From Site Selection magazine, September 2000
I D R C ' S N E W Y O R K W O R L D C O N G R E S S |
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IDRC Probes the Big Questions b y J A C K L Y N E
With the Internet insistently knocking on the door,
"I can remember doing talks like this four and a half years ago, and I swear I would be talking to two people," DeAndre said.
Pinpointing the e-revolution's impact was clearly the overarching concern at the record-breaking New York World Congress for Corporate Real Estate Executives of the International Development Research Council (IDRC). The insistent buzz inside the Manhattan Marriott matched the intense bustle outside in a revitalized Times Square.
"Nothing in the history of business has had the impact of the Internet," asserted McKesson's Frank Robinson. "We're only at the beginning of how we conduct corporate real estate in this Internet Age. We're all struggling to understand. And he who hesitates is roadkill."
How deeply is the Internet entrenched? Consider how students answered Tyson, Dean of the University of California/Berkley Hass School of Business, on the one thing they'd want if stranded on a desert island. "The majority of them said the Internet. The Internet beat beer," she said.
Real estate is likewise marching to the Internet's insistent beat. The World Wide Web already offers more than 2,000 real estate sites.
"You either change or die -- Web-ify or die," said Ernst & Young's Larry Ebert. "There is a sea change, and there are two reactions: fear or excitement."
BELOW: Reflecting the New York conference's Information Age theme, the Internet Cafe was again jam-packed with attendees who were eager to attend to online business.
Both fear and excitement were obvious in New York. Job One for most attendees clearly centered on getting real estate processes online at maximal efficiency.
But no single easy answer emerged. And it's likely too early for that. Instead, the gathering illustrated an industry striving mightily to find its strategic niche on the Net.
And striving very quickly. A few CRE arms seem to already be leading the way, the New York World Congress demonstrated.
One is Cisco Systems -- a case study in effectively adapting to the Internet. Online orders now account for 97 percent of business, explained Cisco's Maria van Overbeek. At the same time, customer satisfaction ratings are 25 percent higher, and a seven-to-eight week order cycle has been slashed to one-to-three weeks. And with its highly developed online infrastructure, Cisco now closes its quarterly books in a single day.
Cisco is also using the Web to integrate workspace strategies and practices. CRE, for example, provides online tools for service requests, space planning, leasing abstracts, incident and hazard reporting, purchasing, package tracking, and catering requests, van Overbeek explained.
Today's business milieu, though, adds a substantial degree of difficulty in adapting CRE to the e-conomy, Van Overbeek added.
"The business climate used to be a ship on the ocean that sailed from point A to point B. The crew was focused on what happened on the ship," she said. "Today, the business climate is more like a raft on a whitewater river. The focus is external, and how we react to it is the key to success."
Fidelity CRE is another acknowledged leader in the mad race to the Net. And Fidelity's experience demonstrates that online CRE can be a major tool in enhancing Corporate Infrastructure ResourcesSM management.
Many CRE processes, Fidelity's Stephen Bell explained, have moved online, including work orders, project management, move management, space planning, lease management and tenant billing.
"We've also developed our own occupancy projection system to match supply and demand as closely as possible," Bell said. That online tool is doing just that. Two years ago, Fidelity's vacancy rate was 11 percent. "At the end of last year, our vacancy rate was 3.5 percent, and our goal is 0 percent," Bell said. Annual churn rates have also dropped from 100 percent to 60 percent, he added.
But those Web-based technologies have produced broader benefits in infrastructure management.
"These tools are very important in linking CRE, IT, HR and finance," Bell said. For example, Fidelity's finance arm is plugged in to the CRE systems, linking financial forecasting to occupancy planning, Bell explained. And Fidelity's HR arm is linked to the occupancy planning process, enabling better monitoring and management of staffing -- a particularly keen concern, given that Fidelity's work force is expanding annually by 20 percent.
Such linkages are what the Net is all about, asserted Charles Martin Jr., chairman and CEO of the Net Future Institute, a U.S.-based think tank. "Tying together the entire value chain is what the e-revolution is all about," he said.
That's what Fidelity CRE's systems are doing, producing broad-ranging benefits in infrastructure integration, explained CFO Karen Pritchard.
"It's consolidated and streamlined key business processes, increased employee productivity, reduced total ownership costs [and] improved the quality of our space analyses," she said. "And having a single source of data has eliminated conflict. People know where to go for what."
Pritchard and Bell shared a wealth of lessons learned in implementing Web-based technologies to manage infrastructure.
"Having a senior management business unit champion is vital," they agreed. And the resources needed for implementation and monitoring "will be greater than anticipated," they added
Aggressively capitalizing on the Web's infrastructure integration potential is imperative, Pritchard and Bell advised. But it's also difficult. "Don't wait for the next generation. But be aware of the pain," they said.
The New York conference also offered myriad insights into Web-driven disintermediation. Many observers predicted broad-scale real estate disintermediation, particularly in the brokerage sector.
Not necessarily, many speakers contended.
"Disintermediation will not occur," LoopNet's DeAndre contended. "Agents provide access to properties that are not currently available, but are deliverable." Agents also have market knowledge -- a major factor with a decidedly disparate product like real estate, with "no two properties alike," DeAndre added. And a real estate transaction, he noted, is hardly a "no-hands" process, entailing everything from escrow and title to appraisal to contingency renewal, environmental regulations, and property insurance.
DeAndre allowed, "The Internet will fundamentally change real estate transactions." But brokers will develop "value-added services and information that empower the commercial real estate process, [with] economies of scale providing better services and lower prices," he predicted.
Grubb & Ellis CIO Scott Williams sees the Internet actually strengthening the brokerage sector -- or at least part of it. "It hasn't happened the way people thought it would," he said. "We're not really that concerned about it. We think the Internet will make the good service providers better."
If there was one undeniably clear message from the New York World Congress, it was that the industry rules are dramatically changing, perhaps forever.
Said Ernst & Young's Rubin, "Businesses that are based on knowing things that others don't know will go out of business. And in real estate, there is more information available now than ever before."
At the same time, the New York conference indicated that people and their productivity -- the key elements that corporate workspace supports -- remain paramount within the Net-centric focus.
Fortune Editor Thomas Stewart underscored the importance of human capital -- particularly in knowledge work. Knowledge-intensive firms account for 28 percent of total U.S. employment, but they've created an estimated 45 percent of new job growth, he noted.
"And it's not just that we need more people to do knowledge work," Stewart added. "The knowledge content of all work has increased, whether it is clerical, blue-collar or high tech," continued Stewart. "More and more of what we do everyday is handle knowledge, and increasingly the more value-added activities consist of thinking."
Stewart used a striking metaphor to underscore how the focus of corporate workspace has shifted.
"I grew up in Chicago, and when I drove back to Chicago from a summer in Louisiana, I passed through Gary, Ind., which has all these steel mills and smoke stacks," Stewart said. "But today, if you drive in Silicon Valley, you find the place that is the guts of Yahoo -- the core, the center. It's three nondescript servers in a basement, and there's a sign on it that says, 'Do Not Touch.'
"Yahoo doesn't even own them; they outsource them," Stewart continued. "But yet the market cap of Yahoo is greater than the market cap of the entire U.S. steel industry."
Changes just as strikingly radical will continue -- only far, far faster. Cycle times for all things business will continually collapse. Internet years are like dog years; everything happens in fast-forward.
How fast can CRE pin down its strategic spot on the Internet? That's anybody's guess. The seemingly imminent integration of IDRC and NACORE (www.nacore.org) may throw another speedball into the mix. In the end, though, that integration will likely produce a stronger industry -- and one that becomes a major force in e-space.
Even with the Internet insistently knocking on the door, though, CRE operatives must stay focused on corporate strategy. That's what's made IDRC click.
As Gordon Lorig, vice president of Chase Manhattan's Strategic Infrastructure Group, advised in one workshop, "It is very important to talk in executives' language, P&L and SVA, or stockholder value-added. If you don't tee up your projects in that kind of language, you will not get much support.
"Don't talk in generic, general benefits to the business," Lorig said. "Go right to the bottom line."
-- Also contributing to this report: Mark Arend, Tracy Heath and Richard Kadiz.
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Already, the e-conomy is having an inordinately powerful business impact, former U.S. National Economic Advisor Laura D'Andrea Tyson told the opening General Session. The IT sector alone is accounting for 8 percent of the U.S. economy, 35 percent of economic growth and "about half of U.S. companies' investments for equipment," she said.
That transformation has had a major real estate impact, van Overbeek explained. Cisco has reduced its inventory by 45 percent, part of the $175 million savings in annual operating costs from its e-volution. And it's minimized manufacturing requirements by capitalizing on the even higher premium that the Internet Age places on alliances: Cisco doesn't touch 70 percent of the products it manufactures.
Ernst & Young Partner Joe Rubin also weighed in on the disintermediation debate. "The old guys will be replaced by a whole new breed," he said. "The Internet reconstructs the value chain. Does this mean that all brokers will go out of business? We don't think so. We'll see instead whole new groups of online middlemen, with the Internet mostly a connection of online middlemen."
Game Changed Forever?