OFFICE SPACE AND PERFORMANCE By Abraham Park

Analytical Angles Corporate real estate Facilities management Workplace design 2 Main issues: 1.Demonstrating productivity, performance, added value 2.Benchmarking

Components of Office Environment 1.Physical – Temperature, lighting, air quality, location, etc. 2.Social/behavioural/organizational – Organizational effect of layout and design – Individual versus organisational needs – Interaction versus distraction – Collaborative and individual work styles 3.Balanced by cost, value, impact

Why Performance? Justify expenditure Get into the boardroom Move from cost factor to strategic factor – Transition from tangible to intangible resource class Link to corporate strategy – Must be more than a cost factor – Increase productivity? Competitiveness? Marketing? Human capital?

Strategic Alignment Corporate strategy – Business unit strategy – Real estate strategy to support and align Reduce cost by better management Perhaps more than operational importance Spatial importance, support all aspects of business – Workplace design strategy Mainly strategic reasons added onto real estate or facilities functions Increase competitiveness Performance

Corporate Dynamics Corporate strategy Strategic assets – Sustainable competitive advantage – Knowledge, specialized processes, competitive human capital, brand, intellectual property … – Difficult to imitate Operational assets – Imitable processes, factories, offices, shops Physical assets – Capital, land, labour (generic labour) CRE, Facilities Management, Workplace design Boardroom, CEO & CFO + … Office/Workspace

Government Even in government workplace: Office of Government Commerce (OGC) produces publications to highlight (ogc.gov.uk): – the benefits of workplace as a means of organisational change. – improved organisational performance by increased flexible working, through openness and collaboration – techniques and standards of measurement developed in conjunction with IPD Occupiers. property cost data the performance framework measure the effectiveness of the property provision

Benchmarking CRE – Align with corporate strategy to minimize inefficiency – Flexibility and productivity Reduce cost and reduce capital in CRE – Space standards, location criteria, lease and finance terms -> occupancy cost – Cost per sq. ft, per employee, internal CRE costing by businesses to measure department/branch performance, % of operations, average lease years, branding, HR retention, outsourcing – IPD Occupiers (UK)

Suggested Framework 1.Identify the business – Corporate level – Business unit level – Branch level 2.Identify the strategic enterprise resources for the company – Brand – Specialized human capital – Special process – Knowledge – Location – Cost/Price – Intellectual property

CRE/Office Link 1 If CRE/Office is supporting strategic resources: – It can have strategic potential (derived significance) depending on the closeness of connection – It can contribute to sustainable competitive advantage – It can help to create above-normal profits – Cost is less of a factor – Benchmark and performance measured against how well it supports the strategic resources – Aims to differentiate and not easily imitable (design, function, experience..)

CRE/Office Link 2 If CRE/Office is supporting operational resources: – It has operational importance – Efficiency and management is critical – Cost and delivering value are important – There is growing requirement to demonstrate value through performance and impact on operational bottom line – Differentiation comes through value – Outsource depending on value

CRE/Office Link 3 If CRE/Office is a commodity resource: – CRE/Office are considered as raw input – For example, storage, call centre, manufacturing – Then cost often becomes the primary factor – Cost is the differentiating factor

Location Location can be an important factor because it can have spatial implications that are unique It can be strategic, operational, or commodity CRE/Office becomes inherently strategic (itself a strategic resource, not a support resource) only in rare circumstances

Example: Top Law Firm Professional services Strategic resources: highly skilled human capital, brand, quality of service Office primarily supports strategic resources and therefore it has potential for strategic importance – Goal is to retain HR or clients (top of the line design + equipment + leisure + ) – Marketing and branding (central location with prominent signage and distinguishing features) – Location (close to clients, other high quality peers, convenience for partners) – Cost is relatively low in priority – Differentiation is not so easy – if it is easily imitable, then CRE/Office is operationally significant

Discussions?