Categories Economy, Narrative, Office Market

Underlying Organizational Costs

The biggest waste we consistently see is clients underutilizing their office space.  Planning for growth that never occurs, thinking you “need” the space for visiting people, and making work areas and offices too big — there are multiple ways that companies waste money.

Office space, and even more important facilities, can significantly reduce costs through in-depth expenditure assessments. To maximize cost efficiency, it’s important to remember and consider the following:

  • Workplace satisfaction prompts productivity and retention. AMEN.
  • Invest in the work setting.  The key word here is “invest.”  Your workplace is an investment in your people, culture and efficiency. 
  • Periodically  replace/upgrade obsolete areas and systems.  Do you have a quarterly checklist of items that need to be reviewed, tested or replaced?
  • Strongly address energy and utility systems efficiency. Energy runs between 5-20% of our clients’ facility costs.  There are programs within the local utilities, sensors to turn off lights, energy management systems, and more that can help cut utility costs.  Today’s technology saves money.

Below is a longer article on these topics and a few more.  Looking to make sure you are on top of your costs?  Give me a call or shoot me an email.  We can help.

 

Craig

602.954.3762
ccoppola@leearizona.com


 

Real Estate: The Surprising Cost of Inaction
Are executives overlooking the real cost of underperforming real estate and facility assets?

Tammy Carr
InBusiness_Logo
February 2017

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With real estate and facilities as two of the largest expenses (and assets) for the average organization, it may be surprising to learn a sizable portion of that spend is going toward wasted energy and lost productivity associated with unsuitable and inefficient performance of the physical work environments. This is not just an issue for Fortune 500 companies; increasingly, “middle market” companies, institutions and agencies are finding that conducting assessments of their holdings yields valuable data and results in actionable plans that have a significant impact on their bottom lines. Across industries and commercial real estate (CRE) segments, leadership is paying closer attention to the composition, scope, condition and value of their real estate portfolios.
 
How can executives minimize the drain on capital and expenses associated with the underperformance of their commercial corporate real estate portfolio and its impact on employee attraction and retention? A comprehensive portfolio assessment will analyze both the visible and hidden costs to an organization. Fundamentally, with this knowledge, executives are able to develop and implement strategies that will optimize their portfolio and maximize return on their facilities and real estate footprint.
 
Too often, however, executives are paralyzed by the initial financial investment and/or staff investment that may be required to engage in reversing the trend, even if the internal rate of return may meet or exceed their requirements.
 
The truth is, inaction can quietly kill a bottom line. In fact, hundreds of examples exist that illustrate a variety of ways in which a facility upgrade/renewal/replacement can positively affect a company’s profitability by contributing to overall operating cost efficiency, employee productivity and worker retention.
 
Ignored cost drivers: operations & maintenance
 
The cost of maintaining a space that has deferred maintenance and/or higher-than-average operations and maintenance (O&M) costs, can be surprisingly high. During a recent real estate and facility assessment for a corporate customer, our analysis uncovered inefficiencies within its 10-year-old building resulting in $1.09/square foot annual costs, simply due to subpar energy and systems performance.
 
A renovation or new space investment offers the opportunity for businesses to take advantage of the latest technology to lower utility costs. LED lighting, daylight harvesting techniques, high-efficiency boilers and other mechanical system improvements should all be reviewed for potential ROI. With one of our clients, for example, a small step such as implementing new daylighting controls for a four-floor corporate office reduced energy use from lighting by 45 percent over standard code, with a three-year payback period.
 
It is important for firms to conduct the necessary legwork to benchmark their own performance for O&M costs against their peers. Factors such as location, age, size and type of facility must be considered in the calculation. For the majority of our customers, we typically find they are meeting expected targets in one area, only to be underperforming in other areas. Rarely do firms exceed benchmarks without having begun their operational renewal process with a specific plan and targets in place. Without this understanding, businesses are missing a big piece of the puzzle required to determine the true costs of waiting to make investments with attractive returns.
 
Underappreciated cost drivers: productivity, innovation, recruiting & retention
 
Additionally, while the initial investment involved with a project may seem overwhelming, the truth is it can pale in comparison to an organization’s employee-related costs, which typically amount to 70 to 90 percent of a company’s overall operating costs, according to Gensler Consulting in The LEADER magazine.
 
But do employee-related costs have anything to do with a potential facility project? In short, they have everything to do with it, as numerous studies have shown that office design can have a positive impact on both the productivity and wellbeing of employees. Undertaking a new project offers a business the opportunity to leave outmoded environments behind and construct modern office spaces that can improve employee health, productivity and retention.
 
According to the GSA’s Innovative Workplaces report, businesses lose approximately $1 million per year for the average office building (370 employees) due to poor space planning alone. And those aren’t the only costs. In fact, Gensler’s U.S. Workplace Survey 2016 found that innovative businesses are five times more likely to prioritize modern workspace best practices, and employees operating in these modern workplaces are more likely to innovate.
 
Investing in the workplace does not just pay off in employee performance; it can also help businesses keep those high-performing employees around, as a 2012 study in the Journal of Vocational Behavior found that changes to the work environment can increase an employee’s commitment to the organization.
 
This is important because labor market growth is slowing in the U.S., and constantly recruiting and training new talent is costly. In the US, the labor force is expected to grow only 0.5 percent between 2014 and 2024, according to the Bureau of Labor Statistics, which means the supply and demand shift will be favorable for employees to seek out the best possible workplace environment.
 
Meanwhile, the cost of turnover for average workers making less than $75,000 a year, which covers 9 in 10 workers in the U.S., is roughly equivalent to 20 percent of the worker’s salary. Expect the price tag to increase to 150 percent of salary for turnover of knowledge workers earning around $75,000. Rather than paying those costs over and over again, businesses need to focus on improvements that incentivize employee satisfaction and loyalty.
 
A study commissioned by HASSEL also found that an appealing workplace can double a business’ chances of landing potential employees and a “modern workplace aesthetic” can triple an employer’s appeal.
 
Not only can an organization drastically reduce the costs of turnover, but additionally increase productivity and engagement in employees by providing them with a workspace that suits their needs. Knoll found in a study that a $200,000 investment in workspace capability upgrades, including the quality of meeting spaces, can substantially reduce annual costs with total payback after two years.
 
Identify the true cost of inaction
 
Today, employees may sit in cubicles or half partitions; they may work in an activity-based design or have their own private office — the options are abundant. Each company has different needs and objectives, and it’s essential to find the workplace environment that aligns with the firm’s objectives, while ensuring employee satisfaction and retention within its industry.
 
A facility conditions assessment done right — coupled with benchmarking data and expert analysis — will deliver visibility into hidden annual expenditures, provide insight into potential future surprises, and identify information critical to market valuation for underutilized facilities or properties. Whatever the situation, it’s important to know what underperforming space is costing relative to the income statement. This analysis is essential to planning investments for maximum effectiveness and ROI.

 

Categories Architecture, Creative Office Spaces, Design, Narrative, Tech Industry

How Tech Office Space Sets the Bar for Everyone Else

What would you do if you had an unlimited budget to improve your company’s next office renovation?  Below is a great article detailing what some tech giants are doing to their interior design to keep their employees happy, productive and in the office. 
 
One simple takeaway is that these companies are doing THE most innovative and comprehensive buildout you can possibly build.  AND they are applying everything in the real world.  We find that our clients, regardless of industry, are watching and observing all these changes and then incorporating as many of their favorite features as they can afford into their own space.
 
Contact me if you would like to see some examples in Phoenix or across the US.

Andrew
602.954.3769
acheney@leearizona.com


 

Technology firms and the office of the future
Their eccentric buildings offer clues about how people will work


April 29th 2017
 

FROM the 62nd floor of Salesforce Tower, 920 feet above the ground, San Francisco’s monuments look piddling. The Bay Bridge, Coit Tower and Palace of Fine Arts are dwarfed by the steel-and-glass headquarters that will house the software company when it is completed later this year. Subtle it is not. Salesforce plans to put on a light show every night; its new building will be visible from up to 30 miles away.

It is not the only technology company erecting a shrine to itself. Apple’s employees have just begun moving into their new headquarters in Cupertino, some 70 kilometres away, which was conceived by the firm’s late founder, Steve Jobs. The four-story, circular building looks like the dial of an iPod (or a doughnut) and is the same size as the Pentagon. At a price tag of around $5bn, it will be the most expensive corporate headquarters ever constructed. Apple applied all its product perfectionism to it: the guidelines for the wood used inside it reportedly ran to 30 pages.

Throughout San Francisco and Silicon Valley, cash-rich technology firms have built or are erecting bold, futuristic headquarters that convey their brands to employees and customers. Another example is Uber, a ride-hailing company, which is hoping to recast its reputation for secrecy and rugged competitiveness by designing an entirely see-through head office. It is expected to have some interior areas, as well as a park, that will be open to the public.

The exteriors of the new buildings will attract most attention, but it is their interiors that should be watched more closely. The very newest buildings, such as Apple’s, are mostly still under wraps, but they are expected to be highly innovative in their internal layout. Some of that is because of fierce competition within the tech industry for the best engineering and other talent: firms are particularly keen to come up with attractive, productive environments. But these new office spaces will also signal how work is likely to evolve. Technology companies have already changed the way people behave in offices beyond their own industry, as a result of e-mail, online search and collaboration tools such as Slack. They are doing the same for physical spaces.

The big idea championed by the industry is the concept of working in various spaces around an office rather than at a fixed workstation. Other industries have experimented with “activity-based working”, but tech is ahead. Employees may still have an assigned desk but they are not expected to be there, and they routinely go to different places to do various tasks. There are “libraries” where they can work quietly, as well as coffee shops, cafés and outdoor spaces for meetings and phone calls. The top two floors of Salesforce Tower, for example, will be used not as corner offices for executives but as an airy lounge for employees, where they can work communally and gaze out at the views over a latté.

A fluid working environment is meant to allow for more chance encounters, which could spur new ideas and spark unexpected collaborations. Facebook’s central building is the world’s largest open-plan office, designed to encourage employees to bump into one another in its common spaces and in a nine-acre rooftop garden. Communal areas are meant to be casual and alluring. John Schoettler, head of real estate at Amazon, says he aims to make them into “living-room-like spaces”. For offices to feel like home, it helps to hire a designer with expertise in residential real-estate, says Elizabeth Pinkham of Salesforce. In common areas at the firm’s offices, there are TVs, couches and bookshelves. Framed photos of a few employees add to the effect.

The new “working at home”

For those who scoff at the creative benefits of being surrounded by pictures of Colin from accounts, there are more tangible payoffs. The lack of fixed workstations shrinks the amount of expensive real estate given to employees without leaving them feeling too squeezed. Tech firms devote around 14 square metres to each employee, around a quarter less than other industries, according to Randy Howder at Gensler, a design firm. Young workers are thought to be more productive in these varied environments, which are reminiscent of the way people study and live at university. One drawback, however, is that finding colleagues can be difficult. Employees need to locate each other through text messages and messaging apps.

Collaborative spaces can also expose generational tensions, says Louise Mozingo, an architecture professor at the University of California, Berkeley. Tech firms’ elderly employees (otherwise known as the over-40s) can struggle to adjust to moving around during the day and to the frequent disruptions that come from large, open-plan offices. Many of Facebook’s employees do not like their office because it is noisy, and some Apple employees are hesitant to move into their new building for the same reason. Plenty also balk at the massive distances they will need to walk.

That may not be the only thing to cause employees concern. Tech firms are increasingly keen to use their own products in their headquarters. Jensen Huang, the chief executive of Nvidia, a chipmaking firm whose graphics processing units are widely used in artificial-intelligence programmes, says his firm plans to introduce facial recognition for entry into its new headquarters, due to open later this year.

Nvidia will also install cameras to recognise what food people are taking from the cafeteria and charge them accordingly, eliminating the need for a queue and cashier. A self-driving shuttle will eventually zip between its various buildings. And Nvidia’s own AI will monitor when employees arrive and leave, with the ostensible aim of adjusting the building’s heating and cooling systems.

The data that firms can collect on their employees’ whereabouts and activities are bound to become ever more detailed. Another way of keeping tabs on people is through company-issued mobile phones. “Every employee has their own tracking device,” observes Mr Howder at Gensler. “Technology firms will sooner or later take advantage of that.”

Few of them are willing to share details of their future plans because of concerns about employees’ privacy. However, some of their contractors signal what sort of innovations may be in the pipeline. Office-furniture makers, for example, are experimenting with putting sensors in desks and chairs, so that firms will be better able to monitor when workers are there.

Such data could be anonymised to allay privacy concerns. They could also save electricity or help people find an empty room to hold a meeting. But it is not hard to imagine how such data could create a culture of surveillance, where employees feel constantly monitored. “Technology firms could be an indicator of what will happen with privacy in offices more generally,” says David Benjamin of Autodesk, a company that sells software to architects, among other clients.

Silent discos and Bedouin tents

A less controversial trend is for unusual office interiors. These can distinguish companies in the minds of their employees, act as a recruiting tool and also give staff a reason to come into the office rather than work from home. For companies that do not ship a physical product, such offices can serve as important daily reminders of culture and purpose.

Last year LinkedIn, a professional social network, for example, opened a new building in San Francisco that is full of space set aside for networking, and that includes a “silent disco”, where people can dance to music with headphones on. Instead of offering generic meeting rooms with portentous names, Airbnb, a tech firm that lets people rent out their homes, has designed each of its meeting spaces after one of its rental listings, such as a Bedouin tent from Morocco. It also has a meeting room (pictured above) that is an exact replica of the rental apartment where the founders lived when they came up with the idea for Airbnb. Every detail, including the statue of Jesus in red velvet on top of the fireplace, is accurate, says Joe Gebbia, one of the company’s founders.

Nvidia is obsessed with triangles, the basic element of computer graphics used to create lifelike scenes in video games and movies. Its new headquarters, which cost $370m, is shaped like one (see picture), and its interior is full of them. Everything, from the skylights to the benches in the lobby, is triangular. “At this point I’m kind of over the triangle shape, because we took that theme and beat it to death,” admits John O’Brien, the company’s head of real estate, who pointedly vetoed a colleague’s recent suggestion to offer triangle-shaped water bottles in the cafeteria.

Such workspaces remind staff that they are choosing not just an employer but a way of life. In the tech bubble of the late 1990s companies disrupted the workplace by offering foosball tables, nap pods, blow-up castles and free lunches. Now the emphasis is on amenities that help employees save time. Larger firms, including Facebook, Alphabet and LinkedIn, offer their staff something akin to the services used by the extremely wealthy, helping employees to find places to live, adopt pets and the like. Some large tech groups offer on-site health care.

The effect of all this is that the typical office at a technology firm is becoming a prosperous, self-contained village. Employees have fewer reasons than ever to leave. With the spare cash they can throw at their employees, tech giants have vastly raised the bar for other kinds of company, which also want to recruit clever engineers and techies for their projects.

Other industries would be wise to take time to watch how tech firms are structuring their work environments. There is certainly a chance of a backlash against those that use their products to watch employees too closely. Workers may like free lunches and other perks associated with the tech business, but probably not enough to surrender their privacy entirely.

 

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