Michael McDermott, Consulting Manager, Strategic Consulting
Typically, the absence of a real estate strategy can be narrowed down to two root causes: thinking a strategy exists when it actually doesn’t and a conscious choice not to create a strategy.
Root Cause #1: Your Strategy Isn’t Actually A Strategy
In most instances, companies mistake an operating plan for real estate strategy. The same Real Estate Executive Board survey found 95% adoption of an operating plan that accommodates near- to medium-term real estate needs for timely space availability.
Operating plans have significant merits, but they ultimately fall short in creating an effective roadmap due to a piecemeal approach in addressing a company’s real estate needs. Operating plans are typically reviewed annually with quarterly check-ins by the corporate real estate (“CRE”) department and upcoming real estate decisions are made accordingly. As a result, CRE teams are continuously facing fire drill situations in which the company’s physical space must somehow accommodate changing headcount projections, departmental shuffling or new corporate mandates. The biggest shortcoming of operating plans is that senior business executives are rarely integral to the process, ensuring a constant gap between company strategy and real estate execution.
Broad goals are also sometimes mistaken for strategy. Clearly, a strategy isn’t the same thing as “keep real estate costs low” or “have an office in all fast-growing U.S. markets”. These are broad, feel-good statements that may convince leadership that all is well. However, they don’t drive real results because they only identify an ideal future state without any of the details of how to get there. Broad goals without an underlying roadmap for action are always insufficient.
Root Cause #2: A Strategy Doesn’t Exist, And We’re Aware Of It
Some CRE teams occupy the other camp: they know that they don’t have a real estate strategy, and they haven’t tried to build one. This decision can often be traced to three key challenges commonly faced by CRE departments. The first challenge is the perception of ability, or lack thereof. The notion of a holistic strategy that aligns real estate with the rest of the company is viewed as a monumental task. They don’t believe they have the right attributes for success, including influence with senior corporate leaders, depth and breadth of data and the correct frameworks to develop a strategy.
The second challenge is having the right resources in place. Unfortunately, the CRE department is often operating on a different plane than their partner business units which are relied upon regularly for data and feedback. While the real estate department plans around long-term assets, other business units are moving quarter to quarter, reacting to immediate concerns like changing headcount growth projections and shifting customer preferences. Furthermore, CRE leadership is often buried deep in a corporation’s organizational chart, tasked with putting out fires and only being noticed when real estate fails to perform. This lack of structure to regularly inform the CRE department of business unit needs is at odds with the basic inputs required to develop strategy. Frequently, CRE is set up to fail from the start.
Finally, whether they have already tried or have yet to start, many in CRE lack the will to develop a strategy. Both new and seasoned professionals aspire to have a strategy but feel discouraged, often due to lack of knowing where to start or how to align against disparate and diverse company objectives. Others have resigned themselves to a Band-Aid approach to real estate after trying to develop and execute a strategy, but ultimately failing.