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Real estate is a massive investment, representing hundreds of millions of dollars of assets for organizations and major corporations. These large and still growing portfolios are obvious targets for the efficiency initiatives some other business functions have largely completed by now. Ignoring such a large portion of the income statement and balance sheet may leave uncovered tremendous opportunity for strategic cost reductions for most major corporations.
Accenture’s 2012 Real Estate Survey encompassed 181 companies with at least $5 billion in revenue, and a minimum of 10 million square feet in their organization’s real estate portfolio, across industries and geographies (North America, Europe, Latin America and Asia).
Real estate portfolios may represent as much as 10 percent of the operating expenses and 40 percent of the balance sheets for large corporations. As such, real estate represents one of the last big concentrations of cost many of these companies still need to tackle. Inefficiencies are often evident in real estate’s large staffs, decentralized decision making and the lack of robust performance management programs.
A recent global Accenture Real Estate survey suggests that many organizations still have significant holdings of owned properties despite the benefits of leasing facilities, such as increased flexibility. Limited visibility into portfolios may be driving the reason companies own rather than lease.
Some companies do not have easy access to even the most rudimentary information about their portfolios—for example, what they own, how much these facilities cost, which of these facilities are performing well, which functions are assigned to the space and to what extent those functions are using the assets.
Why, then, have companies been so slow to drive costs out of real estate? Many would argue with such an assumption, claiming that they are addressing the real estate spend with tactics such as improving workplace design. Yet, in truth, the hard work remains for many large organizations. To effectively manage their real estate, these companies can benefit from first crossing multiple gaps: an organizational alignment gap, a technology gap and a capability gap.
The research uncovered three key observations about real estate trends
The real estate function is not aligned with the broader businessSenior real estate officers are often disconnected from other business leaders in global companies. They can be left out of strategic discussions, typically isolated many layers deep in the organization. In the Accenture study, only 25 percent of the respondents had a C-level title and that was only in the case where real estate was managed directly either by the CFO or CIO.
Real estate organizations, unlike their peers, lack a progressive business modelReal estate is often a generation behind in adopting business models that align with current global market realities. Real estate functions move slowly in one direction or the other, based on the level of centralization in the function.
Real estate functions that are already centralized are showing more interest in moving to a shared services model. As they do so, they shift transactional activities to others along with the aim of reducing costs and optimizing SLAs by combining these efforts with similar efforts outside real estate.
Real estate organizations are often deeply buried in the hierarchy of a business. Senior real estate officers are typically unwilling to rock the boat. Those who are willing are seldom able to drive significant change because they do not have the authority or budget to do so. Senior real estate officers are often not provided with the capabilities they need to prioritize the opportunities to improve their portfolios.
Despite the significant technological advances of the last 10 years, these officers lack the technology tools to understand their portfolios and respond to global, regional or corporate trends. They are too often challenged to manage decentralized portfolios with non-standard processes and disparate tools and applications.
Therefore, it may be difficult for them to compare their portfolio expenses in regions with, for example, high versus low costs, or to identify geographical areas where the company is growing or declining.
There is a compelling opportunity for companies to look hard at these expensive assets that are core to the business, reflects its brand and can have significant influence over customers, investors and employees. It may be real estate’s turn to both define and align on the value the function provides to the business.
One catalyst for this work could be the CEO or the senior real estate officer demanding strategic alignment and proof of cost efficiencies. Another could be a real estate officer willing to push the strategic line. In either case, real estate functions face a multiyear transformation that will require strong sponsorship from the C-suite.
To move from a transactional to a strategic vision of real estate, companies can take the following three steps:
To do so, companies must define the value of the real estate organization and the role that it will play. Those decisions can enable them to rationalize real estate portfolios around key organizational functions as well as to align where real estate reports in the organization. They may also be able to identify, prioritize and realize opportunities to optimize the portfolio relative to the organizational goals and objectives.
Companies cannot measure well what they do not know they have. For many companies, the time is long past when manual data processes were sufficient to manage their real estate portfolios. They urgently need to develop the processes to gather and maintain portfolio data, invest in technology to store and analyze portfolio data and develop performance metrics to gauge the performance of the portfolio.
Companies can benefit from continuing their evolution to a progressive business model. The rationale for the choice of model can be socialized internally and with the executive team. That work can support the creation of a performance-based culture focused on efficiency. With that foundation in place, companies can move on to optimize how portfolios are managed, serviced and financed as well as how to centralize control of the portfolio and service management.
A. Reilly, managing director in Accenture Management Consulting, is the global lead of the Accenture Real Estate Solutions group and is responsible for the end-to-end real estate lifecycle management capability development.
J. Barlow, senior manager in Accenture Management Consulting, leads the Process and Technology team in the Accenture Real Estate Solutions group.
A. Levine, senior manager in Accenture Management Consulting, is also part of the Accenture Real Estate Solutions group.
February 23, 2013
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