Back in the 1980’s I was a manager in the corporate real estate department of Xerox Corporation. One of my assignments was to participate in a quality improvement program called “Leadership Through Quality.” Our mission was to use the tools and techniques of quality management to improve Xerox processes, services, and products. A key tool in this effort was corporate real estate benchmarking.
The value of corporate real estate benchmarking
Benchmarking can be defined as comparing one’s business processes and performance metrics to the best practices and metrics from other companies. The processes and methodologies of benchmarking can be a valuable tool in the management of corporate real estate.
Corporate real estate benchmarking methodology
One of my colleagues at Xerox was Robert Camp, who wrote one of the early books on benchmarking. Camp developed a 12-stage methodology that has endured the passage of time.
This methodology applies to a comprehensive benchmarking effort. A more abbreviated process can be used. Camp’s process was as follows:
- Select subject
- Define the process
- Identify potential partners
- Identify data sources
- Collect data and select partners
- Determine the gap
- Establish process differences
- Target future performance
- Adjust goal
- Review and re-calibrate
Usually benchmarking is used to identify a specific problem in the company’s real estate portfolio such as space utilization, unit costs, leased rates, comparison of real estate values to prevailing market values, or cycle times such as average project cycles.
To take advantage of benchmarking, it’s essential that you have a robust lease management system that can provide the space and cost data to be used in the benchmarking process.
Learn more: The Corporate Real Estate Strategic Plan
Benchmarking for corporate headquarters
I recall an assignment when I was a consultant at Pricewaterhouse Coopers that asked the question: “How does the client corporate headquarters facility compare to other major headquarters in the area from the standpoint of cost and utilization?”
We benchmarked nine headquarters facilities in the client market area and discovered that the client headquarters was flagrantly too expensive, too inefficient, and too grandiose. Based on the benchmarking results, the client’s Board of Directors commissioned a relocation project to a less expensive and more efficient structure.
Optimizing facilities and costs
Another use of corporate real estate benchmarking can be used to measure the metrics of internal facilities and costs. Here management is concerned with those facilities that represent unusual variances either in utilization or costs, as a way to target remedial action.
As Director of Corporate Real Estate at Dun and Bradstreet, I used corporate real estate benchmarking to evaluate the leased facilities in the European portfolio, primarily to determine candidates for consolidation. I specifically recall a location in Milan, Italy where the space per person and unit costs were way out of the norm. The facility was located in an ancient Milanese villa, and the space per person exceeded 1000 square feet per person. When I presented these benchmarks to the country manager, I received major push back, saying that the facility’s design and décor were needed for image and marketing purposes. Since the unit was a top performer, I didn’t win the argument with senior management.
Commercial real estate performance metrics to target
Corporate real estate benchmarking should be a fundamental tool in the CRE manager’s tool kit. I would urge CRE managers to include a series of benchmarks in the annual real estate plan.
Such benchmarks as average space per person, average facilities cost per person, and average cost per square foot as compared to market rates can provide management with a keen insight to the portfolio’s performance relative to best in class metrics.
From my experience, corporate real estate benchmarking can be a way to establish annual performance goals. Using benchmarks can set the stage for strategic actions to meet these goals such as facilities relocations, consolidations, and/or lease renewals/ renegotiations.
Are you struggling to get ready for FASB? Learn more about real estate lease accounting:
FASB Accounting Overview for Corporate Real Estate
Corporate Real Estate Strategies and the New Lease Accounting Standards