from tactical to strategic capturing value through portfolio management jane mather, ph.d., critical...
TRANSCRIPT
From Tactical to Strategic
Capturing Value Through Portfolio Management Jane Mather, Ph.D., Critical Core, Inc.
CoreNet New York City ChapterAugust 12, 2009
CoreNet Global Executive Development Program
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Goals and Agenda
Agenda
“Once a purely tactical and reactionary discipline, CRE asset management is moving to an orientation that is strategic, agile, data-driven, and geared toward optimization of the entire portfolio.”
First paragraph, CORE 2010 Asset Management and Portfolio Optimization
Copyright © 2008 Critical Core, Inc.
Goals • New ways to think about and add value through corporate real estate
• Share challenges and solutions
– It’s about the business not just the real estate
– Develop a long-term perspective and manage risks
– Develop a portfolio perspective to take advantage of
• Economies of scale
• Coordination
– Follow a strategy and portfolio management process
• How can we be more strategic? How can we keep our jobs?
Moving From Tactical to Strategic – Pyramid
PortfolioManagement
Asset Mgmt
Tactical ActivitiesTransactions, Project Management,
Facility Management
Planning(Strategic not Tactical)
Strategy
Source: CoreNet EDP Performance Portfolio Management
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Webster’s Definitions – Tactical and Strategic
Strategic
• 1 : of, relating to, or marked by strategy <a strategic retreat>
• 2 a : necessary to or important in the initiation, conduct, or completion of a strategic plan
• 2 b : required for the conduct of war and not available in adequate quantities domestically <strategic materials>
• 2 c : of great importance within an integrated whole or to a planned effect <emphasized strategic points>
• 3 : designed or trained to strike an enemy at the sources of its military, economic, or political power <a strategic bomber>
Tactical
• 1 : of or relating to combat tactics : as a
• (1) : of or occurring at the battlefront <a tactical defense> <a tactical first strike>
• (2) : using or being weapons or forces employed at the battlefront <tactical missiles> b of an air force : of, relating to, or designed for air attack in close support of friendly ground forces
• 2 a : of or relating to tactics : as
• (1) : of or relating to small-scale actions serving a larger purpose
• (2) : made or carried out with only a limited or immediate end in view
• 2 b : adroit in planning or maneuvering to accomplish a purpose
Copyright © 2008 Critical Core, Inc.
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Business Definitions - Strategy
Liam Fahey, The Portable MBA in Strategy.
• "Few words are as abused in the lexicon of organizations, as ill-defined in the management literature, and as open to multiple meanings as strategy.“
Michael Porter, “From Competitive Advantage to Corporate Strategy,” On Competition
• "Corporate strategy concerns two different questions: What businesses the corporation should be in, and how the corporate office should manage the array of business units."
• “Corporate strategy is what makes the corporate whole add up to more than the sum of its business unit parts.”
• Strategic planning - "the most important, difficult, and encompassing challenge that confronts any private or public organization: how to lay the foundation for tomorrow's success while competing to win in today's marketplace."
Copyright © 2008 Critical Core, Inc.
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Moving From Tactical to Strategic – “Not Delta”
Short Term Long Term
Individual
Portfolio - geographic - resource type RE, IT, HRCoordinationEconomies of Scale
TACTICAL
STRATEGIC
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Adding Value – Coordination
• How could it be more effective? – Know your subject – Think long-term – searches can last days and weeks– Coordinate portfolio of resources
• What would a search look like if the search was about the dogs, short-term focused and uncoordinated?
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Adding Value – Economies of Scale
• Centralization economies of scale
• Different kids / business units / properties to manage
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Adding Value – Long-Term Perspective
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Strategy and Portfolio Planning ActivitiesFrom SPP community
Copyright © 2008 Critical Core, Inc.
ppSupply Analysis vs Demand Forecasting
Value Creation/Optimizing Capital
Metrics/KPIs
Portfolio Planning Technologies
5. Risk Management
Sub-Portfolio/Cluster Analysis/Consolidation
Master and Cluster Planning
7. Cost Reduction Strategies
8. Portfolio Consolidation/Downsizing
Linking CRE to Core Business
Metrics and Financial Decision Making
CRE Organization Structure and Processes
M&A
Cost Reduction Strategies for Today's Economy
Impact of AWS on Planning
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Strategic ActivitiesBlue and green activities are part of strategic planning and portfolio management. Yellow activities are tactical.
Business Requirements – Demand
Corporate StrategyBusiness Unit Demand Forecasts and Requirements
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Adding Value – Know Your Business
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Adding Value – Role of Forecasting
“The only thing that you can be certain about is that your forecast is likely to be wrong.” - Anonymous
“The old model . . . persistent pursuers of the right headcount numbers.” . . . “They (business units) really have no idea.” -Keith Tabacek, Sun Microsystems, on business leaders ability to provide headcount forecasts.
"A good forecaster is not smarter than everyone else, he merely has his ignorance better organized. “-Anonymous
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Adding Value - Scenarios not Forecasts
NCAA Championship
Cinderella team
Consider what might happen and whether you can respond.
1% means 1 in 100.
Copyright © 2008 Critical Core, Inc.
2003 – Syracuse wins NCAA championship with Carmelo Anthony
2005 - UVM beats Syracuse
Unlikely things happen
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Adding Value - Better Scenarios
Talk with business units - Customer Relationship Management• Ask about the business - workplace professionals are more interested in
long-term issues than others are• “At those levels, management does not tend to discuss the things
that really impact the future.” Keith Tabacek, Sun• Explore what might happen – scenario planning• Understand ranges rather than point estimates
Review revenue forecasts and historical experience
Go beyond employees• Include contractors, workers from other business units• Adjust for alternative officing and changes in multi-user space
Talk with senior executives – business units tend to be optimistic
Copyright © 2008 Critical Core, Inc.
Know Your Business - Trends
• Mission, Values, Culture
• Who - Customers and Markets• Locations• Contract terms• Business cycles
• What - Products
• How – Suppliers, Production and Delivery• People / talent• Processes• Constraints• Technology
• How – Organization and Finance• Financial criteria• Mergers and acquisitions• Capital availability
• External – Competition and Regulation• Innovation• Regulation• Globalization• Sustainability
What’s changing?
What might happen?
Major factors and risks?
Copyright © 2008 Critical Core, Inc.
Company needs someone on the inside
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Business Scenarios – What Is The Impact?
Business Trend
Business Unit Types or Selected Business Units
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Estimating the range of outcomes
For more comprehensive estimates of the range of possible growth, evaluate business units based on type and historical workforce and revenue changes.
Business UnitCategories
Share of Workforce
Range of Rates of Change for Workforce / Revenue
RecoveryAverage Recession
Mature business units – stable, low variance
Mature business units – cyclical, high variance
Timing for Workforce / Revenue
Time to closure
Average rate of change
Time to maturity
New, growing business units
Contracting business units
Copyright © 2008 Critical Core, Inc.
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Strategic ActivitiesBlue and green activities are part of strategic planning and portfolio management. Yellow activities are tactical.
Business Requirements – Demand
Corporate StrategyBusiness Unit Demand Forecasts and Requirements
Organizational Framework
Goals
Copyright © 2008 Critical Core, Inc.
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Know Your Business - Priorities
How can we add value? Need to know what adds value.
CRE Goal – To provide the best balance of:
• Enhancing Productivity / Quality / Sustainability
• Reducing Costs
• Reducing Risk
• Increasing Speed-to-occupancy
Challenge – How do we find the right trade-offs?
• Different for every company
• Very subjective
Copyright © 2008 Critical Core, Inc.
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Know Your Business – Cost vs Productivity
Goals
• Understand 10% - 2% trade-off
• Identify cost savings that do not negatively impacting productivity
• Identify workplace environments that improve productivity with similar or reduced costs
• Example – alternative workplaces
In tough times, do we focus too much on reducing costs?
Average salary and benefits per person
• $30,000 to $200,000
• Consider $50,000 worker
• Productivity reduction that would offset cost reduction
= $1,000 / $50,000 = 2%
Average occupancy costs per person
• $6,000 to $14,000
• Consider 10% reduction at $10,000 = $1,000
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Know Your Business – Cost – Speed Trade-off
Revenue per worker
• Google - $976,118
• AT&T - $384,880
• Cisco in 2000?
High-tech boom in early 2000
• Cisco’s business slowed, lots of excess space
• Loss per worker if don’t have space when needed?
• Cost per worker to carry excess space?
• Manage expectations
Copyright © 2008 Critical Core, Inc.
Other ways to manage risk
• Coordination
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Whirlpool - real estate financial structure decision model that ranks financial options based on defined characteristics and goals
Goals - Financial Criteria
Source: Whirlpool Corporation, Lee Utke, CoreNet presentation
FINANCIALSTRUCTURES & RULES
SCORING MATRIX
P&L ImpactEarnings from Continuing Operations10 Yr. cumulative. GAAP Income
Profitability RatiosEPS on a Diluted BasisOperating Profit/Net SalesReturn on AssetsReturn on EquityReturn on Total Capital
Strategic Importance Core Non-CoreProperty Characteristics Facility Size Replacement Cost Degree of Company Specific TI’s Market Value / Replacement Cost
Operational Issues Length of Commitment Certainty of Occupancy Flexibility: Control of Environment Liquidity
FINANCIAL MEASUREMENTS
Market Issues Market Size Supply & Demand Value & Rent Trends Economic Growth Whirlpool Occupancy/Total Market Space
RANKINGS
OTHER CONSIDERATIONSPROPOSED ACTIONS
NON-FINANCIALFACTORS
Cash FlowsNet Present Value After Tax
Balance Sheet Impact Total Debt to Capital Capital Requirement
Credit RiskEBIT / EBITDA Interest CoverageFree Cash FlowsFunds from Operations/Total Debt
Discussion: What is your CFO interested in? Why are many CFOs so focused on accounting earnings?
Discussion: What is your CFO interested in? Why are many CFOs so focused on accounting earnings?
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Strategic ActivitiesBlue and green activities are part of strategic planning and portfolio management. Yellow activities are tactical.
Metrics and Data – Supply and Current Usage
Portfolio Overviews and Metrics Detailed Data
Business Requirements – Demand
Corporate StrategyBusiness Unit Demand Forecasts and Requirements
Organizational Framework
Goals
Organization
Procurement
Technology
Copyright © 2008 Critical Core, Inc.
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Data and Metrics
“The single most important reason why corporate real estate and facilities managers fail to have an influence in the boardroom is that they lack the information to demonstrate that they are doing a great job.”
Christopher Hedley,Occupiers Property Databank, UK,“Getting to grips with information”
Copyright © 2008 Critical Core, Inc.
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Possible Metrics – Balanced Scorecard
• WPR / CRE expense / revenue, corporate expenses
• WPR / CRE expense / persons housed
• WPR / CRE expense / demand driver
• CRE impact on balance sheet
• Cost saving achieved through initiatives – consolidation, flexible officing, outsourcing
• WPR / CRE expense by business group
• Business revenue / real estate supply measure – revenue per store
• Client satisfaction measure
• Workplace quality measure
• Marketing, brand, image value
• Business continuity measure, space concentration
• Project completion time • Disruption, churn rates
• How readily can portfolio contract or expand to meet changing needs – time and cost measure
• WPR / CRE expense / SF (including sub-components and additions for cost of capital
• WPR / CRE expense / seat
• CRE overhead expenses / persons housed
• Cost per move, seat reconfiguration, other real estate activity
• Contract rent relative to market rent
• Utilization rate • SF / persons housed
• SF / other demand driver (engineer, clients, product, etc.)
• Persons housed / seat
• Share of FTE or workstations moved per year
• Forecast of workload
• Share of authorized projects completed
• Planning results vs goals
• Commitment duration (lease vs. own, lease term distribution)
• How much can be disposed or added within time period
• WPR / CRE expense / other demand drivers
• SF / Seat
• Share of space devoted to site services, team space
• Forecasted percentage change in space by classification
• Share of persons served by work type (traditional, mobile, telework)
• SF managed / planner
• Persons housed / planner
• Measure of ability to switch space between usage and types
• Share of expensive fixed improvements in core space
CEO, CFOBusiness Group
Executives CRE ExecutivePlanning and
Strategy Team
StakeholdersMetrics
Categories
Financial Cost
Customer Asset Quality
Volume
Process and Service Quality
Process Flexibility
Copyright © 2008 Critical Core, Inc.
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Strategic ActivitiesBlue and green activities are part of strategic planning and portfolio management. Yellow activities are tactical.
Metrics and Data – Supply and Current Usage
Portfolio Overviews and Metrics Detailed Data
Strategic Framework
Segment Portfolio
Portfolio Initiatives
Functional Guidelines
Term Lengths
Financing Strategy
Portfolio Metrics Targets
Business Requirements – Demand
Corporate StrategyBusiness Unit Demand Forecasts and Requirements
Organizational Framework
Goals
Organization
Procurement
Technology
Copyright © 2008 Critical Core, Inc.
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Strategic Framework
Identify Space Categories and Clusters
Set Policies and Guidelines - Base on Desired Balance for Cost, Productivity / Quality, Risk, Speed
• Location Strategy
• Functional Guidelines
• Term Length Strategy
• Financing Strategy
Set Targets for Portfolio Metrics
Find Opportunities
Identify Portfolio Initiatives
• Alternative Officing, Shared Workspaces
• Sustainability
Copyright © 2008 Critical Core, Inc.
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Adding Value – Manage Risk and Expectations
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Uncertainty - Segment Financial Structure
Long-termleases
Short-term leases
Owned
Owned
Long-term leases
Short-term leases
Sq
uare
fee
t
Stable organization High tenant-specific TIs
Volatile organization Low tenant-specific TIs
Design to accommodate Demand Volatility and Tenant-Specific Improvements
OptionsOptions
Source: CoreNet EDP Performance Portfolio Management
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CoRE 2010 Resource Classifications
Definition Examples
Critical Core
Long or indeterminate duration, essential to the business, not easily replaced
Data centers, corporate headquarters, R&D labs, production facilities or retail bank locations
Key
Shorter-term duration, currently strategic yet may be disposable in the longer term
Regional offices, call centers, sales offices or back-office operations
Fluid
Low strategic value and no significant duration
Special projects, emerging markets, start-up organizations or short-term contract space
Captive
Low strategic value but significant financial, geographic, political or pre-existing risk / obligation
Specific use, legacy buildings that have high infrastructure, cleanup and / or reconfiguration costs
Segment portfolio – different duration strategies for different property types.
This classifications reflects both business variability and the extent of tenant specific improvements.
Source: CoreNet Global, Core 2010
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Questions
• What have been your most successful portfolio initiatives?
• What risks are you most concerned about and how can you develop portfolio policies to address them?
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Adding Value – Identify Opportunities
• Centralization economies of scale
• Different kids / business units / properties to manage
Copyright © 2008 Critical Core, Inc.
• Identify where additional attention is needed
• How do you find them?
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Metrics – Find Opportunities
• Total annual cost
• Total rentable square feet
• Cost per worker
• Vacancy rate
• Usable square foot per worker
• Rentable square foot per worker
• Cost per rentable square foot
• Savings per 1% vacancy rate reduction
• Savings per 20 usf / worker density reduction
• Potential productivity increases?
Thousands of numbers?
If a picture is worth a thousands words, could a picture be worth a thousand numbers?
Copyright © 2008 Critical Core, Inc.
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Portfolio Visualization – Excess Space
Which properties need attention? – ABN AMRO
Source: Rob Wright, ABN AMRO, “How to challenge the international space budget,” Papers from the Sixth OPD Conference
square meter per workspace
euros per square meter
size of circle – volume of space in sq meters
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Portfolio Visualization – Extra Cost Total Cost, Worker Density and Lease Rate
Notes: Size of bubble equals total annual cost. Gross lease rate excludes any additional TI costs.
M2
N2
S1E1
F2
N1
P2
F1
P3
J1
C1
T1
P1
I1
M1
Gross Lease Rate
250
$10
200
400
300
350
150
$15 $20 $25 $35$30
Lease Type
North
Other
Delegated leases
PBS Lease – Gov’t space
PBS Lease – Agency space
Lease Location
USF / Worker
P4
Copyright © 2008 Critical Core, Inc.
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Portfolio Visualization – Early Renewals
Which properties need attention? - CP Analytics
Source: CP Analytics
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Portfolio Visualization – Software Solutions
Software solutions
• Excel - recent versions
• PortView – no dates
• Gensight – broader approach, very expensive
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Questions
• What ways have you been most effective in identifying outliers?
• What metrics have been helpful?
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Strategic ActivitiesBlue and green activities are part of strategic planning and portfolio management. Yellow activities are tactical.
Metrics and Data – Supply and Current Usage
Portfolio Overviews and Metrics Detailed Data
Strategic Framework
Segment Portfolio
Portfolio Initiatives
Functional Guidelines
Term Lengths
Financing Strategy
Portfolio Metrics Targets
Asset and Capital Plans
Portfolio Activities
Find Opportunities
Cluster / Sub-Portfolio Plans
Long-Term Plans
Support Immediate Business Changes
Disaster Recovery Plans
Business Requirements – Demand
Corporate StrategyBusiness Unit Demand Forecasts and Requirements
Organizational Framework
Goals
Organization
Procurement
Technology
Copyright © 2008 Critical Core, Inc.
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Adding Value – Coordination
• Working as a team is more successful than operating individually
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Adding Value – Coordination
Investment portfolio
• Diversification
• Risk management
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Coordination - Segment Financial Structure
Long-termleases
Short-term leases
Owned
Owned
Long-term leases
Short-term leases
Sq
uare
fee
t
Stable organization High tenant-specific TIs
Volatile organization Low tenant-specific TIs
Design to accommodate Demand Volatility and Tenant-Specific Improvements
OptionsOptions
Source: CoreNet EDP Performance Portfolio Management
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Coordination – Staggered Leases and Options
Cancellation option for Lease F
Square Feet (millions)
Owned Space
4
2
2004
2008
Building planned for owned land
1
2006
2010
3
Leased Space
Expansion option for Lease C
Bldg A
Bldg B
Lease D
Lease C
Lease ELease F
Lease G
Space required with forecasted
growthLease H
Space required with high-growth
scenario
Space required with low-growth
scenario
2012
Plan for a range of outcomes. Flexibility can be achieved through options and staggered lease expirations.
© Copyright 2007 Critical Core, Inc. Copyright © 2008 Critical Core, Inc.
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Coordination - Clustering
0
50
100
150
200
250
300
350
400
1 2 3 4
Time Periods
'00
0 S
qu
are
Fe
et
0
50
100
150
200
250
300
350
400
450
Maximum Space Required Over Time
'00
0 S
qu
are
Fe
et
Declining BU
New BU C
New BU B
New BU A
Variable BU
Stable BU
Corporate
Clustering reduces space requirements and mitigates risk
GE CEO Immelt HBR Interview – “fewer rooftops”
Clustering GroupsIf groups are in one building or in a cluster of buildings, as one group shrinks another group
can absorb that space.
Individual SpacesIf each groups has its own location, then each group needs enough space to accommodate
its maximum requirement. In total, more space is required.
Copyright © 2008 Critical Core, Inc.
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Portfolio Optimization – Regional / Campus PlansRelocate business units to reduce life-cycle costs (leases, operations, construction, relocation) while improving or maintaining adjacencies and satisfaction with space.
Facility 2
Facility 3
Facility 1
Facility 4
Business Unit A
Business Unit B
Business Unit C
Business Unit D
Vacant
Number of business units into buildings
1 into 1
2 into 2
3 into 3
4 into 4
4 into 6
5 into 8
6 into 10
Number ofpossible solutions
1
4
27
256
1,296
32,768
1,000,000
Copyright © 2008 Critical Core, Inc.
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Questions
• What have your challenges been for mergers, acquisitions, growth consolidations and campus plans?
• How have you addressed them?
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Adding Value – Portfolio Optimization
Portfolio optimization techniques for different segments• Not just portfolio improvement
• Manufacturing, warehouse and distribution – supply-chain optimization and logistics
• Retail and service locations, cell towers – coverage / service
• McDonalds and Starbucks
• Sprint MOSAIC
• Regional and campus plans – Core Planning
• Geographically-distributed “fungible” locations – call-centers, back-office – Core Planning
In tough times, look for ways to find lower costs without reducing productivity
Copyright © 2008 Critical Core, Inc.
Coordination through portfolio optimization • Consider all resources – CRE, HR, IT
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Portfolio Optimization - Coverage
Deploy locations with minimum costs without exceeding service requirements - maximum time for customers to reach retail location or maximum time for service personnel to reach clients.
Sprint MOSAIC
Results:
• Reduced drive times for customers or service personnel
• Lower real estate and transportation costs.
Source: Sprint Nextel, CoreNet Presentation Fall 2007
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Sample Situation – What do you do?Feasible Locations
• Specified by group• No new space
Adjacencies• Corporate in one building – Sen Exec, core Fin, core HR Admin• For business units B and E – if Management in building, also some
Engineers• Some Sales in same building as Corporate marketing
Results• Leave NS Old vacant• Reconfigure SE Call Center to add seats
Copyright © 2008 Critical Core, Inc.
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Comprehensive ConsiderationGrowing importance of HR and data and telecom infrastructure issues.
Business Group Existing Conditions Employee locations in facilities, regions, cities,
countries Special-use spaces (labs, trading floors, etc.)
Business Group Requirements Workspaces required in future by year and type Shared workplaces Special-use space future requirements Feasible and preferred locations Adjacency requirements IT and telecom infrastructure required Amenities - parking, security, etc.
Real Estate Existing Conditions Facility sizes and configuration Lease rates, operating expenses, expiration dates,
options Accounting values - depreciation, book value Space efficiency – rentable sf, usable sf, density Amenities - parking, security
Real Estate Opportunities Feasible new locations and costs Market rents and trends Sublease benefits and costs Purchase, construction and sale prices
Employee Costs Wage rates and trends Relocation costs Hiring, training and severance costs
Relocation and Improvement Costs Reconfiguration costs (demolition, construction,
furniture, wiring) Required capital improvements
Occupancy Strategy Location occupancy by time period Leasing, purchases, subleases and
sales Construction and infrastructure Relocations
Annual and NPV Costs By geography, business unit,
facility By capital and expense Cash and GAAP Lease rates, operating expenses Purchases, sales, and subleases Construction costs
Performance Metrics Projections Cost per worker Cost per square foot Vacancy rates Space utilization
Scenario Comparisons Sensitivities to growth and cost
assumptions Costs of alternative business
requirements Impact of alternative workplace
strategies
Inputs OutputsCore
Planning
Copyright © 2008 Critical Core, Inc.
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Optimization ModelingPortfolio optimization - project steps are similar to standard spreadsheet analysis but faster, more comprehensive, and find lowest cost solution.
Fit Cost
Fit
Collect and Organize DataIdentify Goals
Collect and Organize DataIdentify Goals
S
Optimization search
Lowest cost solutionthat satisfies requirements
S
Lowest cost solutionthat satisfies new requirements
Cost
Fit Cost
SLowest cost solutionthat satisfies new requirements
Time
Spreadsheet Approach
Core Planning Approach
2 hours to 2 days
1 to 6 weeks 10 to 30 minutes
1 day to 1 week, comprehensive analysis of hundreds of scenarios
Review and revise
Review and revise
Solutions Evaluated
Solutions Evaluated
Several days to weeks, limited number of scenarios
Copyright © 2008 Critical Core, Inc.
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Portfolio Optimization – Subjective Assessments
Optimal solutions - lowest cost for specified business requirements (green diamonds)
To assess qualitative considerations: • Change business requirements – horizontal axis• Identify cost difference – vertical axis• Assess whether additional requirements warrant additional costs
Core Planning Optimal Solutions
High Cost
Low Cost
Few Business Requirements
All Business Requirements
Feasible Boundary
Not Possible
Typical Planning Solutions
Req. A Req. B Req. C
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Solution – Reconfigure Desirable Space
Solution• Vacancy rate increases –
too costly to reconfigure
• Reconfigure to add seats
• Comprehensive analysis considers other spaces
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Reports – Occupancy over TimeCharts can show how building occupancy changes over time
• Each chart represents a building• Each bar in the chart is a year
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Intuitive SolutionNPV Savings: $50 million (6%)
Core Planning SolutionNPV Savings: $80 million (10%)
CC Project: National financial services firm Back-office consolidation to support merger
Employees: 14,000 initially with 10% reduction with mergerInitial locations: 18
New location required in NJ increases real estate costs and requires new hires.
Other consolidations reduce real estate and labor costs.
Core Planning locations have more opportunities for retraining existing employees resulting in additional savings with fewer layoffs (1,127 vs 2,127 in Intuitive Solution). Leads to $20 million in additional savings.
Careful consideration of real estate costs leads to $20 million in additional savings.
Portfolio Optimization – Back Office, Call Centers
CBRE LAG Project: National financial services firmCall center reorganization post mergerRelocate activities to match labor skills in location
CBRE LAG Project: National financial services firmCall center reorganization post mergerRelocate activities to match labor skills in location
Copyright © 2008 Critical Core, Inc.
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Adding Value – Portfolio Optimization
Beyond spreadsheets
• Find lowest cost solution that satisfies requirements – 5% - 10% of portfolio costs as additional savings
• Traditional solutions – lower vacancy rates and vacate short-term leases – may not be optimal
• Comprehensive consideration
– Real estate and business needs at the same time
– All of relevant portfolio rather than just tactical requirements
– Long-term implications of initial moves
– Long-term requirements by planning group, making sure to have the right space not just enough space
• Revise recommendations quickly as business plans change
• Provide information needed to diffuse political situations
• Enhance credibility with answers prepared for what-if questions
Copyright © 2008 Critical Core, Inc.
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Strategic ActivitiesBlue and green activities are part of strategic planning and portfolio management. Yellow activities are tactical.
Funding Requests / Budgets
IndividualActivities
Operations
Leasing / Purchases
Purchases / Sales
Sale-Leasebacks
Construction
Metrics and Data – Supply and Current Usage
Portfolio Overviews and Metrics Detailed Data
Strategic Framework
Workplace Goals CPQRS
Segment Portfolio
Portfolio Initiatives
Functional Guidelines
Term Lengths
Financing Strategy
Portfolio Metrics TargetsAsset and
Capital Plans
Portfolio Activities
Find Opportunities
Cluster / Sub-Portfolio Plans
Long-Term Plans
Support Immediate Business Changes
Disaster Recovery Plans
Business Requirements – Demand
Corporate StrategyBusiness Unit Demand Forecasts and Requirements
Organizational Framework
Goals
Organization
Procurement
Technology
Copyright © 2008 Critical Core, Inc.
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Workshop Summary – From Tactical to Strategic
Copyright © 2008 Critical Core, Inc.
• Long-term perspective• Scenarios not just forecasts – 1 in 100• Manage risk• Manage expectations
• Portfolio perspective – economies of scale• Identify opportunities• Pictures not just numbers
• Portfolio perspective – coordination• Consider all costs – RE, capital improvements, IT, HR• Stagger leases and options• Clusters provide risk management – “fewer rooftops”
• Know your business
• 10% CRE to 2% labor – don’t reduce cost too much