By Rob Harris
Edition 9 – December 2017 Pages 34-39
Tags: real estate • fm • building
In his analysis of the Enlightenment, the great American naturalist Edward O Wilson observed that the main branches of learning emerged in their present form – natural sciences, social sciences and the humanities – out of a unified vision that searched for an ordered, intelligible universe. However, as scientific knowledge expanded exponentially, its key method – reductionism – pushed thinking in the opposite direction. Consequently, scientists became professionally focused, resulting in “physicists who do not know what a gene is, and biologists who guess that string theory has something to do with violins.”
Similarly, within the real estate supply industry. For many decades, major European real estate markets have been riven by fragmentation in supply structures. At least four generic groups can be identified, under the professional titles of design, construction, real estate and facilities. And within each of these there are numerous silos of activity, each with their own practices and arcane lexicon.
To misquote Wilson, there are real estate professionals who have never visited a construction site and designers who think a yield has something to do with harvest time. This is not to argue against specialism; but it highlights the key issue for this paper: the nature of the customer-supplier interface.
For a customer of the real estate supply industry, which here means an occupier, the array of skills required over the life cycle of occupation is labyrinthine, not to mention inefficient and costly. Some of the symptoms and implications are listed below.
• Separate design, construction, property and facilities management silos defeat presentation of a coherent discipline to customers.
• Duplication in activities and a lack of joined-up planning creates inefficiencies (and costs), and inconsistency in methods, approaches and standards.
• There is a dominant transactional/procurement culture rather than one based on genuine business relationships.
• Property is seen as an end in itself, rather than as an aspect of the customer’s corporate resource planning.
Apart from these specific problems, there are two broader implications arising from supply chain fragmentation. First, there is a cultural issue arising from the fact that the customer does not sit at the centre of the supply process. Secondly, there is a structural issue in that the supply process comprises a complex web of technical skill bases rather than an integrated management function.
The customer position. The first point is that the customer does not sit at the centre of our complex industry, but on the fringe. Moreover, the occupier has to share the ‘customer’ role with investors. Most new buildings are designed and delivered to appeal to investors first, and occupiers second. The real estate industry is dominated by interests that are focused on property as a tradable asset, namely landlords, developers and the large real estate practices. This is not a criticism: property investment is a hugely important function that allows, among other things, the constant rejuvenation of the built environment.
But it does, ipso facto, lead to an industry culture that is more resistant to change than might otherwise be the case. This issue is more important today than at any time in the past, as the occupier customer base undergoes fundamental change. The real estate industry’s traditional, core customer base comprised large, steady state, lumbering corporates who were themselves, a part of the property process. But this market is on the brink of extinction.
Technical versus management function. The second point is that the real estate supply process is focused on the highly fragmented delivery of technical skills rather than offering a management function. Other workplace resource functions have evolved into broadly-based management functions. Personnel became HR; purchasing became Procurement and technical support became Technology.
By contrast, real estate services are provided by functions variously known as Property, Facilities, Corporate Real Estate and Accommodation. Various models have been tried: outsourcing/insourcing; intelligent client units and shared service centres among them. The common thread is technical service provision driven by a fragmented supply process. And it is in danger of being marginalised as the technical services are commoditised.
Whether looking internally at the client organisation, or externally across the supply chain the only part of the fragmented supply chain which has a customer (occupier) focus as its core activity is the nascent Workplace Management function. That is because it is just another management function. Its roots are in general management, and it is an emerging sub-discipline of Workplace Resource Management.
Workplace Management brings together all the fragmented parts of the design, construction, real estate and facilities sectors into an integrated management function, allied to its colleagues in HR, Procurement and Technology, among others, to provide an integrated Workplace Resource Management function.
Whether in healthcare, leisure, logistics, offices or retail, large swathes of the occupational market have been, and continue to undergo, enormous change in their operating models. They are evolving into lean, agile, fleet of foot businesses for whom space is a commodity not a lifelong marriage. This calls for a new customer-supplier relationship, which Workplace Management can provide.
Divergent trends. Before looking at the industry-customer interface in more detail, consider two contrasting phenomena which, in different ways, illustrate the importance of the workplace management function, one from the occupier perspective, the second from the supplier perspective.
First, the UK Government is part way through a process, the Hubs Programme, which will help it to “reduce the government estate from around 800 to 200 buildings by 2023, saving approximately £2.4bn over ten years”. The twenty or so hubs will assist in developing a new work culture and allow staff to work from a variety of locations, through its radical The Way We Work programme. To date, seven hubs have been confirmed, while another four have been reported as in the pipeline (Figure 1). If the average size of the planned hubs mirrors the seven confirmed thus far, then the portfolio will measure c450,000 sq m, each building capable of accommodating around 2,000 staff.
Second, consider the rapid rise of WeWork in London (Figure 2). In little more than three years, WeWork has moved from market debutant to, perhaps, London’s largest private sector occupier. It has achieved this through 26 property deals, from its first deal on the South Bank (3,500 sq m at 22 Upper Ground) to the most recent (13,300 sq m at Hackney Road in Shoreditch), to take its total occupancy to a shade over 200,000 sq m. WeWork specialises in providing ‘cool’ workplaces for start-ups and tech businesses, where collaboration and networking are de rigueur.
What do these two vignettes tell us? The Government is busy leasing large units of real estate in order to centralise its increasingly agile employees and manage a changed work culture; while WeWork is busy leasing large units of real estate to attract increasingly agile small businesses who have already adopted new work cultures. The common denominator is that they are both delivering and managing workplaces (not real estate) that respond to today’s workforce needs: attractive, dynamic, responsive, experiential, healthy and productive. This is the nexus of Workplace Management.
What the Government and WeWork are doing, in different ways, is changing the customer and supplier interface. In-house and out-of-house workplace management functions, respectively, will deliver and manage the workplace experience, advise the occupier business and plan the future. Along the way, they will procure technical skills as commoditised services.
To understand the implications of these approaches to workplace provision, we need a very brief trip down memory lane.
Workplace: from factor of production to commodity
The genesis of the ‘modern office’ dates back to the late-1960s when, in 1968, the designer and inventor Robert Propst created Herman Miller’s open plan office system, the ‘Action Office’. Often referred to as ‘burolandschaft’, these open plan offices were expected to improve internal communications and interaction and to enable the faster and cheaper reconfiguration of space and people.
In reality, they did little more than allow offices to be planned at higher occupancy densities. The real leap took place in the mid-1980s.
Thirty years is little more than half a contemporary working life, yet, recalling some of the technology events of 1987 reveals just how much has changed in such a relatively short time. Important launches that year included: Windows 2.0; IBM’s PS/2 with 3.5-inch diskette drive; the MAC SE; the Sinclair Z88 portable computer, and the apple.com domain.
New modes of work
These were the early signals of the technological revolution that was to fundamentally re-structure the economy. As early as 1985, one particularly prescient report outlined the impact of technology on the nature of work. Stone & Luchetti’s (1985) paper, Your Office is Where You Are , set out to “challenge the customary ways of thinking about offices” and to show how managers could “integrate physical layout, design, and communications to support organizational objectives …” They proposed that managers should rethink how both information and people flow in an office, and adopt ‘activity settings’ to provide a richer office experience with appropriate environments to suit the work in hand. Such thinking was a world away from the command and control systems of the 1970s.
Implicit in all of this was that workers would become more mobile, or agile, choosing where and when to work. Increasingly the office would become less a place to go to work, largely alone, on a set of prescribed tasks, and more a place to visit and interact with colleagues and use support services. Cairncross argued that the “office will become a place for the social aspects of work, such as celebrating, networking, lunching and gossiping”
And she was right. The ubiquitous impact of mobile phones, laptops, the internet and email presaged an era in which work itself has been transformed, conducted in ways entirely different to even the recent past.
The knowledge worker
The new modes of work reflected the rise of the ‘knowledge worker’. In 1992, management guru Peter Drucker predicted that the traditional factors of production – land, labour and capital – would become secondary to knowledge. Today, around a third of the workforce in advanced economies is office-based; employed by businesses that largely trade in the intangible ‘knowledge economy’.
The knowledge economy currently accounts for over a fifth of total UK economic output, and one in eight jobs. It has been responsible for nearly 40% of all economic growth in the UK since 1970, and has created upwards of two million jobs over that period.
At one end of the knowledge economy, large corporates have been re-organising around more responsive business models, outsourcing of non-core activities, fewer layers of decision making, and the use of contingent workers. The corporate island is yielding to the networked business.
At the other end of the scale, the number of small businesses has been growing rapidly. Statistics indicate that most of the growth in the UK in recent years has come from the SME sector, which accounts for over 14 million people and nearly 60% of private sector employment. The fastest growing SME sector is professional, scientific and technical professions. The number of SMEs in London passed one million for the first time in 2016 (obviously, these are not all knowledge businesses, but the trend is important).
So, big changes in work and in the economy: new modes of work and new workers. How has the real estate supply process responded?
The real estate sector response
As noted, the real estate industry is dominated by interests that are focused on property as a tradable asset, namely landlords, developers and the large real estate practices. The property industry evolved in the way it did in response to the need to mediate between the fixed asset of land and the endeavours of the entrepreneur to organise labour and manipulate capital for production.
Even through much of the twentieth century, this made sense because land, or property, was commonly an integral part of the production process, in the form of factories and other plant (even head offices were often physically attached to plant).
But the technology revolution and rise of the knowledge worker changed this forever. Land and property no longer accorded an advantage for the occupier; it became a millstone.
The fragmented real estate supply process has struggled in its response to new work and new workers. Land, or more precisely, property is now a commodity for occupiers to turn on and off as required. This sits uncomfortably with an industry comprising four major, disconnected tribes, numerous sub-disciplines and an arcane language undecipherable to all except experts and lawyers. But some strides have been made.
Against the backdrop of enormous and on-going change in occupiers’ requirements, there have been significant shifts in the nature of the property products available from owners. While the Landlord & Tenant Act (with its attendant feudal terminology), continues to underpin the market, a far more dynamic offering is now available (Figure 3). The illustration’s timeline is not intended to be strictly accurate, but seeks to convey how the property industry product range has gradually evolved.
Up until the 1990s, the only real options for an occupier were either to own premises or take them on very long, full repairing and insuring leases, complete with onerous obligations. Very few office occupiers take either option today.
Following the recession of the early-1990s, a number of attempts were made to provide more flexible space. Initially, and rather slowly, landlords started to offer shorter leases, albeit still on full repairing and insuring terms. The serviced office sector materialised at this point (significantly from without, and not embraced by, the property industry). The PFI model developed in a different direction providing a total solution for organisations looking to deal with operational and surplus real estate in one transaction. This gained some traction, especially with the UK Government, but failed to become a widely-accepted alternative. Most recently, we have seen the emergence of co-working spaces, which have given the smallest businesses the opportunity to benefit from ‘corporate style’ accommodation.
Real estate as a commodity The common thread running through the evolution of these property products is ever-greater flexibility, with risk-transfer to the property sector, as occupiers procure real estate as a commodity, like other corporate resources.
In a landmark work, Joroff et al referred to real estate management as the fifth resource, alongside capital, people, technology and information. The challenge, they argued, is to “learn the needs of the corporation … and then to devise a strategy to satisfy them even when the answer may not involve traditional forms of real estate”. In the UK, Weatherhead stressed “the importance of real estate as a corporate resource which should be included in corporate strategy”.
The notion that real estate should be treated as a corporate resource was fleshed out in a number of publications; notable among these was McLennan, Nutt and Kincaid ; Apgar who argued that “Business real estate is not merely an operating necessity, it’s a strategic resource” , and Kadzis, who argued that real estate management is in the “middle of a multi-faceted dynamic that far exceeds the management of facilities, transactions or projects”.
The notion of Workplace Management (real estate or facilities) as a strategic management function followed naturally from such thinking, and was developed further in a number of publications, including RICS ; Ware and Carder and Workplace Futures.
But the focus on resource management highlights the different but complimentary roles of those who make buildings work (the supply chain) and the ‘workplace professionals’ (typically in-house) who focus more directly on ensuring that those facilities serve the needs of the business and the workforce. A recent RICS report argued that both aspects are equally important and strategic, but that they “are different activities that require different but complementary skillsets…”, and “they are both necessary for ultimate success”. The report argued that whether “facilities are managed in-house or by a contracted service provider, they are a strategic business resource, and must be managed as such” and that both “FM operations and FM workplace resources are critical to business success”.
Occupiers, or customers, want flexibility and they want to treat their occupation of space as a corporate lever. The changing world of work will continue to be a primary driver of change within real estate occupation and management, and an outcome of this change is a need to design and manage the workplace less as a static backdrop to sedentary work, and more as a ‘hotel’ facility where guests demand a high level of service and experience. This requires an alternative approach to the traditional, fragmented provision of real estate by the supply industry: a different customer-supplier interface.
Collaborating and providing support to complex business processes though space and time; translating the needs of the business into a coherent supporting strategy; communicating effectively with managers of the business, and adopting techniques to demonstrate the impact of the workplace on business performance are core skills of the emerging Workplace Management role.
In short, there is an opportunity to position Workplace Management as not only the focal point for workplace planning and provision, but as an integral and integrating part of Workplace Resource Management. At a time when management teams are recognising the direct link between business performance and the quality of the workplace, those responsible for delivering a “high performance” workplace are in a position to take on a front-of-house role.
The central question then is: where will or should the locus of Workplace Management lie as a distinct activity? Will it be within one of the four tribes (design, construction, property, facilities)? The truth is probably that neither the design nor construction professions are set up to respond. Neither has an aptitude towards ‘softer’ management skills, and neither has an interest outside of the immediate confines of their activities – designing and constructing.
Is it perhaps destined to be subsumed as part of the property supply structure just as, say, Planning and Valuation exist as sub-disciplines? The larger real estate firms have certainly made a major play. CBRE’s acquisition of Johnson Controls’ Global Workplace Solutions was a move into this arena. But, ultimately, such firms are culturally aligned with owners and developers, with the adversarial world of the Landlord & Tenant Act, and with the world of transactions. Perhaps recent and rapid changes in landlords’ approaches to the new economy will create the conditions for change?
So what about the facilities management profession? It could be argued that this has the greatest opportunity: it is after all ‘service’ based and is responsible, directly, for the management of the workplace. But it carries a lot of baggage. The British Institute of Facilities Management has formally adopted the definition of facilities management as set out in new ISO standard 41011:2017, published earlier this year. That definition states that facilities management is the: “organizational function which integrates people, place and process within the built environment with the purpose of improving the quality of life of people and the productivity of the core business”.
There is nothing in this definition about a management function: simply providing the environment might not be enough. The critical opportunities for Workplace Management include connecting with the business; work enablement; a focus on people (not simply physical environments) and integrated management. These areas will require a shift in mindset, and a corresponding acquisition of new skills and capabilities. It is difficult to see how such a focus could exist within the FM profession as it is currently structured.
Perhaps the future of Workplace Management will be an element of disruptor activity. We discussed WeWork above in terms of its rapid expansion in London, providing start-ups and small businesses with ‘cool’ space. But its ambitions are much greater. It is now signing up ‘Enterprise Customers’, providing large chunks of space to corporate customers and providing the WeWork ‘experience’. They have already signed up large corporates including Bank of America, HSBC, IBM, Mastercard, Microsoft and Salesforce. WeWork started its enterprise product in mid-2016, and it now contributes nearly one-third of its revenue. Perhaps the future of Workplace Management will be defined outside the boundaries of the established real estate supply process.
Wherever the locus of Workplace Management settles, it is clear that it is a multi-disciplinary management function alongside its wider Workplace Resource Management colleagues. It is not a sub-set of a traditional facilities management function, nor of a traditional property supply function. Space is being consumed in entirely different ways today, with people and businesses (customers) at the centre of the process, not byproducts. If the traditional supply process is to keep pace, then it will need to evolve quickly and radically W&P
- Wilson E O (1998) Consilience: The Unity of Knowledge Little, Brown & Company, London p41
- The Hubs Programme is explained at: https://governmenttechnology.blog.gov.uk/2017/02/02/smarter-working-in-government-hubs/ Accessed 29th August 2017
- Stone P & Luchetti R (1985) Your Office is Where You Are Harvard Business Review March-April pp102-117
- Cairncross F (1997) The Death of Distance Orion Business Books
- Sissons A (2011) Britain’s Quiet Success Story: Business Services and the Knowledge Economy The Work Foundation
- Joroff M; Louargand M; Lambert S & Becker F (1993) Strategic Management of the Fifth Resource: Corporate Real Estate Industrial Development Research Foundation, USA
- Weatherhead M (1997) Real Estate in Corporate Strategy Macmillan, London
- McLennan P; Nutt B & Kincaid D (1999) Futures in Property and Facility Management Conference Proceedings FM Exchange, University College London
- Apgar M (2009) What Every Leader Should Know About Real Estate Harvard Business Review November 2009 pp100-107
- Kadzis R (2012) Corporate Real Estate 2020 CoreNet Global
- Royal Institution of Chartered Surveyors (2009) The Strategic Role of FM in Business Performance RICS, London
- Ware P & Carder J (2012) Raising the Bar: Enhancing the Strategic Role of FM RICS, London
- Workplace Futures (2013) Strategic Partnership: Securing the Future for FM
- Ware J; Harris R; Bowen M & Carder P (2017) Raising the Bar: From Operational Excellence to Strategic Impact in FM RICS and IFMA
- Eltringham M (2017) BIFM Formally Adopts New ISO Definition of Facilities Management To be found at: http://workplaceinsight.net/bifm-adopts-iso-definition-facilities-management/
About the Authors
Prior to setting up Ramidus, Rob spent twenty years in various research and consulting roles, with organisations including DEGW, DTZ, Gerald Eve, Interior Services Group and Stanhope Properties. As well as worknig with Ramidus clients, Rob publishes and presents widely on real estate matters, specialising in occupier issues, demand research and the role of real estate in organisational planning and change management. He also works on various industry bodies and committees.
…For many decades now, major European real estate markets have been riven by fragmentation in their supply structures…
…Whether looking internally at the client organisation, or externally across the supply chain, the only part of the fragmented supply chain which has a customer (occupier) focus as its core activity is the nascent Workplace Management function…
…large corporates have been re-organising around more responsive business models, outsourcing of non-core activities, fewer layers of decision making, and the use of contingent workers…
…Most recently, we have seen the emergence of co-working spaces, which have given the smallest businesses the opportunity to benefit from ‘corporate style’ accommodation…
…There is an opportunity to position Workplace Management as not only the focal point for workplace planning and provision, but as an integral and integrating part of resource management…
… Space is being consumed in entirely different ways today, with people and businesses (customers) at the centre of the process, not by products. …
Figure 3 The growing diversity of product offerings