Using radical change to unlock opportunities for portfolio transformation in local government

Corporate Real Estate JournalVol. 1 No. 3, pp. 232-241© Henry Stewart Publications,2043–9148

Using radical change to unlock opportunities for portfolio transformation in local government

Lyndon Watkins*, Alison White** and Davida Hamilton***Received (in revised form): 3rd June, 2011*Property & Asset Management, Finance & Resources, North Somerset Council, Town Hall, Walliscote Grove Road, Weston-super-Mare, BS23 1UJ, UKTel: +44 (0)1934 427468; Fax: +44 (0)1934 884419; E-mail: [email protected]

**Studio 5, Brambe Drive, Bristol BS9 1RE, UKTel: +44 (0)776 8081 242; E-mail: [email protected]

***19 Barleyfields Terrace, Weatherby, West Yorkshire LS22 6PW, UKTel: +44 (0)776 8991 224; E-mail: [email protected]

Lyndon Watkins is Head of Property and Asset Management for North Somerset Council. He has held this position since 2004, having worked in both local and central government in South Wales since 1987. Following training sponsored by his then employer, the Valuation Office Agency, he qualified as a chartered surveyor in 1996 and received his master’s degree in busi-ness administration through the University in Wales College Newport in 2004.

Alison White is a co-founder of PLACEmaking. She has been at the centre of knowledge on the changing demands of the working environment for over 20 years and is co-author of ‘Work ing Beyond Walls’ (Office of Government Commerce, 2008). Alison has provided strategic business case development and programme implementa-tion advice to North Somerset, enabling the council to match its business objectives with best practice workplace solutions.

Davida Hamilton is a co-founder of PLACE-making and has been supporting clients through the process of creating new working environ-ments since 1985. Her clients have included global corporates, central and local government, hospitals and universities. She puts a strong

emphasis on user research and involvement. She is a trainer and tutor for the British Institute of Facilities Management and has a BA in archi-tecture and a master’s degree in building science from Strathclyde University.

ABSTRACT

Economic constraint usually results in pressure on real estate costs, but this pressure can be exerted in different ways and lead to different outcomes. This paper provides a detailed case study of North Somerset Council’s journey through three econom-ically led stages of property management, emerging with a transformed portfolio. The first stage is that of complacent growth or business as usual: head-count and organisational initiatives proliferate and business leadership is focused on delivery, with property being a low priority. The second stage is that of challenge: increasing costs become a prob-lem, therefore property becomes a target for savings and increased control, and a focus for asset man-agement. The third stage is a transformed approach: property becomes a facilitator of business restruc-turing, closely integrated with local and business objectives and with the potential to generate income. This paper analyses how North Somerset Council came to deliver radically improved asset performance. The process depends on organisa-tional readiness and is very much a product of

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increasing economic and political pressure. When this pressure becomes intense, a radical change in the approach to asset management is possible if the groundwork is in place and if the property team is able to lead decisively.

Keywords: asset management, estate strategy, new ways of working, flexible working, business change, change management

THE POLITICAL AND ECONOMIC DRIVERS FOR A CHANGE IN APPROACHAll enterprises, public and private, experi-ence a cycle of tightening and loosening bud-gets in response to market conditions and changes in the way they deliver their opera-tions. Experienced managers recognise the symptoms of the squeezed budget: hiring freezes, travel restrictions and, in property terms, space densification, consolidation and deterioration in the quality of the office envi-ronment. This paper describes one process for delivering property cost reduction that transforms the property portfolio into an organisational asset by leveraging the very factors that are initially seen as problems or threats. The process is based on the experi-ence of a local government organisation, North Somerset Council, creatively respond-ing to the prospect of significant externally imposed economic and organisational change. In more general terms, it is a case study about the transformation of the accommodation of 2,150 customer service staff, working together from different organisations, and it has lessons for the implementation of radical change for both public and corporate sector employers. North Somerset Council is a fairly typical UK local authority. It is a unitary council located in a mostly rural and coastal landscape in the south-west of England. It owns 49 schools, 41 community facilities, 685 acres of public open space, 11 public parks and 12 smallholder farms, and attracts 5 million

tourists a year through its good motorway, rail and air connections. Although the county is relatively prosperous with low unemploy-ment, there are pockets of significant depri-vation including two Weston-super-Mare wards that are among the most deprived in England, attracting a strange combination of vulnerable elderly and young people to its seaside accommodation. The council pro-vides a wide range of public services through a combination of direct employees and out-sourced service providers and partners, and has been reducing in head count over the past two years through contracting out service provision to partners. It currently employs 1,650 people with a range of part-time and full-time working arrangements.

In good times the public, and sometimes employees, tend to assume that the public purse is infinitely deep, that difficult deci-sions can be challenged and more money found. In a strained economy, the converse is true. Suppliers of public sector services can-not relocate somewhere cheaper, or go out of business because critical services have to be delivered continuously and locally. While the public service culture may be inherently resistant to change, when faced with very difficult choices about cutting services to users, radical change is possible. Real pres-sure on costs can trigger radical change.

In her thorough review of theories of change, Gersick likens revolutionary change to removing the hoops in a basketball game instead of just making them higher: ‘systems do not shift from one kind of game to another through incremental steps: such transforma-tions occur through wholesale upheaval’.1 The game analogy is useful because it can be used to test how far North Somerset Council is changing its property game altogether instead of just tinkering with the rules.

Figure 1 illustrates the three stages of the journey undertaken by North Somerset Council. ‘Stage 1: Business as usual’ will be very recognisable to mature organisations which have been through periods of rapid

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growth and development in the last 20 years. Headcount growth is continual and, with traditional one-to-one methods of space allo-cation, more desks are constantly demanded, meeting rooms are appropriated as offices and small works are continuous and reactive. Teams are allocated space wherever it is avail-able, and multiple sites are complex and costly to service adequately. Organi sationally, the space struggles to support good communica-tion and silos build in isolated pockets.

In ‘Stage 2: Asset management’, the focus on controlling costs requires a hard look at real estate and outsource options. Estate surveys, usually undertaken from a financial viewpoint, analyse which sites are the most costly to occupy and maintain, and which are the most cost-effective to dispose of from a lease break and market value point of view. The best out-come that can be expected is consolidation and strict discipline in the management and acquisition of space. The worst is further organisational fragmentation and deterioration in the quality of the work environment.

‘Stage 3: Transformation’ involves the entire organisation, rather than just impact-ing on it. The objective is to turn the real estate portfolio into both a financial and a performance asset. To move from Stage 1 to Stage 2 demands a step change. To move

from Stage 2 to Stage 3 demands the sort of revolution that Gersick refers to as a whole-sale upheaval.2

In its ‘Spending Review 2010’, the UK Government formalised the major deficit reduction programme that had been on the cards since the general election.3 North Somerset Council will see a cut in its formula grant from central government of £8.1m (or 12.5 per cent) in 2011–12.4 The total formula grant for England is planned to have reduced by 27 per cent by 2015, so the council will have to take its share of further cuts in future years too. In response to the cuts, all local gov-ernment organisations are undertaking very critical reviews of every area of expenditure. Today, North Somerset Council and its part-ners are well prepared to move forward, hav-ing already taken the steps to deliver real estate cost reductions and support future public ser-vice delivery reorganisations within the county. The council team, with a little consultant sup-port, has developed a transformed approach to valuing and managing its property.

THE COMPLEXITY OF THE LOCAL AUTHORITY CONTEXTDecision making in local authorities is ham-pered by the unique range and influence of

Figure 1 Three stages — Two tipping points

Portfolio transformation in local government

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stakeholders. On top of the usual organisa-tional politics are the politics of local govern-ment. The local service users, voters and media all influence the local politicians who are focused on their four-yearly election bids. Vacation of a large site can dampen employ-ment opportunities for small and medium-sized enterprises and hinder regeneration efforts; both issues are likely to make the local headlines and councillors will be wary of the impact on their electorate. To add further complexity, central government politicians devolve difficult political and budgetary deci-sions to local government and comment to the press from the sidelines when required by their own political ends. The final complex-ity is that, in England, local government boundaries change because they are not con-stitutionally fixed, while other local service delivery agencies (healthcare commissioning, fire and police services, and, increasingly, schools) are not managed by the local author-ity. The result is an onerous property legacy resulting from the continual change.

THE INITIAL STAGE: BUSINESS AS USUALNorth Somerset Council began its accom-modation journey in 2004. Its principal office space was a 10,000 m2 Victorian town hall with a 1960s extension in Weston-super-Mare and an adjacent 3,000 m2 1960s office building. The majority of space was tradi-tional cellular offices and desks allocated on a one-to-one basis. The council workforce was rapidly expanding and it had begun to procure additional office space on an ad hoc basis, sometimes making use of council-owned assets such as houses, schools and depots. With no estate strategy in place, additional leases and licences expanded the estate to 24,000 m2, mostly in Weston-super-Mare. The result was a mixed bag of build-ings and workplaces across the county. Any attempt to deliver a consistent corporate

accommodation standard was not only phys-ically impossible but often rejected by iso-lated teams which had been left to define their own requirements and manage their own environments.

A 2010 inspection of the estate highlighted the symptoms of persistent workplace underperformance. The general clutter resulted in an average space standard of 14.5 m2 net internal area (NIA) per person. The environment was so cluttered that the spaciousness was unnoticeable and the coun-cil’s enhanced objectives for equality and accessibility were unachievable. Senior man-agement was isolated in remote cellular offices with a trickle down of room sizes reflecting many management tiers. Staff accommoda-tion was in small rooms or, where possible, some degree of open plan. Investment had always been limited and most spaces reflected a 1980s feel, with elements of the 1950s in the cellular offices. Everywhere was drab and worn, with the multiple dispersed buildings housing duplications of facilities, equipment and vast amounts of filing and storage. Individuals, teams and services defined strong defensive boundaries with storage and screens, while the few shared facilities were kitchens or print rooms. Team kettles and fridges pep-pered the workspace as did multiple private printers and fax machines. In the town hall, the staff canteen was the one ‘oasis’ which was busily used for meetings throughout the day.

The pressure was growing for improved service delivery and reduction in costs and there was an increasing focus on property as a likely source of savings. However, a signifi-cant change in the value the council placed on its property assets was needed and an increase in the commitment to delivering in the face of resistance and the distraction of day-to-day local authority politics. There was a gradual realisation that this fragmented approach was unsustainable and that the council needed to better understand its busi-ness needs and put an estate plan in place to respond both strategically and tactically. A


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central government report provided the ini-tial trigger. In 2001, Whitehall’s Department of Communities and Local Government had commissioned a report on local authority asset management.5 North Somerset Council was one of a number of anonymous case studies, and feedback in 2004 included the statement that the council was ‘an unintelli-gent client’.6 Unsurprisingly, this struck a nerve. Partly in response to this report, the council established a new ‘Property and Asset Management Service’.

THE SECOND STAGE: MOVING TOWARDS ASSET MANAGEMENTGVA Grimley was commissioned to under-take a Weston only ‘office consolidation review’. It highlighted the poor quality work-ing environment as unsuitable from a business perspective. The report considered potential future requirements and tested a number of options that included the role of the council offices underpinning regeneration initiatives in Weston-super-Mare. The resulting poten-tial strategy was centred on a 4,000 m2 project in Weston developed jointly with the lease-hold owner of the adjacent Dolphin Square.

Although the council was keen to pursue this option, meeting the complex demands of the council, its partners and European Union procurement rules meant this was not going to deliver a quick solution. The option evolved into a long-term strategy, but short-term demands forced decisions on ever-more temporary accommodation. Consequently, the council’s accommodation strategy was becoming undeliverable. Meanwhile, local politics intervened and a new administration and a new leader were elected in 2007.

While developing its office accommoda-tion strategy, the council also started to con-sider how changing work practices might affect its accommodation needs. Among other initiatives, it started work on a series of small-scale pilot projects and policy reviews. With the plans to procure new accommodation

stalling they were seen as a distraction, focus-ing on low-value marginal issues such as printer strategies and flexible working poli-cies. The programme seemed to add little immediate value in changing the council’s use of office space and failed to address the real nub of the problem: how to better support its future business needs.

In June 2009, Castlewood, the former Clerical Medical headquarters building, came onto the market. Located in Clevedon, a key town 13 miles from Weston-super-Mare, this building was attractive to the council’s new leader given his belief that previous adminis-trations had not focused enough on having a physical presence in the north of the district. Two factors turned this ambitious possibility into a serious option. First, the former head-quarters building was of a unique size and quality for the local market and it was almost immediately available. Secondly, consider-ation of the purchase of this building was the stimulus required to revisit the council’s accommodation strategy and it firmly engaged the leader of the council, who was deter-mined to ‘make this happen’. But the key problem for the business case was that, at 8,000 m2, Castlewood was twice the size of the previously established needs in Weston.

More of the council’s dispersed office accommodation, not previously planned for closure, was now included in the business case, assuming a traditional style of occupa-tion. The existing office estate by now was made up of 18 buildings with a mix of free-holds and leaseholds of various sizes. There was a series of lease breaks that the council wanted to exercise but, with no ‘swing space’ and no funding, the opportunities to improve even the best quality space in the portfolio were limited. There was a desire to improve the retained town hall in Weston, which would remain the council’s civic seat, but this space needed investment and a solution was not immediately apparent. The purchase of Castlewood was the potential catalyst to change all of this, but the assumption was


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that the council would simply occupy the building in the same traditional way. Just moving people out of some of the forthcom-ing leased buildings was the ‘path of least resistance’, although this would never realise the building’s full potential and exploit the opportunity for reducing the estate further. With the economic environment now becoming more challenging, the purchase of Castlewood looked more difficult to justify.

INTO THE THIRD STAGE: TRANSFORMATIONTimely consultant advice brought enlighten-ment to the route ahead. An appraisal study of Castlewood quickly illustrated that this air-conditioned building, with its deep floor plates, sensible planning grids and high-quality building standards, could accommo-date significantly more people. If the traditional space allocation standards were challenged, new furniture procured, a differ-ent information and communications tech-nology (ICT) infrastructure adopted and a radical reduction in storage achieved, the council could occupy Castlewood and release significant amounts of space for sub-letting. The appraisal of the Weston-super-Mare town hall and its 1970s extension also chal-lenged assumptions about the efficiency of the building and its inability to accommodate a modern working environment. With a use-ful structural grid and an efficient net to gross space ratio, this unloved building, if refur-bished, could deliver a similar quality of workspace to Castlewood. The Victorian town hall could accommodate the council’s civic duties and ceremonial services, sup-ported by a commercial income from hosting conferencing, meeting and training events.

The tipping point for North Somerset Council was the recognition that, by using space in a modern way, the council could reduce its own space demands and free up share space with and derive income from part-ners or other tenants. The traditional ‘ways of

working’, using the council’s adopted space standards, would have provided workspace for 750 people in Castlewood. Adopting modern working, moving from one-to-one desk pro-vision and cellular offices to a desk-sharing strategy with no cellular offices, increased the potential occupancy of Castlewood to 1,150, an increase of over 35 per cent. This triggered a review of the business case. The increased space now available for sub-let and capital receipts from the freehold sales between them could release sufficient funding to refurbish the town hall for modern working and finance a common ICT platform. The benefits then became cumulative:

The town hall capacity would increase •from 633 to 1,000 people.The town hall refurbishment would expand •the public access areas resulting in improved public facing facilities including the expan-sion of the main library function.Improved service performance and •streamlining of working would become possible with collocation and integration in just two high-performing buildings.Council staff and other local service deliv- •ery partners could collaborate using a common facilities and ICT platform, which would be much more adaptable to future change.

LEVERAGING THE ORGANISATIONAL CHANGEThe important turning point was the discovery of the ‘art of the possible’: how changing the office environment could be a catalyst for sup-porting modern working. The initial delivery of this new strategy relied on the council’s abil-ity to absorb new approaches; many changes were difficult and challenges required senior management buy-in, leadership sponsorship and staff engagement. It relied on the creation of a skilled and experienced project team bringing together internal knowledge and external expertise, focused on delivering the


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vision and able to navigate through various project pressures and people challenges. A common ICT platform had to be developed within a very short space of time and the tran-sition to desk sharing had to be managed. When the plan was presented it revealed a con-tinuing reluctance to recognise that the council had to change, improve its performance and reduce its cost base. Common assumptions remained: savings should be found elsewhere, others could reduce their needs and being ‘spe-cial’ meant being ‘untouchable’. As Johnston et al. point out, while targets based on previous experience are useful in promoting evolution-ary change, in a situation of revolutionary change they become less effective as an incen-tive.7 The experience of the council confirms that, at this stage, it becomes increasingly irrel-evant to compare the future with the past.

Despite the reluctance, in March 2010, the new strategy was approved. Two months later, the new government in Westminster began its deficit reduction plan and the eco-nomic situation changed completely. In the face of painful budget cuts, support from all stakeholders was strengthened considerably. The first phase of modern working occu-pants moved into Castlewood in October 2010. By July 2011, three freeholds and two leaseholds will have been disposed of (and much of the remainder used for decant), the common ICT platform phased implementa-tion will have commenced and the town hall refurbishment will have started on site. The council and its partners have arrived, in less than two years, at a position where the antic-ipated restructuring and budget cuts can be adopted much more quickly and easily.

INTEGRATING LOCAL SERVICE DELIVERYThe council had undertaken to outsource its support services (including payroll and ICT) in 2009 and, as part of the contractual negotiations, bidders had been encouraged to consider collocating with the council in

Castlewood, adopting the same space alloca-tion policies and committing to bringing extra employment to the area. This strategy was successful, with the chosen partner commit-ting to transferring partnership operations to Castlewood and expanding its operational base over time. In parallel to this, the council had been working closely with the North Somerset NHS Primary Care Trust (PCT) to seek to collocate, improve joint working and rationa-lise duplicated costs. Although the national government policy regarding PCTs changed in 2010, the ongoing need for office space for North Somerset NHS PCT’s community ser-vices and public health teams will continue. It has committed to a licence agreement for 160 staff to occupy Castlewood on a serviced office basis. This has enabled the PCT to exploit lease breaks on two buildings and, when addi-tional space becomes available in the town hall on completion, to exit a third and final lease in 2015. The council also anticipates letting to other organisations from both the private and public sectors (such as the police), all using the same space and ICT services with the same desk and space sharing policies.

The new strategy has challenged practices in space use but has also engaged people and facilitated sharing with partner organisations. It has transformed the council from being a mere user of space to being the supplier and manager of modern working environments. Both the town hall and Castlewood offices will provide modern flexible accommodation with a common ICT infrastructure and facili-ties management service. Knowledge, skills and experience can be harnessed in response to local needs, providing a more streamlined service to the community of North Somerset.

ASSET PERFORMANCE RATHER THAN RATIONALISATIONAlthough the picture did not seem very clear at the time, taking a performance approach instead of a rationalisation approach made a significant difference to the successful


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outcome. Figure 2 describes the traditional rationalisation process. Buildings are put through an evaluation filter to identify the most cost-effective disposals to secure savings. Effective evaluation filters will include ongo-ing and backlog maintenance costs, while regeneration impact is not always taken into account. Although the process worked ini-tially for North Somerset, looking at the buildings in isolation proved impossible to implement. In contrast, the approach that North Somerset Council found more suc-cessful is illustrated in Figure 3. In the initial phase, a qualitative filter was applied to assess the potential business value of assets, includ-ing political, regeneration and organisational value. The second phase included potential demand partners in the formulation of the wider business case, as well as the anticipated

change plan. In this way, funding scenarios as well as investment in areas such as ICT were included in the future planning and the costs were offset against savings. While the process may seem more complex, North Somerset Council achieved agreement in an exception-ally short space of time compared with previ-ous initiatives, probably due to the clear organisational vision, the buy-in achieved through wide involvement as well as the tight-ening economic drivers that were kicking in.

The importance of a more in-depth approach can be illustrated by looking at the public viewpoint. In August 2009, the local paper reported on the possible purchase of Castlewood, and the council leader was frank in his responses about potential issues. But the paper’s focus was on jobs: ‘The proposals have been welcomed by traders in Clevedon,

Figure 2 Traditional rationalisation process

Figure 3 Asset performance approach — North Somerset process


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who have seen business decline since Clerical Medical staff started their phased move to Bristol’.8 The initiative had addressed the right local issue, and internal confidence rose as a result. It is anticipated that the public will recognise the full benefits when the improved facilities are available for public use in the town hall.

BENEFITS OF THE TRANSFORMED APPROACHThe council’s project initiation document includes anticipated hard measures of success for the transformation, all of which are on tar-get for delivery by full completion in 2015:

reduce the estate from 24,000 m • 2 to 14,000 m2;reduce the accommodation from 18 •buildings to two;reduce space per occupant (measured as •NIA) from 14.5 m2 to 6.5 m2;reduce storage per occupant from 6 to 1.5 •linear metres;through desk sharing and the removal of •offices, reduce churn costs by 90 per cent; andreduce the carbon footprint of the refur- •bished town hall site by 61 per cent.

But the essence of the now adopted North Somerset Council office accommo dation strategy is that it secures optimal adaptability and flexibility within the estate. Soft mea-sures will include the success of the council and partner collaboration (with the PCT in particular), the implementation of centra-lised stationery, recycling and printing, the implementation of desk sharing and the vis-ibility of management. The initial occupa-tion of Castlewood has already received positive feedback from council leadership and elected members. However, Gibson points out that it is essential to get beyond rhetoric and support change,9 and it will require sustained effort on the part of

leadership and the property team to ensure that the whole organisation fully internalises and implements the changes now underway.

CONCLUSIONThe case study clearly illustrates the three stages of real estate management progression. Until 2004, North Somerset Council was immersed in Stage 1, busy coping with growth and ignoring the cost and legacy issue in the making. The tipping point for the shift to Stage 2 was a critical government report, confirming what many had seen for some time. Management attitude changed and attention to real estate issues increased from 2004 to 2009, but a combination of delivery complexity and political uncertainty blocked wholehearted implementation of asset management. While progress was made on policy development and outsourcing some services, day-to-day organisational practice continued unchanged.

Castlewood appeared suddenly as an inter-esting opportunity. It is a high-quality build-ing, meeting political needs and engaging leadership, but, without funding, it was impossible to capitalise on these benefits and bring the estate under full control. The tipping point to Stage 3 was the realisation that implementing modern working at Castlewood could release funding while, at the same time, the rapidly growing economic uncertainty significantly reduced the resis-tance of the wider organisation to change. Transformation became achievable. Has the council removed Gersick’s hoops10 and trans-formed its own real estate ‘game’ in a radical way? It has, and the speed of change has probably contributed to the success in a con-text where difficult decisions are often deferred until after the next election. Assumptions about territorial office owner-ship have given way to full desk and facilities sharing. At Castlewood, the council is already a full-service landlord providing a modern, integrated facility platform available to all


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local agencies (council or not), capable of coping with the substantial changes antici-pated over the next few years.

REFERENCES

(1) Gersick, C. J. G. (1991) ‘Revolutionary change theories: A multilevel exploration of the punctuated equilibrium paradigm’, The Academy of Management Review, Vol. 16, No. 1, pp. 10–36.

(2) Ibid.(3) HM Treasury (2010) ‘Spending Review

2010’, Stationery Office, London.(4) Stabe, M., Jones, C., Feeney, P. and Pickard,

J. (2010) ‘How spending reductions will hit local authorities’, Financial Times, 14th December, available at: http://www.ft.com/cms/s/0/688c00cc-07a0-11e0-a568-00144feabdc0.html (accessed 10th May, 2011).

(5) York Consulting (2001) ‘Evaluation of Corporate Capital and Asset Planning in

Local Authorities’, report commissioned by Department for Communities and Local Government, London, available at: http://www.communities.gov.uk/publications/localgovernment/capitalassetplanning1 (accessed 12th July, 2011).

(6) Ibid. (7) Johnston, R., Fitzgerald, L., Markou, E.

and Brignall, S. (2001) ‘Target setting for evolutionary and revolutionary process change’, International Journal of Operations & Production Management, Vol. 21, No. 11, pp. 1387–1403.

(8) Weston & Somerset Mercury (2009) ‘Council has eyes on Clerical office’, 13th August, available at: http://www.southwestbusiness.co.uk/news/Council-eyes-Clerical-office/article-1246479-detail/article.html.

(9) Gibson, V. (2003) ‘Flexible working needs flexible space?: Towards an alternative workplace strategy’, Journal of Property Investment & Finance, Vol. 21, No. 1, pp. 12–22.

(10) Gersick, ref. 1 above.


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Using radical change to unlock opportunities for portfolio transformation in local government