PORTFOLIO OBJECTIVES- THE LINK TO BUSINESS STRATEGY

The real challenge is translating business strategies and objectives into property portfolio strategies that are practical and meaningful. Too often, portfolio strategies seem ambiguous – often with conflicting, mutually exclusive objectives; for example, below market costs of occupancy and above market investment returns. Too often, the strategies are framed as unattainable goals, such as contraction rights, but with no attached penalty payment clauses.

Over time the property industry has established a series of generic portfolio objectives for property occupiers. These objectives form a useful check-list to determine the optimum strategy for specific portfolios. But they should be applied with caution. The more objectives that are selected, the more likely it is that the really important objectives will be compromised. Location is fundamental to all property decisions and is an inherent component of all or most of the objectives listed below, and is therefore not considered in isolation. Obviously, these objectives need to be analysed and selected for each component of the corporate portfolio such as retail, offices, data centre or distribution warehouses to develop separate portfolio strategies.

EFFICIENCY OBJECTIVES

Efficiency objectives focus on getting the most out of the corporate assets for the lowest cost. This is applicable to owned or leased assets – the focus is on ‘sweating the asset’. Resulting actions will include space and rental rate reduction initiatives, other recurrent occupancy cost savings and consolidation of locations and rationalisation of facilities. Objectives around cost containment most often form a cornerstone of any portfolio strategy. The mantras of the efficiency fiends include rental rates, operating costs, utilisation rates and portfolio vacancies. It can be argued, however, that these cost containment initiatives should be targeted at an optimum level and not necessarily at the lowest cost options. Other key portfolio objectives may dictate that minimum cost is not always appropriate.

GENUINE EFFECTIVENESS

Effectiveness is often the antithesis of efficiency, with the focus moving to improving workplace productivity. Workforce-related costs are usually the highest component of most corporate budgets. A compelling argument can be made that the asset focus should primarily be on improving productivity. A small, sustained increase in productivity through appropriate workplace strategies will provide a far greater corporate benefit than a similar-sized reduction in the cost of running the portfolio. Premises and designs should all be about optimising the output of the workforce. Appropriate, functional workspaces that are fully supportive of the function being performed are the key to delivering corporate outcomes. Location and consolidation considerations also form part of the effectiveness of the portfolio.

INTERNAL/EXTERNAL AGILITY

Portfolio agility means providing corporations with the maximum flexibility in their property commitments and the use of their facilities. In the constantly changing business environment, corporate agility and the ability to respond rapidly to threats and opportunities is becoming key to survival. Portfolio agility is focused both internally – within the walls of assets – and externally, based on lease and ownership commitments. Internal flexibility of the use of the assets is centred on the ability of the workplace to support changing functions and team structures without any significant cost or effort. External agility is the ability to respond to changing portfolio needs through contraction and expansion rights in leases, options to renew, options on new premises and exit strategies for owned assets.

ENGAGED WORKFORCE

Engagement is design terminology used to describe how the portfolio supports the personal needs and expectations of the workforce. With workforce costs being the largest component of most annual corporate budgets, employees’ needs and expectations cannot be ignored. Despite the economic meltdown, the ‘war for talent’ is alive and well. Therefore, it makes sense to ensure that the workplace fully engages and motivates the workforce to excel in their responsibilities, thereby reducing employee attrition. The recruitment and training of good new employees is always an expensive exercise. Portfolio strategies, including the appeal of the premises, breakout areas, café locations and ergonomic workplaces, can go a long way to recruiting and retaining the best employees.

CUSTOMER INTERACTIONS

Customer interactions with the portfolio are critical to some property sectors. Positive or negative experiences in the interactions between the company and their customers can often be linked directly back to the style and nature of the corporate assets. The portfolio can be used effectively to entice potential clients and customers into the inner sanctum of the business to engage and to spend. The ranking of this objective in retail portfolios should always be high. Portfolios that are poorly located and presented may turn customers away and create a poor impression. Asset and portfolio strategies using image, design and environment can provide positive experiences for the community, grow the customer base, and, most importantly, positively affect spending patterns.

THE RIGHT IMAGE

Marketing and brand value of a portfolio can be key objectives for some sectors. Projecting the right image and highlighting the brand presence in a market can be achieved relatively simply through clever portfolio selection.

High-profile assets and those with the appropriate image can be a cost-effective marketing tool with only limited marketing spend. Conversely, poor location decisions and having the wrong image can significantly detract from a marketing message to prospective customers. The brand value of the corporate portfolio can be a key advantage of the portfolio strategy – both to the external customer base and the workforce entering the buildings every day.

KNOWLEDGE TRANSFER

Knowledge transfer capability means promoting and enhancing exchanges between the workforce members at all levels. The economy of the world has become focused on knowledge transfer and is the key to corporate competitive advantage. Portfolio and workplace designs in the organisations competing in this sector need to focus on collaboration and teamwork. Office portfolios now form the portals for telecommunication and technology linkages for the whole workforce – no matter where they decide to work for the day.

SPECULATIVE PROPERTY BETS

Exchange value of a portfolio strategy is about companies using their operational asset needs to create corporate value. Other than for property trusts and developers, it is unusual to find property development and investment objectives forming part of most corporate portfolio strategies. Generally, without property development core skills in a company, potential property development profits, though enticing, should be ignored. Unsuspecting companies that have been tempted into speculative property bets often regret the decision when they suffer the dire consequences of a market change, or when they discover they have neglected key development risks. In selected circumstances this objective may form part of a corporate portfolio strategy – but only when the core skills are available.

So from the above shopping list of objectives, how can we develop the beginnings of a robust corporate portfolio strategy to support our specific business strategy and objectives? First, it should be recognised that many of these objectives may be conflicting in some form. It is tempting to want a little bit of everything. But by attempting to achieve all or too many of these objectives, the most important key portfolio focus will likely be compromised. The answer is to restrict yourself to the three or four most important objectives and prioritise them.

Using this process, for example, a major consultancy business employing many skilled employees may be expected to select engagement with the workforce, cost efficiency and knowledge transfer as key objectives. A high street retailer may select marketing, customer experience and workforce engagement. A major distributor and warehousing operative may select effective processes including location and design, cost efficiency and possibly portfolio agility. A supermarket chain will probably select cost efficiency, customer experience, marketing and possibly even releasing exchange value – usually a means of minimising long-term occupancy costs.

This process starts to provide portfolio focus and, with some thought, selected portfolio objectives and strategies can be tested against corporate objectives and the portfolio will start delivering real value to the company