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Challenges and opportunities in aligning real estate and the ...

  1. 1. Journal of Corporate Real Estate Volume 5 Number 3 Challenges and opportunities in aligning real estate and the workplace with business strategy: A survey of leading CEOs Lucy E. Allard* and Christine Barber** Received (in revised form): 10th March, 2003 *Managing Director — Consulting, CB Richard Ellis, Inc., 140 East 45th Street, 40th Floor, New York, NY 10017, USA; Tel: 1 212 370 7210; Fax: 1 212 986 9865; e-mail: **Director Workplace Research, Knoll, Inc., 105 Wooster Street, New York, NY 10012, USA; Tel: 1 212 343 4007; Fax: 1 212 343 4180; e-mail: Lucy E. Allard is a Managing Director of CB business issues including worker productivity, Richard Ellis’s Consulting group, based in New corporate innovation, employee attraction and York City. She helps corporate and public sec- retention, social and cultural trends, changing tor organisations develop portfolio optimisation workforce demographics and, most recently, strategies on a global, national, regional and business strategy implementation. Christine has single-market level. She also assists companies conducted extensive workplace research with with re-engineering and re-positioning their in- leading companies throughout North America ternal corporate real estate organisation. Lucy and is a published writer on workplace trends. In has spearheaded CB Richard Ellis’s latest re- addition, she frequently conducts manage- search studies to explore emerging trends and ment seminars at major corporations and future directions that impact corporate real es- lectures frequently for the American Manage- tate strategy and presented the results of these ment Association, CoreNet, the International studies at CoreNet’s most recent Global Sum- Facilities Management Association, the Interna- mits. tional Society of Facilities Executives and the Lucy joined CB Richard Ellis six years ago American Institute of Architects. Christine has from London, where she qualified as a chartered also been a guest lecturer at major universities surveyor. Last year, she was featured in Real throughout the USA. Estate New York’s ‘40 Under 40’, where she was identified as one of the ‘top young stars of New York Real Estate’. ABSTRACT The following paper contains the results of Christine Barber is Director Workplace Re- a global benchmark survey conducted among search in the Global Business Division of Knoll, more than 200 CEOs from some of the Inc., a premier designer and manufacturer of world’s ‘Most Admired’: leading Fortune 500 workplace solutions. She has over 18 years of and Global 500 companies. The survey was international research experience and serves as designed to identify, from the perspective of the a consultant to leading Fortune 500 companies. CEO, practices that are essential for effective Journal of Corporate Real Estate Her work focuses on the relationship of the execution of corporate strategy. In all, 34 Vol. 5 No. 3, 2003, pp. 213–220. Henry Stewart Publications, physical work environment to a broad range of practices were studied to determine which are 1463–001X Page 213
  2. 2. A survey of leading CEOs most important to strategy execution. Reloca- is to enable a company’s strategic goals, the tion of a corporate headquarters, or other major value and contribution of real estate and facility, and redesign of the workplace were two workplace decisions to business strategy of the practices considered in the research. By execution continue to be misunderstood including relocation and redesign within the and, in many cases, under-appreciated at larger context of strategy execution — one that the senior levels of the organisation. This considers a broad spectrum of operational, reality is underscored by the research find- market and organisational dynamics — the ings reported within this paper. While the relationships between real estate, workplace and findings help to highlight key relationships other essential practices could be uncovered. The among real estate and workplace with a results show that real estate and workplace variety of operational, market and or- design do synchronise with, and contribute to, ganisational dynamics, they also show that, the success of changes required in other areas from the CEO’s perspective, there is work that are critical to execution, making it impor- to be done to leverage physical assets tant for companies to examine closely the more successfully in the pursuit of strategic impact of real estate and the workplace on goals. company strategy. In order to place real estate and The results also confirm CEO awareness of workplace within a larger strategic con- the strategic value of real estate and workplace text, one that goes beyond the traditional design, since all who reported relocating or financial metrics that currently define the redesigning the workplace did so in order to industry, and to understand their relation- execute strategy. More significantly, however, ship to practices that are absolutely the findings reveal that a high percentage of essential for successful strategy execution, CEOs who reported carrying out a move or a CB Richard Ellis, Inc. and Knoll, Inc. redesign did not perceive that these changes co-sponsored a global benchmark study to effectively contributed to strategy execution. learn about and identify those practices. While the explanation for this finding is The study was completed at the end of beyond the scope of this study, it does suggest the first quarter of 2002. The Hay Group, one of two things: either real estate and a global human resources consulting workplace professionals need to master a better firm, conducted the research and the understanding of how to align real estate primary sponsor of the study was Fortune strategy with business strategy in order to add magazine. value; or they need to be able to measure better the value and communicate it to the CEO. BACKGROUND Keywords: strategy execution, cul- The Hay Group partners annually with ture, business process, measurements, Fortune magazine to identify America’s technology, executive roles, com- and the world’s ‘Most Admired’, most munication successful, public companies and to learn about and share the practices that make them the most successful and admired INTRODUCTION in their industry. More than 200 CEOs The proactive and strategic planning and from Fortune 500 and Global 500 com- management of corporate real estate and panies participated in this latest global workplace infrastructure continues to be a benchmark study. The primary objective challenge for many organisations. While of the research was to gain insight into the the ultimate goal of any corporate resource strategy implementation practices of major Page 214
  3. 3. Allard and Barber corporations. This included identifying implementation plan to holding execu- practices that are essential for strategy tives personally accountable to staying the execution, as well as identifying the bar- course and celebrating milestones. In to- riers to strategy implementation. In addi- tal, 20 factors made up the list of prac- tion, the research enabled a comparison tices, and CEOs ranked each according to of strategy implementation practices be- whether they had occurred to a very great tween the leaders — that is, Fortune’s list extent or not at all. of the top three rated public companies in The study also explored the need for 58 industries — and other peer companies other, more fundamental changes that on the Fortune 500 list. In total, 115 may have been necessary to execute leading companies and 88 peer companies business strategy. This list comprised participated. 14 items. CEOs were asked not only whether changes in these areas were necessary, but whether the changes, when RESEARCH OBJECTIVES made, had been successful to date. These From a real estate and workplace perspec- factors were also varied in scope, ranging tive, the objectives were the following: from the need for executive teamwork, to skills and competencies of employees, to • To determine if changes in the loca- changing business processes and corporate tion of corporate headquarters, or other culture. It was within this list of more major facilities, were required to imple- fundamental changes that the location of ment business strategy; corporate headquarters, or other major • To determine if changes in the design of facilities, and the design of the physical the physical environment were required environment were included. Other areas to implement business strategy; were also investigated, such as overall • The success of those changes, when clarity of the business strategy and made, in effective strategy implementa- whether the company operates within tion. short-term or long-term objectives. The authors were also able to derive correlations of real estate location and PRACTICES CRITICAL TO STRATEGY workplace design with those factors that are EXECUTION most essential to successful implementation The study’s findings reveal some key of business strategy. The essential factors differences between leading companies identified differentiate leading companies and peer companies in their ability to from peer companies in that the leaders are implement business strategy successfully. stronger in these areas and as a result are able While both leaders and peers agreed that to execute more effectively than their having a clear, overall business strategy is peers. important, peer companies reported less continuity in business strategy, chang- ing strategies more frequently than the OVERVIEW OF THE FINDINGS leaders, and not implementing as suc- CEOs were asked to report on the ex- cessfully. Significant differences between tent to which various practices occurred leaders and peers were also found in terms to implement their company’s business of communication, with leading com- strategy. These practices were diverse in panies reporting that their strategy had scope, ranging from having a detailed been well communicated and was under- Page 215
  4. 4. A survey of leading CEOs Figure 1 Of the 115 leading companies that participated in the survey, CEOs from nearly one third of them reported changes in location in order to implement business strategy 28% 46% Significant change Some change A little change 26% N 32 out of the 115 leading companies surveyed stood by management throughout the company’s ability to execute strategy suc- company. In addition, leaders tended to cessfully because they are closely linked to have a more balanced approach with these four factors. respect to short- and long-term strategic planning objectives, with peer companies reporting a shorter-term view. As a side RESULTS FOR REAL ESTATE note, real estate and workplace design The following results focus specifically were also highly correlated with a on CEOs from leading companies who longer-term strategic view, which should reported that they relocated corporate come as no surprise given the magnitude headquarters, or other major facilities, of investment in these areas. in order to implement business strategy. Results reveal that there are four critical Despite the magnitude of a major cor- factors that rise to the top when it comes porate move, 32 of the 115 CEOs sur- to strategy implementation. The leading veyed in this group reported that they did companies excelled in these areas, which change location to execute strategy to a sets them apart from their peers: great degree or to some degree. Although 47 per cent of the CEOs indicated that • Clarity of roles and accountability at all the relocation was very successful in sup- levels of the organisation porting their strategic goals, 53 per cent • Teamwork among executives reported the moves were only somewhat, • Performance measurement and tracking a little or not successful. of progress Results also uncovered several other • Culture. areas of strategy execution with which real estate is associated. In order of The findings also demonstrate that real strength of correlation, these factors estate and workplace play a role in a include: Page 216
  5. 5. Allard and Barber Figure 2 Most companies that changed the location of corporate headquarters or other major facilities to implement business strategy reported that the change was very successful or somewhat successful 15% 47% Very successful Somewhat successful 38% Little or no success N 32 out of the 115 leading companies surveyed • Success of workplace design RESULTS FOR WORKPLACE DESIGN Relocating is an opportunity to rethink Nearly half of the 115 CEOs from leading space. Companies are not restricted by companies that participated in the survey past practices; they often seek to reported that changing the design of the leverage the move as an opportunity to workplace was required to a great degree reinvent and improve how they do or to some degree in order to imple- business and provide an environment to ment business strategy. Only 37 per cent support it. reported that the redesign was very suc- • Clarifying executive roles cessful. Relocation is an opportunity to rethink The following results, however, belie how executives relate to the organisation the CEOs’s reporting of overall success and to each other. It is an opportunity to rates, since these findings demonstrate challenge existing practices and norms as that workplace design facilitates a com- well as to explore improvements in how pany’s ability to make necessary changes the organisation operates. in other areas of practice that are essential • Success in changing the technology for strategy implementation, including the As new technologies become available top four factors. In order of strength of a corporate move may be required to correlation, these areas include: achieve access to new capabilities or infrastructures. • Relocation of corporate headquarters and • Products or services provided to customers other major facilities Location not only provides physical It is clear from the results that relocation proximity to markets, but can be an of facilities and workplace design are important determinant in the company’s highly interdependent. The success of ability to acquire needed skills and one is closely tied to the success of the talent. other. Page 217
  6. 6. A survey of leading CEOs Figure 3 Of the 115 leading companies that participated in the survey, nearly half made changes to the design of their physical workplace in order to implement business strategy 12% 16% Significant change Some change A little change 60% N 52 out of the 115 leading companies surveyed Figure 4 Of the 52 companies that redesigned their workplaces to implement business strategy, 37 per cent reported the effort was very successful 23% 37% Significant change Some change A little change 40% N 52 out of the 115 leading companies surveyed • Measuring and tracking performance for the rapid exchange of knowledge Leading companies excel in this area, and information. The flow of com- and redesigning the physical work munications required for speed of environment enhances their ability to decision making can be enhanced and measure and track performance success- supported by innovative workplace fully. design. • Executive teamwork • Products and services provided to customers The physical environment is a conduit CEOs report that successful change in Page 218
  7. 7. Allard and Barber these areas is enhanced by workplace their relationship to real estate and redesign. As products and services workplace. change, the talent base may change, For example, The Hay Group’s research resulting in new requirements for consistently shows that having a strong workplace design and performance. culture is an attribute of a ‘Most Admired’, • Corporate culture leading company. According to the results The physical workplace has the ability of this study, a strong culture is also one of successfully to reinforce identity and four factors critical to a company’s ability to culture. A strong culture is one of the execute strategy successfully. Several CEOs attributes of a leading company. reported in this survey that changing their • Business process corporate culture was required in order to Workplace design either supports or execute strategy. In cases where the CEO hinders business process. The CEOs also reported redesigning the workspace to participating in this study reported that execute strategy, it was found that the success in changing business processes culture had been successfully changed. This is supported by changes in workplace relationship occurs within each of the other design. three factors essential to strategy execution: • Clarity of executive roles roles and accountability, executive team- Workplace design plays a part in work, and performance measurement and clarifying executive roles by reinforcing tracking. In other words, redesigning the desired culture, behaviour, expectations workplace synchronised with the com- and ways of working. pany’s ability to make changes successfully in each of the other areas critical for strategy execution. CONCLUSIONS AND IMPLICATIONS Additionally, results clearly demonstrate the strong interdependence between real Conclusions estate and workplace design, with success The results of this research effort in one area being highly contingent upon demonstrate statistically the relationships success in the other. It would follow, between relocation of real estate, redesign then, that the relocation affects the success of the workplace and other key factors of the workplace design, which in turn critical to the execution of business affects the company’s ability to make strategy. The framework for the study changes successfully in those areas essen- defines a broad operational, market and tial for strategy execution. This implies organisational context in which strategy the need for synchronisation across mul- execution occurs: one that goes beyond tiple areas — real estate, design and other the traditional financial metrics that critical factors — to achieve maximum typically define real estate and workplace success. effectiveness. In order to understand the Real estate relocation was also shown significance of these results, it is also to have its own direct set of factors or important to recognise that a robust conditions which might indicate when a strategy requires synchronisation of move would be more likely, or indeed multiple factors in order to create value. necessary, in order to execute strategy. In this case, the authors were most Changing products and services and interested in learning specifically about changing technology were chief among those factors that are critical to these factors. strategy execution and understanding Finally, these findings provide a ‘report Page 219
  8. 8. A survey of leading CEOs card’ from the executive level, indicating metrics, have resulted in the delivery of their perception of the success of reloca- real estate services to internal customers in tion and redesign efforts. On the positive a reactive, tactical and task-oriented side, a fair percentage of CEOs reported manner. In order to position corporate that their projects were ‘very successful’ in real estate as a strategic entity within the contributing to the company’s ability to corporation, it will be necessary to execute strategy. However, considering develop internal partnerships that more the magnitude of the expense and the closely align real estate strategy with the upheaval and downtime for employees, company’s business strategy. even a 50 per cent success rate suggests The results of this research suggest that that such moves are risky investments. there is ample opportunity for corporate While a full explanation for this result is real estate to deliver significant value to a beyond the scope of this research, a corporation if the approach is structured few possible causes for consideration are to allow the role to be value-added in proposed here. These might include poor nature. Enabling a change in corporate execution of projects; inability success- culture, clarifying executive roles, or suc- fully to align real estate and workplace cessfully supporting executive teamwork with business strategy; and/or the lack of and emerging technologies can be a far good, quantitative data to demonstrate cry from typical financial metrics, which, and communicate effectively the value of while convenient and easily measurable, the move or redesign to the CEO. may be removed from the unique strategy of the organisation. By embracing an Implications expanded role, corporate real estate will Strategic real estate and workplace plan- be in a position to enhance real estate ning requires research, analysis and the service delivery, improve asset utilisation ability to communicate the strategy in a and create value that ultimately reduces way that is meaningful to the entire costs and delivers savings to the bottom organisation, including the CEO. Histori- line. This will require leadership within cally, non-uniform processes and stan- the ranks of corporate real estate and dards, along with limited data, poor strong support from the executive levels communication and a lack of performance of the corporation. Page 220