|In an Era of Change, Do You Know How To
by William T. Adams, FAIA, Program Management
In this era of global competition, time, a well-educated workforce and sufficient capital are becoming precious resources. An unforgiving economy requires companies to monitor and use these resources wisely.
Managers are being asked to redefine critical business operations - their core competencies - and question others. As a result, they are reviewing all aspects of goods and service production, especially support operations such as Real Estate and Facility services (RE&F).
Leaders in these areas frequently must reposition or restructure their departments and rethink current work processes. This requires them to plan, measure, monitor and coordinate programs engineered to help the organization realize its vision. This process often is termed change management. In addition to attainment of the corporate vision, several characteristics define change management.
Looking Back at Change Management Programs
The benefits expected from change management programs are rising. Early programs developed to map and improve operational processes and reduce cycle time focused on the Total Quality Management (TQM) methodologies. These program results usually offered single digit percentage benefits. Subsequent company-wide change management methods using re-engineering techniques and breakthrough teams were more radical. These advocated restructuring existing processes and questioning the need for complete tasks, operations and functions. Such methods often produced double digit cost improvements and led to additional outsourcing.
To improve operations by reducing space requirements, activity-specific process improvements techniques are being developed by many companies. Examples include synchronous workshops used at General Motors and Hughes Aircraft to compress manufacturing operations, and alternate officing programs at Ernst & Young, Anderson Consulting and AT&T.
Change management programs increasingly are given unique names, such as PATH TO WIN or VISION 2000, that reflect an emphasis on major business realignments such as acquisitions or divestitures, new information technology or asset redeployment.
As the pace of societal and business change increases, managers will be challenged to adopt change management programs. Efforts to improve each function or business unit's processes will become a continual in-house activity, with fewer outside consultants involved. With its serial acquisitions, divestitures, re-engineering efforts and reorganizations, AT&T may represent the future pace of change.
RE&F Change Management
Increasingly, new RE&F programs to revise workplace standards, consolidate sites and outsource select functions are product of the managers new role in the face of accelerating business change.
Twenty years ago, the corporate RE&F function usually reported to corporate administration or services. Facility professionals provided each business unit with the services and supplies it needed when asked. As a delivery function, RE&F was a management service and classified as an overhead operation. Today, the facility function generally reports to financially oriented managers such as the controller or chief financial officer. This suggests an evolving role that has greater fiscal planning and control responsibilities. In this new position, RE&F managers have become more aware of capital constraints, budget plans and core business operations.
With better information systems, strategic planning responsibilities have moved from the executive suite to business and support units such as RE&F. This allows all managers to develop unit-specific performance targets linked to corporate objectives, with cost and customer satisfaction topping the list. Integrated business facility planning is no longer a luxury, but an essential practice in competitive companies.
Real estate and facility management professionals are being asked to monitor their performance, question existing operations and promote changes without specific directives from their senior management. Executives provide vision and goals for these changes with corporate initiatives, but the daily execution is left to the individual departmental leaders.
Questions concerning the number of site locations, buildings and workstations an organization needs have eclipsed by strategic issues such as how and where work will take place. Facility professionals are asking: How does our units performance compare with our competition and peers in other industries? How many and what type of RE&F employees, vendors, contracts, and information systems do we need?
Change Management Programs
These new characteristics of the RE&F function are most evident in the way today's managers define their change management programs. Typically these programs respond to initiatives to reduce costs and improve operations by streamlining three areas of opportunity: property portfolio, internal processes and functional organization.
Initiatives taken by RE&F units to address any one of these areas are termed strategic planning actions. While property portfolio changes are the most visible facility planning activity, most comprehensive Strategic Facility Planning (SFP) programs address all three areas. Facility providers, such as architects, contractors and consultants, seeking to enter or remain in this expanding market for corporate facility-related services are becoming more familiar with each of these three areas of change.
RE&F units often are in the process of using small change plans to modify and improve components of the property portfolio, internal processes and the functional organization.
Change plans for these components can be considered part of an overall organizational change plan. Examples of component change plans are listed in figure 1. Each area offers a different level of cost reduction following the transition period¹. Together, cost savings in the three areas of opportunity add up to 100 percent of the overall savings realized through an organizational change plan.
Many RE&F initiatives are designed to improve service and reduce facility and real estate occupancy costs. Most component plans are formulated by in-house sponsors or teams and are supported by consultants. Because consultants orientations range from financial and tax planning to real estate and workplace settings, it is important to choose the most appropriate advisors.
Cost reduction is not the only issue considered in these plans. How change occurs is important because the process or method by which changes occur in policies or processes can affect employee morale and productivity. Employee sensitivity to the realignment of property portfolios is a major issue, as buildings and workstations represent personal territory.
Team-Based RE&F Programs
Teamwork is a pervasive aspect of the definition and development of change management programs. It also is an integral part of new service concepts created in response to these programs.
Although strong executives or select committees may have dictated change in the past, teams can identify and coordinate operational changes more effectively. However, teams do not substitute for the strong leadership and vision necessary to initiate and sustain change management programs.
Senior management's commitment and reassurance is essential during destabilizing change programs that involve downsizing, outsourcing and cultural shifts. Leaders have the important job of gauging an organization's capacity for change and monitoring its new development.
According to an organizations financial status and culture, facility-related team responsibilities and membership, senior managements participation and the role of both in change management programs will vary. Empowered teams can act with more freedom in organizations experiencing considerable growth as fewer jobs are threatened in those conditions. Such organizations also may accept cross-functional change management teams more easily.
Several general observations can be made about the steps, team structure and assignments often seen within real estate & facility units that have executed successful change programs.
A small team of senior corporate managers, or a core strategy team, can best interpret the company's vision and directives. This team identifies processes and policies that need improvement and develops new portfolio strategies. They do not identify specific actions. This type of team is responsible for recognizing new organizational concepts that will reinforce change programs in the three areas of opportunity: property portfolio, internal processes and functional organization.
Cross functional teams often can develop more effective portfolio realignment plans for specific functions, key business units and particular locations. Broad participation in these teams enables faster plan development and approval. Led by RE&F managers, cross-functional teams include representatives from key business units, finance, human resources and special consultants.
Teams composed strictly of RE&F employees are more effective at improving or developing new processes for specific operations because of their familiarity with facility services. Figure 2 lists the teams and their responsibilities in each phase of change planning.
Prescriptive vs. Performance-Based Directives
Senior managers and planning teams can take several approaches to defining the targeted goals that will lower the RE&F units costs, improve operations and re-deploy money invested in real estate assets to other uses. Two such approaches are the prescriptive and performance methods.
Using the prescriptive method, project-related actions sometimes are specified to meet defined operating cost targets. Examples include site closures, new audit and reporting methods, unit relocation, lease terminations and freezes on new facilities. This approach is more common when change programs have a strong accounting focus. Financial planners and accounting-oriented consultants often pursue due diligence work in this case.
Solutions identified using the prescriptive method are defined by core strategy teams, senior executives and outside consultants. Facility management or real estate professionals sometimes are not included in this process. This often occurs because of the need for confidentiality or accelerated action. Decisions made in this manner are considered top-down specifications as the directives are coming from upper management. As a result of the prescriptive method, specific directives sometimes miss significant operational conflicts that become visible later. These conflicts can introduce new costs and reflect poorly on early due diligence assignments. More importantly, critical time is lost.
With the performance-based method, only new planning objectives are outlined in terms of performance requirements by senior managers. Examples include occupancy cost reductions as a function of business measures and higher productivity targets. Information officers, business planners and operations-oriented managers and management consultants pursue due diligence work in this approach. The performance-based approach is structured to achieve the same bottom-line results, but responsibility shifts to lower level managers. They develop creative operational strategies that make targeted numbers work with the least pain and most flexibility.
The prescriptive vs. performance conflict can be seen as organizations pursue process changes such as outsourcing. Often facility management units develop tightly worded Request For Proposals (RFPs) that prescribe exact methods by which outsourced functions are to be executed. This "prescriptive" approach allows outsourcing costs to be compared with existing in-house operations, but it restricts innovation and improvement. An alternate approach would be to state the operations objectives in terms of acceptable behavior, or in terms of "performance".
Another example of the difference in these two approaches can be seen in the process of developing an RFP for improved maintenance operations. RFPs for cleaning, preventive maintenance and repair activities often replicate existing guidelines for facility operations. The alternative would be to state objectives and allow vendors to rethink the essential scope of activities vs. those activities considered normal.
In a similar internal reassessment, one Texas Instruments corporate campus found that it only needed to outsource critical maintenance and extraordinary cleaning, because employees agreed to do much of their own cleaning to reduce costs and improve control. Subsequent customer surveys indicated that the quality of cleaning improved, costs were reduced and satisfaction with the facility management operation rose.
Instead of relying on the traditional RFP, organizations may opt to issue a Request For Consortia (RFC) or Request For Teams (RFT) designed to solicit more innovative team-based proposals for a service function.
The RFT approach results in three things. First, previously separated vendors must team their efforts. Second, the number of separate marketing efforts, contracting entities and duplicated management functions must be reduced. Finally, to encourage companies to work together and bid on an RFT, companies are creating more opportunities in the form of longer contract periods and greater areas of service. This encourages not only lower costs, but additional research and investments to develop new custom products and services. This contracting approach mirrors the industrial supplier concepts that increasingly are being employed by high-tech companies with growing development costs and declining product life cycle.
Studies of Change Management Teams
Differences in team structure and management roles during times of change can be seen in the approaches that aerospace companies have taken to portfolio realignment challenges in past years.
The Case of TRW
TRW, a major aerospace and automotive company, lost 16,500 employees from its space and defense division (TRW/S&D) during the 1980s. Its effective real estate management during the loss established TRW as a leader in the transition of the aerospace industry. TRWs information systems division (TRW/IS&S) faced a similar challenge in realigning its real estate and facilities operations following the divisions 1991 reorganization. TRW/IS&S managers employed several of the same concepts and consultants used by TRW/S&D to plan and implement the transition.
IS&S Solves Problems at a Local Level
TRW/IS&S senior managements performance-oriented directive to the corporate real estate unit was two fold. First, the unit needs to realign the property portfolio so that it was consistent with the organizational shift from eight to five business units. Second, occupancy costs needed to be reduced by 20 percent. The real estate director convened a cress-functional strategic facilities task team with representatives from all business units, finance and human resources. After analyzing real estate conditions, the strategic team developed several change programs.
Processes scheduled for change included improving the real estate and facilities database, and creating new real estate classifications and management concepts, new financing arrangements and new vendor alliances.
The portfolio realignment began with an analysis of the existing database information. The task team found that 77 percent of all major properties being retained were in four metropolitan areas, each associated with a major function or business unit operation. The team developed policies to address facility dispositions and the smaller properties.
TRW/IS&S created four smaller, locally-based facility planning teams to develop a facilities strategy for each of TRWs regional property portfolios. Each team needed to reduce the local real estate occupancy cost to be consistent with the new business plans defined for each remaining unit or function.
The local teams were composed of local business and facility mangers, realtors and a corporate real estate representative. They reviewed alternate facility use and occupancy strategies, and site opportunities. Consolidation, regional incentives and a revised mix of owned vs. leased space were important features in the final plans, which were developed, approved and implemented in all four metropolitan areas within 20 months.
The new metropolitan area plans and other improvements in TRW/IS&S real estate and facilities operations reduced annual occupancy costs for core facilities by more than 30 percent, contributing to the divisions successful sale in early 1996.
A Lack of Consultation Leads to Bad Planning
In contrast, another major aerospace companys senior executives outlined their strategy teams plan to relocate and consolidate various business units. These plans included specific real estate directives. In an effort to accelerate change, this teams facility plans specified projects and units to be moved, sites to be closed and leases to be terminated. Local, cross-functional teams on each site, some without RE&F representatives, were assigned the task of preparing detailed plans to implement the directives.
Later, the company changed various relocation and consolidation plans, and the schedule was delayed when local plans revealed a number of significant operational conflicts and additional costs. The overall initiative now is proceeding successfully with smaller, cross-functional project teams led by local site managers. These managers are responsible for their portfolios alignment within the context of their respective business programs performance (i.e. cost targets). Each site managers portfolio project team is led or supported by a representative from real estate and facilities.
The Voice of Change
During such projects, management is challenged to set change in motion without being too specific, while trying to anticipate and monitor the value of each change plan as it unfolds. This allows priorities to be identified and continually re-evaluated. Scarce resources can be allocated to plans which have the most organizational benefit and greater chance of success.
The telecommunications industry is experiencing considerable change in the wake of its deregulation. Faced with greater long distance and local area competition, plus new media ventures, several Regional Bell Operating Companies (RBOCs), such as Ameritech, Pacific Bell and Southwestern Bell, are changing many of their old operations. These changes provide examples of the development process for independent change plans and techniques by which they can be monitored and coordinated. Examples are cited in the context of the three change process steps described in figure two.
As legacies of the original AT&T divestiture and its common operating protocols, each of the RBOCs monitors and analyzes its business performance using the same business index, Lines in Service (AALIS)². These performance reports enable them to collectively benchmark operational profiles and costs for individual business or support units such as finance, human resources, and real estate & facilities.
In anticipation of recently passed legislation in the United States to deregulate telecommunication operations, in-house business planners compared RBOC-wide benchmark measures (e.g. employees/AALIS, operating costs/AALIS) with those of future competitors, and defined new performance targets for each RBOC.
To measure and improve customer satisfaction, most RBOCs gradually will reorganize to reflect more customer-focused units instead of state-oriented organizations. Goals for overall cost or asset reductions have been defined for each business unit as performance targets tied to overall business measures (e.g. annual RE&F budget/AALIS).
Business unit managers have been empowered to establish their own change programs, identify sponsors for separate efforts and develop methods and more detailed performance measures to meet their unit's targets. Select senior RE&F management teams identified change programs and major priorities within each company. Organizational change was more critical in some former Bell companies, and specific process improvements were more important in others. Important process changes included improvements in procurement concepts and information systems. Major portfolio adjustments are common to all RBOCs as they all are planning for employee reductions and new organizational structures, that will require less space.
Development: Individual Change Plans
Some Bell RE&F managers have emphasized a strong business alliance strategy in their business unit reorganization, and they have chosen to outsource many components of their support operations. The most dramatic example has been Ameritech Real Estate (ARE) which managed 3,500 properties totaling 40 million square feet in five states. ARE has reduced its staff by more than 80% in the past two years and now shares many responsibilities for unit-wide change management with five external providers. These providers are the Environments Group for strategic planning, Equis for real estate services, ASC Services for design and construction, and both LaSalle Partners and Johnson Controls for separate property management responsibilities.
Other RBOCs are pursuing more gradual staff reductions while directing process and portfolio changes internally. Procurement officers and design and construction managers in some larger Bell companies have tailored separate change plans that recognize the diversity and value of current providers such as electrical companies, contractors, architects, engineers and furniture dealers. They are using the RFP process to encourage qualified providers to assemble and bid for these service markets as comprehensive self-managed teams.
With a 52 million square foot portfolio in nine states and a $380 million (U.S.) dollar annual operating budget, BellSouth's Property & Services Management unit (P&SM) defined its change programs as a strategic plan that includes every category listed in figure one. Following an internal RE&F-focused benchmarking effort among all RBOCs, separate best practice visits with other companies and additional benchmarking research, a senior P&SM management team developed this strategic facility plan, known as VISION 2000.
Many of BellSouth's targeted portfolio-oriented changes are being incorporated, as key building audits and alternate facilities master plans are developed for each metropolitan area. Benefits from these include new space standards, officing concepts and building efficiencies. Other process-related plans, such as those for improved facility data, information systems and procurement methods, are being realized company-wide.
In another example of organizational development, Southwestern Bell Telephone recently selected CB/Madison as its strategic partner for all real estate operations. As few proven example exist for single source design and construction services, Southwestern Bell also is pursuing a strategy to encourage separate architectural, engineering and construction firms in its five state region to form alliances and respond to its request to contract with considerably fewer vendors. These new providers either will be consolidated self-managed teams or large existing architecture and engineering, and construction management firms able to successfully pursue small assignments.
BellSouth has reduced all RE&F vendors by 50 percent over the past four years and plans to continue the policy. Facility operations is another function that may experience further consolidation, although several global providers, such as Servicemaster and Johnson Controls, now exist.
Other RBOCs or their outsourced providers are negotiating new arrangements for different consortia of interior designers, furniture manufacturers and local furniture dealers. The goal is to develop one-stop shopping for all furniture specification, production, delivery, installation, relocation, repair, refurbishment and warehousing.
The recurring pattern of consolidating roles and retaining fewer providers should increase as corporate procurement objectives become more common to companies trying to remain competitive.
Integration & Testing
Planning tools and techniques that allow RE&F managers to monitor and direct the cumulative impact of change programs and individual plans are critical. Modeling techniques that capture new performance targets and depict the bottom line impact of multiple change plans are very useful.
Scenario value models are used to study the economics of alternate strategies or scenarios for the best use of the real estate portfolio. Examples include the potential benefits of consolidating several data centers, relocating all of a business unit's office operations to a specific metropolitan area or shifting a new mix of leased vs. owned facilities.
This technique of capturing initial and on-going facility, real estate and operating income and expenditures in a present value format has become a generally accepted practice. It also has been standardized within some companies or institutions. For example, all seven Bell companies and AT&T use the BellCore Capital Utilization Model (CUCRIT), and the Federal Reserve Bank uses its Capital Addition Evaluation Model (CAEM). Both are good examples of an economic planning model used to determine the best facilities strategy for any new business transition program.
The budget and portfolio econometric model is another type of management tool. It models the company-wide impact of planned changes in all activities within the RE&F unit. By incorporating top-down change plans and using the RE&Fs chart of accounts, this model describes the economic impact of proposed improvements in relation to the entire portfolio and future budgets. The bottom line format is familiar to financial planners. With best practice information and benchmarking data becoming more readily available, the use of these models should increase.
Representative savings or penalties for process changes often captured in these portfolio-budget models include:
Targeted changes within the RE&F unit also can be linked with anticipated revenues and employment, as well as the organizations fundamental business measures, such as lines in service or barrels in production. This dynamic and integral planning characteristic is important, as business indices are being forecast and constantly revised as markets change. This allows change plans to be modified if necessary. For example, Motorolas past practice has been to update its five-year production planning model quarterly.
BellSouth's initial budget and portfolio planning model captured management's stated plan to reduce employment by 20 percent, identified office-based employees and forecasted administrative space requirements for the next four to five years. It was designed to automatically fold the incremental impact of new operating concepts and policies into a projected employment and portfolio picture to produce annual departmental budget projections and occupancy costs for each building type.
Using its portfolio model's projections for future space needs and ownership patterns, BellSouth planners estimated rent and depreciation expenditures. These expense projections were combined with other budget accounts such as utilities, furniture, maintenance and project expense to project annual occupancy costs for each of their five building types.
BellSouth now can update rent and depreciation projections as metro-area master plans are finalized. It also can adjust benchmark targets in order to study the impact of new policies or targets on each budget area or building.
Present findings suggest that with currently scheduled changes, BellSouth can reduce overall occupancy costs per square foot by more than 6 percent annually. It also may be able to redeploy twelve percent to fifteen percent of real estate assets to other uses. With its portfolio model, BellSouths current budget estimates can be changed quickly with the introduction of new information, such as plans for a furniture management consortia or alliances with construction firms. Dramatic improvements offered by emerging programs such as alternate officing and telecommuting can be measured easily with the portfolio.
By using a scenario value model (i.e. BellCores CUCRIT model) and appropriate cross-functional facility planning teams, BellSouth and other RBOCs can develop more cost effective and user-friendly facility plans for each of their key metro-area markets. Further use of its budget and portfolio model will allow BellSouth to study the future impact of continuing portfolio changes and the benefits of other scheduled and unscheduled process improvement.
In this age of growing automation and concern with costs, real estate and facility managements success will be measured by the economic performance of property portfolios, customer satisfaction and the physical performance of the workplace.
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