Objectives and strategies making sure one meets the other

Understanding the real needs and ob­jectives of a business strategy always seems to be a daunting task for a corporate real estate executive. These are continually changing because of market dic­tates. They are seldom clearly articulated in written form. And they are seldom stated in property terms.

But the real challenge is translating these needs and objectives into property portfolio strategies that are practical and meaning­ful. Too often, portfolio strategies are stated with conflicting, mutually exclusive objec­tives – below market costs of occupancy and above market investment returns. Too often, strategies are framed as unattainable goals - contraction rights with no attached penalty payment clauses.

CRE literature has, over time, established a series of generic portfolio objectives. These form a useful checklist to determine an optimum strategy for a particular portfo­lio. But they should be applied with caution. The more objectives that are selected, the more the really important objectives tend to 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 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 near­ly always form a cornerstone of any portfo­lio strategy. The mantras of efficiency fiends include rental rates, operating costs, utilisa­tion rates and portfolio vacancies. However it can be argued 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.

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 workspace that is fully supportive of the function being performed is the key to delivering corporate outcomes. Location considerations are also fundamen­tal to portfolio efficacy.

Portfolio agility means providing cor­porations with the maximum flexibility in their property commitments and their use of the properties.

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 focussed both internally –within the walls of assets –and externally – lease and owner­ship commitments. Internal flexibility of the use of the assets is centred on the ability of the workspace to support changing functions and team structures without any significant cost or effort. External agility is the ability to respond to changing aggregate portfolio needs through contraction and expansion rights in leases, options to renew, options on new premises and exit strategies for owned assets.

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, the workforce’s needs and expectations cannot be ignored. The ‘war for talent’ is alive and well in our buoyant economy. It therefore makes sense to ensure that the workplace fully engages and motivates the workforce to excel in their responsibilities. And to reduce employee attrition – it is al­ways an expensive exercise to recruit and train good new employees. Portfolio strate­gies, including the appeal of the premises, break-out areas, café locations and ergo­nomic workplaces, can go a long way to re­cruiting and retaining the best employees.

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. Portfolios that are poorly lo­cated and presented may turn customers away. Asset and portfolio strategies using image, design and environment can provide positive experiences for the community at large and grow the potential customer base and, more important, positively impact their spending patterns.

Marketing and brand value of the port­folio can be a key objective for some sectors.

Projecting the right image and highlight­ing the brand presence in a market can be achieved relatively simply through the port­folio. Selecting appropriate high-profile as­sets 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 the commu­nity. The brand value of the corporate port­folio can be a key advantage of the portfolio strategy – both to the external customer base as well as the workforce entering the build­ings every day.

Knowledge transfer capability means promoting and enhancing all levels of ex­changes between the workforce members at all levels.

The knowledge economy is all about 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.

Exchange value of a portfolio strategy is about companies using their operation­al asset needs to create corporate value.

It is unusual to find property develop­ment objectives forming part of corporate portfolio strategies. Without property de­velopment core skills, potential property de­velopment profits, although enticing, should be ignored. Unsuspecting companies who have been tempted into speculative property bets often regret the decision when the dire consequences of a market change occurs, or when key development risks have been neglected. In selected circumstances this objective may form part of a corporate port­folio strategy – but only when the core skills are available.

So from this shopping list of objectives, how can we develop the beginnings of a ro­bust corporate portfolio strategy to support our specific business strategy and objectives?

Firstly it should be recognised that many of these objectives can be conflicting. And by attempting to achieve all or too many of them, the most important key objectives will be compromised. The answer is to be focused and to restrict the selection to the three or four most important objectives and then to prioritise these objectives in their or­der of importance.

Using this process, for example, a ma­jor multi-disciplinary consultancy may be expected to select cost efficiency, engaging with the workforce and knowledge transfer as key objectives. A high street retailer may select marketing, customer interaction 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 interaction, mar­keting and possibly even releasing exchange value – usually as 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 start to de­liver real value to the company