Despite its taking place on a chilly November day, the Roman god Janus would have felt right at home at Jones Lang Wootton’s 4th Corporate Real Estate Leadership Forum. Janus, for whom January is named, is the god with two faces, one looking back and the other facing forward. Although he looks in both directions, Janus symbolizes new beginnings; he stands on the threshold of the way things were and the way they will be.

Jones Lang Wootton (JLW), which is finalizing a merger with LaSalle Partners, organizes the Corporate Real Estate Leadership Forum annually. The theme of the November 1998 gathering was “Focus on Innovation,” a theme well chosen, given the period of transition both JLW and the corporate real estate industry are enduring.

An almost palpable sense of “we’re all in this together” characterized the daylong event, which was held at IBM’s corporate headquarters campus in Armonk, N.Y. In a ski-lodge-like education center, located a short walk from Big Blue’s gleaming, new corporate headquarters building, corporate real estate executives struggled to find ways to better connect with the business units they serve back in their organizations, with senior management and with service providers they rely on for business solutions. Following a tour of the new IBM building, JLW executives moderated several discussions designed to add value to attendees’ corporate real estate experience.

New Value Measures Needed

Roundtable attendees generally agreed that what worked in the past won’t work in the future. Ways in which corporate real estate executives relate to their organizations are evolving — theirs is a service provider role now, rather than an administrative support function, as was the case, for instance. New ways of measuring and valuing workspace are required, because yesterday’s tools are too blunt. And the skill most sought by CREs in tomorrow’s corporate environment is the ability to demonstrate to business unit chiefs that they understand the division, how it makes decisions and what its facility requirements are and will likely be.

More important still is the ability to work with business unit heads to obtain from them the intelligence needed to manage the CRE function in a non-threatening way. Conversely, working closely with business units now means providing department heads with intelligence they need to manage their domains cost effectively.

In essence, what’s different about the old way of doing things and the new is the imperative to think about other organizational entities in a non-territorial context, which goes for non-CRE managers as well. The corporate real estate officer must be thought of as an ally, not an adversary, or dialogue will be reduced to discussions about cost-cutting, churn and who has the final say on new floor plans.

Be Integral to the Game Plan

IBM’s Lee A. Dayton, vice president, corporate development and real estate, made a similar point in a presentation on the CRE’s integral role in business planning strategies, particularly in the context of mergers, acquisitions and divestitures. The latter, says Dayton, gets too little attention in the corporate world, but are just as important a task to the bottom line. Illustrating the importance of close CRE ties to other business units, Dayton suggested that to divest assets wisely, it’s best to decide when to get out of a facility and then work back three and a half years to begin the process of divestiture.

“That means you have to be an integral part of the corporate game plan,” Dayton stressed to the CREs in the audience. Certain forces are givens in today’s industrial climate, he explained, including smaller facility footprints, price declines and shorter production cycles, not to mention third parties’ ability to do the same function more cheaply. So certain facilities will have to go, he related. “You can think through where that will happen to you, if you have a corporate team spirit.”

Then, as if Janus himself had inspired Dayton’s remarks, the IBM veteran added this observation: “It’s easy to identify the macro trends. You have to have the confidence as a business that you’re right. Maybe you’re off by a year or two, but in the greater scheme of things that doesn’t matter. But you have to get out of the normal corporate process, frankly, to do this.”

Having “the confidence as a business that you’re right” is no small matter when building a new corporate campus or closing plants and causing layoffs or acquiring a competitor — thereby doubling real estate assets — are involved. But the stronger the team, the better the decision — that’s one rule of business that likely won’t change. At all too many organizations, though, CREs are a step or two, or more, outside the loop. The good news is that’s changing.

The Challenge to Demonstrate Value

“Many clients tell us they experience enormous disconnect with their [internal, business unit] clients when it comes to interaction,” noted Mary Liz Murphy, JLW’s senior director, corporate and advisory services, in remarks beginning a discussion on using measurements valued by business units. “They’re having trouble communicating and measuring the percentage of value they create on a shareholder-value level,” she added. “The value that CREs can create is directly proportional to the level and quality of the interaction you have with your business units. This reinforces the need to have metrics as a way to educate and communicate with clients.”

Changing business cycles and heightened merger activity in many industries complicate assigning values to the corporate real estate function’s contribution to organizations’ ability to meet their strategic goals, Murphy asserted. “But there is an opportunity for corporate real estate to become a strategic enabler,” she noted. Management has been heavily focused on maximizing shareholder value throughout the 1990s. “But senior management has come to realize there is a second bottom line — the workers.” By increasing efficiency, raising worker retention levels and implementing more innovative workplace strategies, “it is possible for CREs to provide more leverage and be at the forefront of corporate strategy.”

Industry surveys, including an impromptu poll of Leadership Forum attendees, identify the following as issues the CRE profession considers to be priorities: improving service quality; improving physical asset utilization, cutting occupancy and operating costs; developing global facility operations; establishing a P&L structure for the corporate real estate unit; strategic planning; responding to corporate growth; developing alternative office strategies and implementing shared service models.

Still other challenges before the industry include devising new, non-square-footage-based work space measurements; working effectively with customers; evaluating internal strengths and weaknesses; and developing and implementing systems for delivering management-mandated projects. Looking objectively at their increasingly complex roles in their organizations, attendees were fast appreciating the importance of finding new ways to add and demonstrate value.

The Business Unit Buy-In

Most on the minds of roundtable participants mid-way through the day were arriving at a viable strategy for sensitizing business units to the importance of the CRE function. In some cases, it’s a matter of establishing authority or gaining authority from senior management to implement programs and measures that bring about desired results. Early involvement in acquisition/disposition moves helps some CREs stay in the loop. Others take a different tack.

“We try to market our contribution to the organization, what we do and the value we create — we promote ourselves,” related one participant. Another explained how the corporate real estate function has evolved at his organization, a money center bank, into a shared services model. “When we were an administrative services organization reporting to an executive vice president, we were protectors of the assets of the corporation,” he explained. “Shared services have turned that around to where we’re more transaction-oriented. It’s not that we’re not going to be part of the strategic planning, but once that process is established, it’s up to us to hit the ground running and bring the deal to pass. Our strategic involvement will be more in terms of not where properties are located and how big they are, but in terms of leases, expansion options and the like. We are supposed to look more and more like the service providers that come to us.”

Another participant recalled business units’ attitude to involving corporate real estate in strategic planning in decades prior to the onset of business processing reengineering as one of blatant disinterest. Profits were rolling in, growth was strong, and business units had the freedom to build and expand as they saw fit.

There was no mistaking business units’ reaction to CRE suggestions that future resource requirements be analyzed in a cross-functional team environment. “Doors were slammed,” he recalls. “When a [resource] measurement system was put in place in the early ’90s and a new CFO came in, suddenly the units were scurrying around, because part of their strategy was to reduce costs, and occupancy costs were one of their biggest. Suddenly they were knocking on our door.”

Exactly, others concurred. “When they realized they had tremendous cost-cutting targets, we were the first ones they came to to ask how to do it,” another participant related. “The way to get their confidence is to produce better results,” he stressed. “Once you do that, they’ll knock on your door every time. It’s a self-fulfilling prophecy.”

Tips for Forging Closer Ties

Other measures will facilitate the process, noted Thomas H. Wenkstern, also a JLW senior vice president, corporate and advisory services. Gaining the ear of the right person in the business unit, ideally a key decision-maker, is critical. More so is the need to establish where authority to implement change lies. Is it solely with the business unit head, solely in the CRE or infrastructure manager’s domain, or is it a shared responsibility?

“There is explicit authority, and there is implicit authority, and then there’s moral suasion,” Wenkstern observed. “Many times you have to use all three in order to accomplish something. If you don’t have the explicit authority, then you have a much harder row to hoe.”

Summarizing other points made in the session, Wenkstern outlined several ways to forge closer ties to corporate business units. They include:

• Market yourself as someone who can help the company control costs and better manage the business.
  
• Adopt a service provider mentality. “Making a business case that you’re as lean and mean as anyone else out there is a good way to attract attention to the benefits you can provide within the company.
  
• Truncate project delivery systems. “The longer it takes, the more it will cost.”
  
• Participate in the capital budgeting process, if possible. “If you can get involved in the pipeline at that level, you’ll see everything going on and have a better opportunity to impact things.”
  
• Get “face time” with key business unit players. “Social contact goes a long way toward better dialogue, and it breaks down barriers of communication.”
  
• Figure out how decisions are made. “If you don’t know the territory you’re dealing with, there’s a small chance you will be successful at what you’re doing.”
  
• Share information. If you start giving business units more frequent information about real estate costs or other issues that affect how they conduct their business, you may get a better reception from people and even be taken into their confidence. This is a very effective marketing tool in enhancing credibility and improving how you do business with them.
  
• Establish P&L responsibility and cost impact structure. “Activity-based costing is one of the key tools developed over the past few years to show the costs associated with business processes.”
  
• Educate your customer. “Educating the business unit on what you do and how you can be of value to them is a big key to success.”     SS