Enhanced talent recruitment, productivity and retention Now more than ever, creating positive, productive work environments is essential to attracting and retaining valuable employees. Some individuals need quiet private space. Others need collaborative space. Still others may choose to work from a variety of environments as long as they have connectivity. For better or for worse, workplace dynamics are changing, and the pace of change shows no sign of letting up. In the U.S., for example, the number of employees who telecommute increased nearly 80 percent from 2005 through 2012, according to a study conducted by Global Workplace Analytics. 4 A second study, conducted by in partnership with CoreNet, estimates that by 2020, 50 percent of workers in developed economies will use Alternative Workplace Strategies (AWS) such as teleworking. 5 5

6 To stay relevant and competitive, businesses and their approach to workplace management must be flexible. Teams must also commit to working collaboratively across functional units toward the common goal of creating productive work environments. Human resource teams, for example, understand the way employees want to work. Information technology experts provide the tools that enable employees to be mobile and productive. Facilities management teams keep the environments safe and comfortable. And real estate teams take all of that into consideration when locating, scaling and flexing workspaces to meet changing needs. This holistic view of workplace management creates an environment that enhances productivity and, as a result, business performance. Take, for example, the case of a life sciences company whose goal is to develop new products and bring them to market quickly. Its facility will have a direct impact on the company s ability to achieve that goal. The right location will help to attract top talent. Flexible work spaces will allow talented researchers to collaborate. Properly controlled temperature and humidity will keep them comfortable and preserve the integrity of experiments or production that may be underway. Appropriate lighting and security will allow teams to work with confidence. What s the result? A recent study by Bjarne Olsen, chairperson for the International Center for Indoor Environment and Energy (ICIEE) in Denmark, indicated that improved thermal comfort, reduction in indoor pollutants, and enhanced ventilation rates and effectiveness can increase productivity by five to ten percent. 6 In other words, the building supports the business. Better customer experiences Almost all global organizations have customer-facing spaces within the real estate portfolio. By taking a holistic view of those spaces and the services delivered within them, companies can put their best foot forward and create positive, memorable customer experiences. One example involves a financial services company that caters to high-net-worth individuals. Because its customers expect a superior level of service, the company and its integrated service provider designed a space that considered every aspect of an in-person visit. How will the customer be received at the reception desk? How will they be escorted through the building? Who will they encounter? What language will they speak? What foods are native to their culture? The coordinated effort included participation from real estate, facilities management, human resources and information technology functions. And in the end, the integration of services resulted in the development of an unmatched customer experience. 6

7 Service integration comes of age Reduced carbon footprint In companies large and small, interest in energy efficiency continues to rise, driven primarily by the desire of organizations to reduce energy costs, take advantage of government or utility incentives or rebates and enhance public image. Service integration can have a direct and positive impact on an organization s sustainability efforts. For example, facility managers who have long been focused on creating energy efficiency through the integration of building management systems and processes can help increase the real estate value and competitiveness of buildings by sharing their expertise across the enterprise. To demonstrate the company s commitment to environmental responsibility, data mapping and other technologies typically associated with human resources can help real estate teams zero in on sites with optimal access to public transportation. Efforts like this and the adoption of flexible work policies have become increasingly important for an organization s public relations. The best path forward Benefits such as these combine to create a compelling case for the integrated service model and the value it can deliver to the business. So much so, that CoreNet Global, in its recent report, Corporate Real Estate 2020, The Future of Corporate Real Estate and the Workplace, suggested the industry has no choice but to embrace integration to survive: Corporate Real Estate must align with business or become obsolete. 5 7

8 How to think differently Integration clearly creates business value. Yet for some, the goal of achieving close collaboration between real estate, facilities management and other functional units within the organization may seem unattainable. It may even be impractical if, for example, procurement is handled locally and in silos for every service line. In cases where thinking differently won t necessarily be easy, one potential way to leverage the benefits of integration is to partner with an outsourced service provider who thinks differently. One that isn t compensated based on the value of a real estate transaction. One that offers expertise in both real estate and facilities management. One that is focused on helping organizations deliver successful business outcomes. When integrated service providers and their customers work in partnership, there are limitless opportunities to create value. One recent example involved a global retailer of gasoline. In a routine meeting with their integrated service provider, company leaders mentioned that one of the things that discourages retail sales is the failure of lighting; potential customers are not likely to stop at a poorly lit gas station. After the meeting, the service provider designed a sensor that detects lighting failures, allowing technicians to respond to those instances quickly. It was a relatively simple project to execute, but one that demonstrates how managing real estate in an integrated way can have a direct impact on business performance. It s no wonder the collaborative concepts of service integration are gaining momentum among workplace professionals and their service providers. A recent survey shows 44 percent of global organizations currently integrate or fully integrate real estate services, and 80 percent of global organizations expect to purchase service lines as integrated or fully integrated lines within the next 3 5 years. 1 As service integration takes hold, an increasing number of workplace professionals will realize that while facilities often represent one of an organization s largest operating costs, they can also deliver big results to the bottom line. Reduced costs. Improved utilization. Enhanced productivity. Better customer experiences. A lower carbon footprint. Of course, to take advantage of these benefits, businesses and their service providers must be willing to think differently about building value.. 8

9 References Service integration comes of age , Market research shows increasing trend to outsource, integrate and globalize services. March_2014/OutsourcingSurvey_Mar2014_final.pdf 2 CoreNet Global, Dramatic Changes Predicted for the Corporate Real Estate Function in 2010, retrieved from: , extract results from over 300,000 work settings measured over the past ten years. workplace_strategy/ space_utilisation.html# 4 Global Workplace Analytics and the Telework Research Network, Latest Telecommuting Statistics, retrieved from: 5 CoreNet Global, Corporate Real Estate 2020, The Future of Corporate Real Estate and the Workplace, retrieved from 6 FacilitiesNet, Studies Relate IAQ and Productivity, retrieved from: article/studies-relate-iaq-and-productivity--5581# About the authors Lynn G. Kious VP, Real Estate Services, Americas Lynn Kious joined Global WorkPlace Solutions in Lynn is responsible for leading real estate services and operations in the Americas region. Lynn has over two decades of global experience as both a corporate real estate executive and a service provider delivering cost effective integrated portfolio solutions. Lynn has been awarded CoreNet s Corporate Real Estate Executive of the Year, received the CoreNet Top Ranked Faculty and Luminary Award, has been listed as one of California s 25 Most Powerful Real Estate Women and honored as a Southern California Woman of Influence. Lynn.G.Kious@jci.com Martin Chapman VP, Real Estate Services, EMEA Martin Chapman is responsible for leading real estate services and operations for Europe, Middle East and Africa at Global WorkPlace Solutions. With over three decades of experience in corporate real estate his focus is upon ensuring our customer s real estate is performing optimally and aligned to meet their evolving business needs. Martin has the benefit of experience as both a corporate real estate executive and a service provider who is passionate about ensuring our clients receive unbiased advice so they can make wellinformed decisions. Martin.R.Chapman@jci.com How can help drive your success? 8889c0814 Learn more at Subscribe to our e-zine at Follow us on global workplace solutions

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