Risk & Compliance

Finance Executives Doing the Heavy Lifting

Why corporate redesign efforts are an exercise in logistics, diplomacy, and patience.
Julie Carrick DaltonMay 1, 1999

William Kelly, chief financial officer of Boston Partners Asset Management LP, may not have a background in climate control, data transfer, information technology, or crisis management, but recently he received a crash course in each when he oversaw the redesign of the investment firm’s new office space.

Kelly’s Boston-based company was bursting at the seams early last year, having grown from zero dollars under management and 30 employees in April 1995 to $16 billion and 90 employees three years later. To accommodate that growth, Boston Partners needed to remodel and fully equip two trading rooms, a telephony room, and a computer room, in addition to building new office space. And the whole project–35,000 square feet of new space–had to adhere to a tight six-month time frame.

“We didn’t have time to have meetings, then have more meetings to update me. I needed to be at the table,” says Kelly, who worked closely on the $1.7 million project with architects, engineers, climate-control specialists, and an outside facilities consultant, as well as the heads of his firm’s information technology and administration departments. And to keep the project, which ran from March until September 1998, on track, Kelly faced a multitude of decisions, from the mundane–what color carpet to order–to the critical–what type of computer-cooling system to install–without the luxury of time for analysis. “I had to make decisions on a daily basis, any one of which could have added time or cost to the project,” says Kelly, who had participated in two earlier redesign efforts. “It was a humbling experience,” with lots of potential for catastrophe along the way.

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Because Boston Partners is an investment firm, Kelly had to guard against any downtime in information technology. There were also several potential crises to avert, including a snapped sprinkler head that caused water damage right before the project’s completion, and a strike by telephone vendors. “We had to leave our old space, but the phones in the new space weren’t working,” he recalls. The phones did come on line at the last minute, but the near-disaster gave Kelly a fresh perspective on facilities operations. “Let’s just say I have a new appreciation for what these projects entail,” he declares.

That appreciation is shared by a growing number of finance executives, who are getting their hands dirty in office redesign. Part of the reason for their increased participation is the sheer pervasiveness of corporate expansion programs. Thanks to the booming economy, such efforts have increased significantly over the past three years, says Kristin Hill, a principal with Natick, Massachusetts-based Design Management Corp., a facilities- planning and architectural firm. Hill estimates that “50 to 75 percent of all companies” are either moving, expanding, or renovating their current space.

And with real estate and construction prices skyrocketing, companies are using the finance department as a safeguard on expansion projects. “It only makes sense to have financial controls on these types of projects,” says Hill. Having the CFO involved, says Charles Lee, CFO of the Council for Advancement and Support of Education (CASE), “provides the justification and rationale for every expense, and ensures that every decision is rooted in [increased] productivity.”

A Different Perspective

Traditionally, corporate redesign and expansion have been the domain of real estate or facilities departments. In the past five years, however, the involvement of finance executives has increased about 25 percent, estimates Hill, who adds that their involvement brings a new perspective to office architecture.

Aside from securing the necessary financing, she says, CFOs ask such questions as: Will building walls build productivity? Will opening space open communications and boost profitability? What colors and style will help attract and retain employees? Does it makes more sense to lease new furniture than to buy it? Should the company sublet extra space? “No one thinks of these things except the CFO,” says Kathy Guilfoyle, CFO of Citizens Bank of Massachusetts, a $6 billion bank that recently moved into a new, three-floor location in downtown Boston.

While the breakneck pace of redesign projects makes some finance executives uncomfortable, Lewis Goetz, CEO of the Washington, D.C., firm Greenwell Goetz Architects, believes that they are well suited to the task. CFOs have a unique understanding of how a workplace should mirror what the CEO wants and what employees and clients need, he says. In addition, says Robert Sherwood, managing director of the design firm Pace Corporate Services/CRESA, in St. Louis, “While they tend to be left-brained people, [finance executives] recognize that aesthetics do tie into financial performance.”

At Loomis, Sayles & Co. LP, a Boston-based investment firm with about $71 billion in assets under management, for example, chief operating officer and former-CFO Mark Holland says that aesthetics played a major role in the design of all 12 of his company’s offices. “We go for high-end everything. Class A office space, high-end furniture. As people tour our offices and trading rooms, we want the high-quality equipment and furniture to represent our company. It’s important to our image.”

But Holland, who has overseen redesigns in eight of Loomis’s offices over the past 10 years, acknowledges that what is pleasing to the eye can be painful on the budget. For example, the latest redesign in the Boston office cost $60 a square foot for the build-out alone. To keep costs down, he negotiated discounts from national distributors of up to 40 percent on furniture contracts and communications services. Workstations, while top quality, come apart and can be moved if necessary. “We definitely want the best, but we are cost conscious, too,” he says.

The decor for Blue Cross Blue Shield of Illinois’s new, approximately one million square feet of Chicago office space, on the other hand, needed to be much more conservative. As a not-for-profit health insurer, with 4,500 employees in the building, it could not give the appearance of extravagance. In addition, Brian Kennedy, vice president and treasurer of the $7.8 billion organization, wanted the reconfigured space to be flexible and aesthetically pleasing. “We didn’t want our headquarters to be a museum. None of us had an ‘edifice complex,’” he says, of the five-member design team’s decision to use an open floor plan and open up the entire south side of the building so all employees could look out the window.

Juggling Constituents

To raise the necessary funds to pay for the $200 million project, Kennedy worked with rating agencies, such as Standard & Poor’s Corp., to assess the financial impact of building versus leasing new space. And in the end, Blue Cross opted to construct new space because adequate contiguous office space couldn’t be found and because the company wanted to keep its expansion option open.

That decision, however, involved juggling the interests of numerous constituents–a balancing act that accompanies most redesign projects. Lee, for example, found himself testifying before the Washington, D.C., city council in order to secure Industrial Revenue Bond financing for its $23 million overhaul of an older building. Internally, he acted as the liaison between the facilities committee and CASE’s board of directors. “I had to convince board members it was cheaper to spend $700,000 on new furniture than it would be to lease furniture or refurbish and move all of our old stuff,” he says.

Then there is an endless stream of creative professionals to deal with. Kennedy, for example, examined carpet swatches with a designer, and Kelly learned the finer points of climate control from engineers. The long list of vendors typically includes architects, real estate agents, construction companies, furniture distributors, information technology teams, movers, stationers, and public-relations specialists. “CFOs have the common sense to admit they are not experts in any of these areas. So they ask a lot of questions and do research,” Sherwood says.

Probably the most important constituents to listen to, however, are the employees whose space is being altered. “If a company is wise, it includes at least the heads of each department, if not other employees, in the process,” Hill says. Without their input, she says, companies are only fueling the anxiety that accompanies any move, and may design a space that doesn’t fit employees’ needs. Ultimately, she says, “there’s always an interruption in productivity. The trick is to keep it to a minimum.”

Kennedy, for example, invited employees to stop by a “showroom” he had set up in the existing space and test out furniture and comment on the decor before he made final decisions. In addition, he put employees through time and motion studies to arrive at the most “ergonomically efficient seating arrangements” and eliminate the $5 million to $6 million a year he was regularly spending to reconfigure space. And in the end, he followed a national trend and reduced the average work space per employee. (Nationwide, the average employee work space at corporate headquarters has decreased from around 287 square feet per employee three years ago to about 200 square feet per employee, according to a Deloitte & Touche study.)

“We wanted employees to have a better work space. They ended up with 12 percent less square feet [per person], but we make efforts to make it less noticeable to them.” Those efforts included spending several million dollars to upgrade the furniture and equipment–an investment Kennedy says was well worthwhile.

How Much is Enough?

Although most finance executives describe a sense of satisfaction when a redesign is completed, it’s not something they want to repeat on a regular basis. Consequently, most redesigns are done with future growth in mind. Guilfoyle of Citizens Bank, for example, recently moved her company into new space that she estimates will accommodate three-to-five years’ growth. As an added safeguard, however, she negotiated options on additional floors in the building, noting that “the key was not only to have the options, but to negotiate the same lease rate we already had for our other floors.”

Guilfoyle’s time frame, says Hill, is increasingly common. Whereas companies used to make 10-year plans, now 3- or 5-year planning is more typical. Most CFOs are not ready to gamble that recent growth will continue, she says. Still, most realize that it is less risky to take on too much space and sublet or not use it than it is to take on too little space and be forced to redesign or move again in a few years.

Kelly of Boston Partners, for example, locked in 35,000 square feet of office space, compared with the 13,000 square feet the company had previously occupied. Because it is more space than they need right now, Kelly and his team designed several large conference rooms and common areas that could eventually be converted to additional office space. CASE’s Lee, on the other hand, opted to sublet the extra space his organization leased until it grows into it. “Three years ago, we spent $475,000 on a redesign of our old space. And we were spending more than half a million dollars a year in rent and utilities, but not getting anything back for it. This time, we planned better,” he says of the multimillion-dollar project.

Most experts expect to see more finance executives getting involved in office redesigns. And finance executives agree that their participation makes a difference. “I had the typical role of cost/benefit analyst,” says Guilfoyle. “But the real value I added was recognizing the hidden costs and opportunities no one else could see.” Kelly cautions, however, that finance expertise is not enough, and strongly recommends having advisers “to help you work through all the details.” After all, he says, “if it’s not done the right way the first time, it’s going to come back to haunt you.”

Julie Carrick Dalton is a freelance writer based in Woburn, Massachusetts.