New Battlefields for the 'Real Estate Revolution': 'Expandable Infrastructure,' 'Demand-Side Space'

Like the larger business world, the corporate real estate industry is in huge flux. Far-ranging issues like infrastructure integration and workplace metrics are the latest weapons of choice in what many call 'the real estate revolution.'

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Photo: Ann Richards with Barbara Hampton“John F. Kennedy visited the Alamo when he was president. At one point he turned to one of his Texas hosts and said, 'Let's get the back door out of here.' "And his host replied, 'Mr. President, if there had been a back door, there wouldn't be an Alamo.' ”
-- Former Texas governor Ann Richards, speaking in San Antonio


The legendary Battle of the Alamo in San Antonio, of course, dates all the way back to 1836. But you couldn't necessarily tell that, not during the San Antonio convening of the International Development Research Council (IDRC), the world's preeminent association of corporate real estate professionals.

The Alamo's remains sat only a few hundred yards away from the San Antonio real estate rendezvous. That was appropriate, since the conference produced an urgent message that reverberated as clearly as rifle fire: Real estate today is very much under the gun, as relentless business pressures storm the gates of business-as-usual.


Above right: IDRC President Barbara Hampton (at right with speaker Ann Richards) called for “more to be done increasing CIR's identity, application and ultimate acceptance.”

Indeed, there's a real estate revolution afoot, insist many observers, including former Harvard Business Review Editorial Director Alan Webber.

"There's a revolution in business leadership and in how you configure your physical space," Webber told IDRC's San Antonio World Congress for Corporate Real Estate Executives. "The only thing that differentiates businesses today," Webber emphasized, "are two variables: innovation and individual talent, what most business analysts call 'the soft stuff.' But in order to make the soft stuff work, you have to redesign the tangible stuff. You've got to reorganize the work space."

Similarly strong real estate advice came from Mike Vance, former dean of Walt Disney University and co-founder of the Creative Thinking Assn. of America.

"We must modify the physical environment, the place," Vance told IDRC. "We've reengineered [processes], but we still have the old architecture in place. Space needs to be more intellectually designed, rather than designed for aesthetics."

Photo: Vivian Loftness, Carnegie MellonThen there was Vivian Loftness, Carnegie Mellon University Architecture Dept. chairman, who challenged many contemporary work-space notions.

"Don't downsize work space too much. It won't save anything, and in the long run you'll end up paying dearly," Loftness cautioned. "We've got to start talking about investing in a flexible infrastructure environment if we're going to truly integrate."


Above left: Carnegie Mellon's Vivian Loftness called for a “move away from blanket workspace servicing to customized, ... expandable infrastructure”

The Integration Imperative
Clearly, transaction-focused real estate has gone the way of the soldiers inside the Alamo, IDRC's San Antonio conference underscored. Pitting old-line real estate strategies against today's discontinuous changes is like using a Bowie knife to stop an Uzi.

Integration, not insular wheeling and dealing, is real estate's best weapon in coping with today's shape-shifting business realities, many experts emphasized in San Antonio. And that's not physical infrastructure like roads and bridges. The conference's biggest buzz centered instead on internal infrastructure -- more specifically, on integrating key corporate support functions like real estate, information technology (IT) and human resources (HR) to optimally support corporate strategy. In fact, IDRC, the acknowledged real estate thought leader, has embraced Corporate Infrastructure Resourcessm (CIR) as part of its mission statement and new research initiative (www.sitenet.com/idrcnet).

But infrastructure integration and real estate alike still face formidable challenges, cautioned IDRC President Barbara Hampton of SNET Real Estate.

"More still needs to be done to heighten CIR's identity, application and, ultimately, its acceptance," Hampton said.

In the long run, though, infrastructure integration will be an idea whose time has come, asserted Gartner Group Vice President Bill Kirwin.

"CIR will dominate corporate real estate," said Kirwin, one of several top-level non-real estate executives who came to San Antonio to provide the broad-range business view essential for true integration. Implementing cross-functional integration is arduous, Kirwin allowed. The alternative, though, is even worse, he cautioned: "If you don't do it, hidden costs will soar. Budget cuts are like hitting mercury with a hammer."


Photo: Alan WebberBloomberg's Integrating Designs
Bloomberg News Service provides a good example of structuring the workplace for maximal integration, said Webber.

"If you want to win today, you have to out-innovate the competition; you have to out-think them," said Webber, now editor of Fast Company magazine. But that's not enough, he added. "It's easy to quickly copy [others' ideas]," Webber explained. "You have to out-implement the competition."

Bloomberg's technology-intensive headquarters on seven floors in a New York City skyscraper is designed to maximize implementation efficiencies among the wide-ranging company operations housed there: television and radio outlets, a wire service, several magazines, plus databases and books.


Above left: “There's a revolution ... in physical space. New business models require new kinds of business space,” said former Harvard Business Review Editorial Director Alan Webber.

"Every guest who comes in that building, . . . which is also where [the U.S. Public Broadcasting System's] "Charlie Rose Show" is taped . . . is passed around to all the functions to maximize the value of the visit," Webber said.

Bloomberg's headquarters design also maximizes casual interaction, an essential in fostering innovative thinking, numerous research studies indicate.

"Bloomberg's elevator only stops in the middle," Webber said. "People have to go up and down floors [on] a stairway in the middle of the building. People have to talk."


A Call for 'Expandable Infrastructure'
Building designs like Bloomberg's, though, remain glaring exceptions. Most existing corporate work space remains ill-equipped to support the integration of infrastructure or people, said several workplace authorities.

"There's an enormous bias toward supply-side thinking," said architect Frank Duffy of London-based DEG. Modern office building design, Duffy explained, still dates to the turn of the 20th century, reflecting that era's lockstep embrace of order and hierarchical organizational thinking. "True design," Duffy asserted, accommodates the real time activities that are occurring inside, an orientation that fixed structural grids preclude. Carnegie Mellon's Loftness also called for a structural shakeup to provide demand-side space. Traditional workplaces, she argued, must give way to a flexibility that bolsters both integration and productivity.

"Would you buy a car with sealed windows or a dashboard filled with preset gauges, instead of one you could adjust to suit your own preferences?" Loftness asked. Such preset options, however, are firmly embedded in most contemporary work space, she added.

"It's time to move away from blanket servicing of the workplace to [customized] grids and nodes that can be delivered on demand," Loftness declared. "There should be a shift from fixed infrastructure to a workstation-based, expandable infrastructure."

Such expandable infrastructure, she contended, should provide users with control over the lighting, IT and HVAC in the facility grids in which they're working. European employers have begun moving in that direction, outstripping their U.S. counterparts, Loftness added.


Metrics Matter
Intriguing ideas all. But how do you sell them to flinty-eyed CEOs and CFOs who toss around corporate capital with all the blithe abandon of Ebenezer Scrooge? Metrics are what matter, many San Antonio speakers stressed.

And metrics there were. One of the more interesting was The Gartner Group's Total Cost of Ownership (TCO) model. TCO measures what's now the most pricey part of the infrastructure integration conundrum -- IT costs.

The analytical tool provides "a holistic view of information technology costs across enterprise boundaries over time, tracking costs with enterprise computing down to the bit level," explained Kirwin, who created TCO, which has helped make The Gartner Group one of PC Week's "100 Most Influential Companies" of 1998 (www.gartner.com).

While TCO's broad-based cost-tracking system may seem complex, its goals, Kirwin added, are simple: "to promote efficiency, effectiveness and value. And infrastructure is the dance floor where all that happens."

And TCO has definite parallels with IDRC's Workpoint Cost model, which pinpoints total costs at each location ("work point") at which corporate work is performed. Both models represent steps forward in quantifying total corporate infrastructure costs, pointed out the Gartner Group's Mike Bell, a former IDRC president.

But The Gartner Group's experience suggests that many firms approach internal integration only with grave reluctance.

"Sixty percent of businesses" are still in "the discovery phase" in adopting an integrated approach to IT costs, Kirwin said. Many others are in "the denial phase, when companies figure out that they're spending $10,000 on IT for each user," he added.

Only later, after "the anger and acceptance phases," can companies begin moving toward "tactical point solutions [and] process metrics," Kirwin explained.


'There Must Be Sanctuary'
Another thought-provoking take on workplace metrics came from Loftness, who's worked extensively with Carnegie Mellon's Center for Building Performance and Diagnostics (CBPD, www.arc.cmu.edu/cbpd), an interdisciplinary university-corporate-federal consortium that conducts extensive research into work settings' physical, social and environmental impacts.

Loftness helped create a CBPD workplace performance matrix with particular resonance for IDRC. One component of that CBPD yardstick includes the IDRC-championed Economic Value Added (EVA) financial management model. EVA, she explained, makes metrics more salable to top decision-makers: It provides a measured internal rate of return on facilities and compares that hard cost data with non-company assets' performance.

Acknowledging top-level resistance to broad-scale workplace changes, Loftness said, "The argument is that it costs too much to do these things. But maybe not. The cumulative value ... over a three to seven year time period could fully justify investing in buildings that offer significantly better organizational, environmental and technological quality."

Loftness went a step further, providing an intriguing counterpoint to many companies' "faster, cheaper, better" mantra.

Cost-justification, she insisted, is only part of the workplace picture. Maximizing productivity requires a more holistic approach, she said, one committed to what Loftness called "the four chief characteristics of a quality workplace: individual comfort, organizational flexibility, technological adaptability and environmental sustainability."

As for the headlong corporate rush toward downsizing and team work space, Loftness countered, "Will everything be non-territorial? Will we eliminate 'ownership' of personal space? Somewhere, there needs to be some sanctuary, some kind of an anchor."


'Train Wreck' Ahead?
It all added up to a new vision of the corporate workplace.

As Webber put it, "New business models require new kinds of business space. . . . Everything used to look the same in work space, but now companies compete on what's special about them. And the first thing people experience is the design of your space. Design is the company, even before your products and services."

Any enduring workplace vision, though, will almost certainly bloom within the context of integrated infrastructure. The evidence of that in San Antonio was simply overwhelming (see "Executive Poll: Infrastructure Integration Snowballing").

But integrating corporate infrastructure won't be pretty. Expect more than a little teeth-gnashing, Kirwin cautioned.

"We think it will look like a big train wreck, at least at first," Kirwin said. "There will be a lot of battles over turf and a lot and politics and one-upsmanship. At first, there will be eyeball-to-eyeball confrontations of different groups.

"Later, things will settle down. Infrastructure can't keep up with business demands. That will force partnerships, and integration, to happen."

If there's comfort to be had during that struggle, Webber provided it -- and from a resounding untraditional source. In what was almost certainly an IDRC World Congress first, he evoked the words of Jerry Garcia, the late leader of the legendary rock band The Grateful Dead.

"Someone once asked Garcia what The Grateful Dead's goal was," Webber explained. "And Garcia said, 'Our goal is to make the music only we can make.'

"Your opportunity in the new economy is to design the space only you can design, the space that's appropriate and right for your company."     SS


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Executive Poll: Infrastructure Integration Snowballing





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