corporate real estate asset approval structure

Real Estate Asset Decision Making Research

ObjectivesCompare Real Estate Asset Approval Process of multinational corporations and academic research.Make recommendations for improvement.

Methodology

• Interview multinationals on decision making structure and monetary levels

• Survey multinationals

• Research academic studies on decision making structure and monetary levels

Agenda

• 3 Corporate Approval Structures

• Survey Results

• Academic Research & Findings

1Asher George McInerney 2012

Asher George McInerney 2012 2

Company # 1


Company # 2


Company # 3

Survey Overview Survey Profile

12 issued to Multinational Corporations 10 Responses

HC > 50k 6 Companies HC 10k - 20K 1 Company HC <10k 3 Companies 60% technology, 10% retail, shipping,

engineering, food, 9 respondents have planning horizon 12 months-5 years 7 respondents divided in the same manner geographically 6 respondent delegate spending to site or region levels.


Survey Results Decision Levels

Site Country Region Corporate0

1

2

3

4

5

6

> $5M$2M - $5M$1M - $2M$500K - $1M$250K - $500K< $250K

6

Financial decisions are delegated to site, country and regional levels

Asher George McInerney 2012

Affect of Decisions at Site or Regional

Efficien

cy

Cost S

avin

gs

Acco

unta

bilit

y

Team

Mor

ale

0123456789

N/AUnaffectedHigherLower

7

Efficiency, Accountability and Team Morale clearly higher


Academic Research Findings ‘Improving decision making is becoming the key to superior

business performance. Finance transformation provides an opportunity for the F&A function to become more efficient and to better support decision making.’

-Chartered Institute of Management Accountants, ‘Improving Decision Making in Organizations’

‘Powerful managers grab decision rights they shouldn’t really own while weak ones surrender rights they really should own’

–Harvard Business Review, ‘The Decision Driven Organization’

‘Decentralization also enables an organization to better adapt to conditions by delegating authority to those who are physically present and active in a particular project or operation.’

–Centralized and Decentralized Organizational Structure, eHow.com

‘Organizations are also pushing decision-making wider and lower in the organization. To do this, they have to react quickly to local conditions and not wait for decisions to go up the management chain and then down again.’

-Five Trends That are Dramatically Changing Work and the Workplace, Knoll


Industries: Centralized v De-Centralized

Chem

ical

Met

al M

anuf

actu

ring

Indu

stria

l Mac

hine

ry &

Equ

ipm

ent

Elec

troni

c Eq

uipm

ent M

anuf

actu

ring

Food

Fina

nchi

al, I

nsur

ance

, Rea

l Est

ate

Petro

leum

0%

20%

40%

60%

80%

100%

CentralizedDecentralized

9

Location of Decision Rights Within Multinational Firms, L.A. Robinson, P.C. Stockton, Tuck School of Business Dartmouth, March, 31,2011


10

Academic Research "If I know someone in the organization's lower levels can make a

tough call that won't affect other parts of the company, then it's their call," says Nick Pudar, director of planning and strategic initiatives at General Motors. –Decision Rights : Who Gives the Green Light, Harvard Business School, August 8th 2005, Peter Jacobs

‘Keith Leslie, a partner at McKinsey and Company's London office, says his firm recently advised one client to eliminate an entire management layer after such a review... Those they managed were much better positioned to make such decisions themselves.’ –Ibid

‘We survey more than 1,000 CEOs and CFOs to understand how capital is allocated, and decision-making authority is delegated, within firms… We also find that CEOs are more likely to delegate decision authority when the firm is large or complex. We study capital allocation in detail and learn that most companies allocate funds across divisions using the net present value rule, the reputation of the divisional manager, the timing of a project’s cash flows, and senior management’s ‘gut feel.’’ - Capital Allocation and Delegation of Decision-Making Authority within Firms , J. Graham, C. R. Harvey, M. Puri


CEO Capital Allocation Factors

11

Capital Allocation and Delegation of Decision-Making Authority within Firms , J. Graham, C. R. Harvey, M. PuriFuqua School of Business, Duke University, Durham, NC 27708-0120, USANational Bureau of Economic Research, Cambridge, MA 02912, USA



Academic Research

‘Each decision node at the company introduced a different set of hurdles. Decision making and execution slowed, and costs mounted. BP saw that the people who were best equipped to make decisions had to get too many approvals from higher-ups or from regional heads, which delayed execution.’

–Harvard Business Review, The Decision Driven

Organization, June, 2010