An Interview With Deborah Kops
Location, location, location is the number one rule of commercial real estate. For corporations worried about their bottom lines, the cardinal concern for their real estate should be process, process, process.
"What people call 'real estate' is just the tip of the iceberg. Real estate is not about real estate. It's about a series of processes," says Deborah Kops, global lead, real estate process outsourcing for PricewaterhouseCooper's (PwC) Global Outsourcing Group. She says most companies focus on the transaction - the purchase of a building or the signing of a lease. Instead they should be monitoring the transactions - the checks that go out every month to the landlord, cleaning service, utility company, etc.
"Getting better terms in a real estate deal is only one part of the real estate process," she explains.
Outsourcing the real estate process, with its concomitant reengineering, can have a significant impact on the bottom line. During one engagement Kops discovered one Fortune 25 company was spending 50 percent of its annual budget on real estate related items.
Real estate, like finance and accounting or supply chain management, is "a series of very common business processes," says the PwC BPO expert. Transaction processing, for example, accounts for 30 percent of the real estate function. "Paying bills is a generic business process," Kops points out. Procurement, another process that is easy to outsource, comprises another 25 percent of the real estate function. Managing customers is another 20 percent.
The functions that people equate with real estate - leasing and brokerage - only account for 25 percent of the function's activity. PwC uses brokers, architects and property managers to handle this part of the process. "We are the glue that holds the deal together," she says.
Outsourcing providers specialize in the processes under the tip of the transaction iceberg. "We don't do deals. We manage a huge corporate expense," says Kops.
One of the big advantages of outsourcing the real estate process is that the outsourcing supplier can integrate the real estate processes with the corporation's other processes. Supply chain management, for example, can now occur uniformly throughout the corporation. "The procurement process becomes the same whether the company is buying real estate or retirement benefits," says Kops.
Traditionally, the real estate department was a separate entity that developed its own procurement processes, IT programs and accounting systems. Outsourcing integrates the real estate department into the corporate systems, eliminating the duplication and the expense.
Outsourcing also imposes controls that most corporate real estate departments don't have. Kops says one outsourcing client had such poor payables control that it paid rent two or three times for the same month. "The volume of dollars involved and the complicated nature of the expenses make it easy to throw away big dollars," says Kops. An outsourcing provider adds rigor to the process.
Outsourcing companies continually invest in IT technology and process management tools since process management is their core functions. This is rarely the case in corporate real estate departments. Kops says they "go hungry" and often have to grow their own IT department because they can't shake any investment dollars from the parent.
These sophisticated systems reveal data most real estate departments can't extract. Kops says she has found few companies who can tell her the real estate cost per head. Not many outside the retail industry can tell her how much of the sales and administration costs apply to the real estate process. Outsourcing suppliers understand cost.
In addition, Kops says outsourcing suppliers have the tools to evaluate whether a company should stay in its current space or move. The supplier can also help the corporation cut demand by using tools like hoteling to lessen the need for square footage. "The impact of these choices on the balance sheet can be high," says the PwC executive.
In her view, 75 percent of the real estate function is comprised of standard business processes that an outsourcing provider can do better. "We make money on better processes. Real estate firms make money doing deals," she explains.
Lessons from the Outsourcing Primer:
- 75 percent of the real estate function is comprised of standard business processes which an outsourcing provider can do better.
- Outsourcing the real estate process integrates day-to-day operations and eliminates the real estate department's separate IT, procurement and accounting departments.
- Outsourcing suppliers provide monitoring and control tools, an important addition given the amount of dollars involved.
- Outsourcing suppliers have tools to determine costs that most real estate departments are unable to determine on their own.
- Outsourcing suppliers can help the corporation save money by reducing demand and making decisions about whether to stay or move.