OCCUPIER INSIGHT DEVELOPING THE RIGHT CRE ORGANIZATIONAL STRUCTURE. A Corporate Occupier & Investor Services Publication

Transcription

1 OCCUPIER INSIGHT DEVELOPING THE RIGHT CRE ORGANIZATIONAL STRUCTURE A Corporate Occupier & Investor Services Publication

2 Fueled by a continuously changing global business environment, corporations today are under tremendous pressure to operate better, faster and more efficiently. Although corporate profitability has reached new post-recession highs, competition within most industries also has reached unprecedented levels. Advances in communication, including the rapid adoption of social media into normal business operations, have created greater transparency for consumers in choosing products and services. This has changed the way corporations market to and compete for customers. Thus, most businesses are operating in an environment of continuous change and are deeply concerned about protecting their profits. Getting out in front of this continuous change is a major focus for C-suite executives. As a partner to the enterprise, corporate real estate (CRE) must be sure that it is strategically positioned to support this rapid and continuous change. ii

3 CRE ORGANIZATIONAL STRUCTURE PREPARING CRE FOR CONTINUOUS CHANGE In response to increasing competition and uncertainty, corporate executives are pursuing business strategies that focus on differentiating their organizations and preparing them for change. Change management practices that focus on innovation and the evolution of the business are rapidly being adopted by the C-suite as executives look to gain competitive advantage. Companies that are consistently innovating and evolving create advantages through the delivery of fresh, thoughtful and creative ideas to the marketplace. Innovation propels corporations to success in today s knowledge-based global economy and it requires that the enterprise be flexible, adaptable and open to change. So, how does CRE prepare itself to better manage and support enterprise change? First, CRE must consider whether the real estate function is properly designed to support not only the current but the future state of the business. The first step in this process is conducting a comprehensive evaluation of how effective CRE has been in meeting its performance targets and a strategic assessment of where CRE is falling short. Supporting continuous change involves understanding the drivers of change across the enterprise and what the business needs to meet its challenges head-on. Armed with this understanding, CRE can then begin to see how and where the corporation s real estate (i.e., its locations, real estate cost structure and work environment) can help. CUSHMAN & WAKEFIELD 1

4 EFFECTIVE CRE MANAGEMENT STARTS WITH ORGANIZATIONAL STRUCTURE Before understanding how to support the organization s success, CRE needs to determine the status of its current operations and the effectiveness of its organization. To do this, five critical factors should be examined. <INSER D (3 LIN KEY FACTORS IN ASSESSING CRE EFFECTIVENESS: Effective CRE Management PROCESS What processes are in place and are they consistent across regions and functions? SYSTEMS Does CRE have the right technology and systems in place, do they support the business properly, and will they provide the right intelligence? FLEXIBILITY Is CRE able to respond to changes in business demand and are resources scalable when needed? Process ORGANIZATIONAL STRUCTURE Systems PERFORMANCE How well is CRE meeting its performance metrics? ORGANIZATIONAL STRUCTURE Is the CRE organization designed and structured properly to help the enterprise achieve its goals? Flexibility Performance Leading CRE executives pay close attention to these five critical factors when assessing the performance of their organizations. However, the ability of CRE to deliver effective solutions for the enterprise in a continuously changing environment comes from having the right organizational structure in place first. <INSERT CLIENT NAME ALL CAPS> (VIEW > SLIDE MASTER> STANDARD LAYOUT) CUSHMAN & W 2

5 CRE ORGANIZATIONAL STRUCTURE THREE RE TYPES CURRENT CRE ORGANIZATIONAL STRUCTURES DECENTRALIZED, CENTRALIZED, AND HYBRID ORGANIZATIONAL MODELS Across most organizations and industries, non-core functions such as IT, Human Resources, and CRE have evolved in a similar manner. They generally start as decentralized functions managed by a core function, service line, or geographic region. Historically, CRE s main objective was to serve the local and or regional real estate needs of the enterprise. Fragmented and un-aligned, the CRE function at most multinationals reported to local management and made decisions without broader corporate goals and strategy in mind. As CRE s role within the enterprise has evolved from cost center to business partner and business enabler, increasing emphasis has been placed on how real estate decisions are made and how the CRE organization should interact with the broader business. While a variety of CRE organizational models are in practice today, decentralized, centralized and hybrid are the three most widely used. DECENTRALIZED plus+ minus Immediate Diversified risk Local expertise Lack of insight Inconsistent Expensive HYBRID CENTRALIZED plus+ minus Lower cost Less risk Strategic Time consuming No local expertise Risk for lost opportunity DECENTRALIZED MODEL Decentralized models are the historic mainstay of CRE, and many organizations today still employ this type of CRE structure. In a decentralized model, legacy organizations are regionally and business-line based. This is due in part to the flurry of mergers & acquisitions that took place in the late 1980s and throughout much of the 1990s. Decisions around location, the quality of the work environment, and overall occupancy costs are managed on a local or regional basis. In a decentralized model, the quality of the real estate can vary widely from location to location, even within the same business line or functionality. While there continues to be advantages to a decentralized organizational structure, there are also clear disadvantages. ADVANTAGE The biggest advantage of a decentralized structure is timing. Since decisions are made locally, without corporate oversight, the effectiveness of a decision is immediate. This directly impacts the ability to move quickly on opportunities to acquire or dispose of property. This type of decision-making is popular at the local level and causes less administrative headaches for those responsible for securing and managing the real estate. DISADVANTAGE The lack of corporate oversight can allow rogue elements to develop over time. Inconsistent real estate across locations can hurt branding, employee morale and corporate culture. The lack of standardization can also lead to inefficiencies and increased costs to CRE and the business. Moreover, in today s business environment flexibility is essential to growth and if decisions are made without executive oversight and knowledge of broader business strategy, the corporation s real estate may not be able to respond quickly enough to changes in the business. CUSHMAN & WAKEFIELD 3

6 CENTRALIZED MODEL In an attempt to mitigate the corporation s risk and exposure to the inconsistencies that can arise in a decentralized structure, the trend towards centralizing the CRE organization and its decision-making around real estate has accelerated. In a centralized organization, identified functions are managed from a central structure, with decisions being made at the top of the organization where knowledge of business strategy and goals exists. In most cases, procurement departments are are leveraged for the benefit of real estate, thus reducing costs. ADVANTAGE Centralized organizational structures focus resources to stay ahead of change. One of the main advantages of a centralized model is standardization. Standardization typically lowers costs and when decisions are made at the top of an organization, it becomes easier to develop and implement strategy and influence CRE performance. Centralization also assists in lowering CRE s costs to the business by leveraging both internal and external resources. DISADVANTAGE The disadvantages of centralization can be increased time and energy in getting to a decision. While standardization may be good for the bottom line, it can come at a price. Many times opportunity can be lost because decisions are not made in time. Moreover, there may be local or regional nuances around culture, SF/person, and location that can impact the performance of the business that a centralized model may not account for. HYBRID MODEL A hybrid type model centralizes some functions but regionalizes others. The question for CRE in this case is which functions become central and which remain regional. The current trend is moving towards strategic decisions being made centrally, and tactical decisions surrounding leasing, project managment, and facilities management being made regionally, where local customs and culture are best understood. ADVANTAGE The hybrid model provides the maximum advantage of strategic decision making, including standardization, along with flexibility for implementation at the local or regional level. DISADVANTAGE Implementing a hybrid type model requires the organization to be open to change and for CRE to be able to clearly define its roles and responsibilities. Without a clear understating of functions, and the governance around them, the ability to provide strategic direction can become a challenge. STEPS TO DEVELOPING THE RIGHT CRE ORGANIZATIONAL STRUCTURE So, how does CRE determine the right organizational structure to best support the continuous change that businesses will undoubtedly experience? There are five steps that CRE executives can take to determine the right structure for their organizations: 1. UNDERSTAND THE ENTERPRISE OBJECTIVES CRE must first understand what the business is trying to accomplish, what its objectives are and what the role of CRE is. It must understand the resources that the company needs to be successful and how those resources can be procured. CRE must also understand where it will be providing its services. The best way to learn this is to open a dialogue with the business and be proactive in seeking insight into the current and future business strategies. 2. DEFINE HOW REAL ESTATE DECISIONS WILL BE MADE CRE must clearly outline the governance surrounding real estate service execution. What specifically will CRE do and be responsible for? What will the business be responsible for? How and when will business units be engaged and what does the process for making real estate decisions look like? Will there be high business unit involvement, or low? Will CRE be allowed to move forward in its area of expertise, or will the process be slowed by consistent back and forth? Once CRE has an understanding of the process, the specific responsibilities of CRE to the business, and conversely what the business must provide CRE to be effective, a support structure can be implemented. 4

7 CRE ORGANIZATIONAL STRUCTURE 3. KNOW WHAT TO CENTRALIZE AND REGIONALIZE When possible, centralizing real estate strategy and analysis at the top of the organization provides more oversight, accountability and efficiency. Business-unit partnerships are more easily formed when consistent portfolio information, data and analysis are standardized and centralized. Conversely, in many cases the tactical execution of acquiring and disposing of real estate is more easily done on a regional or local level, where local knowledge can significantly influence the outcome. That being said, centralizing all strategic functions may not be in line with how the broader organization makes its decisions. If decisions and strategy within the enterprise are not made centrally, then the CRE organization cannot set its strategy in a centralized manner. 4. LEVERAGE INTERNAL AND EXTERNAL EXPERTISE Knowing how to best leverage internal and external expertise is critical for any CRE organization that wants to control costs and generate greater efficiency. Outsource service providers can alleviate many of the tactical real estate functions that may currently exist within the internal CRE organization. CRE must first determine how, when, and where to use outsource providers, and then ultimately how to best deploy the excess resources that may arise. A way to better create internal knowledge that CRE can use to set strategy is to create a customer relationship management (CRM) function. This involves setting up consistent and formal interface with CRE s customer, the C-suite. By officially establishing this function as a permanent part of its organizational structure, CRE will ensure that it has the consistent dialogue it needs to understand its customer needs. A way to better leverage external expertise that CRE can use to improve execution of physical real estate needs is to create a program management office (PMO) to oversee the delivery of real estate services to the enterprise and provide consistent and clear strategic direction to outsource service providers. Understand the Enterprise Objectives What does the company need to be successful? Know What to Centralize and Regionalize Which functions are best centralized? Emphasize Continuous Improvement What can CRE do to continuously improve? Define How Real Estate Decisions Will Be Made What specifically will CRE do & be responsible for? Leverage Internal & External Expertise How does CRE interface with customers and providers? <INSERT CLIENT NAME ALL CAPS> (VIEW > SL 5. EMPHASIZE CONTINUOUS IMPROVEMENT Lastly, any organizational structure must allow for the continuous improvement of processes and the examination of the structure itself. This step is not a function, but an instilled mindset that must be communicated throughout the CRE organization and led by the executive responsible for CRE strategy and delivery. Creating culture of continuous improvement requires: 1) A good communication platform; 2) Setting and revisiting expectations; 3) Maintaining best practices; and 4) Leadership that supports change management CRE is being asked to take a more proactive role in partnering with business units and the C-suite to help the corporation achieve its targeted results. Evaluating its performance and adjusting operational practices through the design and structure of the organization itself will allow CRE to successfully meet its challenges. CUSHMAN & WAKEFIELD 5

8 CORPORATE OCCUPIER & INVESTOR SERVICES Corporate Occupier & Investor Services (CIS) creates comprehensive solutions for real estate portfolios, aligning real estate strategies to our clients overall business priorities. Our clients range from multinational corporations to owners/occupiers of single assets, in local markets and across the globe. CIS adds value as a trusted advisor, leveraging all services to span the entire life cycle of our clients real estate. Global CIS teams collaborate through the sharing of best practices, use of consistent tools and processes, alignment of goals and priorities through industry-leading performance management and governance programs and flexible, effective technology. C&W partners with clients, enabling them to focus on their core business, confident that real estate experts are attending to every strategic and operational detail required to create, optimize and protect business value. CIS Services: Account Management Transaction Management Facilities Management Lease Administration Project Management Property/Asset Management Agency/Landlord Leasing For more information about this briefing contact: Rick Cleveland Managing Director Research & Strategy Corporate Occupier & Investor Services rick.cleveland@cushwake.com Kim Cotter Fuchs Account Director Occupier Services Corporate Occupier & Investor Services kim.fuchs@cis.cushwake.com For more information about Cushman & Wakefield s occupier services account management platform contact: Mark T. Wanic Americas Head of Occupier Services Executive Managing Director Corporate Occupier & Investor Services mark.wanic@cushwake.com Michael Creamer Partner, Head of EMEA Corporate Occupier Services michael.creamer@eur.cushwake.com Richard Middleton Executive Managing Director, APAC Corporate Occupier & Investor Services richard.middleton@ap.cushwake.com