Inviting Real Estate to the Strategy Table

Results of the Accenture Global Real Estate Survey

Real estate is a massive investment, representing hundreds of millions of dollars of assets for organizations and major corporations. These large and stillgrowing portfolios are obvious targets for the efficiency initiatives some other business functions have largely completed by now. Ignoring such a large portion of the income statement and balance sheet may leave tremendous opportunity for strategic cost reductions for most major corporations uncovered.

Real estate portfolios may represent as much as 10 percent of the operating expenses and 40 percent of the balance sheets for large corporations. As such, real estate represents one of the last big concentrations of cost many of these companies still need to tackle. Inefficiencies are often evident in real estates large staffs, decentralized decision making, and the lack of robust performance management programs (see the sidebar Global real estate challenges). A recent global Accenture Real Estate survey suggests that many organizations still have significant holdings of owned properties despite the benefits of leasing facilities, such as increased flexibility. Limited visibility into portfolios may be driving the reason companies own rather than lease. Some companies do not have easy access to even the most rudimentary information about their portfolios for example, what they own, how much these facilities cost, which of these facilities are performing well, which functions are assigned to the space, and to what extent those functions are using the assets. Why, then, have companies been so slow to drive costs out of real estate? Many would argue with such an assumption, claiming that they are addressing the real estate spend with tactics such as improving workplace design. Yet, in truth, the hard work remains ahead for many large organizations. To effectively manage their real estate, these companies can benefit from first crossing multiple gaps: an organizational alignment gap, a technology gap, and a capability gap.

Real estate organizations are often deeply buried in the hierarchy of the business. Senior real estate officers are typically unwilling to rock the boat. Those who are willing are seldom able to drive significant change because they do not have the authority or budget to do so. Whatever their position in the hierarchy, senior real estate officers are often not provided with the capabilities they need to prioritize the opportunities to improve their portfolios. Despite the signficant technological advances of the last 10 years, these officers lack the technology tools to understand their portfolios and respond to global, regional or corporate trends. They are too often challenged to manage decentralized portfolios with non-standard processes and disparate tools and applications. Therefore, it may be difficult for them to compare their portfolio expenses in regions with, for example, high versus low costs, or to identify geographical areas where the company is growing or declining. There is a compelling opportunity for companies to look hard at these expensive assets that are core to the business, reflects its brand and can have significant influence over customers, investors and employees. Finally, it may be real estates turn to both define and align on the value the function provides to the business. One catalyst for this work could be the CEO or the senior real estate officer demanding strategic alignment and proof of cost efficiencies. Another could be a real estate officer willing to push the strategic line. In either case, real estate functions face a multiyear transformation that will require strong sponsorship from the C-suite. Further, they will often need partners in the organization which requires speaking the language of the business.

Global real estate challenges

Globally, survey respondents identified the largest challenges pertaining to their portfolios as: Aligning real estate strategy with broader business strategies (Finance, HR, or IT transformation programs); this issue has been top of mind for a decade Pressure to reduce costs

83 percent

80 percent 76 percent

Overgrown portfolios creating grossly underutilized assets Lack of transparency and insight across the portfolio to support decision making

60 percent

Base = Total Sample, excludes Dont Know Responses Source: Accenture Real Estate Survey, 2012

Exploring the gaps in real estate

Accentures 2012 Real Estate Survey encompassed 181 companies with at least $5 billion in revenue, and a minimum of 10 million square feet in their organizations real estate portfolio, across industries and geographies (North America, Europe, Latin America and Asia). These results validated the three key observations about real estate trends that we outline here. is usually a director or vice president. This situation may reflect a common attitude regarding the relative lack of importance of corporate real estate and of the senior real estate officers role. Unlike other functions, there is not a standard home for real estate in the typical corporate hierarchy. Many companies lack a strong vision of how real estate creates value; this can breed ambivalence about where to place the function. Senior real estate leaders are often not hired with a C-suite capability in mind; they have frequently grown up in the function and serve as subject matter experts rather than as strategic managers. Our survey results show that, in Europe and North America, 40 percent of senior real estate officers report to the CEO, nearly 20 percent each to the CFO and COO and the remainder to the CIO and Senior Vice President of Human Resources. In Latin America, 37 percent report to the CFO and 28 percent to the COO; in Asia, 30 percent report to the CIO and 28 percent to the CFO (see Figure 1).

The real estate function is not aligned with the broader business
Senior real estate officers are often disconnected from other business leaders in global companies. They can be left out of strategic discussions, typically isolated many layers deep in the organization. In the Accenture study only 25% of the respondents had a C-level title and that was only in the case where real estate was managed directly either by the CFO or CIO. This is consistent with Accentures broader experience in the market place where the head of real estate

Figure 1: Real Estate reporting structure Who does the head of real estate report to in your organization? (Please select one answer only) * By region

30%

21% 40% 40% 37% 24% 21% 19% 14% 5% 2% North America 28% 12% Latin America

22%

28% 19% 17% 5% Global 2% 22% 9% 2% Europe 2%

28% 8% 30% 2% 10% 2% Asia

Chief Executive Officer (CEO) Chief Financial Officer (CFO)

Chief Operating Officer (COO) Chief Information Officer (CIO)

SVP of Human Resources Other

Base = Total Sample, excludes Dont Know Responses Source: Accenture Real Estate Survey, 2012
3

These different placements imply varying opinions regarding the real estate value proposition. For example, rolling up to HR suggests that real estate is a tool of culture. Rolling up to the CFO suggests that real estate is an operational cost, while rolling up to the COO suggests that the function provides a pool of resources for operations. The net effect of any of these placements on real estate frequently is the same. For example, leaders without real estate expertise are often making decisions about real estate. Senior real estate officers can be boxed into roles as followers, reactively delivering against requests. Because these real estate leaders are not plugged into the foundational business strategy, they can have no framework or context by which to prioritize requests or even to determine what to offer the business. Even though they are under pressure to cut costs, they often have little direction on how to do that to maximize the assets. The nature of the function can further complicate the issue. Making changes to large real estate portfolios is similar to turning an oil tanker around;

nothing happens quickly. The more inflexible the portfolio and costly the changes (from both a financial and organizational point of view), the less likely that real estate leaders may be willing to spearhead change. Asset ownership is a case in point (see Figure 2). In the past, large organizations purchased real estate because of the solid return on investment. In the current climate, that business case has largely evaporated. According to our study, companies on average own 62 percent of their corporate facilities. The proposed new Financial Accounting Standards Board rules will eliminate the distinction between capital and operating leases and will require leases to be accounted for as assets and lease payments as liabilities versus expenses.1 Even so, companies can gain greater flexibility in their operations by leasing as opposed to owning property where they maintain facilities unless property management is their core mission (or high-performing facilities that require significant investment are critical to their success).

Real estate is a massive asset; therefore, improved real estate portfolio management could provide companies with a significant return. Involving real estate leaders in the creation of a vision to strategically control this undermanaged and often underutilized asset could provide the necessary framing for improved decision making. Ultimately, companies could be well served by recognizing the real estate value proposition, as both a value protector and a value creator, as well as the role of the senior real estate officer as a key member of the management team.

Real estate organizations, unlike their peers, lack a progressive business model
Real estate is often times a generation behind in adopting business models that align with current global market realities (see the sidebar Progressive business models). We see real estate functions moving slowly in one direction or the other, based on the level of current centralization in the function.

Figure 2: Asset ownership What type of facilities comprise the portfolio and generally what percentage of them are owned or leased?
% Own Overall (%) Average: 62% 8% 33% 24% 32%

Corporate 0%

8%

1% to 25%

26% to 50%

51% to 75%

76% to 100%

Base = Total Sample, excludes Dont Know Responses Source: Accenture Real Estate Survey, 2012

1. Financial Accounting Standards Board, http://www.fasb.org/jsp/FASB/ FASBContent_C/ProjectUpdatePage&cid=900000011123

4

Progressive business models

As organizations continue to try to reduce administrative costs, they have begun to examine real estate as one of the last large contributors of cost that has yet to be addressed. Many of these organizations recognize that, while real estate can be a value protector, it can also be a value creator. Armed with this perspective, they differentiate between what they consider strategic high-value activities and transactional activities and then centralize the strategic activities into a center of excellence. The transactional activities often stay at the local level. In some organizations, however, the transactional activities are shifted into a shared service center where they are combined with similar (not real estate) efforts. Recently organizations have begun to experiment with other more progressive operating models. Two that are particularly interesting, both of which leverage third parties to reduce real estate costs, are the global integrator model and the business process outsourcing (BPO) model. With the global integrator model, organizations turn to a third-party global integrator to oversee the transactional activities performed by other vendors. The global integrator takes on the responsibility to reduce costs and optimize service level agreements (SLAs), often by leveraging technology and governance to increase transparency between vendors that operate in different geographies. With the BPO model, organizations often are outsourcing real estate in conjunction with other administrative functions. The organization may continue to operate a center of excellence to manage the most strategic real estate activities, but overall the entire real estate function becomes a service provided by a third party.

Figure 3: Examples of progressive business models

Organizations differentiate between strategic, high-value activities & transactional activities & then centralize the strategic activities.

Center of excellence

Organizations shifts transactional activities into the shared service center where they can be combined with similar non real estate efforts.

Shared services

Global integrator

Organizations look to a 3rd party to oversee the transactional activities performed by other vendors, relying on the 3rd party to manage the reduction of costs & the optimization of SLAs.

Organizations outsource transactional as well as select strategic activities to a 3rd party to reduce costs, optimize services levels, & allow focus on core business.

Business process outsourcing

Real estate functions that are already centralized are showing more interest in moving to a shared services model. As they do so, they shift transactional activities to others along with the aim of reducing costs and optimizing SLAs by combining these efforts with similar efforts outside real estate. Real estate functions closer to the decentralized end of the spectrum are gravitating toward a global integrator model. As a result, they rely on a vendor partner to centralize operations, increase portfolio transparency, reduce real estate staffs, consolidate other service providers and reduce costs while optimizing SLAs. Our survey shows that many large companies have been slow to leverage vendors, regardless of the pressure to reduce costs even though real estate is often not a core element of these companies business. Overall, the majority outsource less than 50 percent of their real estate functions to third parties, and few outsource more than 75 percent. The Accenture research indicates that healthcare (51 percent), resources (42 percent) and federal agencies (45 percent) maintain the highest average of real

estate employees, versus contractors, primarily based at headquarters. Most other industries keep the majority of their real estate employees in the field, with retail and banking reporting the biggest gaps between field and headquarters workforces; with retail having 59 percent in the field and banking 64 percent at headquarters. Geographically, real estate function employees are primarily located in the field in North America (63 percent) and in headquarters in Latin America (64 percent). Europe and Asia use a more balanced approach, with a 6.5 percent differential between employees located in the field and at headquarters. While many organizations have been slow to change, more than 50 percent of respondents confirmed their intent to transform their real estate organization relative to process standards, technology initiatives, workforce mobility and green initiatives (see Figure 4). As an example, innovative mobility options under consideration include bring your own devices to work and using facilities such as retail banks as satellite hoteling locations for geographically dispersed workers.

Figure 4: Real Estate function initiatives planned in the next two years? Which of the following initiatives is your real estate function planning in the next two years? (% Select the three most important initiatives) Global
Implementing process standards to increase productivity Investing in real estate technology to improve transparency and insight across the portfolio Implementing a more mobile way of working Implementing green initiatives to reduce carbon footprint Reorienting portfolio to highest and best use (acquire, divest, or re-purpose activities) Outsourcing key real estate management activities and consolidating vendors Centralizing real estate management activities 12% 56% 56% 53% 53% 48% 22%

Base = Total Sample, excludes Dont Know Responses Source: Accenture Real Estate Survey, 2012
7

Measuring operational efficiency is in the infancy stage

For many business functions, the decision-making horizon has shortened to a fraction of its former length, due to sociopolitical and economic instability, globalization, mergers and acquisitions, increasing competition for talent and customers as well as technologically enabled, justin-time project-based cultures. The days of creating a 10-year plan, printing it and placing it on the shelf are in the rearview mirror for many. In order to be effective against the frenetic pace of change, real estate leaders can benefit from being agile, often measuring and refining their strategy not merely reactively but proactively, anticipating the internal and external conditions that can create the need for change. Eighty-nine percent of respondents identified market volatility as having a moderate or high impact on their real estate function, with a particularly high impact in consumer goods and services. Increasingly, real estate organizations are being tasked with improving performance of the portfolio and forecasting demand and associated operational costs. The homegrown technological systems that real estate functions have traditionally used may not be up to the task. They typically do not create transparency into the portfolio, cannot effectively scale to meet continuous improvement goals or keep pace with rate of growth or contraction, and do not support standardization or continuity. Lack of integration can compound the problem. Different real estate business units handle services such as facilities, leasing, workplace design, facility management and maintenance and project management; and their applications are not integrated. This means there can be separate homegrown systems (or, in many cases, manual processes) for leasing, workplace planning, tracking occupancy and utilization, operations and maintenance.

Regardless of the technological sophistication in other business functions, a full 75 percent of real estate functions participating in the study have not implemented integrated systems (see Figure 5). In other words, at those companies, data is not centralized; there is no master data management. Further, there are no management tools that can mine data in real time to provide a full view of the portfolio or correlate key management indicators. The risks associated with this approach, given the size of the assets involved, can be nothing less than monumental. Real estate leaders are making decisions on transactions valued in the hundreds of millions of dollars often without knowing what assets they have, where assets are underutilized or the condition of the assets. Figure 5: Real Estate technology landscape

Even Fortune 100 companies frequently rely on manual data processes to collect data and reconcile conflicts. Instead of a quick scan of a visual dashboard of portfolio performance or trends, many real estate leaders are spending their time calling regional resources. These resources may define assets differently, which can open the door to under- or overestimating costs. Direct comparisons are often difficult, and it can be easy to lose whole buildings. You cannot measure well what you do not know you have. Real estate organizations wanting to achieve strategic management objectives and senior real estate officers looking to gain a place at the strategy table can benefit from using data visualization and analytics tools as a staple of inhouse real estate management (see the sidebar Data visualization and analytics tools for real estate).

What is the current state of the real estate technology landscape in your organization? (Please select one answer only) Global

Global 8%

30%

36%

15%

8%

3%

Customized real estate enterprise data warehouse implemented Integrated workplace management system implemented with ERP integration, either as part of ERP or integrated into ERP Integrated workplace management system implemented Integrated workplace management program underway, but not implemented Some automation, but largely point solutions with little integration Little automation, primarily offline Excel worksheets, created and consolidated manually Note: Due to rounding, total may not equal 100 percent.

Base = Total Sample, excludes Dont Know Responses Source: Accenture Real Estate Survey, 2012

Data visualization and analytics tools for real estate

Effective management requires well organized data. A large, complex portfolio of real estate is no exception. Managers can benefit from analytics tools that consume massive amounts of disparate data so they can uncover insights regarding the current usage of real estate assets and accurately predict business needs. High-performing real estate organizations are implementing tools such as that shown in Figure 6. These provide visualization of how data in one segment of the business correlates to other demands on the portfolio. Dashboards provide repeatable views of key indicators and also allow intuitive drilldown to see underlying issues needing attention.

Figure 6: Real estate visualization tool

Workplace utilization 70 % of population 60 % Usage 50 40 30 20 10 0 Staff housed Seats allocated Seats utilized 70 60 50 40 30 20 10 0 Jan Feb Mar

Energy use by department

Apr

May Jun Jul Time period

Aug

Sept

Oct

Nov

10

The Four Areas of Real Estate Value

In Accentures experience, many companies tend to focus on increasing the efficiency and reducing the cost of the portfolio. But such a singular focus can lose value over time: Organizations can save only so much before eliminating the portfolio in its entirety. High-functioning programs apply a balanced perspective that aligns initiatives across the four areas of real estate value, considering real estate both a value protector and a value creator. (See Figure 7.) estate as a tool of performance. They split accountability for real estate among heads of business units, they make location-specific decisions without taking a global perspective, or they use many outsourcing providers with a poorly defined governance structure. Real estate is often the largest manifestation of an organizations culture and, as such, can significantly impact worker expectations and engagement. Workplaces can influence what employees think and say about their employer, and they can enhance a companys brand and help attract and retain talented employees. The extent to which workplaces are tailored to local cultures and work styles can considerably affect individual and team satisfaction.

Engagement

Efficiency

This is not just about finding space at the right price. A broader perspective includes determining the right amount of space required by the organization and defining the right type of space needed to support an evolving workforce, where the space is well utilized and valued. Companies now have an opportunity to reduce space and reallocate workspaces from the individual to a team, a function like R&D, or even a space where sales teams can interact with customers. Real estate often the primary arena where work happens can significantly impact behaviors. The workplace may have a substantial influence on individual and team performance and it can help or hinder collaboration, innovation and time to market. Many existing real estate organizational structures are not optimal for positioning real

Environment

Effectiveness

Buildings can be one of the largest contributors to pollution as well as a large contributor to an organizations carbon footprint. Real estate can be rationalized when redundancy or underutilization exists, by establishing flexible arrangements that avoid gaps between rentable and usable space, or by implementing an alternative workplace strategy. Also key are programs to help improve energy management and, where applicable, energy procurement. All of these efforts could assist in improving sustainability performance.

11

Figure 7: Four Areas of Real Estate Value

We focus on effectiveness, efficiency, engagement, and environment... Right people doing the right thing at the right cost Lean solutions and operating models emphasizing life-cycle costs over first costs Recognizing and rewarding the right behaviors

Bu sin es s

gy ate r t s

Hum an ca
tegy tra ls ta pi

High performance individuals and teams

A range of fixed and variable cost options allowing increased portfolio flexibility

1. Effectiveness Connecting people and ideas 3. Engagement Changing the culture

2. Efficiency Leveraging real estate

Lean solutions and operating models

ls

tra

LEED/Green solutions

teg

n ech

ol o

str

ate

gy

Managing health and safety

4. Environment Lowering the carbon footprint

Managing portfolio information to drive efficiency & effectiveness

Rightsizing the RE footprint

Env

ir o
nm

en

ta

Batching work orders and driving user satisfaction

Database reporting increasing visibility into pain points and value drivers

12

13

A Call to Action
To move from a transactional to a strategic vision of real estate, companies can take the following three steps, which align with the key observations about real estate trends we have discussed here.

Step 2: Increase Step 3: Implement a transparency in the portfolio progressive business model
As we noted earlier, companies cannot measure well what they do not know they have. For many companies, the time is long past when manual data processes were sufficient to manage their real estate portfolios. They urgently need to develop the processes to gather and maintain portfolio data, invest in technology to store and analyze portfolio data, and develop performance metrics to gauge the performance of the portfolio. Standing on this foundation, companies can implement analytics capabilities in an effort to improve their real estate forecasting. Companies can benefit from continuing their evolution to a progressive business model. The rationale for the choice of model can be socialized internally and with the executive team. That work can support the creation of a performancebased culture focused on efficiency. (See the sidebar The Four Areas of Real Estate Value.) With that foundation in place, companies can move on to optimize how portfolios are managed, serviced and financed as well as how to centralize control of the portfolio and service management.

Step 1: Align to the core business strategy

To do so, companies would define the value of the real estate organization and the role that it will play. Those decisions can enable them to rationalize real estate portfolios around key organizational functions as well as to align where real estate reports in the organization. They may also be able to identify, prioritize and realize opportunities to optimize the portfolio relative to the organizational goals and objectives.

14

About the authors

Athena Reilly is a managing director in Accenture Management Consulting and is the global lead of the Accenture Real Estate Solutions practice and is responsible for the end-to-end real estate lifecycle management capability development. She specializes in real estate strategy, operating model and organization design, facility management best practices, real estate processes, and performance measurement. Athena has assisted a number of Fortune 500 organizations and public service entities to transform their real estate function and portfolios into highest and best use capabilities and assets. Athena has been in management consulting for over 14 years. Athena has a BS in Writing and a MBA with an emphasis in Finance, attending Utah State University. Jim Barlow is a senior manager in Accenture Management Consulting and leads the Process & Technology team in the Accenture Real Estate Solutions practice. He has 20 years of experience in real estate management tools that spans both the commercial and public sector, and as a practitioner as well as consultant. He has developed custom technology solutions and has been a thought leader through the evolution of modern business software tools. Jim brings a unique blend of domain experience with an understanding of the core business need, and the technical capabilities to define, lead and manage enterprise-tier systems implementations for many of todays largest and complex real estate portfolios. Abby Levine is a senior manager in Accenture Management Consulting and is part of the Accenture Real Estate Solutions practice and assists clients in leveraging their investments in real estate portfolios to support their broader business strategy. She specializes in real estate strategy, workplace strategy, portfolio optimization, and performance management. Abby focuses much of her efforts helping healthcare and life science companies to

optimize their real estate portfolios to drive cost savings and to reallocate assets to their highest and best uses. Abby has been in management consulting for over 18 years. Abby has a BA in Economics and a MBA with an emphasis in Finance, attending the University of Southern California.

Stay Connected
Join Us
Facebook http:// www.facebook.com/ accenturemanagementconsulting

About Accenture
Accenture is a global management consulting, technology services and outsourcing company, with approximately 259,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, 2012. Its home page is www.accenture.com.

Follow Us

Twitter - http://twitter.com/ accenture_fep

Watch Us

YouTube - http://www.youtube. com/accenture

Connect With Us

LinkedIn - http://www.linkedin. com/company/accenture

About Accenture Management Consulting, Finance & Enterprise Performance

Accenture is a leading provider of management consulting services worldwide. Drawing on the extensive experience of its 16,000 management consultants globally, Accenture Management Consulting works with companies and governments to achieve high performance by combining broad and deep industry knowledge with functional capabilities to provide services in Strategy, Analytics, Customer Relationship Management, Finance & Enterprise Performance, Operations, Risk Management, Sustainability, and Talent & Organization. Accenture Finance & Enterprise Performance consulting services help Finance organizations maximize the value they create for their enterprises. For more information, please visit us at www.accenture.com/fep.

Copyright 2013 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

12-3937_lc/11-5875