"We started out developing the AT&T Corporate Center and today we're their (AT&T's) preferred vendor in the whole Midwest doing all of their business in 12 states. That's what we really wanted to do. We wanted to have many clients like AT&T where you create a relationship-based business, for a lot of reasons."
That's the bottom line, from managing director Richard Hanson, on why Chicago's Stein & Co., one of the most successful full-service real estate firms in the Midwest, decided to reinvent its organizational structure from the top down.
Real estate is increasingly a service-driven business, and relationships are of paramount importance, not only in creating new revenue opportunities, but also in stabilizing revenue streams over the long term. The key to Stein's success has been its relationship building to win clients like AT&T, Federal Express and Ameritech.
But success can have its price. Stein & Co. was a mere 50-60 employees strong back in 1989 as it was finishing its largest development deal, the 60-story AT&T Corporate Center in Chicago's Loop. Since then, the company has grown to more than 250 professionals, adding an average of 20-30 new employees a year.
"In all that time, you continue to hire as your business grows, but you don't always look to the leadership, and as a result the leadership group becomes more and more diluted," says Hanson. "What we've done in the past is try to adapt the leadership group to better lead a company as diverse as ours is, but we never really stepped all the way back and looked at the company and said 'If you had started out as a 200-person company, is this how you would have organized it?' For the first time we stepped back and asked that exact question. The answer is 'No it wasn't.'"
Built from humble beginnings
Stein & Co. was founded in 1971 by Richard Stein, the company's chairman. Stein started by converting condominiums in the early 1970s, then his big break came when his proposal won the AT&T Corporate Center assignment, as development partner and design/builder.
That project vaulted the company into prominence on a national scale and solidified its relationship with AT&T. Today, Stein is probably best known for its high-profile work on public and government projects, a short list including the United Center, Comiskey Park, Chicago Board of Trade expansion, McCormick Place convention center expansion and the Metcalfe Federal Building, all in Chicago. The company also has submitted bids to the city of Chicago for a new Chicago Bears stadium, a new central area circulator project for the downtown Loop and to program manage all aspects of the 1996 Democratic National Convention in Chicago.
But two years ago, Stein and his management team, led by Hanson, an ex-Coopers & Lybrand man of 17 years, started seriously thinking about a major corporate redo. Over time, they held two corporate retreats and brought in experts from Northwestern University and the Keystone organization to advise them on strategic planning.
"The benefit of being organized functionally is that from an internal point of view you maintain good functional expertise and then externally you make it seamless to your clients," says Hanson. "Your client typically isn't aware and doesn't really care how you're organized internally as long as you deliver seamless service to them."
"We then realized that how we were organized did not allow us to provide our clients with seamless service."
So Stein made some bold moves. First, during the course of its soul-searching, it hired back Julia Stasch, Stein's former president and COO who had done a two-year stint with the General Services Administration in Washington, D.C. Stasch is Stein's new chair of the top-level management committee. She took over her role on Aug. 1.
Second, it eliminated its four functional groups (investor, industrial, corporate and program managment services) and created a group of managing directors.
Then it created 10 "teams," each based on a specific client sector (see chart). The teams are staffed with people already involved in those previous functions. Each team is headed by two managing directors, one with experience in organization and the other in sales.
"Those teams are dedicated specifically to providing full services to those clients, plus expanding their expertise to service like kinds of companies," says Hanson.
The result takes a long-term approach to the real estate business. "Typically in real estate, whether you're a broker trying to finish a transaction or whether you're a program manager trying to get one building built, the industry has been largely transaction designed and organized. What we're trying to do is not going to be easy," says Hanson.
"It's a pretty significant change inside Stein & Co. because it changes all of the profit centers and the leadership groups and the way inside the company we deal with our clients," says Hanson. "To most of our existing clients, they probably won't see much change. There was a question we used to ask around the company, 'Who owns that client?' Now everybody knows who owns that client, and it's teams as opposed to individuals."
Outsourcing is here to stay
Will it work? Hanson thinks so, in large part because it pays homage to Corporate America's mindset. "I think outsourcing is here to stay. I don't think it's a fad. There's been some discussion lately whether outsourcing is a temporary phenomenon or whether there may be a reversal and people are going away from outsourcing. A few companies overdid it and eliminated 100% of their real estate capacity. That's wrong. I think that every corporation has its own culture."
Lori Brown, a managing director overseeing one of Stein's service teams which counts Federal Express' 26-state, 50 million sq. ft. portfolio among its clients, is bullish on the long-term nature of the company's relationships. "Corporations are trying to reduce the number of service providers that they deal with. They need to operate more efficiently as well. We're finding that many of these companies, once we've established a relationship, say, 'What else do you do?' We truly want the long-term relationship. It's going to help the company stay on a more level footing," says Brown.
Stein's decision to create nearly autonomous operating groups also includes the use of entrepreneurial marketing strategies. "In the future our whole marketing scheme will be by teams," says Hanson. "What's really amazing is the absolute lack in the industry of organized marketing. Very few businesses organize themselves so that everybody is on the same page when it comes to who they're marketing to and who they're looking for. We intend to do something about that. Also, we intend each group to have its own marketing expertise. The client should get what they're looking for because it's being delivered by the same people who sold it to them."
Service, not project driven
Stein's clients have long appreciated the hands-on service orientation, but the outside world often only recognizes its high-profile, newsy program management jobs. But Hanson says that work accounts for less than half of the company's total revenues.
"It's what everybody notices," says Hanson. "That's another reason we reorganized. We are not a project-driven firm, we are a service-driven firm, and we wanted to be sure that our clients recognized that we were most interested in servicing them and being a service organization."
As an example, Hanson points to Stein's joint venture ASC Services Co., which services the Ameritech business with about 170 employees. The AT&T business encompasses 12 states. And the Federal Express account is staffed with at least eight full-time people. "It's quiet and a lot of people don't know about it, but it's the majority of our revenue," says Hanson.
Of course, Stein's still not going to let those big projects get away, either. Right now, the company has about $3 billion of gross value in building work in the pipeline. "Those are mammoth things and it's easy to take a picture of United Center or McCormick Place, but it's hard to take a picture of a transaction. It's hard to take a photo of the last 10 deals you did with AT&T, or the 83 transactions we're working on for FedEx at this moment."