Program Management

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Part 6: Why the need for a new “class” of vendors?

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Which current industry providers are best positioned to serve in a lead role under Program Management? The answer is: NONE. The role simply requires too broad an experience base and range of skills beyond the individual arenas of brokerage, design, construction, etc. Traditionally, companies have started a project by engaging a real estate broker who tended to “lead” the team and assist the client in finding/hiring additional team members, as needed, frequently being asked to manage tasks for which he has no training or experience. For the actual real estate work, brokerage firms have depended upon their own office networks to perform all tasks or they “co-broker” with an affiliate organization.

The team is frequently assembled based on prior promises or agreements or who will work for the least compensation, and not based on a fresh evaluation of the best talent for the given job. No training or background in comprehensive project requirements, or a client’s related CIR requirements exists broadly in the industry.

The Program Management approach, to the contrary, recognizes the need for a core brain trust and that there are many tasks best performed by local professionals, and that no single firm has the best and most appropriate individuals in every market for every given project.

Another key innovation in the Program Management approach, not supportable by traditional real estate providers involves the proactive integration of traditionally downstream activities such as interior design, construction management and IT infrastructure planning, all within the core strategic brain trust and supporting the project from the beginning. By maintaining key designers and “standards enforcers” on the team, consistent from project to project, accumulated learning as well as systematic value engineering takes place.

The Program Management approach best resembles the large but mostly now extinct in-house corporate real estate departments of firms like AT&T or IBM in the 1980’s, where huge teams of in-house experts drove projects and utilized selected service partners when needed. These organizations were built because the companies sought “control” of the process, knowing that the industry had weaknesses and service gaps. This was a valid attempt to improve the situation through assembling the brain trust and applying a better process. Such large in-house departments are a rarity today though as companies have shed non-core staff overhead. The expense of maintaining such a staff was huge and there were invariably still weak links and service competency gaps as requirements varied from project to project. The adoption of a Program Management approach can reestablish the control and value lost with the elimination of those large in-house capabilities, but with greater breadth of talent and without the fixed administrative costs they bore.

A comparison of the Program Management approach to the recent adoption of fractional ownership of corporate aircraft is relevant. In both situations, a valuable resource is accessed when needed, but the unavoidable cost of “down time” is absorbed by other users, instead of being carried by one organization. Program Management gives cost conscious companies the value of the best talent and process available to tackle facility projects when they arise without the burden or overhead of permanently hiring all of the people themselves.

Companies needing service are caught in a vise. On one hand, management has a higher workload than ever before, responding to rapid changes in the global economy, evolving industries, and aggressive competitors. For a facility to be a strategic asset to a company, management must attempt to stay in front of a variety of fluid requirements and maintain flexibility, all at the lowest possible cost. On the other hand, increasing pressure on profit margins has put a spotlight on all “discretionary” corporate spending, and the real estate department has not escaped scrutiny. Reduced staff and operating budgets are the norm, and the trend shows no signs of abating. They must do more with less. Figure 2 displays this predicament faced by “managers in the middle”.

Facing this pressure, what response have corporate organizations seen from service providers; real estate brokerage firms, architects, designers, engineers, contractors, furniture and IT vendors and so on? The answer is: not very much. With few exceptions, notably the furniture manufacturing industry, these businesses continue to be a highly fragmented, non-integrated collection of independent firms and individuals who have been frightfully slow to adopt change in business approach, practices, technology or innovation.

Business methods today in the real estate brokerage industry are not substantially different than thirty years ago. The latest “revolutionary” concept to have been broadly adopted is the advent of exclusive tenant representatives, some twenty years ago. In recent times, several Internet entrepreneurs have raised, spent and lost over $500 million unsuccessfully attempting to apply Internet technology to the brokerage process. While such an application is sorely needed and would significantly improve transaction quality to the benefit of companies who lease space and the landlords who own the buildings, with very few exceptions, the industry has resisted change and continues unaltered. Additionally, there is a basic foundational obstacle to change. Most brokerage firms are organized and managed so as to attract and retain top producing brokers who command individual compensation packages that leave the firm with razor thin profit margins and little capital to invest in innovation. These companies are not terribly unlike today’s pro sports franchises, increasingly hamstrung by their expensive labor costs and unable to flexibly run their organizations or adapt to change. Also fundamentally, the real estate industry and those top producers earn their revenue on the very inefficiencies or friction that such innovation would reduce, hardly a motivating scenario.

Architecture, design and engineering organizations have no better track record of innovation or process improvement. Traditionally low profit margins and a “craftsman” or “artist” cultural bent, these firms seem content to pass from project to project, going through the same sequential steps and using the same methodology used by their predecessors of decades ago, with no catalyst for innovation. The widespread adoption of CAD technology is the one true innovation adopted in the past several decades. Construction firms have no better record either, and their similarly low profit margins and positioning at the bottom of the “food chain” as the last ones to get involved and the only people left to deal with the problems at the end of a project place them at a disadvantage to drive any fundamental process improvement.

In summary, the corporate manager in charge of finding space finds himself acting as a “vendor manager”, dealing daily with the challenges and issues of finding, hiring, evaluating, managing and refereeing among the multitude of individuals and firms he must utilize, often a unique team of people on each new project, and often a team that has never worked together before on any project. This is not a formula for finding more time to spend on strategy and proactive support of his organization. This manager faces significant challenges in finding a responsive solution to his increasing pressures, and the professional firms that serve him seem unprepared to organize an appropriate response, without a change in fundamental thinking and organization of project delivery methodology.

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