By Craig Masters, director in KPMG’s UK real estate transformation team
It’s perhaps no secret that a perfect storm of technological, operational and financial headwinds are causing organisations to rapidly re-evaluate the scale and purpose of their existing estates. But what do these changes entail and how can businesses turn these headwinds to their advantage?
A glance through recent headlines reveals the impact of an expensive or underutilised estate on a business’ bottom line.
Recent CVAs and administrations of retailers and those within the casual dining space are perhaps the most visible manifestation of long-established companies failing to grapple with a legacy footprint that is no longer sustainable. However, it isn’t just high street outfits with estates that are no longer fit for purpose.
Organisations of all shapes and sizes – from manufacturing and financial services, to public sector and logistics – are looking to optimise their estates in light of rising costs, rapid technological change and changing customer and employee expectations.
From my experience with clients, there are four key considerations businesses need to tackle if they are to successfully unlock the value within their estate. It starts first and foremost with a fundamental look at whether estates are integral to a business’ wider transformation programme.
Many estates functions have traditionally existed to service the operations of the business. However, taking a rather blinkered view of the ‘customer-supplier’ relationship can result in missed opportunities. Estates teams often possess an untapped wealth of knowledge about local property issues, which can provide valuable commercial insight that could proactively support organisation transformation decisions. It is therefore crucial that this estates insight is brought to the attention of the top-table. Only then can leadership ensure that their plans are aligned – bringing estates into the wider conversation around transformation.
Secondly, real estate is often overlooked in a business’ quest to reduce costs. Instead, many businesses embark on the familiar path of initiating painful redundancy or restructuring programmes. These entail a protracted and disruptive period of stakeholder negotiation and consultation, which can prove highly detrimental to business performance in the short-term.
Changing customer and user demands
By contrast, an estates optimisation programme can provide a quantifiable return on investment, as well as a good payback in a relatively painless way. Most organisations have excess space which can be realised relatively easily, for example, via sale or sublease and closure of surplus sites. Optimising facilities management contracts can also yield savings of at least 10-15%. This in turn can provide a means of funding wider business transformation – as cash savings can be easily identified, they can be readily reinvested to achieve additional benefits.
Workplace redesign marks the third consideration, given its ability to stimulate cultural change that ultimately improves productivity. By reinvesting estate savings into creating better workplaces, it demonstrates to employees that the business is committed to modernising; embarking on more collaborative ways of working, and investment in wellbeing. This can stimulate broader cultural changes within the organisation, breaking down engrained working practices and challenging a ‘business as usual’ mentality. Ultimately, this can lead to an improved ability to attract and retain staff; an uptick in productivity, as well an additional bottom-line benefit.
“As government services increasingly move online, what is the need to retain underutilised public access buildings?”
Lastly, estates must adapt to changing customer and user demands. Yes, the battle between online and bricks-and-mortar is widely reported – particularly in retail – but other sectors face similar issues. For example, as government services increasingly move online, what is the need to retain scores of underutilised public access buildings?
It is advanced analytics that holds the key to answering many of these sorts of questions – whilst also de-risking decisions for businesses. New tools can combine corporate data with external benchmarks, providing predictive functionality which allows organisations to test and enhance business case assumptions quickly and easily. The end result: businesses of all sizes are now able to utilise analytics to develop robust evidence bases, underpinning the fast, objective decision-making that is demanded by key stakeholders.
Whilst real estate may represent one of the most tangible ways that employees and customers interact with a business, in this particularly competitive labour and consumer market, it is crucial to ensure that estates are fit-for-purpose and at the cornerstone of any organisation’s operating model or change agenda. After all, it’s increasingly evident that integrating a business’ estates optimisation strategy with its broader operational changes can generate huge benefits.