Corporate Real Estate Impact on Enterprise Success

Corporate Real
Estate Impact on
Enterprise Success

A Research Study
By Dr. Barry Varcoe and Dr. Martha O’Mara
April 2011

Contents

1. Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

3. The Business View of Corporate Real Estate . . . . . . . . . . . . . 6

4. Research Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

5. The Sample . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

6. Findings: Fundamental CRE Management Practices. . . . . . . 13

7. Findings: Comparative Maturity of CRE Practices . . . . . . . . . 19

8. Final Thoughts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Appendix: Survey Content and Questions. . . . . . . . . . . . . . . . . . 32

About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

About Regus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Regus Global Report | Corporate Real Estate Impact on Enterprise Success | April 2011 | Page 2

1. Executive Summary
This research explores the relationship between the perceived maturity and capability
of Corporate Real Estate (CRE) practices and the economic performance of business
enterprises. It focuses on Fortune 500-sized organisations.

Business management and organisational studies have largely ignored corporate
real estate practices and their impact on performance. Where CRE and facilities
management practices are examined, the focus is more on the nature of the physical
assets, not how corporate real estate management practices might impact the
performance of the company. Previous studies have focused on:

` The capability and capacity of the real estate assets

` The workplace as an organisational ‘enabler’

` The (negative) impact the workplace can have on job satisfaction through poor
working conditions

` The changing nature of the portfolio of assets

` Alignment of real estate decision-making processes with competitive strategy, as a
visual representation of the organisation’s culture and image

The goal of this research is to document the range of corporate real estate management
practices currently in place at large companies, and to identify which of those practices
correlate to key financial performance measures. A survey questionnaire was used to
collect information about current CRE practices. Forty valid data sets were submitted.
In overall terms, the sample comprises:

` A total supported organisational head count of slightly more than 3.6 million people

` A total operational portfolio size of 221 million gross square metres (2.38 billion gross
square feet)

` A total operating budget under management of US$ 72.6 billion

The organisations are spread across a large number of industry sectors, but are
predominantly headquartered in the USA and the UK. Their financial performance
information was obtained from publicly available sources.

The research discovered significant correlations between six of the CRE practices and
enterprise performance measures, as illustrated in the table below. All of the correlations
were positive except for those relating to capital release strategies. No significant
correlations were found between the fourteen other CRE practices examined in the
survey and the economic performance measures applied.


The research was not able to establish causality within the correlations. Therefore the
identified relationships may be caused by these CRE practices improving enterprise
success, or by successful companies performing these tasks at a higher level.
Apart from ‘Continuous Improvement and Innovation’, all of the practices that
correlate are positioned at the lower end of the CRE practice maturity spectrum as
assessed by the survey respondents. This suggests that there is considerable room
for CRE managers and their companies to significantly enhance future performance
by investing more in those practices which correlate positively to an overall enterprise
economic performance.

Table 1: Correlation Summary

3 Year Net Sales/
CRE Practice RoA RoE Tobins Q
Growth Employee

Supplier management  
Management information  
CRE/HR/IT collaboration  
Serviced offices   
Continous improvement
and innovation 
Capital release strategy  


2. Introduction
Corporate Real Estate (CRE) – the function within an enterprise that manages its
physical work, production and customer engagement environments – has grown as
a professional discipline over the past several decades. At many organisations CRE
practices have evolved from a narrow definition focusing on managing real estate
transactions and design and construction projects, to managing a wide range of
functions that support the physical workplace, financial and business strategy, and the
implementation of work strategies that integrate advances in technological mobility.
While there has been considerable advance in the sophistication of the practises
used, and the scale and reach of the service provider industry that supports them, a
direct connection between these professional advances and broadened scope has
not yet been documented. It is therefore now timely to ask the following questions:
‘What difference has this progress made? And does better CRE relate to better overall
business performance?’

This research explores for the first time the relationship between the perceived maturity
and capability of CRE practices and the economic performance of business enterprises.
It focuses on large Fortune 500-type organisations. The results not only document the
relative maturity of a broad array of CRE practices, but show which are significantly
correlated to superior financial performance, and which are not.

The research methodology was inspired in part by the research of Huselid (1995) who
successfully identified aspects of Human Resource management practice that correlated
to turnover, productivity and corporate financial performance. It continues the work
of O’Mara (1999, other) and Varcoe (2009, other) in exploring the direct connections
between corporate real estate practices and organizational strategy and performance.


3. The Business View of
Corporate Real Estate
A broad review of management and organisational literature enabled some clear
conclusions to be drawn regarding the business view of CRE. Does it make a difference
and warrant serious consideration, resource and time by executive leadership, or is it
more of a marginal issue?

In overall terms, it is noticeable that CRE and its management are deemed to warrant
a comparatively minor amount of content and significance. Indeed, a large number
of the writers reviewed made no mention of them, even when they were discussing
fundamental shifts in the nature of work. However, where CRE and facilities are referred
to, recurring themes can be identified:

` The capability and capacity of CRE as an asset (Mintzberg 1994), including:

• Its role as a ‘useful’ part of the firm’s infrastructure (Moore 1992) and how that needs
to be an integrated part of the business system (Senge 1990)

• Improving its utilisation (Ansoff 1987), including through the removal of waste (Handy
1994) to reduce cost and improve the return (speed and amount) on capital invested
(Kaplan and Norton 1996). Over-provision can be induced by less critical decision
criteria reliant in turn on cheap finance from an increasingly global capital market
(Mintzberg 1994)

• Its potential premature redundancy through changing environments (Johnson and
Scholes 2002)

` Its place as an organisational ‘enabler’:

• Physical location and layout as a key ‘enabler’ of group and production effectiveness
(Handy 1993) (Peters 1992)

• Conversely, as a constraint if the workplace is not positively managed
(Davenport 1997)

` The (negative) impact it can have on job satisfaction as a potential dissatisfier through
poor working conditions (Pugh 1971)

` The changing nature of the portfolio of assets:

• A potential location shift as work, not workers, becomes the primary axis of mobility
(Drucker 1992)

• A reduction in the proportion of a portfolio that is owned, to reduce the amount of
capital invested in property (Ehrbar 1998)

` As a visual representation of the organisation’s culture and image (Harvey-Jones 1991)
(Sadler 1991)


Much of the modern business literature is arguably dominated by authors more intent
on quickly turning post event rationalisations for lasting business success (backed up
by case examples) into easily remembered, repeatable and, in some ways, branded
principles and methodologies that can be adopted by the mainstream, rather than
publishing the results and learning from rigorous primary research. If such an assertion
is even only partly true, it perhaps in part helps to explain why CRE does not warrant
much attention within the body of business and organisational literature, and, unless
something significant changes, it probably never will.


4. Research Methodology
So we face a situation where ‘the enterprise’ view of CRE is primarily as a tactical
component of its production value chain that does not warrant significant managerial
investment or attention. CRE doesn’t really make much of a difference. Is this fair and
correct? The research that follows explores this question. How are large corporate
organisations managing their workplace operations? Are any of these practices related
to economic performance? What other external factors correlate with corporate real
estate management practices?

The survey questionnaire catalogued the array of roles and responsibilities commonly
found in corporate real estate functions, and expressed those practices in a way that
is considered ‘best practice’. The target audience for the survey was senior corporate
real estate executives at large corporations headquartered in the USA and Europe.
The survey recipients represented a wide array of industries as detailed in the following
section. The purpose of the survey was to capture each executive’s opinion about the
relative maturity and capability of their key CRE practices. In addition to this, some
background data was also requested that would help test for any response variance
from identified control factors such as size or industry.

The key CRE practices were identified following an extensive literature search into
the field of CRE performance. Twenty areas of practice were identified. The final
survey was then tested and challenged at two workshops with leading corporate real
estate practitioners, one in the US and one in Europe. The practice areas were also
categorised into two subsets: those which are considered tactical and relate to the
physical management of assets, and those that support the business in its development
and implementation of its competitive strategy. These subsets were not distinguished in
the actual survey instrument. The twenty practices are as follows:

Tactical
` Supplier management

` Operational and management information

` Space and interior standards

` Governance and compliance

` Customer satisfaction measurement

` Performance measurement

` Budget management *

` Extent of outsourcing *

` Telework policy *


Strategic
` Business unit relationship management

` Sustainability

` Portfolio strategy planning

` CRE team diversity

` CRE/HR/IT collaboration

` Use of serviced offices

` Effective staff development

` Continuous improvement and innovation

` Business strategy collaboration

` Capital release strategies

` Alternative workplace strategies *

In addition, the executive’s opinion was solicited regarding how their own executive
leadership (CEO, CFO, etc.) of the enterprise would describe relative value of the CRE
team and its performance.

For all of the practice questions, the survey respondent was asked to record their
opinion of the typical practices undertaken by their CRE team over the last two years (so
that it related to current or near-past financial performance). Sixteen practice areas could
be examined using a scale from least to most advanced practice. For those topics,
participants selected the extent to which they believed their CRE performed the practice
described using a 1-7 scale (total agreement with the description being a score of ‘7’).
These scores were then compared to relative financial performance.

For a minority of the questions (identified by an asterisk above), four descriptions were
given for each practice area from which the respondent had to select the closest answer
that described their practice. Finally, two questions were asked relating to alternative
workplace strategies and sustainability that focused on future intentions. These were not
part of the question set that was used to test for correlation to enterprise performance.
The practice questions are set out in full in the Appendix.

The survey questionnaire was made available on a website and a participation request
was emailed to a list of CRE executives. The survey was live for a four week period
during October and November 2010.


Once a valid response was received, public domain data about the financial
performance of the respondent’s organisation was then researched. Five measures
of enterprise performance were identified, for which data was collected for the 2009
financial year:

` Revenue growth over the last 3 years (2007 – 2009) – a measure of turnover
performance

` Net sales per employee – a widely used measure of organisational productivity

` Return on assets (RoA) – a widely used market-based measure

` Return on equity (RoE) – a widely used market-based measure

` Tobins Q – a future oriented and risk-adjusted capital market measure of performance
that reflects both current and anticipated profitability

The data collected allowed the following analyses to be undertaken:

` Testing for any response variance relative to identified control factors

` Comparisons across the practices regarding their relative perceived maturity

` Correlation between CRE practices and enterprise financial performance


5. The Sample
Invitations to participate in the survey were sent to 267 large corporate organisations
from around the world. The majority are headquartered in either the USA or UK (which
broadly matches the relative maturity of the CRE markets internationally). Most of the
mailing list corresponded to the 2009 Fortune Global 500. Retailers and agricultural
companies were excluded from the survey population due to their unique real estate
holdings. Large privately held companies were also included. Ultimately, forty complete
responses were validated for use in the analysis, yielding a final response rate of 15%.

The sample size is considered adequate for its intended purpose, and is the best
that can realistically be expected to be achieved, (given how difficult is it to get senior
executives to participate in survey research). As a reliable representation of ‘large
organisations’, typified by the Fortune Global 500 list, a total of 40 responses statistically
gives a confidence interval of 14.88 (which is 1 point either way on a 1 – 7 scale) at the
95% confidence level.

Sample Characteristics
In overall terms, the sample consists of:

` A total supported organisational head count of slightly more than 3.6 million people

` A total operational portfolio size of 221 million gross square metres (2.38 billion gross
square feet)

` A total operating budget under management of US$ 72.6 billion

A wide spread of industry sectors are represented by the sample which are illustrated
in Figure 1. Financial services companies represent the largest sector, followed by
consumer goods and technology companies.

Figure 1: Research Sample Industry Sectors


Response Variance Across Sample Characteristics
The sample was tested to see whether the responses to the practice questions varied
significantly relative to a number of control factors. The factors tested were:

` Real estate portfolio size

` CRE team size

` CRE&FM operating budget size

` Professional membership (73% of the sample are industry association CoreNet
Global members)

` CRE organization structure

` Industry sector

` Enterprise annual revenue

` Total number of enterprise employees

No significant differences across responses were found based upon these factors.
The only difference in means that was greater than 1 (i.e. one point difference in
average response on the 1-7 scale) was the difference between the lowest and
highest industry sectors.


6. Findings: Fundamental CRE
Management Practices
The study collected information regarding four fundamental corporate real estate
practices: organizational structure, budget control, CRE reporting and use of suppliers.
Responses were limited to four choices. The responses are informative on their
own, and were also compared to the practices maturity scales to see if any of these
fundamental characteristics correlated with the survey results, as discussed above.
There is very little information published documenting the relative distribution of these
practices, and the results shed light on some frequent debates. Further, one question
solicited the opinion of the survey respondent regarding senior management’s view
of CRE.

Given the increase in telework (where employees are allowed to work from home or
another location) and implementation of alternative workplace strategies (AWS), the
survey also enquired into current telework and AWS practices, and asked respondents
to predict future policies and practices regarding alternative work and sustainability at
their company.

Fundamental CRE Practices
Among the four generic approaches to CRE organisational structure presented in the
survey, a hybrid of functional and geographic operations was most commonly cited,
possibly due to the global scope of many of the participating companies. The rest evenly
balanced between either functional or geographic driven organisational structures, as
shown in Figure 2. None of the participating companies managed corporate real estate
at the business unit level. Figure 3 summarises the budgetary control and real estate
cost charge-back policies at the companies surveyed. The most common practice is to
budget and manage CRE costs centrally and then recharge all costs back to business
units. There is a fairly even spread across the other three methods. In the majority of
the organizations (78%) the central CRE function has control of the overall CRE budget
and through this should be able to strongly influence and drive improved practice and
policies consistently across the entire portfolio.


Figure 2: Basis for CRE Organisation Structure

Figure 3: Budgetary Control and Recharging Practices

The distribution of where the CRE function reports into the overall corporate
management reporting line is also quite diverse across the sample, as Figure 4
demonstrates. The survey respondents most frequently report to the Chief Financial
Officer, followed by both the Chief Operating Officer and the Technology function.


Figure 4: Where does the CRE function report?

The survey collected information about the level of activity where suppliers are used.
The results are shown in Figure 5. Given that the survey was targeted at the largest
corporate occupiers who would potentially be best positioned to benefit from integrated
services across the globe, it may be surprising that 38% of the respondents only use
suppliers tactically at a local or national/regional level. At the other end of the spectrum,
an equal proportion of respondents engage suppliers on an “an international level based
around a limited number of principal relationships responsible for integrated solutions
across a wide range of functions and/or countries.” This points to a considerable growth
potential for the major international service providers, as over 60% of those surveyed are
not currently using integrated solutions on an international basis.

Figure 5: Level of supplier activity


Current and Future Workplace and Sustainability
Practices
The survey found wide variation in formal ‘telework’ or telecommuting policies (where
employees are allowed to work from home or another location). Respondents were
asked to select the category that best represented the proportion of the organisation
to which ‘telework’ applied. The responses, shown in Figure 6, indicate that formal
policies regarding telework are limited to a relatively small percentage of the workforce
at half of the participating companies. However, at the other end of the spectrum, 18%
of these large companies allow over 40% of their workforce to telework.

Figure 6: Organisation’s formal telework or telecommuting policy

Use of telework tends to foster the use of alternative workplace strategies (AWS) which
were described as a range of flexible workplace settings provided for an employee’s
work in places that are not assigned individually. Figures 7 and 8 summarise current
and future AWS availability to the workforce at the responding companies. Again, there
is a wide range of current practice. Despite an apparent widespread increase in interest
in this topic across CRE over the last couple of years, the most common response
was that AWS was available for less than 10% of the workforce. However, when asked
about the future take-up of AWS – what proportion of employees at their company
could be using AWS within the next five years – we see a dramatic shift towards
increased AWS. There is certainly no lack of ambition being shown in that the current
lowest frequency category, with the highest proportion of deployment (more than 40%
of the workforce using AWS), becomes the largest category in the future. Based on
indicative percentages for each category, the reported intentions represent a near
doubling of the deployment of AWS over the next five years, compared to all that has
been achieved since AWS first appeared in the 1990’s.


Figure 7: AWS availability to workforce (Current)

Figure 8: AWS availability to workforce (Future)

Future intentions for leasing or developing new locations specify a strong preference for
high sustainability rated buildings, as shown in Figure 9. In total, 73% of the respondents
chose the two answers which directly refer to LEED Gold and BREEAM Excellent
ratings. The rest indicate that they will at least prefer buildings with an energy rating.
The response option “have no formal policies related to building energy consumption or
sustainability” was not selected by any of the survey participants. The results show the
importance that occupiers now place on recognised international accreditation schemes
such as LEED and BREEAM.


Figure 9: Future intentions regarding building sustainability ratings

CRE’s Self Evaluation
Nearly all of the survey respondents were corporate real estate executives. They were
asked “How do you think the executive leadership (CEO, CFO, etc.) of the enterprise
would describe the CRE team and its performance?” The responses are summarised
in Figure 10. The vast majority believe that, at the very least, their company’s senior
executives think that CRE doesn’t cause too many problems and is a useful resource.
Half believe they are viewed as an important strategic asset. Not a single respondent
felt that their senior management considers CRE as an obstacle to success. The next
chapter of this report will perhaps give some insight as to whether they are right to think
this way.

Figure 10: CRE view of executive opinion


7. Findings: Comparative
Maturity of CRE Practices
The study yields insight into the relative maturity of CRE practices across the companies
surveyed. Some of these practices also show a correlation to economic performance.

Respondents rated their perception of the corporate real estate department’s practices
against sixteen statements describing leading capability standards for each area of
practice. This was done using a 1 – 7 Likert scale (‘7’ indicated total agreement with the
statement and ‘1’ indicated total disagreement).

The first level of analysis is to look at the comparative scores achieved by each of the
practices. This gives a measure of their relative maturity. Each question had the mean
average response calculated, which were then ranked. The results are shown in
Figure 11.

Figure 11: Comparative Maturity of CRE Practices

Overall, the survey respondents rated their teams relatively highly on most dimensions
with an average response of 4.98 on the 7 point scale. Differences across industries are
discussed below. The three most advanced practice areas are reported to be: diversity
of the CRE team - defined as a broad mix of professional backgrounds; the rigorous
management of governance and compliance; and having a culture of continuous
improvement and innovation. The most common response to each of these was high,
‘6’ on the 7 point scale.


Corporate real estate management practices that were rated relatively high on the
scale, but with a wide range of responses from ‘1’ to ‘7’ include CRE involvement with
business strategy at or near the beginning of a possibly strategic change, and two
aspects related to data analytics - performance measurement using key performance
indicators, and up to date, accurate operational and management data. Customer
satisfaction measurement practices also vary widely, but were rated lower overall.

Practices reported to be at an average rate of advancement compared to all survey
responses, but which still feature ‘6’ out of ‘7’ as the most common response,
include effective staff development, and the use of distinct CRE functions such as
portfolio strategic planning, space and interior standardisation and business unit
relationship management.

Lower overall average maturity scores were given to effective supplier management,
sustainability as a primary strategic priority, and working closely with HR, IT and other
support functions.

The use of serviced offices has the lowest overall rating and a wide range of responses.
While the most common response was that serviced offices are not used by the
company, a minority of organisations reported relatively heavy use. There was no
statistical relationship between the use of serviced offices and the prevalence of
alternative workplace strategies or high sustainability standards for buildings, which
suggests that at this point in time, companies use serviced offices for reasons other than
supporting AWS or carbon reduction.

Average Scores by Industry Sector
The average scores for each industry sector were calculated. The ranking of these
averages gives some indication into the relative maturity of CRE practice across
industries. This is shown in Figure 12. The numbers in parentheses show the number of
respondents in each industry category. Given the overall size of the sample, any results
from this type of analysis cannot be considered to be particularly reliable. Furthermore,
whereas the tendency is to be pleased if you belong to a high scoring sector and
disappointed if you belong to a lower one, it may be that the lower scoring industries are
in a stronger position for the future as they are perhaps being more realistic about their
performance compared to overly-optimistic, high scoring sectors.

Figure 12: Comparative maturity of practices across industry sectors


‘Tactical’ Compared to ‘Strategic’ Practices
As explained in Chapter 4, the practices were split into those considered to be more
tactical versus those that are more strategic. Mean average responses were calculated
for both categories. While it might be expected that tactical practices would be more
mature and developed than strategic, there was no significant difference in the maturity
ratings between categories.

Practices that Correlate with Enterprise Financial
Performance
Although it is useful to learn more about the range of real estate management practices
currently in use by large corporations, the next question and one that is perhaps
fundamentally more important is “what difference does it make?” Organisations
must succeed along multiple dimensions over time. They must return value to their
shareholders, their employees, and the larger community. Short-term financial measures,
such as return on assets (ROA) and return on equity (ROE), are useful because they are
quantitatively objective and allow performance to be compared across companies. 2009
financial performance reports were used as they represent the most recently available
data. However, given that 2009 was a year of global recession, three year growth and
sales per employee were also included as performance measures, along with Tobin’s Q,
a future oriented measure used by financial analysts to estimate potential value.

Both non-parametric and parametric statistical analysis techniques were used to identify
any correlations that may exist between CRE practices and enterprise financial success.
Since the data is not normally distributed and is non-parametric in nature, the Spearman
rank order correlation technique was used. However, as this can have low sensitivity
and can therefore fail to detect relationships that do exist, the Pearson product moment
correlation was also calculated to provide a degree of assurance against the known
weakness of the non-parametric technique.

Correlations were tested for all of the CRE practice areas against each of the five
measures of enterprise financial success. Six of the sixteen practices identified in the
corporate real estate maturity rating portion of the survey demonstrated a correlation
with financial performance. Those practices with statistically significant correlations
are shown below in Table 2. The correlation co-efficient is shown by the value ‘r’. The
co-efficient of determination ‘r2’ has also been calculated as this shows the degree of
shared variance (in other words, in Table 2 supplier management accounts for 14% of
the variance in RoA).


Table 2: Correlation between CRE Practices and Enterprise Success

Net Sales /
3 Year Growth RoA RoE Tobins Q
Employee
Question / CRE
Spearman Pearson Spearman Pearson Spearman Pearson Spearman Pearson Spearman Pearson
Practice
r .379* .377* .328*
3.2 Supplier
management
r2 0.14 0.14 0.11

r .400* .379* .336*
3.3 Management
Information
r2 0.16 0.14 0.11

r .517** .478** .374*
3.11 CRE/HR/IT
Collaboration
r2 0.27 0.23 0.14

r .512** .440** .371* .377*
3.12 Serviced
Offices
r2 0.26 0.19 0.14 0.14

3.14 Continuous r .422** .359*
Improvement and
Innovation r2 0.18 0.13

r -.347* -.409*
3.16 Capital
Release Strategy
r2 0.12 0.17

(** = correlation is significant at the 0.01 level; * = correlation is significant at the 0.05 level)

Each of the identified correlations is now considered in turn. An important facet of this
discussion is to remember the distinction between correlation and causality. The analysis
demonstrates a relationship between these factors and financial performance, but it
does not identify the direction of the relationship. Do these practices lead to higher
financial performance, or do higher performing companies follow these practices?
For example, does better supplier management improve RoA, or do those organisations
with a better focus on RoA invest more in the quality of their supplier relationships?
While this particular study cannot answer that question, it indicates where future
research might be of most value.


Supplier management
Suppler management correlates to both RoA and RoE. By comparing a one standard
deviation shift in Supplier Management and both variables, and then allowing for the
degree of shared variance, an estimate of the scale of influence this practice has on
the financial performance measurement can be achieved. This suggests that a 26%
increase in advanced supplier management practice relates to:

` An addition of 0.76% to an organisation’s RoA

` An addition of 2.01% to an organisation’s RoE

That is, as a company increases its level of maturity in supplier management, it is
accompanied by an increase in both ROA and ROE. The CRE extended value-chain that
is provided by suppliers appears to play an important role in enterprise success, either
as a driver of it or as a consequential investment. The appropriate customer / supplier
relationship is often a topic of heated debate in the CRE profession. The correlations
found here suggest that supplier management is becoming increasingly effective and
that potentially more can be still be achieved by improving practice further. The evidence
collected regarding the current level of outsourcing (Figure 5), where only a quarter of
organisations have international solution oriented relationships, illustrates this as well.

Quality of operational and management data
Up-to-date and accurate operational and management data, that provides complete
asset and portfolio- wide management information for analysis, reporting and decision
support, correlates positively to both RoA and RoE. The relationship suggests that a
25% improvement in management information practice relates to:



There is certainly a logical explanation for this correlation. It is not a surprise that
the ability to make better decisions relates to better overall returns on the resources
invested in the organisation, and/or that those organisations that achieve better returns
on their invested resources demand better management information. As the survey
results indicate, CRE’s do not believe their management information data quality is
at the highest level of performance today, rating it a 4.93 out of 7. CRE management
information is fraught with the complexity of differing systems, technologies, data
ownership and workflow integration issues. The evidence of this research suggests that
it may be worth investing in better quality data and analytics.


Close relationships between CRE, HR and IT
A close working relationship between CRE, HR and IT teams on both operational and
strategic projects and change programmes correlates to both RoA and RoE. The
relationship suggests that a 26% improvement in CRE/HR/IT collaboration practice
relates to:



Improved collaboration between the three components of work process (the physical
workplace, technology, and the people who use both) has been discussed for a
number of years within CRE circles but so far there has not been much evidence, in
public forums at least, that such interaction has taken place to much effect. The results
of this research suggests that some organisations have been successful at moving
this agenda forward - probably more as a result of the demand from the organisation
for understanding new ways of successfully supporting ‘work’, than from the sole
sponsorship and initiative of the CRE function. Hopefully, the evidence of this research
will spur CRE as an industry to exert leadership and take more decisive action in this
regard in the future.

Use of serviced office accommodations
The regular use of serviced office accommodation (on-demand workspace used and
paid for over very short time scales, e.g. by the hour or day) as an integral part of the
CRE portfolio correlates to higher three-year growth, RoA and Tobin’s Q (albeit that the
latter two variables are only identified using the parametric test that is less suited to the
data but is more sensitive than the non-parametric test). The relationship suggests that a
30% improvement in serviced offices practice relates to:

` An addition of 2.84% to an organisation’s 3 year growth


` An addition of 0.14 to an organisation’s Tobin’s Q

There is clearly a discrepancy here between current CRE practice and this correlation,
because the use of serviced offices lagged well below all of the other practices in terms
of its average maturity score. On closer scrutiny, the possible underlying reasons for
the relationship between serviced office use and financial performance may not be
surprising. Both three - year growth and Tobin’s Q consider enterprise performance
over a period of time and highlight growth (either what has been achieved or to the
degree it is expected). Growing organisations may be more likely to use serviced
offices as part of their CRE strategy to accommodate that growth. Serviced offices, if
used in the appropriate circumstances, should also represent an effective utilisation of
assets (paying by use on a variable basis as opposed to a high fixed cost that may be
significantly under-utilised), supporting the correlation to identified RoA.


A culture of continuous improvement and innovation
Effective and pro-active cultures for both continuous improvement and innovation
correlate to RoA. The relationship suggests that a 28% improvement in continuous
improvement and innovation practice relates to an addition of 0.84% to an
organisation’s RoA.

Once again the dependency of the relationship could be either way or both. It may
be that innovative and continuously improving CRE teams make a positive impact on
enterprise performance, and/or organisations that are successful at innovating and
improving their processes are more successful overall, and this influences the CRE team
to fit in with that overall culture. This is certainly a ‘call to arms’ for the CRE industry to
consider being more adventurous with its innovation strategies and investment, and to
perhaps engage more in focused and targeted research as part of that. This result also
suggests that more use of tried and tested continuous improvement tools such as Lean
Management, Six Sigma and Kaizen will be helpful as well.

Use of capital release strategies
A higher level of capital release strategies that support investment in core business
activities negatively correlates to both three-year growth and Tobin’s Q (albeit only
using the parametric test that is less suited to the data but is more sensitive than the
non-parametric test). The relationship suggests that a 31% increase in capital release
practices (i.e. more of it being undertaken) relates to:

` A reduction of 1.52% to an organisation’s 3-year growth

` A reduction of 0.17 to an organisation’s Tobin’s Q

At first consideration, this is a surprising result – something that CRE leaders often
champion as being an advanced strategy of high value, appears to be doing significant
harm to organisations. Once again, deeper reflection provides a logical explanation.
Capital release strategies almost always result in a serious reduction in portfolio flexibility
and in recent times this may be costing organisations dear, as they seek to restructure
and consolidate and cannot now shed surplus real estate. The money raised through
such activities may have been poorly invested as well – perhaps in acquisitions at ‘top
of the market’ inflated prices that now have little or no hope of making a good return. It
may also be a case that those organisations that are performing comparatively poorly
have turned to capital release programmes from their CRE portfolios to artificially bolster
results in the short term. The bad news here is that the painful effects of the likely more
inflexible real estate portfolio may be felt for many more years to come. Either way, this
finding suggests the impact of capital release strategies should be better understood.


It is interesting to observe that, as shown in Figure 13, apart from Continuous
Improvement and Innovation, all of the practices that correlate are reported to be at
the lower end of the maturity spectrum. This is only relatively good news from the
point of view of capital release strategies. It would appear that CRE executives have
been focusing more on areas that do not necessarily make an overall difference to
enterprise performance. This suggests that there is considerable room for CRE to make
a significantly enhanced impact at the enterprise level in the future by investing more in
practices with proven effectiveness.

Figure 13: CRE practices that show correlation to financial
performance measures


Practices that Do Not Correlate with Enterprise Financial
Performance
Ten of the sixteen CRE practices detailed in the survey do not show any significant
correlation to enterprise financial performance. Possible reasons for this are briefly
considered in turn.

Space and Interior Standards
This practice has been an accepted part of CRE operations for a considerable period
of time. Whilst it drives efficiency, modern work is now about so much more than a
two-dimensional approach.

Governance and Compliance
Legal and corporate governance requirements now dictate that this area is probably
less distinguishable across organisations. Any differences are potentially only achievable
by being worse than others, which is unlikely to be tolerated for long. In essence, this
practice is focussed on avoiding negatives rather than adding positives.

Customer Satisfaction Measurement
This is the second lowest practice in terms of its maturity, which perhaps reflects the
pervading primary focus of real estate as a function on buildings and not people. When
CRE ‘en masse’ realises that it is through people that organisations deliver and achieve
value, and directly targets how the function can enhance its ability to augment their
success, then a relationship may be seen to exist.

Performance Measurement
This is a practice that arguably doesn’t directly deliver a tangible output at all, but rather
provides a window of clarity on the ability of others that do. As an indirect enabler, it is
perhaps not surprising that no correlation exists.

Budget Management
As with governance and compliance, ‘good enough’ may be good enough and anything
worse is not allowed to exist for long. Also, like performance management, it doesn’t
directly deliver outputs but illustrates an aspect of performance of those that do.

Extent of Outsourcing
The lack of any correlation here shows that it is not the structure of the service delivery
value chain, and the supplier role within it, that matters, but rather the effectiveness of
the management of the suppliers (and by extension the whole service delivery value
chain) that makes a difference. It is the output that matters, and not necessarily the
detail of the manner of the delivery.


Telework Policy
The amount of teleworking is not correlated to overall business success perhaps
because the overriding majority use it to some extent (the standard deviation of the
responses for this area was very low which is evidence of consistency) and the degree
to which it is used may be more dependent upon the nature of the business activity,
rather than any differentiating aspect of the business model or organisational culture.
There are also conflicting anecdotal cases where it has either proved counter-productive
by effectively disengaging workers from the organisation, or has increased productivity,
retention and employee satisfaction.

Business Unit Relationship Management
This is another CRE practice that is more of a ‘facilitator’ than an ‘outcome’. Being
further down the delivery value chain, it has an indirect capacity to impact the business
and so it is less surprising that it does not demonstrate any direct correlation.

Sustainability
This is arguably currently viewed within the majority of the CRE industry as an area
of practice where it is acceptable to undertake the maximum that is commercially
viable, but little if anything more. At least in part the focus is on reducing expensive
energy consumption and in doing enough to meet publicly-stated carbon reduction
targets, thereby minimising the risk of negative publicity. There is little here therefore
that presently represents a positive contribution to enterprise performance (rather it is
primarily about the avoidance of negatives).

Portfolio Strategy Planning
Portfolio Planning is a relatively new area of practice within CRE, certainly at a
sophisticated level. It tends to produce returns over the comparatively long-term. This
practice may come into prominence with a direct correlation to enterprise success in a
few years time when current activity has delivered tangible benefits and the overall level
of capability has increased.

CRE Team Diversity
This has the strongest reported practice maturity, but it is more likely the intrinsic
capability of the leadership team that matters and not directly its diversity. The standard
deviation of the responses for this area was also low, demonstrating less differentiation
within the sample.

Effective Staff Development
It is difficult to assess through a survey like this the quality of the development that is
undertaken, merely the fact that something is reportedly done. It could be that current
staff development practice within CRE organizations is fairly generic and centred upon
professional development, assuring a basic level of competence that does not directly
lead to any differentiating capability.


Business Strategy Collaboration
It is perhaps surprising that this practice did not demonstrate any correlation. The lack
of one suggests that even those who perform it well are still not achieving a significant
difference compared to those who perform less effectively.

Alternative Workplace Strategies
This is another area where it might have been expected to have seen a correlation,
but the evidence from this survey also shows that it is an area of practice that still has
not reached a ‘mainstream’ level of deployment in most organisations. The standard
deviation of the responses for this area was also low, demonstrating less differentiation
within the sample. Once it does become more deeply deployed within organisations
(as the survey predicts it will over the next 5 years) then a different result may
become evident.


8. Final Thoughts
Corporate Real Estate has made considerable advances in its scope of duties and
management practices over the last twenty years or so. There have always been
nagging doubts as to whether this really matters in terms of enterprise performance.
Without rigorous and clear research to document the benefits of advanced CRE
management, CRE has rarely achieved a seat at or near the top table of an
organisation’s executive leadership, unlike the achievements by the HR and IT functions
at many companies.

This research has shown for the first time that some aspects of how CRE undertakes its
scope of duties have a demonstrable relationship to enterprise financial performance.
Whether CRE causes higher performance (at least in part), or is a consequence of it,
has at this stage not been determined - but it does suggest that these relationships are
ripe for future exploration and research. The good news from this is that CRE potentially
can make a difference to an organisation’s success, and can now begin to prove it.
The bad news is that the activities and practices with this potential are, for the most
part, amongst the least advanced and developed within the field (and one of them is an
impediment). The further good news, however, is that there is therefore plenty of room
for improvement and thereby plenty of potential for an even bigger impact from CRE in
the future.

These research findings can act as a catalyst for others to take a more in-depth look at
the identified relationships. Whether through the analysis of larger samples to challenge
and/or validate these findings, or by a deeper examination of specific CRE practices - to
better understand their relationship to enterprise success and what needs to be done to
maximise the beneficial interaction - the results of such work can only benefit a discipline
that is currently under-researched and critically lacking in the credible evidence it needs
to prove its worth in the enterprise’s production value-chain.


References
Ansoff, I. (1987); Corporate Strategy; Penguin Books, Harmondsworth, U.K.

Davenport, T. (1997); Information Ecology: Mastering the information and Knowledge
Environment; Oxford University Press, New York, USA.

Drucker, P.F. (1992); Managing for the Future; Butterworth Heinemann Ltd, Oxford, U.K.

Ehrbar, A. (1998); EVA: Economic Value Added; John Wiley & Sons, Inc.,
New York, USA.

Handy, C. (1993); Understanding Organisations; Penguin Books, Harmondsworth, U.K.

Handy, C. (1994); The Empty Raincoat: Making Sense of the Future; Hutchinson,
London, U.K.

Harvey-Jones, J. (1991); Getting it Together: Memoirs of a troubleshooter; William
Heineman Ltd.

Huselid, M.A. (1995); The Impact of Human Resource Management Practices on
Turnover, Productivity, and Corporate Financial Performance; The Academy of
Management Journal, Vol.38, No. 3, pp 635-672.

Johnson, G. and Scholes, K. (2002); Exploring Corporate Strategy; Pearson Education
Limited, Harlow, U.K.

Kaplan, R.S. and Norton, D.P. (1996); The Balance Scorecard; Translating Strategy into
Action; Harvard Business School Press, Boston, MA, USA.

Mintzberg, H (1994); The Rise and Fall of Strategic Planning; Prentice Hall, Hemel
Hempstead, U.K.

Moore, J.I. (1992); Writers on Strategy and Strategic Management; Penguin Books,
Harmondsworth, U.K.

O’Mara, M.A. (1999) Strategy and Place: Managing Corporate Real Estate and Facilities
for Competitive Advantage. The Free Press. New York, NY.

Peters, T. (1992); Liberation Management: Necessary Disorganisation for the
Nanosecond Nineties; Macmillan, London, U.K.

Pugh, D.S. (1971); Organisation Theory: Selected Readings; Penguin Books,
Harmondsworth, U.K.

Sadler, P. (1991); Designing Organisations: The foundation for excellence; Mercury
Books, London, U.K.

Senge, P.M. (1990); The Fifth Discipline: The Art & Practice of the Learning Organisation;
Century Business, London, U.K.

Varcoe, B. (2002);. “The performance measurement of corporate real estate portfolio
management” HENRY STEWART PUBLICATIONS 1472-5967 Journal of Facilities
Management VOL. 1 NO.2 pp 117–130.


Appendix – Survey Content
and Questions
The following set of statements relate to your opinion and assessment about your CRE
team and what it has actually done over the last 2 years. Please do not record your
aspirations or current strategies for the future, but what has actually happened. For
each statement please show the extent to which you believe your CRE team undertakes
the practice described by the statement. Do this by using the scale presented below.
If you strongly agree with the statement and consider that it applies across the whole
CRE team and real estate portfolio, select the ‘seven’. If you strongly disagree or do not
consider the practice to be undertaken at all, select the ‘one’. If your assessment is not
so strong, select one of the numbers in between that properly reflects your assessment
of the relative degree to which the practice has been performed. There are no right or
wrong answers – we are only interested in the number that best shows your perception
of what has been performed in your organisation. Please do not deliberate too long on
each question – go with your first instinct.

1. The CRE function has dedicated ‘relationship managers’ who are constantly
engaged with business units and groups, pro-actively suggesting improvements as
well as responding to requests.

2. The management of all suppliers is very effective at both an individual supplier and
industry sector level, undertaken in partnership by sourcing and CRE functional
specialists.

3. Operational and management data is up-to-date and accurate, providing complete
asset and portfolio wide management information for analysis, reporting and
decision support on demand.

4. Sustainability is a primary strategic priority for the CRE function, with an overall aim
to be at the leading edge of current practice.

5. Space and interior standards are defined, managed and deployed by the CRE team
across all locations in the portfolio without exception.

6. Portfolio strategy and planning (so that the real estate portfolio is best matched to
current and projected future business demand and market dynamics) is a distinct
functional effort within the CRE function. It keeps up-to-date city, regional and
portfolio plans aligned to projected business needs.

7. Governance and compliance obligations (including health and safety and risk)
are rigorously managed. A policy of maintaining a uniformly high standard across
the portfolio is pursued, with centrally audited compliance being validated at all
appropriate management levels across the CRE organisation.


8. The CRE team is very diverse, embracing a broad mix of professional backgrounds,
CRE and business experience, geographic locations, ethnic backgrounds, etc.

9. The satisfaction of the users/occupants of the facilities is regularly measured across
the whole portfolio using a standardised approach and questionnaire. Results are
analysed for trends and opportunities for driving improvements.

10. Performance measurement is a key management tool, using a consolidated
scorecard of objectives and key performance indicators which link to overall strategy
and action plans, tracking progress to desired outcomes.

11. The CRE team works very closely with HR, IT and other support functions on both
operational and strategic projects/change programmes.

12. Serviced office accommodation (on-demand workspace used and paid for over
very short time scales e.g. by the hour or day) is an integral part of the CRE portfolio
strategy and is regularly used for a variety of needs where it represents best value.

13. Effective staff development is critical. Each member of staff has an agreed set of
performance and development objectives which are regularly reviewed with line
management. Individual and team- wide training needs are routinely funded.

14. The CRE team has an effective and pro-active culture of both continuous
improvement and innovation. Each is considered a shared responsibility across the
extended CRE and supplier team.

15. The CRE team works very closely and strategically with the business. It is involved at
or near the beginning of possible strategic change projects and remains an integral
component of the planning and implementation.

16. The CRE team constantly seeks commercially viable opportunities to release capital
from the portfolio for investment in core business activities.


For the next five questions, you are given 4 options - from which you need to select the
statement that best fits the practice of your organisation. Again, there are no right or
wrong answers – we are only interested in the answer that best fits your perception of
what has been performed in your organisation over the last 2 years. And again, please
do not deliberate too long on each question – go with your first instinct.

17. CRE costs are budgeted and managed:

1. At a local operation/country/business unit level.
2. Centrally by the CRE team.
3. Centrally by the CRE team, with some costs, e.g. hospitality, being recharged to
business units based upon consumption.
4. Centrally by the CRE team, with all costs being recharged to business units.
18. At what level of activity do you generally use suppliers?

1. At a tactical level for specialist locally - delivered services.
2. At a national and/or regional level for operational service delivery, e.g. lease
administration, maintenance, cleaning/janitorial, etc.
3. At a national and/or regional level, for both operational service delivery and
management functions.
4. At an international level based around a limited number of principal relationships
responsible for integrated solutions across a wide range of functions and/or
countries.
19. Our organisation’s formal telework or telecommuting policy (where employees are
allowed to work from home or another location) applies to:

1. No-one. There is no formal telework policy and/or we do not allow it.
2. Less than 20% of the workforce.
3. Between 20% and 40% of the workforce.
4. Over 40% of the workforce.
20. Alternative workplace strategies (where a range of flexible workplace settings are
provided for an employee’s work in places that are not assigned individually) are
available for:



21. How do you think the executive leadership (CEO, CFO, etc.) of the enterprise would
describe the CRE team and its performance?

1. CRE is an obstacle to our success.
2. Not sure – we don’t have much to do with CRE. They are not significant to our
success.
3. CRE seems to be effective, doesn’t cause too many problems and is a useful
resource.
4. They are an important strategic asset, adding real value to the organisation and
its overall success.
For the final two questions, you are again given 4 options - from which you need to
select the statement that best fits the intended practice of your organisation. Again,
there are no right or wrong answers – we are only interested in the answer that best fits
your perception of what you will be doing in the future.

22. Within the next five years, what proportion of employees at your organisation could
be utilising alternative workplace arrangements (see definition in question 20)?

23. When leasing or developing a new location in the future we will:

1. Have no formal policies related to building energy consumption or sustainability.
2. Prefer that the buildings have some sort of energy rating.
3. Have a strong preference for buildings with a top internationally recognised
sustainability rating, e.g. LEED Gold or higher, BREEAM Excellent or higher.
4. Only acquire buildings with a top internationally - recognised sustainability rating,
e.g LEED Gold or higher, BREEAM Excellent or higher.


About the Authors

Dr. Barry Varcoe FRICS.
Barry Varcoe is a visionary, researcher, CRE executive and writer on the corporate real estate
and facilities management industry and the impact it has on the organisations and people
who use what it creates. He has undertaken senior leadership positions in a consulting
practice, global service provider and an international financial services organisation, and is
the immediate past chair of leading industry association CoreNet Global. He has also recently completed a research
doctorate. He is currently the Global Head of CRE&FM at Zurich Financial Services. Barry is a regular speaker at
conferences around the world, including at CoreNet Global, IFMA, BIFM, FMAA and BCO events. He has published
a wide range of research papers and articles and has contributed to a number of books including ‘Reinventing the
Workplace’ and ‘Productivity and Quality Management Frontiers’.

W: www.reresonance.com
M: +44 (0)7835 835432

Dr. Martha O’Mara PhD. CRE.
Martha O’Mara is a co-founder and Managing Director of Corporate Portfolio Analytics,
which applies portfolio planning processes, real estate market intelligence, and forecasting
tools to corporate portfolios. CP Analytics serves some of the largest companies in the US,
and influences occupancy decisions for more than 600 million square feet of commercial
space. Dr. O’Mara’s book, Strategy and Place: Managing Corporate Real Estate and
Facilities for Competitive Advantage was published in 1999 by The Free Press and is the definitive source for aligning
organisational and strategic objectives with long-term corporate real estate portfolio planning. She also lectures in
real estate executive development at the Harvard University Graduate School of Design, where she previously served
as a Professor of real estate for nine years and taught real estate finance and development, asset management,
location strategy, doctoral research methods and design studios on urban development. Dr. O’Mara holds a Ph.D. in
Organisational Behaviour jointly awarded by the Harvard Business School and Harvard’s Graduate School of Arts and
Sciences. She also has an MA and an MBA from Harvard University, and earned a BA from the University of California,
Irvine. Dr. O’Mara was elected a Counsellor of Real Estate in 2006, and serves on the Harvard University Alumni Board
for Real Estate.

W: www.cpanalytics.com
T: +1 617 938 6464


About Regus
Regus is the world’s largest provider of workplace solutions, offering the widest range of
products and services that allow individuals and companies to work however, wherever,
and whenever they need to. Regus operates over 1100 Business centres across 500
cities in 85 countries. Products and services include fully furnished, equipped and
staffed offices, world-class business support services, meeting conference and training
facilities and the largest network of public video-conference rooms, all serving over
200,000 clients daily.

Regus also supports the growing trend of mobile and home working. Supporting
workers at home and on the road, with services such as Virtual Office and Virtual PA,
providing dedicated business addresses as their business base as well as mail and
call-handling services. Regus also operates business centres in airports and other
commercial hubs, to serve clients wherever they find themselves working.

Companies of all sizes use Regus solutions to reduce costs and remove the burden of
property ownership and management and to create a workplace to suit however they
want to work.

For more information please visit www.regus.com


Notes


Whilst every effort has been taken to verify the accuracy of
this information, Regus cannot accept any responsibility or
liability for reliance by any person on this report or any of the
information, opinions or conclusions set out in this report.

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