| T |
hey say misery loves company. When everybody is having a bad year, then one company’s troubles don’t look so bad. But even in relative terms, Lucent Technologies, along with its telecom equipment and networking rivals, has endured more than most.
Lucent’s challenge of spinning off non-core businesses would have been enough: Jabil Circuit in Shanghai, Solectron in Andover, Mass., Optical Fiber Solutions in Norcross, Ga., to name a few. The most recent sell-off was completed in August with the sale of the company’s California-based Enhance Services and Sales division to International Network Services, a unit of West Coast Venture Capital. The company is also pursuing the unpleasant halving of its work force to reach the optimal employment level of 50,000, though some analysts predict an even lower number. The most recent step was taken in July, when along with announced third-quarter losses of US$7.9 billion, the company said it would cut 7,000 more jobs. The telecom industry as a whole cut around 453,000 jobs in the 17 months ending in May 2002.
But not all the news is bad. The tens of thousands who work for the company are more focused than ever on the core business of providing telecom networks, software and equipment to the world’s largest communications service providers. The company’s international reach has extended beyond new business contracts with telecom firms in the U.K., Poland, New Zealand and South Korea to include internal developments like a new company training center at its Middle East headquarters in Riyadh, Saudi Arabia, where Lucent is one of many multinational corporations helping Saudi Arabia develop a nationwide digital network.
Meanwhile, the outsourcing of manufacturing has brought the management of global real estate assets to the forefront.
In the midst of this maelstrom, but with his hand firmly on several sets of controls, stands Lucent Vice President of Business Services Tony Marano, whose leadership extends from e-business services and design to the company’s aviation group, and includes global real estate. The award-winning R&D workplace transformation program called Project Atlas that he led several years ago contributed substantial savings to Bell Labs’ operation and the corporation as a whole, and he is using some of the same holistic thinking to address today’s multiple challenges. Key to the sea changes in both the company and the industry as a whole has been the strategic implementation of corporate real estate outsourcing.
From his office in Murray Hill, New Jersey, Marano took some time to speak with Site Selection Managing Editor Adam Bruns.
Tony Marano: Let me go back to the origin of Project Atlas. We had a considerable amount of Bell Laboratories R&D space which dated back to before the word “software” was even invented. Now 80 percent of what we do is software-related, and the workspace required for that type of R&D work is considerably different. The technology of the past is considerably different than that which our R&D of today is based on.
We did a review and decided that selling our existing properties and moving toward more ergonomically and technically suitable space was not feasible. The problem with that was to find the type of space we need: four facilities were [needing] over 1.5 million sq. ft. [139,350 sq. m.], would require a considerable amount of money, and chances are it wouldn’t be in the vicinity of where we are and we would lose people.
So we came up with a different recommendation, which was to retrofit our buildings, via the Project Atlas method. Reduce the churn rate, increase occupant satisfaction, and have a leading-edge communications infrastructure. We now have basically box and plug-in moves, and we’re able to respond much more quickly.
|
TONY MARANO
TITLE: Vice President, Business RESPONSIBILITIES: In this role, he leads the following organizations: Financial Systems Development and Process Design; Asset Management, Billing, Accounts Receivable and Working Capital; Global Financial Services; E-Business Process and Design; Consumer Leasing; Global Real Estate function and the Aviation Group. BACKGROUND: Marano served as AT&T Real Estate Vice President and vice president and CFO of AT&T Contract Services Organization before the spinoff of Lucent Technologies from AT&T. A 1973 graduate of Rutgers College, Marano earned his Master’s degree in Business Administration from Fairleigh Dickinson University in 1978. In addition, he has attended Duke University’s Fuqua School of Business and the London School of Economics. Long active in the former International Development Research Council, he has also been involved in community foundation work. |
Marano: We have 517 locations, about 70 percent leased. Administrative space occupies 40 percent, R&D is 30 percent, manufacturing and warehouse is about 30 percent. We have about 40 million sq. ft. [3.7 million sq. m.] total — about half owned, half leased. Reductions have been the result of a couple of things — we sold some businesses, downsized as a result of layoffs, and we’ve outsourced a lot of the manufacturing.
Marano: About 2 million sq. ft. [185,800 sq. m.] were sold and we’ve leased back about 1.3 million sq. ft. [120,770 sq. m.] of that. We only have one minor synthetic lease.
Marano: CRE is one of six functions that report to me. In real estate, we have outsourced a component of all the services. It’s fully integrated: asset management, strategic planning, transactions, engineering, design, construction, administrative services. Around the world, we’ve generally outsourced property management, and a great deal of the engineering, design and construction by region, whether for construction management or architectural services. We have exclusive brokerage agreements with Cushman & Wakefield and CB Richard Ellis. They provide staff on the ground. Generally that’s the way we operate, and it’s been a big transition from where we were.
Marano: In order of priority it would be expertise first. We’ve been very fortunate with our outsourced suppliers. We have seen both the quality improve as well as our cost of operations reduced. In a downsizing environment, it does give us a degree of flexibility. However, we still have an obligation to [spread] the resources, in terms of combining tasks, so we can leverage our total business to get the best financial deal we can. We tend to include incentives in packages as part of our contracts, where if the supplier reaches certain targeted performance levels, they receive that incentive, and that works well. In terms of scalability, I don’t really notice a great deal of difference. Mainly commodity services, except when we had the tight labor market a few years ago.
Marano: You’re not selling real estate, you’re selling a manufacturing business, and the manufacturing facility can either be a positive or a negative in that transaction. If a contract manufacturer has excess capacity somewhere else, you’re left with an asset. If it’s useful, it becomes less of a burden. Real estate does not dictate the transaction, it’s dictated by the business discussion. Needless to say, as miniaturization has occurred in the technology area, our manufacturing sites were built in a different time and [according to a different] model, and would not be the ideal model for today.
Marano: It started with the spinoff of Lucent from AT&T, which was massive. Whether an acquisition, spinoff or divestiture, the first thing we do is establish a set of principles. We use the majority tenant rule — if you’re in a leased facility, whoever’s the largest tenant, and the minority tenant becomes a subtenant. If owned, the building goes to a majority tenant. Then there are issues around sublease conditions, service provision, transitional services, that over the years we’ve really refined from an art to a science. We deal with ID badging, security, use of fitness centers, a lot of things.
In terms of split-ups, many co-locations go on for years. [Co-location] is probably 10 percent of what it was five to six years ago. The spinoff of companies is the real estate lawyer’s full employment act. Basically, over time, we see a lot of [uniqueness], but don’t try to force ourselves into that process.
Marano: Right now we’re involved as part of the planning process, looking at the real estate footprint worldwide. We feel in line with the company strategy.
Marano: It varies all over. We look for between 5-10 percent a year. The first year you may get more, and then for a couple of years it will be down as you work through longer-term issues.
Marano: I’m sure that would be considered proprietary. But clearly we did it for that reason.
Marano: We tend to look at two things — financial metrics and customer satisfaction metrics. We do surveys, and based on the occupant’s customer satisfaction, there would be an incentive associated with that. Then financial performance … whether it was under budget, etc. It’s pretty simple. A lot of it is expectations. We don’t provide services like Park Plaza. If the occupant has a level of performance in mind that is not consistent with what we do, that will impact it. It may be completely consistent with what we do. Once we get everybody on the same scale, you can measure it. As for financial performance, you can never avoid having that as a measure.
