CRE models - Better By Design 2011

Better by design:

Reshaping the CRE

function for greater

impact

“A greater focus on strategy has helped CRE get closer to the core

business, and communicate the value proposition of real estate more

effectively”

Mike Napier, Executive Vice President, Real Estate, Business Service Centres and Corporate Travel, Royal Dutch Shell plc

2 Advance • Better by design: Reshaping the CRE function for greater impact • April 2011

Introduction

Today’s Corporate Real Estate (CRE) executive is being challenged

to support an increasingly complex array of corporate initiatives.

These can include global expansion or contraction, sustainability,

winning the war for talent, speed to market, cost reduction or

avoidance, and enhancing operational efficiency.

Faced with such a range of complex and important demands,

engineering an optimal team structure is crucial to achieving best in

class performance. In addition to enhancing performance, a leaner,

more effective team structure can improve business alignment and

reduce cost – demonstrating the full value of the CRE function to the

wider business. Most importantly, the onus is being put on CRE

teams, by their core businesses, to adapt their skills to meet these

changing requirements and demands.

The prospect of adding value through the re-focusing of the CRE

structure is alluring. But how is it best achieved? In response to

questions from a range of clients on this issue – across geographies

and sectors – this paper explores some of the organisational and

operational models which shape a best in class CRE team.

Towards a strategic future

There is already a clear evolution underway, driven by dynamic

macroeconomic conditions, continued globalisation; and a growing

realisation among corporate leaders of the value that can be

delivered by an effective and focused CRE function. This evolution

will ultimately be characterised in a range of ways. But one thing is

clear; best in class CRE teams will be leaner, more strategic and

focused on internal stakeholders, working alongside the wider

business as influencers and leaders of change. This evolution is

likely to require a fundamental reassessment of team structure,

roles and skills.

Choosing the right model

Designing the right CRE model has to take a range of factors into

account, as each organisation operates in very different ways. But in

each case there are common factors which need to be addressed.

Alignment with the core business is the most fundamental of these,

as without this the structure cannot be truly effective. In addition to

this core concern, the size of the team and the skills required of it

depend on a range of key factors outlined below:

• The objectives and targets set by the board / leadership

• The complexity of the real estate portfolio in terms of property and

ownership types

• The existing mandate and remit of the real estate team; which is

particularly crucial as a clear remit and control will strengthen the

process

• The composition of the core business; i.e. number of business

units

• The manner and frequency that the real estate function intends to

interact with the business

• The number of stakeholders and their input into real estate

decisions

• The mandate and remit of any outsource partner; also critical as it

directly impacts the resourcing and focus of the internal team

• The level of management of the partner contract

Only once these factors have been assessed and clarified, can

examination of the most appropriate organisational model begin. In

the remainder of this paper we examine the 4 key organisational

models available, outlining some of the pros and cons of each

before highlighting some recent case studies which give practical

insights into some of the challenges and successes encountered in

implementation.

Figure 1: Towards a strategic future?

Typical Time Potential Value Typical Time Potential Value

Planning

Operations

Strategy& RelationshipManagement

Planning

Operations

Strategy & Relationship Management

50%

25%

25%

70%

25%

5%

50%

25%

25%

25%

70%

5%

Typical Time Potential Value Typical Time Potential Value

Planning

Operations


Planning

Operations


Planning

Operations


Planning

Operations


50%

25%

25%

70%

25%

5%

50%50%

25%25%

25%25%

70%70%

25%25%

5%5%

50%

25%

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70%

5% 50%50%

25%25%

25%25%

25%25%

70%70%

5%5%

Advance • Better by design: Reshaping the CRE function for greater impact • April 2011 3

CRE models: the options

A successful CRE team structure can be delivered through a number of

platforms, with the varying size and structure of businesses leading to a

range of hybrids. There are, however, essentially four main models. These

four models share a number of common traits including the need to report

into a single CRE and senior business lead; and the need to establish a

balance between in-house and outsourced activities, for example. But a

number of important differences also exist between the models. These are

explored below alongside some pros and cons.

Option 1 - Functional

A functional business model is a traditional CRE model that promotes

autonomy based on real estate function, with each function or ‘silo’

reporting up to the global lead.

Organisational Structures - Functional

Planning TransactionsFacility

Management

Design &

Construction

CRE Lead

CRE InfrastructureInformation ManagementPerformance Management

AdministrationReporting

HR

IT

Finance, Legal etc

Planning TransactionsFacility

Management

Design &

Construction

CRE Lead



HR

IT

Finance, Legal etc

Pros Cons

Simple structure Less focused on business units / structure

Clearly understood Potentially slower speed to market

Fits standard CRE skill sets Risk of gaps between silos

Brings good subject matter expertise

Potential issues with business engagement

Ease of implementation Potentially inflexible staffing model

Option 2 - Geographic

A geographic model allows the global lead to have overall control of the

real estate functions with regional executives liaising with the local

business units and service provider representatives on the ground. This is

essentially an extension of the functional model geographically.

Organisational Structures – Geographic

CRE Lead

HR

IT

Finance, Legal etc.

Region B Region CRegion A

Design &

Construction

HR

Facility

ManagementTransactionsPlanning

Design &

Construction

Facility


Design &

Construction

Facility


CRE Infrastructure

Information ManagementPerformance Management


CRE Lead

HR

IT

Finance, Legal etc.

Region B Region CRegion A

Design &

Construction

HR

Facility

ManagementTransactionsTransactionsPlanningPlanning

Design &

Construction

Facility


Design &

Construction

Facility


CRE Infrastructure



Pros Cons

Strong local portfolio Knowledge

Labour and management intensive

Effective for decentralised business models

Added complexity

Aligns well with country led business structure

Potential issues with alignment to related functions

Brings subject matter expertise

Risk of gaps between silos

Fits standard CRE skill sets Less focused on business units / structure

Proactivity may be limited


Option 3 - Process

This model involves structuring the real estate team and functions around

the process of real estate delivery; matching each activity to the life cycle

of real estate. The structure encompasses transaction management,

portfolio administration, facilities management and project management

within ‘delivery’ and ‘transformation’ processes. Executives accountable

for each process then report up to the CRE lead.

Organisational Structures - Process

Workplace

Delivery

Process

Workplace

Transformation

Process

CRE Lead



HR

IT

Finance, Legal etc

Workplace

Delivery

Process

Workplace

Transformation

Process

CRE Lead



HR

IT

Finance, Legal etc

Pros Cons

Mirrors real estate lifecycle Cultural / functional resistance

Less siloed approach Challenging to existing skill set

Enables consistent delivery Risk of shadow organisation

Integration allows greater speed to market

Requires a broad mandate

Can facilitate easier access to best practice

Design, set-up and process can be complex

Can reduce project cycle time

Can be difficult to articulate to internal and external audience

Option 4 – Market/Customer

A market customer model works by assigning relationship managers to

key business units who then report back to the CRE lead. The model

operates on a supply and demand basis with relationship managers

managing business demand; while portfolio managers and subject matter

experts manage the supply side. Each business unit manages a range of

strategic and tactical services on behalf of the business unit.

Organisational Structures – Market / Customer

CRE Lead

HR

IT

Finance, Legal etc.

CRE Infrastructure



HR

Subject Matter

Experts

Supply-side

Portfolio

Managers

Relationship

Manager

Business Unit C

Relationship

Manager

Business Unit B

Relationship

Manager

Business Unit A

Pros Cons

Complete alignment with business

Requires trust of business

Adaptable / flexible Complex structure

Integration allows greater speed to market

Challenging to existing skill set

Scalable Potential for “siloed” service delivery by business line


High Performing Real Estate teams – Case Studies

The journey towards a best in class CRE structure is a progressive one. Indeed the ability to plan over time can help reduce conflict and helps the

business digest change gradually. The following case studies look at a range of real client experiences and some of the challenges and successes

encountered along the way:

Case Study 1: Shell

“A greater focus on strategy has helped CRE get closer to the core business, and communicate the value proposition of real estate more effectively”

Background Shell has around 20,000 properties worldwide, ranging from commercial, industrial and residential to assets including hospitals, schools and sports clubs! Their office portfolio exceeds 2 million sq m.

The redesign of Shell’s CRE team was part of a broader ‘root and branch review’ of the Shell operating model. As part of this wider process, the CRE reorganisation was launched in Q4 2008, taking under a year to implement, after a 2 year period analysing the model. Throughout the broader reorganisation, CRE design was deliberately left to last, with third-party advisors used to benchmark team structure.

Structure The previous CRE model had, since 2004, been geographically focused into 3 large regions, all of which were culturally and structurally distinct organisations of varying size and remit. Teams had responsibility for a range of activities including stakeholder engagement, strategy and transaction management. This had resulted in limited specialisation, with teams tending to be operationally focused, which at times impaired both strategic master-planning and delivery.

One objective of the redesign was to remove the regional focus and strengthen functions – based on a process model. The end result was a process model based around 3 key functions: Strategy and portfolio; Programme delivery and Services (facilities management).

Improving the link between the planning process and business strategy was identified as a key issue to address, so “Global Strategy managers” were created to focus on Shell’s 3 business lines and demand management, in addition to a portfolio planning team working in tandem with strategy and global workplace teams. As well as being process-focused, the new model needed to be more client or demand focused at all levels. So although the Strategy team has explicit CRM responsibilities, both Program delivery and RE services also now operate on customer relationship models.

Objectives Organisational change was a fundamental driver of the redesign as it became clear that the existing CRE model did not fit the broader evolution in operating model. However there were further objectives which drove the restructuring, which included:

• A need to define processes and measure performance

• To establish a simple, standardised global structure

• To create standardised positions and networks to encourage sharing of best practice

• De-layering and removing complexity (no more than 4 layers from top to bottom)

• To create a robust, resilient and flexible model able to adapt to organisational and operational change

Interestingly, as other process reorganisations were seeking efficiency there was no priority to reduce headcount, and as a result the CRE redesign was almost completely neutral in terms of headcount reduction.

Outcomes and lessons A greater focus on strategy has helped CRE get closer to the core business, and communicate the value proposition of real estate more effectively. Although initially time was required to explain the new model to teams, there is now greater clarity around roles and accountabilities. There is also improved integration and reliance across teams, although processes are constantly being tested to avoid new “silos” developing.

The new structure has also presented challenges getting the correct skill set in each role, and in overall talent management, with many of those in operational positions seeking to be more involved in strategy. However one of the most critical issues is managing demand – greater strategic engagement has led to even greater demands on CRE resources – so be careful what you ask for!


Case Study 2: Philips

“Our key CRE objective is to create a simplified, integrated structure and deliver seamless, efficient provision of real estate and facility management services for the business”

Background Philips’ global portfolio amounts to 5.7 million sq m worldwide, with over 870 buildings spread across 72 countries.

Rather than a single isolated redesign of the CRE structure, Philips has undergone a process of continual evolution over the last few years. With 3 strong, distinct business lines or ‘Sectors’ to support, CRE seek to achieve operational excellence against these different business-line driven agendas. Real estate requirements and dynamics often change rapidly driven by both strategic, top-down initiatives and bottom-up demands from business lines.

Structure 5 years ago, there was no formalised global real estate structure, limited understanding of portfolio, and limited integration across teams and regions. However over the past few years the team structure has undergone a number of advances.

The CRE team is now split geographically into four regions, with regional delivery teams specifically focused on operations in each region, which include facilities management and workplace management. In parallel with the regional structure a global team has been introduced which has global responsibility for strategic planning and alignment with the business ‘Sectors’. The global team also has transaction management responsibility.

In common with many CRE teams, the team at Philips have faced pressure to be more client-focused and to create a hassle free integrated service for the business. In response to this one of the most remarkable changes has been the introduction of client centric, workplace managers - managing client demand. Workplace managers look after a cluster of locations, with lots of collaboration across teams.

Objectives The key CRE objective is to create a simplified, integrated structure and deliver seamless, efficient provision of real estate and facility management services for the business. Beyond this, one of the major current objectives is to free the internal team from day to day operations to enable a greater focus on strategy. Although not an end goal in itself, the team are working hard to increase strategic alignment and engagement with the business as ultimately this will enable achievement of core objectives.

Outcomes and lessons The journey has led to an increase in outsourcing and greater leveraging of service providers for functions including property portfolio data management, transaction management and facilities management, with the Philips team still working through the outsourcing process and assessing whether more can be done to free up internal resource.

Despite this increase in outsourcing, portfolio dynamics and current structure mean continuous pressure on resources. Staffing benchmarks are consistently beaten, so although internal structures are lean this can create issues with being over-stretched.

Although greater evolution is still required to fully realise the team’s core objectives, significant strides have been made. The structure is now a hybrid version of different models: client and demand focused with functional and geographic elements. Although not necessarily planned in advance there is a feeling Philips ‘get the best of all worlds’.


Towards a new model

This paper has explored the four essential CRE organisational models

operating in the market today. Each of these, and the various hybrids that

have developed, can bring strong results when applied and executed

effectively. But the service model for CRE teams is evolving across all

sectors as we see increased focus on building reliable portfolio data

Increasingly, best in class performers are moving from the traditional silos

of transaction management, facilities management, portfolio administration

and project management to a more integrated delivery of CRM, workplace

and process management. By transitioning from structural confinement by

function, geography or business line, we believe CRE organisations mirror

the delivery process and maximise their value to the core business.

An integrated process-led model can offer a number of benefits:

• Increased CRE impact through proactive strategy

• Enhanced CRE relationship with the core business and executive

management

• Broader governance and complete alignment of interests

• Portfolio and property life-cycle approach

• Common process and access to global best practices

• Maximum negotiating leverage and opportunities for cost savings

• Reduced management administration and supervision

• Common IT platform and knowledge management

• Facilitates instant conflict resolution with greater flexibility

• Simplify process for stakeholders and users

• Reduce project cycle time

Reshaping the team structure can be a challenging process. Figure 2

below outlines some of the key steps required for a successful transition.

However, although the benefits can be great, the length of time such a

change can take should not be underestimated. Nor should the potential

challenges be overlooked, particularly in terms of skill sets and realigning

people within new structures.

When it comes to choosing the right CRE organisational structure, there is

no single, standard template that can be applied regardless of company

size and structure. There is, however, an evolution in best practice. Those

CRE organisations that adapt and reflect this evolution will be best

positioned to reap the rewards of a more effective and strategic function

more closely aligned to their core business.

Figure 2: How to get there

Step 4 - Integrated Master Plan

Step 2 - Building Business Case

Step 3 - Refining Polices & Procedures

Step 1 - Current Structure

• Analysis of organisation design

• Understanding current roles and responsibilities in-house and externally in the existing approach

• Complete the CRE Audit tool (both internal & external workers)

• Key stakeholder interviews

• Analyse headcount data and projections

• Study financial reporting, portfolio data, MIS

• Reveal trapped value and focus on the gap

• Indentify the alternative delivery options

• Complete gap analysis

• Identify any changes required

• Identity the benefits, risks and responses of the changes required

• Select most feasible model for detailed analysis

• Formulate high level implementation plan

• Compare cost and benefits of each model, arrive to the ideal CRE model

• Define performance indicators derived from business needs

• Define new rules, procedures, skill information and resource requirements

• Indentify outsourcing opportunities and partners, procure services

• Work with finance, legal, technical, HR etc to develop detailed business case

• Provide initial training

• Integrate CRE plans with financial, business, other infrastructure strategies

Step 4 - Integrated Master Plan

Step 2 - Building Business Case

Step 3 - Refining Polices & Procedures

Step 1 - Current Structure

• Analysis of organisation design

• Understanding current roles and responsibilities in-house and externally in the existing approach

• Complete the CRE Audit tool (both internal & external workers)

• Key stakeholder interviews

• Analyse headcount data and projections

• Study financial reporting, portfolio data, MIS

• Reveal trapped value and focus on the gap

• Indentify the alternative delivery options

• Complete gap analysis

• Identify any changes required

• Identity the benefits, risks and responses of the changes required

• Select most feasible model for detailed analysis

• Formulate high level implementation plan

• Compare cost and benefits of each model, arrive to the ideal CRE model

• Define performance indicators derived from business needs

• Define new rules, procedures, skill information and resource requirements

• Indentify outsourcing opportunities and partners, procure services

• Work with finance, legal, technical, HR etc to develop detailed business case

• Provide initial training

• Integrate CRE plans with financial, business, other infrastructure strategies

8 Advance • Better by design: Reshaping the CRE function for greater impact • March 2011

Authors

Tom Bayne-Jardine, Head of Corporate Accounts, England

+44 (0)207 399 5496

[email protected]

Tom Bayne-Jardine is responsible for the firm’s UK based corporate clients, managing a team of 80 staff

delivering real estate services and consultancy advice across EMEA. He maintains client-facing roles as

Account Director for Lloyds Banking Group overseeing estate management, dilapidations, lease renewals

and rent review services on the Bank’s 24 m sq ft UK portfolio. He also has Global Client Relationship

Management responsibility for clients including AstraZeneca, Ericsson and IPG in EMEA.

Shelley Frost, Regional Director, Corporate Consulting

+44 (0)207 852 4695

[email protected]

Shelley Frost is the Lead Director of the Corporate Consulting group within Corporate Solutions based in

London. She has international experience in corporate real estate issues, advising major occupiers on their

property portfolios, workplace, organisational and location strategy. She is also chair of

Jones Lang LaSalle’s Global Specialty Board for Consulting, a group of 600 consultants worldwide. Having

worked across a range of industry sectors, clients have included Microsoft, Cisco, Nestle, Barclays, Shell,

DLA Piper, Dell, General Electric and IBM.

Jeff Schuth, Regional Director, Corporate Solutions

+44 (0)207 852 4679

[email protected]

Jeff leads the Solutions Development practice for the Corporate Business in EMEA. With over 25 years of

real estate experience, he enjoys an extensive background and experience of creating solutions for global

corporations for their corporate real estate relative to marketing, strategy, consultation, real estate

outsourcing, organisation and solution design as well as account management . Jeff has successfully

advised leading corporates such as Citigroup, Deutsche Bank, HSBC, Xerox and Diageo amongst others.

Tom Carroll, Associate Director, EMEA Research

+44 (0)20 3147 1207

[email protected]

Tom Carroll is an Associate Director in Jones Lang LaSalle’s EMEA Research team. Specialising in the

provision of research and strategy support to Corporate Clients, Tom has international experience working

with Corporate Clients including Deutsche Bank, Microsoft, AstraZeneca, UBS and Credit Suisse. In addition

to research advisory and strategy support for clients, he has also developed a number of white papers on

issues ranging from surplus asset disposal to emerging market strategy.


Further suggested readings from Jones Lang LaSalle can be accessed via our website at joneslanglasalle.com

• Best Laid Plans: Key considerations for portfolio planning, 2010

• Lifting your game: Scenario planning for real estate, 2010

• Global Real Estate Transparency Index (GRETI) - Mapping the World of Transparency - Uncertainty and Risk in Real Estate, 2010

• EMEA Corporate Occupier Conditions - Quarterly Market Publication

• United States Office Occupier Outlook - Quarterly Market Publication

• Asia Property Market Digest - Quarterly Market Publication

• Real Estate Standards Global Index

• Making CRE Partnerships Work in Asia Pacific, 2010

• Better by Design – CRE Structures, 2011

• Asia Pacific Corporate Real Estate Impact Survey (CREIS), 2003-2005

• #1 What Corporates Want

• #2 Faster, Better, Cheaper

• #3 Turning the Corner

• #4 Reducing Real Estate Costs - New Motives, Old Objectives

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we manage over 600 million sq ft of facilities and 52,000 leases, and complete more than 4,450 projects and 13,000 transactions every year. We have the

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Acknowledgements

We gratefully acknowledge and appreciate the support and assistance of Mike Napier at Shell and Leon Van Leersum at Philips with the case

studies used in this report.

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Economy & Finance

CRE models - Better By Design 2011