Philips' Alterman meets challenges of rightsizing

Like much of Corporate America, Philips Electronics has undergone a right-sizing program that ultimately led to creation of surplus real estate. Charged with handling that excess space is Alan Alterman, director of real estate for Philips Electronics North America Corp. (PENAC), New York. He serves as an internal resource to all product divisions for facility-related initiatives that reduce operating and occupancy costs. PENAC currently occupies 200 million sq. ft. of space in approximately 400 locations.

He currently serves on the board of directors for the Industrial Development Research Council (IDRC), Atlanta.

Q. Has Philips Electronics North America Corp. changed either the structure of its corporate real estate department and/or the way it treats the real estate function in the last two to three years?

A. Philips Electronics is a widely diversified multibrand manufacturer with divisions and operations throughout the continent that produce consumer electronics, lighting products, semiconductors and medical systems. A few years ago, Philips embarked on a companywide program for continuous improvement called Operation Centurion. Part of the program necessitated a "rightsizing" of the company that inevitably led to the creation of over 3.1 million sq. ft. of surplus real estate.

In the past, each division of the company operated autonomously in handling their space needs. This often led to solutions that fell short of the ideal. A major shift in Philips' philosophy is apparent in the redefinition of the real estate department as "a centralized point in a decentralized company" for handling occupancy matters. With locations in 270 cities and 42 states, we're taking proactive steps to maximize the value of underutilized assets by taking a realistic look at our property needs and consolidating or co-locating our operations where it's feasible. Philips is also looking to take advantage of technology by investigating what is necessary to perform in a static environment vs. what can be done outside the normal workplace. This includes the use of shared office environments, telecommuting, information networks and cellular phone technology.

With the increased role of the real estate department as specialist information networks and liaison for all divisions of the company, we can achieve far greater results than we have in the past. Whether it's acquisition or disposition of property, work site consolidation, space planning or lease negotiation, it adds up to a significant cost savings for the individual division and the company as a whole. In fact, over the past year, the real estate department has realized a company savings of approximately $10 million by reducing lease occupancy costs. And of the 3.1 million sq. ft. of surplus real estate that Philips has, 2.25 million of it has either been negotiated or is under negotiation and will close in the next six months.

In short, the company has come to realize the importance of real estate as a significant aspect of its bottom line.

Q. Please describe one or two transactions that illustrate either a new way Philips is handling its space needs or how alliance partners are performing.

A. At Philips Electronics Instruments in Atlanta, we had three separate facilities with leases that were about to expire. The easiest solution to the problem would be to renew the leases. However, by using a systematic approach, we explored other ways to solve the problem

Using a team model, I brought in a local space planner, real estate broker and architect and found that we didn't need all the space we had. We found that the company could reduce the overall costs and improve business efficiency by consolidating the three facilities. Because there wasn't a large enough building in the area to fold into, I found that a "build-to-suit" building was the best alternative. Philips' status as an international Fortune 50 company helped us secure favorable financing rates which created a win-win situation between us and the developer.

We've had similar success at Philips Interactive Media in Los Angeles, a maker of multimedia software. Again, we had three separate locations that we found would be more cost effective if consolidated. We found suitable accommodations for all three locations in a building on Wilshire Boulevard. And as an added value, it gave me the opportunity to negotiate with the owners for building-top signage, which is visible to hundreds of thousands of motorists from the 405 Freeway.

In both of these situations, Philips gained a substantial savings through reduced lease occupancy costs. At the same time, the company benefits from the reduced square footage, better business synergy and a more cohesive work environment. Had Philips taken the easy route and renewed the leases, these advantages would have been lost.

Q. To whom do you report? To whom do they report? Do you think it's important for a corporate real estate executive to report either to a company's CEO or CFO?

A. I report to John Kelly, who is senior vice president of real estate and environmental affairs. However, I have a great deal of access to all of the senior management at Philips, including our CEO, CFO and General Counsel.

It's vital for a real estate executive to have the support and the availability of senior management. I feel fortunate to work for a company like Philips where senior management provides excellent support and has a professional, results-oriented approach. There's no bureaucracy and they provide me with the freedom and latitude I need as the director of the real estate department. I've found the attitude of Philips' senior management to be a rarity in today's corporate environment. It makes all the difference when you're empowered to make changes for the better.

Q. Do you handle foreign transactions as well as domestic?

A. The company has made me responsible for the United States, Canada and Mexico -- its own geographic responsibility.

Q. What alliances has Philips formed, if any? How does your company use service providers?

A. I like to think of myself as a team player. When working on a project, I'll use brokers, architects, space planners, appraisers and attorneys when they're necessary. What's most important to me in choosing outside service providers is to select people who can work well with me and the other people I've chosen to be on my team. As a result, I don't have any strict alliances, although I do have preferred vendors that I use on a regular basis. They tend to be team players who understand the goals and needs of my company.

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