The commercial real estate business has supported a certain amount of outsourcing for many years. Commercial real estate consultancies have taken over activities from clients as diverse as transaction management (renting, buying, and selling property), facilities management (building maintenance and operation), tenant representation (negotiating property leases with tenants), and development (securing financing, getting sites zoned, etc.).
The primary reason for doing what might be called unilateral “task” sourcing was to cut costs-often by 20 to 30 percent. Obviously, consultancies presented a value proposition not unlike other outsourcing providers: performing the same kind of task for different clients allows them to leverage common staff and improve their process efficiencies so they can cut head count, charge less, and still make a healthy profit.
Then in the mid-90s a trend emerged–consultancies began providing bundled offerings. They might provide facilities management with leasing services and supplement them with needed technology as well as staff with process and domain expertise in both areas. According to Mark Gibson, Senior Manager, Business Risk Services, Ernst and Young, this practice came to be known as 2X outsourcing, and the two activities that consultancies tended to mutually manage were transaction management and lease administration. Occasionally, he continues, they bundled three services (known as 3X outsourcing), but when they, more often, bundled four, they essentially were consolidating so many functions into one unified, end-to-end business process that the practice morphed from multiple task sourcing into business process outsourcing (BPO).
While four functions supplied the critical mass for BPO, key also were tying those unified functions to the strategic business goals of the company, says Joe Vales, Founder and Senior Partner, Vales Consulting Group. This was a critical, transformative, step because the synergies that resulted were greater than the sum of the benefits that could be derived from the four functions. For instance, instead of just cutting costs by 15 percent in each of the four functions, combining the functions might allow a client to grow its geographic footprint and overall revenues by 25 percent and in the process achieve dominant market share in its industry.
A Case In Point
How, exactly, might this work? Colliers International helped UPS achieve such a transformation over the last few years. According to Phil Thomison, Vice President, Worldwide Development and International Operations, Mail Boxes Etc./The UPS Store, after UPS acquired Mail Boxes Etc., the parent company set an expansion goal of 500+ new franchisee-owned stores annually to be able to compete better with Federal Express which had acquired Kinkos and was also expanding aggressively. “We wanted Colliers to help us manage the significant growth that was going on with the brand change and also improve internal efficiencies,” he explains.
However, in the process, UPS did not want to undermine the quality of its customers’ experience in stores and dilute its brand. Thomison says that, instead, all new stores had to meet uniform UPS quality specifications and display the immediately recognizable UPS gold shield so that the customer experience was the same from store to store. With that combination of speed to market, brand appeal and consistent quality, UPS hoped to expand as a result of its own efforts but synergistically as well by attracting new franchisees. Thomison says the strategy worked.
Colliers undertook not only store site selection, says Brandon Mann, Senior Vice President, Corporate Solutions in Real Estate at Colliers, but also lease negotiation, store layout and design. The supplier also competitively bid and managed contractors, provided furniture, and installed signage. Mann explains that, using its own software called Reflex, Colliers runs “a critical path schedule for every project–about 155 tasks broken into five or six phases–and each of those steps have dependency tasks that trigger the expectation of how soon the next step will take.” He adds that the system gives exact data about each step so that if, say, one person delayed making a decision during one step for two days, the system could calculate how many days that delayed the entire project. Obviously, Reflex is critical to ensuring speed to market.
As a result, on average it took UPS 20 to 30 percent less time to open a new store, says Thomison. However, that better speed to market did not undermine the quality of the customer experience. Greater geographic penetration, of course, brought in new franchisees, especially in the Northeast, says Thomison, while franchisees-in-waiting did not do things like back out of their contracts because stores were slow in going up, just one of the many challenges with a new franchise, he continues.
According to Thomison, “what Colliers brought to the table was a network of resources in the various markets.” The only other alternative was “to do it ourselves, and that would have taken some time on our part to hire and train people.” So, he believes “they definitely have helped facilitate our expansion plans.”
None of that would have been possible, adds John Maher, Executive Vice President, Corporate Solutions in Real Estate at Colliers, without an outsourcer’s unique “combination of people, process, technology and domain expertise to improve the entire process and make it repeatable so as to drive continuous improvement.”
Converting the number two cost center into a strategic value driver is saying something for a business process that, claims Gibson, is the most complicated to outsource because “you have so many interactions involving long-lived assets.” After all, a lease on a building could extend 25 years and involve 100 tenants–a long commitment of lots of money.
A Winning Formula for Commercial Real Estate
Before BPO, Maher says real estate “was a very transaction-intensive industry” where commercial real estate owners earned revenue buying, selling, and leasing property. With bundled processes, he claims businesses can transcend that model and leverage that cost center to promote strategic advantage through rapid growth. He ought to know; Colliers has achieved similar results for other businesses as diverse as Edward Jones, H&R Block, and Allstate Insurance.