Seven Principles that Make a Difference in Creating a Value-Added Real Estate Strategy

By Robert T. Osgood

Several years ago, at the beginning of a new project, a client urged our consulting team to develop a straightforward planning framework that could be used to create, measure, and communicate real estate strategies with people throughout the organization. The most important element of the framework was to be able to directly align real estate concepts with the strategic issues that were driving the core business, including:

• Recruiting and retaining the best people
• Managing organic and acquisition-driven growth
• Expanding the customer base, markets, products, and services
• Refining organizational structure and culture
• Developing branding and identity programs
• Enhancing workflow and communication
• Supporting internet and related transformational technologies
• Reducing costs and controlling risks

The result is the Strategy Alignment Model, which has been used and refined on more than 90 projects with Fortune 1000 companies. The model consists of three components, which are based on seven guiding principles. Four of the guiding principles are detailed here, the complete article with all seven principles is detailed on the McMorrow Report web site.

The Strategy Alignment Content Component

Principle 1: Planning models should be based on the language and tools of business applied to facilities/real estate, rather than on architect and broker-based schemes imposed on organizations.

There are five fundamental building blocks that are used to craft most corporate business strategies, specifically (see Figure 1):

• Mission for today and vision for the future
• Customers and markets served
• Product and service offerings
• Distinct competencies or skills unique to a company
• Values and culture that serve as the foundation for any organization

Research in the business press stresses the importance of addressing all of the issues in these five categories as an interrelated series of cause and effect elements.

In just one of many examples, Kurt Coffman, in Follow This Path (2002), Warner Books Division of AOL Time Warner, documents the empirical relationship between:

• Fitting roles to talent with the right tools creates effective individuals
• Great managers transform talented people into engaged employees
• Engaged employees create engaged clients
• Engaged clients drive sustainable growth
• Real sales growth drives profit that increases stock value.

Value in corporate real estate is in being able to directly support these and related concepts--and that's the driving force behind Strategy Alignment.

On a recent assignment, several work sessions with our client's senior leadership yielded 18 key elements of core business strategy, for which 21 real estate ideas were generated. Figure 2 depicts the alignment of five organizational-real estate strategies and measures. The strategy excerpt depicted in Figure 2 reflects a team of senior leaders making a commitment to real estate as an integral part of business strategy. As is the case with many of our clients, components of the real estate strategy will be updated on an ongoing basis to align with refined elements of the organizational strategy, as a series of interrelated ideas.

Principle 2: Planning outcomes should be measured in core business terms, rather than strictly as real estate statistics.

It's one thing to be able to describe financial savings from real estate operations, and it's quite another to measure the impact on corporate revenue by planning environments that, for example, help get products to market faster. Research and experience document the role alternative spatial configurations have played in enhancing development cycle times that reduce costs and increase revenue-usually at far greater benefit to the company bottom-line than reducing the amount of occupied real estate or other traditional considerations.

Principle 3: Planning models should emphasize activities, functions and performance concepts over the more typical counting and cataloguing of prescriptive data and wish lists.

A growing trend is providing space based on what you do rather than who you are. This transformation has been driven in large part by horizontal organizational structures that emphasize cross-functional, collaborative processes over vertical, functional hierarchies. In these types of organizations, real estate is not driven by pay grade, but instead by a thorough understanding of what the business is trying to accomplish.

The Strategy Alignment Process Component

Principle 4: Planning models should go beyond traditional facility design and real estate transaction activities to include broader change management processes that encourage buy-in and ownership among stakeholders.

Change is often one of the most difficult aspects of corporate life and the built environment is one of the most visible elements. Experience shows that knowing who to involve--and being able to answer why, when, where, how, and for what purpose--is as important as the actual real estate concepts developed. As shown in Figure 3, we try to make change a positive organizational outcome by employing a framework that defines and describes the client-specific roles, activities, schedule, and deliverables that are the key to the success of a specific project and/or to the ongoing management of assets.
For the complete article with the remaining three principles and illustrations, please go the McMorrow Report web site, www.mcmorrowreport.com

Principle 5: Planning processes should emphasize a balanced, strategic and tactical, macro to micro, approach over strictly tactical, micro-focused, linear schemes.

The vast majority of people involved in core business and real estate planning are familiar with the term "strategic planning." Strategy is about the identification of key business drivers and real estate performance criteria, a roadmap, while planning is about developing detailed directions for enacting strategic priorities. Unfortunately, there are far too many corporate real estate plans with detailed directions that don't have any relationship to a roadmap.

The Strategy Alignment Benchmarking Component

Principle 6: Benchmarking should be focused more on business strategy issues and underlying qualitative best practices and less on typical quantitative, generic statistical comparisons of real estate indices.

Most of the clients VOA serves are interested in comparing their real estate along dimensions like square feet per person, cost per square foot and size of offices. As useful as these and related measures are, they really represent simple indices that only begin to tell a story.

Last year I conducted a survey with 175 Fortune 1000 companies in which I asked corporate real estate executives to rank the most important core business and real estate issues facing the organizations they serve. In addition to ranking issues, the survey results link specific real estate actions to particular organizational strategies. Earlier I mentioned the relationship between product development and alternative spatial configurations. The survey respondents ranked "new product development speed and quality" as one of the key areas of focus for their companies. More important, they described specific co-location, team workflow and layout, individual job functions, and characteristics of workspaces that support alternative types of product development processes.

This information certainly can be used for quick, generic comparisons to other companies, but more importantly, it can be applied throughout a planning process to help craft and measure client-specific real estate strategies. In the end, the best benchmarking focuses on just a few key issues that help tell a compelling story of what an organization is trying to achieve and how real estate can be an enabler (see Figure 4).

Principle 7: Benchmarking should be used to achieve competitive advantage rather than to simply copy and catch up.

Reinforcing the ideas outlined in Principle 6, there is a tendency in some circles to advocate the universal application of benchmarks that have achieved "cutting-edge" or "industry standard" status. Copying the latest "fad" may not have any relationship to the objectives of a specific organization.

Our consulting team has a database of office standards for more than 200 companies that include statistics about size, location, appearance, components, layout, and degree of enclosure across industry sectors. It's interesting to know what others have; however, it's far more useful to understand the entitlement considerations, individual job activities, and team processes that drive specific requirements for space. Again, it's the difference between trying to catch up versus seeking a sustainable competitive edge.

There are many factors that influence the success of corporate real estate. The Strategy Alignment Model is a tool that frames real estate issues in the language of business and measures results in the context of organizational outcomes.

Robert T. Osgood, Jr. is Senior Vice President, Director of Strategy & Planning for VOA Associates Inc. He is based in Columbus, Ohio. bosgood@voa.comTo learn more, go to www.voa.com, see Professional Services/Strategy & Planning.