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orporate real estate executives from most of Silicon Valley’s high-tech companies gathered in early June in Redwood City, Calif., to participate in one of two Jones Lang LaSalle Leading Edge Series 2002 events to take place this year. Besides high-level presentations on economic forces influencing business decisions, the impact of changes in accounting rules on corporate real estate finance and other topics, the gathering offered a timely look at how managers are coping with a new set of business realities.
In the wake of the accounting scandals, for instance, many of the attendees have been directed to terminate synthetic leases and other alternative financing arrangements, lest they be challenged by stockholders or others. Many of the companies represented, such as Intel Corp., have had to postpone expansion plans, and space-demand forecasting has taken on a whole new layer of complication as business units contract, Internet-based business models are re-evaluated — or junked altogether — and the economy remains tepid.
But one presentation was particularly timely, given the forces driving today’s manufacturing industry. Terry J. Reith, Ph.D., an executive in Motorola’s global strategic sourcing division, explained how his unit proactively met change head-on and now is delivering real value to the organization’s bottom line.
“A decision had come down from our chief executive offices that said we are going to be outsourcing the manufacturing of pagers and cell phones,” recalled Reith. At first, many at Motorola were stunned, because they maintained that the manufacturing of such products was the company’s very purpose. “In reality, our core competency was intellectual property and the patents we hold on those processes.”
It occurred to Reith, a former facility manager and strategic planner in the facilities department, that he had two choices: either be outsourced or be on the side of the table doing the outsourcing. He decided on the latter option.
“I decided to move myself into a strategic position that gives us the ability to make some good decisions.”
Time for Change
Taking a macro look at how Motorola did business, Reith realized that the company “had to get smarter internally” or find itself at a competitive disadvantage. He says the company operated as six virtually independent operations; vendors loved doing business with Motorola, because they could sell the same system or service six times. The key to being more efficient was to establish strategic outsourcing relationships, such as one in place with Jones Lang LaSalle, where the vendor makes the key decisions in all areas of its purview other than areas involving Motorola’s core competency. In effect, ownership of major functions and processes — such as real estate — is transferred to the third party.
One function kept in-house for its strategic import to Motorola’s bottom line is procurement. The system in place today is called TIGERS, for Totally Integrated Global Electronic Requisitioning System. The platform is based on technology from Ariba, a Sunyvale, Calif.-based developer of Internet-based e-commerce solutions. The bottom-line benefit of the platform is the ability to know at any time how resources are being allocated across the organization globally. Information on spending patterns across a variety of product lines and services is now accessible and therefore more manageable.
Reith’s global strategic sourcing division works with three key “super suppliers” in the procurement of goods and services; two more are planned or have been established since the June meeting. The idea is to standardize and to optimize resources, he explained. “Motorola had 742 sites globally and 44 million square feet [4 million sq. m.] when we started this process, each being run by a general manager. There was no standardization in terms of how facility or real estate teams made decisions [with respect to procurement]. This allows us some control that we never had in the past.”
