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Using the Recession to Embrace Organizational Change
OTHER PARTS OF THIS ARTICLEPt. 1: This PagePt. 2: Recalibrating the Portfolio, Revamping the Brand
Over the past few months, the prevailing wisdom has been that a weak but definitive economic recovery is underway. The stock market vacillates with short-term news; overall it has slowly moved upward from 50 percent to 70 percent of its height. Growth statistics for the last quarter have been mixed, but they are trending upward, in spite of little or no hiring or job creation. Unemployment figures remain high, but manufacturing indicators are improving.
For those who read the tea leaves, these indicators also seem to mark the bottom of the commercial real estate market. Real estate companies that track trends — such as some of the larger brokerage firms like Cushman & Wakefield, CB Richard Ellis and Jones Lang LaSalle — show the end of the steep slide in rent prices across the country. The last quarter has shown increasing commercial rents in the New York market, for example. Many facility managers have been waiting for this time; in the meanwhile they have been re-evaluating their real estate portfolios and making their plans for the future.
"Cautiously optimistic" is the mantra right now: We will not see big changes in course in the near future, but the planning and strategic thinking that has marked the last year or so will now start to bear fruit.
So how does an organization make critical long-term real estate decisions in this era of economic reset? The answer is to first examine internal corporate real estate strategies before making long-term decisions. The continued uncertainty of the market makes this an excellent time to pause and evaluate what an organization can do to hedge against making wrong long-term financial decisions.
Over the past several years, facility managers at large corporations have had to develop their own strategies for coping with the particulars of their unique situations. The most successful companies have used this period of relatively stagnant growth (or even shrinkage or retrenchment) as an opportunity for instituting positive change. They have accomplished this through strategic planning initiatives, maximizing resources while minimizing capital expense, and taking advantage of the down market to consolidate and rethink real estate requirements.
The three primary focus points for this kind of strategy range in scale from the micro level of examining and streamlining workplace standards and methodologies, to the macro level of looking at portfolio management, and finally, to the philosophical level of strengthening brand and morale through social responsibility in a broad sense.
One of the most productive areas for rethinking real estate needs has been the industry's gradual acceptance of a formerly radical concept: tying workplace standards to function rather than to hierarchy. In prosperous times, companies have little incentive for making this kind of institutional change in thinking, and fear of recruitment and retention issues made instituting change of any sort difficult.
Firms like L'Oréal, Bank of America, Fidelity, and Thomson Reuters have used the down time to embrace more streamlined workplaces with fewer types of offices and workstations to allow change and consolidation with minimal new construction. This process usually starts with a benchmarking study, allowing a firm in a particular market sector to compare its standards for workers with those of its competitors.
Along with the context of benchmarking comes an evaluation of current best practices. Readily available research on trends in the workplace from such organizations as the International Facility Management Association and CoreNet Global provide real estate and facility managers with researched case studies and statistics that demonstrate how space can be planned both more efficiently and more productively. An overriding issue that should be evaluated in this research stage is the question of the physical setting for the office worker: open plan, shared space or enclosed office.
Some firms, such as one international media company, or even institutions, such as New York City's government, have completely abandoned offices altogether, relying on a one-size-fits-all strategy for placing workers in a single type of workstation. This is clearly the most flexible of arrangements, allowing change to happen quickly and painlessly. This strategy also clearly lends itself to team building and collaboration, as communication is instant where there are no walls to separate individuals from each other. But care has been taken in these cases not to view this strategy as strictly a way of cutting real estate costs by putting more people in less square feet. Adequate space for meetings, formal and informal, and for private conversations and phone calls needs to be provided as an integral and significant part of open workplaces. The firms that take this kind of radical approach sometimes will not make exceptions for any staff member, from the CEO on down.
Other firms have taken a slightly less radical approach and kept one size of office in addition to a standard workstation. Sometimes this limitation in standards reaches up to just below the C-suite. But in instituting this kind of change, transparency and open communication are still prime drivers, and for L'Oréal, Fidelity or Bank of America, the relatively few offices that remain have clear glass partitions and are internally located to allow daylight to be distributed diplomatically.
This approach still gives firms the ability to move and change with little construction, so that consolidation can happen in a fluid and non-disruptive manner. During the course of consolidating five separate office locations to a new building in Berkeley Heights, N.J., L'Oréal USA's facility managers could respond to rapidly changing market conditions by restacking the new facility three times between the end of design and move-in without affecting the budget or the schedule.
Even within the environment of an ailing economy it has been important to carefully manage the implications of these kinds of major changes in space standards within a corporate structure. The greatest challenge for the real estate executive or facility manager comes not in the actual planning and implementation of a workplace plan but rather in managing the expectations of the staff who will be experiencing the change.
During these difficult economic times most people are happy to have a place to come to work at each day, but the physical workplace still defines their role in the organization. A synchronized program that blends an efficient workplace strategy with a top-down communication plan that explains the rationale for workplace change stands the greatest chance of making the transition successful.
Using the Recession to Embrace Organizational Change