Adding Value: How Facility Managers Contribute to the Bottom Line

Adding Value: How Facility Managers Contribute to the Bottom Line

The biggest construction project today is not an office tower, a school or a hospital. Although work is well under way, there was no formal groundbreaking ceremony. Nor are there blueprints or models to indicate the final form of what's being built. On the contrary, work will likely never be complete. That's because what's on the drawing board is a new role for facility executives.

Identifying characteristics of that new role was the focus of six months of research by the editorial staff of
Building Operating Management magazine. Titled "Tomorrow’s Facility Executive -- Today," the project involved teleconferences, roundtable discussions and phone interviews with 77 leading facility executives in corporations, health care organizations and educational institutions at the K-12 and college and university levels. The result amounts to a punch list for facility executives interested in how to tackle challenges in the industry.



Why do facility executives need a new place in the corporate hierarchy? The reason is as easy to state as it can be difficult to accomplish: to use facilities to add value to organizations.

Given the amount that organizations invest in physical assets, the onus is on the facility executive to pay heed to the direct impact facilities have on the bottom line. But reducing expenses isn’t the only challenge facing organizations -- or facility executives.

Increases in productivity offer an opportunity to boost long-term profitability in a way that the most aggressive cost-cutting can’t match. Companies must satisfy customers to remain competitive. Rapid changes in the business environment have increased the importance of innovation, flexibility and time to market. Attracting and retaining qualified employees is a top priority for some organizations; for some, uptime is high on the agenda. The physical environment can help organizations achieve those goals and others.

As with anything involving facilities, the effort to create a new role for facility executives is best seen as a long-term project. Some facility executives have been going about that task for years. In the eyes of some of their peers, who are now beginning the effort, those early starters might seem to be lucky to have found organizations where management is willing to listen to facility executives. The reality is that very few organizations start out "enlightened." Getting the light bulb to go on in the mind of a CEO or CFO almost always takes time, hard work and good ideas.

The good ideas uncovered by the research paint a picture of how to become "Tomorrow’s Facility Executive -- Today." This issue marks the start of a series of articles based on that research, articles that will examine key strategies for adding value to organizations. The pieces in this issue examine the question of how to identify real value in an organization. Future issues will cover such topics as how to use numbers effectively, how to develop communication strategies and how to build relationships.

Understand Top Management’s View of Value

Imagine a facility executive trading places with a CEO for a day. The CEO would have to field complaints about a roof leak or find out what it’s like to have phone calls go unreturned. Meanwhile, ensconced in the top executive’s chair, the facility executive would scour the budget for money to replace that roof -- unless, that is, there was a board meeting to consummate a merger, or a hastily convened session to deal with a product recall, or any of the other things that keep the CEO from focusing on facilities.

Rather than wishing that the CEO would walk a mile in their shoes, the most successful facility executives do the opposite: They lace up an imaginary pair of the CEO’s wingtips and try to understand what top management expects of facilities.

What they see varies dramatically from organization to organization. But there is one constant: cost control. “It’s what they pay you to do,” said one facility executive.

In one form or another, money is cited as the biggest challenge in the effort to add value to an organization. Top management in one Fortune 500 company wants facilities to reflect the status of the corporation, a leader in its field. Still, said the facility executive, management keeps asking the same question about facilities: “Why does it cost what it does to do what we do?”

At one university, the top facility executive is on good terms with top managers and with deans. “Financial processes at the university bring us together. No one hesitates to pick up the phone.” But that does not mean he’s on easy street. “It wouldn’t be facilities if we weren’t scrapping for resources.”

What complicates the challenge of adding value is that cost control isn’t enough. Facility executives must be able to deliver the right level of facility performance in key areas, whether the measure is comfort, uptime for critical facilities, the appropriateness of the work environment or real estate transactions. If limited resources make that impossible, facility executives should warn top management where performance may fall short.

A good litmus test of top management’s expectations for facilities is the question of whether facilities are seen as a burden. “The closer you get to the CFO, the more that term applies,” said one facility executive who has held senior positions in several large organizations where cost reduction was a major priority.

More often than not, however, facility executives rejected the term burden. “I wouldn’t say management considers facilities a burden,” said one facility executive. “They consider them a major part of our business. But we are continually being pressed to cut costs.”

“Our management and board have a balanced view,” said another facility executive. “They see that facilities bring a lot of value. But they also bring a lot of cost.”

That balanced view is shared by successful facility executives. They have a solid grasp of what one facility executive called “the business of the business” and use organizational goals as the touchstone for facility decisions. That’s true whether facilities are seen as a burden or not.

“In a market-driven company, the focus is always on the market,” said a facility executive who has worked for several Fortune 500 firms. “Facilities and operations are a small part of the picture.”

Align Facility Plans with Business Goals

When facilities are seen as a burden, success in facility management may come down to making lemonade out of some pretty sour lemons.

Consider the facility executive at a large urban hospital. Call it Hospital A. Across town, management at Hospital B has invested millions of dollars over a decade and a half to build a replacement hospital, a rehab hospital, medical office buildings and other new facilities; top executives rank physical assets second only to staff in value to the organization.

The attitude of senior executives at Hospital A could not be more different. They point to data showing that facilities don’t really matter to patients. It’s the hospital’s medical staff and technology that count. That’s the facility executive’s cue: “This is going to sound awful, out of context: The patients don’t matter. I’ve got to keep the doctors and nurses happy. If they’re happy, they’re going to take care of the patients.”

That’s not to say the facility executive is happy. It drives him crazy to see repairs put off so long they turn into capital expenditures. But he realizes that his best argument for funding is that facilities can help recruit and retain medical staff, not that the physical environment will pull in more patients.

Aligning with the strategy of the organization is a basic approach that can be overlooked by facility executives frustrated because top management so often turns down requests for funds. But supporting corporate strategy doesn’t necessarily mean slashing expenses. “While real estate is a cost and management is concerned about it, they are also concerned about productivity and providing a cost-effective, efficient, safe, pleasant place to work,” said one facility executive. “Our challenge is delivering that within a reasonable cost framework.”

Facility executives should be alert to changing external conditions that alter company strategies. Competition for fee-for-service patients, for example, has led some health care organizations to see facilities as a way to attract customers. The power outage of August 2003 helped facility executives throughout the Northeast sell infrastructure improvements. One health care facility executive said that bankruptcies of other hospitals have shown top management the risk of letting the physical plant deteriorate so long that the organization simply can’t afford to replace items when they finally wear out.

A facility executive in touch with management’s ideas is more likely to spot ways to add value. About three years ago, one company decided to focus more directly on its core restaurant business. One goal was getting managers to spend more time in restaurants and less time in field offices. “Our department took that as a cue,” said the company’s facility executive. “We changed the concept of the traditional field office and made it a resource center.” The resource centers were no longer workplaces for managers but rather locations to be visited or accessed electronically; average office size was cut by 60 percent.

Aligning with corporate strategy pays long-term dividends, said the facility executive. “This is an operations company. Facilities are not even secondary. We are off the radar screen in some cases. But when you show value, it snowballs. All of a sudden you gain momentum.”

Identify Needs Facilities Can Address

No one will deny that a better looking campus will make a university more appealing to potential students. And common sense says that a well-designed workplace can boost productivity by improving communication, eliminating distractions or reducing absenteeism. But, for facility executives intent on adding value, no facility benefit is relevant, except one: the one that meets a specific organizational need.

A good example is speed. Getting a high school renovation completed in June rather than July isn’t likely to be as important to the school board as getting a new branch open sooner is to bank management.

“We call it time to market,” said a facility executive from a financial institution. “If four banks are going in at an intersection, and you’re the last one, you have to take customers from the other banks. Time truly is money.”

When speed matters, companies will make investments to enable them to move faster. One very profitable organization has a 100 percent annual churn rate. “We control churn by supplying commodity spaces and standardizing workstations and the technology the supports the business,” said the facility executive. “Everything is race-wired. Everything is cabled to allow for a quick-connect. Lighting is built on a 5-by-5 grid. We can move a thousand people over a weekend if we don’t have to paint and spackle.” Lower long-term costs aren’t the only benefit of speed that has caught the attention of top executives. “We’ve been told that we’re a strategic advantage,” said one facility executive. “Together with our IT department, we can position our products faster than our competitors.” As a result, the company is willing to accept higher initial costs.

The extent to which the link between organizational need and facility benefit can be quantified varies. For example, increasing reliability for data centers increases cost, but the payback can be gauged by the additional amount of uptime it brings. Update an old branch bank that still has avocado and harvest gold as its color motif, or customize a retail outlet to appeal to a demographic group, and the return shows up in increased business.

But not all investments in aesthetics can be measured so easily. “You’ve got to have really good facilities to attract students,” said the facility executive at one university. “They have much higher expectations.” But quantifying the value of a positive first impression is difficult. Schools can query students about the physical environment, just as hospitals can ask patients how happy they were with the facilities, but customer satisfaction surveys can’t directly measure financial returns on an investment in facilities. It’s ultimately a judgment call whether the investment is worthwhile. Cost matters but the perceived need for a better image determines how much expense is appropriate.

Recruitment and retention are other areas where facilities can have an impact. One hospital recently opened a state-of-the-art intensive care unit. “All we have to do is get the nurses in the door,” said the facility executive. “As soon as they see it, they’re here. They don’t care who the doctors and other nurses are -- at least for a while.” In another hospital, nursing vacancies dropped nearly 90 percent with the move into a replacement facility.

It’s not just in tight labor markets that a facility has value as a tool for recruitment and retention. One organization concluded that limiting call center employees to 3-by-3 foot cubicles caused too much turnover. Another facility executive recalled moving a call center out of “a dog of a facility” and into smaller but nicer space with more amenities. “The better facility definitely translated into less turnover,” he said. Front-line supervisors in the call centers remained the same.

Despite cases like that, demonstrating how much impact facilities have on recruitment and retention is often difficult. “I don’t think I’ve ever heard of anyone going into an exit interview and saying they were leaving because the facilities were bad,” said one facility executive. “When turnover is high, the facility is just one more thing to look at.” Absent a specific need, it’s often tough to convince management to invest extra in facilities to help attract and keep employees.

Balanced View

When it comes to adding value, a balanced perspective is the hallmark of successful facility executives. These facility executives bring a skeptical eye to the question of whether, and to what extent, benefits can be quantified.

A hard-nosed mindset is often evident in discussions about the direct impact facilities can have on employee productivity. Most facility executives believe the physical environment can impede performance. “I don’t know if I can improve test scores,” said one facility executive. “But I’m sure I can make them go down.” What’s more, if productivity is defined as helping to recruit or retain employees, or to maintain uptime, then facilities may be acknowledged as playing a major role.

But on the question of whether facilities help improve the performance of people who use a space, opinions vary widely. Many studies have claimed to prove that facility improvements can increase productivity, but taken as a whole that body of research has significant flaws. Some studies depend entirely on subjective indicators of productivity. In other cases it’s impossible to rule out other, non-facility factors that could account for any gains in productivity.

The health care industry has embarked on an ambitious effort to make the connection between elements of facility design and specific outcomes. Known as evidence-based design, the strategy sets specific targets and then measures the impact of facilities on achieving those aims. For example, the goal might be reducing the number of infections that patients acquire in the hospital; a design strategy to address that problem might be the use of private rooms.

Could an evidence-based design approach work for other industries? One obstacle is the difficulty of measuring white collar productivity at all. The more that a job is repetitive, the easier it is to measure productivity. It’s much harder to quantify how productive a knowledge worker is. Either way, it’s difficult to isolate the impact of a specific factor, like the physical environment.

Some organizations do accept the idea that facilities are an important tool to boost employee performance. One company outsources most facility and real estate functions but supports an in-house real estate research department that explores ways to improve the workplace. Other corporations have used a change in the physical environment to help drive a change in the corporate culture. They saw the facility as a way to address an organizational need -- even if the impact could not be quantified easily.

Customer Satisfaction

Linking need and facility benefit can be a complicated matter. A case is point is the Press Ganey patient survey, a tool widely used in health care to rate customer satisfaction. Some of the questions relate directly to the physical environment. And new or upgraded space often receives much higher marks. That makes Press Ganey scores potentially valuable evidence for justifying investments in facilities. “If you’re successful in making a link between Press Ganey and the condition of the facilities, you’ve won a big battle,” said one facility executive.

But a closer look reveals a more complex picture. For one thing, any big jump in scores on facility measures is often short lived. “Within a year, it comes almost back down to the original level,” said one facility executive.

What’s more, it’s not the facilities themselves that count most with patients. Facilities actually land near the bottom on the scale of things patients rank as most important.

A facility executive focused on fluctuating Press Ganey scores might miss other opportunities. One hospital upgraded its cafeteria but saw little change in patient satisfaction scores. That was a disappointment to the facility executive until he realized employee satisfaction had jumped, an important consideration given the tight market for qualified medical staff.

Although it’s often helpful to quantify the benefits of a facility can offer, that may not be necessary when the need is a high priority. One organization was considering a consolidation that would have moved employees into Class A space not far from the existing location. The savings were significant. “From the cost perspective it was a slam dunk,” the facility executive said. What’s more, the new location meant a shorter average commute for employees. But the move never happened. The old facility was essentially next door to a major customer. Location amounted to a key competitive advantage. Moving even a few miles away, the business unit concluded, would have jeopardized its relationship with the customer. “We decided there was more opportunity to grow the business if we stayed in the existing location,” said the facility executive.

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This article has been reprinted courtesy of Building Operating Management. It was first printed in the April 2005 issue of that publication.