Vuca outsourcing-v2-050413
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This document summarizes the history of corporate real estate outsourcing from the 1990s to the present. It notes that the company was the first in several areas of CRE outsourcing, including securing the first US contracts in the 1990s, the first Asian corporate outsourcing deal in the 2000s, and the largest domestic CRE outsourcing deal outside the US in the 2010s. The document also discusses how the volatile, uncertain, complex, and ambiguous business environment makes real estate management difficult but that outsourcing can provide benefits like cost savings, innovation, and better resource deployment.
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Vuca outsourcing-v2-050413
- 1. A History of CRE outsourcing • FIRST to recognize the corporate real estate opportunity in the US • Secured FIRST contracts 1990s • Created Corporate Services in the 3 regions • FIRST Asian corporate to outsource 1 # • FIRST global deal 2000s • FIRST global life sciences client out of Europe • Largest ever domestic corporate real estate outsourcing outside the US • FIRST Japanese corporate outsourcing • FIRST with HSBC 2010s 1
- 2. #1: The VUCA world makes real estate difficult Changing Economic Landscape High-Unemployment Corporate Downsizing Global Competition
- 3. V olatile U ncertain C haotic A mbiguous
- 4. CRE ≠ VUCA
- 5. Average # of decisions per day: 612
- 6. Average # of decisions per day: 612 Average duration of corporate lease: 4 years
- 12. Question: How well equipped do you feel to meet the tactical and strategic demands placed on CRE teams by the Csuite? Base: 545 respondents 12
- 13. #3: Outsourcing can be a better way… …if we evolve.
- 16. Our future • Projects, transactions, facilities ion iss dm • Cost managers fa o ice Pr • Providing best people, best ideas in a VUCA world
- 17. Changing market dynamics Outsourcing value curve Benefits Organization value Full integration IT Innovation Risk management Partial integration Speed Quality Functional outsourcing Cost savings “Out tasking” Efficiency 10 10
- 18. Interdependent Shared Value Based Business Model Investment-Based Business Model Equitable Partner (e.g. Joint Venture) Transaction Based Shared Value-Based Business Model Managed “Vested”Services Outsourcing Relationship Minimal Outcome-Based Business Model Outcome-Based/ Performance-Based Relationship Transaction-Based Business Preferred Model Provider Approved Simple Provider Transaction Provider Low Shared Value * JV represents a single balance sheet High
Editor's Notes
- CRE has been successfully outsourced for 20 years. In the mid-90’s the discussion at CRE events, was around “is outsourcing a good way to organized CRE functions”. JLL and our predecessor companies were innovators and leaders in that discussion. But in the last few years the landscape for us and our clients has changed dramatically. Why?.....let’s look at three inconvenient truths.
- First, our VUCA world is making real estate difficult to manage.
- VUCA stands for Volatile, uncertain, chaotic and ambiguous. Military term describing our current state. That means we as leaders – and our clients -- must deal with dilemmas that can’t be anticipated. If you want examples of our VUCA world, just read the news – or your Twitter feed: Entrepreneurs driving non-traditional business models are becoming the norm…. Political revolutions are mobilizing through social media…. And perhaps the best example of VUCA….
- What does a VUCA world mean to real estate? Commercial real estate is the opposite of VUCA. It’s not ambiguous – hard asset. Long cycle times.
- Let me put this in perspective…. Two years ago, the New York Times published the results of several studies on the increasing number of decisions we make each day. Psychologists think that an average person makes hundreds of conscious decisions per day. Contras that to real estate. How fast do we and our clients make commercial real estate decisions? The average duration of a corporate lease in the U.S. in 2012 was 4 years.
- Let me put this in perspective…. Two years ago, the New York Times published the results of several studies on the increasing number of decisions we make each day. Psychologists think that an average person makes hundreds of conscious decisions per day. Contras that to real estate. How fast do we and our clients make commercial real estate decisions? The average duration of a corporate lease in the U.S. in 2012 was 4 years.
- Another example: Office space build-outs can take an average of 3 to 12 months depending on their scale and complexity. Consider Bear Stearns’ headquarters in Manhattan. This building took four years and $1.1 billion to complete, and was barely even used by the bank, as they went bankrupt right after completion and were absorbed by J.P. Morgan in 2008. The construction schedule was no match for the rapid changes in the investment banking industry that made the building not even necessary. Good example!
- A rapid growing “Cult status” winery in Napa…a place known for incredible real estate; last year produced over 100,000 cases; bucked trend of owning large estate; outsources production, only 9 employees in shared rented office apartment above an Odd Fellows lodge – not exactly your typical image of a prestigious Napa Valley winery
- The Mismatch: C-suite live in a world full of VUCA problems and CRE live in a slower moving “building/asset world”. This mismatch leads to CRE being undervalued & poorly leveraged, relegating it to a tactical, order taking function. Example) In our global CRE survey that we just published, we asked “what’s the biggest impediment to your success?” most said “their boss or their budget”
- I usually don't talk for longer than 5 min without a TV or pop culture reference, I pretend it is because I grew up in Southern California, but I really suspect it is more about my parents allowing me to be raised by cable television. But in all seriousness, do we feel that way with our clients ? We need to fit the square peg in a round hole? We have to drive most costs out of a portfolio than appears reasonable, move faster, innovate, help CRE have a seat at the table, be strategic.
- Another recent example of this mismatch Here’s an example again from our recent….CRE survey Only a quarter of CRE execs are well-equipped to meet C-suite demands. We saw this first-hand two weeks ago at a conference for our tech clients…..companies like Google, Facebook, LinkedIn, Netflix… We asked them “do you have a seat at the C-Suite table?”…..almost all said “yes” Then we asked if they knew what to say (beyond real estate jargon/statics)….a resounding “no” CRE can drive significant strategic value for a company...sometimes it can sometime it doesn’t…
- That brings me to my final point…..outsourcing can be the way out of this mismatch….but only if we as providers – and our clients – evolve. For 25 years the market has tested and proven the value in outsourcing. It’s like a prescription drug, used properly in and in the correct way, it can add value to an organization, however if outsourcing is not properly administer the results can be bad. A bad outsourcing deal can be a disaster for the client and the service provider
- Properly done outsourcing contract good for everyone We don't have time to go into all a deep discussion, but these authors have research what makes a good outsourcing contracts and it is what we have know for years. If the client hires a trusted advisor, who has the right incentives in place – the contract can be very lucrative for everyone- Clients, the Service Provider, the sales guys who did the deal, the CRM,,,it’s awesome.. Just as an aside—if you haven’t read Vested Outsourcing and Vested, you should do two things read both and then get copies for your key client contract. IF you only have to to skim the book – read chapters 3 of Vested Outsourcing and the P&G JLL Chapter in Vested. Trust me, in our profession these are great documents.
- Most firms have competency around design, acquire, build and manage. All verbs that describe the box (the building). But in a VUCA world, the skills are about what’s in the box (the workplace). Skills like problem solving, human resources, information technology, etc etc. The transformation of IBM that Kenneth talked about could seem mild to the kind of transformation our industry will see over the next 50 years. Are we approaching our business with an openness and willingness to change? Are we hungry to develop talent in new areas? Are we ready to challenge clients who are clinging to a non-VUCA world?
- So what does this mean? With these three trends, What does CRE of the future look like? For clients: Integrated, Nimble Organizations – that leverage providers properly will provide the best way to manage CRE in a volatile, chaotic, uncertain and ambiguous world. For JLL: 3 things: 1) We have to be the best managers of projects, transactions and facilities in the business… 2) We have to be brilliant cost managers. These are just the price of admission these two things get us into the party. 3) BUT…to continue to lead…Outsourcing to JLL has to be about providing the best people and ideas in a constantly changing chaotic business environment. You’re about to hear two big ways we need to evolve our frame of reference and skill sets from Bernice and Dave. I have been working around this topic and selling outsourcing in with JLL for a few years, my opinion is we have a great opportunity to take advantage of these trends, really unmatched in the industry. but my guess is it will be one of our more difficult challenges we have faced, but if it were easy any one could do it …