The Evolution of McKesson Real Estate Tom LaDue VP, Real Estate Relationship Management CoreNet Discovery Forum San Francisco October 8, 2014
Discussion Goals Show how McKesson Real Estate (MRE) has evolved to meet the needs of an everchanging Fortune 100 business Discuss the steps taken to address issues of quality, scale and portfolio complexity Organization structure Customer Relationship Management (CRM) Program Management Office (PMO) Look to the future and discuss lessons learned 2
Mike Huaco SVP, Global Real Estate Tom LaDue VP, Real Estate Relationship Management Lead the centralized Global Real Estate shared services organization for McKesson including Transactions, Construction. Facilities Management and Lease Admin Lead the Customer Relationship Management, Portfolio Planning and Program Management Office (PMO) functions for McKesson Real Estate Background Joined McKesson in August, 2014 30 years of Corporate Real Estate experience 9 years leading Kaiser Permanente real estate organization Prior Leadership roles at Trammell Crow, CBRE, DHL, Background Joined McKesson in 1999 26 years of Corporate Real Estate experience Prior Real Estate leadership roles at HBO & Company (Healthcare IT) and Heery International (large A/E firm) Charles Schwab and Bank of America 3
Who is McKesson? A 180 year old, Fortune 15 Healthcare Services company with $150B in annual revenue, 15% CAGR over last 6 years, 45,000 employees Improving the business health of health care organizations across the spectrum of care is key to achieving better health outcomes and lower costs for everyone Distribution Solutions Technology Solutions Pharmaceutical Medical/ Surgical Clinical Information Solutions Medical Imaging Specialty Health Pharmacy Systems Health Solutions (Payer) Business Performance Services Canadian Pharmaceutical Relay Health Connectivity Low margin business; steady growth prospects; focus on cost and operational excellence Higher margin business; strong industry growth prospects; focus on innovation and growth 4
McKesson Real Estate Today Total of 26M Square Feet and 1,200 Locations in 9 countries 17% Square Footage by Type 1% # of Locations by Type 14% 17% 22% 60% 24% 45% Warehouse Office Medical Retail Warehouse Office Medical Retail MRE Lines of Service Strategy and Customer Relationship Mgt Transaction Management & M&A Support Portfolio/Lease Administration Projects Facilities Management Environmental Real Estate Finance Staff: MRE has 30 in-house employees and 90 outsourced dedicated employees 5
McKesson Real Estate Timeline Frank Robinson joins McKesson Create centralized real estate organization & outsource tactical implementation Major technology acquisition Portfolio grows to 330 locations 15M SF 2 nd Generation Outsourcing Major Medical Office acquisition Portfolio grows to 800 locations 19M SF Upskill CRM function Major Distribution acquisition Portfolio grows to 1100 locations Mike Huaco 26M SF joins McKesson 3 rd Generation Outsourcing 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 McKesson acquires HBOC Portfolio: 200 locations Select national Service Provider Create CRM organization Create & Implement new PMO Organization Extend MRE reach globally Major Retail acquisition Portfolio grows to 1000 locations 20M SF Refresh PMO Model Major European 12M SF Distribution acquisition Portfolio grows to 3000+ 6 FOR INTERNAL USE ONLY/PROPRIETARY AND CONFIDENTIAL locations ; 36M+ SF
Organization Structure Decisions to make.. What is In-sourced vs. Outsourced? What is centralized? Balance of Strategy vs. Tactical Organize by line of service, geography, asset type, business units, other? 7
Where did we start? SVP Real Estate STRATEGY Real Estate Relationship Managers (RERM) TACTICAL IMPLEMENTATION Centers of Excellence RERM BU 1 RERM BU 3 Transaction Mgt Facilities Management RERM BU 2 RERM BU 4 Design & Construction Finance & Lease Admin Keep strategic team in house and outsource tactical implementation Centralize Strategy, Transactions, Project Management and FM for Core office facilities Strong emphasis on strategy with RERM team Organized by service lines for implementation and business unit for strategic team 8
Great idea for 2002 McKesson what needed to change? Driver for Change Acquisition of outsourced Cancer Center business Acquisition of large retail pharmacy business Project volume and Complexity Growth in portfolio size and diversity Further portfolio diversity Acquisition of large EMEA based company Change Implemented In-sourced transaction and project management expertise Lite touch on transactions for small pharmacies Introduction of a Program Management organization to work across service lines Enhanced advisory FM services for majority of the portfolio Increased focus on project delivery organization led by PMO Project Executives??? Lessons Learned Be proactive and anticipate the changes Determine the right the level of governance and oversight needed Understand the real value add of resources and structure accordingly Be willing to make the tough changes necessary to keep pace with the needs of the company 9
Customer Relationship Management Original vision and scope The CRM s are trusted advisors who develop real estate solutions based on a thorough understanding of the BU s real estate demand drivers, the real estate supply and provide proper flexibility to meet the BU s business needs The CRM s are developing proactive real estate solutions that consider the long term impact to the BU and the corporation 10
CRM s asked to do too much Provide Proactive planning and strategy Primary point of contact and trusted advisor to the BU Meet semi-annually with BU Executive leadership Share portfolio metrics on a scheduled basis with Executive leadership Clearly understand & track the high-level demand drivers (trends, forecast) for each BU Clearly define scope definitions for their projects Provide real estate inputs for Capital Project Approvals Have a thorough knowledge of the opportunities, risks, deficiencies, etc of the real estate supply within their real estate portfolio & the markets where their portfolio is located Track how well their portfolio aligns with ideal functional, locational and operational drivers/needs Produce scenario planning & analysis for developing site specific real estate solutions Assess AWS opportunities as part of the planning processes Identify savings opportunities & initiatives that deliver long term benefit to the corporation Provide project oversight of the end to end delivery of projects on behalf of their BU 11
Changes needed to be made Driver for Change Portfolio growth limited effectiveness of CRM s CRM s struggling to have a portfolio view on opportunities and initiatives No traction on portfolio metrics Portfolio growth limited ability for Sr. Corporate Leadership to provide governance Portfolio growth and limited resources made providing same level of involvment a challenge Change Implemented Introduced a PMO organization Introduced specialists for Portfolio Planning and AWS program Added portfolio analyst to provide focus on metrics Focus on increasing CRM business acumen to better represent Sr. leadership on understanding business cases and challenging BU s Providing lite touch on certain parts of the portfolio Lessons Learned Be realistic on expectations for CRM s don t overload Ensure you have the right focus and skill sets explore the need for specialists Recognize that project oversight will tend to dominate their workload if unchecked Don t lose sight of the value-add of the role don t trade quality for quantity 12
Program Management Office (PMO) Drivers for Creating a PMO Schedules being missed (accelerated construction, holdovers) Fire Drills for approvals Individual service lines working in a silo related to schedule and budget Little to no visibility to true project status for CRM or the BU CRM s spending majority of their time managing tactical implementation 13
PMO - End to end oversight of project delivery across service lines Subject matter reporting silos with Service Line leadership Customer Relationship Management Transaction Management Design & Construction Facilities Management Other (IT, Security, Equipment) PMO Oversight 14
Changes in PMO structure over time All projects flow to PMO Managers With General Real Estate Expertise by Business Unit All projects flow to PMO Managers Based on Specific Expertise & Complexity??? All projects flow to PMO Managers Based on Asset type or Business Unit??? All Transactions, Projects PMO Mgr BU 1, 2 PMO Mgr BU 3,4,5 PMO Mgr BU 6,7 All Transactions, Projects PMO Mgr for Complex Projects PMO Mgr for Integrated Projects All Transactions, Projects PMO Mgr for Industrial PMO Mgr For Office PMO Mgr Medical No PMO Mgr for straight renewal or D&C project PMO Mgr Retail Lessons Learned Lessons Learned Lessons Learned Certain projects required more expertise than the PMO Mgr had Too many projects to allow for same level of oversight and reporting for everything Lack of true authority over the team challenges role of accountability Renewals have risk Change in portfolio mix requires leveraging expertise by project type TBD 15
McKesson Real Estate - Looking to the Future Be better positioned to scale and be properly resourced to meet growing volume of workload and demand Increase our value add to the business units identify ways to become more strategic vs tactical Properly manage the growing global reach of the real estate organization Identify platform improvements to improve scalability for better M&A integration 16
Summary of Key Lessons Learned Be proactive and anticipate needs Determine the right level of governance and oversight required and balance with the value-add potential of your organization Don t be afraid to make the necessary changes Learn from your peers no company is the same, but lots of good knowledge in the industry 17
Questions? 18