It's a Brand New Ballgame for Outsourcing Real Estate

If you work for a Global 1000 company, you live in a highly competitive world where exceptional leadership is a mandate for becoming a member of the senior management team. Today, there are growing numbers of highly capable leaders in corporate real estate who are being recognized by senior management for their significant contributions to operational performance.

There is growing evidence that suggests real estate can have a significant impact on a company's bottom line. For example, many large companies are finding that the total cost of occupancy can range from 4% to 6% of revenues. For companies that are at the high end of the range, there are both challenges and opportunities to optimize the portfolio. The challenge is making change happen in a way that is seamless and has a positive impact on the company's overall workflow and profitability.

World-class real estate executives recognize that real estate is a complex business function. These leaders are required to have a strategic mindset, a deep understanding of their core business, and a collaborative approach for implementing solutions that support core business issues and challenges, and excellent communication skills for interfacing with senior management. These leaders surround themselves with trusted resources that have process and operational expertise, technological savvy, innovative management tools, and an intense focus on achieving successful outcomes.

The team approach

Corporate real estate is increasingly becoming a collaborative endeavor between service providers and clients. In 2004, Colliers teamed up with a corporate client who inherited a rapid growth strategy that was impeded by a time-constrained process. After much collaboration between the client and a team of Colliers specialists, the outcome resulted in the client eliminating 70 days out of the cycle to open a new business location.

In this example, speed to market combined with high-quality process management resulted in 70 additional days of unplanned revenue generation in 2004, as well as a lower than expected operating cost for opening each site.

Outsourcing is certainly not a new concept to real estate. What is new is the extent to which outsourcing is being used by Global 1000 companies to improve the performance of key internal business functions such as finance and accounting, supply-chain management, human resources and real estate. Emerging from the widely published benefits that are being achieved by real estate's “internal peers” is a baseline for measuring how real estate outsourcing relationships should be structured and measured.

For example, business process outsourcing is evolving as a widely accepted senior management tool for improving the performance of the human resources department. CEOs and CFOs are finding that there are lessons from outsourcing the human resources function that can be applied to how functions — such as finance and accounting and real estate — approach and implement their outsourcing initiatives.

In a recent survey of Global 500 executives conducted by Hewitt Associates, senior executives were asked to list their top criteria for outsourcing human resources:

  • Ability to improve process expertise, cited by 95% of respondents;
  • prior experience and a proven track record, 93%;
  • Service level improvement, 83%;
  • Cost savings commitment, 65%;
  • Leading-edge technology, 60%.

Senior executives are selecting service providers who can deliver a multi-disciplined value proposition. In other words, clients are seeking outcomes from these relationships that have multiple benefits. Today's brokerages are finding the criteria for outsourcing human resources is the exact same criteria many of our real estate clients are using for measuring the success of our outsourcing relationships.

New mindset emerges

As more innovative collaboration occurs between Global 1000 clients and service providers across a wide range of business functions, it's clear that there is a paradigm shift unfolding in how global companies are utilizing external resources to improve overall performance. Business functions like human resources, finance and accounting, and procurement lead the way in changing how the game will be played in non-core business functions.

Much like corporate real estate, these business functions have limited access to capital for investments, and the mandate to do more with less is becoming even more prevalent. The best of the best are beginning to understand that the successes that are being generated by their internal peers in human sources and other disciplines are a blueprint for how corporate real estate will be measured and rewarded in the future.

John C. Maher is executive vice president of corporate solutions at Colliers USA and is based in New York City

TAGS: News
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