european real estate society conference 2013 vienna, austria, july 5 th 2013

05.07.2013 | A. Kämpf-Dern / A. Pfnür | Department of Real Estate Management | TU Darmstadt | 1/22

“Best Practice, Best Fit, Best Model?” Strategic configurations of Corporate Real Estate Management in Europe

European Real Estate Society Conference 2013

Vienna, Austria, July 5th

2013

Dr. Annette Kämpf-Dern

Prof. Dr. Andreas Pfnür


“Best Practice, Best Fit, Best Model?” Strategic configurations of CREM in Europe

AGENDA

I. Introduction and Research Question regarding a CREM concept:

What is CREM and how should a CREM management concept look like?

II. Framework: Literature Overview and the CREM Map

III.Research Design: Exploring the most advanced using CA-QDA

IV. Findings: Some “Best Practice”-Principles, but heterogeneous designs

V. Discussion: “Best Fit”-Designs that need further research to identify systematics of well-functioning configurations


Wide consensus about what CREM generally is aboutCREM definition

Purpose: Providing the strategic direction and supervision” that ensures “that land and building matters are dealt with so that they operate efficiently and effectively”.Thorncroft (1965); Stapleton (1986); RICS (2008)

Function: Establishing and maintaining a “close match between an organization’s business and property strategies”. Bon (1994)

Activities: Forecasting, planning, directing, coordinating and controlling real estate activities necessary to provide (acquire), operate (use) or liquidate (dispose) real estate assets.Thorncroft (1965); Stapleton (1986); Kaganova et al. (2006); Kämpf-Dern and Pfnür (2009)

Objects: Managed are buildings/parcels of land, building clusters or portfolios of buildings and land holdings. Bon (1994); Ching

Application: Corporates whose business is not real estate. Bon (1994); Pfnür (2002)

I. Intro

Definition used: Corporate Real Estate Management (CREM) denotes the planning, decision, organization, implementation and controlling of all those real estate

activities necessary to provide, operate or liquidate real estate from all perspectives (the owner, the user and the producer) of corporates whose business is not

real estate.

The goal of CREM is to support the overall corporate strategy acknowledging user-oriented (cost-benefit-ratio), financial (capital invested) as well as operative

aspects.


CRE Management Tasks:

Governance, Portfolio Management, Asset Management,

Operative RE Facility Management

Yet, tasks to be performed can differ considerablyOverview of CREM tasks

CRE Core Tasks („Services“)

Interaction with Core Business and other support functions

Communications, IT, HR, Accounting, Legal, …

Supply

• Leasing

• Acquisition

• Project Development

Usage/Operations

• Technical

• Infrastructural

• Commercial

Services

Recovery

• Letting

• Sale


Source: Own graph based on Management Model St. Gallen; Hartmann/Lohse/Pfnür (2007), p. 8f.;

Kämpf-Dern/Pfnür (2009), p. 26; DIN EN 15221 Facility Management

I. Intro


Focus of Corporate Real Estate Management moves: From task manager to strategically relevant function

CORE TASKS

MANAGEMENT TASKS

Def. of policies, objectives & standards, systems set-up, controlling & improvement Governance

Assessment/determination of requirements, portfolio planning & controlling Portfolio Management

Strat. planning, organizing & controlling building clusters/individual buildings Asset Management

Operative (day-to-day) planning, organizing & controlling tasks RE Facility Management

SUPPORT TASKS

Communications, IT, HR, Accounting, Legal, …

Source: Own graph based on Management Model St. Gallen; Hartmann/Lohse/Pfnür (2007), p. 8f.; Kämpf-Dern/Pfnür (2009), p. 26

Supply

• Leasing

• Acquisition


Usage/Operations

• Technical Services

• Infrastruct. Services

• Commercial Services

Recovery

• Letting

• Sale


I. Intro


Moreover: CREM tasks can be in one, two, or three perspectives

Source: Kämpf-Dern/Pfnür

Maximization of

benefit-cost ratio

of RE resources

Maximization of

capital value

invested in RE

Maximization of

profit from producing

RE and RE services

CREM USER perspective CREM INVESTOR perspective

CREM PRODUCER perspective

CREM Activities

I. Intro


Summarized: Breadth and depth of CREM in corporates and over time varies considerablyCREM responsibility/influence areas

Strategic level

Operative level

Behavioral/

intangible orientation

Financial/

tangible orientation

e.g. Corp. Finance,

RE Invest./RE Portf. Mgmt.

e.g. Corporate Identity,

Employer Branding,

Productivity,

Sustainability

e.g. Green Building,

Workplace Design,

Building Flexibility

Sickness Rate

e.g. Technical Functionality,

RE Accounting

Production

InvestmentUsage

I.

II.

III.

IV.

I. Intro


So: What is a “good”1 CREM system? How can CREM be institutionalized2, a “CREM concept” look?Research question

What we see: Set-ups that are highly diverse in every aspect !

What we want to know: What are the relevant determinants for CREM institutionalization? How are they interrelated?Does a “super ordinate plan” for CREM exist?

What we are looking for: A systematic, theory-based recommendation

Guiding on: CREM strategies, structures, processes, qualifications, culture, KPIs, …

A CREM Management Concept

1) Effective and efficient

2) „Institutionalization of CRE Management means the whole complex of measures that are necessary to develop and implement a real estate strategy that fulfils the purpose and goals of CREM.” (Pfnür 2002)

I. Intro


Majority of CREM research deals with parts of CRE management setup – none with the wholeOverview of CRE management institutionalization research (selection)

Which design to make ALL parts together be effective and efficient?

Holistic approach needed! (also: Veale 1989)

Kimbler and Rutherford (1993);

Manning et al. (1997);

Gibler/Black (2004)

CREM outsourcing functions

Manning/Roulac (2001);

Gibler et al. (2002);

Bon et al. (2003);

CREM strategiesBusiness goals and context

CREM goals

CREM partly holistically

Schaefers (1999)

Pfnür (2002)

Acoba/Foster (2003)

Lundstrom (1993);

Nourse et al. (1993);

Lindholm et al. (2006);

Lindholm (2008)

Hartmann et al. (2010)

Manning/Roulac (1996);

Kämpf-Dern (2010)

Hartmann (2011)

CREM organization

Lundstrom (1993);

Lindholm/Nenonen/Gibler (2006);

CREM controlling / KPIs

II. Frameworks


CREM-Map proposes CREM institutionalization parameters: targets, strategies, organization & controlling systemInstitutionalization framework

Sector, regulations, competition, …

Company targets

& strategies

CREM-targets

CREM-influence of

stakeholdersCREM-history &

mandate

CREM-

strategy

Shape and

operationalization

Degree of integration into the corporate

strategy

Width and depth of the content

Ownership rate

Centralization

CREM-organization

Process-

management

Sourcing Organizational

structure

CREM-

controlling

Spheres of

activity

regarding

CREM-

institutiona-

lization

External corporate

environment of interaction

Internal corporate environment of the CREM

HR/

culture

Source: Kämpf-Dern/Pfnür

CREM

Municipality/

public

External

servicers

Corporate-

management

Real estate

division

User

(BUs, staff)

Controlingl

system

Customers

Size, international-

ization, portfolio, ...

Investors

II. Frameworks


New/young function that touches multiple disciplines simultaneously (e.g.

finance, building management, production, IT, HR, ..)

Needs to consider three equally important perspectives high complexity

Needs to adapt/establish theories

theory generating

Why? How?-Questions

System analysis

Explorative research methods (e.g. case studies, fuzzy cluster analyses, primary data)

Analysis of leading/trendsetting companies

Usually within one established discipline/ function (e.g. finance, marketing, sales,

production, …)

Considers one or two perspectives

Can build on established theories

theory/hypotheses testing

What? How much/many?-Questions

Correlations, Structural equation analysis

Quantitative research methods (e.g. large scale surveys, dyadic surveys, secondary data)

Analysis of large number of average/ comparable individuals/companies

CREM research approach needs to be considerablydifferent to majority of established business researchComparison of situation and approach rationalization

III. Research

Majority of business economics research CRE management research


Research Design: Explorative CREM-ResearchUnits of analysis: Large European corporates

Selected by the following criteria

advanced stage of CREM development

great quantity of existing space and heterogeneous type of use (office-, retail- and/or service space)

willingness to collaborate

Comparison of the institutional designs of the Corporate Real Estate Management from European large-

scale companies (case studies), notably

guiding target system and typical strategies

integration of the CREM into company organization and organizational CREM-configuration

CREM-relevant framework of the company

CREM control system

Target of the research

Reference Companies

III. Research


(DT, SC) (AL) (DP, FT, TS) (T, ABB, CB, SI)

10 European companies with highly diverse context parameters participatingCase study approach

Context-Parameters Characteristics

Industry

Telecommunication FinancialServices

Production/Logistics

Business & portfolio structure

Office Logistics Retail Technology Industrial

Size & internationalityHomeland Several

countriesEurope Global

Background & experience with crises(“Burning Platforms“)

(Formerly) state owned,

no crisis

Private, no crisis

(Formerly) state owned,

crisis

Private, crisis

Office & retail: 2

Office & retail & technology: 5

Office & logistics respectively industrial: 3

1 3 2 4

2 1 3 4

5 2 3

X = Number of companies by major characteristics

III. Research


Heterogeneity of sample and in-depth-informationrequire alternative method of analysisQDA comes from Social Sciences, in business rather innovative

Research question / theory

Definition of selection criteria and categories

Review of material line by line: Subsumption or

new category formulation

Revision of categories after 10-50% of material

review

Final material review

Analysis and interpretation

Computer-Aided Qualitative Data Analysis (CA-QDA)

III. Research


CREM-Map Topics Individual specification

Context & Organization

Industry; Background; Portfolio Structure; Size; Internationality

Telecom; formerly state owned; huge diverse and international RE portfolio

Context CREM Experience, History & Mandate

Long-term experience; partly “burning platform”; mandate: global partner, (yet focus on home country); central control

Targets/ Strategy

Corporate objectives & strategies; CREM-targets and strategies; kind of fixation/communication

Among others: reduce costs through standardization and efficiency increaseMaximize ROCE; minimize RE costs;Written form; communicated extensively

Targets CREM strategy development and strategy operationalization

Cost reduction: Operating & user cost; increase cash / reduce capital employed; add value /maximize of RE not core business relevant any more

Strategy Strategy width & depth Primarily financial orientation (strategic & operational)

Strategy Ownership rate Target: Minimize!

Organization Positioning of CREM executive 2nd level; reports to CFO

Organization Centralization & Organizational Structure

RE Portfolio Management: CentralizedRE Asset Management: Centralized (partly regional)PrM/REFM: Local (Operations), Centralized (Monitoring & Controlling)

Organization Sourcing Model Outsourcing of REFM & RES; more outsourcing intended

Control Kind/degree of transparency Very high: objects/contracts/costs in home country (HC); medium: space utilization (HC), objects/costs international (INT); low: contracts and space utilization (InN)

Control Center type; Control systems (budgeting, transfer pricing)

Revenue, center; “Carefree total rent”

Research results documented in Case Vignettes used to identify/compare general principles & influential parametersVignette-Example Telecommunication company

Source: Results of interviews

1

2

3

4

5

6

7

8

9

11

10

III. Research


Increase core business productivity

Diverse bundles of objectives and prioritizations …Examples

Real Estate USER perspective

“Add value / maximize return

from real estate“

Real Estate INVESTOR perspective

Real Estate PRODUCER perspective

Improve sus-

tainability/ecologyReduce operating costs

Increase cash-balance/ cashReduce user costs

Become “best employer“

Legend:

Very important

Corporate 1

Corporate 2

IV. Findings

CREM

Professionalize

CREM internally


MandateEfficient ser-

vice contractorConsultant &

“Last Call”Global Partner,central control

CREM = BU

Center type Cost centre Revenue centre Profit centreInvestment

centre

Target system& strategy prior.

MAX ROCE MIN real estate costs MIN cumulative costsMAX core business

Target-ownership rate

Overall min! Commodity min! Specifically higher Overall > 65%

CREM-board Finance Service HR BU/Operations

Organizational structure/

sourcingmodel

“Full-outsourcing”

“Managing Agent”

REAM, REFM

OutsourcingREFM & RES

“Managing Agent” REFM

& RES

Integrated,“traditional”

Control of users“Carefree total

rent”“Price element

systems”“Transfer of third-party

costs”Global CREM-

budget

... resulting in very different, but all well-performing constellations of institutionalization parametersExamples

Telco 2: State-owned background. real estate-mix (many aren’t necessary anymore). present core business is decreasing.

Produktionsunternehmen. Core business specific RE; high need for flexibility; high degree of own usage

Telco 1: Private background. commodity-real estate, mobile communications. growth strategy, international.

FS-Companies (Retail). Predominantly commodity-usage. corporate identity is important (Customers & staff).

IV. Findings


CREM-Map

“Best practice“ “Principles”(universally valid trends increasing

effectiveness)

Specification of individual design parameter

depends on ... / varies with ...

Targets/ Strategy

Distinctively derived from corporate objectives, corporate strategies and CREM-targets; written fixation and extensive communication

Content and focal points of corporate target system as well as time frame planned for

…. ….

Strategy Understand business & provide integrated workplace

Individual business needs & corporate culture

…. ….

Orga Maximal reasonable bundling of similar tasks, internal/external outsourcing

Size, CREM professionalism, experience with outsourcing

…. ….

Control …. ….

Guiding “principles” can be identified, butspecification of design parameters varySummary from observations (selection)

Source: Results of interviews

V. Discussion


Conclusion & Hypothesis: Not one „Best Model“ – Instead: „Best Fit“-Approach needed„Fit“ of Vision/Mission/Targets, Situation, Design Parameters

Source: On the basis of Kämpf-Dern (2010): Organisation des Immobilienmanagements als Professional Service, p. 69

Inter-

System-

Fit

A B C D

CREM Targets (Target System)

Design Parameters

of management system

Strategy

Situation (Constraints)

Internal Corporate Environment of the CREM External Corporate Environment

Organi-zation

Context -

System-

Fit

Intra-

System-

Fit

Vision/Mission/Corporate Targets

Control-

System

Next step research: Which parameter constellations make a “best fit”?

Theoretical foundation: Configuration framework (Mintzberg, Miller/Friesen, etc.)

V. Discussion


Next step: Specifying and testing emerged hypotheses regarding well-performing CREM configurationsInitial hypotheses regarding CREM institutionalization

CREM-Map

Questions of research Hypotheses regarding institutionalization

Targets/Strategy

When choose which superior orientation/ positioning?

Positioning depends mainly on industry & portfolio structure; positioning drives priorities of professionalizing activities

…. ….

Strategy Requirements of/ impact on space efficiency/effectiveness?

Transparency of business strategies, requirements & behavior major prerequisite for space efficiency (costs) & productivity optimization

…. ….

Orga Degree, type & control of outsourcing?

„Case-by-case-subcontracting if existing management competence & national portfolio„ otherwise trend to general contractor

…. ….

Control …. ….

V. Discussion


CREM management concept not to be constituted on „best model“, but on „best fit configuration“Summary & Outlook

Identify or develop a CREM management concept that supports CREM to fulfill its (respective) purpose effectively

and efficiently

Research question

No “Best Model” identified, instead configurational approach

Next: Testing hypotheses emerged with larger number research

Conclusion & Outlook

Model structure & contents confirmed by interview partners

General “principles” are followed by companies, but well-functioning constellations are highly diverse

Major findings

Develop a CREM management model based on general management research as well as CREM research

Explore renown CREMs to validate & concretize model

Research design

CREM’s role and purpose quickly developing and changing

Several surveys/research approachs but no integrated concept to guide institutionalization

Problem

V. Discussion


Contact information

Dr. Annette Kämpf-Dern

Head of Real Estate Management &

Project Development FBI

Tel.: +49 (6151) 16-5264

Fax: +49 (6151) 16-4417

Email: [email protected]

Prof. Dr. Andreas Pfnür

Head of FBI - Forschungscenter

Betriebliche Immobilienwirtschaft

Tel.: +49 (6151) 16-3717

Fax: +49 (6151) 16-4417

Email: [email protected]

european real estate society conference 2013 vienna, austria, july 5 th 2013

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