CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing3I. Introduction 4II. Research Methodology 5-6III. Executive Summary 7-11IV. Historical Evolution of Service Delivery 12-18V. Current State of Service Delivery 19-25VI. Bold Statements 26-39A. Bold Statement 1 27-28 Real Estate business objectives and goals will become more integrated with Procurement and, therefore, more sophisticated and complex.B. Bold Statement 2 29-31 Vendors will become responsible for data access and usage as it becomes more widespread as a means of delivering corporate real estate strategy.C. Bold Statement 3 32-33 Clientele will drive service providers to grow their platforms globally.D. Bold Statement 4 34-35 Due to economic pressures, there will be continued consolidation of service providers, and we expect to see a nontraditional service provider enter the race.E. Bold Statement 5 36-37 With corporate real estate utilizing their service providers as an incubator/training ground for noncore business, human resources and training capabilities will become a heightened requirement.F. Bold Statement 6 38-39 Pricing and performance management models will become more value-based (more strategic and proactive), while less focused on purely financial objectives.VII. Conclusions 40VIII. Appendices 41-51A. Corporate Real Estate 2020 Team Leaders and Sponsors 41B. Professional Leaders Interviewed by Service Delivery and Outsourcing 42C. Corporate Real Estate 2020 Service Delivery and Outsourcing Interview Guide 43-47D. Service Delivery and Outsourcing Summary of Responses to Bold Statements 48E. Corporate Real Estate 2020 Service Delivery and Outsourcing Participants 49-50F. Corporate Real Estate 2020 Participating Companies 51TABLE OF CONTENTS
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing4INTRODUCTIONHave you ever tried to imagine what work will be like in 2020? It’snot easy, but that is exactly what CoreNet Global’s Corporate RealEstate 2020 initiative is all about – envisioning the future of corporatereal estate (CRE) and the workplace. Corporate Real Estate 2020 is aresearch and leadership development program designed and managedby CoreNet Global members to address the business environment inthe future and to collect and distribute best practices, tools and studiesto meet future business needs effectively. A follow up to CorporateReal Estate 2000 and CoRE 2010, Corporate Real Estate 2020 hasbrought together more than 280 of the industry’s most thought-pro-voking and leading minds, as well as several other professionals fromareas outside the CRE realm.Given today’s climate of protracted economic uncertainty, forecastinghas never been more challenging. Predictive modeling is often an in-exact science, yet considering the outcomes of many of the forecastsCoreNet Global has made in previous renditions, it can prove to be aneffective tool for setting expectations. Volatility withstanding, compa-nies, industries, professions and other types of networks need to seta baseline to gauge and anticipate change as best as current indicatorsand history allow.This report explores the major trends discovered and studied by theeight research teams to aid corporate real estate executives and pro-fessionals in becoming the most effective leaders in an increasinglycomplex business environment.Corporate Real Estate2020 has broughttogether more thanof the industry’s mostthought-provokingand leading minds
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing5RESEARCH METHODOLOGYCorporate Real Estate 2020 began in August2011 and continued through May 2012. Theprogram was launched at the AT&T headquartersin Dallas, where a group of more than 70 seniorthought leaders convened to discuss the businessenvironment in the year 2020 and create an overallvision of the future and what the impact on CRE willbe. From this discussion, it was concluded that theresearch would be carried out by breaking down theprofession into eight dimensions unique to CRE.Following the official launch meeting in Dallas,each of the eight teams was tasked with definingits goals and predictions. Using the overall vision ofthe world in 2020 and its impact on CRE as context,each team created a set of Bold Statements.The Bold Statements were developed, evaluatedand finalized throughout the first months of theproject using recent research findings from a varietyof resources and topic-specific group discussions.The statements, a prediction of where a typicalCoreNet Global member firm would stand in 2020,were based on what the teams “thought” wouldhappen, not what they “wanted” to happen,reflecting varying degrees of forward thinking.The predictions were also presented at the CoreNetGlobal Paris, Atlanta and Singapore Summits, wheremembers from the across the globe were given achance to provide feedback on the Bold Statements.These predictions served as the research questionsto be validated based on in-depth qualitativeinterviews with CRE leaders and topical contentexperts plus a quantitative survey of CoreNetGlobal’s end-user members across the world.Throughout the process, leading organizations andindustry experts were identified for interviews andfurther research. Telephone and in-person interviewsthat followed a structured interview guide (AppendixC) were documented and analyzed for patterns to helpthe teams understand the current views and futureperspectives of these business leaders. In addition,case-study materials were solicited as part of theinterview process, and some of those real-worldexamples have been incorporated into this report. Theresearch teams also used articles, books and reportsto ground the theories and compare results.EIGHT RESEARCH AREASEnterpriseLeadershipServiceDelivery &OutsourcingSustainabilityLocationStrategy & theRole of PlaceTechnologyToolsPartneringwith KeySupportFunctionsWorkplacePortfolioOptimization& AssetManagementUsing the overall visionof the world in 2020and its impact on CREas context, each teamcreated a set of BoldStatements.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing6RESEARCH METHODOLOGYInterview insights, materials and Summit feedbackwere synthesized on a number of levels. The researchteam met regularly to review the materials collected todetermine emerging viewpoints and implications.The following diagram illustrates the researchtimeline/process. Appendices B and E list theService Delivery and Outsourcing team membersand organizations interviewed.VALIDATEDAND FINALIZEDBY INDUSTRYLEADERSVALIDATEDTHROUGH GLOBALEND-USERMEMBER SURVEYINTERVIEWSCONDUCTED WITHPROFESSIONALSEVALUATIONOF BOLDSTATEMENTS ATCORENET GLOBALSUMMITSMATERIALSANALYZED ANDCONCLUSIONSAGREED UPONBOLDSTATEMENTSCREATEDSAN DIEGOSUMMIT RESULTSPRESENTATIONCREATION OFEIGHT RESEARCHTEAMSREPORTSDISTRIBUTEDVISIONINGMEETING INDALLASFIGURE I.I | KEY STEPS IN RESEARCH PROCESS
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing7Corporate Real Estate 2020 was established to document the indus-try’s thinking about the corporate real estate (CRE) environment of thefuture; the key characteristics of a successful enterprise; and the im-plications for the corporate real estate profession, based on the latestand best ideas from senior CRE and infrastructure leaders.Looking toward 2020, real estate leaders interviewed and surveyedidentified high-level business drivers they predict will shape the indus-try’s future. Among these are globalization, technology and data-drivenbusiness intelligence, value- and cost-based metrics, evolving out-sourcing models, industry consolidation and expansion and access towell-trained and experienced workers.Always-on connectivity is changing the perception of the workplaceand redefining “corporate space.” Technology also is changing CRE’straditional modes of operation and the expectations CRE executivesplace on service providers. The service provider of the future must gobeyond task-oriented accomplishments to become a strategic, collab-orative partner whose data-driven insights can help end-users makeinformed decisions.This presents a challenge to an industry that traditionally measuressuccess by the square foot, but it also opens the door to unprecedent-ed opportunities. To seize upon them, end-users and providers mustrethink the role and function of corporate real estate. The future is lessabout space and more about services and strategy.The Corporate Real Estate 2020 research initiative is focused on howthe many facets of the industry will evolve – technology, the natureof work, integrated infrastructure resources, leadership and more. Asa key facet of the industry, service delivery must react to and evolvewith the continually changing internal business structures and environ-ments that are driven by external economic influences.The research presented in this report indicates new models and roleswill emerge that will allow corporations to better leverage their externalnetworks to deliver more value and to give them a competitive edge.For the purpose of this research effort, the service provider includesEXECUTIVE SUMMARYFOREWORDThe future is less aboutspace and more aboutservices and strategy.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing8EXECUTIVE SUMMARYeverything from the provision of tactical, day-to-day operations supportto the design and delivery of a strategic vision for an organization. Thisbroad view of the market supports the ever-expanding roles that serviceproviders are being asked to assume. To some organizations, servicedelivery may still only involve the tactical execution of specific tasks, butat today’s leading-edge businesses, the added value that service provid-ers can bring to the table goes well beyond that definition.Through a series of preliminary discussions and industry work ses-sions, the Service Delivery and Outsourcing team established researchpremises based on a perceived expansion of and dependence uponoutsourcing. In the future, CRE executives will look to service provid-ers not only to deliver more administrative services but also to managethose services provided by other vendors. A corresponding degreeof risk and responsibility will shift to the service providers: They willbe expected to deliver multi-domain services using highly skilled andefficient teams. They will be expected to advise on and add to the enduser’s strategic vision. They will be expected to compete on value, aswell as price.The Service Delivery and Outsourcing team is focused on how the ex-ternal resource and capabilities network will integrate and organize tointeract most effectively with the evolving internal organizations. As apart of this research effort, the Service Delivery and Outsourcing teamconducted more than 20 interviews to gain insight into today’s servicedelivery models and assess what the future may hold. While many ofthe interviewees were CRE or administrative service directors frommajor global business entities, other interviewees were representa-tives from the market’s leading service providers. In addition, the teamalso interviewed industry thought leaders.The findings were used to formulate hypotheses about high-level businessdrivers, challenges and opportunities that will shape the future of CRE.Over the past seven decades, the overall business environment andthe CRE sector have evolved in tandem, with developments in onedriving change in the other. Changing company demands regardingreal estate led first to the creation of centralized internal real estateOver the past sevendecades, the overallbusiness environmentand the CRE sectorhave evolved in tandem,with developments inone driving change inthe other.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing9EXECUTIVE SUMMARYdivisions and to the development of an entirely new external servicedelivery industry, which has consolidated and grown in complexity andsophistication in recent years.Real estate outsourcing is now modus operandi for most large com-panies, but one single methodology does not fit all. Desires to meetthe demands of rapid globalization while continuing to manage costsare universal. But corporations are employing a variety of outsourcingstrategies and structures to achieve these goals – among them best-in-class, bundled and integrated outsourcing models.For their part, service providers are striving to meet end users’ demandsfor strategic global portfolio optimization, workplace mobility, processimprovement, energy management, sustainability and cost reduction –all while seeking to shift the value proposition of their services from acost-based structure to one that pegs success on broader definitionsof “value.”CRE executives who want these more diverse and sophisticatedservices expect true expertise from their providers. A case in point:End users who contract data management services from providerswant them to deliver not only data reports but also the kind of in-depthanalysis that provides strategic insights. Such expanded requirementshave opened the door to some non-traditional service providers; firmsthat once focused exclusively on food services or business processing,for example, are beginning to move into facilities management.Current market trends and conditions will propel the CRE service deliv-ery sector into a future already being imagined by the industry’s bestand brightest decision makers and thought leaders. To capture theirviews, the Service Delivery and Outsourcing team interviews centeredon carefully developed hypotheses about what lies ahead. These hy-potheses were presented to interviewees as Bold Statements:End users who contractdata managementservices from providerswant them to deliver notonly data reports butalso the kind of in-depthanalysis that providesstrategic insights.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing10EXECUTIVE SUMMARYBold Statement 1:Real Estate business objectives and goals will become moreintegrated with Procurement and, therefore, more sophisticatedand complex.Experts’ Overview: The collaboration between CRE and Procurementwill yield greater discipline and buying power than the CRE departmentpossesses on its own, but it also will add complexity to decision making.Bold Statement No. 2:Vendors will become responsible for data access and usage asit becomes more widespread as a means of delivering corporatereal estate strategy.Experts’ Overview: Service providers will own the systems that canmanipulate and analyze data coming from end users, but most companieswill continue to own and house the data, especially if their business ishighly competitive or heavily regulated. Service providers’ ability to gleaninsights from shared data will be a core competency and competitive dif-ferentiator, and this will factor significantly into customer retention.Bold Statement No. 3:Clientele will drive service providers to grow their platforms globally.Experts’ Overview: End users will expect service providers to antici-pate global business drivers and emerging markets and have estab-lished service offerings before corporate real estate executives requestthem. To enable that nimbleness, service providers increasingly willpartner with local providers in key markets.Bold Statement No. 4:Due to economic pressures, there will be continued consolidationof service providers, and we expect to see a nontraditional ser-vice provider enter the race.Due to economicpressures, therewill be continuedconsolidation ofservice providers, andwe expect to see anontraditional serviceprovider enter the race.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing11EXECUTIVE SUMMARYExperts’ Overview: Nontraditional providers will enter the market tocompete outright with mainstream CRE offerings or to erode the valueproposition of specialty services offered as part of service providerbundles. Mid-size and small service providers will combine to competeagainst the largest firms.Bold Statement No. 5:With corporate real estate executives utilizing their service providersas an incubator/training ground for noncore business, human resourc-es and training capabilities will become a heightened requirement.Experts’ Overview: End users will require service providers to con-tractually ensure adequate human resources/training capabilities, andHR and training capabilities will become competitive differentiatorsamong service providers.Bold Statement No. 6:Pricing and performance management models will become morevalue-based (more strategic and proactive), while less focused onpurely financial objectives.Experts’ Overview: Organizations will recognize the potential detri-mental impact of cost cutting on productivity, which will change theconversation from cost containment to value creation. Cost control willmove down the list of metrics, but it will remain one of the key mea-sures of success.The real estate leaders’ views on these Bold Statements providedinsights into the industry’s future. To achieve success as we move to-ward 2020, end users and service providers must rethink the role andfunction of CRE, these experts say. The future is more about servicesand strategy than square footage.Pricing andperformancemanagementmodels will becomemore value-based(more strategic andproactive), while lessfocused on purelyfinancial objectives.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing12historical evolutionof service deliverya look backSince the end of World War II, the global businessenvironment has dramatically, irrevocably changed,and corporate real estate (CRE) has changed rightalong with it. Real estate’s organizational models,roles and responsibilities underwent distinct evo-lutionary periods. Changes within CRE were bothreactions to and drivers of broader economic trends.Ultimately, they created an entirely new externalservice delivery industry.Pre-1960s: Setting the StageAfter two decades of economic depression andwar, businesses in the 1950s were readjusting to apeacetime economy with a sense of optimism in aperceived new world order. For the most part, busi-nesses picked up essentially where they had left offbefore World War II. While the mature industriesof manufacturing and agriculture still dominatedeconomic activity, few companies served marketsoutside specific domestic regions, and even fewerserved a global client base.With the exception of capital-intensive industries (suchas steel, automobiles and chemical production), busi-nesses tended to be small, locally based, entrepre-neurial in approach and homogenous in nature. Manyorganizations only supported one line of business,producing closely related product types. Industrieswere highly fragmented, and businesses typicallyserved specific, nearby markets because the existingtransportation network limited the efficient flow offinished goods. For the most part, businesses operatedin a decentralized manner, with production and supportfunctions distributed throughout the organization toserve specific business units.A similar mindset was common for administrativesupport functions. It is generally accepted that priorto the 1960s, most corporations had not yet estab-lished a CRE function and real estate was managedin a highly decentralized fashion. Each businessunit typically coordinated its own transactions andmanaged its own facilities portfolio. Real estateassets were strictly considered “agents of produc-tion,” and real estate decisions were not particularlystrategic in nature.Corporations kept real estate service providers atarm’s length and did not consider them as valuablenetworks that could be leveraged to improve organi-zational performance. Most organizations were confi-dent that functional knowledge and industry best prac-tices should be developed and managed internally.This limiting approach prevented the development ofrelationships with real estate service providers.In this pre-1960s period, the real estate service providerfunction was mostly limited to support for real estatetransactions. Aside from real estate brokerage and prop-erty management services for investor/owners, fewother services were offered. Real estate firms tendedto be small and were focused on providing transactionsupport for specific property types in defined marketareas. Corporations called on service providers for spe-cific engagements, as the external parties were onlyconsidered to be “order takers.”
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing13historical evolutionof service deliverya look backThe 1960s to the 1980s:Conglomerates and CentralizationIn 1956, President Eisenhower created the inter-state highway system as an integral part of thenational defense system. However, the commercial,economic and social ramifications of this system faroutweighed its military value. As the system devel-oped in the 1960s, national markets expanded rap-idly and a new kind of business model was neededto serve the increasingly larger and more dispersedmarkets. In response to this economic marketexpansion, industries consolidated and fewer, largercorporations emerged.Consolidation provided better access to capital andgreater economies of scale. The new business modelsrequired the kind of centralized control that was pro-vided by hierarchical organizational structures. Compa-nies no longer accepted the inevitability of strugglingthrough business cycles with a single business line orproduct. Instead, they added new product lines or pur-chased companies with products that complementedtheir existing efforts. Mergers and acquisitions prolifer-ated, conglomerates became prevalent, and these largecompanies pursued increased market share.At the same time, administrative support functions,such as finance, accounting, personnel, legal and realestate, were being centralized at corporate headquar-ters. As businesses became more complex, the needfor access to information and efficient communica-tions was met by the physical proximity of employeesin centralized locations. The new business environ-ment forced a change in the way administrative func-tions were managed within corporations.In the 1960s, as the structure of organizations’ realestate portfolios became more complex, centralizedCRE groups started to form within large corporateentities. While certain services and functions, suchas property management and facilities management,often still were coordinated at the business unit level,the management and approval of real estate transac-tions were undergoing consolidation. In addition, cor-porations began to out-task some activities based oninternal capacity restrictions and the need to expeditecertain engagements. The volume of out-tasking wasrather limited; only local and regional vendors existedin the marketplace, and they varied by geography.Both the real estate group and the vendor organiza-tions were relatively small.By the 1980s, centralized CRE departments werewell established within corporations. The CRE de-partments had grown significantly and increased thescope of services provided by internal staff, whichnow included a cadre of specialists. By the 1980s,the CRE department was often responsible for siteselection, lease-versus-buy analysis, real estateMergers and acquisitions proliferated,conglomerates became prevalent,and these large companies pursuedincreased market share.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing14historical evolutionof service deliverya look backtransactions, space planning, design and project man-agement for construction. Compared to the 1960s,when real estate groups only handled real estatetransactions, a significant amount of complexity andresponsibility had been allocated to CRE departmentsby the 1980s. However, the CRE department’s rolewas still that of an “order taker,” which carried out therequests of the business units to build and maintainphysical facilities. The CRE department supported theorganization’s business strategy but had no role in itsstrategic-planning efforts.In the service provider industry, the volume of out-tasking (when a service provider executes a discretepiece of work under specific direction from and con-trol by the corporate end user) was still rather limited,and only a few vendors had established extensivepositions in the marketplace. Since large corporationshad in-house expertise, they were less likely to paythe unit-cost premium charged by external serviceproviders unless significant benefits could be derivedfrom outsourcing (when a service provider takes overcomplete, or near complete, responsibility of desig-nated operations). It was generally accepted that nogreater efficiency or effectiveness could be gainedby shifting workload to external service providers. Inaddition, the service providers’ profit was seen as anadditional cost that would not be incurred if activitieswere maintained in-house. As such, the workloadcompleted by service providers remained task-fo-cused and was driven by internal capacity restrictionsand the need to expedite delivery.Toward the end of the 1980s, a few innovative compa-nies like Baxter Healthcare and Ameritech startedto rethink the CRE function and planted the seeds forthe streamlining of these large and sometimes cum-bersome internal structures. At the same time, newconcepts were emerging to shift workload efficientlyand effectively from internal resources to externalresources, through large real estate services deliverycontracts with select, top-tier providers.It was generally accepted that nogreater efficiency or effectivenesscould be gained by shifting workloadto external service providers.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing15historical evolutionof service deliverya look backThe 1990s:Cost Reduction and OutsourcingWith the fall of the Berlin Wall and the removal of sev-eral trade barriers, U.S. corporations were suddenlyexposed to global competition and were at a distinctcost disadvantage. During the 1990s, Japanese busi-nesses were ahead of most of the world in termsof cost efficiency, and U.S. companies scrambled torestructure and become more cost-competitive. Theefforts to lower costs were supported by a global eco-nomic downturn of considerable severity and duration.In this environment, Wall Street began to question themonolithic structure of corporate America and startedto reward those companies that focused on their corebusiness activities. Corporations were now focused onmaximizing return on invested capital by establishingdistinct, competitive advantages and by selling off largeportions of their businesses that were considered to benon-core. Enabled by advances in information technol-ogy, corporations began to outsource many of the func-tions that were formerly handled in-house, in an effortto further reduce costs and enhance focus.These technological advances significantly reducedthe costs associated with information sharing andenabled corporations to rapidly coordinate and roll upfinancial and operational data across very complexglobal organizations using enterprise-wide data man-agement systems. Highly centralized organizationswere no longer justified or necessary, and technol-ogy facilitated global expansion.By the 1990s, out-tasking was more common withcorporations more effectively leveraging externalservice providers for many administrative supportfunctions. New technologies had reduced the trans-action costs of doing business with external provid-ers, and the proliferation of personal computers,data management systems and the Internet made iteasier to manage and communicate across internaland external networks.In response to a big out-tasking push on the part ofCRE, internal departments began to downsize, and thereal estate service provider industry grew significantly.However, while there was a substantial increase inthe number of vendors, the organizational maturityprofile of these vendors had not changed much. Aswas true in the 1980s, real estate service providerswere offering multiple service or product lines to theircustomers, but the services were not being deliveredin an integrated fashion. At best, services were being“bundled” or “packaged” in an effort to sell multipleservices to the same customer and increase profitsthrough overhead efficiency gains.As was true in the 1980s, real estateservice providers were offeringmultiple service or product lines totheir customers, but the serviceswere not being delivered in anintegrated fashion.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing16historical evolutionof service deliverya look backThe continued downsizing of internal administrativesupport functions – often coupled with the adoptionof an administrative service organization structure thatintegrated and aligned functions like human resources,information technology and CRE – led to an increasedreliance on external providers. As a result, the serviceprovider industry engaged in major expansion ef-forts throughout the 1990s. Mergers and acquisitionsbetween the larger American and European providersfueled consolidation. Examples include the merger/ac-quisition activity between CB Commercial and RichardEllis, Jones Lang Wootton and LaSalle Partners,and Cushman & Wakefield.These new, larger service provider firms also beganadding higher-value services to their core capabilities,including financial re-engineering for portfolio coststructures, balance sheet impact analysis and platformalignment to better address issues that were mostrelevant to senior corporate executives. The corporateservices approach was well on its way to acceptanceby the mid-1990s, and the relationships between CREdepartments and external providers transitioned froma vendor focus to a partnership focus.Service providers began to offer greater efficiency,cost effectiveness and flexibility. United SystemsIntegrators was a prime example. Established in 1991,real estate service firm USI was founded on the beliefthat corporations would increasingly improve returnon invested capital and obtain higher valuations byoutsourcing non-core functions. Jones Lang Woot-ton’s merger with LaSalle Partners in 1997 was largelydriven by the corporate client need for creative and of-ten integrated approaches to manage their real estateportfolios and meet their complex occupancy needs.In the early 1990s, outsourcing of corporate real estateat Baxter Healthcare demonstrated to the industry thatthe corporate real estate function could be managed innew and different ways. Baxter was the first companyto outsource many services, and thereby reduce thesize of its internal CRE department. It was the first timethat management of many of these functions was takenoutside a large company. Ameritech soon took a similarcourse. Then other corporations, including Microsoftand Sun Microsystems, followed the example inan effort to realize similar benefits. These companiesbegan to see that all-encompassing, large internal CREdepartments made them less nimble and too rigid, andburdened them with unnecessary exposure. Changewas cumbersome and difficult to implement.It was the culmination of a trend that had been devel-oping for some time, as the out-tasking or outsourcingof commodity activities such as transaction implemen-tation, project management and facility managementgave corporate real estate groups more flexibility torespond to business unit requirements and to maxi-mize return on invested capital. The larger real estateservice providers expanded their service portfolios toinclude the complete life cycle of real estate services,adding valuation analysis, mortgage banking, projectmanagement, and real estate consulting and propertydevelopment services. These “bundled” serviceswere sold as packages to corporate clients.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing17historical evolutionof service deliverya look backIn addition, corporations established single-sourcecontracts or preferred vendor arrangements withlarge real estate service providers to achieve volumediscounts. This “one-stop shopping” concept allowedcorporate real estate departments to reduce thenumber of vendors required to provide services. In thenew model, the role of the remaining CRE departmentstaff was to manage the outside vendors, negotiatepricing and ensure accountability.The 2000s:Globalization and Strategic AlignmentIn the 2000s, four major business drivers – glo-balization, information technology, administrativeorganizational structure and labor – combined with ahigh degree of economic fluctuation to reshape andredefine internal and external real estate service de-livery. Enabled by technology and trade liberalizationagreements and driven by an intense drive to cutcosts, organizations outsourced back-office admin-istrative and support functions to third parties, notonly to more cost-effective domestic markets butalso to third parties in other countries – so called“off-shoring.” This trend, combined with develop-ing markets’ phenomenal growth – which increasedeven during a deep recession that hobbled manydeveloped economies – led to increased globaliza-tion of major corporations.During this time, several organizations, including NortelNetworks, American Express, United TechnologiesCorp. and Bank of America, emerged as best-practiceoperations in integrating and leveraging external provid-ers for strategic CRE service delivery. As opposed toallocating limited internal staff resources to the hands-on implementation of non-core activities, the CREdepartments at these organizations focused on devel-oping and managing long-term outsourcing strategiesto deliver these non-core activities. This reflected anevolution of corporate real estate’s role from taskmas-ter to business strategist.This “one-stop shopping” conceptallowed corporate real estatedepartments to reduce thenumber of vendors required toprovide services.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing18historical evolutionof service deliverya look backMeanwhile, U.S. companies increasingly off-shoredwork to countries like India and China. And, as thesedeveloping economies grew, major corporations be-gan to view them not only as suppliers of cost-effec-tive goods and labor but as markets in their own right.Corporations began to seek real estate solutions thatwould allow them to set up manufacturing and cus-tomer contact operations to serve customers in NorthAmerica and Europe and also would enable them tosell goods and services to ever-richer businesses andconsumers in these emerging markets.As end users’ needs changed – often rapidly – serviceproviders honed their relationship management skills,working to align service and delivery structures to theneeds of customers. Providers realized understand-ing their customers’ needs and monitoring how wellthey delivered against those needs while being ableto measure performance and deliver sophisticatedreporting was a competitive differentiator.Between the first major implementation at BaxterHealthcare in 1990 and the close of the 2000s, CREand facilities outsourcing became commonplace atmajor corporations. Large, established companiessuch as General Motors and Bank of America werenow out-tasking multiple real estate functions andwholesale outsourcing of the entire real estate func-tion was an option on the table. Many endeavorsstarted small, by outsourcing the most tactical func-tions, such as food service. As CRE departments real-ized benefits and became more confident that qualityof service would not be compromised, other functionswere outsourced.As outsourcing evolved it also changed the responsi-bilities of in-house CRE. Internal staff that had oncespent their time completing transactions and man-aging projects and facilities instead were managingthe work of external service providers who assumedday-to-day responsibilities. However, most of theseoutsourcing relationships still focused on tacticalservices. The development of strategic plans for thereal estate portfolio and the CRE organization werestill typically internal activities.The development of strategic plansfor the real estate portfolio andthe CRE organization were stilltypically internal activities.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing19the current stateof service deliverya picture of the presentIn today’s Corporate Real Estate (CRE) marketoutsourcing is a given, but one single outsourcingmethodology does not fit all. Trends toward cost-containment are universal, as exemplified bythe increasing collaboration between CRE andProcurement. But corporations are employing avariety of outsourcing strategies and structures toachieve such efficiencies.For their part, providers are striving to meet end-users’ demands for strategic portfolio optimization,workplace mobility, process improvement andoptimization, energy management and sustainabilityand cost reduction. Key service providers have metthese end-to-end CRE demands by consolidatingwith former rivals in an effort to increasecapabilities and reach.Among end users, CRE leaders are concernedwith aligning assets to meet local market needsamid increasing globalization. Globalization is oneof the key trends causing some CRE executives tomove away from single-source “bundled” servicestoward “best-in-class” (also called “best-of-breed”)options for multiple markets. A few CRE executivesare outsourcing the management of these variousvendors to “integrators.” Corporations whosebusiness is well suited to the “bundled” model saythey continue to benefit from volume buying andthe efficiency of coordinating and collaborating witha limited number of vendors. Other firms find theadministrative burden of managing several differentsuppliers to be risk laden and cost prohibitive.End users are requiring increasingly diverse andcomplex capabilities from service providers – turningto them for everything from food service to datamanagement. That diversity of requirements hasopened the door to some nontraditional providers;firms that once focused exclusively on cafeteriamanagement or business processing, for example, arebeginning to move into facilities management.CRE professionals who want more of these diverseand sophisticated services expect true expertise. Forexample, end users who contract data managementservices from providers want them to deliver not onlydata reports, but also the kind of in-depth analysisthat provides strategic insights. End users increasinglyunderstand that these offerings require a level oftraining and experience that cannot necessarily bedelivered by the lowest bidder, and their RFPs areevolving to become value and outcome orientedrather than strictly focused on cost.“The transactional model is notthe future of where outsourcing isgoing. It needs to be a partnership.”– Donna Inch, Ford Motor Land Corp.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing20the current stateof service deliverya picture of the presentThe Integrator Model: AHybrid Sourcing StrategyOver the past decade, CRE decision mak-ers had two main outsourcing choices:Achieve consistency and simplicity butreduce granular flexibility with a “bundled”model linked to one primary serviceprovider. Or opt for a “best-in-class/best-of-breed” model that enables high-quality,local-level services but requires jugglingmultiple vendors in multiple markets.Today, however, a single company is testinga new model – the integrator – that com-bines some aspects of bundling and best-in-class. The integrator is, in essence, anoutsourcing hybrid, and a major corporationviews it as offering the best of both worlds.What makes this model different is that aCRE executive gives a single partner – theintegrator – responsibility to oversee andmeasure the performance and consistencyof multiple vendors. The integrator sharesaccountability for the performance of theseservice providers.The integrator is responsible for:• Driving consistency of process and service delivery across multiple vendors to create a uniform experience for the end user• Sourcing, managing and tracking vendor work allocation and the quality of service delivery• Developing and managing a formal control structure for mitigating risk• Establishing a data system capable of managing and reporting on vendor work performed across the portfolio• Developing continuous improvement plans at strategic and tactical levels• Managing a budget that supports capital and operating expense plansThe integrator model can be adapted tomatch the degree of responsibility and controlthe integrator exerts over other service part-ners. For example, the integrator may man-age with a light touch and simply oversee andreport on work completed. Or the integratormay take a hands-on approach, acting moreas a prime contractor who dictates exactlyhow work should be completed and has100-percent accountability for the quality ofthe work and outcomes.As a still-emerging model, the integratoris a question mark for many end usersand service providers. While it conceptu-ally solves for many weaknesses of thebundled and the best-of breed sourcingmodels, the integrator model does createunique issues of its own, including thepotential for management duplicationand the necessity to have a robust andtransparent governance structure in placeto foster success.Clearly it is up to each CRE organization todetermine whether the integrator fits with itsdesired roles and responsibilities, needs, risktolerance and corporate culture.Differences Among Outsourcing ModelsSource: CoreNet Global’s The Leader, March/April 2011
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing21the current stateof service deliverya picture of the presentDeliberate Approach toOutsourcing: State StreetBank Case Study BackgroundState Street Corporation (SSC), afinancial holding company, is one ofthe world’s leading investment serviceproviders, focused solely on servinginstitutional investors worldwide. StateStreet has operations in 29 countries,serving clients in more than 100 markets,with more than 29,600 employeesworldwide. State Street serves someof the most sophisticated institutionsthrough a flexible suite of services thatspans the investment spectrum, includinginvestment management, research andtrading and investment servicing.This sector of the financial servicesindustry is highly competitive and thereal estate services group is expectedto provide a high level of service in anefficient and cost effective manner.Back in 2005, State Street had a globalfootprint of approximately six millionsquare feet (557,418 square meters),with 93 percent of the integratedfacilities management (IFM) functionsbeing self-delivered through an in housestaff. The challenge was to take an IFMservice delivery model that was self-performed, with extensive out-tasking,and consolidate all of the services underone IFM service agreement.The ApproachState Street took a very structuredapproach to its first-generationoutsourcing initiative, implementingsegments of the portfolio in amethodical manner. Since theorganization had a heavy presence inthe Boston area, in 2005 they decidedto consolidate the IFM services beingprovided in Eastern Massachusettsfirst with a single provider. The portfoliounder consideration in the first phaseincluded approximately four millionsquare feet (371,612 square meters),excluding their one-million-sq.-ft.(92,903 sq. m.) corporate headquarters.State Street also realized that forthe first outsourcing initiative to besuccessful, it needed to allocatesufficient resources to the project,so it engaged Expense ManagementSolutions (EMS) to manage thesourcing process. EMS helped StateStreet develop a best-practices masterservices agreement, a comprehensiveset of IFM service level agreements andan enhanced pricing structure.Based on the quality of proposals,State Street selected a single provider,CBRE, to deliver the IFM servicesacross the Eastern Massachusettsportfolio. A comprehensive performancemanagement program was developedand implemented to continually rate thesupplier’s performance and determinethe amount of “at-risk” fees to awardon a quarterly and annual basis. Thefinal negotiated pricing also representeda significant savings over the company’scurrent costs.Upon realizing the success of its firstoutsourcing initiative, in early 2006State Street decided to competitivelybid their one-million-sq.-ft. corporateheadquarters in Boston. This secondphase was also won by CBRE. Notresting on their laurels, in late 2006State Street initiated the third phaseof its outsourcing plan by adding 1.3million square feet (120,774 squaremeters) that included the balance of itsNorth American portfolio. In this round,State Street chose to pursue negotiatedpricing with the existing provider,utilizing EMS to develop an abbreviatedRFP and pricing model, rather than afull market bid. At the conclusion ofthis phase, State Street had effectivelycentralized the management of itsentire North American portfolio under asingle provider.Going GlobalFollowing the success of the sourcingconsolidation in North America, StateStreet looked to pursue opportunitiesin the global portfolio. In late 2006, theGlobal Realty Services team put theEMEA portfolio out to a full market bid,and Serco was awarded the contract forapproximately 94,000 square meters(one million square feet) in 35 sites. TheCASE STUDY: State Street Bank
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing22the current stateof service deliverya picture of the presentAsia Pacific region went to bid next in2008, consisting of a dozen assets andover 360K SF. CBRE once again wonthe assignment, and over the yearsState Street has continued to expand itsrelationship with CBRE as indicated inthe table above.By mid-2011, the State Street globalfootprint had grown to 7.4 million squarefeet (687,482 square meters), and itsoutsourced relationships had grown aswell, with 65 percent of the IFM servicesmanaged by outsourced providers. Thekey responsibilities that SSC maintainedin house included asset management,project management, engineeringstrategy, lease administration,transaction management and spacestrategy and metrics. EMS was broughtback in 2011 to take the existing NorthAmerican IFM relationship with CBREand negotiate an expanded scopeof work to include the entire APACportfolio. The negotiated pricing resultedin further reductions in supplier costsunder a consolidated contract.Looking BackReflecting back on the approach takenover the seven-year period, State Streethas realized that despite its success,there were some things the companymight have done differently. First, itwould have been more aggressiveon initial outsourcing scope and nottaken as many interim steps with theportfolio. This phased approach waspartly because of the fact that theteam over-estimated its customer’stransitional concerns. State Street alsowould have redefined the roles andresponsibilities between internal GRSemployees and the service provider in amore direct manner to avoid ambiguity.Other lessons learned include beingless restrictive on CBRE’s ability tochange the model more quickly. Finally,it is important to understand there isdual responsibility for success in theoutsourcing process, with both theinternal CRE team and the serviceprovider sharing equal responsibility toensure that the transition is smooth.Going forward, State Street willcontinue to evaluate additionaloutsourcing opportunities that makesense in the overall business model.They will also pursue global consistencyin the delivery of services and roles andresponsibilities. Given State Street’strack record and deliberate approach,there is no doubt it will be successful inachieving the desired results.CASE STUDY: State Street Bank (continued)
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing23the current stateof service deliverya picture of the presentFaced with significant changes to itsbusiness following a 2009 merger withSchering-Plough, Merck & Co. engagedJones Lang LaSalle, one of their threeregional service delivery partners to helpits Global Real Estate Services (GRES)team increase customer focus whilereducing costs. The need to find financialand operational efficiencies—even inthe high-stakes R&D function—was ahigh priority. Significant location overlapcreated a milestone opportunity for thecorporate real estate function to play aleadership role in realizing the $3.5-billionoverall merger synergy targets.Working under a bundled outsourcingmodel for facility and real estatemanagement functions enabled closecollaboration and support of an extremelycomplex global initiative with an equallycomplex goal: achieve $200 million inoccupancy cost savings within threeyears, while creating a highly effectiveworkplace for the combined organization.Several objectives were establishedat the outset:1. Rationalize the portfolio. Followingthe merger, Merck establish a primarygoal, “… to create a real estate footprintthat enables a high-performanceworkplace in as efficient a manneras possible,” and a commitment toconsolidating the portfolios by reducingoperational costs rather than otherfactors such as write-offs or geographicpreference. Determining which locationsto expand, consolidate or close was acomplex decision involving many factorsand required detailed analysis.2. Maintain core facility operationsand evaluate third-party suppliers.With significant ongoing changeand corporate mandates to reduceexpenses, Merck was seeking toengage a third-party supplier manager toevaluate and manage suppliers and toprotect and enhance Merck’s facilities.The net result has been an increase inthe level of service and improved overallappearance of the facilities, as wellas cost savings and an increase in theamount spent with diverse suppliers.3. Ensure people care. Merck places highvalue on its people, so the team wantedits employees to land with a serviceprovider that could absorb them and offerlong-term opportunity. More than 250staff were interviewed and hired by JonesLang LaSalle, and all but one leadershipposition was filled with existing long-termMerck employees. Today, managementleaders remain in place and overallemployee retention exceeds 95 percent.Making it workHaving a seat at the table was criticalto the team’s success. During themost intense period of operationalplanning, sometimes site selectionand consolidation strategies wereconfirmed in less than a week – aprocess that would typically requiremonths. What made such rapidmovement on consolidations and othervalue-creation strategies possible wasGRES’ confidence in those decisions,despite real estate portfolio data gaps.M&A regulations block the free flow ofportfolio information before a mergerdeal is closed. To fill in some of thosegaps, the external alliance relationshipproved its value, as local market teamswere able to provide real-time marketintelligence that was not availablethrough internal channels. This on-the-ground information was used to informcritical consolidation, move managementand real estate portfolio strategic moves,establishing a strong, if never all-encompassing, foundation. Confidencein the data they did have, in the in-houseand outsourced team, as well as in GRESprocesses, made it possible to avoidgetting mired in red tape.Informed partners, informedreal estate strategiesExternal and internal teams must sharean understanding of an organization’scorporate culture and businessobjectives to work together effectivelyunder ambitious timeframes. Thefact that a centralized integratedfacilities management and real estaterelationship was already in place keptthe focus on the merger goals, not onteam ramp-up. Also, the leadership rolethe corporate real estate and facilitiesfunction played on the integration teammeant senior management backing forthe tough decisions.CASE STUDY: Merck
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing24the current stateof service deliverya picture of the presentThe Integrator Model inAction at MicrosoftMicrosoft was an early adopter ofoutsourcing and has been an innovator inadapting outsourcing to the company’schanging needs. The technologypowerhouse has begun a next-generation plan that combines the best-in-class and bundled approaches into ahybrid outsourcing model: the integrator.The Outsourcing ChallengeMicrosoft Corp. operates in 107countries around the globe, which makesoutsourcing both the right solution forthe software giant and one of its topcorporate real estate challenges.“For many years, we had globalservice providers for things likeproject management or transactionmanagement,” explains Bob Kaplan,Director of Global Resources forMicrosoft Real Estate and Facilities.“What we found is while those globalservice providers were great in lots ofplaces; there was no service providerout there who was great everywherewe operate.”Microsoft considered various options,and then decision-makers settled onan outsourcing model that combinesbundled and best-in-class approaches toaim for a higher level of service qualityin every market and for every task. Thishybrid model is managed by a singleprovider, called “the integrator.”The Integrator SolutionThe next step was to figure out whothat integrator would be. “We neededsomeone – and it could have beeneither us internally or an outsidevendor – to manage across all thosedifferent service providers and driveconsistent processes, best practices,CASE STUDY: MicrosoftMicrosoft’s Integrated Governance PlanSnapshotHeadquarters: Whitehouse Station, NJIndustry: PharmaceuticalsGeography: GlobalPortfolio type: Corporate and salesoffices, research and developmentcentersCRE Portfolio: 100 million SF/600 sitesglobally (global RE services and 32million SF/30 sites (U.S. and Canada)under IFM with Jones Lang LaSalle)Dedicated CRE employees: 250Outsourced CRE services:• Integrated facilities management• Occupancy planning• Move management• Project management• Strategic consulting• Transaction managementCASE STUDY: Merck (continued)
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing25the current stateof service deliverya picture of the presentreporting and data management,”Kaplan explained.After looking at various service providers– including business services companieslike Tata and Accenture – as well asmainstream providers such as JonesLang LaSalle and Cushman & Wakefield– Microsoft chose real estate firmCBRE as its integrator. “The conclusionwe came to was to really managebrokers, or project managers or facilitiescompanies well, you need people withdeep knowledge of real estate. Sothat’s why we went to market to CREproviders, and ended up with CBRE.”“They build the strategy. They do theprocurement around it. They do thecontracting around it. They manage theservice providers. They do the reportingaround it. They do the onboarding andtraining around it,” Kaplan said. Thisintegrated approach gives Microsoft thebenefits of a single-source “bundled”provider and the benefits of best-in-classservice in all of its key markets, he said.The Role of GovernanceGetting ready for the integrated modelrequired significant internal preparation,Kaplan noted. Microsoft had to carefullydefine governance policies andprocedures for supplier contracts thatfit under the integrator’s purview. Forexample, because CBRE is the integrator,the governance structure prohibits theintegrator firm from competing for anyprojects that fall under the integrator’sscope. “None of the other project-management vendors would be willing towork in the model if they knew they werecompeting against the people who weremanaging it,” said Kaplan.“We had to build a governancestructure that allows that to workand that allows our people to haveinteraction with those project-management vendors, as well as withthe CBRE people who are responsiblefor procuring them and managingthem and paying them,” he said. Agoverning organization now sits atthe center of Microsoft’s integratedoutsourcing structure.Initial Results of TheIntegrator ModelKaplan said it is too early to assess theoverall integrator model’s success –such as any significant upticks in localmarket service quality or any potentialsavings – but the approach already hashad an effect on seeing competitionfor service, quality of staff and choiceof providers; all things they wanted toaccomplish, as well as change howCRE operates within Microsoft. “Ithas shifted the importance [of CREfunctions] to relationship managementwith our business units – tounderstanding their needs on a muchhigher level,” he added.SnapshotFounded in 1975, Microsoft is a worldwideleader in software, services and solutionsfor businesses and consumers.Headquarters: Redmond, Wash.Employees: 92,303 worldwideFiscal 2011 Revenue: $69.94 billionCRE Portfolio:• Owns approximately 16 million square feet (1.5 million square meters) at 105 sites• Leases approximately 17.6 million square feet (1.6 million square meters) at 532 sitesOutsourcing Model: The Integratorand stables of tier 1 providers forreal estate, project management andfacilities management.CRE Hierarchy: CRE sits within thefinance organization. The head of realestate and facilities reports to the chiefadministrative officer, who reports tothe chief financial officer.CRE Operational Structure: Fourregional divisions (Headquarterscampus; Americas; Europe, MiddleEast and Africa; and Asia-Pacific)and two center of excellence teams(Global Workplace Strategies –responsible for workplace design,research and productivity and GlobalResources – responsible for bestpractices in real estate, design andconstruction, facilities, employeeservices, sustainability, technology,communications, supplier relationshipmanagement, reporting and customersatisfaction measurement).Organizational Domains: CRE is closelyaligned with Procurement, which alsosits under the same organization infinance. HR and IT are in separate areas.IT, in particular, has a unique design atMicrosoft as it is considered a producttesting ground for Microsoft software andtechnology and is tightly linked to productdevelopment and delivery.Key CRE Skill Sets: Ideal CRE employeesnot only have real estate and facilitiesknowledge, but also strong customerrelationship and integration skills.CASE STUDY: Microsoft (continued)
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing26BOLD STATEMENTRESEARCH HYPOTHESESThe future of corporate real estate (CRE) will beshaped by today’s visionary leaders. To capture andpresent what they see on the horizon, the ServiceDelivery and Outsourcing team conducted more than20 interviews centered on service delivery industryissues of today and tomorrow. These issues werepresented to interviewees as six Bold Statements,essentially hypotheses about what lies ahead.Bold Statement No. 1:Real Estate business objectives andgoals will become more integratedwith Procurement and, therefore, moresophisticated and complex.Bold Statement No. 2:Vendors will become responsible fordata access and usage as it becomesmore widespread as a means ofdelivering corporate real estate strategy.Bold Statement No. 3:Clientele will drive service providers togrow their platforms globally.Bold Statement No. 4:Due to economic pressures, there willbe continued consolidation of serviceproviders, and we expect to see anontraditional service provider enterthe race.Bold Statement No. 5:With corporate real estate utilizing theirservice providers as an incubator/trainingground for noncore business, humanresources and training capabilities willbecome a heightened requirement.Bold Statement No. 6:Pricing and performance managementmodels will become more value-based(more strategic and proactive), while lessfocused on purely financial objectives.Many of the interviewees were CRE oradministrative service directors from major globalbusiness entities. Other interviewees wererepresentatives from the market’s leading serviceproviders. In addition, the team also interviewedindustry thought leaders and conducted a survey ofCoreNet Global’s end-user members worldwide.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing27BOLD STATEMENT 1Source: CoreNet Global End User Survey December 2011FIGURE .I | BOLD STATEMENT 1 SURVEY RESULTS2%6%19%StronglyDisagreeNeutral StronglyAgree50%22%Disagree AgreeEnd Users Foresee More Real Estate and Procurement Integration by 2020Procurement plays an ever-larger role in CREtransactions, an outsourcing-related trend that canbe attributed to a continuing push for lower costs,increasingly sophisticated client demands for bundledofferings that combine space with services and adesire for more discipline around real estate contractsand related spending.The latter is what Richard Chalker, Managing Directorat financial services firm Morgan Stanley, sees asa primary driver. “An effective procurement systemgives a check and balance to the process, especiallyin project management and property operations,” hesaid. “Procurement gives best practices around vendormanagement and managing the relationship betweenthe service provider and the functional owner.”At production-oriented companies like Ford MotorCo. and MillerCoors, the partnership betweenCRE and Procurement is not a trend but a tradition.“Procurement support is integrated into the CREgroup; there has been this tight linkage historically,”said Donna Inch, Chairman and Chief ExecutiveOfficer of Ford Land, which provides real estate,construction and facility services to many tenants,including automobile manufacturer Ford Motor Co.The business advantages of the CRE-Procurementstructure are increasingly apparent as Ford Land aimsfor rapid but efficient and economical growth in thepost-recession environment, said Inch.At MillerCoors, Director of Real Estate Pat Crumley,MCR, also sees Procurement’s traditional role in CREgaining importance for the beer maker. “Real estategoals and objectives are more sophisticated andcomplex because they have to be woven into thebusiness objectives and goals of the corporation,”she said. “That sophistication is being driven bymarkets that are much more competitive.”Real Estate businessobjectives and goals willbecome more integratedwith procurement and,therefore, more sophisticatedand complex.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing28BOLD STATEMENT 1Wayne Taub, Vice President of Real Estate for mediaand entertainment company Time Warner, agrees butcautions that a Procurement approach will not work forevery aspect of CRE. “There’s a strategic piece aroundreal estate decisions that probably will not be part ofany Procurement efforts, which are more financiallydriven than strategic in nature. Procurement has anopportunity to play the biggest role in tactical areasof real estate,” he said, “such as supplies, facilitiesmanagement services, engineering and energy.”Procurement brings rigor and fairness to the process,but as subject matter experts, CRE owns thedecision. A recent CoreNet Global survey of CREend users around the world showed that nearlythree-quarters of respondents believe that real estateobjectives and goals will become more integratedwith Procurement by 2020, driving a higher degreeof sophistication in how outsourcing is done.A View of the FutureLooking ahead, several real estate expertsinterviewed by CoreNet Global see evolutionarytrends for real estate-related procurement:• Procurement’s focus will move from a commodities-driven, cost-centric approach to focus on multiple criteria that can drive total value.• To that end, real estate-related RFPs will broaden to concentrate on wider goals and objectives rather than on a laundry list of cost-based deliverables. How the service providers will get to the end game – the goals and objectives – will be what distinguish them during the bidding process.• Procurement professionals will specialize in CRE- related spend, becoming part of a dedicated team that understands the ins and outs of real estate transactions.• The combination of CRE and Procurement will yield greater buying power than the CRE department possesses on its own, but it also will add complexity to decision-making.• Rigor will increase around CRE-related vendor selection. Decision-makers will have to justify choices.Chalker said Morgan Stanley already has discoveredthat the key to successfully combining real estateand Procurement efforts lies in creating harmonyrather than discord. “If you have an adversarialrelationship with Procurement,” he said, “then it’s aconstant battle.”
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing29BOLD STATEMENT 2Data-backed insights and business intelligence are anincreasingly important component of business plan-ning and strategy in every sector, including CRE. ButCRE’s legacy and structure creates challenges forfully leveraging data, real estate experts say.“Today, data is the big gaping hole for most realestate functions,” said Christopher Staal, MCR,Vice President, Global Head of Real Estate andFacilities Management for financial information andmedia company Thomson Reuters. The problem istwo-fold: The CRE department traditionally has notbeen at the forefront of technology innovation, andthe industry’s structure of service providers and us-ers can add complexity to the already tricky task ofdetermining who owns data.Nonetheless, most experts interviewed by CoreNetGlobal say that by 2020, data access and usagewill be essential to both making real estate-relateddecisions and to the services that end users expectservice providers to offer.The December 2011 CoreNet Global survey of CREend users indicated 80 percent of respondents fore-see a future in which:• Data streams from different parts of an organization are integrated into cross-functional dashboards to better support real-time decision making.• Service providers not only collect and report on data but also analyze it properly to guide CRE strategy.• CRE providers and end users easily share non- proprietary information.• Standardized portfolio metrics enable side-by-side, value-based comparisons across global operations.All this means that the critical importance of data isnot in dispute. What is in question is whether thetug-of-war over data ownership will hamper the CREdepartment’s ability to get the most out of the avail-able information.“Some larger, risk-averse and heavily regulated compa-nies have data and systems highly insourced, securedand protected from service providers,” noted ThomasMcCarty, Managing Director of Strategic Consultingfor commercial real estate firm Jones Lang LaSalle.Pharmaceutical, health care and financial services firmsare among the most cautious about their data.Morgan Stanley’s Chalker said competitive advan-tages and confidentiality and regulatory concernsVendors will becomeresponsible for data accessand usage as it becomesmore widespread as a meansof delivering corporate realestate strategy.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing30BOLD STATEMENT 2will ensure that end users like banks maintain tightcontrol over data. “I do agree that companies will getmore sophisticated about the data they share withservice providers to drive better partnerships,” hesaid. But he added, “The company will ultimatelymaintain full control of the data.”Nonetheless, technological innovations like cloudcomputing already are changing companies’ posi-tions on the exclusivity of and protection aroundtheir data, said an interviewee responsible for leas-ing and construction projects in North America.“You would expect that by 2020 service providerswill take a more active role in both systems anddata management [for clients], assuming they canmeet all the security and expertise requirements,”continued the interviewee. “I think between nowand 2020, the biggest investment for many serviceproviders is going to be their technology platformsbecause many of their clients are going to demandit, expect it and call them to task on it.”Data management requirements already are becom-ing an increasingly important requirement on RFPs,and end users want more than reports. They wantanalytical, insightful analysis of what the data shows.Data usage will become more widespread as ameans of setting corporate real estate strategy andvendors will take a more active role in the manage-ment of the data stream.A View of the FutureAll of the real estate experts interviewed by CoreNetGlobal say data will be an integral part of the serviceprovider/end-user relationship going forward. By2020, they envision:• A tiered structure for determining which pieces of data get shared and how the data is controlled. The less critical the information is to a company’s competitive advantage, the more likely it is that the end user will hand it off to a service provider for management and/or analysis.• Vendors will have access to some data, but most companies will continue to own and house the data, especially if their business is highly competitive or heavily regulated.FIGURE .2 | BOLD STATEMENT 2 SURVEY RESULTS2%6%19%StronglyDisagreeNeutral StronglyAgree50%22%Disagree AgreeData Will Play an Essential Role in Corporate Real Estate Operations by 2020Source: CoreNet Global End User Survey December 2011
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing31BOLD STATEMENT 2• Service providers will own the systems that can manipulate and analyze data coming from end- users. The systems will need to be easy to use and flexible – for example, “dashboard” portals that plug into enterprise resource planning systems like SAP and Oracle.• Service providers’ ability to glean insights from shared data will be a core competency; end users will expect service providers to be able to deliver this kind of business intelligence.• Providing these technology solutions will become a competitive advantage for service providers, whose data-rich bundle of services will tether them to clients – making end users less likely to move business elsewhere.McCarty of Jones Lang LaSalle predicts companieswill increasingly desire the efficiencies to be gainedfrom using service providers’ data management andanalytics capabilities. End users will look to serviceproviders to “manage processes and make decisionsfor them or in conjunction with them.”
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing32BOLD STATEMENT 3The industry catchphrase of 2012 may be “global,”but saying it and achieving it are two differentthings, real estate experts contend. The pressure onservice providers to increase the geographic scopeof offerings will intensify as we march toward 2020.But even in 2020, a truly “seamless” global CREenvironment will not be a reality, warn some of theindustry players interviewed by CoreNet Global.End users want providers to offer global real estateservices that will allow them to scale quickly over-seas to meet growing demand and seize emerging-market opportunities. But end users need to realizethat the challenges they face in growing their ownglobal operations also create obstacles for their realestate service providers, said Crumley of MillerCo-ors, who formerly worked on the service providerside in positions at Cushman & Wakefield andJones Lang LaSalle.“The local laws and the local practices are really goingto dictate how things happen,” she said. “I think it’s abig responsibility of corporate real estate executivesto truly understand how the business works. … Thereneeds to be recognition of the realities of what it takesto do these things internationally and a willingness tofigure out how to work through that.”For service providers to grow their platforms globally,they must employ what Crumley calls “workarounds,”partnerships with local real estate vendors that allowa service provider to offer space and services in manymarkets but that may not ensure adequate controlover all operations.“Standards vary from country to country,” agreedKoo Stengle, Strategic Planning Manager for bank-ing firm BB&T. “To be a true international platform,service providers will need to integrate locally.” Thatintegration takes place through partnering with,merging with or buying local providers. That alreadyis happening, and the trend will gain momentum –and sophistication – in the future, experts say.Inch of Ford Land foresees service providers doing allof the above to create the global platform that end-users will expect. “Global reach will continue to be apart of the selection criteria for the CRE departmentbecause it is easier from a global account standpointto be operating with one vendor,” she said.Tom LaDue, Senior Director of Real Estate Relation-ship Management at health care technology and prod-ucts supplier McKesson, agreed and added that theend-user also has high expectations. “We want thesame level of service in Ireland or Belgium that weget here [in the U.S.].” The demand will only increasefor this consistency and standardization, he says.Taub of Time Warner said the push for global realestate offerings from existing service providers isClientele will drive serviceproviders to grow theirplatforms globally.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing33BOLD STATEMENT 3a matter of necessity, but also convenience. “It iseasier for corporations to have two or three one-stop shops versus six or seven,” he noted. “It’sgreat to be able to rely on the same service provid-ers … domestically and globally.”A View of the FutureThe move toward increased global offerings will beconstant, but the realities of cobbling together of-ferings from diverse local markets will mean steady,rather than speedy, progress, say the experts inter-viewed by CoreNet Global. They predict:• Clients will expect service providers to show capabilities in markets around the world before an agreement is signed. That means service providers must anticipate the business and set up offerings before end users request them.• Partnerships between large service providers and local providers in key markets will increase in number and sophistication.• Companies will want single-source vendor relationships for global markets.• Globalization will increase standardization of facilities, especially those used for world-wide collaboration.The bottom line, says Staal of Thomson Reuters, isservice providers will be expected to lead the wayin enabling global operations. “They should be do-ing some heavy investing,” he said.FIGURE .3 | BOLD STATEMENT 3 SURVEY RESULTS0%6%18%StronglyDisagreeNeutral StronglyAgree46%30%Disagree AgreeService Providers Will Expand Globally to Meet Increased CRE DemandSource: CoreNet Global End User Survey December 2011
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing34BOLD STATEMENT 4The advent of nontraditional providers entering themarket already is upon us, real estate experts say,and it’s not only driven by economics but also by newopportunities. They cite a few recent examples of non-traditional firms carving out space in the CRE space:• Food service vendors Compass and Sodexo are offering facilities management services.• Regus, which built its business around supplying as needed meeting space and services for small operations, has entered the corporate space.• Business processing firms like Xchanging and Wipro are competing against the value proposition of CRE providers’ full-service offerings.Additional niche-based nontraditional providerscould alter the landscape, experts said, with end-users choosing providers who offer specialties thatare of critical importance to their operations. What’smore, traditional technology or consulting firmscould enter the space with new, broader solutions.Experts list several possibilities: Cisco, SAP, IBM,Hewlett-Packard, Accenture, PricewaterhouseCoo-pers and Ernst & Young.Staal of Thomson Reuters predicts such new en-trants would create significantly disruptive change:“The brokerage side of the business may be im-pacted uniquely.”There will be continued consolidation of the serviceprovider industry with the appearance of stronger,more viable regional partners and nontraditionalservice providers emerging in this space.Consolidation among traditional service providersalready has transformed the market, and severalexperts question how much bigger the largest playerscan get. But they do foresee a number of smaller ser-vice providers consolidating to form an operation largeenough to compete with the service provider giants.Another possibility, they say, is that smaller providerswill join together to create deal-specific consortiums –perhaps rich in regional expertise – that put them on alevel playing field in highly complex bids.John Jordan, who heads the Global WorkspaceAssociation and is President of BusinesSuites, saidconsolidation itself may create competitive oppor-tunities: “Perhaps a smaller boutique firm will findDue to economic pressures,there will be continuedconsolidation of serviceproviders, and we expect tosee a nontraditional serviceprovider enter the race.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing35BOLD STATEMENT 4creative ways to address the gaps in the market-place created by consolidation.”A View of the Future• Nontraditional providers will enter the market to compete outright with mainstream CRE offerings or to erode the value proposition of specialty services offered as part of service provider bundles.• Mid-size and small service providers will combine to compete against the largest firms.• Consolidation may open new doors for smaller providers who can fill resulting gaps in service.“Consolidation is a natural evolution,” said Chalker ofMorgan Stanley. “It’s the survival-of-the-fittest model.”FIGURE . | BOLD STATEMENT 4 SURVEY RESULTS1%5%20%StronglyDisagreeNeutral StronglyAgree58%16%Disagree AgreeConsolidation and New Entrants Will Reshape the Corporate Real EstateMarketplace. There will be continued consolidation of the service provider industrywith the appearance of stronger, more viable regional partners and nontraditionalservice providers emerging in this space.Source: CoreNet Global End User Survey December 2011
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing36BOLD STATEMENT 5End users are asking service providers to deliver increas-ingly complex and operationally essential offerings, andthat has increased awareness of how well the serviceproviders’ employees are prepared to do their jobs.This is an area of extreme focus, said Maxine Hewer,Global Category and Supplier Manager for technologyequipment maker Cisco, and it presents challengestoday and tomorrow. Do service providers have theskilled employees that end users expect? Are theyhiring and training strategically to ensure they will havethe manpower to meet end users’ future needs?The reality, noted Crumley of MillerCoors, is that realestate services have melded into domain-orientedcorporate services, and that changes the needs andexpectations. “Yes, [service providers] are doing the realestate, but they’re also managing the mail room or thefleet or running the cafeteria,” she said. “There needs tobe some serious employee training and development tohelp people expand into these broader responsibilities.”McCarty of Jones Lang LaSalle says the heightenedneeds and expectations have changed the nature ofCRE outsourcing. “It is no longer a default practiceto simply ‘re-badge’ the outsourced team,” he said.“Service delivery capabilities are now much moresophisticated – integrated with and dependent ontechnology, and that requires more advanced skillsand training.”Corporations want to know service providers’ humanresources divisions are up to the task, said Stengle ofBB&T. “We want to see what the training looks like,and we want to make sure that if a service providerhas a particular core function that they are doing it well.They need to be trained.”At McKesson, LaDue said he wants to know detailsabout service providers’ preparedness. “We’re veryinterested in understanding how they train and man-age staff because, essentially, these teams end upbeing dedicated to us full time as though they areour employees,” he said. “We’re definitely interest-ed in what kind of support they get and how they’rebeing continually educated and trained. We wantthem growing and not becoming stagnant.”A View of the FutureThe experts interviewed by CoreNet Global see train-ing as an essential component of any future success-ful supplier/client partnership. They forecast that:With corporate real estateexecutives utilizing theirservice providers as anincubator/training groundfor noncore business, humanresources and trainingcapabilities will become aheightened requirement.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing37BOLD STATEMENT 5• End users will require service providers to contractually ensure adequate human resources/ training capabilities.• HR and training capabilities will become competitive differentiators among service providers.• Recruiting, training and retaining top talent will become increasingly important for service providers, heightening the pressures on and requirements for HR divisions.• Successful managers and employees frequently will move back and forth between service providers and end users and be tasked with training others for success.• Service providers’ succession plans will get more attention internally and externally.• A talent gap looms unless the industry does more to recruit young workers and make training both relevant and required.Jay Bechtel, Project Executive for Google, saidservice providers’ human resources capabilitieswill become increasingly critical to end users as2020 approaches. “As we outsource more to ser-vice providers, the quality of their people is moreimportant, and thus, HR and training plays a criticalrole,” he added. “Absolutely, the service providersare an extension of us as they interface directlywith our users.”“We will see more fluidity of peopleworking for corporations andservice providers, and a greateracceptance of the movementbetween the two. … In the future,the focus will be more about beinga professional in the industry.”– Christopher Staal, MCR, Thomson ReutersFIGURE .5 | BOLD STATEMENT 5 SURVEY RESULTS4%11%30%StronglyDisagreeNeutral StronglyAgree41%14%Disagree AgreeHuman Resources and Training Will Gain ImportanceService providers’ HR and training capabilities will become more essential to clients.Source: CoreNet Global End User Survey December 2011
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing38BOLD STATEMENT 6During the recession of the late 2000s, cost cuttingwas everyone’s mantra. Now that a slow but steadyeconomic recovery has taken hold, companies arebeginning to move away from a reactionary focus oncosts and move toward requirements and assess-ments that are based on quality-oriented metrics,say most of the real estate experts interviewed byCoreNet Global.“[Key performance indicator] contracts are moreprevalent,” said McCarty of Jones Lang LaSalle. In arelated trend, he noted, end users are shifting to theservice providers the responsibility for ensuring thatquality. “The service providers now must manageperformance requirements down through the supplychain to their suppliers and subcontractors.”It’s a risk-and-reward structure, he explained, in whichproviders get penalized for poor performance by thecompanies they hire and rewarded for performancethat exceeds time, cost or performance expectations.LaDue of McKesson predicts that trend will continue.“We’re already envisioning something different in thefuture that’s much more outcome-based. What wasthe value brought at the end of the day? We’re movingtoward less emphasis on how a service provider getsit done, as long as we get a good outcome,” he said.“Are they being proactive in how they attack issues,with different alternatives and creative solutions?That’s what we should be measuring and reward-ing them for,” LaDue said. The process an end userrequires the provider to follow is important, he said,but it is the means to the end, not the measure ofsuccess. The outcome is the end. “If they’re not fol-lowing the process, they they’re probably not going tohave good outcomes. So you’ll still be able to rewardand penalize around process, but you’re not spendinga lot of time watching and measuring it,” he added.An interviewee based in Asia-Pacific agreed that avalue-based standard is gaining momentum among cor-porate real estate executives. But, the interviewee saidthat the challenge is how to measure “value.”“We’re struggling ourselves to measure even whatwe deliver internally,” the interviewee noted, despiteaccess to technology tools and databases theoreti-cally designed to gauge performance on real estate-related objectives. “If we can’t get that right, howare we going to track providers helping us deliver.”This interviewee would like to see an accurate,relevant value-tracking system developed for theindustry by 2020 but is not optimistic. “People havebeen trying to sell that for 10 years,” continued theinterviewee. “I haven’t seen real success.”Barry Varcoe, Global Head of Corporate Real Estateand Facilities Management for Zurich InsuranceGroup agrees that it’s a worthy goal, but also fore-sees problems with tracking something amorphouslike “value” compared to tracking something easilyquantifiable, like cost. “Attempts to measure valuethat I have seen included productivity … and reten-tion,” he said. “Those are tough to prove.”Real estate executives from financial services firms sayquantitative measures will continue to be an importantPricing and performancemanagement models willbecome more value-based(more strategic and proactive),while less focused on purelyfinancial objectives.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing39BOLD STATEMENT 6criterion when compared to qualitative ones in theirindustry. “Price is always an issue,” says Chalker ofMorgan Stanley, “but one must take into considerationthe quality of the service as well.”Kendall Bateman, Senior Vice President of Bankof America’s West Region, said, “Heavily regulatedindustries like banking and financial services have atougher time” moving away from quantitative metrics.A View of the FutureMany real estate experts interviewed by CoreNetGlobal say a focus on value is gaining momentum butwarn that challenges with tracking and measuringvalue-based metrics hamper change. They predict:• Organizations will recognize the potential detrimental impact of cost cutting on productivity, which will change the conversation from cost containment to value creation.• End users will expect service providers to take on responsibility for ensuring quality measures are met.• Cost control will move down the list of metrics for many CRE executives, but it will remain one of the key measures of success.• Some business, such as financial services, will stick to straightforward, quantifiable metrics, even if the broader real estate industry focuses more on value- based measures.Staal of Thomson Reuters proposes that one way tomeasure value is to gauge how much service pro-viders enhance strategic decision-making and theoutcomes of executing that strategy. “If the serviceproviders play a part in the strategy,” he said, “thenyou’re paying for value.”“CRE and service providerrelationships are still adversarial andwill need to be more collaborative. …There needs to be better alignmentbetween the goals of the corporationand the goals of the service providerfor the industry to move forward.”– Kendall Bateman, Bank of AmericaFIGURE .6 | BOLD STATEMENT 6 SURVEY RESULTS3%5%26%StronglyDisagreeNeutral StronglyAgree44%23%Disagree AgreePricing Models Will Become More Value BasedSource: CoreNet Global End User Survey December 2011
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing40CONCLUSIONSThe Corporate Real Estate 2020 Service Delivery andOutsourcing team documents the industry’s thinkingabout its past, present and future.Interviews with more than 20 corporate realestate (CRE) and service provider executives andresults from a survey of global end users indicateglobalization; technology and data-driven businessintelligence; value- and cost-based metrics;evolving outsourcing models; industry consolidationand expansion; and access to well-trained andexperienced workers will shape corporate real estateas we head toward 2020.To meet evolving business demands, corporationsare employing a variety of outsourcing strategiesand structures – among them best-in-class, bundledand integrated outsourcing models. For their part,service providers are striving to meet end users’increasingly sophisticated and varied demandswhile shifting the value proposition from a cost-based metric to one that measures success using abroader definition of “value.”Based on the Service Delivery and Outsourcingteam’s hypotheses about what lies ahead, industryleaders offered these insights:• A combination of CRE and procurement will yield greater discipline and buying power than CRE possesses on its own, but it also will add complexity to decision-making.• Service providers will own the systems that can manipulate and analyze data coming from end-users, but most companies will continue to own and house the data. Service providers’ ability to offer data-rich business intelligence will be a competitive differentiator.• End users will expect service providers to anticipate global business drivers and emerging markets, and to set up service offerings before CRE requests them.• The CRE sector will be reshaped by continued consolidation and by nontraditional service providers entering the market.• End users will require service providers to put in place skilled workers who benefit from the providers’ high-quality human resources and training capabilities.• Organizations will begin to shift from cost containment toward value creation as a contractual metric, but pricing will remain a key measure of success.As we move toward 2020, experts say, end users andservice providers must re-envision CRE, putting theemphasis on services and strategy, rather than space.Service providers will own thesystems that can manipulate andanalyze data coming from endusers, but most companies willcontinue to own and house thedata. Service providers’ ability tooffer data-rich business intelligencewill be a competitive differentiator.
CORPORATE REAL ESTATE 2020 FINAL REPORT: service delivery and outsourcing41CORPORATE REAL ESTATE 2020 | PARTICIPATING COMPANIESAPPENDIX A:CORPORATE REAL ESTATE 2020TEAM LEADERS AND SPONSORSEnterprise LeadershipMark Schleyer, AT&TMichael Creamer, Cushman & WakefieldLocation Strategy and the Role of PlaceMary Jane Olhasso, MCR, County of San BernardinoPartnering with Key Support FunctionsCraig Robinson, Cassidy TurleyPortfolio Optimization & Asset ManagementJack Burns, CresaKeith Keppler, CresaRuss Howell, MBA, Jones Lang LaSalleService Delivery & OutsourcingBlake Layda, Jones Lang LaSalleScott Bumpas, CresaLisa Huls-Fry, Cassidy TurleySustainabilityLeigh Stringer, HOKTechnology ToolsLarry Sweeney, AT&TRobin Ellerthorpe, HOKWorkplaceAnne Nathe, Johnson Controls, Inc.Chris Mach, MCR, AT&TCindy Beavers, Steelcase Inc.Margaret Gilchrist Serrato, PhD, MBA, AIA, ASID, LEED AP, Herman MillerMichael Leone, RegusPatricia Roberts, Jones Lang LaSalleRob Wright, Johnson Controls, Inc.Russ McFadden, AT&TSteve Hargis, MCR, LEED AP, HOK