For many strategic business planners, corporate real estate (CRE) is little more than an afterthought. But that may be beginning to change, judging from a recent survey of senior finance executives conducted by CFO Research in collaboration with IBM.
The survey results underscore the need for organizations to shift the orientation of their CRE function, moving from a short-term focus on operational efficiency (characterized by expense management) to a longer-term focus on portfolio efficiency (characterized by increased return on assets). Such a shift recognizes both the financial and strategic impact that CRE management can have on a company’s overall business performance.
The survey identified two key catalysts for bringing about CRE change. One, many companies are planning for growth again, and that growth will require space, in both existing and new locations. Nearly half of finance executives (47%) expect that a change in the scope of their company’s operations will increase their CRE expense within the next three years.
Of survey respondents who already acknowledge that CRE makes a meaningful contribution to their business, more than half (56%) say that the most important objective for their real estate functions is related to growth, either through expanding their business (23%), improving profitability (21%), or increasing revenue (11%).
The second catalyst for CRE change is the Millennial workforce, which increasingly requires a collaborative environment to foster innovation. Workspaces occupied by Millennial staffers must support this environment—form must follow function. In the evolutionary cycle of workplace management, offices gave way to cubicles, which gave way to workstations. Now, even workstations are giving way to “hot desking,” a strategy in which employees outnumber individual desks by design.
In hot desking, employees work in an unallocated space among open tables, workstations, even couches, connected wirelessly via smartphone, laptop, or tablet. Employees may not even belong to a department or a function anymore, but instead may be organized into working “neighborhoods.” In these kinds of open spaces, staffers are encouraged to trade ideas, download data off each other’s devices, and work collaboratively.
Cost Control and Technology
Not surprisingly, even though companies are seeking to expand their operation and real estate holdings, finance executives still look to reduce the overall cost of maintaining those assets. A plurality (44%) say that effective management of corporate real estate assets is most important for reducing costs, and CRE expenses remain a target for cost reduction at three-quarters of the companies in the survey. At 36% of companies in the survey, CRE ranks in the top three costs of doing business (see Figure 1).
Nearly 7 in 10 respondents (68%) say that CRE will provide either a substantial (8%) or a small-to-moderate (60%) portion of their companies’ total cost-reduction initiatives, while another 7% of respondents say that they have already reduced their CRE expenses.
Although CRE strategies are becoming more integrated into corporate strategies, a majority of respondents report that the technology they use to manage their real estate assets may not be keeping pace. Thirty-two percent say their real estate functions still rely on personal productivity tools, such as spreadsheets. In addition to the time required, the level of manual effort involved is susceptible to errors and oversights in data collection.
But even at companies that have specialized corporate real estate systems, finance and real estate executives often need to spend time and resources on integrating these systems with their other enterprise systems and processes; 35% of respondents employ enterprise financial management tools, such as ERP systems, asset management systems, or human capital management systems.
The high stakes involved in CRE strategy raise the question of whether CFOs should consider bringing the real estate function back into the finance fold. It’s clearly no longer sufficient for a dedicated CRE function simply to cut the best deal on a lease term and then move on to the next one. At the same time, the finance function needs to get smarter about real estate, with a view toward using workspaces to increase productivity and boost creativity, above and beyond reducing costs.
IT Takes Collaboration
Balancing growth, culture change, and cost control takes collaboration—turning real estate teams into “true centers of excellence,” says Jeffrey Weidenborner, executive managing director, corporate solutions, at Colliers International, one of the world’s largest providers of integrated real estate services.
To Gary Crowe, CFO of Ricoh Americas (RAC), collaboration means “working with the various business owners, saying, What do you need to be more effective? What do you need, from a real estate footprint, to have the right type of meetings, right type of facility, or right presentation to customers?”
For Crowe, the next significant opportunity lies in “getting smarter with the space I have.” He continues, “It’s not just cost savings from real estate. It’s asking, how do we make employees more productive? Having the ability to access information, the ability to work remotely, to work at customer sites when we’re performing assessments and delivering proposals, versus having to drive back and forth between offices—that’s a productivity play, beyond just the real estate savings.” That means “looking at not just the footprint but at operations, and how we maximize the value of those operations,” says Crowe.
Crowe believes firmly in the principle of aligning workspace with corporate strategy. RAC’s sales strategy is changing to position the company more as a solutions provider, beyond its historical core of hardware and related services. The strategy will require a different approach for the sales offices to succeed. “In three to five years,” the CFO concludes, “I will need to have a footprint to match that changing behavior, based on changing our underlying go-to-market strategy.”
Crowe sees the payoff going beyond simply lowering costs, and he believes that such a real estate strategy is needed to support his company’s changing strategic focus, as well as meet the requirements of the changing working environment. “Beyond just reducing our footprint, workspace optimization could give us an opportunity to invest in even more locations, in a way that we can have a better representation for our brand and better serve our customers, but still reduce our overall cost structure,” says Crowe.
Colliers’ Weidenborner concludes by urging leadership teams to “become smart about your real estate,” which more and more means “aligning your workspaces with the way you do business in a changing world.” This includes figuring out how to configure the workplace in ways that increase productivity, boost creativity, and spur the company’s growth. As a company’s strategies shift, so do its real estate needs, and its portfolio of facilities must continuously be aligned with business realities.