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CoreNet Global Applied Research Center State of the Industry Report
January 2008 © CoreNet Global
Chapter 1 INTRODUCTION CoreNet Global set an Information-Age vision for the future state of corporate real estate (CRE) in 2004 through Corporate Real Estate 2010, or CoRE 2010. Today’s new business model involving the globally networked enterprise and the changing nature of work defines CoRE 2010’s wide scope. Globalization is the force linking CRE to this model so that:
• The state of CRE is tied directly to the evolution of the multinational corporate enterprise and the creation of value.
• The bond is getting stronger with CRE’s increased linkage to the corporate strategic
agenda and, ultimately, to the expansion of commerce on a global scale.
For these reasons, CoRE 2010 continues to serve as a useful benchmark to measure progress toward 2010 from a corporate asset management standpoint.
That same forward-facing framework is the basis for this first-ever annual State of the Industry report from CoreNet Global. As this report covering 2007 shows, in some respects, our current state is on track with CoRE 2010 forecasts. In others, the adoption rate is lagging or it’s different than anticipated.
State of Industry Report OBJECTIVES
- CoRE 2010 framework linked to 2007 key findings - Summary and sourcing via http://www2.corenetglobal.org/knowledge_center/index.vsp - Sourcing via other channels including:
o Applied Research Center bulletins and surveys o LEADER Magazine case studies and articles o Global Summit case presentations o Discovery Forum cases and summary findings
Page 1o Global Innovator’s and other award cases
o Contributions by members and the CRE industry - Synthesis of findings through State of Industry report conclusions - Validations of conclusion by Research Partners and other industry thought leaders
While this report thus draws from the wide range of knowledge and related resources within CoreNet Global, your validation of the findings, conclusions and predictions for coming years is the report’s most critical aspect.
What is CoRE 2010? In 2004, CoreNet Global benchmarked the CRE and workplace industry against external macro-economic and societal factors in our landmark research series, Corporate Real Estate 2010, or CoRE 2010. Eight topic research teams were comprised of senior-level CRE executives, service providers, consultants and thought leaders from 80 multinational corporations, government agencies, educational institutions and other research associations. These teams assessed the impact of the networked business environment on the CRE profession. CoRE 2010’s research teams tested numerous hypotheses, or “Big Bets,” about the CRE profession in 2010 by interviewing industry leaders and content experts in various fields, as well as key players in government and academia. From this process, common themes emerged confirming the steady movement toward the networked enterprise model. Click here for information on CoRE 2010 Reports.
© 2007. CoreNet Global. All rights reserved.
CoRE 2010 Research Process
Conceptualization Investigation Validation
Industry Vision for
2010
Research premise &
goals
Big Bets & Research Questions
Interview Industry
Leaders & Content Experts
Document Leading
Practices / Case
Studies
Field Gallup
Industry Survey
Validation by Industry
Leaders
Strategic Diagnostic
White Papers, Reports,
Presentations
Presentation
?
?
?
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State of Industry Report Structure The focus of this report is on the CRE value chain, and the four key value dimensions of CRE: Corporate Social Responsibility/Sustainability, Workplace, Portfolio Optimization and Location Strategies. The related drivers are Solutions Delivery, Technology and the Web, Integrated Resource Infrastructure Solutions (IRIS) and Enterprise Leadership.
Value Dimensions Drivers of Value Dimensions
CSR/Sustainability Strategic Competencies
Portfolio/Supply Chain Solutions Delivery
Workplace Integration/IRIS
Location Strategy Technology & the Web
TALENT AND SKILL SETS ARE COMMON TO EACH AND ARE CHANGING ACROSS THE BOARD
Each area maps to the respective domains within CoRE 2010, with added emphasis on the inter-relation of CRE to the enterprise and even the economy. Each domain also represents the key areas of practice or strategic competency for CRE to be effective. CoRE 2010 Key Terms as Defined in 2004 – How have they changed? Value Dimensions Corporate Social Responsibility/Sustainability Corporate behavior that demonstrates open and transparent business practices based on ethical values and respect to employees, communities, and the environment.
Asset Management & Portfolio Optimization The process of continually assessing risk, demand, supply, and financial structure of the enterprise’s resources, resulting in specific actions that either minimize risk or maximize return on the resources, in alignment with the unique needs of the company.
The Changing Nature of Work/Workplace The main depiction of how work will be done in 2010 is the social network. Social networks are about relationships, teamwork, and community; they are a set of interconnected nodes or points. Work will be accomplished in a wide range of locations, and on the go.
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Strategic Role of Place/Location Strategy Refers to both physical and virtual workspace for the networked enterprise. Location strategies are molded around global business dynamics of a global workplace. It involves the interdependencies of resources, infrastructure, and constraints.
Value Drivers Enterprise Leadership/Strategic Competencies Leadership is the process of influencing others to achieve the group or organization’s goals. In the networked world it is about motivating and influencing participants in the organizations’ internal and external networks to achieve the vision, mission and goals of the enterprise.
Solutions Delivery (Service Delivery) A broad reaching function that encompasses everything from tactical services to strategy planning for a company. It includes work performed by parties internal or external to the corporation that contributes to the benefit of clients, customers or stakeholders and furnishes or supplies the various constituents with something needed or required that produce promised, desired or expected results.
Integrated Resources Infrastructure Solutions (IRIS) A shared services model for administrative services management and delivery in which real estate, technology, and other elements of the infrastructure will be seamlessly integrated to provide workers with the tools and environments they need to develop and deploy products faster and more efficiently.
Technology & the Web The accessing of information via the Worldwide Web, the platforms and applications around it and the devices through which it is accessed, as well as telecommunications technology. It is an integral part of the workplace of 2010 and beyond.
ABOUT CORENET GLOBAL CoreNet Global is the world’s leading professional association for corporate real estate and workplace executives. CoreNet Global is focused on helping members create strategic value for the corporate enterprise. The group’s 7,000 members manage more than $1.2-trillion in real estate and workplace assets. CoreNet Global is focused on applying research to case-study based knowledge sharing among members serving the asset management, real estate, workplace and related needs of Global 1000 and Fortune 1000 companies. CoreNet Global convenes the entire industry spectrum of corporate real estate executives, service providers, economic developers, academics and others. For more information, please visit www.corenetglobal.org
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CoreNet Global Research Partners AllSteel CB Richard Ellis Cushman & Wakefield Deloitte DTZ Haworth Johnson Controls Jones Lang LaSalle Nelson CoreNet Corporate Research Partners Adobe Systems Allstate American Express Capital One Services Coca-Cola Company Ford Land General Motors General Services Administration General Services Administration: Office of Applied Science Hewlett Packard McKesson Corporation Medtronic Motorola Nokia Nortel Networks Pitney Bowes Pfizer Rockwell Automation Royal Bank of Scotland St. Paul Travelers Companies Shell International Sprint The Travelers Companies United Technologies USAA Whirlpool State of the Industry Report Primary Author Richard Kadzis Director, Special Projects CoreNet Global
Page 5 [email protected]
CoreNet Global Applied Research Center State of the Industry Report
January 2008 © CoreNet Global
Chapter 2 SUMMARY OF KEY CONCLUSIONS FOR 2007 The Changing Business Environment CoreNet Global’s Corporate Real Estate 2010, or CoRE 2010, centers on how over-arching economic, demographic, technological and other forces influence the multinational corporate enterprise and corporate real estate (CRE). Today, for CRE and workplace executives, the “macro” backdrop has never been as dynamic, the opportunities more extensive, and the challenges so complex:
• Climate change, rising oil prices, war, terror, market turmoil, threat of pandemic and other risks are redefining life on an individual and societal level.
• Yet, world economic growth is at an historic high point, thanks to globalization’s pervasiveness.
• More open markets and free trade combine with travel and technology to flatten the world. (Thomas Friedman)
• Still, the migration to an integrated global economy is at least another 25 years from being fully realized. (Alan Greenspan)
• Geographic and political boundaries are, in turn, blurring with the pronouncement of cross-investment, knowledge work, e-commerce, and other forms of what CoRE 2010 calls “rampant change.”
The characteristics of today’s fast-changing business environment also extend to escalating risk and the resulting need for greater degrees of flexibility, transparency and now corporate social responsibility, or sustainability.
• It’s leading to a stakeholder mentality, one through which consumers, employees, investors, suppliers, media, communities and other constituencies critical to the growth
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and profit of corporate enterprises are viewing governments as less effective in dealing with global issues. Brand reputation is increasingly at stake.
• Companies that invest in this mindset will reduce risk, increase reputation and enhance
profitability. (Dr. Noreena Hertz)
The CRE Value Chain and CoRE 2010 Dimensions
Solutions Delivery IRIS Technology Enterprise
d hi EXTERNAL INFLUENCING FACTORS Various macro- and socio-economic trends have created the framework for a pronounced migration to a range of responsible practices by global corporations:
- Rising oil prices and scarcer water supplies - Stakeholder pressures and interests - Proliferation of related investment and capital funds - Increasing government regulation - Intensive media focus globally and locally - Relation of climate change to reputation/brand - Changing nature of work and the workplace - Finding and keeping talent
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2007 KEY CONCLUSIONS CoRE 2010 outlined six over-arching change drivers that would influence companies and their CRE departments. In 2004, here’s how CoRE 2010 foresaw the changing business environment:
The Changing Business Environment Critical Success Factors
‐ Knowledge Management ‐ Flexibility ‐ Segmentation ‐ Transparency ‐ Integration ‐ Risk Management
CoRE 2010 Synthesis Report 2004
Key Business Drivers ‐ Globalization ‐ Technology ‐ Workforce Demographics ‐ Rate of Change ‐ New Business Risks ‐ Sustainability & Corporate Social Responsibility
The fundamentals of the key business drivers foreseen in 2004 are mostly the same; what’s changed is found within them. Corporate social responsibility (CSR) is now energy and carbon focused, for example. Thus, the acceleration of its evolution is greater than anticipated. So the business environment is changing directionally as CoRE 2010 said it would, except for factors like the importance of sustainability in general, which advanced much faster than expected. In 2007, there were two major changes in the economic and enterprise environments impacting CRE – in ways significantly exceeding or differing from what CoRE 2010 projected.
• Sustainability/CSR • The War for Talent
Sustainability, Energy and Carbon Emissions as New Business Drivers CoRE 2010 foresaw sustainability and CSR as key drivers of CRE but did not anticipate the weight or velocity of related issues like climate change, energy management and carbon footprint reduction that rose with unprecedented velocity on the corporate agenda in 2007.
• In North America, rising energy costs have become a fundamental driver of the business.
• The dramatic increase in this focus by corporations in North America is a significant change in 2007 both economically and for CRE.
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• In Europe, reduction of the carbon footprint is a prime business driver in a government-regulated environment.
• In Asia, access to the construction supply chain and building materials is a major factor in a fast-growth region.
• One result not foreseen by CoRE 2010: Energy management and carbon reduction are now primary drivers of CRE.
Talent and Demographic Drivers Also Changed The demographic business drivers envisioned by CoRE 2010 are also exceeding forecast., although there was evidence of a talent issue in the economic boom years of the late 1990’s preceding CoRE 2010. Mainly because of a shortage in talent in the global economy, demographic issues have since risen on the importance scale faster than anticipated in 2004.
• The growing gap for technical-level talent globally and the underlying demand created by the ongoing outsourcing of core functions is now a business driver not only in CRE but across the enterprise.
• It also signals a currently inadequate industry pipeline to meet demand for outsourced jobs like facilities and transactions management.
• At the more senior levels, while strategic competencies for CRE were clearly outlined in CoRE 2010, the so-called “Enterprise Leadership” skill set is still a work in progress and is continues to be burnished through issues like C-Suite access, business unit credibility, and CRE leadership coming from other parts of the enterprise.
Technology and the Web Technology continues to progress rapidly, in some ways even faster than envisioned including bandwidth, security, access, mobility and information sharing. The CRE technology discussion is framed around:
• Enabling work • CRE management
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As illustrated in several case examples below, the impacts of mobility on the nature of work and are already pronounced:
© 2007. CoreNet Global. All rights reserved.
Evidence of mobility/distributed work
Accenture
45% of Office and R&D employees have a manager not located in the same site
40% of the US workforce does not sit in same facility as manager
Consulting is highly mobile, with ~90% of time working at client site, and third places (including home)
75% of managers have at least one team member in another country or time zone
60% outside the US does not sit in same facility as manager
Mobility for Business Practice functions varies by Geography (US/UK highest) with very strong traction in emerging markets and Asia
Development of a typical mobile device involves teams in 9 different office locations
On average HP employees are present in their “office” less than 50% of a normal work day
Distributed work business model with globally spread development and Systems Integration teams supporting nearly all engagements
Company-wide 200,000 hours of conference call and online meeting time every month
Mobility is upon us and contributes to low space utilization and a low-energy environment
Employee Engagement scores are positively linked to work-life balance advantages of mobility.
CoRE 2010 Areas of Relative Change in 2007 Concerning the other value dimensions and drivers of CoRE 2010, it was less a matter of significant change and more of relative or directional change for:
- The Changing Nature of Work - Asset Management & Portfolio Optimization - Location Strategies - Solutions Delivery - Integrated Resources Infrastructure (IRIS)
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CoreNet Global Applied Research Center State of the Industry Report
January 2008 © CoreNet Global
Chapter 3 ADOPTION RATES OF DRIVERS & DIMENSIONS Forecasting Our Future State In 2004, CoreNet Global benchmarked the CRE and workplace industry against external macro-economic and societal factors in our landmark research series, Corporate Real Estate 2010, or CoRE 2010. Four years later, and only 24 months from the year 2010, the intrinsic direction forecast within CoRE 2010 – a new business model based on the globally networked enterprise and networked virtual organization – is fast becoming a competitive advantage for multinational companies that understand and embrace the need for agility.
This radically changed, supply-chain driven business “ecosystem” means that “traditionally managed companies felt as though they were standing still while the new global order spun past them.” (Grantham et al, Corporate Agility) On the other hand, for more forward-looking companies and, thus, their CRE departments, that are embracing the new model, the year 2010 is already here in two key respects:
• Business and commerce are largely shaping the nature of globalization, or what CoreNet Global identified as “the subtle but steady advance towards the networked world.”
• With it, the corporate real estate and workplace industry are positioned to play pivotal roles as change agents.
The level of CRE’s ability to play a leadership role exceeds our expectations in some ways. In other ways, it has not. By grasping the interdependency of macro-level drivers of change, how they coexist and, most important, their implications for CRE and workplace executives, industry professionals are more likely to gain in value, credibility and influence.
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Differentiating that degree of influence and the adoption rate of key trends and practices surrounding globalization, is the chief goal of this State of the Industry Report. Our forecasts for the year 2010 provide a useful baseline – not only to summarize and synthesize what we’ve learned in 2007 through more recent findings, but to update our members’ vision of the industry’s future state.
Corporate Real Estate 2010 Adoption ‘2010 is really 2007. The businesses we support are moving that fast . . .’ ‘The future is not what will be but what is’ Las Vegas Global Summit Daily Reports: CoRE 2010 Adoption Update 2005
• 2010 has already arrived, or will soon arrive, in areas like Workplace, Portfolio, and Solutions Delivery
• With CSR and Sustainability, CoRE 2010 predicted the trend but not the impact of its velocity and force seen in 2007.
• The War for Talent moved to the fore in 2007, with the focus on demographics getting stronger than expected at the technical skills level globally.
• In other respects, CoRE 2010 adoption is lagging and may happen beyond 2010. IRIS is one example. Location strategies may be another.
© 2007. CoreNet Global. All rights reserved.
Value Drivers Are Key Enablers of Change in Value DimensionsDriver / Dimension Adoption Curves
High
Low
2004 2007 2010
WorkplacePortfolio
Sustainability
LocationStrategy
PresentHigh
Low
2004 2007 2010
Present
Leadership
IRIS
SolutionsDelivery
Tech
Value Drivers Value Dimensions
Progress toward CoRE 2010 goal
Mixed success in progress toward achieving CoRE 2010 goals
Where do you see us today and tomorrow? We’ll plot the adoption curve as part of the 2008 Industry Leaders Roundtable.
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CoreNet Global Applied Research Center State of the Industry Report
January 2008 © CoreNet Global
Chapter 4 CORPORATE SOCIAL RESPONSIBILITY (CSR)/SUSTAINABILITY CSR Morphs into Sustainability The hierarchy of terms changed from CSR to Sustainability in 2007 with the dramatic shift to issues like the price of oil, energy use, global warming, reducing carbon emissions, carbon credits and carbon regulation.
© 2007. CoreNet Global. All rights reserved.
Buildings are responsible for 38% of U.S.fossil-fuel carbon emissions
Built Environment Carbon Emissions Are Largest Contributor of CO2
U.S. Carbon Emissions by End-User Sector: 1970 - 2006
0
500
1,000
1,500
2,000
2,500
1970 1980 1990 2000
Source: U.S. Energy Information Administration
Transportation
Industrial Buildings
% of carbon emissions
(2006)
38.2%
33.8%
28.0%
Milli
on M
etric
Ton
s of
CO
2
Year
While CoRE 2010 placed primary emphasis on the concept of CSR, the context is increasingly focused around the term “sustainability.” The idea of the Triple Bottom Line, or 3BL, remains in place, as also identified within CoRE 2010 as People, Planet and Profit.
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New Business Drivers New CRE Drivers High energy prices Economics that work Greater public awareness Proliferating business cases Adoption of green practices LEED™ BREEAM™ & Energy Star™
In the popular sense, sustainability equates to “green,” or the “planet” piece of the 3BL.
• The “people” aspect is often addressed through CRE workplace, location and community reinvestment practices.
• The “profit” driver has always been there as an essential component, but 2007 brought new clarity on affordability and ROI.
From the CRE standpoint, “green” is tied closely to energy prices and carbon emissions. These are the two big changes surrounding the CoRE 2010 Sustainability dimension in 2007.
Other key points:
• 2007 showed that sustainability is now a CRE driver and, by extension, a fast-rising part of the global corporate agenda.
• It’s a critical issue now and over the near term.
• The sustainability focus differs from one global region to another.
Regional Differences United States Focus is on energy prices and managing use, as seen in the 2007 study
with Rocky Mountain Institute. Drivers are cost and corporate responsibility.
Pan Europe Focus is on carbon emissions and reducing the footprint in these Canada three regions. Australia This goes beyond buildings to commuting and other ways of reducing
one’s ‘personal’ footprint. Government regulation is a primary driver. Australia Pan Asia Asia’s focus is on resources. In China, construction materials are a
driver. In India, it’s water.
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Of Note in 2007
- CB Richard Ellis set a 10-year goal to go carbon neutral across its global portfolio.
-The GSA is guiding standards for all new properties in its massive Federal portfolio to meet LEED™ Silver level status.
Change Indicator For the first time, CoreNet Global offered a unified learning theme in all five Global Summits held in 2007, selecting Beyond Green Buildings as a main focus.
Global Summit ‘Green’ Focus
Atlanta 2007
• Daily Reports
• Presentations
London 2007
• Daily Reports
• Presentations
Melbourne 2007
• Learn more
• Presentations
Denver 2007
• Daily Reports
• Presentations
Singapore 2007
• Daily Reports
• Presentations
Here’s what CoRE 2010 said would happen:
• The CRE function will have a leading role to play in managing the sustainability agenda within a corporation
Here’s where we are today: • Our Applied Research Center (ARC) findings show the spiraling cost of energy,
especially oil, has created a mandate for better enterprise-wide energy management, so that reducing energy costs, consumption and emissions is now viewed as a prime leadership opportunity for CRE of the many areas that define the broad spectrum of sustainable practices and the Triple Bottom Line Joint ARC survey with Jones Lang LaSalle
SUSTAINABILITY SURVEY CONCLUSIONS o There’s a widespread understanding of the importance of sustainability on
a global level o It is now viewed as a significant and immediate opportunity o There’s a surging velocity of change driving the issue to the forefront o It costs less than thought and ROI comes sooner, not later o Energy and carbon emissions are now framing the issue
• That’s because with 40% of all energy being used by commercial buildings,
solutions to reducing cost and carbon emission must be real-estate based, so why shouldn’t they be real-estate and workplace driven? Joint ARC study with Rocky Mountain Institute Page 3
ENERGY CHALLENGE SURVEY CONCLUSIONS o Energy efficiency is growing in importance, but corporations don’t
have the management structures in place yet to realize improvements effectively.
o The responsibility for energy efficiency is given to facility managers. o Fewer than half of corporations have energy policies or consumption
targets in place, and fewer have active energy management systems that track data, identify problem areas, and help managers react to needs.
o While most corporate players recognize the importance of energy efficiency, they do not recognize the risk of inaction nor the ease with which effective energy management programs can be enacted.
o Most barriers are just perceived barriers that can be easily and profitably overcome with smart design, integrated solutions, the right management structure, and the appropriate implementation strategy.
What will it look like by 2010? • Sustainability includes but goes beyond energy management and ‘green’
buildings, extending across the CRE supply chain
LEADER Magazine’s Industry Tracker introduced the concept of “The New Über-Sustainability” in 2007 to draw attention to the broader practice of sustainability as integrated holistically in supply chain fashion through products, policies and practices: another version of the 3BL.
Beyond 2010:
• We also said that the requirement for publicly-traded companies to report their results in Triple Bottom Line fashion is more likely to happen on a broad scale by 2020, not 2010.That still appears to be the case.
• The value of non-sustainable properties decreases while a green building’s value increases by at least 10%.
• “Green leasing” becomes commonplace • Federal government regulation is as pronounced in North America as seen in
Europe today Possible outcome: CSO or CRE? Recent CoreNet Global research shows sustainability as one of the fastest-rising issues ever placed on the corporate agenda, especially through the energy cost and management perspective. Heidrick & Struggles’ John Wasley confirms the trend through the search firm’s view of the executive suite. The new C-Suite title of “Chief Sustainability Officer,” or “CSO,” is
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emerging, Wasley told members of CoreNet Global’s Executive Leadership Council during the Atlanta Global Summit.
There’s a natural opportunity for CRE to play a CSR-related energy role starting with the energy mandate to save on cost, consumption and footprint and the direct linkage to facilities and real estate as a primary solution.
With well-established groups like the Center for Corporate Citizenship catering to CSO’s through the same corporations that populate CoreNet Global, what is the future of CRE in regard to CSR and the CSO position within the executive suite? The key is for CRE to leverage its leadership opportunity now, especially in the area of energy management to keep the dynamic one of partnership with, rather than subordination to, CSR, as CoreNet Global research and Wasley’s observations suggest. It’s also an integration and partnership opportunity.
The main advantage, however, may be that many CRE executives already drive community reinvestment, location strategies, workplace practices, lifecycle asset management, supply chain, construction, development and other functions that are also part of the sustainability and social responsibility spectrum.
The 2030 Challenge
The U.S. Energy Independence and Security Act became law recently. Section 433 of this bill requires that all federal buildings meet the energy performance standards of The 2030 Challenge.
Fiscal Year Percentage Reduction
2010 55 2015 65 2020 80 2025 90 2030 100
This Bill requires the federal government achieve the standards of the 2030 Challenge in all new buildings, beginning in 2010 with a 55% reduction in energy utilization from 2003 levels. Cities, municipalities and states are following suit. While the early standards are relatively easily met with current designs and technology solutions, the ultimate goal of a 100% reduction in energy utilization by 2030 will require innovation. Companies like DuPont are early adopters.
Click here for more information.
U.S. Green Buildings to Grow Five-Fold Tenants and investors are buying into new eco-friendly corporate agendas in the U.S., reported CoStar in early January, 2008. “Bloated energy costs, local lawmakers and looming federal regulation” are among the many factors influencing green’s unparalleled rise on the 2007 corporate agenda. “Corporations are demonstrating they’re willing to pay a premium to work in sustainable office space, while the federal government – by far the nation’s largest tenant and property owner – has mandated sustainability across much of its real estate portfolio.” Furthermore, “the volume of (U.S.) green real estate is expected to quintuple by 2010 to comprise 10% of the U.S. building stock, according to McGraw Hill Construction.” CoStar also quoted PREEF, one of the largest property investors in the U.S., as saying property owners will need to adapt quickly, or “risk the consequences of sharply shrinking demand for property that, over time, becomes increasingly obsolete.” Page 5
CoreNet Global Applied Research Center State of the Industry Report
January 2008 © CoreNet Global
Chapter 5 Sustainability Perceptions and Trends – Global Survey Results
In 2007, corporate sustainability surpassed early adoption on a global scale.
- Europe is the ‘cradle’ of sustainability, having been the earliest adopter of green practices among the global regions.
- Australia is also seen as an early adopter in many ways.
- North America was lagging until a sound business case for the cost and economic value gained clarity in 2007.
- Asia is beginning to embrace sustainability on a wider scale. China is already known for intelligent buildings, for example.
The sudden – if not unexpected – view of sustainability as a critical near-term issue for global companies stands in contrast against the evolution of other industry drivers. So much so, that sustainability became the industry hallmark of 2007.
The results of our global survey on “Sustainability Perceptions and Trends in the Corporate Real Estate Industry” serve as an early validation that sustainable practices, also termed around the concept of Corporate Social Responsibility, or CSR, have gone from early adoption to the mainstream of the globally networked enterprise.
Energy use, global warming and emissions are among the most important changes from 2007 that differ from the CoRE 2010 forecasts on CRE’s role in sustainability, as underscored at the 2007 London Global Summit.
Click here to view related Research Bulletin. Page1Click here to view survey data.
Triple Bottom Line Comes into Full Focus in 2007 Sustainability makes good business sense, yet there are still gaps in perception to close, and thus even broader adoption and wider practice levels to attain. From an enterprise and CRE view, sustainability literally ‘shot to the top of the page’ in 2007 because of a clearer understanding of the economic benefits: cost, value and return on investment. There’s higher awareness of the value and willingness to pay more. But the actual cost of sustainability is perceived as being higher, as is access to the so-called “green” supply chain of CRE and related products and services.
The survey sheds light on the one piece of the Triple Bottom Line (3BL) that corporations must have to rationalize sustainable practices: the profit component.
The firm linkage of “profit” to “people and planet” – mainly through energy-management issues – has indeed helped corporations rationalize the business case for sustainability, as the new survey results also demonstrate.
Energy as a Wedge Issue One implied outcome of this survey is an immediate leadership opportunity for CRE and workplace executives. The survey also validates the key recommendation made in another 2007 CoreNet Global study done jointly with the Rocky Mountain Institute: “The Energy Challenge: A New Agenda for Corporate Real Estate.”
“Turning pervasive obstacles into business opportunities,” is how Dr. Amory Lovins of the Rocky Mountain Institute characterized the scenario currently facing CRE as it seeks an early strategic niche on the organizational matrix for CSR.
Energy cost and usage are huge issues for companies. With commercial and industrial buildings using 40% of total energy consumed, solutions must be connected to real estate, and thus to a leadership role for CRE. It’s less a case for an opportunity and more of a mandate for CRE departments to take action now.
• Energy, at least currently, is the most important sustainability factor for corporate occupiers
• That’s a direct reflection of the extremely high energy costs and the fact it’s an approachable, actionable item
Buildings Use Most Important
69% of electricity 77% Environmental impact 36% of natural gas 75% Energy use 40% of total energy 70% CSR CoreNet Global/Rocky Mountain CoreNet Global /JLL Institute 2007 Study 2007 Global Sustainability Survey
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Enterprise Leadership Opportunity “There are few technical or economic barriers to preventing an organization from setting goals and creating a comprehensive energy management program.” The Energy Challenge: A New Agenda for Corporate Real Estate, 2007
Supply Chain View Beyond Energy While the 2007 survey underscores the weight and immediacy of energy and related environmental issues like reduced carbon emissions, it also shows a growing level of awareness and acceptance of other practices that point to a larger application of sustainability as a continuum, or as a holistic supply chain practice across a global enterprise. Eco-effective Architecture
William McDonough, world-renowned architect and co-author of Cradle to Cradle: Remaking the Way We Make Things, has developed plans for a “living” skyscraper. It receives its energy from the sun, grows food, builds soil, provides a habitat for hundreds of species, creates micro-climates, purifies water, and more.
Adobe’s Case for ROI - San Jose Campus - LEED™ EB, - Existing building retrofit - 64 total projects - Cost: $1.4 million - Rebate: $389,326 - Annual savings: $1.1 million - Return on Investment: 121%
The wider spectrum of integrated sustainable practices encompasses an alternative version of the 3BL: products, practices and policies as reflected in the Dow Jones Sustainability Indexes definition of the concept in a leadership context:
“Sustainable leaders invest in product and service innovations that focus on technologies and systems which use financial and natural resources in an effective manner.”
Related Content:
2007 Sustainable Leadership Awards winning cases:
Adobe Systems San Jose Campus Retrofit
Hearst Corporation’s New York City Sustainable High-Rise
LEADER Magazine, March 2007
Leading the Way to Corporate Sustainability
Atlanta Global Summit Daily Report:
Hearst – Going Beyond Green Page 3
CoreNet Global Applied Research Center
State of the Industry Report January 2008 © CoreNet Global
Chapter 6 THE CHANGING NATURE OF WORK AND WORKPLACE Less traditional and more flexible workplace practices were first identified by Corporate Real Estate 2000, the body of research introduced in the 1990’s by one of CoreNet Global’s predecessors, IDRC. It was within CRE 2000 that the concept and actual practice of telecommuting first emerged as part of the universe of so-called ‘alternative workplace strategies’ also benchmarked by CoRE 2010 through the Gallup Organization in our study on the “Changing Nature of Work and the Workplace.” The use of AWS by large companies is becoming more prevalent. In a sense, the ‘bleeding-edge’ workplace practices from only a decade ago have gone main stream. The innovations of the 1990’s are now more standards as best practices are being adopted on a much wider scale. But innovation, though less frequent, continues to evolve and new best practices continue to emerge. The duality of the AWS migration pattern solidified in 2007.
TRADTIONAL WAYS OF WORKING - Focus on place - Performance based on “time in” - Supervision - Team members co-located - Design based on status, hierarchy - Empty space held “just in case”
THE EMERGING WAY - Focus on work - Performance based on results - Mentoring and coaching - Virtual team, mobile individuals - Design based on functions/tasks - Space provided “just in time”
HP’s “Move to Mobility
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Other AWS influencing factors: ‐ Shift to Information Age, intellectual capital and knowledge workers ‐ Pressure to reduce real estate footprint and drive down occupancy costs ‐ Demand to improve efficiency, business processes and productivity ‐ Increased space utilization and decreases in the use of assigned space ‐ More flexibility to respond to change and enhance continuity ‐ Less risk by combining flexible workplaces with flexible leasing options ‐ The rising cost of energy and the resulting use of less space ‐ Creating environments to attract and retain talent, or knowledge workers ‐ Using the workplace to enhance a company’s brand image or product line ‐ The strengthening linkage of workplace and sustainable practices to talent
The enterprise’s key characteristic of success -- agility -- is being increasingly defined through the framework of the flexible workplace. Like other drivers such as globalization, technology and outsourcing, effective workplace strategies add value to the enterprise and to competitive advantage. That’s why, of all the CRE value drivers contributing to the enterprise, workplace management stands out as the area where CRE professionals have most effectively differentiated themselves in our mission to elevate the status of CRE to a strategic asset. CRE is in fact proving to be the premier partner to the enterprise in the area of workplace as the use of AWS by large companies is becoming more prevalent.
The successful launch of CoreNet Global’s Workplace Community in 2007 reflects the rise of workplace management on the corporate agenda and a growing number of distinct leadership opportunities for CRE professionals.
Click here for more information.
Here’s what CoRE 2010 said would happen:
o Almost like a mirror reflecting the globally networked enterprise, “the role of the CRE executive must become enabling work wherever it takes place – and supporting individuals working in many different places at different times,” CoRE 2010 offered.
o A resulting tendency by companies to allocate office and other space by the degree of use at any given time rather than by the total headcount of an office or enterprise will mean that 25% of knowledge workers would work remotely.
o We also predicted that “tighter integration is needed between IT, HR and CRE functions.”
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Here’s where we are today: o Our March, 2007, study on Corporate Real Estate Workplace Trends shows
evidence of a healthy 2010 adoption rate of unassigned space, space utilization, mobility and other AWS features. Click here to view survey key findings.
o Our 2007 research tracks with the Gallup survey predictions and shows a remote work adoption rate of 20%, compared to the 25% forecast for 2010
o Nearly two-thirds have stopped providing assigned workspace to at least 10% of their workforce ‘Working with others while in
different times and different places will become the dominant work style of the future, replacing non-interactive work, which was the dominant work style of the past.’
GSA Workplace Matters
o Typical measurements today are cost per workstation and cost per person housed, or square-foot per person, so that higher-level measures appear to be forthcoming.
o Nearly two-thirds, however, still do not measure the effectiveness of remote worker support so that by 2010, more tracking of this key productivity indicator is likely
What will it look like by 2010?
o The 2007 survey found that nearly half of CRE departments are already supporting home working initiatives.
o This supports the point that the other half are expecting to obtain and use the technology (video conferencing, wireless, laptops, PDA’s, broadband, etc.) to enable remote work.
o IT has the highest involvement of support functions involved with CRE and workplace initiatives, but much less so with HR, an IRIS-related gap for CRE to close by 2010.
o The enterprise’s desire to reduce cost and workers’ desire for more flexibility will make the so-called 2010 ‘social contract’ a ‘win-win’ proposition more of a certainty in the next few years.
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© 2007. CoreNet Global. All rights reserved.
Mobile work styles follow diffusion pattern of most innovations
1985
20071995
Innovators EarlyAdopters
Early Majority
LateMajority
Laggards
# Mobile Workers
ProgramFocus
Proof of concept
Pilot programs
• Real estate programs
• Lifestyle• Cost focus
• Lifestyle
Graph Source: Corporate Agility and Hewlett Packard: A Revolutionary New Model for Competing in a Flat World, 2007, Charles E. Grantham, et al. Beyond 2010:
o The old views of “space entitlement” and “if I can’t see them, they aren’t working,” are dissipating.
o Companies are increasingly “loosening of the reins” from the sheer weight of the cost of occupying space, if not for other reasons ultimately leading to the attainment of agility and competitive advantage.
o As technology’s steady advance enables more mobility and flexibility, companies will have the option of not building or leasing new space.
o Workplaces practices also lend themselves to performance measurement, and while most companies today still measure efficiency, usually in terms of cost, the ability to measure effectiveness, mainly through revenue, satisfaction and productivity, will one day complete the evolution toward CRE as the enterprise source for key performance indicators (KPI’s), especially in the workplace management context.
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Related case studies Hewlett Packard’s “Move to Mobility” via the Workplace Community, Nokia’s “Mobile Workplace Story” via the China Chapter, GSA’s “Workplace Matters” via 2007 Global Innovator’s Award finalist cases, and the Hearst Corporation’s New York integrated workplace transformation via LEADER Magazine, May 2007.)
Possible Outcome: With today’s forward-thinking, results-driven companies reinventing the whole concept of ‘going to work,’ today’s CRE professional will wear three hats reminiscent of the Enterprise Skill Set: real estate executive, IT strategist and human resources manager. In regard to the latter, the ability to proactively drive change management – influencing the internal support for new ways of working among company employees – will be a highly sought-after skill set. Consider that healthy majorities of those we surveyed in 2007 introduced or expanded desk-sharing (73%) and stopped providing unassigned space (65%), so there’s plenty of demand for effective change management even now.
Hewlett Packard’s Move to Mobility Mobility is the centerpiece of HP’s recent workplace transformation initiative. The strategy is to reduce the company’s real estate holdings, occupy fewer sites globally but increase the effectiveness of the remaining sites. Director of Workplace Services for North America, Renée Leach, describes HP as “a forward-looking company” that wants to get ahead of the AWS adoption curve and take advantage of the opportunities presented by a more mobile workforce and redesigned workplaces. Four key goals drive the strategy:
‐ An integrated set of space, technology and service solutions providing a productive work environment
‐ Well-utilized resources supporting various work styles ‐ A combination of workspaces to meet both independent and collaborative work ‐ Flexible, measureable programs that can change to accommodate continuous
workforce and workflow evolution LEADER Magazine Executive Profiles, and Corporate Agility, page 21 Page 5
Workplace, Technology and the Web Like globalization, information technology and the Worldwide Web are broad forces enabling and often defining today’s networked enterprise model. From a CRE perspective, technology and the Web are key reasons why the nature of work is changing, and how CRE departments are able to optimize the globally integrated real estate portfolio and supply chain.
Information technology (IT) is a multifaceted dimension of CoreNet Global’s CoRE 2010 predictive body of research that now surrounds:
- Mobile and flexible work - Building technology and ‘smart’ buildings - Portfolio analytics (See chapters 14 and 15.)
Mobility, flexibility and building technology are drivers of collaborative work. This confirms one key facet of collaboration, the CoRE 2010 expectation that “by 2006, the virtual team will be the fundamental structure for knowledge work.” New Environments for Working As CoRE 2010 pointed out, technology “is an integral part of the workplace” and that “mastery of its applications in support of work . . . is the overarching and evolving challenge for CRE.”
The use of technology to create flexible and mobile work environments is a strong point for CRE executives. High-speed broadband, wireless, mobile technologies, social media, video conferencing and other advances are all being effectively applied in workplace transformation initiatives largely in partnership with the corporate IT department and service providers, as our 2007 workplace trends research showed.
The potential for corporate flexibility to increase dramatically around workplace practices is growing every year, as is the leadership opportunity for CRE executives and their partners.
One reason: technology advanced even faster than our CoRE 2010 forecast in 2004.
- Broadband speed and capacity are no longer major concerns.
- Security and access have also improved greatly.
For these and other reasons, the environments for new ways of working continued to evolve in a more pronounced way in 2007 and will continue to accelerate, especially in the context of collaborative or team work.
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Predominant New Work Styles Seen in 2007 MMOOBBIILLEE WWOORRKK A work style in which a person consistently uses multiple spaces and places in which to accomplish their work. DDIISSTTRRIIBBUUTTEEDD WWOORRKK A catch-all phrase for work that is spread amongst distributed teams, in variable locations and which occurs at varying times.
HP’s “Move to Mobility”
Here’s what CoRE 2010 said would happen:
• Network access is secure and predictable • New technologies improve the security of information networks
Here’s where we are today:
• Secure connectivity to company data through multiple devices • Increased network bandwidth • Better collaboration tools • Robust technology platforms
o Email o Instant messaging o Shared files o Calendar management o Audio and video conferencing
“Virtual presence” and other digital high definition video conferencing media connecting individuals and teams in real time began to have significant impact in 2007. It allowed one global technology firm to base its chief technology officer at its new R&D hub in India, for example. Other companies have begun to notice how it reduces travel time, cost and carbon footprint. Beyond 2010: According to CoreNet Global’s Workplace Community launched in 2007, the trend is already well in place for the blended work model of the future to replace the traditional idea of “going to the office.”
• Its components are the company workplace, virtual teams in multiple locations, satellite sites, telework centers, home, and “on the go.”
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• Company workplace features already include individual work places, team work places and community work places.
• It’s enabled by technologies that are place centric like WLAN and mobile for voice and
data.
• It’s also characterized by multi-generational features that address the work and technology preferences of the three age groups now populating the workforce: Baby boomers, Generation X and Millenial.
Ultimately, 24X7 infrastructure and tools will facilitate time management and flexibility that also link to the War for Talent, are critical to work/life balance, and are the cause for greatest job satisfaction and productivity.
© 2007. CoreNet Global. All rights reserved.
The radical redefinition of Work
Traditional Work Emerging Work
Place Work
“Face time” Results
FOCUS
PERFORMANCE BASED ON
Supervision Mentoring & coachingMANAGEMENT TOOLS
Co-location Virtual teams / mobile individuals
PRESENCE
Status, hierarchy, “just in case”
SPACE PLANNINGRATIONALE
Function, task, “just in time”
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Possible outcome: As outlined in CoRE 2010, collaboration has become the “dominant work style.” That means the space for collaboration is different than the space needed for individual work. With more collaborative and less assigned space, CRE must flexibly manage shifting workplace configurations used by smaller employee populations on the one hand and by expanding networks of suppliers and business process integrators on the other. As illustrated, the impacts of mobility on the nature of business and work are already pronounced:
© 2007. CoreNet Global. All rights reserved.
Evidence of mobility/distributed work
Accenture
45% of Office and R&D employees have a manager not located in the same site
40% of the US workforce does not sit in same facility as manager
Consulting is highly mobile, with ~90% of time working at client site, and third places (including home)
75% of managers have at least one team member in another country or time zone
60% outside the US does not sit in same facility as manager
Mobility for Business Practice functions varies by Geography (US/UK highest) with very strong traction in emerging markets and Asia
Development of a typical mobile device involves teams in 9 different office locations
On average HP employees are present in their “office” less than 50% of a normal work day
Distributed work business model with globally spread development and Systems Integration teams supporting nearly all engagements
Company-wide 200,000 hours of conference call and online meeting time every month
Mobility is upon us and contributes to low space utilization and a low-energy environment
Employee Engagement scores are positively linked to work-life balance advantages of mobility.
Buildings of the Future Intelligent, or smart, buildings are another way that technology is supporting significant changes to the nature of work. It’s also another important element in the sustainability, energy management and carbon reduction mix. Like other trends and practices, its adoption varies by global region. With Europe and Australia as the earliest regional adopters of green practices, the frequency of smart buildings is more pronounced. Long-term emphasis on the quality of lighting, air and the work environment in general is a key reason for this. Government regulation has also been a driver and will remain so. Canada should be regarded in the same context.
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Because of the huge stock of existing building inventory in the U.S. versus the recent emergence of smart building development as a global trend, the introduction of intelligent buildings will take longer. The likelihood of increased government regulation will push the trend but it will happen more around new instead of existing buildings.
EXAMPLES Ministry of Science and Technology, Beijing Telus Regional HQ, Toronto 30 St. Mary Axe, London: “The Gherkin” Pacific Controls HQ, Dubai UAE Cisco Bangalore, India, Campus Matashushita HQ, Tokyo Bank of America Tower, New York City
Asia, especially China, is fast becoming known for the development of smart buildings. This fast-growth region has the advantage of large-scale new development, and is capitalizing on the integration of digital and other new technologies with the built environment. Here’s what CoRE 2010 said would happen:
• Smart buildings accelerate productivity Here’s where we are today:
• Building architecture’s converged systems • Service-oriented building architecture • Features e-concierge capabilities, defined processes
that are in place, systems and devices. • The model is now driving lighting, HVAC, elevators,
24/7 monitoring, fire and video surveillance
This convergence toward IP-based control systems for buildings represents a major industry shift. But it’s important that life-cycle design and cost implications get incorporated in the design and development stages, much like life cycle cost accounting needs to be applied in making a building ‘green’ in the planning stages, not after construction.
It starts at the base level with the physical infrastructure of a building, then it leads to system integration via convergence of various technologies. This incorporates unified communications, physical security and building technologies. At the highest level, it ultimately creates service offering options for owners and landlords to enhance the value occupiers receive.
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SMART FEATURES OCCUPIER BENEFITS OWNER BENEFITS
Differentiation of the facility Managed services Streamlined processes
High speed connectivity Wireless VPN Unified communications
Improved space utilization Simpler management
Adaptable environments User mobility Cost reduction
Audio and video conferencing Visitor management Interactive media Digital signage
Reduced costs Increased services revenue
Click here for Buildings of the Future Presentation from the CoreNet Global Northern California Discovery Forum, September, 2007.
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CoreNet Global Applied Research Center State of the Industry Report
January 2008 © CoreNet Global
Chapter 7 Related Issue - Workplace Practices and the War for Talent 2 High Velocity Issues Gain Traction in 2007
o New drivers – sustainability is one. o Talent is the other driver – for our industry and the corporate enterprise. o They are both linked to workplace design and flexibility.
Like globalization, outsourcing and technology, they are growing more interdependent. “One of the factors we look at in supporting green initiatives is that we want to be able to attract and retain the next generation of employees for whom green issues are very critical,” as the head of EMEA for a global technology firm stated during the London Global Summit. That same firm is an early adopter of alternative workplace practices. Demand Exceeds Supply
© 2007. CoreNet Global. All rights reserved.
Management demographic will continue population declines until at least 2015
80
100
120
140
160
180
200
220
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Trough(174)
Today
Peak in 2000(192)
9.4% decline from peak to trough over
15 years
Indexed U.S. population (35 – 44 age group): 1970 – 2020
Source: U.N. Population Growth Bureau data
Middle management demographic population (35 -44) will continue to decline
Index(1970 = 100)
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There’s an ‘urgency of competition for talent.’ The supply of future talent is much lower than the rapidly-rising demand for it. One key validation: The US Bureau of Labor and Statistics estimates that between 2002 and 2012 the number of US workers 55 and older will grow by 50%, well ahead of the Millennial demographic curve. Another result is that, like sustainability, workplace is becoming a recruiting and retention weapon in the War for Talent.
How is CRE viewing talent? The CRE lexicon of talent surrounds these key terms:
‐ War for Talent ‐ Human Capital ‐ Intellectual Capital ‐ Knowledge Workers ‐ Diversity ‐ Emerging Leaders
© 2007. CoreNet Global. All rights reserved.
CRE’s Talent Lexicon
Human Capital
Intellectual Capital
KnowledgeWorkers
EmergingLeaders
Diversity
StrategicCompetencies
WARFOR
TALENT
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Related Cases Linking Location and Workplace CBRE’s “Workforce Longevity Model” which won the Global Innovator’s Award; Bristol Myers-Squibb “Project Hummingbird” case which won the 2007 Economic Development Leadership Award, and TVS Architects’ alignment of business development and international talent recruitment strategies as featured in LEADER Magazine.
How is the enterprise viewing talent? 1. Companies need talent for emerging markets, and need talent to rise from their own ranks. 2. But companies are treating these and other problems separately, not in an integrated way. 3. More than 30-million people will be retiring from management and leadership ranks in the next 5 years, the Wall Street Journal reported in September 2007. Taking these three trends together, that’s why the Wall Street Journal called our ‘War for Talent’ a ‘Perfect Storm’ where the demand for talent far outweighs the supply, and companies are not being proactive enough. TALENT PROBLEMS TALENT SOLUTIONS Emerging Markets Talent plans aligned with business Narrow Thinking Talent management is everyone’s job Demographics Global experience needs local effectiveness Expectation Gaps Support matters; measure results Against this backdrop, CRE leaders are talking about:
‐ The blending of multiple generations ‐ Younger workers ‐ Generational and resulting work style differences ‐ Managing change
“Workplace is where we retain talent,” is how senior-level corporate person said it. Industry executives have spoken repeatedly in the last year about talent issues, tying them to the workplace, sustainability and even the strategic planning process. For example, Fidelity is using a CRE-driven enterprise-wide talent strategy linked directly to its location strategy. “The whole issue of location is changing because of the War for Talent,” as one executive for a large financial services company noted at the New York City Discovery Forum.
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Executives from other companies are taking note, as these comments from other 2007 Discovery Forums reflect:
• What new strategies emerge along the lines of new talent, plus the sustainability aspects or greening of the workplace, and of course technology? It’s coming to a very interesting head.
• We are really redefining CRE not around cost aspects but dimensions like people, the
new skills for the new work environment. It resides in trust, empathy and compassion along with collaboration. The workplace environment is an amazing enabler of that.
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CoreNet Global Applied Research Center State of the Industry Report
January 2008 © CoreNet Global
Chapter 8 Asset Management & Portfolio Optimization/Solutions Delivery As with workplace, sustainability and talent, there’s a triangular relationship, or interdependency, between Portfolio Optimization, Solutions Delivery and the CRE Supply Chain. The outsourced service delivery model is its chief characteristic resulting directly from the transformation of in-house management of most all real estate functions to the outsourced delivery of globally integrated portfolios. Our research in 2007 on Corporate Real Estate Trends in Sourcing strongly points to outsourcing as the central enabler of globalization, along with technological advances on both an enterprise-wide and CRE-specific basis. In addition, it’s a driver of portfolio optimization and solutions delivery, two interconnected CoRE 2010 forces that have combined, like workplace management, to create a more strategic role for CRE departments and their outsourced partners.
EDITOR’S NOTE While Portfolio Optimization is one of the four key value drivers of CRE as framed within CoRE 2010, Solutions Delivery is closely related as one of the four other CoRE 2010 domains and is thus included in this part of the report.
Click here to view Sourcing survey results and key findings. Shift to the Global Portfolio The globally integrated portfolio is now one of the CRE industry’s leading driving forces defining the model foreseen by CoreNet Global. It’s also connected to the Location Strategies CoRE 2010 key value dimension, essentially turning site selection into an element of the global supply chain. Clear evidence of supply chain rationalization:
- CRE aligning with enterprise and business strategy - CRE enabling global portfolio integration - Evolution of outsourcing to support it
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- Move from tactical to portfolio - Increased consolidation within the service provider industry - The assumption of more risk by outsourced partners - Internal and external compensation linked, or ‘baked into,’ integrated enterprise and CRE
performance metrics With these factors, there’s a resulting trend as seen in our 2007 study on Organizational Trends toward multinational corporations centralizing their CRE and workplace organizations in terms of strategy, governance and due diligence while most work is delivered regionally or locally in a more decentralized way. Regional centralization is also a factor. Click here to view Organizational Trends survey results and key findings. Here’s what Core 2010 said would happen:
• Citing new models for solutions or service delivery, CoRE 2010 predicted in 2004 that “CRE departments as we know them today will not exist in 2010.”
• We also said that by 2010, “companies will think not being transparent is risky.”
• That’s because the 2010 forecast on portfolio optimization stressed “complete visibility
on every aspect of ‘space,’ partially as a result of the Sarbanes-Oxley Act, as well as to ensure that the space meets the needs of the business.”
• More importantly, this would be done on two levels: asset and portfolio.
• Another 2010 expectation is based on the idea of new “value networks” in which
“portfolio optimization will extend down the full vertical length of the supply chain.”
• The value chain would extend across business partnerships, suppliers and to customers, blurring the “distinction between CRE and the real estate of the networked business partners.”
Here’s where we are today
• Outsourcing of core functions like transactions, project and facility management has now expanded to higher-level functions like portfolio integration, flexible leasing and strategic planning, making the service provider a trusted advisor to the business along with the CRE executive.
• The CRE department no longer exists as we knew it in another sense - that of the
“solutions integrator” as foreseen by CoRE 2010. This higher-level outsourced role has
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come into play as service provider evolution progressed from vendor to preferred provider then to partner status.
RELATED RESOURCE See LEADER Magazine, September, 2006, The Evolving Service Provider Industry: Global Service Delivery Comes of Age.
• Still, there’s some debate over the levels of innovation that service providers are able to deliver across the global portfolio, according to some CRE executives and consultants. Regardless, there’s a “new order” stressing higher-level roles for service providers.
Click here for the Corporate Perspective Click here for the Consultant Perspective Click here for the Service Provider Perspective
Other factors: • Transparency and growing focus on the “Triple Bottom Line” • Transparency through reliable data driving portfolio decisions
This enables the CRE leadership role of decision support in asset management areas like portfolio, M&A’s, location decisions and emerging markets. It’s also seen increasingly through the more sophisticated use of performance metrics and key performance indicators. More granulated data is being refined and aggregated to KPI’s for corporate boards, C-Suites and business units to adapt their business plans to changing conditions.
Service providers are supporting the systems and processes to do this at both the asset and portfolio levels. Some CRE departments are ahead of this curve, too.
RELATED SERVICE PROVIDER CASES “CRE Market Intelligence” from 2006 Global Innovator’s Award winner Corporate Portfolio Analytics; 2007 Global innovator’s finalist JLL for its “Multi-project Accountant” tool; and Johnson Controls “Solutions Navigator,” winner of the 2005 Global Innovator’s Award.
RELATED CORPORATE CASES LMC Properties’ “Future View” integrated tool and Sprint’s “Mosaic” platform.
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Other Related Trends and Challenges • Single sourced delivery of the global real estate portfolio, can it be done? • Supply chain gaps common to emerging markets, this is a related factor. • Increasingly tied to service providers’ ability to deliver mid-level talent to meet demand
for the more core, now outsourced, functions. • These and other ‘scale’ issues are driving more global consolidation of service
providers.
Consolidation Continues, Lines Blur Major service provider consolidation is expected to continue on the global level, as seen in recent months with CBRE-Trammell Crow, UGL-Equis, and Blackstone-Equity Office, but it’s not likely to result in the ideal of a single-sourced global provider by 2010.
• Still, the idea of a “Big 4” of CRE global service providers was expressed in 2007
As for the prediction that the lines demarcating space occupied by global companies will become more blurred, the trend is probably ahead of the expected 2010 outcome:
• Corporations have begun to share major portions of their portfolio with their
extended networks of partners and suppliers.
• Another factor: High levels of cross-investment globally and globalization of the REIT industry prevailing today and that will continue as the new ownership model of the industry matures.
The Flexible Portfolio
• One reflection of this is a changing lease-to-own ratio by corporations. In 2007, our data show companies leased 48% of their space. They expect to lease 54% by 2012.
• Taking the $1.2-trillion in real estate managed by CoreNet Global members, the projected 6% increase in leasing is a tidal shift.
• New, more agile structures are also becoming more commonplace. In 2007, we predicted a surge of multi-property sale-leasebacks.
• It signifies a stronger linkage to the capital markets and the use of flexible strategies to create more value by freeing up cash.
• Augmenting the trend are new practices such as Real Options, which add flexibility to the structure and terms of corporate leases, our 2007 research has also shown.
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• Service delivery RFP gap: corporate occupiers perceive the time and cost needed to respond to RFP’s are much lower than they really are. Another issue is the absence of standardized RFP’s.
RELATED INFORMATION ON PORTFOLIO & SALE-LEASEBACKS Click here to view Trends in Sale Leasebacks 2007 survey results. Click here to view Trends in RFPs survey results Click here to view LEADER Magazine, November – December 2006: Rockwell Automation’s Sale-Leaseback Strategy.
What will it look like in 2010? The overall objective for companies to attain higher levels of performance from CRE assets will be realized in a larger but not complete measure, starting with the macro-economic reality that globalization will continue for at least another 20 years.
• The real estate supply chain will improve with global economic growth.
• Third-party ownership will grow to even higher levels.
• This will include even more socially responsible investment funds versus the growing number seen today.
• Life cycle asset management will become integral to this trend, driven by the 3BL.
• Resulting higher levels of value and lower costs of occupancy add another dimension to
the portfolio optimization formula. Beyond 2010
• The lack of supply-chain readiness associated with formerly immature markets is far less patchy with ongoing global expansion.
• The ideal of a globally outsourced single service provider is more likely to happen.
• But the need for even larger-scale delivery networks is as likely if the economies of the
world continue to advance to free market status. Possible outcomes: CRE and workplace service providers will cross industry lines to deliver other services like architectural design, systems design, data management and even talent. The growing demand and decreasing supply of qualified workers to perform outsourced core functions like transactions,
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project and facility management – especially in emerging markets - could influence global service providers to add employee search and placement services to a more diverse mix of service offerings. As one technology consultant observed at the 2007 Dallas Discovery Forum, “Where will the next generation of facility managers come from?” The irony would be that CRE was slower as an industry to adopt outsourcing than other support industries like HR and accounting.
SHIFT FROM TACTICAL TO PORTFOLIO MANAGEMENT Where we’ve been, how we got there and where we are now
11998800 Shared services outsourcing begins without real estate 11999900 Corporations outsourced CRE basic functions by project 11999955 Service providers begin delivery of integrated services, compensation structures begin to reflect that change, preferred provider status ensues 11999977 IDRC Foundation sets focus on workplace management, changing nature of work, including expanded role of service providers
11999999 Service provider industry consolidation accelerates, ramping up delivery of services on a global scale, strategic partner status emerges
22000000 Service provider move from tactical to portfolio is established
22000044 CoreNet Global defines IRIS as a key to the globally networked enterprise and the supply side model driving the integration of strategic and tactical services
22000077 CRM, strategic planning and strategic alliance management remain as corporate in-house functions, service provider global consolidation continues
22000088 Trusted partner status grows for service providers but is it enough yet to support total portfolio and now even talent needs of corporate clients? Source: LEADER Magazine, September 2006
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CoreNet Global Applied Research Center State of the Industry Report
January 2008 © CoreNet Global
Chapter 9 Strategic Role of Place/Location Strategies Strategic management at the portfolio level certainly defines industry drivers and CoRE 2010 domains like Solutions Delivery and Portfolio Optimization, but it overarches corporate location strategies, too. Location decisions are increasingly linked to real estate and workplace portfolios that are managed on a holistic level. In effect, they are part of the now-predominant model surrounding the globally integrated CRE supply chain. Our research in 2007 on Trends in Corporate Real Estate Location Selection validates the CoRE 2010 expectation that “resource portfolio configuration will become more important to multinational corporations than traditional site-by-site strategies.”
• Location decisions, like CRE strategies themselves, are increasingly linked to global business plans
• The globally integrated portfolio is now a prime decision factor versus individually selected sites
• Access to markets, customers, suppliers and talent is more important than lower-cost labor and markets
• Talent is a new driver of location • Sustainability could become more of a driver, too
Click here to view Location Selection Trends survey results. Here’s what CoRE 2010 said would happen:
• “The portfolio will be viewed as a network of places embracing physical and virtual space. Because business activities will be in constant flux, the portfolio will demand scalability and flexibility.”
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• “CRE’s leadership in right-sizing and right-locating the real estate portfolio amid the evolution of a more integrated infrastructure will be a crucial part of best-practice location strategies.”
Here’s where we are today: The three driving forces shaping the global location strategies of multinational corporations are market entry, cost reduction and knowledge acquisition, according to CoRE 2010. For the most part, this is holding true, as reflected in our 2007 data. What will it look like in 2010?
o CRE departments will need to increase the linkage between location and the global business plan from the nascent levels of 2004 – 2007.
o CRE will also have to “step up” its ability to integrate location with talent, sustainability practices, workplace management and other areas.
o From the economic development side, “Communities will have to stay on top of the global dynamics required to attract workforces and multinational companies,” as CoRE 2010 predicted.
Economic Development Perspective The integration of real estate and workplace on a global scale is also affecting location decisions and the approach economic development corporations (EDCs) must take. This new direction in turn underscores the new reality of economic development: To compete for jobs and investment that result from larger-scale corporate strategies, EDCs now need to take a portfolio perspective and understand the much higher-level needs of their corporate clients. Our 2007 survey, however, shows a wide gap in how EDCs view the changing needs of corporate clients. The importance of the quality versus the cost of labor is one. Another is that corporations are prioritizing brownfield redevelopment more so than EDCs. Plus, corporations place more emphasis on finding innovation in the markets they select than do EDCs.
RELATED CASES
See special report on Economic Developers Roundtable from the Atlanta Global Summit, October, 2007. See special report on Economic Developers Roundtable from the Denver Global Summit, May, 2007
.
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Disintermediation Another 2007 finding is the preemption, or disintermediation, of EDCs providing market, demographic and other key information that support location decisions. CRE departments and their site consultants are increasingly finding this information on their own through the Web. But by 2010, we should expect to see the number of EDCs today that have enhanced their own web site information to expand so that more become part of the disintermediation solution and not removed from it. By 2010, the tendency by companies to find market data on their own will become an established practice.
The Role of Emerging Markets and M&As The due diligence component of site selection is critical, especially where emerging markets are concerned. “It’s akin to opening a new business on the other side of the world.” So the ability to support decisions also extends into much riskier, less-developed markets, and to the M&A processes that often accompany entry into those markets. Here again, some CRE departments are playing the role of trusted advisor with a “seat at the table.” But the gravitational pull of globalization will mean even more will achieve this status by 2010 as more companies “centralize the design of location strategy and final approval for major capital expenditures in new or existing locations.” See related case from Oracle via the May, 2007, Chicago Discovery Forum
Beyond 2010:
o Top management will insist on understanding how a new operation affects the global portfolio in support of critical business objectives, and business unit requests for new facilities will no longer be processed individually.
o It’s already happening to some extent but with a need for more alignment to the global business plan of the enterprise and C-Suite with CRE senior executives continuing to cite credibility within the executive and business unit suites as an ongoing issue. It’s a long-term issue that will take time, like IRIS, to iron out.
o “The destination is only part of the journey, and the journey is just beginning,” as CoRE 2010 stated in 2004.
Possible outcome: More occupiers are bypassing traditional sources of location information like EDCs usually provided. A noteworthy and related CoRE 2010 precept is based on the ideal of CRE partnering in IRIS-like fashion with other parts of the enterprise and external partners to accurately inform and support the location decisions of their companies. Leveraging the technology to create the
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metrics enabling location decision support is one key. This is becoming a strong point for more CRE departments, as also seen in the areas of workplace and portfolio performance metrics, that suggests a wider adoption by and influence for CRE in the next few years and beyond.
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CoreNet Global Applied Research Center State of the Industry Report
January 2008 © CoreNet Global
Chapter 10 Location Strategies Related Issue: Site Selection Morphs to Portfolio Alignment There’s an entirely new supply-side and asset-management mentality influencing the demand side of the industry as a result of strategic portfolio integration being aligned with the business plan of the enterprise. Today’s mantra of “global portfolio integration” is partially the byproduct of the service provider industry’s response to corporate outsourcing – once of core functions and now broadened to more globally integrated forms of support like portfolio optimization. Our 2007 findings point to the need for economic development corporations (EDCs) to adopt a portfolio perspective to understand the changing needs of corporate prospects or clients as they relate to companies’ global business plans – and the influence of the service providers also involved. Key Factors Shaping EDC Go-to-Market Strategy
‐ Globally integrated portfolio ‐ Lease vs. own trends ‐ Growth of sale-leasebacks ‐ Flexible leasing terms ‐ Impact of outsourcing on portfolios and site selection ‐ Supply chain integration as part of outsourcing ‐ Talent and the changing nature of work
The emergence of the War for Talent was first implied by CoRE 2010 from the perspective of knowledge work. It was later defined as the “creative class” by Richard Florida in the Harvard Business Review. In either case, the fact is that knowledge workers are seeking progressive places – locations and employers - to live and work. This phenomenon means that the weight of talent as a location decision factor is quickly growing. EDC’s are beginning to shape their go-to-
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market strategies around talent needs. For example, The Metro Atlanta Chamber of Commerce’s “Young and Restless” strategy proactively markets the metro region to young professionals and students worldwide. Emerging Markets CoRE 2010 also predicted that “market forces will compel multinational corporations to accelerate the globalization of their real estate and location strategies.” “Hot” new geographies to fuel this global expansion would be an important part of the corporate growth strategy and were part of the forecast. Specific markets would be Brazil, Russia, India and China (BRIC). Others are Central and Eastern Europe and Malaysia. Our 2007 survey confirms the growing importance of emerging markets as identified by CoRE 2010. While North America remains the corporate market of choice globally, there’s a growing preference for emerging markets in Eastern Europe and Asia over other mature markets like Western Europe. Other cases support the trend but also include Central Europe. The practice of offshoring also continues to grow as part of this trend, based on the export of physical production being expanded today to the movement of business processes and knowledge enterprises, as reported in CoRE 2010. RELATED CASES
Emerging Markets in Central and Eastern Europe New Global Location Hot Spots Emerging Markets in Asia
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Chapter 11 Enterprise Leadership/Strategic Competencies Corporate real estate executives need a skill set that includes but exceeds real estate the same way that CoreNet Global’s CoRE 2010 research predicted five years ago about the emergence of the so-called “enterprise skill set.” Today’s CRE professional is “not the typical solider,” as one executive for a global financial institution observed during a 2007 CoreNet Global Discovery Forum. Here’s what CoRE 2010 said would happen:
o “The primary function of the CRE leader, or workplace strategist, in 2010 will be to manage a complex, global network of internal and external resources – and provide real-time solutions.”
o Although it will still be important to know the fundamentals of CRE, tomorrow’s executive must also be a well-rounded business person skilled at thinking strategically and cross-functionally with the breadth and depth of general management skills required of other business leaders within the company.
Here’s where we are today:
o CoRE 2010 foresaw that the so-called globally networked enterprise would tip the industry’s playing field for skill sets.
o The new standard for talent would incorporate CRE skills but extend to a broader set of business and enterprise management skills
o Largely through alternative workplace practices, solutions delivery, portfolio optimization and the use of technology, CRE is ahead of the 2010 skill-set adoption curve.
o But it’s lagging in terms of integrated resources management, or IRIS, on the other hand.
What will it look like by 2010? o As predicted in CoRE 2010, “Over time, the focus of the internal corporate real
estate staff will continue to shift to strategy and (business unit) customer relationship management even as new skills will be required for senior corporate real estate and infrastructure leaders in 2010.”
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o Add the ability to manage outsourcing, supply chains, alliances with partners, strategic planning, technology integration, finance and other skills to the list as it’s developing today, and the CoRE 2010 benchmark on the Enterprise Leadership skill set four years ago will advance.
o Whether or not the role of CRE will “drive the infrastructure model for the business” in full by 2010 as projected, remains to be seen, especially from the view of partnering and integrating more with the HR function.
o Could energy management, and thus sustainability, represent another type of integration opportunity, serving as a ‘wedge issue’ that invariably pulls in the involvement of HR and certainly technology?
o The need for top-down support to drive the organization’s ‘buy in’ of energy conservation and other sustainable practices could be another plus for CRE.
Beyond 2010:
o Hybrid may best describe the type of talent that effective CRE executives need to possess to advance their careers.
o It’s a noteworthy outcome of another transformation cited within CoRE 2010: the shift away from land, labor and capital to intellectual capital as the key asset of today’s enterprise.
Possible outcome CRE executives may be falling short in CoRE 2010 skill sets like IRIS, but they are still poised to build and maintain leadership roles in multiple disciplines. Some of them are listed below. In the area of strategic competency itself, it’s a work in progress, as we’re seeing with our own industry response to the talent issue, for example.
AREAS OF STRENGTH FOR CRE INDUSTRY EXECUTIVES
“Seven Leadership Opportunities for CRE” are based on two years’ of trend tracking within LEADER Magazine’s “Industry Tracker” column There’s strong compatibility or a ‘natural fit’ within the areas seen below. They also map back to the CoRE 2010 set of practices and competencies that any industry professional needs to master, in fact, to become a driver of value and a leader. Look at them as fruit hanging on a tree. How low it’s hanging depends on our industry’s readiness to seize moment and manage to the opportunities in front of CRE and workplace.
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New Leadership Characteristics Rebranded to workplace strategist Integrator Business process expert Advisor to the business Resource optimizer Risk manager Technology ambassador/advocate Solutions network provider Sustainability leader
Las Vegas Global Summit Daily Reports: CoRE 2010 Adoption Update 2005
Opportunity X 7
Decision support Workplace CSR CRM Emerging Markets M&A’s Risk management
LEADER Magazine: Industry Tracker, May, 2007
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Chapter 12 Strategic Competencies Related Issue: Corporate Real Estate Skills and Talent CRE talent is focused on:
- Work environments - Location - The ability to manage these and other strategic areas has become a key need - The need is tied directly to the rapidly-growing demand for more CRE talent
Our ARC Strategic Sourcing data from 2007 show what’s inside is higher-level
‐ Strategic planning ‐ CRM – Business Units ‐ Alliance Management ‐ Outsourcing reflects the senior-level nature of what’s left inside the corporation ‐ The shift has strong implications for talent issues that came to the fore in 2007
Feedback on the War for Talent
‐ Focus on workplace is addressing one key piece of the talent retention ‐ Same with sustainable practices, both in an enterprise sense ‐ Our grasp of the CRE talent supply issue isn’t as strong, however ‐ We’re still challenged to forecast headcount, know what demand for talent is ‐ Forecasting headcount can make or break your seat at the table ‐ Focus on the senior level is a byproduct of outsourcing and what’s left inside ‐ Senior level talent is coming from business units, or HR, even IT ‐ CRE talent is also going to work for the business units to learn more about them ‐ Some companies rotate talent through businesses and support units
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‐ Natural tendency toward emphasizing leadership roles in CRE ‐ Higher-level skill set needed as forecast by CoRE 2010 ‐ Many tactical jobs, the ‘do’ side, are performed by service providers ‐ Yet service providers still need to deliver on the strategic level ‐ Global integration of the portfolio and supply
chain integration dictate both CRE’s and Service Providers become trusted advisors to the C-Suite and businesses
The effect: Much higher level skill sets to deliver strategy aligned with the enterprise and business unit needs AND to deliver on informed decision support. Interpersonal skills are needed, too. Solutions for global expansion, emerging markets, supply chain, portfolio integration, M&A’s, CRM, workplace, change management, technology, managing alliance partners, C-Suite access, talking the language of the C-Suite. These skill sets are the most often used, most often cited among industry executives along with strategic planning and finance.
CRE War For Talent Is a Function of Outsourcing and Demographics
End User
ServiceProviders
© 2007. CoreNet Global. All rights reserved.
Emerging Leaders
TechnicalSkills
Portfolio Management
Strategy“TrustedAdvisor”
Talent Demand Gap
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“How you manage across company lines internally and the talent needed to do that will make the big difference to successful delivery of the global portfolio.”
- Dr. Terry Grissom, Georgia State University, LEADER Magazine,September 2006
Two questions emerge on the CRE side of talent:
• Is what we’re doing adequate enough on the senior level? • Should we and how can we being doing more at the middle and entry levels, moving up
from there? Special Feature INCREASING CRE’S INFLUENCE INSIDE THE ENTERPRISE Getting a Seat at the Table - Gaining C-Suite Access - Gaining Business Unit Credibility
‐ You have to win the C-Suite’s attention and access to it o Demand it, show the value of the portfolio in doing so o Put it in understandable terms, one page of bullets maximum o Speak their language, keep it simple, understandable
‐ The buy-in of business units is also critical o You can have C-Suite support but if you don’t have the support of the business
units, you’re nowhere ‐ How will CRE actions affect the quarterly or semi-annual results even incrementally? A
penny increased value per share can be viewed a significant CRE contribution to the bottom line results, especially considering the influence of Wall Street
‐ Create value o Speed to market o Cost savings o Innovate through CRE and workplace o Break the mold
‐ Clearly define and document processes ‐ Have defined outcomes that are measurable ‐ Create value beyond real estate
o Leverage information outside of CRE o Provide the company with a ‘balcony view’
‐ Enable productivity o Partner with IT o Integrate support resources (IRIS) o Workplace equates to opportunities for cultural impacts
‐ Accountability and responsibility are important as are authenticity and integrity in being a CRE leader
‐ How to get a seat at the table o Capitalize on a compelling internal event like a downsizing or an external event
like an economic or industry change o CRE is no longer an order taker, so push back based on what you know o Develop data and tools supporting the business case for change o Mitigate risk
Flexible leasing terms, for example
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o Know the core business of the company and think like a strategist with a future-oriented outlook
Other leadership tips:
‐ Keep on your consulting hat and become a trusted advisor or partner to the business units
‐ Leadership, relationship management and collaboration skills are important, too ‐ Earn trust of management on a case-by-case basis to get a seat at the table ‐ Confidence, passion, and ability to deliver count for a lot ‐ Bridge the disconnect between the business units’ plans with the CRE and general
company plans by staying in direct contact with the business units ‐ Communicate upwardly but be sure it’s short and to the point
Source: CoreNet Global Northern California Discovery Forum, September, 2007
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Chapter 13 Integrated Resources Infrastructure Solutions – IRIS IRIS is the central precept of the globally networked enterprise as envisioned within CoRE 2010.
• While the idea of shared services is not new, IRIS changes the standard view of how corporations used to approach their operating strategies, mainly within silos stressing functional excellence but not with cross-functionality.
• Instead, “resource and infrastructure leaders (like CRE executives) implement strategies
that use holistic, process-oriented solutions to improve total business outcomes.”
• At its highest level, IRIS represents CRE’s “sweet spot of innovation” where cost efficiency is elevated to strategic effectiveness through the coordinated support of internal and external resources across multiple enterprise and geographic lines.
As its BPO, business process outsourcing, dimension demonstrates, IRIS’ most effective application to date is seen mainly through the globally outsourced service delivery model now integral to alliance management and ultimately to the globalization of multinational corporations. CoRE 2010’s report on IRIS cited the nature of “business triggers,” or macro-level change drivers in 2004 that would like bring about the formation of a “powerful community prepared to seize the opportunity” driven by continuous global expansion, emerging markets and outsourcing. By 2007, the prediction had come true that “the flow of investment capital to third-party BPO firms . . . to deliver new levels of value.”
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MORE ON IRIS See related information on IRIS, LEADER Magazine, November 2007
Here’s what CoRE 2010 said would happen: • By 2010, IRIS will be accepted as a best practice by leading multinational companies.
• IRIS will be implemented in different ways, resulting in a spectrum of solutions
(including) organizational structures and service providers offering integrated solutions.
• Successful IRIS programs will be characterized by … common business processes and a customer service orientation.
• Trends toward integration will result in major changes for the service provider industry . .
. resulting in a further “blurring of lines” between the enterprise and its supply chain.
• The total amount spent on HR, IT and CRE as percent of revenue will steadily decrease as corporations continue to streamline their infrastructures.
Here’s where we are today:
• Increased outsourcing has created the outsourced “solutions or resource integrators” identified by CoRE 2010
• Service providers are now delivering “externally provided infrastructure services,
including CRE, on behalf of their client corporations,” as foreseen.
• The CRE leader could play this role internally, as we outlined in 2004. And, as our 2007 results indicated, the predominance of outsourcing is creating a concentration of higher-level strategic functions inside the CRE department itself.
• But to the extent that 2010 foresaw CRE to play the role of the internal infrastructure integrator, the IRIS adoption rate continues to lag behind most of the other key seven facets of CoRE 2010.
• CRE today is generally more engaged with IT than with other parts of the internal corporate infrastructure, more so than with HR or other support functions.
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What will it look like in 2010? • From the standpoint of BPO, supply chain management, and the service provider
industry’s growing influence, IRIS is a real force today in CRE and will become more so by 2010.
• This affirms the expectation that by 2010, “service partners may manage significant
portions of the integrated infrastructure.”
• From the internal corporate side, the 2010 forecast also included “organizational” applications that have begun to happen but are still not likely to reach the level envisioned by the forecast in time for 2010.
• Take the fact that there aren’t any corporate “IRIS Departments” or any “Directors of
IRIS” as one indication of this lag. Beyond 2010:
• By assuming the cost and investment of portfolio, technology and even employment, service provider risk will expand to higher levels, and thus the current compensation model will evolve to a more risk-averse state.
• The creation of an active derivative/insurance market to mitigate risk was predicted
for 2010 but seems more likely beyond 2010.
• This may become another new characteristic of the “blurring of lines” now under way between corporate occupiers and service providers.
• Internally, CRE executives may become less known as “IRIS Directors” or “Solutions
Integrators,” but possibly more known as “Life Cycle Management Directors.” This evolutionary step reflects the new mindset of corporate governance. It’s a possible IRIS hybrid surrounding the fast-emerging enterprise “stakeholder” approach. On behalf of internal and external stakeholders, integrated solutions can be delivered not only in support of the workplace but also in direct partnership with the company’s location, energy management, carbon reduction, community reinvestment, talent and other needs relating to IRIS itself and to corporate social responsibility or other sustainable practices. Page 3
Possible outcome: If IRIS can be the strategic fabric of the enterprise and CRE, then strategic competencies are the thread. Enterprise Leadership Skills and IRIS are both 2010 domains within themselves, but each runs through the other corresponding value drivers. These drivers also represent disciplines, or strategic competencies, so that IRIS is a reflection of the Enterprise Skill set, and vice-versa. Yet they both lag on the 2010 adoption curve. If CRE’s can weave their thinking, planning and actions toward this mirror view of IRIS and strategic competencies, they will become more effective. Reading the outcomes predicted by 2010 within the Enterprise Leadership piece of our forecast is like taking a page out of the IRIS report done separately:
- The role of the CRE executive will evolve into that of a change agent driving the infrastructure model for the business and the accompanying service delivery networks.
- The skill set will be more cross-functional and more focused on the business of the business, integrated financial analysis and process management.
- Possible titles for this new role will be Resource Director or Chief Resource Officer. - Senior CRE infrastructure leaders must have a good understanding of how to leverage
technology to improve enterprise productivity. - Business continuity planning will be a key responsibility. - Service providers, consulting firms and training organizations will work together to
provide the development and training for CRE executives on topics outside of real estate, including Six Sigma, CRM and strategic planning.
- This of course reflects the higher and more diverse level of skills needed to manage within CRE and across company lines, both internally and externally.
Click here for The Royal Bank of Scotland’s Global Innovator’s Award-winning case on “Embedded Culture of Innovation” stressing integration across company lines and support units.
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Chapter 14 Technology and the Web Like globalization, information technology and the Worldwide Web are broad forces enabling and often defining today’s networked enterprise model. From a CRE perspective, technology and the Web are key reasons why the nature of work is changing, and how CRE departments are able to optimize the globally integrated real estate portfolio and supply chain.
Information technology (IT) is a multifaceted dimension of CoreNet Global’s CoRE 2010 predictive body of research that now surrounds:
- Mobile and flexible work (See Chapter 6 on Workplace Practices.) - Building technology and ‘smart’ buildings (See chapter 6 on Workplace Practices.) - Portfolio analytics (covered in this Chapter.)
CRE Management of the Global Portfolio Software and data standards are the drivers of the portfolio analytics, or the integrated data and information systems that are tied to performance measurement. The trend toward CRE’s growing use of performance metrics to support workplace management became clear in 2007. To some extent, so did CRE’s ability to integrate, then elevate, data in support of portfolio, M&A, location and other strategic-level enterprise decisions. The development of data standards to attain interoperability across the industry’s many disparate IT systems and tools, however, was still lagging in 2007.
• Some measureable progress toward data standards is evident. • Integrating the networks of the virtually networked enterprise continues, however.
Industry Data Standards The interoperability of the multitude of systems that track and house industry data became an important part of the CoRE 2010 forecast, as did the need for accompanying data standards.
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Realizing those standards would be akin to attaining the kind of harmonization envisioned in the IRIS sense of total cross-functionality and process-driven outcomes at the enterprise, not department, levels. In fact, we identified “data systems and tools” as one of four ways for implementing effective IRIS strategies.
This also underlies the ability of CRE to deliver performance metrics that filter up to the C-Suite and into the senior management levels of business units. Metrics are being used for Key Performance Indicators (KPI’s) that shape and adjust workplace strategies. They also are increasingly enhancing the management of portfolio assets.
RELATED CASE Sprint’s “Mosaic” platform, winner of the 2007 Global Innovator’s Award
CoreNet Global created, then spun off, the Open Standards Consortium for Real Estate, or OSCRE, to promote industry data standards in 2004. (For more information, please visit www.oscre.org)
Here’s what CoRE 2010 said would happen: • Standards are adopted • Integrated data and reporting emerge
Here’s where we are today:
• While most OSCRE standards were developed in 2007, industry-wide adoption is still a work in progress.
• Vested service provider interest in the fragmented CRE supply chain is thought to be one reason.
• Another could be that the demand side of the industry isn’t applying enough pressure on the supply side to conform to standards and integration.
Beyond 2010:
• The integration of countless systems serving the industry into a single real time, non-proprietary and open platform.
• This integration of data will allow CRE to respond quickly and flexibly to changes in the business environment with value-adding solutions to workplace challenges.
Managing data shifts to managing meaning as effective CRE’s learn to help the knowledge worker’s analysis and interpretation of information into collaboratively-driven results and outcomes. In fact, we identified “data systems and tools” as one of four ways for implementing effective integration, or IRIS, strategies.
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Chapter 15 Related Issue: Overcoming Obstacles to Industry Data Standards OSCRE – The Open Standards Consortium for Real Estate What are the obstacles to a high adoption rate for OSCRE as an electronic data exchange model, and what are the best ways to overcome them? One of many challenges to wide-scale adoption is that although while corporate real estate (CRE) is reportedly the world’s largest business sector at $4-trillion, it’s also “the most fragmented industry I’ve ever seen,” one industry executive commented in 2007.
The industry’s breadth has determined OSCRE’s wide scope of work now well under way in the following areas:
• Commercial Information Exchange
• Facility Management Work Order
• Space Classification Standards
• Geo-location Classification Standards
• Space Utilization Metric • Commercial Property
Management • Appraisal Institute • Real Property Unique
Identifier
One advantage, however, is that OSCRE represents about half of the industry’s total valuation. About $2.1 trillion in assets are represented among OSCRE stakeholders largely in the commercial real estate services and technology sectors. Another advantage is that corporate end users are pushing their service providers for consistent data standards to reduce the extra cost and waste associated with often manual nature of data conversion without standards. CoreNet Global’s launching of OSCRE as eCRE in 1999 laid the foundation for the end-user influence driving OSCRE’s advancement. The fragmented nature of CRE stems directly from the diverse industry mix seen on the demand side among corporate end users which in turn extends to the supply side and the broad spectrum of specialists and disciplines serving the demand side. But the enormity of developing OSCRE’s functionality can be like “boiling the ocean” and is overwhelming, as some executives advised in 2007.
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The critique proved constructive, however, because participants also advised OSCRE to take a modular approach driven by a system ‘backbone’ that would also allow for users to tap pieces of the platform in cafeteria style instead of having to integrate it as a whole into their existing systems and operations. Because the entire supply chain of the industry is being integrated into OSCRE, it’s also important to sell adoption not with a single value proposition, but through multiple messages corresponding to various industry segments like investment, brokerage, appraisal, development and portfolio management, participants also advised. Still, there are forces driving OSCRE that require a high degree of attention to the need for data standards:
- Cross-border transactions and monetary exchange - Definitions of key terms and practices that vary from region to region - Lack of inter-operability among supply chain players and CRE stakeholders - Sarbanes-Oxley (SOX) compliance and the regulation of transparency - Hostile takeovers for the sake of monetizing under-appraised assets - Corporate divestiture of real estate
These and other drivers cause friction across the supply chain. They also require that companies spend extra time making data from multiple sources consistent enough to aggregate and roll up into reliable information for the C-Suite and business units to manage against. For example, one service provider estimated that his firm spends at least 30% of its time manipulating data for customized integrations, data scrubbing, and manual data entry or reentry. Consistency, efficiency, transparency, lower costs and better outcomes would be the benefits OSCRE can deliver to overcome the added cost and time that companies are spending on data management. “The cost is a lot higher without standards,” a CRE executive mentioned. OSCRE “will lubricate the flow of information,” as advocates point out. “It will make business work better, and improve interactions along the supply chain and internally (inside the enterprise).” Its ultimate value is as a life-cycle and decision-support tool that reduces product and project cycle time. Its impact will be across the real property supply chain.
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