A new era of real estate outsourcing
The new frontier corporate real estate professionals are facing today can be compared to the shift that the IT services industry experienced in the 1980s: the outsourcing of specialized, noncore functions to external vendors.
The difference here is, while the objective to reduce costs remains, new objectives such as supporting the broader strategic outcomes—such as employee well-being, satisfaction and productivity, as well as real-time decision-making support—have emerged.
This new world of corporate real estate outsourcing, or Outsourcing 4.0, consists of a fresh way of engaging in a strategic partnership, with service providers using sophisticated technologies to streamline and standardize the way properties are managed and drive positive business results.
In a conversation with Maureen Ehrenberg, JLL’s International Director of the Global Integrated Facilities Management business, we learn what Outsourcing 4.0 really means, as well as what Outsourcing 5.0 might look like.
What are the fundamentals of Outsourcing 4.0 and what does this mean for corporate real estate professionals?
The first is leverage. Corporate real estate teams are looking to become thinner, more agile and strategic. With the right external partner, a company can upskill its internal team and rely on its outsourced provider for day-to-day operations.
This partner is not just working on a tactical level, but jointly taking a strategic command of the execution. The increased productivity, pricing leverage and access to resources that a partner is able to bring can make the company’s portfolio more effective and its performances more predictable.
A second pillar of outsourcing is world-class expertise. Companies recognize that they will achieve better results by focusing on core competencies and bringing in strong strategic partners to provide services noncore to their business.
This was what happened during the IT outsourcing revolution—during which internal IT employees moved to new specialized employers providing them with better training, expert supervision and brighter career opportunities, while companies got leaner direct payroll and a more expert and cost-effective IT support. We are seeing this model come to life in the corporate real estate industry in a very sophisticated way.
Next is compliance, risk management and standards. In today’s world where businesses continue to evolve in terms of models and structures, the compliance environment is also trying to keep pace: Changes are continuously taking place in regulatory, contractual and behavioral compliance requirements across the globe.
In Asia Pacific particularly, the broad diversity and complexity of regulations across the region makes compliance a real challenge for multinational organizations; for example, India alone has 29 States—which all have their own tax regime—and a separate tax system for goods and services until late 2016. Your strategic partner will need to be constantly on top of the regulatory changes and best practices to be able to effectively advise the business.
Trust is the fourth pillar. Trust comes from a true working partnership with a strategic service provider and is strengthened over time as the partnership deepens.
Where can we see tangible gains from the type of data analysis these new sophisticated technologies are enabling?
Workplace productivity is definitely a big one, as are capital asset planning and sustainability. The way data is captured and reported around occupancy utilization, service requests, equipment faults or actual energy consumption plays a fundamental role in effective decision-making and related business performance.
Many multinational companies choose to bring in a partner because these elements are increasingly important in global markets. In Asian markets such as India and China, which have been growth-focused for the past decades, the need to better manage costs and remain competitive on a global scale means that companies have become more concerned not just about the productivity of their real estate portfolio, but also the productivity of their workplace and their people.
Companies such as Chinese electronics giant Huawei have fast recognized their need to partner specialized firms to manage the complex network of leases and direct property holdings they have across the globe. “Huawei realized that they needed to get the right systems in place to manage their vast property portfolio,” explains Julian Zhang, Head of the China global Desk at JLL. “They realized there are simple tools available to manage those leases and contracts and that’s when JLL got involved.”
After a six-month review process, Huawei implemented a formal real estate management system to address those needs and awarded JLL the Professional Contribution Reward, making it the first real estate services company to receive such a designation.
What does Outsourcing 5.0 look like?
You look at Uber being the largest taxi company in the world that owns no taxis, or Airbnb as the largest hotelier in the world that owns no hotels.
It requires thinking (very) differently about the business model itself. It’s going to evolve very quickly in the next five years or so. You look at Uber being the largest taxi company in the world that owns no taxis, or Airbnb as the largest hotelier in the world that owns no hotels.
Similarly, something is going to change in the corporate real estate industry. Facilities management alone is a trillion-dollar business. Technology innovators, investors and businesses are seeing the opportunities in corporate real estate and new workplace models are ready to monetize them. We are already seeing so many new ways to work and meet appearing in the market that can be bought on demand. The co-working trend in Asia is one example. We will definitely be seeing a much more efficient use of space in time to come—the possibilities for changes and innovation are endless.