The Mantra For CRE’s To Make Better Real Estate Decisions

The Mantra For CRE’s To Make Better Real Estate Decisions

November 22, 2015 0 By Aval Sethi

Faced with any real estate decision, managers should first consider functions. What work needs to be accomplished? Functions are the main source of change in most real estate portfolios. Because they define the need for staff and equipment, they determine a facility’s type and size. A company may automate transactions to speed customer service and upgrade information technology to personalize it. Employees may be cross-trained to leverage skills across functions. Noncore functions with limited strategic value may be outsourced. Any of those changes in how a company does its work will affect its real estate decisions.

Time is the second element in the framework. When is the facility in use? Are there periods when it is underutilized? Pushed past its effective capacity? This element reveals how business operations and uses of space are related to facility capacity. Part-time employees who share desks increase the availability of individual work spaces. Early and late shifts increase a facility’s capacity. Global companies can take advantage of multiple time zones to consolidate certain service operations.

Space rounds out the picture. It embraces all of a company’s physical resources: the structures that house employees, contractors, and others; the furniture, fixtures, and equipment within those structures; and the layouts that organize the space into individual and group work areas, support facilities, and the like. Effective real estate utilization depends on how closely decisions on space are integrated with the functions that it supports, the time when it is used, and its three Ls.

Managers can use the F/T/S framework at two levels: portfolio and region. The companywide portfolio level is the managers’ canvas on which to sketch bold scenarios and actions that might hold potential for improved performance. Should we consolidate U.S.-based functions and facilities in Europe? Should we establish sales offices in Frankfurt but move administrative offices to Fargo? Should we purchase certain strategic operations sites but lease field offices? Should we eliminate certain functions in one facility by rearranging work shifts in others?

Isolated, the typical facility lacks sufficient scale and scope to improve corporate performance significantly. But a portfolio can have dozens, even hundreds, of locations, layouts, and leases. Managers may discover ways to reach out to more customers or to preempt competitors by comparing several sites and even entire networks. By analyzing multiple configurations, they may learn how to increase output and improve communications. By reengineering lease and ownership structures, they may increase financial flexibility and reduce corporate liabilities. By consistently relating space to its business use in functions and time, managers can own the decision-making process and guide the specialists more effectively.

Author Credit:  Harvard Business Review