During the eight-year relationship of Sovereign Bank and its outsourcing service provider, Trammell Crow Company (TCC), the bank grew dramatically from mergers and acquisitions. For TCC, which handles all the bank's real estate services throughout its financial services market (the northeast and mid-Atlantic states in the US), the growth from 130 properties to more than 600 properties required a high level of flexibility and expertise.
But these were only two of the reasons TCC was selected as the bank's outsourcing partner, says Patti Davis, Senior Vice President and Director of Facilities for Sovereign Bank. "We liked their style," she recalls. "TCC is very entrepreneurial. They approached this relationship almost like they were running their own business. We also liked their focus of being very responsive to their clients' expectations. Trammell Crow is a good business partner."
When they structured their relationship in 1996, the organizational structure of the outsourced facilities team aligned well with the bank's requirements. The need arose to reevaluate the delivery model as the original 623,000 square feet grew to almost five million square feet. They had been talking about how to go forward after the bank doubled its size with an additional 300 offices from its merger with Fleet in 2000. "Providing services to those business units created new needs," states Davis. "Since the bank was not going to hire more people, we had to determine how we could restructure to provide additional services without increasing costs."
Together, they decided it was time to re-evaluate all aspects of their relationship to make sure the relationship was leveraging all that TCC had to offer to help the bank achieve its goals. Dubbed the "account refresh," their joint 2003 initiative has brought new operational benefits and will save the bank approximately $2.4 million in 2004. The initiative has been so successful, Davis explains, that TCC has included it in its playbooks, where its other clients' teams can access information about best practices in how to refresh a TCC outsourcing relationship.
TCC approached the in-depth refresh initiative as though Sovereign Bank were a brand new client, undertaking an exhaustive analysis of the existing organizational structure, service delivery models, and overall services approach. Concurrently the bank brought McKinsey and Company in to double-check TCC's structure and performance.
"Trammell Crow actually went out and interviewed every single one of the existing 46 people working on our account, looked at what they were doing, how they were doing it, and their skills set," says Davis. As a result, TCC consolidated certain responsibilities, reducing its headcount by seven employees; but nine new, more effective, positions were also created. "We put people through a lot. They essentially had to interview for their jobs all over again, even though there was no dissatisfaction with their performance."
They reorganized service delivery from the existing centralized model to provide more strategic support in the bank's biggest markets; the new "cell" model is like a pod with a key group of people who service a particular market. They implemented new lease administration software and also developed an energy management program. And TCC hired two transaction managers and new functional leaders for each service line (Property Management, Project Management, Portfolio Administration, and Transactions), thus freeing the Alliance Director's time to focus on strategic oversight.
Other significant improvements included revision of the ratio of property mangers to bank branches, transitioning dedicated maintenance technicians to a roving alternative. They also reduced outside broker commissions by hiring two dedicated transaction managers at TCC to keep abreast of banking competition and provide market data to Sovereign Bank.
The next step to refreshing their relationship centered on better definitions of Key Performance Indicators (KPIs) and implementing an incentive plan based on the KPIs to supplement the existing incentives for achieving cost savings.
The account refresh initiative strengthened an already healthy outsourcing relationship, taking it to the next level of synergy.
Capitalizing on Outsourcing
The bank, indeed, now achieves maximum leverage of TCC's expertise and resources. Collaboration is a key benefit, Davis points out. "They collaborate with us on our space planning -- the ongoing analysis of how we utilize our real estate and how we can minimize vacancies. Or our CFO might, for instance, ask: 'What's going on out there in the capital market? Are there some opportunities we should be looking at for lease-back or more complex transactions?' TCC then puts a team in place and brings people in to address the requests as needs arise." Collaboration extends through the coordination and integration of staffing requirements, vendors, and moves for each of the properties in the bank's portfolio.
According to Davis, TCC's management of the bank's occupancy costs directly passes down to all the bank's business units, affecting profitability immediately. "Expense reduction, measured against income dollar for dollar, has a much more dramatic impact on the bottom line," reminds Davis.
She recalls the pre-outsourcing days. "When Sovereign acquired banks -- many of which were small institutions -- normally there would be a senior executive responsible for real estate issues, as well as several other operational areas. But those people were not retained in the acquisitions. So we had no one other than me and a crew of maintenance people -- no one at a level that was able to provide strategic support. We did not have leasing people or construction managers that handled large projects and space planning. A 20-building portfolio is one thing, but several hundred buildings is an altogether different challenge. So we turned to outsourcing."
As the bank's Director of Facilities sums up the eight-year relationship, "It's a real success story in how we've been able to take the bank from a very small organization to a large organization and use outsourcing to ensure we are poised successfully for growth."
Lessons from the Outsourcing Journal:
- Buyers with aggressive growth strategies should choose a provider with scalable resources and a flexible approach to delivering services in a changing business environment.
- Effective outsourced real estate management services requires a collaborative approach in coordinating and integrating staffing and vendor overlaps, as well as moves, for each property in a buyer's portfolio.
- Incentive programs, based on Key Performance Indicators, are an excellent means of ensuring the parties' interests remain aligned.