Key Facility Implications and Results of Business Reengineering: The Private Sector Experience and an Outlook for the Future

Jon Ryburg

Facility Performance Group

I will review some of the research our firm has conducted over the last three years, on about 60 private companies, most of them among the Fortune 500.

These companies are being bombarded by tremendous changes driven by competition. They are all in the middle of downsizing, restructuring, and reengineering their business processes. They have all been coming to grips with the fact that they must continue to change from this time forward. They also had to conclude eventually that their new business arrangements and their business facilities no longer matched. It became obvious that everything, from facilities' locations, capacities, and configurations, down to the furniture layouts, had to be rethought.

All of the companies we looked at are operating under a total quality management program of some kind. They were concerned first with defining their vision and direction; senior management had primary responsibility for that. Focusing on the business, the mission, and the customer, they developed various strategies.

Three key strategies were common to all these companies as they sought their new vision and direction as an organization:

  1. Be quicker to market. The companies saw they had to develop and deliver products and services in much less time with significantly fewer resources. The Japanese automobile industry could do in half the time what Chrysler, Ford, and General Motors did; certainly the U.S. automobile industry had to match that.


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--> Key Facility Implications and Results of Business Reengineering: The Private Sector Experience and an Outlook for the Future Jon Ryburg Facility Performance Group I will review some of the research our firm has conducted over the last three years, on about 60 private companies, most of them among the Fortune 500. These companies are being bombarded by tremendous changes driven by competition. They are all in the middle of downsizing, restructuring, and reengineering their business processes. They have all been coming to grips with the fact that they must continue to change from this time forward. They also had to conclude eventually that their new business arrangements and their business facilities no longer matched. It became obvious that everything, from facilities' locations, capacities, and configurations, down to the furniture layouts, had to be rethought. All of the companies we looked at are operating under a total quality management program of some kind. They were concerned first with defining their vision and direction; senior management had primary responsibility for that. Focusing on the business, the mission, and the customer, they developed various strategies. Three key strategies were common to all these companies as they sought their new vision and direction as an organization: Be quicker to market. The companies saw they had to develop and deliver products and services in much less time with significantly fewer resources. The Japanese automobile industry could do in half the time what Chrysler, Ford, and General Motors did; certainly the U.S. automobile industry had to match that.

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--> Emphasize concurrent over linear processes. To be quicker, the companies had to develop concurrent processes and move away from purely linear processes. Concurrent processes are vertically integrated from concept through sales. They led to the stress on the team and the cross-functional team; the more complex the products or services, the more complex the team organizations needed. Continually improve. As these companies continue to evolve, they expect to continually improve the time it takes for teams to move products from concept through marketing, out into the field. This continual improvement also implies continual change. It is important to note at the outset that, in discussions of downsizing, cost-cutting mergers, teaming, restructuring, and reengineering, these concepts are often all mixed up. All of the companies reported that their restructuring occurred in waves and was often neither systematic nor clean. They frequently did not get it right the first time, or even the second or third time, and there were serious conflicts in space strategies that were often costly. As senior managers developed the organization's restructuring direction, the rest of the company coped as best it could with loss of market share and increasing cost burden. This approach often led to a so-called "shoehorn" space consolidation approach. In other words, "How much space can we get rid of?" People would be arranged together in the best manner possible secondarily. This process occurred as part of the cost-cutting venture, generally across-the-board cost-cutting. However, within two years of initiating this process, and having eliminated a great deal of property and made many decisions about preferable locations and needed capacity requirements—which most people thought of as an essentially strategic activity—the basic business process reengineering would begin. This, in turn, led to identifying quite different location, capacity, and configuration requirements. Thus, a company can get caught up in trying to save space. You can be linked to vice presidents of operations and feel that you are operating in a very strategic manner by being there and servicing the customer. Yet, on a near-term basis you may be doing something that is extremely detrimental to the company two or three years in the future, as actual reengineering begins. All the companies reported this kind of

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--> complexity and laughed about it later, but not before some people were fired and a lot of cost was incurred in that shoehorning of space. Reengineering Impacts on Space Utilization There were two major focuses of reengineering itself. One was rapid product or service development and roll-out, producing products and services faster and cheaper. This required the involvement of four parts of the organization: administration, engineering, manufacturing, and marketing/sales. The second focus was to move closer to customers and to the markets, which especially involved marketing, sales, and customer service. These two reengineering focuses led to major new work patterns as shown in Figure 1. These new patterns generally required collocating all the different functions that had to be integrated at a single site or campus, often called the "tech center." Customer service might be consolidated at headquarters or moved to a field location; in either case, the goal was to come closer to the customer to get customer feedback into research and development and product development and to service the customer better. Such arrangements had never been needed in these companies before. These changes represented an incredibly difficult process and massive cultural shifts within the organizations. They could not be achieved overnight. They were achieved only after tremendous resistance. The only way they were ever achieved at all was through extremely strong leadership from the top. With the new work patterns, very new kinds of office spaces were needed (Figure 2). The vertical axis on Figure 2 represents the dimension from the most to the least centralized work pattern. Space requirements, from dedicated space to no space, are plotted against these new kinds of work. This figure shows the distribution of the different kinds of office spaces described in the media and by furniture companies; it is also the distribution we found in our 60 studied companies. All of the companies began their new work patterns and reengineered business processes with traditional office layouts. They quickly found that, particularly for the centralized work pattern, they needed to develop something called a home-based/shared approach to office space. Instead of large dedicated private offices or an open plan with individual

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--> Figure 1. Work pattern trends in the recent reengineering of organizations (H.R., Human Resources; see text for further detail).

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--> Figure 2. Office space requirements following the recent reengineering of organizations.

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--> office spaces, the optimal arrangement was seen to be smaller offices close to a larger shared space, where teams could work. There are at least two different types of home-based/shared office concepts, whose differential use depends on the kind of company. The first concept is used for smaller, less complex products and services like personal computers, tires, banks, and insurance companies, which have about 70 percent of the floor space collocated; the departments are collocated, and smaller footprint home-based offices are near team meeting rooms, which take up about 20 percent of the space. This arrangement continues to work very effectively for these companies today. Teaming occurs within the departments, the home-based offices, and the team meeting rooms. The various spaces support the different kinds of teaming. This concept is exemplified in a tire and rubber facility in the Mid-West—a tech center that collocated all functions, for all company products and services, from concept through sales (Figure 3). The company wanted to build a strong community of people, to address constantly changing processes. They moved to very open configurations, in which partitions and furniture could be easily moved. An atrium in the facility's center fosters this sense of community, with everyone using the same entrance and thereby encouraged to have accidental conversations—which company management considers just as important as planned communications. Broad stairways, rather than elevators, are used, since the latter tend to separate people. No raised flooring is used. Team rooms are located around the outside. People are assigned to four to six small teams; the idea is that fewer can do more. All the technology, the wiring and cable, is in the spine wall running down the center of these walls. Most manufacturing companies had much underutilized manufacturing space around, and they found they could renovate it to get these very large collocated sites. The other concept of home-based/shared office space is suited to larger companies that provide much more complex services or products, like automobiles, jumbo jets, and the services of large system providers, perhaps to NASA, air traffic controllers, or other businesses. Space allocation in this case is reversed from that in the first concept. Here, because of the complexity of the products, the larger sizes of the vertically integrated teams, and the complexity of team tasks, the

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--> Figure 3. Concept 1 for home-based/shared office space, for smaller, less complex products (tire manufacturer in the Mid-West): Greater collocated departmental space with small-footprint, home-based offices near team meeting rooms.

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--> team spaces and home bases take up most of the space, and there is simply token representation of the departments nearby. Figure 4 shows an auto manufacturer, a facility about twice the size of the tire and rubber facility. The auto manufacturer produces several car models. All the space is team space. Departments are down in the corners, with just a small staff to service facility personnel, such as human resources representation. The company will not allow us to show details of the space layout, because they consider it part of their competitive advantage. However, you can see the spine walls, which are very long. They hold the technology, the wires and cables and so on, for the very dense technology utilization in the space. This facility also does not use raised floors; in fact, few of these facilities do. There are five areas of an organization that reengineering affects most, in terms of both business processes and spaces. The five areas are headquarters, tech centers, computer centers, sales field offices, and customer service. Perhaps these areas will be those most affected in federal agencies over the next three to five years, though one may need to understand these areas slightly differently in the context of government. Headquarters tend to empty out. Restructuring does not allow for a large bureaucracy of people. Moreover, people tend to become isolated when relegated to a headquarters facility. They need to be distributed where they will do the most good in creating or delivering the product or service. All of the action now is out of the tech center. Chrysler Corporation headquarters in Highland Park, Michigan, for example, is now emptying out and moving to the tech center 30 miles away. The Dow Chemical Company, in Midland, Michigan, has just built a new headquarters facility that is quite unlike any traditional headquarters facility. It is not a place for bureaucrats to gather, but rather more of a machine for rapid development of products and services. General Motors is about ready to shift from its venerable old building in downtown Detroit to a building called the RENCEN, short for the Detroit ''Renaissance Center,'' a very large, primarily commercial office structure mixed with shopping, hotel, and some residential space. Their headquarters facility has essentially been emptied. The new senior job requirement is to be out supporting the plants where automotive devices and vehicles are actually designed and manufactured.

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--> Figure 4. Concept 2 for home-based/shared office space, for larger, more complex products (auto manufacturer): minimal departmental space, with larger, flexibly arranged team meeting spaces.

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--> Sears is delighted to finally be out of the Sears Tower. It is a wonderful structure with nine towers. Each tower has a footprint of about 50,000 square feet. This arrangement works well for hierarchical organizations, but is terrible for team-based organizations. The company has moved to the northwest Chicago suburbs, to a lower rise building with a much bigger footprint, which is much more suitable for the broad-based teams the company needs now. The company is pleased with these larger uninterrupted floor spans and with being only two or three levels high. The greater the number of levels, the greater the distance created among groups, and the less productive the teams. As you probably have heard, Sears is getting market share back. ServiceMaster recently created one of its first regional headquarters, in Memphis, Tennessee. They hired an architectural firm that had a great deal of experience in hospital design. The headquarters looks like a hospital with wings, and it separates rather than integrates. The vice presidents of operations are arguing over their turfs, while senior management hoped to integrate these activities. Another critical area is the computer center. All this reorganization and reengineering requires new computer-based systems to support it. Most of these companies are converting one-quarter to one-half of the space within the computer center itself to team-based programming and systems development office space, or adding space nearby or onto the building, to accommodate all the team-based activities that are essential to rapid development. Field offices attempting to get closer to customers and markets can often substitute technology for office space. Portable computers and cellular phones, using e-mail and faxes, can determine the status of a customer's order and allow administrative work, even in a car. There is no need to return to an office. Companies are eliminating as much space devoted to field offices as they can. They are seeing 50 to 100 percent reductions in the real estate needed in the field. They are moving to shared office concepts, like hoteling. Half of these companies report difficulty in disposing of their unneeded space, because of the real estate market or their leases. At most of these companies, the customer service centers, while having various business marketing groups and various lines of services and products, often sell to the same customers. In reengineering, it made sense, then, to consolidate customer service centers to a single site. Now the

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--> customer has a single point of connection to all the different lines of business, and the different lines of business can leverage their knowledge of the customer. General Electric, whose plastics now represent about 30 percent of company revenues, and are expected to reach about 40 percent in the next five years, put customer service in their headquarters facility, where their reengineering provided a lot of spare space. Churn rates for both people and space in these companies are extremely high. By "churn" we mean, when referring to people, a full move from one office or location to another. When referring to space, we mean any kind of facility change that requires moving or adjusting something within an individual office, or a whole office move, and the results of these changes in terms of square feet. The high churn rates have come about because of organizational changes, not because of regularly scheduled maintenance, best use abatement, or the Americans with Disabilities Act. Companywide churn rates are higher for companies that have turned to the second concept of home-based/shared office space, that aimed at more complex production. Their churn rates, for both people and space, stand at over 100 percent annually, vs 75 to 100 percent for concept 1 companies. Companies with more complex products have had to pass through more organizational changes to find the best distribution of people. In contrast, at the department level, with its business process reengineering, churn rates for people are slightly higher for concept 1 companies; space churn rates at this level are the same for both concepts, 20 to 30 percent. At the team level, churn rates reflect the project team's work methods throughout the project lifecycle. Churn rates for both people and space at this level are higher for concept 2 companies. However, space churn rate is relatively low (about 20 percent) for the few kinds of companies, like insurance companies and banks, that can use universal templates for their space; in these concept 1 companies, team rooms can be shared. These companies can still operate very efficiently in high-rise buildings with long, double-loaded corridors, unlike most manufacturing companies. What controls are being used for these extraordinary churn rates? No one forecasts that these rates will be reduced by very much. No one yet sees the end of mergers and acquisitions. The first and most important control is to project both long-and short-term requirements. Surprisingly, most of the companies were not

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--> doing this well prior to reengineering. They found that as much as 50 percent of all churn within two years of reengineering business processes resulted from poor understanding of where the corresponding parts of the organization were going to go. There was, in fact, very little true strategic planning. To reduce churn as much as possible, then, you want to be tightly connected to corporate planners, who are developing the organization's board-approved futures, to see the facility implications of these plans. You also want to be very tightly connected to all the vice presidents of the operations. However, these people should clearly be in a reengineering phase, not just in a cost-cutting phase. The other technique that was very successful in reducing churn, but used by very few of the 60 companies, was to move people rather than facilities. You can eliminate current churn by using universal plans or templates, or free address systems. In free address, no one has an assigned office space to use. You use whatever space is free (or available). Only the insurance companies used a universal plan template, however. The concept is that one or two sizes fit all. We did find that department managers were not very happy with this approach, but they could live with it. Because of the high cost of moving technology, particularly wires and cables, another approach has been to move everything except the technology. Of the 60 companies, perhaps fewer than 10 had raised flooring throughout their facilities. Raised flooring has various disadvantages, particularly cost. The main alternative has been the use of spine walls. Furniture companies are coming out with some interesting new products for better spine walls, such as better lay-in and take-out cables in furniture systems, so the systems can be more easily moved. With all the change, companies would like to see their investments in the furniture be maintained. Another approach is to move everything, including the technology. There were companies like Chrysler Corporation that embraced churn to an extraordinary degree. While facility managers and real estate people think of churn as a huge headache and a big cost, which it is, companies came to see churn as good for the company, reflecting valuable business reengineering. They want facilities that can keep up with the changes and be cost-effective at the same time.

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--> Another strategy was to adapt instead of move. At department and team levels, much of the churn resulted from the inability to change just a few workstations, without tearing out a large number of them. The related churn control objective has been to keep churn as localized as possible. Methods being used are module-adjustable furniture, which is becoming more common; flexible roll-around furniture, which can be adjusted and moved by the users themselves; and far more flexible wall systems, including flexible spine walls for cabling. Still another tactic was making electronic instead of physical moves. This type of churn control may be the most interesting of all. Many of the companies expect to develop their tech centers further, along with increasing their market share, by means of virtual connections, rather than by building larger and larger complexes where people have to meet together to work. Instead, they can tele-team through desktop and portable teleconferencing and other techniques already in use. Companies around the country are now using this approach across two or three states. For example, Xerox has finally given up on meetings on the West Coast between its Portland and Palo Alto facilities. Given the congestion, pollution, and expense that these meetings would entail, the company's high-value workforce uses a teleconferencing utility available 24 hours a day. Even the coffee break areas at the two sites have full screen projection of each other, because the company so highly rates accidental encounters between these high-value people. The uses of teleconferencing will likely increase elsewhere as prices come down. Some of the tech centers we observed were already hardwiring with coaxial cable throughout, to bring closed-circuit television into more team spaces. This will allow teams to talk to people on different floors easily and see them at the same time. For facility managers, three very important recent emphases have been to control costs, to control quality, and to control churn. One overarching question is how to make current buildings work for the new team environments. Finding an answer is very difficult. Many companies developed award-winning buildings in the 1970s and 1980s that do not work well today. Some have venerable R&D facilities in which seminal experiments were carried out 50 years ago, providing foundations for whole new industries. Companies would like to remain in these facilities, which is an enormously difficult challenge.

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--> To have facilities support high performance, the focus must be strategic, with tactical work outsourced. For example, outsourcing maintenance may not save much money, but over time many companies have found their costs do not rise as rapidly as when the maintenance function is kept in house. To help control quality, facilities management must be a full member of the new team. Yet it was often not invited into the process in the cases we examined. To know the customer well, facilities management must be closely involved in the change process, particularly in reengineering, because no one knows exactly what the outcome will be in the future. For others in the company to see you as a resource, you must be considered integral to the change process. Moreover, facilities managers are facilitators, not police; they bring their own contributions to the table. Outlook For The Future Companies state quite strongly that the current business trends affecting facilities management are not fads. Continuous improvement is a long-range strategy. One paradox is that companies must be both big and small simultaneously. Economies of scale are extremely critical, and mergers and acquisitions to support company core markets and capabilities will continue. But the objective is to increase market share, not company size. If you double your market, you do not want to double the size of the company. Keeping the company small is essential to remain innovative, flexible, and responsive. To ensure quality, these companies have found it is critical to remain small. We will likely see many more just-in-time workforces as well as workplaces, because large companies or empires are too risky, costly, and slow. Similarly, there will be more part-time people, more joint ventures, and more outsourcing. Today, our average company may be a 80/20 company, with about 80 percent of those at a site actual full-time employees and 20 percent vendors, part-time people, and consultants. Senior managers, particularly at the tech centers, have been saying that they are shooting to be 60/40 companies within the next 10 years. All of them appear excited about the notion that we will become workers for many companies and that many virtual advances in technology and telecommuting will be occurring over the same time.

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--> Still, the concept we found most interesting was the goal of senior managers to be able to do in 10 years with a telecommunications link between team members nearly anything you can do or accomplish in a face-to-face meeting today. When you talk to the telephone company and other companies providing these services, this is actually one of the goals they have as well. Within the Fortune 500 companies right now, approximately 5-10 percent of the people are affected by these virtual technologies, in their use of teleconferencing and as telecommuters. Smaller companies are reporting a much higher percentage of such users today. We do not really know whether the trend will explode, or take its place alongside the paperless office, but we believe that it will eventually evolve enough to significantly reduce company need to collocate hundreds or thousands of employees at a common site, reducing the need for additional, new facilities. The companies believe this trend is very important, particularly the ability to use virtual links to develop tech centers in very different ways. These links permit organizations to be as large as needed, and in a manner that can be quite transparent to all those involved, when done right, working almost as well or better than face-to-face meetings. Again, there are many continuing pressures to take such an approach: local and regional congestion pressures, with their monetary, environmental, and quality of life costs, and the high costs of living associated with large centralized sites. Additionally, some of the needed high-value people are relatively scarce, and they have new attitudes about quality of life issues, such as where and how they live, and the balance they want to achieve between home and the workplace. To summarize, all these companies found facilities to be a very important enabling factor—one they had developed ways of measuring and justifying in various parts of the company. Tech centers had a different way than headquarters of justifying this value, and customer service centers a different way than field offices, but they all did come around to this idea. They did not all begin this way. Most felt at first that facilities were non-earning assets, whose costs should be reduced to nothing if possible. Of course, that is still a goal. But, while most of these companies did not originally see the locations, capacities, and configurations of their facilities as enabling influences, this was the conclusion they finally reached.