UNSTRUCTURED STRATEGIC DECISION-MAKING
PROCESSES: CRE DECISION-MAKING
IN THE ITALIAN CONSULTING INDUSTRY
A thesis presented to
QUEENSLAND UNIVERSITY OF TECHNOLOGY
in fulfilment of the requirements for the degree of
DOCTOR OF PHILOSOPHY
by
Marcello Tonelli
BSc. Intl. Mgmt. (UOP), MInfm. Tech. (JCU)
School of Management
Faculty of Business
Queensland University of Technology
© Copyright Marcello Tonelli 2009
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ABSTRACT
This thesis aims at developing a better understanding of unstructured strategic
decision making processes and the conditions for achieving successful decision
outcomes. Specifically it focuses on the processes used to make CRE (Corporate
Real Estate) decisions.
The starting point for this thesis is that our knowledge of such processes is
incomplete. A comprehensive study of the most recent CRE literature together with
Behavioural Organization Theory has provided a research framework for the
exploration of CRE recommended ‗best practice‘, and of how organizational
variables impact on and shape these practices.
To reveal the fundamental differences between CRE decision-making in
practice and the prescriptive ‗best practice‘ advocated in the CRE literature, a study
of seven Italian management consulting firms was undertaken addressing the aspects
of content and process of decisions. This thesis makes its primary contribution by
identifying the importance and difficulty of finding the right balance between
problem complexity, process richness and cohesion to ensure a decision-making
process that is sufficiently rich and yet quick enough to deliver a prompt outcome.
While doing so, this research also provides more empirical evidence to some of the
most established theories of decision-making while reinterpreting their mono-
dimensional arguments in a multi-dimensional model of successful decision-making.
Key Words: CRE; Decision-Making; Management Consulting; Organization
Management Theory; Strategic Decisions, Problem Complexity; Process Cohesion;
Process Richness; Unstructured Processes.
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TABLE of CONTENTS
ABSTRACT i TABLE of CONTENTS iii LIST OF FIGURES ix
LIST OF TABLES xi STATEMENT OF ORIGINAL AUTHORSHIP xiii ACKNOWLEDGEMENTS xv
1 Introduction and Overview 1
2 Literature Review 5
2.1 RE: Separate Function or Foundation for a Systems Perspective? 7 2.1.1 The Links between RE Decisions and Corporate Strategy 7 2.1.2 Difficulties in aligning Managerial and CRE Performance Measures 12 2.1.3 Conclusions regarding Systemic Perspective 13
2.2 Managerial Implications in Goal Setting and Choice Selection 14 2.2.1 The Operational and Strategic Roles of Real Estate Managers 14 2.2.2 Goal-setting and the Management of Decisional Processes 15 2.2.3 Development of Management Tools and Control Systems 19 2.2.4 Conclusions regarding Managerial Implications 21
2.3 Final Observations 22
3 Research Questions 31
4 Methodology 35
4.1 Methodology Overview 35
4.2 Sampling 36
4.3 Data Collection Methods 40 4.3.1 Interviews 40 4.3.2 Secondary Data 43
4.4 Data Analysis 44 4.4.1 Within-Case Analysis 45 4.4.2 Cross-Case Analysis 50
4.5 Validity 51
4.6 Ethical Clearance Issues 53
5 Study One (ALPHA) 55
5.1 Brief History of the Firm 57
5.2 RE Positioning prior to Implementation of New CRE Strategy 58
5.3 Decision-Making Process 59
5.4 Decision-Making Process in action 61
5.5 Conclusions Narrative of ALPHA Case 69
5.6 Analysis of ALPHA Case Study 70 5.6.1 Manifest Reasons for Decision (Business Considerations & RE Aspects) 70
5.6.1.1 Quantity of Space 72 5.6.1.2 Occupancy Costs 73 5.6.1.3 Corporate Image 74 5.6.1.4 Less Important Topics 75
5.6.2 Process of Decision (Hidden Reasons and Interplays) 78 5.6.2.1 Overlapping Goals at the Start of the Process 79 5.6.2.2 Stratagems Carried out at the Local Level 80 5.6.2.3 Identification of only One Option 82 5.6.2.4 Coalition for Fast Approval 84
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5.7 Building a Theory 84 5.7.1 Business Implications Linked to CRE Decisions 84 5.7.2 Characteristics of the Decision-Making Process 84
6 Study Two (BETA) 87
6.1 Brief History of the Firm 89
6.2 RE Positioning of BETA prior to implementing new CRE Strategy 89
6.3 Decision-Making Process 91
6.4 Decision-Making Process in action 92
6.5 Conclusions Narrative of BETA Case 101
6.6 Analysis of BETA Case Study 103 6.6.1 Manifest Reasons for Decision (Business Considerations & RE Aspects) 103
6.6.1.1 Amount of Space 105 6.6.1.2 Location 106 6.6.1.3 Corporate image 106 6.6.1.4 Less Important Topics 107
6.6.2 Process of Decision (Hidden Reasons and Interplays) 110 6.6.2.1 Urgency and Uncertainty Create the Setting for a Fast Process 110 6.6.2.2 Identification of only One Option 111 6.6.2.3 Satisficing eventually puts an end to the process 114
6.7 Building a Theory 115 6.7.1 Business Implications linked to CRE Decisions 115 6.7.2 Characteristics of the Decision-Making Process 116
7 Study Three (GAMMA) 119
7.1 Brief History of the Firm 121
7.2 RE Positioning of Gamma prior to Implementing new CRE Strategy 122
7.3 Decision-Making Process 123
7.4 Decision-Making Process in action 125
7.5 Conclusions Narrative of GAMMA Case 132
7.6 Analysis of GAMMA Case Study 133 7.6.1 Manifest Reasons for Decision (Business Considerations & RE Aspects) 133
7.6.1.1 Amount of Space 135 7.6.1.2 Corporate image 136 7.6.1.3 Costs 137 7.6.1.4 Less Important Topics 137
7.6.2 Process of Decision (Hidden Reasons and Interplays) 139 7.6.2.1 Quick response to an urgent challenge 140 7.6.2.2 Urgency Loses Momentum 141 7.6.2.3 Lack of Knowledge causes Alternatives to be Poorly Evaluated 143 7.6.2.4 Definitive shift of GAMMA‟s primary objective 146
7.7 Building a Theory 146 7.7.1 Business Implications linked to CRE Decisions 146 7.7.2 Characteristics of the Decision-Making Process 146
8 Study Four (DELTA) 149
8.1 Brief History of the Firm 151
8.2 RE Positioning of DELTA prior to Implementing New CRE Strategy 151
8.3 Decision-Making Process 153
8.4 Decision-Making Process in action 155
8.5 Conclusions Narrative of DELTA Case 160
8.6 Analysis of DELTA Case Study 161 8.6.1 Manifest Reasons for Decision (Business Considerations & RE Aspects) 161
8.6.1.1 Human Resources 163
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8.6.1.2 Corporate Image 164 8.6.1.3 Less Important Topics 165
8.6.2 Process of Decision (Hidden Reasons and Interplays) 167 8.6.2.1 Serendipity leads to the unfolding of a Decision-Making Process 167 8.6.2.2 Pragmatic Rationality ensures Quick Approval 169
8.7 Building a Theory 172 8.7.1 Business Implications linked to CRE Decisions 172 8.7.2 Characteristics of the Decision-Making Process 173
9 Study Five (EPSILON) 175
9.1 Brief History of the Firm 176
9.2 EPSILON‟S Original Real Estate Policies 176
9.3 Decision-Making Process 179
9.4 Decision-Making Process in action 181
9.5 Conclusions Narrative of EPSILON Case 186
9.6 Analysis of Epsilon Case Study 187 9.6.1 Manifest Reasons for Decision (Business Considerations & RE Aspects) 187
9.6.1.1 Occupancy Costs 189 9.6.1.2 Location 190 9.6.1.3 Amount of Space 190
9.6.2 Process of Decision (Hidden Reasons and Interplays) 194 9.6.2.1 Ideal Environment for CRE Decision-Making 194 9.6.2.2 Theory in Use vs Espoused Theory 195 9.6.2.3 Postponing the decision 196
9.7 Building a Theory 198 9.7.1 Business Implications linked to CRE Decisions 198 9.7.2 Characteristics of the Decision-Making Process 199
10 Study Six (ZETA) 201
10.1 Brief History of the Firm 202
10.2 RE Positioning of ZETA prior to Implementing new CRE Strategy 203
10.3 Decision-Making Process 205
10.4 Decision-Making Process in action 206
10.5 Conclusions Narrative of ZETA Case 212
10.6 Analysis of ZETA Case Study 212 10.6.1 Manifest Reasons for Decisions (Business Considerations, RE Aspects) 213
10.6.1.1 Amount of Space 215 10.6.1.2 RE Value Creation 215 10.6.1.3 Corporate Image 216 10.6.1.4 Less Important Topics 217
10.6.2 Process of Decision (Hidden Reasons and Interplays) 219 10.6.2.1 CRE Decision-Making for the IT Practice (PROBLEM-DRIVEN) 219 10.6.2.2 CRE Decision-Making for the Management Practice (PROBLEM-DRIVEN) 221 10.6.2.3 CRE Decision-Making for Management Practice (OPPORTUNITY-DRIVEN) 222
10.7 Building a Theory 223 10.7.1 Business Implications linked lo CRE Decisions 223 10.7.2 Characteristics of the Decision-Making Process 223
11 Study Seven (ETA) 225
11.1 Brief History of the Firm 226
11.2 RE Positioning of ETA prior to Implementing the New CRE Strategy 227
11.3 Decision-Making Process 229
11.4 Decision-Making Process in action 230
11.5 Conclusions Narrative of ETA Case 243
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11.6 Analysis of ETA Case Study 244 11.6.1 Manifest Reasons for Decision (Business Considerations, RE Aspects) 244
11.6.1.1 Amount of Space 246 11.6.1.2 Corporate Image 247 11.6.1.3 Occupancy Costs 248 11.6.1.4 Less Important Topics 249
11.6.2 Process of Decision (Hidden Reasons and Interplays) 251 11.6.2.1 The Signing of the Contract for the 4th Floor 251 11.6.2.2 Addition of a New Player and Introduction of Image as a Critical Aspect 253 11.6.2.3 Negotiation Games of Partner “F” bring back Relocation as a Viable Solution 254 11.6.2.4 Various Partners Coming Up with their own Solutions 256 11.6.2.5 Order is Restored by a Powerful Coalition 257
11.7 Building a Theory 258 11.7.1 Business Implications linked to CRE Decisions 259 11.7.2 Characteristics of the Decision-Making Process 259
12 Integrative Analysis 263
12.1 Successful Strategic Decisions are Balanced 264
12.2 Content of CRE Decision-Making 266 12.2.1 Success as Indicated by the CRE Literature 266 12.2.2 A New Set of Parameters for Success 271
12.3 Process of CRE Decision-Making 272 12.3.1 Processes Without Non-Members of the Top Management Team 273 12.3.2 Top Management Team generally without RE Background, Orientation 276
12.4 Building the Model 279 12.4.1.1 Systematic Connection between Success and Problem Complexity‟s handling over time 280
12.4.2 Problem Complexity and the right amount of Process Richness 282 12.4.3 Keeping Process Richness Under Control 285
12.5 Informing Strategic Decision-Making 287
12.6 Conclusions of Integrative Analysis 291
13 Contribution and Conclusion 293
13.1 Introduction 293
13.2 Contributions 293 13.2.1 Contributions to Management Literature 293 13.2.2 Contributions to Real Estate Literature 294
13.3 Limitations of the Research 297
13.4 Future Research Directions 298
13.5 Conclusion 299
REFERENCES 301
APPENDIXES 313
Appendix 1: The Management Consulting Industry 313 Appendix 1-1: Historical Perspective 314 Appendix 1-2: Current Consulting Scene 315 Appendix 1-3: The Italian Market 318
Appendix 1-3-1: Industry Sector Profile 318 Appendix 1-3-2: Overview of the Top 20 Companies 319 Appendix 1-3-3: Future Trends 319
Appendix 2: Detailed Tables from CRE Literature 321 Appendix 2.1: RE Considerations of Strategic Driving Forces 321 Appendix 2.2: Linking Real Property Operating Decisions to Real Estate Strategies 323 Appendix 2-3: CRE Strategies and Contributions to Competitive Advantage 324
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Appendix 3: Distribution of Topics in Case Studies 325
Appendix 4: Additional Information on Case Studies 326
Appendix 4-1: ALPHA ( ) 326 Appendix 4-1-1: Organizational Structure 326 Appendix 4-1-2: Location 327 Appendix 4-1-3: Decision-Making Process 327
Appendix 4-2: BETA ( ) 329 Appendix 4-2-1: Organizational Structure 329 Appendix 4-2-2: Location 330 Appendix 4-2-3: Decision-Making Process 330
Appendix 4-3: GAMMA ( ) 332 Appendix 4-3-1: Organizational Structure 332 Appendix 4-3-2: Location 333 Appendix 4-3-3: Decision-Making Process 333
Appendix 4-4: DELTA ( ) 335 Appendix 4-4-1: Organizational Structure 335 Appendix 4-4-2: Location 336 Appendix 4-4-3: Decision-Making Process 336
Appendix 4-5: EPSILON ( ) 338 Appendix 4-5-1: Organizational Structure 338 Appendix 4-5-2: Location 339 Appendix 4-5-3: Decision-Making Process 339
Appendix 4-6: ZETA ( ) 341 Appendix 4-6-1: Organizational Structure 341 Appendix 4-6-2: Location 342 Appendix 4-6-3: Decision-Making Process 342
Appendix 4-7: ETA ( ) 345 Appendix 4-7-1: Organizational Structure 345 Appendix 4-7-2: Location 346 Appendix 4-7-3: Decision-Making Process 346
Appendix 5: CRE Decision-Making Trends in Italy 348 Appendix 5-1: Geographical Locations of Consulting Firms in Italy 348 Appendix 5-2: Common RE Practices, Italian Consulting Industry 349
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LIST OF FIGURES
Figure 1.1: Research Framework and Links to Theory ______________________ 2
Figure 2.1: Basic Concepts in Behavioural Theory of the Firm _______________ 26
Figure 2.2: A Process View of Decision-Making ___________________________ 27
Figure 3.1: Proposed Research Framework______________________________ 34
Figure 4.1: Frequency Bar Graph (ALPHA Case) _________________________ 48
Figure 4.2: Time-Ordered Display of Selected Topics ______________________ 49
Figure 4.3: Analytical Framework ______________________________________ 50
Figure 5.1: ALPHA‟s Locations Worldwide _______________________________ 56
Figure 5.2: Standard Operating Procedures for CRE Decision-Making _________ 61
Figure 5.3: Chronological Description of Main Activities ____________________ 62
Figure 5.4: Timeline of Discussed Topics________________________________ 72
Figure 5.5: Analytical Framework ______________________________________ 85
Figure 6.1: BETA‟s Locations Worldwide ________________________________ 87
Figure 6.2: Process of CRE Decision-Making ____________________________ 92
Figure 6.3: Chronological Description of Main Activities ____________________ 93
Figure 6.4: Structure of the Complex in via Tortorella ______________________ 96
Figure 6.5: Timeline of Discussed Topics_______________________________ 104
Figure 6.6: Analytical Framework _____________________________________ 116
Figure 7.1: GAMMA‟s Locations Worldwide _____________________________ 120
Figure 7.2: Standard Operating Procedures for CRE Decision-Making ________ 124
Figure 7.3: Chronological Description of Main Activities ___________________ 125
Figure 7.4: Timeline of Topics Discussed_______________________________ 135
Figure 7.5: Analytical Framework _____________________________________ 147
Figure 8.1: DELTA‟s Locations Worldwide ______________________________ 149
Figure 8.2: Standard Operating Procedures for CRE Decision-Making ________ 155
Figure 8.3: Chronological Description of Main Activities ___________________ 156
Figure 8.4: Internal Layout of DELTA‟s 1st Floor _________________________ 159
Figure 8.5: Timeline of Topics Discussed_______________________________ 162
Figure 8.6: Analytical Framework _____________________________________ 173
Figure 9.1: EPSILON‟s Locations Worldwide ____________________________ 175
Figure 9.2: Standard Operating Procedures for CRE Decision-Making ________ 180
Figure 9.3: Chronological Description of Main Activities ___________________ 182
Figure 9.4: Timeline of Discussed Topics_______________________________ 188
Figure 9.5: Rationality of the Decision-Making Process ____________________ 193
Figure 9.6: Analytical Framework _____________________________________ 199
Figure 10.1: ZETA‟s Locations Worldwide ______________________________ 202
Figure 10.2: Standard Operating Procedures for CRE Decision-Making _______ 206
Figure 10.3: Chronological Description of Main Activities __________________ 207
Figure 10.4: Timeline of Discussed Topics ______________________________ 214
Figure 10.5: Analytical Framework ____________________________________ 224
Figure 11.1: ETA‟s Locations Worldwide _______________________________ 225
Figure 11.2: Standard Operating Procedures for CRE Decision-Making _______ 230
Figure 11.3: Chronological Description of Main Activities __________________ 231
Figure 11.4: Timeline of Topics Discussed ______________________________ 246
Figure 11.5: Analytical Framework ____________________________________ 260
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Figure 12.1:Balancing Tensions for Success ____________________________ 264
Figure 12.2: Pattern of Relationship between Complexity and Duration _______ 282
Figure 12.3: Process Richness vs Problem Complexity ____________________ 284
Figure 12.4: Process Richness vs Cohesion ____________________________ 287
Figure A1.1: Professional Service Infrastructure _________________________ 316
Figure A3.1: Frequency Bar Graphs of Case Studies _____________________ 325
Figure A4.1: Hierarchical Structure of ALPHA ___________________________ 326
Figure A4.2: Rome City Map ________________________________________ 327
Figure A4.3: Activity-Based Mapping Process ___________________________ 328
Figure A4.4: Role-Based Process Responsibility _________________________ 328
Figure A4.5: Hierarchical Structure of BETA ____________________________ 329
Figure A4.6: Milan City Map _________________________________________ 330
Figure A4.7: Activity-Based Mapping Process ___________________________ 331
Figure A4.8: Role-Based Mapping Process _____________________________ 331
Figure A4.9: Hierarchical Structure of GAMMA __________________________ 332
Figure A4.10: Milan City Map ________________________________________ 333
Figure A4.11: Activity-Based Mapping Process __________________________ 334
Figure A4.12: Role-Based Mapping Process ____________________________ 334
Figure A4.13: Hierarchical Structure of DELTA __________________________ 335
Figure A4.14: Milan City Map ________________________________________ 336
Figure A4.15: Activity-Based Mapping Process __________________________ 337
Figure A4.16: Role-Based Mapping Process ____________________________ 337
Figure A4.17: Hierarchical Structure of EPSILON ________________________ 338
Figure A4.18: Milan City Map ________________________________________ 339
Figure A4.19: Activity-Based Mapping Process __________________________ 340
Figure A4.20: Role-Based Mapping Process ____________________________ 340
Figure A4.21: Hierarchical Structure of ZETA ___________________________ 341
Figure A4.22: Milan City Map ________________________________________ 342
Figure A4.23: Activity-Based Mapping Process (a) _______________________ 343
Figure A4.24: Role-Based Mapping Process (a) _________________________ 343
Figure A4.25: Activity-Based Mapping Process (b) _______________________ 344
Figure A4.26: Role-Based Mapping Process (b) _________________________ 344
Figure A4.27: Hierarchical Structure of ETA ____________________________ 345
Figure A4.28: Milan City Map ________________________________________ 346
Figure A4.29: Activity-Based Mapping Process __________________________ 347
Figure A4.30: Role-Based Mapping Process ____________________________ 347
Figure A5.1: Map of Italy ___________________________________________ 349
Figure A5.2: Map of Milan __________________________________________ 349
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LIST OF TABLES
Table 2.1: Evolution of Emphasis in CRE Literature ________________________ 6
Table 2.2: The Five Progressive Levels of CRE Sophistication ________________ 8
Table 2.3: Corporate Driving Forces ____________________________________ 9
Table 2.4: CRE Strategies and Corporate Driving Force ____________________ 11
Table 2.5: Corporate Goals __________________________________________ 17
Table 2.6: Decision-Making Theories Compared __________________________ 23
Table 4.1: Top 20 Italian Consulting Firms _______________________________ 38
Table 4.2: Number of Interviewees in Each Case _________________________ 41
Table 4.3: Open Interview Questions ___________________________________ 42
Table 4.4: Closed Interview Questions __________________________________ 43
Table 4.5: Sources of Secondary Data per Case __________________________ 44
Table 4.6: Analysis of the Minutes of BoD. Meeting from Case ETA (η) ________ 46
Table 4.7: Conceptually-Ordered Display of Body Minutes __________________ 46
Table 5.1: Corporate Advantages of Different CRE Options _________________ 66
Table 5.2: Frequency of Topics Discussed within the Case __________________ 71
Table 5.3: Summary of Senior Management Perceptions ___________________ 76
Table 6.1: Corporate Advantages of Different CRE Options _________________ 97
Table 6.2: Frequency of Topics Discussed within the Case _________________ 103
Table 6.3: Summary of Senior Management Perceptions __________________ 109
Table 7.1: Milan and Italy employees __________________________________ 120
Table 7.2:Corporate Advantages of Different CRE Options _________________ 128
Table 7.3: Frequency of Topics Discussed within the Case _________________ 133
Table 7.4: Summary of Senior Management Perceptions __________________ 139
Table 8.1: Hierarchy of DELTA‟s Personnel in Milan and Italy _______________ 150
Table 8.2: Frequency of Topics Discussed within the Case _________________ 161
Table 8.3: Summary of Senior Management Perceptions __________________ 166
Table 9.1: Weight of RE costs of Corporate Budget_______________________ 185
Table 9.2: Frequency of Topics Discussed within the Case _________________ 187
Table 9.3: Summary of Senior Management Perceptions __________________ 192
Table 10.1: Features of Building in piazza Australia ______________________ 209
Table 10.2: Frequency of Topics Discussed within the Case ________________ 213
Table 10.3: Summary of Senior Management Perceptions _________________ 218
Table 11.1: CRE Alternatives offered by Real Estate Manager ______________ 235
Table 11.2: Cost Estimate to Restructure of via Albatross __________________ 239
Table 11.3: Benefits of Option 5: Moving to Site „C‟ _______________________ 240
Table 11.4: Comparison of CRE Options _______________________________ 242
Table 11.5: Frequency of Topics Discussed within the Case ________________ 245
Table 11.6: Summary of Senior Management Perceptions _________________ 250
Table 12.1: Summary of Case Contexts________________________________ 263
Table 12.2: Manifest Reasons for Decisions ____________________________ 267
Table 12.3: Trigger Issues __________________________________________ 268
Table 12.4: Success of CRE Decisions ________________________________ 271
Table 12.5: Comparison of RE Departments & Functions __________________ 274
Table 12.6: Complexity of CRE Decisions ______________________________ 280
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Table 12.7: Richness of Process _____________________________________ 283
Table 12.8: Cohesion of Processes ___________________________________ 285
Table A1.1: Market Size (€ Millions) ___________________________________ 318
Table A1.2: The Top 20 Consulting Firms in Italy ________________________ 319
Table A2.1: Strategic Driving Forces __________________________________ 321
Table A2.2: RE Operating Decisions and Strategies ______________________ 323
Table A2.3: CRE as a Source of Competitive Advantage __________________ 324
Table A5.1: Comparison of CRE Strategies _____________________________ 348
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STATEMENT OF ORIGINAL AUTHORSHIP
The work contained in this thesis has not been previously submitted for a degree or a
diploma at any higher educational institution.
To the best of my knowledge and belief, this dissertation contains no material
previously published or written by another person except where due reference is
made.
Signature:
Date:
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ACKNOWLEDGEMENTS
Many people have helped and supported me while I worked on this thesis: I would
like to record my gratitude to all of them.
The advice and assistance supplied by the academic and administrative staff
of QUT‘s School of Management and Business Faculty made the research possible.
At each stage, from the confirmation document through to the final writing, there has
always been someone there to help when I needed it. In particular, I have to thank
Professor Boris Kabanoff, my associate supervisor, and Dr. Stephen Cox, who both
helped me with the methodology and provided valuable input on various sections of
the thesis.
Senior Lecturer and Research Students Coordinator Stephane Tywoniak, my
principal supervisor, must get a special mention. He was instrumental in ensuring my
development as a researcher by helping me to the conclusion of this research. I have
greatly appreciated the time and support he gave me.
I would also like to acknowledge the support of the CRC for Construction
Innovation — my appreciation goes to all the management and staff.
On the non-academic front, I thank my family for their encouragement and
patience. Especially I thank Paola, who always gives me so much.
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1
1 Introduction and Overview
Real estate (RE) represents one of the largest assets controlled by many — perhaps
most — firms. Traditionally, managing RE has been seen as a purely functional
problem associated with accommodating its organizations‘ main business activities.
More recently, a Corporate Real Estate (CRE) literature has emerged, arguing that
RE needs to be seen as a strategic activity that can either support the fulfilment or
impede corporate business plans (Lindholm, Gibler, et al. 2006). CRE authors argue
for RE‘s being perceived as the foundation of a whole-of-system perspective (Nourse
and Roulac 1993, Gibler, Black et al. 2002), using a common language
understandable by RE managers and senior executives (Carter 1995), while they
suggest simultaneously that RE managers need to be empowered with a strategic
role (Roulac 2001) to optimize efficiency and maximize shareholder wealth
(Manning, Rodriguez, et al. 1999, Brown 2001), and to be supported in their jobs by
management tools and control systems.
However, an analysis of the literature has shown that our knowledge of the
process used to make CRE decisions is incomplete. There is limited empirical
evidence to back up the theoretical claims (Lindholm, Gibler, et al. 2006), and
academic research on organizational influences on RE decisions and decision-
making processes is scarce. Therefore, in exploring current CRE policy and practice
and how organizational variables impact on and shape them, the researcher has
drawn upon the solid empirical evidence of Organization Management Theory
(OMT) literature. Among a number of theories of decision-making in organizations
for which there is strong empirical evidence, the model by Cyert and March (1963)
is one of the established approaches to look at decision-making as a process; and the
researcher felt that this would be useful to complement the CRE literature.
In particular, CRE authors appear to make the assumption that strategic links
between RE and organizational goals are made at the one time, and that a decision
follows almost naturally. Cyert and March argue instead in favour of an iterative
process that looks at information as part of a process of enquiry, to reach a decision
at some point into the future. Their model also facilitates the identification of
potential structural and processual barriers to the adoption of new strategies and
methodologies only briefly and recently mentioned in the CRE literature
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(Greenhalgh 2008). Among the factors thus to be considered are the ideas of
satisficing (Simon 1957), intra-organizational conflict (March and Simon 1958),
bounded rationality (Kahneman and Tversky 1979), risk avoidance (Braybrooke and
Lindblom 1963), power (Pettigrew 1972; Pfeffer, 1981), and biased information
search (March 1997).
Figure 1.1 shows the overall conceptual structure of the thesis, which seeks to
answer the following fundamental question:
“Does CRE decision-making in practice reflect the prescriptive „best
practice‟ advocated in the CRE literature?”
In order to answer the question, the research investigates two aspects of CRE
decisions: the information used to make them and the process followed.
1. What influences organizations‘ CRE decisions and how do they, in turn,
influence other core strategic concerns?
2. How does studying CRE decisions help to better understand strategic
decision-making processes?
Figure 1.1: Research Framework and Links to Theory
The research questions are investigated in the context of the Italian
management consulting industry1. Italy was selected because personal contacts led to
the opportunity of accessing the top management teams of seven firms in this
industry over a short period of time; and because it is a developed western nation
where business is part of the global environment, so that findings would arguably be
1 Appendix 1 provides a summary of the Italian management consulting industry, while Appendix 5 offers an overview of the trends and practices in the industry.
3
relevant also to other developed countries. The choice of management consulting
was dictated by the industry‘s being highly competitive, and perhaps one of the most
knowledgeable in corporate strategy and competitive advantage: CRE decisions are
strategically important, with organizations being structured as international networks
that have substantial international operations and processes and standards that are
relatively globalised.
The case study approach adopted was replicated across the seven
organizations, ranked among the top twenty nationally in terms of revenue and
consultant numbers, for a total of nine major CRE decisions — i.e., the embedded
units of analysis. Diversity in the sample (large auditing- or IT-based firms,
multinational strategic consulting firms and local players) was sought to evidence a
range of behaviours that would cover what usually happens in the industry when
facing CRE decisions. The evidence collected suggested that CRE decision-making
processes are not group dependent, and also that the research findings might be
transferable to other sectors of the professional services industries.
Data were acquired through semi-structured interviews with key personnel
who made or influenced the decisions, transcripts of Board meetings, and through
other secondary data such as financial budgets and office plan drawings. After been
organized in a chronological order to story tell the development of each CRE
decision, data were mapped according to the themes discussed inside the
organization throughout the entire decision-making process. These issues were then
analyzed to establish the magnitude of the degree to which they influenced the final
CRE decision and how they did so. Once identified, the most frequently discussed
links between RE and corporate strategy were examined at a higher level of
abstraction, going beyond the rational step-by-step process of decision-making and
revealing hidden interplays of interpersonal and political relations among decision-
makers, contextual variables, and other process-related considerations.
Eventually, a multi-dimensional model of successful decision-making was
developed by applying theory to the analysis of each case and integrating the results.
The model explains how managers can reach successful decisions by balancing
problem complexity, process richness, and cohesion. The model, integrating the
works of Cyert and March (1963), Mintzberg (1976), and Eisenhardt (1989b),
4
suggests that successful decision-making is not just about being comprehensive or
simple, structured or unstructured, fast or slow, but it is about finding the right
balance based on the situation.
When applied to CRE decision-making, the model shows how the search for
alternative CRE strategies always starts from a single trigger issue — i.e., either a
threat or an opportunity — that is always space-related. The organization embarks
upon a process of decision-making where this single issue is soon joined by other
strategic considerations. The decision-making process then expands with the addition
of new issues. However, while discussion invigorates the richness of the process, its
broadening is valuable only to a certain point, beyond which it becomes
counterproductive to the success of the final decision. To prevent discussion from
blowing out of proportion, successful companies ensure (or are lucky enough to find)
equilibrium within internal forces, guaranteeing cohesion of the process to ensure a
relatively prompt outcome.
The cross-analysis of the cases provides sufficient evidence to answer all the
research questions and sub-questions about process and content. Investigation of the
former — the core of the study — confirms that the single process of linear decision-
making suggested by RE writers is capturing some of what is happening in most
processes, but it is not sufficient for an understanding of how CRE decisions are
made.
In conclusion, it is to be hoped that this thesis contributes to a better
understanding of current CRE practices within a specific group of contemporary
organizations and what it is that shapes these practices, including the organizational
structures and processes. The research re-defines the prescriptions of CRE literature
while also suggesting the use of unstructured (Mintzberg et al., 1976) and fast
(Eisenhardt, 1989b) processes.
5
2 Literature Review
That Real Estate decisions represent some of the most significant investment
decisions an organization has to face (Avis and Gibson 1995; Bon, McMahan et al.,
1994; Bootle and Kalyan 2002; Stoy and Kytzia 2004) is widely recognised. As well
as its financial implications, globalization of business operations, restructuring,
information technology and other competitive pressures are forcing corporations to
re-evaluate their Real Estate needs (Lindholm, Gibler, et al. 2006), while
encouraging them to find ways to be flexible and responsive (Gibson and Lizieri,
2001). The emergence of Corporate Real Estate Management (CREM) as a distinct
discipline has supported both this drive and the search for strategies aimed at
enhancing the value of Real Estate assets; however, there is no clear understanding
of what kind of organizational problems CRE decisions could solve or how they
should be made (Singer et al. 2007). Traditionally, organizations have considered RE
decisions only in terms of the efficient use of capital and the reduction of occupancy
costs, without worrying about how Real Estate could also increase flexibility,
productivity, and, ultimately, enhance corporate business objectives.
Even if more than 25% of corporate assets are generally in real property, and
occupancy costs represent 40% to 50% of net operating incomes (Zeckhauser and
Silverman, 1983; Bell, 1987; Miles, Pringle et al., 1989; Veale, 1989; Varcoe, 1993),
it was not until the mid-1990s that expectations about the role and contribution of
Real Estate assets changed. It was over that period that property started to be
considered a resource and a principal factor of production that had to be made to
work and to account for itself (Duckworth, 1992; Balch, 1994; Transfield and
Akhaghi, 1994). Until then, as Gale and Case found in their study of thirty major
American corporations across different industry sectors:
executive attitudes toward Real Estate and the manner in
which the Real Estate function is organized reflect an
ambivalence toward corporate Real Estate resource
management which results in underutilization of corporate
Real Estate resources (Gale and Case, 1989:26).
The acknowledgment of such under-utilization and the realization of the
strategic importance of Real Estate assets have recently inspired a burgeoning CREM
6
literature, that criticises the poor alignment between strategic business direction and
the ‗enabling‘ physical environment. According to most of the authors, CRE strategy
has to be integral to corporate strategy, with appropriate risk analysis and
management strategies developed jointly by the corporate Real Estate executive and
the highest management level (Krumm, 2001; Roulac, 2001; Timm, 2004). This
body of literature does not deny the importance of considering the imminent
financial implications of Real Estate choices (Engelstad and Clements, 2001), but it
highlights how the long-term business goals of a company are strongly affected by
the strategic CRE decisions made today. Table 2.1 shows the evolution of emphasis
in CRE literature throughout the last four decades.
Table 2.1: Evolution of Emphasis in CRE Literature
Source: Roulac (2001:133)
The perception of Real Estate assets as a source of competitive advantage
(Scheffer et al. 2006; Singer et al. 2007) has triggered a number of interdisciplinary
conceptual papers that embrace some of the latest management ideas and concepts.
However, a review of the CRE literature showed a lack of empirical data and
evidence (Lindholm, Gibler, et al. 2006) and highlighted two themes, which point to
the need for further research, namely identifying what strategic concerns
organizations consider when making CRE decisions, and investigating how the study
of CRE decisions helps better understand strategic decision-making processes.
7
2.1 RE: Separate Function or Foundation for a Systems
Perspective?
According to the traditional perception of the Real Estate function, the overall view
of the organization was centred on the basic principles of classical theory — division
of work and remuneration of personnel. However, the more recent idea of linking
Real Estate decisions with corporate strategy suggests that the unit of analysis has
shifted from the single department to the whole of the firm. In other words, CRE
authors now argue for a system view, concerned with problems of relationships, of
structure and of the interdependence of all the elements‘ interconnection. The authors
seek to understand the relationships between departments within the organization as
well as those between the organization and its external environment. For Gibler,
Black et al. (2002), Real Estate choices should be made in consultation and
coordination with other important business units, such as marketing, information
systems and human resources.
2.1.1 The Links between RE Decisions and Corporate Strategy
Although recent years have witnessed researchers‘ recognising the increasing
importance that CRE can — and should — play in furthering a company‘s overall
business strategy to include enhancing organizational communication, efficiency,
core competencies, culture and corporate identity (Roulac, 2001), not many studies
have shown organizations succeeding in these ideas‘ actual implementation. In fact,
most of the surveys revealed a lack of knowledge and understanding of relating Real
Estate assets to overall business strategies, and confirmed that companies generally
make Real Estate decisions without having a clear picture of the organizational needs
(Nourse, 1990; Arthur Andersen, 1993; Apgar, 1995; Rodriguez and Sirmans, 1996).
In a survey conducted by Gibson (1994) of thirty-two CEOs across different industry
sectors, Real Estate assets were regarded as important, but their performance as a
means of impacting upon business performance was also described as comparatively
―uncontrollable‖. Just a year before, a much larger study had been conducted by
Arthur Andersen (1993) to investigate CRE strategic management practices in
support of corporate businesses: its results, comprising the feedback of seven
hundred senior managers and Real Estate executives, confirmed the very great need
to more effectively align Real Estate practices with corporate goals.
8
CRE researchers argue that the alignment‘s primary cause of failure is the
idea — still deep-rooted — that Real Estate is a support activity, and not a part of the
core business. Because of this perception, CRE decisions simply respond to the core
business strategy instead of helping craft it (Osgood, 2004).
Table 2.2 shows the five progressive levels of corporate Real Estate
functional sophistication, each one having increasingly greater impact upon a
company‘s ROI (Cameron and Duckworth, 1995; Lambert, Poteete et al., 1995); and
highlights how only CRE decisions at the Intrapreneur and Business Strategist levels
can provide competitive advantages and contribute to the overall business strategy.
Table 2.2: The Five Progressive Levels of CRE Sophistication
Source: Adapted from Manning and Roulac (1996:393)
In other words, the argument put forward by CRE authors is that society‘s
modern business environment, characterized by an unprecedented uncertainty,
requires a proactive RE department
in tune with the business of the business itself –
understanding the industry, all the business drivers,
opportunities, issues, challenges and threats (Timm,
2004:45)
so that it can anticipate internal and external pressures. Although different
pressures can arise within different contexts, the internal pressures described by
Tregoe and Zimmerman (1980) comprise a quite exhaustive list. The authors
describe them as Corporate Driving Forces since they determine the future product
9
and market scope of a business and, consequently, define its Real Estate needs. Each
of them is discussed in Table 2.3, following:
Table 2.3: Corporate Driving Forces
Source: Adapted from Tregoe and Zimmerman (1980)
In 1993, Nourse and Roulac linked the nine corporate driving forces
identified by Tregoe and Zimmerman (1980) with eight types of CRE strategies. In
their article, which criticized the generalized approaches of the existing CRE
literature and practice, the authors argued for specifically-designed Real Estate
strategies aligned with the corporate driving force, the particular culture and the
values of the company. These eight strategies are:
1. Occupancy Cost Minimization – Seeking the lowest occupancy cost, which
may compromise quality of space (for example, keeping back-office
operations in a low cost area may free capital to locate the company‘s
headquarters within the CBD of major cities).
2. Flexibility – Allowing for more flexibility within a building may make it
possible to adapt the building to a new use once the life cycle of a particular
product/service has ended.
10
3. Promotion of Human Resources Objectives – Promoting location and
quality of space as primary features of their employment packages by
companies seeking to reduce employee turnover or retain skilled workers.
4. Promotion of Marketing Message – Using the physical structure of a
facility also to promote the image of the company and/or advertise its
products and services.
5. Promotion of Sales and Selling Process – Making location the key attribute
of a strategy that focuses on promoting sales and the selling process: a
company with a site in the centre of the market being served will have access
to a larger number of potential customers than competitors located in the
suburbs.
6. Facilitation of Production, Operations, and Service Delivery –
Recognising that design, layout and the quality of the building have an impact
on the efficiency of production, operations and service.
7. Facilitation of Managerial Process and Knowledge Work –
Acknowledging that the design of physical spaces can also facilitate
knowledge work.
8. Capturing the Real Estate Value Creation of the Business – Acquiring
more land than is needed allows capture of increased Real Estate values
generated from the business, since it will eventually attract new businesses as
suppliers or customers.
Table 2.4 shows the degree (primary, secondary, tertiary) in which a
particular CRE strategy can contribute to the corporate driving forces. Cf. Appendix
2-1 for a more comprehensive description of the Real Estate considerations linked to
each strategic driving force (Edwards, 2004).
11
Table 2.4: CRE Strategies and Corporate Driving Force
Source: Nourse and Roulac (1993:485)
The eight CRE strategies allow pursuit at the same time of a number of
different organizational goals. However, in order for this pursuit to be successful, the
Real Estate function has to be linked with the other corporate infrastructure support
groups — personnel, IT, marketing, operations, and finance — which control and
manage the resource base of the organization (Nourse and Roulac, 1993; Timm,
2004). A first step towards this ideal integration was the identification by Nourse and
Roulac of fourteen property-operating decisions — location, quantity, tenancy
duration, identity/signage, building size/character, building amenities, exterior
quality, interior design, mechanical systems, information/communications systems,
ownership rights, financing, control, and risk management — and the linking of them
with the eight CRE strategies previously described (cf. Appendix 2-2).
12
2.1.2 Difficulties in aligning Managerial and CRE Performance Measures
CRE literature argues that in order for the alignment of goals to be successful, RE
managers need to join the core business strategy table and have meaningful
communication with senior corporate management (Then, 2000; Roulac, 2001). The
focus of managerial attention has to change and depart from the classical idea of
‗workers doing exactly what they are told‘. According to Then (2000), there is a need
to expand the range of skills and competencies within the Real Estate function in
order to monitor and continuously review strategies and policies so as to take
advantage of changes in the external environment. RE managers have to acquire
strategic and management skills rather than narrow technical and financial skills
(Gibler and Black, 2004).
However, only upon successfully demonstrating to senior management how
CRE strategy can be integrated with and contribute to business strategy will Real
Estate planners be invited to participate in business strategizing at the overall
corporate level (Manning and Roulac, 1996; Gibler and Black, 2004); and the
difficulty of demonstrating the effects of CRE decisions on overall business
performance is that, generally, Real Estate practitioners and senior corporate
management speak two different languages. The survey conducted by Arthur
Andersen in 1993 clearly proved the inability of RE executives and business
managers to successfully communicate because of different performance
measurement criteria; for while senior management cited business return on asset2 as
the most meaningful KPI (Key Performance Indicator), RE executives were
communicating performance in Real Estate terms — capital and/or rental growth,
income return, internal rate of return (Joroff, 1992; Noha, 1993).
Real Estate measures are meaningful in how a property performs financially,
but a completely different type of indicator is necessary to calculate the operational
performance (Lindholm, Gibler, et al. 2006). As Carter stated, Real Estate
performance measures
2 RONA – Return On Net Assets – is generally regarded as the improvement on physical assets utilization and has a direct impact on the company‘s bottom line.
13
say very little about the performance of operational property.
Practice developments in recognition of operational property
requirements have led to some assessments along the lines of
‗cost per square foot‘, but this portrays only one side of the
performance equation. It is necessary to expand performance
evaluation from the single view of property as a cost item to
also include a perspective upon property as a revenue item
(Carter, 1995:298).
Organizations‘ difficulty in abandoning the classical perception of Real
Estate assets as purely cost items is also supported by the survey of Gale and Case
(1989), in which 93% of the organizations interviewed treated Real Estate units as
cost centres and just 38% reported them as a source of profits or cash flows.
A method of closing the communication gap identified by the Andersen study
calls for the Real Estate department to start using terminology comprehensible to
senior management. Such new terminology would have to be based on the
identification of parameters that convey return on asset, look at a property as a
cost/revenue item, and are both quantitative and qualitative in nature.
Some studies have recently been conducted in this area and a new set of
KPIs, based on complex cause-to-effect relationships, has been proposed by the
literature to solve the challenge (Appel-Meulenbroek and Feijts 2007; Bon,
McMahan, et al. 1994; Wills 2008). However, these KPIs require constant
communication across departments and vast amounts of information‘s being
collected and shared on a regular basis. Examples include: acquisition of new
customers due to a change in location; increase in speed of response to customers
due to a different internal layout; reduction in employee turnover that would result
from space per worker increases, etc.
2.1.3 Conclusions regarding Systemic Perspective
CRE researchers can take credit from the perception of the organization as a dynamic
system. However, the system view put forward by the CRE literature appears to be
centred on the Real Estate function or RE process, while according to Behavioural
Organization theories the organization is an information-processing and decision-
rendering system often influenced by a dominant coalition, represented somewhat
14
uncertainly by the Real Estate department alone. And even if the Real Estate
department were able to set itself up to be widely recognised as the foundation for a
system perspective, conceptualising firms as flawless dynamic systems in which
information gets constantly shared across departments to accomplish organizational
objectives is idealistic rather than practical.
2.2 Managerial Implications in Goal Setting and Choice Selection
When discussing organizational goal-setting and selection from Real Estate choices,
CRE literature relies on a number of assumptions which significantly simplify a
decision-making process that could otherwise appear much more complex. This
section of the literature outlines the role of RE managers in the context of operational
and strategic CRE decisions, and the potential structural and processual barriers to
the adoption of new strategies and methodologies.
2.2.1 The Operational and Strategic Roles of Real Estate Managers
As stated, Real Estate has traditionally not been managed in a strategic way but,
rather, as a cost of production (Arthur Andersen, 1993; Gibson, 1994; Gibler and
Black, 2004); thus the role of Real Estate managers has been to find facilities based
on specifications set by operations, negotiate the best price, manage the space
efficiently, then dispose of it when operations no longer require it. The latest stream
of CRE research, while promoting the perception of buildings as strategic corporate
assets, argues that Real Estate managers should also be directly and deeply involved
in the strategic decision-making process, and not relegated simply to the operational
role. The transaction-based corporate Real Estate function often encountered by CRE
researchers needs to be replaced, it says, by a proactive Real Estate unit that makes
strategic decisions about productivity and flexibility: strategic planning skills and
business knowledge are the keys that will enable Real Estate managers to be
effective in the future (Gibler, Black et al., 2002).
The CRE literature is firm regarding the official title given to a Real Estate
manager or the role in which he/she is asked to provide information to the Board. As
an example, Brown (2001) suggests that RE managers should focus on
administrative decisions concerned with structuring the firm‘s resources in a way that
creates a maximum performance potential, and on operating decisions the object of
which is to maximize profitability. However, this seems to derive from a hierarchical
15
view of organizational structures in which the decision-making process is
specialized: top managers focus on strategic decision-making, middle management
emphasizes decisions about internal structure and coordination, and lower-level
managers are responsible for day-to-day operational activities. According to this
perspective and given the fact that the Real Estate function is progressively changing
its emphases (Table 2.1), it is clear why Real Estate managers want to start being
perceived as top or middle managers (Table 2.2) instead of lower-level operational
officers.
The sort of specialization in decision-making typical of hierarchical structures
has proved to be no longer effective within the fragmented and organic structure of
post-industrial organizations (Hatch, 1997), and organizations facing CRE decisions
are more likely to be either functional or divisional, wherein virtually all organization
members are potential decision-makers as they can influence processes in one way or
another (March and Simon, 1958; Crozier and Friedberg, 1977; Laroche, 1995). Seen
thus, even if the official role of Real Estate managers were to remain purely
operational it would not limit them from providing strategic insights to the Board
about the implications to the overall business of a particular building. Furthermore,
according to Behavioural Organization theory, managers do not need to fully
understand organizational problems because firms already rely on established
routines (Nelson and Winter, 1982), are adverse to risky solutions (Kahneman and
Tversky, 1979) and seek only a single satisfactory solution for each problem (March,
1997).
These theories will be better discussed in the next section, for they relate to
the processual barriers that might affect CRE decision-making.
2.2.2 Goal-setting and the Management of Decisional Processes
CRE literature‘s stance is that although affected by the individual participants, firms
do have objectives distinct from the individual objectives of the participants. They
are profit-oriented goals defined by the firm‘s current and past performance, the total
resources available or the opportunities of the external competitive environment.
These goals aim at optimizing the efficiency of the total resource conversion process
(Gibler, Black et al, 2002) and therefore maximizing shareholder wealth (Manning,
Rodriguez et al., 1999; Lindholm, Gibler, et al., 2006; Wills 2008).
16
The perspective of Behavioural Organization theories, however, is that
organizations do not have objectives, only people do. The objectives of a firm are in
reality a negotiated consensus of objectives of all the stakeholders — managers,
workers, stockholders, suppliers and vendors. The most influential participants
negotiate consensus (Pettigrew 1972) that is then renegotiated as it becomes unstable
because of changes to power positions or to outside business conditions (Gore 1964;
Bower 1970; Carter 1971). According to March and Simon (1963), since every
organization is made up of a number of people and departments with different goals,
the organization itself has to face multiple targets, generally tackled in sequential
order from the most pressing, and relegating the development of long-term strategies
to the end of the process. The idea of organizations‘ having multiple goals is aligned
with the view of certain CRE authors, who recognise the existence of a number of
corporate driving forces or goals (Roulac, 2001). Nourse & Roulac noted that
…whereas management theorists assert that corporations
should concentrate on a single primary value, theme or
driving force (Tregoe, 1980), the multiple factors concerning
products and markets that need to be supported by Real
Estate often mandate multiple rather than single Real Estate
strategies (1993:479).
The difference lies in the fact that CRE authors argue that all goals are
aligned together, while March and Simon consider mutually exclusive objectives and
conflicting targets. According to the latter, the targets, or rather the ‘what‘ of strategic
decisions (Maritan and Schendel, 1997), are strongly influenced by the complexity of
the situation, which ultimately denotes the intricateness of the problem. Problem
complexity therefore represents a key element to understand SDM:
The rarity, consequentiality, and precursiveness that lift
decisions to a strategic level do more than that as far as
managerial decision-makers are concerned. The difficulty
that confronts them is not that the decision is strategic, but
that it presents complex problems. (Hickson et al., 1986:42).
In 1963, Cyert and March identified five major goals: production, inventory,
sales, market share and profit. These are outlined in Table 2.5, and are not so
different from the Corporate Driving Forces previously described in Table 2.3: both
17
tables contain information about improving the organization‘s production or selling
processes, seeking new opportunities to fulfil growth objectives and increase returns.
The differences between the two perspectives are that according to Behavioural
Organization theories the goals often conflict with one another and so are considered
one at a time. CRE authors do not do this, which implies that the Real Estate
function, lacking strong individual goals, can support all other organizational
objectives at once — the human resources department interested in providing the
most luxurious office space to employees, the production division‘s requesting space
to facilitate operations, the sales department‘s pushing for a large open space to
receive clients, the ICT division‘s demanding a flexible and innovative internal
design and so on. Research does not find that CRE authors consider the potential
conflicts generated by such variety of departmental goals and the sequential order
necessary in pursuing them that derive from the interaction of power coalitions.
Table 2.5: Corporate Goals
Source: Adapted from Cyert and March (1963)
Another issue is CRE authors‘ idea of using CRE strategies to maximize
shareholder wealth or efficiency (Manning, Rodriguez et al., 1999; Brown, 2001),
even when there are no problems visible within existing practice (Then, 2000). As
Brown states,
there is no cookbook or mass-production approach to
strategy. Choices do not naturally appear on the strategic
horizon. They must be found (Brown 2001:98).
Here the literature does not generally recognize the limitations of bounded
rationality, the idea of satisficing or even the fact that the process of searching for
18
solutions is problem-directed and therefore likely to be motivated, simple-minded3
and biased. Just a handful of CRE authors have in some way challenged profit
maximizing assumptions typical of neo-classical economic models over the years
(Ball et al. 1998; Fothergill et al. 1987; Greenhalgh 2008; Guy and Harris 1997;
Leishman and Watkins 2004).
In contrast with the concepts of maximization/optimization is the idea of
programming the approach to successive similar problems to be directed along a
narrower, more recognized course with fewer routine alternatives. This other way of
thinking, linked to the notion of bounded rationality and used to describe choosing an
option that is intended not to maximise values but to be ―good enough‖, stems from
the theory of satisficing (Simon, 1957; March and Simon, 1958), considered the
major contribution of Simon to decision-making theory (Brown, 2004). The viability
of maximizing efficiency or shareholder wealth is also brought into question by
Kahneman and Tversky (1979), whose studies proved that the human perceptual
apparatus is accustomed to the evaluation of changes or differences rather than the
evaluation of absolute magnitudes. Additionally, if major organizational decisions
were always the result of fully rational processes, escalation of commitment would
not be an issue. Instead, a relatively large literature exists (Brockner and Rubin,
1985; Staw, 1976; Teger, 1980) on individuals and organizations becoming locked
into losing situations due to a combination of project, psychological, social and
organizational determinants (Ross and Staw, 1993).
Basically, the CRE literature is not backed up by convincing empirical
evidence and the conceptual work lacks strength. Decision-making shows as a
conceptual and logical event resulting from consequential, preference-driven choice;
and any problem is able to be solved by studying all possible alternatives together
with their consequences, understanding the issue, singling out important decisions
and prescribing rules for arriving at them (Ansoff, 1969). When discussing
organizational objectives in relation to corporate property, CRE authors prefer
prescriptive approaches of strategic decision-making (Porter, 1985) over
investigation into how, why and where decisions are made. There is focus on
practical tools and even a risk of taking theories of management for granted, leading
3 According to Cyert and March (1992) the word ‗simple-minded' refers to an analytical process based on simple concepts of causality.
19
to a functionalist — and sometimes even reductionist — approach. A number of
studies (Apgar, 1995; Carter, 1995; Manning and Roulac, 1996; Brackertz, 2004;
Lindholm, Gibler, et al. 2006) has shown an increasing appreciation for extremely
practical methodologies such as the Balanced Scorecard (Kaplan and Norton, 1993),
regarded as
the most influential of the ‗new‘ approaches to performance
measurement in recent years (Brackertz 2004:3);
— in fact a control system (read ‗tool‘) rather than a theory of management.
In line with Kaplan and Norton, Krumm and De Vries (2003) state that cost
reduction and revenue growth are the key elements for global performance.
2.2.3 Development of Management Tools and Control Systems
Research in CREM within academia, already narrowly focused on the property per
se, further declined in the latter part of the 1990s (Manning, Rodriguez et al., 1999;
Roulac, 2001). In contrast, there was a much better perception within industry-
initiated research of the need for management tools that could help close the
information gap between managerial action and property performance (Brackertz,
2004; Klammt, 2001; Scheffer et al. 2006).
Apgar (1995) and Lyne (1995) identified a number of organizations that
reduced costs or improved their competitive position by better managing their Real
Estate assets. These firms included:
IBM, which saved $1.4 billion by reducing excess space, possible because of
strong links between Real Estate utilization and business unit performance;
AT&T, which saved $500 million with the implementation of a top-down
approach;
Chemical Bank, which reversed the constant long-term increase of its occupancy
costs by reducing its occupancy-to-operating-income ratio;
Dun & Bradstreet, which saved $51 million by making better use of their office
space;
Sun Microsystems, which used Real Estate as a tool to help achieve strategic
goals;
20
Arthur Young, which made a dramatic contribution to the company‘s ROI
through greater space utilization and reduction of excess space; and
Eastman Kodak, which experienced a substantial reduction in space needs.
According to Bon, McMahan et al. (1994), these and other progressive firms
understood the importance of collecting and using property performance data in such
a way that enhanced the learning regarding consequences of actions taken on Real
Estate performance, as well as the effects of property assets on the overall corporate
performance.
Apgar‘s (1995) Real Estate scorecard (RES) is one of the tools developed to
help managers evaluating their current Real Estate situation. The tool can be used for
competitive benchmarking, for internal analysis and for assessment of how
organizational strategy will affect long-term Real Estate decisions. Data are collected
and assembled to derive financial, customer and operational measures that can
support decision-making. Apgar‘s framework is considered, within the industry, an
excellent method of linking Real Estate performance with the overall corporate goals
(Lopes, 1996), but a number of other tools has since been developed. Among these
are Brackertz‘s (2004) framework for strategic management of facilities in non
profit-organizations and a series of corporate Real Estate simulation tools developed
by Aptek Associates LLC (Klammt, 2001) that help Real Estate managers resolve
challenges related mostly to optimum space utilization. Lindholm and Nenonen
(2006) identified and compared 11 strategic measurement systems and tactical tools
used for measuring CREM processes or their outcomes.
So, although Nourse and Roulac (1993) did not offer any model for
quantifying the effects of a specific Real Estate strategy or operating decision,
performance evaluation methods evolved over the years following; now they link
characteristics of a specific property — e.g., location, space, ownership — with
issues that relate directly to the business — e.g., motivation, customer satisfaction.
These methods place the facility4 within a specific context, characterized by
distinctive elements of the industry and the organization.
4 I.e., the combination of building and service
21
However, when looking at human behaviour from the perspective of
Behavioural Organization theories, there must be consideration of the limits of
rationality. Following Simon (1957), a number of authors has argued that humans
display systematic deviation from decisions that are fully rational, and in many cases
errors persist even when the rational solution has been explicitly shown to the
decision-makers (Einhorn and Hogarth, 1981). Behavioural models of decision-
making assume that decision-makers often possess incomplete and imperfect
information about alternatives and consequences and that therefore decision-making
processes can be termed ‗rational‘ only under highly restrictive conditions
(Kahneman and Tversky, 1979; March, 1997).
Decision-making tools have been suggested for overcoming intuitive
shortcomings; but unless restricted by certain environmental assumptions and a
specified time horizon (i.e., single goal cases) they are also subject to error and can
inadequately represent the task. Single goal cases are very unlikely to occur since
most CRE strategies are based on multiple goals, transforming the idea of optimal
solution into more of a trade-offs between goals reflecting subjective values.
Furthermore, even the single goal situation becomes a multiple goal case when
considered over time: conflicts between short-term and long-term strategies can exist
even with a single well-defined goal. Another aspect to consider in regarding
decision-making tools is that, in the final analysis, the outputs of optimal models are
also evaluated by human judgement; so the inescapable role of intuitive judgement in
decision-making underscores the importance of descriptive research concerned with
how and why processes operate in the way they do (Slovic, Fischhoff et al., 1977;
Shweder, 1979; Einhorn and Hogarth, 1981).
2.2.4 Conclusions regarding Managerial Implications
CRE researchers are constantly trying to find new techniques to improve the
cleverness of the actions taken by organizational decision-makers; they assume
decisions are rational choices, and assume that managers will seek full understanding
of all available alternatives and of the consequences of alternative actions. This
approach to research has led to prescriptions for how decisions should be made, but
can overlook why and how they are being made within organizations. Although the
prescriptive theory put forward by CRE researchers exhibits internal consistency, one
22
can argue that it rests on a reductionist view of human behaviour, which implicitly
assumes that people can reliably work rationally together to fulfil the goals of the
organization.
2.3 Final Observations
CRE authors have developed a prescriptive theory of CRE decision-making that
relies on functionalist principles, which has led to considering decision-making as a
rational event. Such stance means the literature on CREM has become detached from
organization theory, and does not include the processual aspects of organizational
decision-making frequently observed within organizations — problem-directed
search for information, judgemental biases, risk avoidance, satisficing, etc. In
discussing the two key themes of current CRE,
1. the strategic concerns that organizations consider when making CRE
decisions, and
2. the managerial implications of the CRE decision-making process,
this review of the literature identifies a number of theoretical gaps and
weaknesses in CREM prescriptions where empirical evidence is lacking.
In the recommendations of the CRE literature relating to the content of
decisions, the authors indicate that all business implications derived from RE
investments should be accounted for and help in shaping the final decision. From the
perspective of organizational theory, three points stand out:
1. the CRE literature ignores the potential implications of goals‘ being tackled
in a sequential order (starting from the most pressing);
2. it assumes a neutral search for information, while this is instead often
motivated and biased; and
3. it overlooks organizational objectives‘ being, generally, mutually exclusive.
In discussing the process used to make CRE decisions, the literature
concentrates on prescriptions to optimise performance; but little is found relating to
the complexities of decision-making processes and the barriers that often prevent
organizations from achieving optimal results (Table 2.6).
23
Five points stand out from the perspective of organizational theory:
1. the idea of satisficing in the context of identifying possible solutions;
2. the role played by organizational members who do not have a strategic role in
decision-making;
3. the existence of conflict within organizations and the need for power and
politics to resolve it;
4. the implications of organizational adaptation to change;
5. the human limitations to fully rational thinking.
Table 2.6: Decision-Making Theories Compared
Source: developed by researcher
24
Contrasting the prescriptive CREM theories with the more descriptive
approach of Behavioural Organization theories provides an opportunity to explore
these gaps and weaknesses. Behavioural theories are concerned with studying the
processes of managerial business decision-making, either individually or in groups;
they state that much of the decision-making behaviour we observe reflects the
routine way in which people seek to fulfil their identities, rather than the evaluation
of alternatives in terms of consequences. As indicated by March,
much of the behaviour in an organization is specified by
standard operating procedures, professional standards,
cultural norms, and institutional structures linked to
conceptions of identity (March, 1997:17).
Such constraints define the type of decision expected to be made in a
particular situation by a particular person.
CREM research to date has highlighted corporate operational Real Estate
assets as representing the physical resource base that supports any business. This
research neither condemns current CRE literature nor argues against strategic
decision-making: rather, it urges consideration of the fact that over the years only a
few CRE authors (Gibson and Lizieri, 2001; Roulac, 2001) have acknowledged
(briefly) the difficulties of implementing integrated strategies, while paying much
greater attention to the opportunities that would derive from the implementation of
fully rational CRE decisions. Critical discussion from the perspective of Behavioural
Organization theories underlines the fact that a robust conceptualization of CREM
and CRE decision-making requires a richer perspective, incorporating a process view
of decision-making and accommodating the complexity inherent in such choices.
Research into CRE literature comes up with a base theory of unlimited,
conflict-free rationality and efficient adaptation; but the foundations of behavioural
theories applied to large and complex organizations whose major functions are
performed by different divisions, coordinated to varying degrees by a set of
controlled procedures, are very different. According to behavioural theories of the
firm, organizations set targets and look for alternatives that satisfy those targets,
rather than looking for the best imaginable solution. As well, behavioural theories
emphasise the importance of specifying the process of organizational adaptation
25
given the time lag between environmental changes and the redefinition of
organizational rules, which are often slow to evolve. And behavioural theories
assume that consistency between the interests of the organization and the interests of
subgroups and individuals is continually being negotiated and is difficult to sustain
(Goodman et al. 1980). Intra-organizational conflicts are a reality; and it would be
naïve to assume that decision-makers always strive for a common goal, or that
decision rules are known and accepted by everyone involved.
The choice of Cyert and March (1963) as a major reference is not based on a
belief that their model is necessarily the best, nor on the strong empirical evidence
that followed their research. Rather, their behavioural theory of the firm is one of the
established approaches that look at decision-making as a process, and the researcher
saw it as useful in complementing the CRE literature, possibly somewhat short on
process. The model allowed the researcher to divide the process of decision-making
along clear lines that describe the creation of organizational objectives, the formation
of strategies, and the selection of decisions, and to identify the variables that affect
each one of the three phases (Figure 2.1). According to Cyert and March, an
organizational decision is, in fact,
the execution of a choice made in terms of objectives from
among a set of alternatives on the basis of available
information (1963:115).
26
Figure 2.1: Basic Concepts in Behavioural Theory of the Firm
Source: Adapted from Cyert and March (1963)
By having a clear list of the elements that characterize decisional processes,
the theories of CRE literature and Behavioural Organization were able to be
compared, and more specific questions about CRE decisions asked. Looking at
decision-making simply as an event has led CRE authors to assume a smooth
decision-making process, and to limit attention to choices disregarding the definition
of goals and the formation of expectations. However, Figure 2.2 shows that a process
view of decision-making also considers other important variables — such as conflict,
uncertainty, search, and learning.
27
Figure 2.2: A Process View of Decision-Making
Source: Cyert and March (1963:126)
Since the publication of ‗A Behavioural Theory of the Firm‘ (Cyert and
March, 1963) there has been a number of contributions (Thompson, 1967; Cohen and
March, 1972; Weick, 1979; Starbuck, 1983; Grandori, 1984; Johnson, 1987). In
particular, some of these complement our understanding of structured and
unstructured processes (Mintzberg et al., 1976), and fast versus slow decision
processes (Eisenhardt, 1989b).
While acknowledging the existence of seven possible types of unstructured
processes of decision-making, Mintzberg divided them all into the same three phases
— identification, development, and selection. Each was then characterized by several
routines:
28
Identification Phase: Decision recognition and Diagnosis;
Development Phase: Search and Design;
Selection Phase: Screening, Evaluation choice, and Authorization.
In addition, Mintzberg also identified a number of supporting routines and
dynamic factors that can influence the process at various stages:
Supporting routines: Decision control routines, Decision communication
routines, and Political routines (Pettigrew, 1972; Bower, 1970);
Dynamic factors: Interrupts, Scheduling delays, Feedback delays, Timing delays
and speedups, Comprehension cycles (Pfiffner, 1960; Diesing, 1967), and Failure
recycles.
Among all the routines and factors, politics surfaces as a major consideration.
Organizational politics5 has in fact long been recognized as an important aspect of
organizational decision-making (Allison, 1971; Pettigrew, 1973) because it can
influence consensus, which in turn engenders commitment to the decision (Dooley,
Fryxell and Judge, 2000). People in organizations have different interests (Hickson et
al., 1986), and they try to influence the outcomes of decisions so that their interests
will be served (Pfeffer, 1981). While contention of objectives has a negative impact
on consensus (Miller and Wilson, 2006), the presence of influential leaders and
strong coalitions can also positively influence the process (Cyert and March, 1963).
Eisenhardt (1989b), while recognizing the importance of decision
characteristics (Mintzberg et al., 1976; Hickson et al. 1986) and the limitations of
rational thinking (Cyert and March, 1963; Anderson, 1983; Lindblom, 1959; Quinn,
1980), looked at strategic decision-making processes not to classify them based on
their structure but, rather, to establish an association between speed and success. Her
study highlighted the importance of top management teams in influencing strategic
decision-making, and the power of emotions like confidence and anxiety in
prompting the pace of decision closure.
The work of Cyert and March (1963) was selected as a major reference
because it looks at strategic decision-making processes from the information- 5 In the remainder of the document, references to politics and political behaviour are limited to organizational level phenomena.
29
processing angle; Mintzberg (1976) was chosen because he looks at the structures of
the processes; and Eisenhardt (1989b) because she looks at their speed. Each author
has made a significant contribution to decision-making theory by focusing on one
important dimension of the process and highlighting specific characteristics. There is
an opportunity, therefore, to bring together all of those single-dimension
contributions into an integrated model looking at their interaction.
30
31
3 Research Questions
By looking at the proposed area of study (i.e., CRE decision-making) through the
lens of Behavioural Organization theories, this fundamental question arises:
“What influences organizations‟ CRE decisions and how do they, in turn,
influence other core strategic concerns?”
The review of the literature has indicated that the prescriptive theories
proposed by CRE authors are based on assumptions that differ from the behavioural
approach, being about organizations‘ single set of goals regarding maximising
returns and the ability of managers to reconcile them. Important considerations such
as bounded rationality, organizational adaptation or the existence of conflict inside
organizations are not dealt with.
Secondly, but no less importantly, empirical evidence surrounding the
prescriptions of the CRE literature is not strong: conceptual thinking alone forms
assumptions advanced by CRE authors. Behavioural theories, however, are based on
solid empirical evidence, providing good reason to believe that the practice of CRE
decision-making may differ from the theory — in particular, in the areas of
information used to make CRE decisions and the process used to reach the outcomes.
The first line of questioning regards the content of CRE decision-making, and
aims to assess whether or not managers investigate RE decisions as theory says
should be done. The CRE literature argues for an alignment between Real Estate
decisions and corporate goals: the researcher will seek to establish if Real Estate
within Italian consulting firms can be perceived as the foundation for a system view,
or only as a separate function; and will seek to uncover those data upon which CRE
decisions are based (i.e., information search).
1. By what are organizations‘ CRE decisions influenced and how do they, in
turn, influence other core strategic concerns?
a. What issues are considered when making CRE decisions?
b. What are the issues that trigger the search for new CRE strategies?
c. How do the issues evolve over time?
32
The second concerns the process of strategic decision-making in the context
of CRE. The aim is to ask strategic questions about CRE and to study CRE decision-
making as an interesting case of strategic decision-making. As with the content of
CRE decisions, the researcher sets out to investigate whether or not practice differs
from theory in relation to the process.
According to CRE literature a progressive firm is a flawless, dynamic system
in which vast amounts of data can be collected and shared across departments, with
the support of management tools that provide the organization with precise answers
concerning optimal CRE choices. In studying the CRE decision-making processes of
Italian consulting firms, the researcher seeks to uncover how information is
communicated throughout the organization and what roles organizational power and
politics play in the CRE decision-making process; and which other structural and
processual barriers to the adoption of new strategies and methodologies can be
encountered. In this context, the researcher will also try to establish if organizations
have, or would like to have, proactive Real Estate departments always seeking to
maximising corporate goals, even when there are no problems visible within the
existing practices.
2. How does studying CRE decisions help to better understand strategic
decision-making processes?
a. Do organizations constantly gather and exchange information across
departments in order to proactively manage key business resources (e.g.,
functional space)?
b. Can functional managers — e.g., Real Estate managers — facilitate the
link between departmental decisions (i.e., Real Estate) and corporate
strategy?
c. Can strategic decisions, such as CRE, support simultaneously the multiple
organizational goals co-existing within an organization?
d. Are organizations proactive towards strategic decisions like CRE?; are
they prone to make risky strategic decisions to develop long-term
competitive advantages?
33
e. Do organizations use unstructured processes or validated standard
operating procedures to make strategic decisions such as CRE?
f. Does the use of management tools and control systems allow corporate
decision-makers to study all possible alternatives, together with their
consequences, before making decisions?
The research questions are drawn from the comparison of the literatures
explained in Chapter 2, highlighting the differences between the two perspectives
across a range of points6. The discussion of the differences directly informed the
formulation of the research questions in relation to the content and the process of the
decisions. The expanded framework for this research is presented in Figure 3.1.
6 Cf. Table 2.6 — ‗Decision-Making Theories Compared‘
34
Figure 3.1: Proposed Research Framework
35
4 Methodology
The purpose of this chapter is to outline the methodology used to conduct the
research and to justify the use of this methodology in relation to the research
questions. The emphasis has been upon building a research design that is feasible for
doctoral research, and ensuring that the research is carried out in the most rigorous
and effective way. The design has been constructed to ensure that reliability, internal
and external validity are considered, and any limitations minimised as much as
possible.
4.1 Methodology Overview
The general approach adopted for this research was the case study — the appropriate
method for an investigator seeking to develop a theory defining topics broadly rather
than narrowly, to cover contextual conditions as well as phenomena of study and to
rely on multiple instead of single sources of evidence (Yin, 1993).
A set of case studies well structured around a theoretically relevant sample
was expected to enable the researcher to challenge the current theoretical
propositions suggested by the CRE literature, and also to provide a source of new
hypotheses (Lijphart, 1971; Eckstein, 1975; Burgess, 1988). According to Platt, case
studies can do this
by showing that things are so, or that such an interpretation
is plausible, in the particular case, so that they might also be
so in other cases (1999:165).
In particular, the researcher conducted exploratory case studies attempting to
develop explanations through detailed scrutiny of how strategic decision-making
processes work in particular contexts. A literature review showed that previous CRE
studies had focused on quantitative research, seeking to establish causality on the
basis of connections and relationships between Real Estate and business variables;
that the unit of analysis had not been the organizational and managerial processes
behind CRE decisions but, rather, the decision itself (Apgar, 1995; Carter, 1995;
Manning and Roulac, 1996; Krumm, 2001; Brackertz, 2004); and that management
consulting firms had not been researched much.
36
4.2 Sampling
In this project, the researcher focused his investigation on CRE decision-making at
the business level. Corporate directives were still investigated but just as a framing
device and not for an exploration of decision making at the corporate level. In other
words, CRE decisions were regarded as a type of business level strategic decisions.
Each firm represented a case study, and the focus of attention was the embedded unit
of analysis — the processes adopted by the organization to make critical CRE
decisions (Yin, 2003). The investigator was interested, in particular, in exploring the
decision-making process used to make such critical decisions in the context of
contemporary Italian management consulting firms.
The decision to sample just one industry was dictated by the choice of a
homogeneous strategy under the parameters of which the researcher sought cases that
were similar in their critical dimensions. As Finch pointed out,
the development of comparative cases, probably on a
cumulative basis, would substantially enhance the potential
of policy-oriented qualitative research, especially if the
underlying logic of analytic induction is well understood,
carefully applied and explained clearly (Finch, 1999:184).
A characteristic of homogeneous samples is that, in direct contrast with
maximum variation sampling, the purpose is to describe some particular subgroup in
depth (Patton, 1990). The practical advantages of selecting all case studies from the
same industry included an ability to compare the results of different cases and a high
level of accessibility to data from the participants as the issues being discussed
represented real challenges for the entire industry.
The consulting sector was chosen because of the opportunity of accessing
some of the most successful international organizations, and of collecting
information directly from the top management within each. Other considerations
influencing the choice of the consulting sector over other service providers included
CRE decisions‘ being regarded as very expensive and strategically important, the
high level of competition and innovation surrounding the industry and the industry‘s
being arguably the most knowledgeable in regard to corporate strategy and
competitive advantage (as this is the service generally provided to clients).
37
However, it is fair to anticipate that this work will apply also to other
professional services organizations that have RE needs similar to management
consulting‘s.
Since a complete census of the entire industry population was, of course,
impossible due to lack of sufficient time, a set of critical dimensions was chosen for
defining the sampling frame from which cases and units of analysis were selected
(Babbie, 1989):
They had to be regarded by industry experts as being among the top 20
management consulting firms in terms of price range for their services to clients,
type of clients, annual revenues and number of strategy consultants. By limiting
the population to top consulting firms it was ensured that all companies in the
sample had the financial capability to choose from a number of different CRE
options (e.g., having an office on the top floor of a skyscraper in the CBD or
building their own premises in a suburb).
Every organization had to be based in Italy: the researcher‘s personal network in
that country led to the opportunity of accessing the top management teams of
seven firms in the industry. This process produced a substantial volume of high
quality data, usually difficult to obtain for research projects of short duration.
They had to have made at least one significant CRE decision. This was required
to have caused a permanent change inside the organization7, involved a decision-
making process of at least 2 months and to have occurred after the year 2000 —
as all the companies involved were advised.
The selection of Italy as a suitable country from which to select the various
cases was limited not just to the practical advantages of data access: research
findings uncovered in Italy, a developed western nation where business is part of the
global environment, would very probably also be relevant to businesses in other
developed countries. Furthermore, the selected management consulting firms are
indeed based in Italy but part of international networks, and have substantial
international operations. Considering that management consulting is a relatively
globalised industry with processes and standards that are international, there is
7 ‗Change‘ could relate to the physical structure of the organization as well to its overall strategy/culture/mentality
38
anticipation that this work, although based on Italian firms, will also be relevant to
other consulting firms in other parts of the world and possibly other similar types of
professional services organizations.
Since CRE decisions occur sporadically (given their high costs and the
disturbance factor involved in relocating large numbers of personnel and equipment),
the number of organizations meeting all these criteria was relatively small; as a
result, a large section of that population making up the sampling frame was
researched. Seven organizations were selected across three main groups, in
proportions similar to the total population (Table 4.1).
Table 4.1: Top 20 Italian Consulting Firms
According to many qualitative researchers, pursuing representativeness in a
sample is not the best way to make theoretical and analytical advances into studying
questions requiring a detailed exploration of social processes. As Mason puts it:
39
The limited gains of having a representative sample are not
offset by the substantial losses in terms of sampling and
analytical sensitivity (Mason, 1996:26).
With only seven firms under scrutiny the sample could not be statistically
representative of the entire industry; but the researcher‘s aim was to have sufficient
diversity and evidence of a range of behaviours so as to satisfactorily indicate what
happens most of the times in the industry when CRE decisions are faced.
In terms of significant CRE decisions, most of the selected firms had made
only one, in the form of either buying an office building, seeking particular leasing
conditions or building the premises. In those cases where they had made more than
one, all were analyzed.
When sampling respondents within each case the researcher adopted only two
criteria, as they were the only classifying labels to encapsulate a uniform and
meaningful category of experience:
1. the person‘s role in the organization: s/he had to be a ‗top-team‘ member; and
2. his/her involvement in the CRE decision (i.e., s/he had to have a direct
responsibility for CRE-related issues).
In conceptual terms, a form of theoretical or purposive sampling (Glaser and
Strauss, 1967; Strauss, 1987) was carried out. A preference for non-probability or
judgemental sampling, aiming at maximising variations to cover all potential
experiences and perceptions of the CRE decision-making process, was supported by
the fact that such techniques are widely adopted in business research and frequently
used in case study research (Saunders, Lewis et al., 2000). The choice of data to
collect and analyse was based on the researcher‘s ongoing analysis and insights,
which furnished the reasons for selecting certain groups and topics for detailed
analysis (Glaser and Strauss, 1967; Strauss and Corbin, 1990).
The selection process began by including in the sample the members of the
Board of Directors and the Real Estate managers. These people were involved in the
decision-making process and had a special significance in relation to the research
questions (Burgess, 1986; Mason, 1996). Subsequently included in the sample were
all those individuals who had in any way influenced the state of mind of Board
40
members. These individuals were identified through the use of snowball strategies:
by asking interviewees the names of co-workers with particular views on the topic,
the likelihood of finding divergent information (Verschuren and Doorewaard, 1999)
and gaining access to a greater number of confirming or weakening perspectives was
increased. Although there was never an intention to interview every member of the
organizations, in each case study theory-saturation point (Bertaux and Bertaux-
Wiame, 1981) was reached after interviewing most Board members, the Real Estate
manager and the people who influenced their views. Thus, in this sense, the sample
size of each case was dictated by the social process under scrutiny.
4.3 Data Collection Methods
It was the researcher‘s intention to collect data by different methods, provided they
contributed to knowledge of the case (Campbell, 1975; Creswell, 1994): this helped
avoid tunnel vision (Ragin, 1989; Yin, 2003). Information from retrospective
interviews was combined with various sources of secondary data, as well as with
current data collected by the researcher in real time — possible because all
interviews were conducted at the firms‘ premises. This practice was consistent with
Langley‘s suggestion that in macro-level studies of processes such as decision-
making
the researcher is often obliged to combine historical data
collected through the analysis of documents and
retrospective interviews with current data collected in real
time (Langley, 1999:693).
The first type of data is largely synthetic, focusing on memorable moments
and broad trends; the second much richer, and sometimes more difficult to interpret.
4.3.1 Interviews
For each case study, the primary sources of its data were the testimony and remarks
of key members of the Board of Directors and of the Real Estate manager. To
acquire all the data‘s richness the researcher chose interviews over questionnaires:
respondents were expected to be much more knowledgeable than the researcher,
hence the need for questions (and their order and logic) to be left open-ended and
flexible, so as to be adaptable to the particular organizational context (Douglas,
1985; Saunders, Lewis et al., 2000). Furthermore, interviews provided an opportunity
41
for personal assurances as to the way in which the information would be used, which
enhanced the responses from major participants (Healey, 1991; Holstein and
Gubrium, 1999), as testified in Table 4.2.
Table 4.2: Number of Interviewees in Each Case
Another reason for favouring interviews was that data collected from them
can be useful in uncovering both the evolution of relationships and the cognitions
and emotions of individuals as they interpreted and reacted to events (Isabella, 1990;
Peterson, 1998). Since making a significant CRE decision was one of the selection
criteria for the cases, the researcher was able to go into each interview with a general
understanding of the topic under investigation. The approach to questioning always
started with a few queries not extremely important for the project; and this was done
to allow the respondent some time to ease into with the situation.
The researcher asked open-ended questions in order to allow the respondent
to talk about his/her particular perceptions and to collect as much information as
possible. For the same reason, questions were not asked in a precise sequence: when
a respondent showed difficulty with an answer or did not provide enough detail, the
researcher investigated further through follow-up — probing questions to gather
insightful information about the interviewee‘s mental map. The list of questions
represented in Table 4.3 was more a tool for the researcher to ensure consistency in
the methods, rather than a rigid questionnaire for the interviewer to follow. Questions
1-4 were used to introduce the topic; questions 5-16 to learn about the decision-
making process; and questions 17-27 to understand the personal feelings of the
interviewee towards the process and to uncover the hidden interplays and political
relations among decision-makers. Questions 17-27 merely represent the issues that
the researcher investigated while discussing the CRE decision-making process, not
asked in the form of closed questions, as outlined in the table below.
42
Table 4.3: Open Interview Questions
Interviews were one-on-one, and lasted between 45 minutes and 1hr 30
minutes. All conversations were recorded in Italian and transcribed in the same
language: quotes within this thesis are, thus, the researcher‘s translations. Due to the
translation, some of the colloquialism and idiomatic characteristics of the language
has been lost8.
The researcher had one interview with each respondent; sometimes follow-up
interviews were required, however, and these were conducted by ‘phone. The
8 The same applies also to some secondary data: all the transcripts of Board meetings were in Italian, and sometimes sections are quoted in the cases — also translations.
43
number of telephone interviews was reduced to the minimum possible: the recording
of data was a more difficult process, and without the visual cues that might indicate
how far to pursue a particular line of questioning. And the conversation was
generally shorter.
A review of the pre-existing theories of CRE was used as a starting point, to
identify all the topics with the potential of having been discussed in the cases (Table
4.4). This initial list guided the researcher in defining a set of closed interview
questions, asked to ensure consistency where the respondent was not spontaneously
addressing the topics when responding to the open-ended line of questioning.
Table 4.4: Closed Interview Questions
4.3.2 Secondary Data
Historical documents, unlike retrospective methods, have the advantage of being
non-reactive, and therefore valuable in confirming findings from interviews (Webb et
al., 1966). Since the organizations selected for the case studies are all listed among
the top businesses within their industry sector and geographical region, the
researcher expected to find useful secondary data: minutes of Boards of Directors
meetings were sought first, then other internal documents such as financial forecasts
of alternative Real Estate options, HR surveys, CRE corporate policies and designs
44
of office plans. While semi-structured interviews allowed better understanding of
motives, reading reports of meetings often revealed individual behaviour.
Most of the time, organizations either did not have the same data sources or
were not willing to grant full access to their data; nevertheless, a large variety of
secondary data was collected within each organization, sufficient for the
understanding of the evolution of the CRE decision-making process and for
triangulation with the responses of interviewees (Jick, 1979). Table 4.5 shows the
type of documents collected from each case study.
Table 4.5: Sources of Secondary Data per Case
For presentation purposes, data collection methods are discussed before data
analysis techniques. However, throughout the research project an explanation-
building procedure (Yin, 2003), based on a continuous overlapping between data
collection and data analysis, has been adopted. This technique provided a head-start
with the analysis, enabling taking advantage of flexible data collection, stressed as a
key feature of theory-building research (Eisenhardt, 1989a). As will be shown in the
next section, the flexible approach used in data collection did not lead to
unsystematic procedures.
4.4 Data Analysis
Given the fact that the researcher selected case study as the general approach, the
focus was on cases rather than themes so as to arrive at a satisfying theory or
explanation. Furthermore, although within-case analysis was conducted, comparison
between cases (cross-case analysis) was also adopted to highlight common issues and
central themes.
45
4.4.1 Within-Case Analysis
Each individual case was written up soon after data-gathering, to avoid losing the
vivid recall of people and their experiences as well as to stimulate depth of
description and critical reflection (Richards, 2005). To this end, data were initially
organized chronologically, to ‗story-tell‘ the development of the specific CRE
decision in terms of recognition of a threat or opportunity (the trigger issue), options
identification, options evaluation and approval. As Eisenhardt (1989a) explains, a
detailed written description of each case allows the researcher to better familiarize
with the cases, and therefore to identify unique patterns.
Throughout the life of the project, coding was used to generate new ideas and
gather material by topic. Descriptive coding was initially conducted to sort the
attributes describing each case (e.g., organization type and size) as well as its units
(e.g., people‘s roles inside their organizations). This process allowed information to
be accurately arranged into tables that could then be systematically compared across
cases. Non-coded information was never discarded: it was kept separately, for later
use if necessary. The threat or opportunity the organization faced that triggered the
decision-making process was a major piece of information sought during descriptive
coding.
Next came coding by topic (Richards, 2005). Using this process the
researcher allocated passages from transcripts of interviews, internal emails and
minutes from Board of Directors meetings to the topics that were used in the closed
questions of the interviews. As an example, Table 4.6 shows topic coding of the
minutes of a Board of Directors meeting from the ETA case study9: main discussions
of the meeting are summarized in the first column of the table before being
pigeonholed in the second column according to the topics of Table 4.4. The
remaining two columns describe the level of agreement on the topic and the outcome
of the meeting. As an example to better clarify text analysis, the first row in the table
refers to the use of internal design10 for marketing purposes given the presence of
keywords (i.e. internal design and image) that evoke such a message.
9 ETA‘s case study can be found in Chapter 11 10 In the remainder of the document, the word ‗design‘ or ‗redesigning‘ refers to building design and not organizational design.
46
Table 4.6: Analysis of the Minutes of BoD. Meeting from Case ETA (η)
The topics identified were then mapped inside a matrix (Table 4.7). This
analytical tool allowed the researcher to easily spot not only the issues discussed in
the process, but also their frequency. Considerations were then made regarding
whether or not the trigger event (circled in red) represented the most discussed topic,
and made also in relation to the broader categories of business considerations and
Real Estate aspects (i.e., the aggregate values in the right column and bottom row).
Table 4.7: Conceptually-Ordered Display of Body Minutes
47
Qualitative data analysis requires identification of patterns within usually
messy data. To achieve this, data that were idiosyncratic or of low theoretical
relevance or importance needed to be distinguished from data indicative of important
processes or patterns: one approach to achieving this was to examine the frequency
with which topics were mentioned. Low frequency topics suggested idiosyncratic
views, or issues that may have been vaguely canvassed at one point in the decision-
making but subsequently dropped; high frequency topics were indicative of
theoretically relevant data. Overall averaging comparison across cases allowed
classification of 4% and 8% as cut-off points to create three generally similarly-sized
groups: one-third low, one-third medium and one-third high-frequency topics. A
second analytical strategy was to look for key events, which although did not initiate
high levels of discussion, still had high significance in starting major processes.
Figure 4.1 illustrates the case of ALPHA, but the same procedure was applied
to all seven cases and the quantitative data of the occurrences for each case is in
Appendix 3. The distribution of topics points out that nearly half of the issues present
in the matrix were never discussed. Of those that were, some appeared less than 4%
of the times (―low‖) and were considered candidates for discarding. Prior to
discarding them, however, a review of the narrative of the case was conducted to
evaluate the theoretical importance or relevance of the topics. An example of
idiosyncrasy is the impact that location [Loc] could have on HR, mentioned several
times but only by one person on one occasion; and theoretical irrelevance was
apparent in discussions relating to the building‘s exterior quality [ExQl], not
encouraged by senior Directors prominent in the decision-making process. Topics
that appeared with ―medium‖ frequency (less than 8%) were still analyzed, to add an
extra layer of security in ensuring that potentially important data would not be
overlooked.
48
Figure 4.1: Frequency Bar Graph (ALPHA Case)
The researcher revisited coding periodically to check development of
categories, expecting new ones would be generated until the last stages of the
research project and merging of categories would take place as common meanings
emerged (McLeod, 1995). As topics were quite easy to identify from reading the
transcripts, the choice was made not to use a software tool to code the data.
Process data are notoriously challenging. The open-ended inductive approach
used to investigate decision-making processes generally tends to lead to
postponement of the moment of decision between what is relevant and what is not,
aggravating the already difficult task of working with complex and sometimes
ambiguous data (Miles and Huberman, 1994). The researcher, aware of the difficulty
of discerning where to start data analysis, sought to integrate data coded by topic
(Tables 4.6 and 4.7) with an historical, chronological flow of the decision along a
horizontal time scale (Figure 4.2). A graphical strategy (Meyer, 1984; Nutt, 1993;
Langley and Truax, 1994) was selected to transform the raw data into a more abstract
conceptualization, bringing more clarity to the process of CRE decision-making and
allowing the identification of when topics first appeared in the process, how long
they were carried on, when they were dropped and whether they were resumed
before reaching the final outcome. The timeline was used to interpret only topics that
had appeared with medium and high frequency.
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Figure 4.2: Time-Ordered Display of Selected Topics
Having mapped the changes in top management‘s perceptions of the strategic
business implications of Real Estate (i.e., occupancy costs, flexibility, human
resources, corporate image, clients, managerial processes and Real Estate value
creation), the next step was to pinpoint the reasons why perceptions had changed.
Most of the interpretive work occurred in what Richards (2005) calls ‗analytical
coding‘. It was in this phase of data analysis that the researcher pulled together the
diverse views of the interviewees, so as to move to a higher level of abstraction and
build an overall understanding of the decision-making process inside each
organization, going beyond a rational step-by-step process and revealing hidden
interplays of interpersonal and political relations among decision-makers. Such
intention was reasonable given the access available, necessary to understand issues
such as power and politics from the perspectives of the different parties.
All the organizations started their processes because of a threat or an
opportunity, and all the processes ended with a final decision‘s being made. By
theorizing from the analysis of cases, the researcher developed analytical frameworks
for each CRE decision, to highlight the importance of some actions, contextual
variables and process-related considerations over others (cf. shaded boxes in Figure
4.3). These analytical frameworks linked the hidden and soft variables with the
themes previously identified by topic-coding to tell a story capable of explaining
why the process had unfolded in a particular way. The template, replicated across
cases, was inspired by the work of others in strategic sensemaking (Gioia, 1991 and
1996; Weick, 1979 and 1995; Thomas and McDaniel, 1990) and in process
modelling (Bower, 1986; Burlgelman, 1983 and 1996).
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Figure 4.3: Analytical Framework
Although data have been summarized in the following chapters for
presentation purposes, the researcher retained the entire text of the transcribed
interviews, systematically reviewing it to see if more could be learned as the context
of the case study changed. In particular, similarities and differences were constantly
sought among people‘s responses and the researcher‘s thoughts recorded in a memo.
While reviewing the entire data, it was often necessary to reconsider categories and
concepts that emerged and, consequently, to clean up the coding in order not to lose
focus because of inappropriate material‘s being coded within a category. As an
example, Table 4.7 originally included ―Facilitating Production and Service
Delivery‖, but this issue was later found to be irrelevant for the management
consulting industry and was therefore merged with ―Improving Managerial
Processes‖ (Appendix 2-3).
4.4.2 Cross-Case Analysis
The main reason for conducting a cross-case analysis was to force the researcher to
go beyond initial impressions in order to develop a more reliable and accurate theory.
Having grouped the decisions according to their key attributes — type of CRE
decision, duration and structure of the organization — intra-group similarities and
differences were sought. To detect inter-group similarities and differences,
51
seemingly different cases were compared in search of similarities, while similar
cases were paired up to identify differences. This strategy ensured that the research
findings were not falling into simplistic frames (Eisenhardt, 1989a).
In conducting case study empirical research, the researcher was aware that
the construction of a new theoretical model would involve a series of iterative cycles
between the cases and the existing theory until a middle-range theoretical
explanation was formed (Orton, 1997). In discussing the process of building theory
from empirical data, Strauss and Corbin assert that
theory evolves during actual research, and it does this
through continuous interplay between analysis and data
collection (1994:273).
A number of other studies of organizational processes has highlighted the
benefits of using iterative theory-building (Allison, 1971; Weick and Roberts, 1993),
supporting opting for a methodological position somewhere between induction and
deduction. This has allowed organizational process researchers to generate research
that is both grounded in general theory and accurate in data; whilst research that
proceeds from theory to data focuses only on generality and research proceeding
from data to theory only on accuracy (Thorngate, 1976).
Eventually, in order to more clearly analyse the hidden forces that changed
managerial perceptions, the researcher opted to move to a higher level of abstraction
by combining soft variables into broader categories that were more easily
transferable across cases. As discussed in Chapter 12, CRE decisions were compared
across the dimensions of success, problem complexity, richness and cohesion of the
process.
4.5 Validity
After performing within- and cross-case analysis, concepts and even relationships
between variables began to emerge. Once that had been achieved, the next step was
to compare systematically and iteratively the emergent frame with the evidence from
each case so that the researcher could corroborate or deny the emerging hypothesis
(Eisenhardt, 1989a). By validating the findings in an iterative manner, it was ensured
they were properly rooted in the data and soundly constructed. To further increase
the probability of the research findings‘ high level of credibility, sufficient time with
52
the interviewees was allowed to provide scope (Johnson, 1975; Schwartz and Ogilvy,
1979; Lincoln and Guba, 1985), identify, and focus on those elements in the situation
that were most relevant to the issue being pursued (Eisner, 1975).
Two methods of checking validity were adopted, in conjunction with checks
on the reliability of a theoretical account (Miles and Huberman, 1994), to ensure
dependability, stability, consistency, predictability, accuracy (Kerlinger, 1973),
triangulation by data source and method (Denzin, 1978) and respondent validation
(Richardson, 1996). Interviews were conducted with a wide variety of people so as to
maximise variability within the population, and secondary data were collected to
triangulate and verify responses from interviewees (Huberman and Miles, 2002). The
researcher‘s interpretations were presented to the participants in the form of a written
document to be validated (Richards, 2005).
With regard to reliability, it is important to note that descriptive coding or
indexing was conducted in the initial stages of the analytical process to avoid fixing
meanings too early, which occurrence blocks the analyst‘s capacity for seeing new
things (Seale, 1999). Disconfirming evidence was also constantly sought throughout
the study (Yin, 2003). Rigorously studying the case studies while seeking
disconfirming evidence against the researcher‘s analytical ideas (Denzin, 1989)
helped develop a theory or explanation of CRE decision-making in the Italian
consulting industry while also testing it.
Interviewer and interviewee bias was also carefully considered (Gorden,
1987, Silverman, 1997), and the researcher always made sure to:
be knowledgeable about the organizational or situational context;
have a general idea of the CRE decision under investigation;
supply relevant information to the interviewee before the interview;
maintain a neutral tone of voice throughout the all interview;
listen attentively;
be polite while trying not to be intrusive;
compile a full record of the interview soon after completion;
53
reduce the number of telephone interviews to a minimum.
4.6 Ethical Clearance Issues
Although the project did not require full ethical review by the University, the
researcher nevertheless distributed participant information sheets to all interviewees,
had them signing a consent form, and abided by the obligations and rules of ethical
behaviour in research.
54
55
5 Study One (ALPHA)
ALPHA ( ) provides a range of services to almost 80% of the ‗Fortune 100‘
companies, their clients representing all major industries. Specifically, ALPHA
provides:
Management Consulting: these services include change management, customer
relationship management, enterprise performance management, finance
management, human resource management, service management, strategy,
supply chain management and workplace performance;
Technology Services: enterprise integration, enterprise solutions, information
management, infrastructure solutions, IT strategy and transformation, Microsoft
solutions, mobile technology solutions, radio frequency identification, SAP
solutions, service-oriented architecture, systems integration;
Outsourcing: application outsourcing, business process outsourcing,
infrastructure outsourcing.
ALPHA has more than 110 offices scattered across 48 locations around the
world (cf. Figure 5.1), with Italy central to its worldwide organizational structure.
The Italian division is actually responsible for the EEMEA area (Eastern Europe,
Middle East and Africa), and ALPHA has offices in Rome, Milan, Turin and Verona.
In Italy alone, ALPHA employs 6,300 professionals, and in 2005 attracted €689m in
revenue.
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Figure 5.1: ALPHA‟s Locations Worldwide
(Note: members of the EEMA Region are highlighted in grey.)
Although ALPHA is the largest provider of consulting services in Italy, about
half its activities are dedicated to innovation through new technologies, while an
increasing share of its revenue is derived from outsourcing services. Over the past
ten years, the company has shifted its focus to providing for larger clients, reducing
its clientele four-fold from 1,000 to 250, and increasing substantially the size of its
average project. Most of ALPHA‘s projects are now worth something in the range of
€10m–€20m. Following this re-positioning of the firm, its main competitors have
shifted from specialist management consulting firms to large multi-services
international companies — e.g., EDS, IBM Global Services, and Finsiel.
ALPHA‘s core business and its employees are divided among four different
units —consulting, technology solutions, services, and enterprise. The consulting
practice in Italy has about 300 professionals occupying five vertically-differentiated
managerial roles:
1. Directors: responsible for developing new business;
2. Senior managers: having a deep knowledge of specific industry sectors and a
good understanding of the market;
3. Managers: managing specific projects and resources;
57
4. Consultants: analyzing and developing technological and business solutions
(in some instances they also coordinate resources);
5. Analysts: seeking to acquire technical-methodological competencies.
Cf. Appendix 4-1 for a visual representation of the hierarchical structure of
the firm.
5.1 Brief History of the Firm
ALPHA was founded in Chicago in 1953, originating as the consulting division of
one of the ‗Big Five‘ auditing companies. In 1989, a group of partners from the
Consulting divisions of various branches around the world formed what was in fact a
new Partnership: it focused on consulting and technology services related to
managing large-scale systems integration and enhancing business processes, which
resulted in a huge surge in profits during the 1990s. However, the spin-off group was
still not independent, and they resented having to make transfer payments to the
mother company; so in 2000 application to an international arbitrator resulted in
ALPHA‘s being granted its independence. The arbitrator awarded $1.2 billion in past
payments to the mother company, declaring that ALPHA could no longer use its
mother company‘s name. As a result, ALPHA changed its name in 2001. In 2002,
the mother company was caught up in two major scandals, and surrendered its
licenses and its right to practice.
In early 2001 the locally-owned independent group of Partnerships agreed
overwhelmingly to incorporate, with the aim of raising sufficient capital for growth.
On 19 July 2001, ALPHA was floated on the New York Stock Exchange, and raised
nearly 1.7 billion dollars on its first day of trading. The Italian offices, like all those
around the world, are now a branch owned by ALPHA Global, while remaining a
legal entity recognized under Italian corporate law.
So while the company has not only become the world leader in the sector —
specialized consulting in system and business integration — in which it started, it has
also become an increasingly diversified and highly successful technology services
and outsourcing company.
Chief Executive Officer (CEO):
58
Contrary to the Big Four companies, where change has been
determined by mergers and acquisitions, transformation in
ALPHA occurred due to a change in what we offer, which
today includes systems integration, outsourcing, change
management and strategic consulting services to most of the
leading Italian companies.
5.2 RE Positioning prior to Implementation of New CRE Strategy
Unlike other companies in which operational staff have responsibility for facilities
management and services related, the Italian division of ALPHA has a Senior
Director, with the company for the past 20 years, in charge of these activities. And
since the Italian branch is responsible for the entire EEMEA area, this Director deals
with the Real Estate decisions of Italy, Greece, Central and Eastern Europe and the
Middle East.
The headquarters of the Italian branch of ALPHA has always been in Milan,
even when ALPHA was still a section of the mother company. At that time, the
consulting and the auditing practices had two separate buildings, both within the
same piazza. Following consistent and significant growth11 space for expansion
became quickly saturated, prompting the company to make a CRE decision that can
arguably be considered the first big strategic Real Estate adjustment made by a
management consulting firm in Italy.
In 1987–88 a large building was acquired near the city centre that could
easily accommodate all company‘s personnel. The internal design was atypical for
that time, and included the following features:
distribution of personnel based on business functions rather than on job title;
staff-rooms to facilitate interaction among recently-hired personnel;
meeting-rooms to assist teamwork;
hotelling (also known as ‗desk sharing‘) offered to those consultants required to
spend much of their time at clients‘ premises.
11 The auditing practice was growing by 10% every year, the consulting practice experiencing a 15% growth rate and a software engineering spin-off company had been enjoying 30% annual growth.
59
That relocation is (obviously) no longer recent, and is thus inappropriate for
this study, which seeks to investigate CRE decisions made over the past 5–6 years.
ALPHA is currently seeking a new location in Milan, but it is as yet unsecured. This
leaves the investigation of the Real Estate positioning of its other major offices in
Italy as the primary focus; and in this respect, as the Senior Director for Facilities
and Services confirmed, ALPHA made two very significant CRE decisions in recent
times. The first was to renew the lease in via del Canaletto in Rome, with the
addition of a further 2,000sqm of space. The other decision, currently awaiting final
approval, is to open a large office in Naples for the delivery of processes related to
information systems.
Given the fact that the office in Rome is the second-largest in Italy and that it
accommodates the consulting practice, it can be said to present the most useful basis
for the ALPHA case study. The Rome office has also been selected because,
according to the CEO, the new site in Milan will be selected according to similar
criteria: specifically, a unique building able to give character to the corporate image
of the company and having sufficient space to accommodate future growth.
Appendix 4-1 illustrates the physical location of ALPHA — not in the historical
centre of Rome, but in the new business district, easily accessible by the motorway.
Prominent in the decision-making processes relating to the renewal of the via
del Canaletto lease were the following senior directors:
CEO: responsible for the entire firm;
Senior Director for Facilities & Services (RE): responsible for Facilities
Management and related services, and reporting directly to the CEO;
Chief Operating Officer (COO): responsible for the Broadband Delivery Centre
in Italy, a unit of the Communications & High-Tech (CHT) Division;
Director of CHT Division: responsible for the CHT Division of ALPHA
worldwide.
5.3 Decision-Making Process
This section describes the set guidelines and the overall process of decision-making
in ALPHA Global when dealing with the acquisition of office space.
60
The RE Senior Director, responsible for Facilities Management and related
services, regularly considers the requirements for new space, runs a survey so as to
understand how employees perceive their work environments, and discusses the
requirements of specific business units with other senior directors responsible for the
different practices.
Once new RE requirements have been identified, procedures differ depending
on the physical size and the financial scale of the property under consideration, and
various levels of approval are required. Generally, the final approval over CRE
decisions regarding premises already occupied by the company is given locally by
those Directors, who represent the interested parties. If the CRE decision requires
entering into new affordable short-term (up to 12 months) contractual agreements,
the real estate division of the London office is informed for support and/or approval
at various stages. In Italy, ALPHA has a long history of business success and has
sufficient resources to handle the decision locally, so the Real Estate division of the
London office is contacted only at the end of the process to ratify the decision.
Procedures are quite different, however, with regard to large and long-term
CRE decisions such as the Rome accommodation case study examined here, which
involved an additional cost to the business of more than $10M12. In such infrequent
cases, ALPHA follows the standard operating procedures outlined in Figure 5.2: the
RE Senior Director forms a local committee — which in this case included the CEO
and COO of the Italian CHT Division — with the task of identifying an RE solution
and building a business case around it. Once ready, the document is sent to the RE
Division in London which, if satisfied, forwards it to ALPHA Capital Committee
Global in Chicago for final approval.
12 Approval was being sought to incur total costs of $18-19M, with a break option after four years
61
Figure 5.2: Standard Operating Procedures for CRE Decision-Making
5.4 Decision-Making Process in action
The information presented in this section relies on both primary and secondary
resources. Secondary data (i.e., survey results, internal documents and copies of
intra-company emails) have been used to chronologically map the key activities that
took place over 2005–2006, resulting in ALPHA‘s signing a new contract for via del
Canaletto. These activities are listed in Figure 5.3, numbered A1–A18. The major
source of primary data has been compiled from 11 semi-structured interviews
conducted across all levels of the organization, with the purpose of cross-validating
secondary data and providing a more complete view of the overall process.
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Figure 5.3: Chronological Description of Main Activities
ALPHA Rome had two offices: an aesthetically desirable and prestigious
headquarters in via del Canaletto and a much more modest building for the CHT
Division in via Rossi. The office in via del Canaletto was the second-largest in Italy,
and represented a central node for the national structure of ALPHA Italy. The
building accommodated the entire consulting practice and was considered an ideal
place to receive clients, although it was not occupied entirely by ALPHA. The initial
contract for via del Canaletto was in fact signed in 1994 (A1), when ALPHA entered
the premises as a sub-tenant of another large multinational corporation. Over the
subsequent years, that company progressively vacated space inside the building,
which ALPHA regularly took over (A2). In 2000, when the co-tenant moved out of
the building, ALPHA was able to expand even further and entered into a new
tenancy agreement directly with the property owner (A3). The new agreement,
however, did not cover all the premises because at that time ALPHA could not afford
63
to take over the whole building. However, an opportunity to do precisely this came in
mid-2005.
At that time the office in via Rossi was overcrowded, following the
exceptional growth of one area of the CHT Division — the Broadband Delivery
Centre. This had grown exponentially over the previous few years, serving as an
R&D hub for the development of the core business of telecommunication companies
from all over the world. Besides representing a major source of income for ALPHA,
the Centre had also become a place that existing and potential clients wanted to
visit13 because of its acknowledged world-class level of expertise and know-how.
COO (CHT Division):
Over the past five years the Broadband Delivery Centre has
exceeded every expectation in terms of profitability, number
of acquired clients and workforce growth.
Following this rapid growth rate, the COO was forced constantly to rearrange
space in order to accommodate the expansion. Over that period the RE Senior
Director had visited the premises numerous times to discuss with him
accommodation challenges and to take pictures that were later included in a report to
clearly show the unsuitability of the current situation (A4). Those pictures were just
one piece of evidence used to facilitate the decision-making process leading to a new
CRE strategy. Other drivers included the occupancy rate, at the time 120% —
implying that some desks were occupied by more than one person. Ideally ALPHA
Global sought to maintain an 85% rate, and complaints were made by personnel: a
large number of employees verbally expressed their dissatisfaction with the
workplace (given the large numbers, an internal survey of workplace satisfaction has
been introduced to formally gather this type of data14).
13 Roughly 80 of the largest telecommunication companies in the world had visited the Broadband Delivery Centre at least once over the previous five years. 14 The first survey had been conducted in April 2006. Further surveys would be conducted every six months and the sample selected on the basis of employees‘ surnames (A-L; M-Z). ALPHA anticipated that survey results would be used in the future to cross-validate the perceptions of senior decision-makers and to build stronger business cases when seeking approvals from the Capital Committee.
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A local committee was formed by the RE Senior Director to assess the
various Real Estate options before a report could be submitted to the Chicago Capital
Committee (A5)15. The local committee included the RE Senior Director, the CEO
and the COO in charge of the Broadband Delivery Centre. All three senior directors
felt that in this particular case no other person needed to be directly involved in the
decision-making process because no other skills and expertise were required.
RE Senior Director:
The local committee included all the necessary people…
Surely we did not need personnel from marketing since we
wanted to expand within the existing building and not
consider other locations. In the case of Milan, where
ALPHA also needs to choose a location, we will seek
marketing expertise.
The initial suggestion to be discussed and agreed upon by the three decision-
makers was advanced by the CEO: it was simply to maximize the current usage of
space by increasing the number of workstations per floor. This solution was held by
the group to be appropriate because of its consistency with the current strategic
objective of ALPHA to minimize costs. However, a few weeks later ideas for
enhancing the promotion of the Broadband Delivery Centre that included CRE
changes were canvassed by the RE Senior Director: specifically, the idea that a CRE
strategy could be central to raising the status of this unique research centre, which
effectively meant using the accommodation as a demonstration site for clients (A6).
At that stage, the RE Senior Director was commissioned to conduct an
analysis of the office market in Rome to determine the options available (A7).
However, a financial analysis of the office market was in essence all that was
undertaken, with a view to determining the current average rent in the area. This
meant that despite furnishing a survey of various options no other buildings were
considered, on the grounds that the renewal of the existing contract in via del
Canaletto, with the inclusion of the remaining 2,000sqm, was an obvious preferred
option based on ALPHA‘s past CRE strategies.
15 Cf. Figure 5.3
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Also important in explaining the limited analysis of the office market was the
Senior Director‘s admission that he wanted to leave ALPHA a legacy, expressed as
prestige accommodation, to help continue branding the company in a positive light
over the long term.
RE Senior Director:
I have certainly pushed so that no other Real Estate options
were taken into consideration. To do so I appealed to a
market analysis that had been conducted two years before,
when ALPHA was experiencing a pressure on costs even
stronger than the current one and was seeking a cheaper Real
Estate solution than that of via del Canaletto. At the time, the
analysis showed that a more efficient [reduced sqm] and less
expensive building would have still implied fit-out
investments that in the end would have resulted in total Real
Estate costs of a proportion similar to the one currently
looked at… Personally speaking, after so many years of
working for ALPHA I wanted to leave as my heritage to the
company a unique and prestigious building in Rome with a
long temporal horizon; my other goal is to find a similar
building in Milan.
On balance (personal career goals and perceived benefits for the Broadband
Delivery Centre aside), the renewal of the existing contract was the favoured CRE
choice for a number of reasons:
in terms of image, the building was deemed to capture ALPHA‘s superior
corporate appeal (a unique building creating an atmosphere of technological
advancement) and, importantly, was encircled by a park, which promoted
wellbeing and had environmental appeal;
it was strategically and conveniently located close to the airport and the city
centre, in an area where a growing number of large businesses and ALPHA
clients were headquartered;
the new lease offered stability for ALPHA‘s projected needs until 2018;
66
relocating would have incurred significant costs and disruptions, while leasing
the new portion of the building required only fit-out expenditure.
Table 5.1: Corporate Advantages of Different CRE Options
Source: Adapted from ALPHA‘s CRE Business Case 2005
It took the RE Senior Director several months to prepare an initial report
(A8). The financial analysis estimated rental outlay, operational and administrative
costs, depreciation, capital charges and fit-out costs for the new section of the
building to be leased. Upon completion, the RE Senior Director presented the
findings to the other two members of the committee, who agreed with the content of
the document in terms of both justification for the RE solution chosen and its
estimated costs (A9).
The information included in this initial report, however, was not sufficient for
approval by ALPHA offices in London and Chicago. All the cost variables identified
by the RE Senior Director had to be analyzed using the EVA (Economic Value
Added) method, a performance-based tool that calculates the creation of shareholder
value16. This approach met with ALPHA‘s corporate policy of requiring financial
analysis from all capital investments, including infrastructure. To complete the EVA
analysis, three main sets of data were required:
16 EVA is the calculation of what profits remain after the costs of a company‘s capital - both debt and equity - are deducted from operating profit. EVA = NOPAT – WACC% * (TC); where NOPAT is Net Operating Profit After Tax, TC is Total Invested Capital, and WACC is the Cost of Capital (Stewart, 1991).
67
1. the costs involved in moving to a new building;
2. the costs involved in expanding within via del Canaletto, forecast costs and
revenues derived from the Broadband Delivery Centre; and
3. a third set of data, furnished by the COO of the CHT Division, comparing the
Real Estate cost variables furnished by the RE Senior Director with the short-
and long-term financial forecasting of the Broadband Delivery Centre (which
found the suggested RE expenses to be affordable).
A very large amount of information with a focus on the following key
statistics was provided:
current number of employees;
forecast number of employees over the next five years;
number of projects recently acquired by the CHT Division;
number of employees required to work on these projects;
revenues these projects were projected to generate;
total revenues generated by the Rome office.
The complete business case was put together over November 2005 (A10).
While listing the reasons other options had been discarded, the document was able to
show the financial affordability of the selected strategy as well as its alignment with
the corporate image and strategic direction of ALPHA.
Upon the CEO‘s signing off on it (A11), the business case was then
submitted to the Director responsible for the CHT Division of ALPHA Worldwide
for consideration (A12). His approval was necessary in the event of the local
position‘s being left vacant, requiring the COO Worldwide to be aware of the
situation in Rome.
In January 2006 the business case, together with all its attachments (photos of
an overcrowded Broadband Delivery Centre, approval by the local committee and
approval by the Senior Director in charge of the CHT practice worldwide), was sent
to the London Branch of ALPHA (A13), which then forwarded it to the Capital
Committee. The final approval for the CRE decision came in March 2006 (A14).
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What followed were two months of negotiations with the building‘s owner, resulting
in the inclusion of the following clauses in the contract (A15):
Length of the contract: the existing contract was signed in 2000, implying its
lasting until 2011 (six + six years). The new contract signed in 2006 for the entire
building extended the expiry date to 2018.
Exit option: the contractual agreement also included the option to exit the
contract after the first four years.
Waiting period: there was to be no waiting period to enter the premises and start
fit-out works.
Financial conditions: the average price per sqm was to be reduced.
ALPHA told the building owners of their intention to extend the lease, but
had not informed them of the desire to take up the remaining space and relocate some
personnel from via Rossi. The vacant space had been unoccupied for two years, and
clearly the owners were anxious to lease it. In the negotiations, they were informed
of the price that ALPHA was currently paying in via Rossi, which was considerably
lower than the price per sqm charged in via del Canaletto. So the price per sqm for
the new contract was calculated in the following way:
Current rent paid in via del Canaletto +
Current rent paid in via Rossi =
Total current RE costs of ALPHA /
Sqm in via del Canaletto =
New Price per sqm
The CEO signed the contract in May 2006 (A16). Refer to Appendix 4-1 for a
visual representation of the decision-making process (A4-A16).
Once the contract for via del Canaletto had been signed, the RE Senior
Director was in a position to renegotiate a new contract for the building in via Rossi.
The business case included a section on its being in the best interests of ALPHA in
Rome to keep 500sqm in the previous building for operational activities of the
Broadband Delivery Centre (A17): this strategy allowed the company to reduce its
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occupancy rate of via del Canaletto to 85%, which is the optimal rate suggested by
ALPHA Global.
Over the following few months the new fit-out of the office took place (A18).
Importantly, while the offices in via Rossi had been partitioned into large rooms
because of structural constraints of the building, the internal layout of the new
portion of via del Canaletto reflected a more open design. This choice was consistent
with the common practice emerging in the industry.
5.5 Conclusions Narrative of ALPHA Case
The search process for a new RE solution started when the company was already
facing a 120% occupancy rate (35% above its desired level). It could be argued that
ALPHA waited too long to implement the new CRE strategy, especially considering
that the extra 2,000sqm occupied in via del Canaletto had been left vacant by the
previous tenant since early 2004. The justification suggested by senior directors for
not acting promptly is that the diversification of core business had significantly
impacted on the way ALPHA looked at its budget: the business of outsourcing (20%
of the overall annual turnover) had margins much lower than those of business
consulting; so in order to maintain a reasonable profit margin from outsourcing
services the overall costs of the company had to be reduced or at the very least
maintained. Furthermore, the existing costs structure of ALPHA still reflected that of
a management consulting practice, while the natural competitors of the company at
the time also included large IT organizations with much lower operating costs.
However, instead of a cheap and temporary solution to the problem of the
CHT division, ALPHA opted for a multimillion dollars investment to enhance
corporate identity. Why this change of direction? How were important financial
considerations overcome? The financial implications of the RE changes discussed in
the case study called for the most rigid procedures adopted by ALPHA Global in
relation to Real Estate decisions. How could the proposal, clearly in contrast with the
established corporate strategy, be approved so quickly in a complex organizational
structure?
As we will see, the role of the RE Senior Director appeared to be decisive in
reaching a positive and relatively rapid outcome. He formed the local committee; he
prompted the redefinition of corporate goals from mere space-related issues to
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improved corporate identity; he personally conducted the search for RE alternatives
and regularly interacted with the COO of the CHT Division to obtain the necessary
supporting evidence. His role will be further analyzed in the next section.
The decision-making process also uncovered a number of considerations that
linked characteristics of building to business considerations. Besides the most
apparent minimization of occupancy costs and search for additional office space,
other important variables included corporate image, employee satisfaction, leasing
conditions, client proximity and efficient internal layouts. The next section provides
further evidence in exploration of how interactions among the key personnel shaped
the process and its outcome.
5.6 Analysis of ALPHA Case Study
The analysis of the case comprises two sections: first, the manifest reasons discussed
in the decision-making process will be outlined (according to business considerations
and Real Estate aspects); then the rational perspective derived from this analysis will
be integrated with the dynamics, machinations, nuances and relationships that
characterized this process and made it largely political.
5.6.1 Manifest Reasons for Decision (Business Considerations & RE Aspects)
According to the methodology of the other case studies examined in this research,
the first step in analyzing the written material (transcripts of interviews, emails
content, internal surveys and reports) was to codify it according to those RE topics
that respondents felt could have enhanced overall business performance. The
approach used to quantitatively analyse the collected data is not flawless, because it
looks only at frequencies and ignores the importance/relevance of each occurrence;
however, the findings represent an extra piece of information and are validated
through triangulation with strong qualitative data analysis. Table 5.2 shows the issues
discussed throughout the process and the frequencies at which they appeared in the
transcripts — the number inside each quadrant represents the occurrences.
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Table 5.2: Frequency of Topics Discussed within the Case
Upon compilation of all the data, 219 occurrences were recorded and
distributed over 20 of the 34 possible topics17. Given that an average of 11
occurrences per topic was expected (219/20=11) and that +/- 2.19 occurrences
represented 1% of the total sample, the following nomenclature was adopted to
classify the frequency of each discussed topic.
Low for occurrences: 0 X 8 (0% X 4%),
Medium for occurrences: 8 > X 17 (4% X 8%),
High for occurrences: 17 > X (X 8%).
Whenever a topic appeared less than 9 times (low) it was discarded as a
separate driver, but was included as an aggregated value on both the vertical and
horizontal axis (i.e., ―building characteristics‖ and ―business considerations‖). For
instance, the financial commitment [OC] of postponing the expiry date of the
existing lease for via del Canaletto to 2018 [LT] was mentioned only during
settlement and represented a minor consideration. As a result, the topic in itself was
not considered for further analyses, but its value (6) contributed to make occupancy
costs (53) one of the two most discussed business issues in relation to the CRE
decision. Those topics which were recorded between 9 and 17 times were regarded
as medium, while all topics that were raised more than 17 times were ranked highly
frequent within the decision-making process.
17 Each box inside the matrix represents a topic
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Having identified and weighted the key issues considered in the process
according to high, medium or low occurrences, they were then mapped on a timeline
to depict when they first appeared in the process, how long they endured, when they
were discarded and if they were resumed before reaching the final outcome. As
shown in the chart below (Figure 5.4), senior management‘s perceptions of the
business implications expected to derive from selected CRE strategies underwent
significant changes throughout the process.
Figure 5.4: Timeline of Discussed Topics
The following issues are those heavily discussed during the decision-making
process, and they will be addressed in turn:
Amount of space: [HR]-[Qu] and [Mgmt]-[Qu],
Occupancy costs: [OC]-[Qu] and [OC]-[Loc],
Corporate image: [CI]-[Qu] and [CI]-[Loc].
5.6.1.1 Quantity of Space
Since the threat faced by ALPHA was space-related on the back of hiring significant
numbers of new staff at the Broadband Delivery Centre, a unit of the CHT
(Communications & High-Tech) Division, it was anticipated that amount of space
[Qu] in relation to human resources [HR] would have represented the most
frequently discussed topic (32 occurrences). Business growth at the Broadband
Delivery Centre had caused a record 120% occupancy rate, which was unmanageable
and unsustainable.
COO (CHT Division):
We could no longer operate under those conditions. I was
often forced to contact the RE Senior Director to redesign
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the floors and our employees were extremely frustrated with
the situation. The main discomfort for them was caused by
having to share workstations [120% occupancy rate] as this
was affecting their personal space and privacy.
Additional office space was considered crucial, not just for addressing
overcrowding but also to assist with managerial processes (19 occurrences: [Mgmt]-
[Qu]).
COO (CHT Division):
A number of considerations were made during the decision-
making process, however what initiated the process was the
space challenge that we [CHT Division] were facing. We
had absolutely no more room to accommodate growth and
the running of our internal activities was starting to get
negatively affected as well.
The original driver of space requirement, even if powerful enough to launch
the search for CRE alternatives, did not represent the only element of discussion in
the process: as illustrated in Figure 5.4, the importance of the issue was later cut back
by the appearance of other considerations.
5.6.1.2 Occupancy Costs
Discussions on the acquisition of additional office space were always heavily
restricted by financial considerations linked with ALPHA‘s strategic objective of
minimizing operating costs. In particular, occupancy costs represented a major topic
of discussion when the option of considerable expansion18 within the existing
building (via del Canaletto) was suggested, because of the high costs involved19 (21
occurrences: [OC]-[Qu]).
CEO:
…as the option [expansion in via del Canaletto] was being
considered, we never underestimated the big impact that the
new CRE strategy was going to have on our budget and the
financial risks involved.
18 The proposed addition of 2,000 sqm of space implied the acquisition of the entire building 19 An estimated costs of $18-19M
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The higher costs of the proposed CRE strategy were not only the result of
increased office space, but were also due to via del Canaletto‘s being a prime
location (18 occurrences: [OC]-[Loc]). This relationship between occupancy costs
and location was important as alternative options were selected and evaluated, but
was not heavily discussed nearing the conclusion of the decision-making process.
RE Senior Director:
…of course, the prime location implies higher-than-average
rental costs and these considerations were carefully
evaluated in preparing the business plan before submission
to ALPHA Capital Committee Global.
5.6.1.3 Corporate Image
Corporate image grew progressively, to become a main goal. A large enough
expansion in via del Canaletto to allow ALPHA to take over the entire building was
viewed as making a potentially significant contribution to corporate image.
Occupying the entire building would enhance the identity of the company (24
occurrences: [CI]-[Qu]), while the prime location was seen as a major competitive
advantage (19 occurrences: [CI]-[Loc]).
CEO:
As we started to consider other important implications of
implementing a new CRE strategy, the issue of corporate
image was the one that mostly affected our views. The
decision of acquiring the remaining portion of the building
in via del Canaletto was going to significantly enhance our
corporate identity.
RE Senior Director:
We are extremely happy with the building in via del
Canaletto, which we consider unique. It builds an
atmosphere of technological advancement and it is
surrounded by 10 hectares of park.
The identification of amount of space, occupancy costs and corporate image
as the three main visible drivers of the process is partially validated by the
aggregated values of the matrix. Amount of space (103 occurrences) was the mostly
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discussed building characteristic, while occupancy costs (53 occurrences) and
corporate image (47 occurrences) were the first and third mostly discussed business
considerations20.
5.6.1.4 Less Important Topics
Other issues being discussed throughout the decision-making process but with less
intensity (i.e., a medium level of occurrences) included the following:
The impact of internal design on employee satisfaction (10 occurrences: [HR]-
[ID]). This aspect of a building was considered in relation to the overcrowded
office in via Rossi at the start of the process and towards the end when fit-out
arrangements for the newly acquired portion of via del Canaletto were suggested;
The effect that location could have on clients (13 occurrences: [$$]-[Loc]) in
terms of proximity and transport.
CEO:
In comparing the alternatives of moving our entire staff in
via del Canaletto versus selecting a different building, we
also reflected on the implications that changing location
would have had on client proximity. We are in an area where
a growing number of large businesses and ALPHA clients
are headquartered. Furthermore, via del Canaletto is
conveniently located close to the airport and the city centre.
The managerial implications of extending a lease far into the future (12
occurrences: [Mgmt]-[LT]).
COO (CHT Division):
Leasing the entire building in via del Canaletto provided us
with additional space to accommodate projected growth.
This meant guaranteed stability for ALPHA‘s Real Estate
needs until 2018 and induced the RE Senior Director to seek
lengthening the contract up to that date.
20 In second place was human resources (52 occurrences), arguably ranked so high because of its link with amount of space (32 occurrences).
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Table 5.3 summarizes senior management‘s perceptions of business
implications. Upon examining the findings of topic coding with the narrative, it was
apparent that the identifying of a financially viable solution (A) to accommodate the
excess workforce (C) and managerial processes (F), together with a boost of
corporate image (D), represented the main goals of the process and lasted all the way
to the end.
Table 5.3: Summary of Senior Management Perceptions
The initial goal of acquiring sufficient space to comfortably accommodate all
employees within the Broadband Delivery Centre was achieved with ALPHA‘s new
CRE strategy — and, according to senior management, also the objective of boosting
corporate image, which emerged as primary during the decision-making process.
RE Senior Director:
The CRE solution of via del Canaletto was satisfactorily
addressing all the themes raised by the local committee
during the decision-making process: the size was sufficient
to accommodate existing workforce and forecasted growth,
employees were happy with the new allocation of space, the
occupancy costs were deemed to be affordable, location was
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considered to be ideal for corporate identity and clients
reception and the terms of the contract were also spot-on to
guarantee stability to our managerial processes.
However, the view of the RE Senior Director appeared to be somewhat in
contrast with the results of internal surveys aimed at assessing the satisfaction of
ALPHA‘s personnel in regard to their work environment and the services provided
by the Facilities & Services Division. Out of 33 questions, two of the worst
feedbacks were given to the physical structure of the building, and via del Canaletto
ranked third-last out of the 14 offices in the EEMEA area. Employees confirmed
their dissatisfaction by stating that conference and meeting spaces available were not
appropriate for their needs, and that offices did not represent the types of workspace
needed to be productive.
The CRE decision made by ALPHA appeared rational. The process was goal-
driven, the alternative strategies had been evaluated along several dimensions (Table
5.1 emphasized image improvement, proximity to clients, and corporate stability
among others), and the final solution was consistent with past practice. However, the
degree of rationality of the decision-making process could be seen as correlating with
the amount of information gathered — in this case, extremely limited and biased.
Arguably, the same CRE decision would not have been rational in a scenario
including a more comprehensive collection and analysis of market data. What caused
the information to be limited and biased was the personal interest of the RE Senior
Director.
Clearly, topic coding alone is not sufficient to fully explain what occurred in
the process. So the next section will uncover the underlying factors that drove the
discussion of space, image and costs. These included — but were not limited to —
the personal agenda of the RE Senior Director. In fact, the influence he was able to
exert inside the team, the means to control information gathering and flow and the
support he received from key players were essential to enable deviation from the
overall business strategy of ALPHA of reducing costs as well as the difficulties of
promoting change in a complex organization structure.
Figure 5.2 illustrates the implications of such complexity when dealing with
CRE decisions. A new CRE strategy had to be approved locally, then by the RE
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Division in London and finally by ALPHA Capital Committee Global in Chicago. As
indicated by some interviewees, moving successfully through all the levels of
approval could have required an excessive amount of time, affecting the freshness
and creativity of the original idea. Other cases of this research project and prior
studies of strategic decision processes (Hickson et al., 1986) validate this statement,
showing that lengthy decision-making processes can lead to a paralysis or to the
implementation of sub-optimal strategies.
CEO:
Although ALPHA Italy is one of the largest divisions in the
world, we are still required to comply with the guidelines set
by ALPHA Global, which can sometimes specify various
levels of approval. In those rare cases, the time required to
finalise a decision can be counter- productive, affecting the
freshness and creativity of the original idea. Thankfully, in
this particular case the decision was approved relatively
quickly…
5.6.2 Process of Decision (Hidden Reasons and Interplays)
Having discussed rationality, the decision in terms of the firm‘s politics requires re-
examination. As stated, things appeared to happen only in linear fashion: it could be
said there was incremental decision-making, but within that process a number of
deliberations influenced decisions. In particular, the decision of expanding within via
del Canaletto was the result of attentively-studied stratagems designed and advanced
by a single person, the RE Senior Director.
The overall process can be divided into four main periods:
1. the process of creating ambiguity about the primary goal of the new CRE
strategy —finding additional space versus image;
2. the biased practice of information-gathering and control set out by the RE
Senior Director;
3. the identification of only one option;
4. the power of the coalition in influencing the final approval.
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5.6.2.1 Overlapping Goals at the Start of the Process
ALPHA did not possess an official CRE strategy, although the RE Senior Director
had the personal goal of seeing ALPHA as the only tenant of a prestigious building
in every major Italian city. Consistent with his aim, he had progressively expanded
into one of the most unique buildings in Rome as validated by activities A1-A3,
which preceded the CRE decision-making process analyzed in this chapter (cf.
Figure 5.3).
RE Senior Director:
Personally speaking, after so many years of work in ALPHA
I wanted to leave as my heritage to the company a unique
and prestigious building in Rome with a long temporal
horizon…
His plans had, however, been put on hold, and faced a major challenge when
ALPHA redefined its offering and included professional services that had lower
profit margins than those of management consulting. Following the diversification of
core business, the company was very cautious in increasing its operating costs,
including those occupancy-related. The most evident outcome of ALPHA‘s new
strategy was the 120% occupancy rate reached by the Broadband Delivery Centre.
ALPHA was fundamentally unwilling to undertake financial risks for the
achievement of long-term goals, and rational thinking might have led to the
identification of a cheap and temporary solution to the problem of the Centre. Even
more so in a case where Real Estate management was delegated to operational staff
(cf. all other case studies in this project); and the suggestion advanced by the CEO of
further reducing sqm per worker by introducing new workstations would perhaps
have gone unchallenged.
CEO:
The diversification of core business has significantly
impacted on the way ALPHA looks at its budget: overall
costs of the company have to be reduced in order to maintain
a reasonable profit margin from outsourcing services. This is
the reason why my initial suggestion was to further
maximize the current usage of space by increasing the
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number of workstations and therefore reduce space per
worker ratio.
Instead, the influence of the RE Senior Director, attributable to his role in the
organization21 and his experience22, allowed him to be directly involved in strategic
corporate decision-making and suggest the approach of enhancing the promotion of
the Broadband Delivery Centre while using it as a working demonstration site for
clients. His proposal found immediate support from the other two decision-makers.
CEO:
…he has been in the company for many years and has been
in charge of our Facilities Management and related services
for a long time. He is an important member of this
organization.
The appearance of corporate image as a primary goal of the new CRE
strategy considerably changed ALPHA‘s unwillingness to undertake financial risks
for the achievement of long-term goals: for the first time in the process multiple
goals became apparent. Period One of the process ended with subordinating the
overall corporate strategy of reducing operating costs to the dual CRE objective of
increasing space while enhancing corporate image. Figure 5.4 illustrates the rise of
Image as a primary goal halfway through the process and, concurrently, a
redefinition of affordable occupancy costs.
5.6.2.2 Stratagems Carried out at the Local Level
There is evidence that once the CEO perceived enhancing corporate image of the
Broadband Delivery Centre as a business opportunity, the RE Senior Director
initiated a series of practices to smooth the process of decision-making and ensure
his desired outcome. As previously stated, one of the challenges he had to face was
organizational decision-making complexity, which could have led to a lot of buck-
passing and a final decision‘s never being made — especially when considering the
21 A Senior Director, responsible for the performance of all Real Estate assets in the EEMEA region 22 20 years‘ experience in the company
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large investment23 proposed and the involvement of senior directors familiar with
different practices and diverging views, and from different countries24.
To overcome this barrier, which would otherwise have shaped a low-cost
decision-making solution, the RE Senior Director had first to build a swift and strong
consensus at the local level. He used the urgency springing from the unusual and
exceptionally high occupancy rate25 experienced by the Broadband Delivery Centre
to speed up the process. All the participants at this level appeared to unanimously
acknowledge the seriousness of the issue, and feared negative consequences for
employee satisfaction and efficiency. As previously described, topic coding strongly
supports the argument that at the early stages of the process, the primary concern of
ALPHA senior management was to find a new RE setting to allow employees
individual workstations, deemed necessary for them to work efficiently and for
maintenance of employee satisfaction. Figure 5.4 illustrates that, although with a
medium degree of intensity, senior management was also considering the correlation
between internal layouts and employee satisfaction/performance ([HR]-[ID]).
COO (CHT Division):
The photos that had been taken at the Broadband Delivery
Centre clearly showed the situation and left no doubt as to
the urgent necessity of expanding floor space in our division.
In addition, increasing complaints from personnel were also
becoming an issue that had to be considered.
Although perhaps speculative because of the evidence‘s being limited,
statements from employees of ALPHA suggest that the RE Senior Director might
have overlooked the problem of overcrowding at the Broadband Delivery Centre for
several months. Delaying examination of the problem could possibly have been done
to get stronger evidence later on — pictures of crowded office floors and complaints
from personnel, e.g. In this sense, it can be stated that the process of data collection
23 According to ALPHA Global standards, Real Estate investments of $10M are considered large. In this case, the estimated total costs amounted to $18-19M. 24 The evaluation and approval phases of the process demanded the participation of the Australian COO responsible for the CHT Division Worldwide, the Real Estate Division in London, and ALPHA Capital Committee Global in Chicago (refer back to Figure 5.3). 25 ALPHA seeks to maintain an occupancy rate of 85%
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and presentation was controlled from the start and contributed to raise the level of
urgency.
Besides controlling information used in the process, the RE Senior Director
also had influence on forming the local committee assigned to oversee the project. In
doing so, he intentionally limited participation to just two other senior individuals
with strong ties with himself — the CEO of ALPHA and the COO of the Broadband
Delivery Centre. Input was not sought from any other source (employees, clients,
directors of other business divisions, etc.), meaning faster processing times while
ensuring the absence of potentially opposing feedback. The following quote
describes this situation as well as re-emphasizing that the RE Senior Director already
had a predetermined strategy, even before the identification of potential alternatives:
RE Senior Director:
The local committee included all the necessary people…
Surely we did not need personnel from marketing since we
wanted to expand within the existing building and not
consider other locations.
So, to summarize Period Two, there is evidence the RE Senior Director tried
to shorten the duration of the process by generating a sense of urgency, as well as by
controlling participation in the process in limiting the size of the project team.
5.6.2.3 Identification of only One Option
Once unanimous local support had been obtained in relation to improving the image
of the Broadband Delivery Centre, market research was initiated by the RE Senior
Director to identify suitable solutions. Once again, there is strong evidence that he
controlled information to see his agenda realized.
The most important fact substantiating this interpretation is the identification
by the RE Senior Director of only one suitable building: via del Canaletto was
suggested to the rest of the project team as the only viable solution. The motive of
deliberately proposing only one alternative was to significantly limit the arguments
for other options.
RE Senior Director:
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I was heavily involved in the decision-making process that
led to this particular CRE strategy, perhaps more than ever
before… I certainly pushed so that no other Real Estate
options were taken into consideration…
Additionally, he undertook an extensive examination of the selected building,
including an EVA analysis that proved to be crucial in the large RE investment‘s
being approved both locally and at the international level. The short- and long-term
financial forecasting included in the report supported the consideration of via del
Canaletto as a possible alternative, which increased risk acceptance levels to a height
not previously entertained. The explicit support of the COO of the CHT Division,
clearly interested in moving into a better building and in ALPHA‘s promoting more
publicly his Broadband Delivery Centre, was decisive during the EVA evaluation
because he had to supply key statistics like projected revenues and anticipated
number of employees. If excessively prudent in his forecasts, via del Canaletto
would have been seen as an excessive cost for the division. Instead, he was
instrumental in demonstrating the growth experienced by the Broadband Delivery
Centre and its financial capacity to underwrite the expense. This information was the
basis on which the process was allowed to deviate from the rigid boundaries
established by ALPHA‘s over-arching strategic objective of minimizing costs.
CEO:
When we started to consider enhancing the promotion of the
Broadband Delivery Centre, then RE expenditures were no
longer perceived purely as costs but more as an investment.
From the start of the process (and arguably even before), the RE Senior
Director had built a strong connection with the COO of the CHT Division,
anticipating that he would be instrumental in approving the move to via del
Canaletto. To support this claim are the numerous talks between the two over the
space challenges at the CHT division during the first five months of the process (cf.
activity A4 in Figure 5.3), the fact that the COO been invited by the RE Senior
Director to join the local committee and the proposal of boosting the image of the
Broadband Delivery Centre as a way of identifying a reason for the COO to strongly
support his CRE strategy.
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Period Three ended with the local team unanimously in favour of via del
Canaletto.
5.6.2.4 Coalition for Fast Approval
The final hurdle the RE Senior Director had to overcome to see his ambition realized
was the approval by the ALPHA Capital Committee Global. Although necessary,
support of the local team alone was not sufficient to overcome the decision-making
complexity of the company: the local team needed the support of a major
international player — the Director of ALPHA‘s CHT Division worldwide. Once
again the support of the COO was instrumental in seeing the proposal endorsed and
consequently quickly approved by the governing body.
5.7 Building a Theory
In addressing the research questions, the following is relevant.
5.7.1 Business Implications Linked to CRE Decisions
A number of business considerations was made throughout the process, but only a
few achieved the status of driver. In particular, shortage of space was the trigger
issue, corporate image represented the basis for a rationalized view of the political
decision and a minimization of occupancy costs was the issue obstructing the
consideration of Real Estate as a business enabler.
5.7.2 Characteristics of the Decision-Making Process
By theorizing from the analysis of the case, it is possible to derive the following
diagram (Figure 5.5), highlighting the importance of some variables over others. In
particular, this case study clearly revolved around the actions of the powerful and
influential RE Senior Director, who had a personal agenda. This consideration is
what classifies the process as ‗highly political‘.
The RE Senior Director‘s ability to shorten the duration of the process by
creating a sense of urgency, to control participation in the process by excluding
members with potentially dissenting perspectives, to manipulate information which
led to the identification of only one option, and to receive the undivided and solid
85
support of key organizational members, can collectively explain the political process
that unfolded in ALPHA.
Figure 5.5: Analytical Framework
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6 Study Two (BETA)
BETA ( ) is one of the ‗Big Four‘ auditors and the second-largest professional
services firm in the world (after GAMMA): in 2005 the company turned over
US$18.2 billion. In addition to its accounting practice, which represents 47% of total
revenues, BETA Consulting is the third largest business advisory firm in the world,
providing strategic and operational management consulting services to many Fortune
500 companies.
Although global headquarters are located in New York, BETA is a
membership organization under the Swiss Civil Code, according to which each
member firm is a separate and independent legal entity. BETA employs 120,000
professionals in 142 countries (Figure 6.1), delivering professional services to more
than 50% of the world's largest companies.
Figure 6.1: BETA‟s Locations Worldwide
BETA has six separate business units that provide professional services.
These are:
1. Audit: provides a range of auditing and advisory services to medium and
large size companies;
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2. Consulting: supports clients in the areas of technology integration, human
capital, outsourcing, strategy and operations;
3. Enterprise Risk Services: provides a broad array of services that allow clients
to better measure, manage and control risk to enhance the reliability of
systems and processes throughout the enterprise;
4. Financial Advisory: provides strategic services to clients throughout every
phase of the economic cycle;
5. Merger & Acquisition Services: provides strategically focused tax,
accounting and advisory services to buyers or sellers in business
combinations;
6. Tax: supports businesses dealing with national and international tax
requirements.
BETA has been operating in Italy since 1923, and is currently based in 18
centres with offices located in Milan, Rome, Ancona, Avellino, Bari, Bergamo,
Bologna, Brescia, Cagliari, Florence, Genoa, Naples, Padua, Perugia, Parma, Turin,
Treviso and Verona. In 2005 the company attracted €252m in total revenue, making
it the largest professional services firm in the nation. The Italian Network BETA
employs 2,500 professionals (150 partners), distributed in the following way:
1,100 employees at BETA Auditing S.p.A. – the firm's dominant practice and the
provider of all auditing services.
500 employees at BETA Consulting S.p.A. – the provider of consulting services.
350 employees at BETA Fiscal and Legal offices, which together provide tax and
legal services.
150 employees at BETA Financial Advisory Services S.p.A. – the provider of
financially-related consulting services.
With 1,300 employees, the Milan office accommodates more than half
BETA‘s entire Italian staff load: cf. Appendix 4-2 for a visual representation of the
hierarchical structure of the firm.
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6.1 Brief History of the Firm
The firm‘s name has the longest continuous existence of any in the accounting
profession. It has been more than 160 years (i.e., in 1845) since its first accountancy
office opened in London. The 20th century was characterized for BETA by
numerous mergers and acquisitions aiming at exploiting synergies and economies of
scale: as a result, the firm steadily grew into a large international network.
As information technologies became increasingly important in the post-
Second World War period, few professions were challenged more profoundly than
accounting. Arguably, BETA pioneered the way forward, through innovative
strategies. Perhaps at the pinnacle of the firm‘s cutting-edge approach to modern
business were its management consulting services, which provided computer systems
advice. This specialisation was recognised in 1995 when BETA‘s Council of partners
voted to create BETA Consulting in order to better serve multinational clients.
Unlike other major auditing companies, BETA made the decision (in 2003) of not
separating BETA Consulting from the firm: it is reasonable to suggest that this
choice allowed the company to maintain its comparatively wide and deep range of
multi-disciplinary capabilities. Meanwhile, between 2002 and 2004, the firm also
moved to shore up its tax business, evidenced by its acquisition of many ex-
Andersen clients and employees in the wake of that company‘s demise following the
Enron scandal26. In some countries — e.g., Italy — the acquisition of ex-Andersen
clients and employees required formal mergers.
6.2 RE Positioning of BETA prior to implementing new CRE
Strategy
BETA Italy was established in 1923 with the opening of a small office in Milan.
Between 1923 and 2002 BETA experienced substantial business growth that required
the acquisition of larger office accommodation from time to time: whenever it was
not possible to expand within the same premises a new office was opened, in close
proximity to the existing building or more distant. As a result, when a merger
between BETA and Andersen took place in early 2003, the group was dispersed
26 Ernst & Young, KPMG and PricewaterhouseCoopers also employed ex-Andersen employees, but in much smaller numbers.
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among eight separate offices in Milan alone, all of various sizes and in different
locations.
As several interviewees reported, once the merger with Andersen was
completed BETA‘s main strategic corporate goal became that of physically
consolidating its Real Estate interests as quickly as possible. This process appeared
to be less complicated in those cities where a single office existed (Florence had only
one BETA office and no Andersen offices, e.g.). However, a good deal of
rationalization was sought in cities with multiple workplaces and a large number of
personnel (Milan, Turin, Bologna and Rome). In Milan, for instance, personnel
levels grew from 650 to 2,000, and although BETA managed to trim its staff to 1,300
following a redefinition of the company‘s core activities — the consulting division
terminated its offering of software development and IS implementation to focus more
on strategic and organizational consulting — it remained apparent that the firm
needed a new CRE strategy able to support the physical integration of BETA and
Andersen. Indeed, as the President pointed out, the integration of the group was
identified by the Council of partners as BETA‘s highest priority at the start of their
decision-making process: a new CRE strategy had to be developed.
Two things that characterised the offices of Network BETA in Milan clearly
helped shape the new CRE strategy:
1. the larger buildings that the group occupied were not service-specific,
accommodating a range of different functions that failed to reflect BETA‘s
four business divisions; and
2. there were no official headquarters responsible for directing the Milan
operations, which could double as a location-based image representing the
company to clients.
And this was despite the President‘s being based in a building in 1996
commonly regarded as the most advanced and prestigious office accommodation in
Milan.
According to the interviewees approached in this case, the key players in the
relocation of BETA to via Tortorella were the following:
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President: the equivalent of a CEO; a senior partner within the Audit Division
and in charge of the CRE project;
Senior Partner: working within the Audit Division, he collaborated closely with
the President in running the CRE project;
Real Estate Industry Partner: Real Estate represents one of the industries serviced
by BETA and this Partner was responsible for the entire division in Italy; given
her knowledge of the market, she consulted to the CRE project team on several
occasions, mainly in relation to market prices and city planning;
Finance Partner: part of the BETA Financial Advisory Services S.p.A., he
participated in the process by assessing the feasibility of the entire operation from
a financial standpoint.
Via Tortorella is located south of Milan city centre in an area that has
recently become the new precinct of the fashion industry. Unfortunately the area is
not well serviced by public transport and is located on the side of the city opposite to
the airport. Cf. Appendix 4-2 for a visual representation of BETA‘s Milan location.
6.3 Decision-Making Process
BETA Italy was owned 100% by its Italian partners, and was therefore financially
independent from the rest of the International Network BETA. Thus, all corporate
polices (including Real Estate issues) were decided in Italy. Unlike Andersen, which
observed specific Real Estate policies, BETA generally did not have any written
policy regarding RE practices. However the company appeared to have traditionally
sought locations in the city centre or immediate proximity, and had never purchased
Real Estate assets. And according to the Real Estate Partner, BETA had always
carefully considered the needs of its employees in terms of space per worker,
privacy, parking and public transport before making CRE decisions.
Until 2003, every time BETA faced space-related challenges at the branch
level, or issues concerning the building-services provided within any given premises,
the Real Estate Manager27 dealt directly with the Council and was responsible for
implementing its decisions. However, it should be understood that the CRE decision
27 The RE Manager is a member of BETA Servizi S.C.p.A., a separate entity of BETA that handled all the contracts for its buildings, administration services, and technologies.
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discussed in this chapter deviates from established routines because of the significant
outgoings and the level of organizational change required — relocation of entire
workforces following the merger of two industry giants from many and scattered
offices to a single location. The importance of the decision demanded deeper
participation of the most senior individuals in the organization. It remained unclear
whether or not the observed practices would become entrenched as company policy,
particularly given the lack of articulated guidelines for similar situations.
The actions listed in Figure 6.2 show how in the context of this particular
CRE decision the first step was taken by the Council of partners, which agreed on
some general guidelines and appointed the President to pull together the right
expertise for running an internal Real Estate project. The President supervised the
activities of the team while a designated Senior Partner with the support of external
Real Estate agencies identified a number of potential options. The next step was for
the Senior Partner, assisted by the Partner in charge of BETA‘s finance and the
Partner responsible for the Real Estate industry sector, to write a proposal which the
President could then sign off on and submit to the Council for evaluation.
Figure 6.2: Process of CRE Decision-Making
6.4 Decision-Making Process in action
The merger between BETA and Andersen ushered in a period in which important
decisions had to be made relatively quickly to allow a successful integration of the
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two companies. To confront all the challenges, Council meetings were held once a
month and the new CRE strategy was an agenda priority.
Given the frequency of Council meetings and the fact that the CRE strategy
was always under discussion, transcripts of meetings represented a good source of
secondary data and helped establish a chronology of key activities. These have been
numbered in Figure 6.3 from A1 to A18, and powerfully depict the evolution of the
CRE decision in BETA over the period 2003–2005. Extensive semi-structured
interviews have also been conducted with the individuals regarded as key players in
the decision-making process as well as with other staff throughout the organization.
Figure 6.3: Chronological Description of Main Activities
In January 2003 the Antitrust Authority approved the Italian merger between
Arthur Andersen and BETA (A1). A few months later a Council of partners was
formed (A2), which met to discuss a new CRE strategy that would support the
integration of the two companies.
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The new Milan strategy was to feature two main goals: accommodation
would be sufficient to relocate the entire workforce; and it would be conveniently,
semi-centrally located (A3).
Senior Partner:
The decision to seek a building that could accommodate all
personnel in a single location had unanimous support
because BETA had already witnessed the serious difficulties
faced by one of our competitors, which, following a merger
similar to ours, delayed its physical integration; and after 4–
5 years it was still operating as two separate companies.
The task of improving logistics was supported by the rationale that operating
through eight different offices would negatively impact on the efficiency of the
company and, by extension, detract from the image of BETA — particularly now
that the firm was marketing itself as multi-disciplinary. This helps explain why the
initial idea examined by the Council was to concentrate operations in four business-
function-oriented offices of the existing eight, while enlarging them as much as
possible. However, this option was soon discarded: it was felt that it would be
incompatible with the image of a unique multi-disciplinary company. Thus the first
meeting of the Council resolved to undertake an internal CRE project under the
supervision of the President.
Having realized that the issue under investigation represented an infrequent
and expensive decision that was going to impact on the future positioning of the
company for years to come, the Council of partners set a framework for discussion
that allowed the evaluation of CRE options much more expensive than previously
taken up by the company.
Senior Partner:
As different RE alternatives were considered, the Council
matured the idea that being forced to change location due to
increased space requirements was representing an
opportunity for BETA to restore its image as a unique multi-
disciplinary company.
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Over the subsequent few weeks, the President formed a team and delegated
full authority to a Senior Partner (A4), who consulted with external Real Estate
agencies to identify all the options available in Milan and nearby locations (A5). The
search for reasonable alternatives was relatively quick given the scarcity of ready
availability of buildings of 25,000sqm positioned close to the city centre (A6).
Indeed, most of the buildings suggested by the agencies were less than 20,000sqm,
insufficient to accommodate the nearly 2,000 employees of BETA; and the few that
had the physical capacity to contain the entire Network BETA were located in
industrial areas too far from the city centre.
One option that did seem reasonable was a seven-story complex of four
buildings (A7) built in the ‗60s and previously owned by Italian Post, which in
December 2000 had been bought by Hines28. The redevelopment of the building had
been designed by Studio MCA Mario Cucinella Architects29, and adhered to
guidelines of architectural quality and environmental sustainability: the building was
designed to be very efficient in terms of space and resource usage. The complex of
22,000sqm (11,000sqm of net workspace30) was located in via Tortorella, a semi-
central area of Milan shaping up as an important fashion and design precinct31.
During the months of September and October 2003 the team prepared a
report (A8) to substantiate the choice of the identified building, and started to
negotiate a price with the property owner (A9). The report containing the price
negotiated was then presented to the Council for examination. The proposal outlined
the benefits and limitations of the complex and compared it with the current Real
Estate positioning of BETA. Apart from the evident benefits identified in the
comparison table (Table 6.1), the team also highlighted the possibility of using a
separate building for each business division (Figure 6.4)
28 Hines is a privately owned, international Real Estate firm 29 The Italian company was awarded the project at an international competition held in 2001 30 Net space does not include corridors, restrooms, coffee areas, etc. 31 The trendy neighbourhood was already the home to the new Giorgio Armani headquarters and Fabrizio Ferri‘s Super Studio, but the attraction of more fashion businesses could potentially create traffic problems at certain times.
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Figure 6.4: Structure of the Complex in via Tortorella
This concept, which had initially been discussed at a Council meeting, was
still strongly supported and had already been partially implemented over the previous
months: BETA had already moved personnel to facilitate their integration at the
divisional level.
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Table 6.1: Corporate Advantages of Different CRE Options
Source: BETA‘s Evaluation Report for via Tortorella
Besides space and integration, other elements of discussion among partners
included parking and the higher level of security that the building would provide32.
Potential difficulties (e.g., the limited availability of open space for employees) were
also discussed. Both BETA and Andersen staff had been accommodated in 32 The main entrance would be guarded, with an electronic access system; and each of the four buildings would have specific access codes.
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individual or shared offices, and the transition to an open space floor plan in the new
buildings also presented HR challenges. Some partners had foreseen that such a
change might be difficult to accept for two reasons: a different work environment
characterized by more noise and less privacy, and the apparent loss of the status
associated with a private office. But according to the President, the parking issue
presented the most significant problem.
President:
…probably the biggest limitation of this building was the
shortage of parking, which had a dual impact: it affected the
satisfaction of our employees and their efficiency (i.e.,
delays, work from home, etc.); and secondly, could
influence the disposition of potential clients to come to the
premises.
Despite these problems, many partners in the Council agreed that via
Tortorella was a good solution. It was not a unanimous decision: some considered
the option too expensive. Although a final decision had not been made, the team was
asked to examine the premises in more detail and to re-commence negotiations
(A10). The result was that the project team managed to secure a nine-year contract
with a possible six-year extension, providing more stability than the normal six-plus-
six of Italian leasing. The senior Partner then successfully negotiated a small
reduction in price (A11). Following approval from the Partner in charge of BETA‘s
finances, the team resubmitted the case to the Council, which again debated the high
costs of the operation and asked the team to seek an even better deal (A12).
In March 2004 the building was completed, and the team approached the
property owner with a view to achieving a better deal. However, this time the owner
refused to further reduce the price and instead proposed to sell the building to BETA
(A13). The Council met and evaluated seriously the option of purchasing the
building (A14), but eventually declined the offer on the grounds that it contravened
existing routine favouring leasing over purchase of RE assets. According to the
Council, the difficulties of managing Real Estate investment presented problems,
particularly in terms of Partner dissolution, that would prove difficult to resolve.
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The Council resolved instead to lease the premises, giving approval to the
project team to finalize the contract, and this was endorsed by a large majority of
partners. Negotiations were then protracted for a couple of months, but by the end of
June 2004 the contract was signed (A15).
Cf. Appendix 4-2 for a visual representation of the key activities (A3-A15)
that characterized the CRE decision-making process in BETA.
Once the contract for via Tortorella had been signed, the project team
selected a firm of independent architects to carry out the internal fit-out of the
building (A16). The layout had been designed so that each Partner had a single
closed office, managers and seniors had a box in open space, and everyone else had a
workstation in open space. The open space plan had been chosen not only to
maximize space, but also because the Council felt that it would improve interactions
between employees, and between analysts in particular. This, it was felt, would
facilitate heightened awareness of what was happening across the organization.
Conference rooms were also to be provided, created in a specified area that would
also be used for client reception.
The fit-out was completed at the end of 2004 and staff moved in (A17). As
had been suggested, the four divisions of Network BETA (BETA Auditing S.p.A.,
BETA Consulting S.p.A., BETA Financial Advisory Services S.p.A. and BETA
Fiscal and Legal offices) were each allocated a building. However, the allocation of
personnel had changed due to the establishment of inter-divisional multi-disciplinary
teams, the downsizing of some divisions and the growth of others. As a result, the
four buildings no longer each housed a distinct business division.
Over the 18 months following BETA‘s relocation to via Tortorella, the
company experienced a number of Real Estate challenges, caused by limitations that
had not been considered or properly accounted for.
Firstly, although the number of conference rooms exceeded that of BETA‘s
previous premises, there was still a clear shortage, forcing teams to often meet in
open space.
Secondly, the area around via Tortorella quickly developed into a global
centre for fashion and design industry, causing significant logistical problems for
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BETA: traffic problems become acute during the many fashion parades and design
and furniture fairs held throughout the year. At these times, BETA could find itself
paralysed, and faced enormous difficulties maintaining regular efficiency.
Thirdly, there was the general feeling that internal fit-out was not done
properly. For example, employees cited the inefficiency of the air-conditioning
system and the old style of carpet used, perceived by some to contrast with the
innovative image the company was trying to convey through its RE choices.
Employee:
The air-conditioning system is also not efficient. It is true
that today our internal Division [BETA Servizi S.C.p.A.]
can fix all of these aspects, but they could have all been done
properly before we moved into the building… According to
me, this failure on our part was not a consequence of the
efforts made to have the building ready as soon as possible,
but was due to a lack of knowledge in handling complex
Real Estate decisions.
Fourth was the controversial issue of space. A year and half after moving into
the premises, the Real Estate Manager was forced to approach the Council to discuss
space shortage and the possibility of enforcing an open space policy (A18) across all
levels of management. Even without taking into account the 20% of one of the
buildings currently subleased to a third party33, there was less than 10% of office
space left available. This failed to comply with BETA‘s facility management
guidelines, which suggest the preservation for unexpected growth of a buffer
equivalent to 20% of total space. Moreover, due to disparate space requirements, the
unwritten policies of structuring internal layouts had been implemented differently
across the divisions, with some business units using hotelling, and the sharing ratio at
BETA ranging between 1:3–1:5 depending on business function. Indeed, Consulting
was already hotelling for all positions except partners, while the Audit division was
using it for general staff and the other divisions not using it at all or merely trialling
the practice.
33 The 20% subleased was part of the Advisory and the Consulting buildings
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Managers and seniors form those categories most dissatisfied with the new
disposition of their workstations. They complained about their personal privacy and
were often found in the corridors making telephone calls from their mobiles instead
of using the handsets available at their desks. The Real Estate Manager and the
Council were still considering an implementation of open space on a larger scale, but
not everyone agreed with the effectiveness of this strategy. Partners in the Audit
division, for example, argued that BETA already held 30% of the market share and
its three direct competitors completing the Big Four were also well consolidated,
meaning that the margin for future growth was very limited.
President:
We constantly hire new personnel, but we are also a very
dynamic organization with limited margin for growth.
Furthermore, for every ten new employees, only one is a
Partner who will require a personal office… therefore our
division does not perceive space to be a problem for the near
future.
BETA did not conduct workplace satisfaction surveys. However, the firm
was planning to incorporate a series of questions in its annual survey concerning
internal services such as telephone systems, mail distribution, cleaning and IT-related
services34. When looking at the physical limitations of via Tortorella and the
expected future growth of BETA, the Real Estate Manager argued that at least in
some divisions, in years to come, investing in the provision of exceptional building
services like fast broadband internet connectivity would be more beneficial than
rearranging office floors for the personal satisfaction of a limited number of
employees. Furthermore, results of internal surveys could also be used to effectively
evaluate different service providers.
6.5 Conclusions Narrative of BETA Case
Historically, BETA‘s RE decisions had been limited to the leasing of new offices as
space requirements changed. In this case, however, the extent of CRE strategy and
34 The internal survey was run by MACNO, a company not totally integrated with BETA but part of their network, providing increased objectivity.
102
the size of investment needed differed from the past, as BETA had to identify a new
building in which to relocate personnel from its multiple locations.
Although as was usual practice within BETA the majority of partners in the
Council had to agree to the decision, the general feeling, even among the partners,
was that the CRE decision still came from above (the President), and it was accepted
simply because no reasonable grounds of objection could be found. Even the few
members of the Council who initially questioned some aspects of the building
(mainly the location) or the contract (the negotiated outlay) eventually offered
implicit support for the decision in what was, if nothing else, a display of solidarity
in an organization that had undergone significant change in recent times (Garvin and
Roberto, 2001). To this extent, via Tortorella embodied a CRE solution that brought
the organization together, whatever was to transpire in BETA‘s future. The role of
the President, which included pulling together the right expertise, supervising the
activities of the project team and signing off on the proposal, will be further analyzed
in the next section.
In terms of goals, the decision to properly integrate personnel (i.e., amount of
space) triggered the decision-making process and remained agenda priority; but other
considerations also arose — corporate image, location, costs and financing options
that included acquisition. The next section identifies all these topics of discussion, as
well as exploring how interactions among key personnel shaped the process and its
outcomes.
From a positivist and rationalistic decision-making process expectations were
not of reaching a sub-optimal outcome; so why was BETA ultimately satisfied with
exactly that?; why was the requirement of a convenient location dropped?; how
could a new and complex decision in a multi-faceted organization generate only one
option?; why did the process last a relatively short period of time?; how was
consensus reached at the Council? These questions will find answers in the final
section of the case when soft variables will be analyzed — above all, the urgency and
uncertainty surrounding the process, and the role of the President in supervising the
project team and influencing the Council‘s approval.
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6.6 Analysis of BETA Case Study
In the previous section, data were compiled and presented with a view to identifying
the elements of interest to this research within the context of the overall case study.
Now the same data will be analyzed in two ways: initially, the manifest reasons
discussed in the decision-making process will be outlined (according to business
considerations and Real Estate aspects); then the rational perspective derived from
this analysis will be integrated with the considerations of the company‘s strategic
objective, the conditions of the environment in which the decision took place, and the
role of some key players.
6.6.1 Manifest Reasons for Decision (Business Considerations & RE Aspects)
As with all case studies, the first step in coding written material (transcripts of
interviews, minutes of Board meetings, corporate policies and business reports) was
to do so according to those RE topics that respondents felt could have enhanced
overall business performance. Table 6.2 shows those issues discussed throughout the
process and the frequencies at which they appeared in the transcripts (the number
inside each quadrant represents the occurrences).
Table 6.2: Frequency of Topics Discussed within the Case
The total number of occurrences was 280, distributed over 20 of the 34
possible topics. Given that an average of 14 occurrences per topic was expected
(280/20=14) and that +/- 2.8 occurrences represented 1% of the total sample, the
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following nomenclature was adopted to classify the frequency of each discussed
topic.
―Low‖ for occurrences: 0 X 11 (0% X 4%)
―Medium‖ for occurrences: 11 > X 23 (4% X 8%)
―High‖ for occurrences: 23 > X (X 8%)
Whenever a topic appeared fewer than 12 times (low) it was disregarded in its
individuality but was still accounted for in aggregate value of its vertical and
horizontal categories (i.e., ―business considerations‖ and ―Real Estate aspects‖). As
an example, discussions over the impact that internal design [ID] could have had on
human resources [HR] appeared only nine times in the transcripts, making it a low
frequency topic. Consequently, the topic itself was not considered for further
analyses, but its value (nine) contributed to make human resources one of the most
discussed business issues in relation to the CRE decision (77). The frequency of
topics recorded between 12 and 23 times was regarded as medium, while all topics
that had more than 23 occurrences were ranked as highly frequent within the
decision-making process.
Having identified the key issues considered in the process and their relative
frequency, the researcher mapped them on a timeline (Figure 6.5) to identify when
they first appeared in the process, for how long they carried on, when they were
dropped, and if they were resumed before reaching the final outcome. The chart
below illustrates how senior management‘s perceptions of the business implications
expected to be derived from selected CRE strategies underwent changes throughout
the process.
Figure 6.5: Timeline of Discussed Topics
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The following issues are those heavily discussed during the decision-making
process, and they are addressed in turn:
Amount of space: [HR]-[Qu] and [Mgmt]-[Qu]
Location: [HR]-[Loc] and [$$]-[Loc]
Corporate Image: [CI]-[Qu] and [CI-ExQl].
6.6.1.1 Amount of Space
Since the threat faced by BETA was space-related on the back of the merger, it was
anticipated that amount of space [Qu] in relation to human resources [HR] would
have represented the most frequently discussed topic (40 occurrences). The merger
had created a concern that future success could be undermined if personnel were not
quickly physically integrated and managerial processes streamlined by significant
reduction of the number of offices.
President:
The need to find a new building arose from an external and
unforeseen event, which was the merger in this country
between BETA and Arthur Andersen. As a result we had to
find a quick Real Estate solution to properly restructuring
the firm around personnel that had just doubled.
The need for a large building was not only for the purpose of allowing
employees to better interact with one another, but also to facilitate information
exchange across business functions while ideally maintaining distinct departmental
identities. BETA was in fact looking for a building that could house all four divisions
into service-specific areas (28 occurrences: [Mgmt]-[Qu]).
President:
…being a multi-disciplinary firm we had to facilitate
information exchange across business functions. This still
represents a challenge now that we are all in a single
building, but it would have been impossible to achieve if we
were going to remain logistically distant.
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This original driver of physical integration, even if powerful enough to start
the search for CRE alternatives, did not represent the only element of discussion in
the process. As shown through topic coding, other important considerations were
made and contributed to shape top management perceptions. Moreover, several
building characteristics were accounted for in choosing the new site other than the
amount of usable floor area.
6.6.1.2 Location
The issue of location was of great importance and represented a major concern for
the impact it could have had on human resources (26 occurrences: [HR]-[Loc]) as
well as existing and potential clients (23 occurrences: [$$]-[Loc]). The interested
parties were requesting proximity to their principal place of residence or at least
access to convenient public transport and availability of parking nearby. The location
also had to be in close proximity to bars and restaurants to handle more informal
meetings.
RE Industry Partner:
The area is not well served by public transport and this has
negative impact on the client who is coming to visit us and
causes inconvenience to our regular employees who do not
have designated parking areas.
6.6.1.3 Corporate image
Corporate image grew steadily to become a main goal of the new CRE strategy, and
leasing the entire building in via Tortorella was perceived to be beneficial for the
identity of the company (32 occurrences: [CI]-[Qu]). While in the past BETA did not
have official headquarters, the considerable size of the new complex would enable
the company to resolve that situation. As well, the relocation of all business functions
into a single building would also give a significant boost to BETA‘s marketing
efforts in portraying itself as a consolidated multi-disciplinary company.
RE Industry Partner:
One of the guidelines followed in searching the local Real
Estate market was for the new building to have 25,000sqm
of office floor. Such a prerequisite was going to significantly
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limit our array of options, but having a large single building
was expected to boost the image of being a unique multi-
disciplinary company.
Corporate image was also frequently discussed in evaluating the external
quality of the building (34 occurrences: [CI]-[ExQl]). In particular, the futuristic
design and the environmental sustainability of the building were often spoken of with
pride as representative of the vision and values of BETA.
RE Industry Partner:
The architecture of a building if properly selected has the
power of reinforcing corporate image. In the past we always
sought historical and prestigious buildings, but in this
instance we wanted to find a modern building that could
help us convey the image of a newly- restructured,
innovative and technological company.
The identification of amount of space, location and corporate image as the
three main visible drivers of the process is validated by the aggregated values of the
matrix. Amount of space (104 occurrences) and location (75 occurrences) were the
most-discussed building characteristics, while corporate image (80 occurrences) was
the most-discussed business consideration.
6.6.1.4 Less Important Topics
Other issues discussed throughout the decision-making process but with less
frequency (medium level of occurrences) include the following:
The alternative of purchasing the premises (13 occurrences: [RE]-[LT]).
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Finance Partner:
The option of purchasing the building had been considered
but quickly dropped because of the difficulties perceived in
managing a Real Estate investment, particularly in terms of
possible Partner dissolution. On the other hand plenty of
time was dedicated to contract negotiation…
The financial conditions of the lease, which although not decisive in the final
decision repetitively represented a matter of argument and slowed the process (14
occurrences: [OC]-[LT]).
Finance Partner:
Personally, I was concerned about the very high costs of the
operation and its impact on the budget... I was glad that
negotiations proceeded for a while before a final offer was
made. The final price could possibly have been still further
dropped, but this remains subject to speculations and
individual views.
Table 6.3 summarizes senior management‘s perceptions of business
implications. As validated through topic coding, integration of workforce (C) and
managerial processes (F), together with a boost of corporate image (D) represented
the main goals of the process.
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Table 6.3: Summary of Senior Management Perceptions
Several months after the CRE solution of via Tortorella was implemented,
senior management and employees throughout the organization remained quite
happy, and pleased particularly with the limited time it took BETA to relocate after
the merger. The CRE solution was not viewed as the ideal option over the long term,
but more as a ―good enough‖ temporary solution that had supported the company‘s
integration and growth, both physically and in the promotion of a new corporate
image.
Employee:
Since moving into this building, we have faced a number of
challenges ranging from the low standards of internal fit-
outs to shocking traffic congestion. Some of these
limitations might have been avoided through finer planning,
but in the end we have been able to successfully and quickly
solve a serious challenge that could have easily led to a
business crisis. Furthermore, we have done so while
improving on our image and corporate identity.
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While the decision-making process explained here appeared to be both
rational and goal-driven, other hidden variables cannot be underestimated. The rest
of the analysis will look at the decision-making process not so much as the result of
an evaluation of economic costs/benefits, but as how the important issues of space
requirements, location, and corporate image were presented, interpreted and actioned
by the participants. The three manifest reasons will be contextualized as elements of
a process that was for the most part influenced by urgency, uncertainty, the role of
the President and the search for a building that could satisfy most of the
requirements.
6.6.2 Process of Decision (Hidden Reasons and Interplays)
The decision-making process can be divided into three main periods:
1. at the start, urgency and uncertainty played a big role in creating the setting
for a fast decision-making process;
2. subsequently, the President ensured that the process was kept brief by
overseeing the project and identifying only one option;
3. in the end, the urgency surrounding the process promoted a general sense of
satisfaction with the identified building.
6.6.2.1 Urgency and Uncertainty Create the Setting for a Fast Process
BETA‘s corporate strategy was to quickly integrate the two companies and create a
fresh corporate identity. The CRE strategy was closely aligned with this corporate
objective, and in a sense represented its groundwork. Table 6.2 revealed that
corporate image was in fact the most heavily-discussed business consideration of the
case. However, BETA did not have any precedents to work with, because the
company was facing a new challenge that had little to do with past RE decisions: the
situation BETA was facing was the merger of two giants of the industry and the
company was not equipped with the necessary operating procedures.
As well as uncertainty there was a strong sense of urgency surrounding the
process, because BETA wanted to avoid the situation encountered by another
company, GAMMA35, where the CRE decision-making process lasted several years.
35 GAMMA is itself the next case study in this research
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The President had repeatedly manifested his feelings that BETA could not operate
successfully were efficiency in the delivery of its services not quickly restored
through integration of the workforce. Agreement over urgency was testified to by the
fact that CRE issues were discussed at all meetings of the Council, and frequently an
agenda priority. Furthermore, from the start of the process there seemed to be no
ambiguity over the primary goal (the physical integration of functions and personnel)
that was shared unanimously by all members of the organization. Respondents across
departments and business divisions all agreed that BETA was going to urgently seek
a new location for one primary purpose, and that all other considerations were
secondary. Topic coding confirmed that amount of space for the integration of all
personnel was the most-discussed topic in the case (see [HR]-[Qu] in Table 6.2) and
was present throughout the entire process (refer to [HR]-[Qu] in Figure 6.5).
Senior Partner:
The decision to seek a building to accommodate all
personnel in a single location had unanimous support
because BETA had already witnessed the serious difficulties
faced by one of our competitors [GAMMA]36, which,
following a merger similar to ours, delayed its physical
integration and after 4-5 years was still operating as two
separate companies.
6.6.2.2 Identification of only One Option
Due to the lack of procedure established and ensuing uncertainty, the Council was
pleased to entrust its charismatic President with the authority of pulling together the
right expertise for the running of the internal Real Estate project and to supervise the
activities of the team throughout the process. Figure 6.2 illustrates the pivotal role of
the President in the internal RE project.
RE Industry Partner:
Being the first time we had to face such a critical and
complex RE decision, we did not have the necessary
procedures and decision-making tools in place to properly
assess the selected option from different viewpoints. Due to
36 Cf. the following chapter for an in-depth analysis of GAMMA‘s CRE strategy
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this lack of understanding we could not see some
weaknesses of the building until several months into the
contract.
There is strong evidence that the President wanted to keep the process as
simple as possible to ensure a fast turnaround, and this is indicated by the way the
project team was selected, the way in which alternatives were identified and how
they were evaluated.
In relation to the project team, the group of just four members has been
described: the nominated project leader was a Senior Partner who belonged to the
same business division as did the President (i.e., Audit). And the RE project team did
not conduct internal surveys to gather the insights of lower levels of the
organization‘s hierarchy, nor did it seek input from operational departments (IT,
Marketing, Finance, and HRM). Significantly, the RE Manager, who supposedly had
the greatest knowledge of RE, was not even involved in any stage of the process. In a
sense it can be argued that the President excluded from the team any individual with
a potentially dissenting perspective.
RE Manager:
In my role as Real Estate Manager of all buildings and
related services, I was aware that the Council was seriously
considering an alternative CRE solution, but I was not
involved at any stage in the decision-making process. From
my understanding none of the other operational managers
had any input, either.
Employee:
We were never asked to provide input regarding the decision
of moving BETA headquarters to via Tortorella. Nor did the
annual survey have questions concerning feedback on
workplace satisfaction...
Partner:
Before starting any discussion it is important to indicate that
this project, in relation to alternatives selection and
decisions, was carried on primarily by the President together
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with a Senior Partner chosen by him. The main reason for
his direct involvement was that he felt a high degree of
urgency in finding a suitable solution to BETA‘s RE
challenge.
Given the already-highlighted important role of urgency in the process, it can
be reasonably argued that the President was willing to take the risk of not seeking all
the expertise available to avoid complexity within the decision-making process. And
given the scarcity of large office buildings in the Milan office market, setting the
parameters for the uppermost CRE solution would have probably meant a long wait
for the right building to be identified.
The RE project team found only one suitable alternative. Certainly the
specific requirements of BETA did not allow for a great selection of alternatives, but
the speed taken in conducting this phase of the process was heavily influenced by the
limited and biased search for information conducted by the team, in addition to the
urgency previously mentioned. A sequential search process had been initiated to
generate problem-directed alternatives, and it can be argued that the order in which
alternatives turned up had a critical impact on BETA‘s selection.
Having identified the building, the RE project team compared advantages and
limitations but, significantly, emphasized the former by often referring to the size,
architectural quality and environmental sustainability of the building (cf. Table 6.1).
These aspects of the building were regularly linked with the latest corporate goal of
portraying the image of a unique, multi-disciplinary company. Figure 6.5 illustrates
how discussions on corporate image and exterior quality of the building increased
over that period of time. As the issue of corporate image grew in importance, the
initial perceptions of locational requirements eased. As a result via Tortorella,
positioned in an increasingly busy area and with very limited parking and inadequate
public transport, remained the sole option available. A number of studies (Smith and
Ellsworth 1985, Chaiken et al. 1989, Martin et al. 1993, Tiedens and Linton 2001)
has shown that:
positive emotional states result in more heuristic rather than
systematic processing because they convey a feeling of
certainty (Neale et al. 2006:492).
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Period Two ended with the proposal‘s been sent to the Council of senior
partners for examination.
6.6.2.3 Satisficing eventually puts an end to the process
The third phase of the process led to approval by the majority of the Council of a
proposal deemed satisfactory. Despite the urgency of the matter and the frequency of
meetings, it took nine months for the option of via Tortorella to be fully accepted,
testifying to the drawbacks of collegial decision-making processes in large
organizations. Satisfying the majority of partners was in fact regarded as a critical
challenge, as it may have involved a great deal of time and even a final decision‘s
possibly never being made. However it was once more the general sense of urgency
with the support of key players that smoothed out the differences among partners.
The role urgency played is seen in the responses of those interviewees who
perceived the chosen CRE strategy to be not so much the ideal option over the long
term as a good enough solution that could support the company‘s imminent
integration and growth over the short to medium term. Although the intent on paper
was to identify an optimal solution, BETA was in the end satisfied with an
acceptable alternative that several months down the track started showing its
weaknesses — shortage of conference rooms, limited parking and access, poor
quality of internal design, necessity of restructuring internal layouts due to space
shortage in some business divisions, for example. In other words, urgency was the
main reason for some RE aspects‘ being neglected or not sufficiently considered:
e.g., the issue of traffic congestion and poor public transport was not properly
accounted for in Table 6.1.
Eventually as indicated by a number of interviewees the President, with the
full support of the Audit division (the largest in the organization), was able to
exercise enough influence on the Council to achieve consensus.
Partner:
The proposal of via Tortorella was discussed in depth by the
partners. Some showed individual views, such as the
location‘s being more difficult to reach than the previous
one, or the offices‘ being smaller. These individual demands
later faded away leaving room to the opinions of business
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divisions concerning the cost of the building, the location,
the way integration of personnel should be achieved, the
internal design, etc. The Audit division was fully supporting
the proposal, and by the end of the process those members of
the Council who had initially questioned some aspects of the
building or the contract offered implicit support simply
because no really strong grounds for objection could be
found or they felt that other issues, more important for their
departments, needed to be discussed at Council meetings.
6.7 Building a Theory
In addressing the research questions, the following points are relevant.
6.7.1 Business Implications linked to CRE Decisions
A number of business considerations was made throughout the process, but only two
achieved the level of driver — shortage of space (the trigger issue) and corporate
image.
As evidenced in Figure 6.5, the key driver of additional office space,
necessary for full-scale integration of personnel and managerial processes, was
always present throughout the process, while corporate image appeared a little later.
Informed by the analysis of the actions and contextual variables that characterized
this decision-making process, it is fair to say that space issues were always present in
maintaining the sense of urgency so strongly felt by the organization, and by the
President in particular.
However, while corporate image appeared later in the process, it lasted until
the end. As supported by Figure 6.5, the discussion of corporate image in relation to
architectural quality appeared strongly when the project team started to compare the
advantages and limitations of the building to get the approval of the Council; and in
the same Figure it is evident that locational requirements were effectively cut off
from the moment via Tortorella started being officially discussed with them.
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Lowering the importance of location ensured that via Tortorella remained the only
choice on the table over the nine months it took the Council to finally approve it.
6.7.2 Characteristics of the Decision-Making Process
By theorizing from the analysis of the case, it is possible to derive the following
diagram (Figure 6.6). The negative forces impinging on the acceptance of moving
into a specific new building (via Tortorella) have been mitigated by actions that often
began with the influence and power of the President, making the process largely
political. Other than individual influence, the other variables that heavily affected
strategic decision-making were urgency and information control.
Figure 6.6: Analytical Framework
BETA‘s large number of partners37, representative of different business units
and all with equal voting rights, had to come to an agreement over the choice of a
new building. As indicated by some interviewees, such a large and multifaceted
structure can slow down the decision-making process because of the various views
and numerous changes of directions.
37 Around 150 partners in the Italian Network
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Partner:
BETA Italy is a very large network compared with industry
standards, and we count 150 partners, representative of four
separate business divisions. These partners own 100% of the
company with equal shares, and therefore also have equal
voting rights in the Council. Although very fair, the process
can become extremely slow or even ineffective in reaching a
decision if different groups perceive diverse and conflicting
goals. In those cases the charisma of the President can make
the difference, as he has the power to build consensus
around an alternative.
Furthermore, from experience the Council had recommended that the new
building be conveniently located near the city centre, with availability of parking and
proximity to public transport — a major challenge, given the floor-size requested by
BETA and the limited availability of office space in the centre of Milan.
RE Industry Partner:
The RE market in Milan does not offer many sites with
25,000sqm readily available and positioned close to the City
centre. In terms of location we had to find a compromise that
left some people less happy than others.
Given these initial conditions, it would have been reasonable to anticipate a
long and complex process of decision-making. Instead, only one alternative was
identified and the overall process lasted little longer than a year. Recognizing the
urgency and uncertainty surrounding the process and the central involvement of the
President (a charismatic and powerful individual) is crucial to understanding how
challenges were overcome.
President:
We needed quickly to find a solution to an unpredicted
logistical challenge. Failing to recognize the size of the
problem in terms of the repercussions on efficiency and
quality of service to clients would have implied a massive
loss for BETA that is difficult to estimate. As President of
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this company, I was given by the Council some degree of
control over the running of the RE internal project, and my
first priority was to reach a conclusion fast.
Urgency was always there, throughout the process; especially because the
Council wanted to avoid at all costs those problems encountered by GAMMA. Given
the lack of precedent, there was uncertainty over the procedures to be adopted. In this
context, the President was able to exercise his power by controlling participation in
the process, limiting the number of alternatives to only one, and creating an
atmosphere in which most partners felt that the process could be completed with the
identification of a sub-optimal solution (i.e., satisficing).
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7 Study Three (GAMMA)
GAMMA ( ) is the world's largest accounting and consulting firm, formed in 1998
from the merger of two others; and the merger made GAMMA the largest of the Big
Four auditors. GAMMA audits 37 per cent of companies in the FTSE 100 Index, 22
per cent of those in the FT Asia Pacific 100, and 43 per cent of Fortune 1000 firms.
GAMMA is not one worldwide Partnership, but a collection of member firms
run autonomously in their respective jurisdictions. Thus, the organization is
structured as a network of separate and independent firms, each of which is a
member of London-based GAMMA International Limited: this body coordinates the
conduct of GAMMA member firms in certain respects, and the senior partners of
member firms also sit on a global Board of partners.
The company has more than 130,000 employees, working in 771 offices
scattered across 148 countries (Figure 7.1), and it earned aggregated worldwide
revenues of US$20.2 billion for its 2005 fiscal year, 45% of which came from the
European market. The Italian firm is a key player in the worldwide organization, and
in 2005 recorded €272M in revenue:
€218M from GAMMA Assurance S.p.A., which is the firm's dominant practice
and the provider of all accounting services;
€54M from GAMMA Advisory S.r.l., the provider of consulting services.
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Figure 7.1: GAMMA‟s Locations Worldwide
Italian offices are located in all the major cities: Milan, Rome, Bari, Bologna,
Brescia, Florence, Genoa, Naples, Padua, Palermo, Parma, Turin, Trento, Treviso,
Trieste, Udine and Verona. Milan is clearly the largest office, accommodating about
half of the entire Italian GAMMA workforce, as demonstrated in Table 7.1. The
implication of this numerical bias is that the Milan office clearly has some serious
Real Estate decisions to make.
Table 7.1: Milan and Italy employees
As ownership of each firm cannot exceed 2.5% of shares per Partner, the
decision-making power of individual members is limited. The most influential is the
Territorial Senior Partner (TSP), who is in charge of the local branch and represents
the views of the majority of partners. In fact, to be elected TSP a Partner must win
75% of the vote to make the count legitimate. Elections occur every three years.
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7.1 Brief History of the Firm
As mentioned, GAMMA was created in 1998 by the merger of two companies,
referred to here as FIRM_X and FIRM_Y, in what the companies claimed to be an
attempt to secure economies of scale and an increased capacity to deliver seamless
and integrated consulting services on a global basis. However, it could also be more
cynically viewed as a strategy to reduce competition and market restraints resisting
fee increases (Porter, 1980).
Both the original firms were founded in London, with histories dating back to
the nineteenth century. FIRM_X always operated as a worldwide Partnership, giving
local partners a strong incentive to expand their local practices. The worldwide
practice of FIRM_X resembled a federation of collaborating firms that had grown
organically rather than coming together as the result of international merger. On the
other hand, FIRM_Y did in fact grow as a direct result of several mergers, starting in
1957. In addition to setting up offices in the major capital cities of the world, both
firms often assimilated local accounting practices. This proved to be pivotal in
establishing regional offices, resulting in the accruing of a critical mass that allowed
the rapidly-increasing number of international corporations to be fully serviced
wherever they traded.
While GAMMA‘s core business is audit (like the other major accountancy
firms), it has created a large professional consulting branch, generating about 35% of
its fees. Management Consulting Services (MCS) was the fastest-growing and often
most profitable area of the practice in the 1990s, though these profits tended to be
cyclical. The major cause of growth was the implementation of complex integrated
ERP systems for multi-national companies. However, due to the increasing pressure
from avoiding conflict of interests by not providing consulting services to audit
clients, GAMMA sold its consultancy practice in October 2002 to IBM, for
approximately US$3.9 billion in cash and stock.
Following this sale, GAMMA branded its remaining consulting activities as
Advisory Services, organized by country and by industry sector; but this did not
include high-end corporate strategy consulting or large-scale information technology
implementation.
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Territorial Senior Partner:
GAMMA firms have been providing advisory services to
clients for a long time. The demand for these services has
been growing, and in aggregate our member firms‘ revenues
from advisory work totalled more than US$3.5 billion in
fiscal year 2005. That said, we are not rebuilding the
consulting practice we sold, nor do we intend to in the
future. So our use of the term ‗advisory‘ as opposed to
‗consulting‘ is not meant to disguise our intentions. The fact
is that there are important distinctions between the
consulting practice we sold and the advisory skills that have
long formed a key element of our member firms‘ client
offering and that continue to contribute to the quality of their
audit work.
7.2 RE Positioning of Gamma prior to Implementing new CRE
Strategy
Before the merger in 1998, the headquarters of FIRM_X and FIRM_Y had always
been located in central Milan. Specifically, the firms had occupied space in buildings
at three different locations, some of which were leased and others owned. The choice
of these locations was consistent with the belief that inner-city positioning would
positively impact on the prestige and image of the corporations. This prestige was
largely locational and symbolic, not extending to actual fit-outs; in other words,
internal layouts were designed to be functional, and not to impress clients.
After the merger, GAMMA decided to look for a new CRE solution that
could support the integration of the two businesses in an environment increasingly
sensitive to client impressions. According to the interviewees, the key players in the
relocation of GAMMA to via Colle Rosso were the following:
TSP: the equivalent of a CEO. Partner of GAMMA Assurance S.p.A.
(Accounting) and a member of the Executive Committee. He was one of the two
senior partners who formed the CRE project team;
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Senior Partner No.1: HR Partner of FIRM_X before the merger. Partner of
GAMMA Assurance S.p.A. (Accounting) and a member of the Executive
Committee. He was the second Senior Partner in the CRE project team.
Senior Partner No.2: HR Partner of FIRM_Y before the merger. Partner of
GAMMA Assurance S.p.A. (Accounting) and a member of the Executive
Committee during the process. He later became the only HR Senior Partner in
GAMMA and managed the Milan office.
Finance Partner: Partner of the SAP unit (Servizi Aziendali GAMMA S.r.l.) and
a member of the Assembly.
Real Estate Officer: Responsible for the daily activities conducted within each
building. He reported directly to the HR senior partners.
The Real Estate Officer was attached to GAMMA‘s SAP, the unit responsible
for the management of the buildings and the finances of the Italian branch. The
Milan Real Estate Officer used to be an information systems consultant initially
contracted to set up and manage a 1,500sqm office floor in one of FIRM_Y
buildings. When this was well received, the consultant was asked to manage the
office in via Colle Rosso (16,000sqm) on a full-time basis.
Via Colle Rosso is located on the western side of Milan. Cf. Appendix 4-3 for
a visual representation of the location.
7.3 Decision-Making Process
As is the norm, GAMMA Italy is a Partnership owned 100% by its local partners,
and is therefore completely detached from GAMMA in London or New York:
remote ownership only occurs where GAMMA branches have been recently opened
in non-industrialized countries and are without the support of local partners.
Being financially independent means that GAMMA Italy does not need the
authorization of the main office in Europe or North America to make decisions,
although all branches around the world have agreed on a number of practices. These
include operational guidelines for dealing with clients, levels of quality assurance,
ethical standards, and corporate image safeguards. There are no particular guidelines
that need to be followed — besides logo and colours for internal design — in relation
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to RE practices. The most important aspects of an RE decision (e.g., lease vs
purchase, choice of location, sqm:employee, type of building, internal layout) remain
at the discretion of the local branch.
The decision-making process at the local branch follows different steps,
depending on the perceived importance of the actual CRE issue. If the matter relates
to simple adjustments to the logistics of an existing building, the HR Senior Partner
makes the decision with input from the Real Estate Officer. If the decision involves
changing corporate practices (e.g., limiting closed offices to partners and moving all
principals into open space) the HR Senior Partner discusses the topic with the other
seven members of the Executive Committee and may seek the approval of the TSP
before submitting the proposal to the Assembly of partners. Finally, in those cases
when the decision also involves a substantial financial investment, the Finance
Partner becomes a key player in the project team, charged with submitting a proposal
to the Executive Committee. Once the Executive Committee endorses a proposal, it
is discussed at the Assembly of partners for final approval (Figure 7.2).
Figure 7.2: Standard Operating Procedures for CRE Decision-Making
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7.4 Decision-Making Process in action
This research is based on primary data collected from a range of sources, including
various internal documents and semi-structured interviews conducted with partners,
senior managers, managers and general staff across the organization. Secondary data
were also used to inform and cross-validate this case study although availability was
limited, particularly in relation to the early years following the merger. Some
employees no longer worked for the organization, while the CRE decision made by
GAMMA in Milan took a number of years. What was gathered was nevertheless
sufficient to enable chronological listing of the key activities from 1999 that led to
the signing of the lease contract for via Colle Rosso in 2004. This list is presented as
Figure 7.3.
Figure 7.3: Chronological Description of Main Activities
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In the period between the merger of FIRM_X and FIRM_Y at the
international level (A1) and the actual merger of the two companies in Italy (A2), it
became clear to Management that remaining in two separate locations would impede
the integration of the workforce. Furthermore, operating from two different locations
was not efficient in providing services to clients, which now included strategic
advice as well as support services that required larger operational workplaces. The
Executive Committee approached the issue openly and thoroughly in late May 2000
(A3). A project team was established a month later and placed under the supervision
of two senior partners, one of whom was the TSP (A4). The team‘s purpose was to
conduct an analysis of the RE office market in Milan and to identify all possible
solutions involving a cost similar to GAMMA‘s existing RE practice (A5).
As FIRM_Y already partly owned one of the occupied buildings, the first
idea suggested by the project team was to acquire an additional portion (option #1) to
accommodate personnel from FIRM_X (A6). In October 2000 the proposal was
submitted to the Executive Committee, which approved it (A7) and presented it to
the next Assembly of partners for final approval (A8). The large majority of the
Assembly supported the proposal and asked the project team to start negotiating
immediately. Negotiations with the owners were commenced in January 2001 and
lasted several months (A9), but were ultimately unsuccessful; and the building‘s
suitability for auditing and consultancy was confirmed by its subsequent acquisition
by a direct competitor of GAMMA‘s.
The GAMMA project team searched for a new RE solution without
assistance from Real Estate agencies. After a couple of months, a second building
(option #2), located in the less desirable north-east side of the outer circle around the
city centre, was identified (A10): this option was presented to the next meeting of the
Executive Committee (A11). While the building partially met requirements, the
Committee was concerned about the low-key status of the building, possibly
unsuitable in the long term. Since full consensus had not been achieved, the
Committee suggested temporary postponement of a proposal to the Assembly of
partners and, instead, a search of the market for other alternatives, including
buildings under construction. This suggestion had two bases:
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1. the physical integration of the two groups had to occur under ideal
circumstances to avoid further relocation in years to come;
2. moving from the city centre to semi-peripheral areas of Milan was acceptable
only if the new building was going to promote the idea of corporate
innovation.
And according to a number of Executive Committee members, only a new
building with an innovative design would convey this message.
By the end of 2001 the project team was still unable to find a large enough
building that would also meet all the company‘s strategic requirements. However,
two potentially suitable buildings under construction were identified — option #3
and via Colle Rosso (A12). In January 2002, given the need for a building of around
16,000sqm and the knowledge that the Milan office market did not offer any other
options, the project team asked the Executive Committee to make a choice among
option #2, option #3 and via Colle Rosso (A13). With a view to make the best
possible decision, the project team was asked to prepare and present a report
outlining the advantages and disadvantages of each one of the three options. Over the
following five months the project team prepared a detailed comparison of the three
buildings, analyzing a number of variables (A14). These included passage of time
prior to taking possession, changes in building management procedures, location,
parking availability, impact on client services, Real Estate costs, size, corporate
image, impacts on HR, and internal layout (Table 7.2).
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Table 7.2: Corporate Advantages of Different CRE Options
Source: Adapted from GAMMA‘s Report of Building/Locations Assessment
The three buildings were all located in semi-peripheral areas of Milan, their
rent was similar to the existing accommodation‘s and no major impact on clients or
human resources were identified. However, option #3 and via Colle Rosso were
fundamentally different from option #2 in that they were under construction —
considered desirable given that famous architects were involved in the projects and
the designs were extremely modern. It was conceded that higher management costs
might be incurred, but a more flexible internal layout was expected.
The project team argued that via Colle Rosso was better serviced by public
transport than was option #3, had more parking and was more ideally positioned. The
team‘s report emphasised the innovative image that the building would bring to the
company, and that clients would be keen to do business in a building widely
proclaimed as an artistic architectural benchmark in Milan. Furthermore, the city
council had indicated they would allow GAMMA to purchase naming rights for the
building, which would significantly boost the company‘s brand in Milan. In July
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2002 the project team‘s report was submitted to the Executive Committee, which
unanimously agreed with those arguments, approving the proposal (to acquire via
Colle Rosso) being discussed with all other partners at the Assembly in October
(A15).
The persuasive arguments of the project team, reinforced by the influential
leadership of the Territorial Senior Partner and the unanimous support of the
Executive Committee, convinced all members of the assembly to accept the via Colle
Rosso proposal (A16).
Senior Partner:
The choice of via Colle Rosso was the result of a proposal
put forward by a powerful coalition headed by the TSP…Via
Colle Rosso for me is not as convenient as the previous
location [option #1], but besides my personal needs it was
obvious that this Real Estate strategy was the best option
available for the Company.
(While GAMMA declined option #2 and option #3, the suitability of these
buildings for auditing and consultancy business was confirmed by their subsequent
acquisition by the two other direct competitors of GAMMA respectively — which
indicates that these options were not necessarily inferior, but simply not considered
the optimal solution for GAMMA at the time.)
Negotiations with the owners of via Colle Rosso commenced in November
2002 and were completed by February 2003 (A17). During this period, the original
owners38 sold the building and decided to remain as a major tenant (60%). In March
2003 the contract was signed (A18). Cf. Appendix 4-3 for a visual representation of
the decision-making process (A3-A18).
GAMMA had to wait until February 2004 for the building to be completed
(A19). At that time the project team was working with a number of high profile
architects to design the internal layout of the building (A20), and four months later
GAMMA was able to enter its new premises (A21). The design was based on the
38 An Italian daily business newspaper headquartered in Milan that reports on business politics, commercial and labour law, and corporate news.
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existing requirements of GAMMA and past practices, making use of all available
space. According to this strategy, the workplace was structured in the following way:
One floor for client liaison purposes, with conference rooms that could be used
for team meetings, and no offices;
160 closed offices for upper management (i.e., single offices for partners, shared
offices for managers and senior managers);
Open space for all remaining staff which, according to the new corporate
strategies of GAMMA, would promote the four principles of an integrated
network — connectivity, collaboration, information and knowledge exchange.
One of the key criteria used to identify the ideal location for GAMMA was
sufficient space to support growth of 20% over a five-year period. However, two
years after moving into the new building GAMMA was already experiencing space
shortages.
Senior Partner No.2:
…according to corporate forecasts, GAMMA expects a
substantial increase of its workforce over the next three
years. The Milan office, which today counts around 700
employees, will have to accommodate 1,000 by the end of
2009. As HR and RE Managing Partner, I doubt that we will
be able to fit everyone into this building… unless we‘re
lucky enough to sublease large portions of the building from
co-tenants.
In July 2005, the company subleased a portion of the building (2,300sqm)
from its co-tenant and previous owner (A22). By February 2006 due to space
constraints GAMMA was forced to temporarily move its service division (SAP) to a
nearby location (A23). And in October 2006 the Milan office was forced to change
internal CRE policies to maximize space usage: this comprised restricting closed
offices to partners only, and re-accommodating managers and senior managers in
open space (A24).
The removal of the individual offices was resisted because of the implication
of cultural change and downgrading of status and prestige for middle management.
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However, it was better received when it was explained to staff that the original
design of the building had been predicated upon an open space layout: the advanced
ventilation system had been compromised by the closed offices, explaining why staff
had occasionally experienced levels of significant discomfort39. GAMMA was not
made aware of this at the time, and as a result, the internal layout was not designed
appropriately.
The 2006 refit was different from that conducted in 2004 because it sought to
maximise cost effectiveness in terms of space per worker instead of being based on
GAMMA‘s then corporate requirements. The company expected that internal
redesign costs would be offset by the extra space made available and savings with
respect to air-conditioning arrangements that would otherwise have had to be
implemented.
Other building considerations that had not been properly assessed during the
decision-making process included:
the building been designed for a single tenant; therefore all systems (lights,
heating, cooling, sunshades, and video-surveillance) were centralized. However,
GAMMA occupied just 30% of the building and was therefore often forced to
adapt its requirements to those of the major tenant, which were not always
compatible (in order to perform mechanical interventions to hydraulic pumps or
heaters, e.g., GAMMA had first to seek the approval of the co-tenants);
the increase in day-to-day management activities and related costs due to the
technological sophistication and modern design of the building was
underestimated. For example, it had not been expected that an average of 20 light
bulbs would need to be replaced each day, given that the building requires 10,000
light bulbs regularly switched on;
the usage of common areas (e.g., entry, courtyard) was problematical. The major
tenant often held fairs and exhibitions on the premises: in those situations, a large
number of visitors was allowed into the building, creating congestion at access
points and unwelcome tightening of security measures. 39 The external walls of the building are of glass: this design guarantees a minimum inside temperature of 16 degrees Celsius throughout winter; while in summer an automated system of electronic metallic sunshades limits the overheating of the building. However, the ventilation systems function properly only if the internal layout remains open.
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At the systemic level, GAMMA intended to incorporate questions concerning
workplace satisfaction in its internal annual survey. This initiative was consistent
with claims by some GAMMA employees that workplace satisfaction was essential
to grow the company, as properly designed CRE strategies facilitate the retention of
key personnel and are also instrumental in attracting some of the best talent
available. This goal was advanced by undertaking job interviews on the 4th floor of
the building, designed to showcase GAMMA‘s ultra-modern corporate image.
7.5 Conclusions Narrative of GAMMA Case
The identification of via Colle Rosso as the most suitable solution to the problem
called for the most complex procedures adopted by GAMMA in relation to Real
Estate decisions. Those interviewed for data-collection purposes all agreed that
moving GAMMA personnel into a single building had brought substantial benefits to
the company in terms of increased collaboration among co-workers and efficiency.
However, while senior executives expressed the feeling that relocation occurred in a
timely manner and that via Colle Rosso was clearly the best option available, other
employees sometimes expressed different views: some argued, for instance, that
other buildings also represented suitable solutions to the needs of GAMMA, and
would have allowed the company to speed up the relocation process (Cf. Table 7.2
first row).
So while there was consensus (amongst senior management at least) that via
Colle Rosso represented the best available option for GAMMA at the time, staff also
indicated that the decision-making process was characterized by a number of
shortcomings: these related to issues concerning the process of choosing the location,
as well as to the building itself.
The decision-making process uncovered a number of considerations linking
building characteristics with business considerations. As well as the obvious search
for additional office space, other important variables included corporate image,
flexible internal layouts, location, naming rights, employee satisfaction and
occupancy costs. The next section clearly identifies all these topics and classifies
them according to their importance in the process.
Given that the identification of topics alone does not explain how key
personnel shaped the process and its outcome, the final section of the chapter will
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analyse a number of softer variable to answer questions like: why did urgency waned
away?; why did it take so long to agree on a building?; why did GAMMA select a
site that proved to be sub-optimal in different ways?
7.6 Analysis of GAMMA Case Study
The analysis of the case comprises two sections: the manifest reasons discussed in
the decision-making process will be outlined (according to business considerations
and Real Estate aspects); then the rational perspective derived from this analysis will
be integrated with the strategic direction of the firm and the context in which the
decision was made — a vast organization with diffusion of decision-making rights,
the absence of a powerful leader, and a lack of knowledge in conducting similar
decisions.
7.6.1 Manifest Reasons for Decision (Business Considerations & RE Aspects)
As with the other case studies examined, the first step in the coding of interview
transcripts, minutes of Board Meetings, corporate policies and business reports was
to relate this material to those RE topics that respondents felt would enhance overall
business performance. Table 7.3 shows those issues discussed throughout the process
and the frequencies at which they appeared in the transcripts — the number inside
each quadrant represents the occurrences. As expected, amount of space in relation to
human resources, the primary driver, was the most frequently-discussed topic.
Table 7.3: Frequency of Topics Discussed within the Case
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The total number of occurrences was 284, distributed over 18 of the 34
possible topics. Given that an average of 16 occurrences per topic was expected
(284/18=15.78) and that +/- 2.84 occurrences represented 1% of the total sample, the
following nomenclature was adopted to classify the frequency of each discussed
topic.
―Low‖ for occurrences: 0 X 11 (0% X 4%)
―Medium‖ for occurrences: 11 > X 22 (4% X 8%)
―High‖ for occurrences: 22 > X (X 8%).
Whenever a topic appeared less than 12 times (low) it was disregarded in its
individuality but still accounted for in the aggregate value of its vertical and
horizontal categories (―business considerations‖ and ―Real Estate aspects‖). As an
example, discussions on the impact that quantity [Qu] could have had on corporate
image [CI] appeared only five times in the transcripts, making it a low frequency
topic: consequently, the topic itself was not considered for further analysis, but its
value (five) contributed to make quantity (82) the most-discussed Real Estate aspect
in relation to business considerations, and corporate image (75) the most-discussed
business consideration in relation to Real Estate aspects. The frequency of topics
recorded between 12 and 22 times was regarded as medium, while all topics of more
than 22 occurrences were ranked highly frequent within the decision-making process.
Key issues (high and medium number of occurrences) considered in the
process were then mapped on a timeline to identify when each issue first emerged in
the process, how long it endured, when it was discarded and if it was resumed before
reaching the final outcome. As shown in the diagram (Figure 7.4), senior
management‘s perceptions concerning the business implications expected to arise
from selected CRE strategies underwent significant review throughout the process.
During the goals identification phase, Management seemed concerned only with the
effects that RE changes would have on the integration of human resources and
managerial processes (1, 2). As alternatives started to be identified, senior
management perceptions rapidly widened, taking into account corporate image and
occupancy costs.
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Territorial Senior Partner:
Looking back to the start of the process, we were only
concerned with a fast integration of personnel. Physical
proximity was perceived to be extremely important for an
effective information exchange across business functions.
Yet, as time passed, we felt that other considerations had to
be made, especially if GAMMA was to seek a new CRE
strategy that had substantial investments attached and that
had to last many years. In particular, we became more and
more concerned about the corporate image that we wanted to
portray to our stakeholders.
Figure 7.4: Timeline of Topics Discussed
The following issues are those intensely discussed during the decision-
making process, and they will be addressed in turn.
Amount of space: [HR]-[Qu] and [Mgmt]-[Qu]
Corporate Image: [CI]-[Loc] and [CI-ExQl]
Costs: [OC]-[Loc].
7.6.1.1 Amount of Space
A large amount of office space was considered very important for the physical
integration of the workforce (39 occurrences: [HR]-[Qu]) and the managerial
processes (25 occurrences: [Mgmt]-[Qu]). The merger between FIRM_X and
FIRM_Y created a concern within the company that future success could be
undermined if personnel were not properly integrated and managerial processes
streamlined by locating all the employees of the newly merged firm into a single
building.
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Senior Partner No.2:
The merger between the two firms was the event that
prompted the entire process. In fact the desire to have all in
the same location represented the only key driver. In this
regard I can add that GAMMA had already anticipated such
a need two years prior, when the merger took place at the
international level.
This motivation, while powerful enough to get the search for CRE
alternatives underway, did not represent the only element of discussion in the
process. As topic coding demonstrated, other important considerations were made
contributing to the formation of upper-level Management‘s perceptions. In other
words, in addition to the amount of usable floor area, several other desired attributes
helped frame the selection guidelines for the prospective accommodation.
7.6.1.2 Corporate image
The impact that Real Estate aspects could have on corporate image grew
progressively to become a dominant business consideration. Location was often
discussed (26 occurrences: [CI]-[Loc]), as well as the issue of exterior quality (37
occurrences: [CI]-[ExQl]).
Finance Partner:
Portraying a prestigious image had always been a priority for
the company, and the trend was not about to change.
However the Executive Committee throughout the decision-
making process experienced a progressive shift of attention
from location to the building‘s architecture — a different
way of presenting a prestigious image.
The search for location changed from inner to outer city circle, while the
physical architecture of the building shifted from historical to modern. The reason
was a clear redefinition of corporate identity: the multi-disciplinary company was
going to focus more on accounting rather than on consulting. In fact, GAMMA‘s sale
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to IBM of its consulting practice occurred almost concurrently with the acquisition of
the new building40.
7.6.1.3 Costs
Real Estate costs were closely considered in the process, mainly in relation to
location (23 occurrences: [OC]-[Loc]). In other words, GAMMA considered what
the available budget would allow under different scenarios — city centre, outer circle
and semi-peripheral areas. In the end the choice was towards new buildings in semi-
peripheral areas, even though the estimated costs were a little higher than other
alternatives.
Finance Partner:
If we were to continue with a CRE strategy based on
positioning, we would have been left without sufficient
funding to change the interiors and create an environment to
be proud of; while a location in a semi-peripheral area like
via Colle Rosso has allowed us to move into a new building
designed by a top architect.
The identification of amount of space and corporate image as two of the three
main visible drivers of the process is validated by the aggregated values of the
matrix: amount of space (82 occurrences) was the most-discussed building
characteristic, while corporate image (75 occurrences) was the most-discussed
business consideration. Occupancy costs (48 occurrences) also ranked high among
business considerations.
7.6.1.4 Less Important Topics
Perceptions of the potential benefits of an appropriate CRE strategy can be further
broadened by considering those issues discussed throughout the decision-making
process at a medium level of intensity.
Senior Partner:
At one stage of the process we had three potential options
available that were all meeting our basic requirements. At
that point we expanded our selection process by looking at
40 Cf. section 7.1
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additional variables such as impact on clients and the
possibility of maintaining a flexible internal layout.
As Table 7.3 highlights, the issue of exterior quality was a consideration in
relation to clients (21 occurrences: [$$]-[ExQl]).
Territorial Senior Partner:
Until we moved here [via Colle Rosso] we did not have
official headquarters. Today, as always, we still conduct
most of our business at the clients‘ premises, but now we are
also in a position to confidently invite clients to our offices.
We are in fact located in an iconic building of which we own
the naming rights.
Also important was the consideration of how internal fit-out would impact on
the flexibility of the company (18 occurrences: [Flex]-[ID]) and the morale of the
employees (12 occurrences: [HR]-[ID]).
RE Officer:
The internal design was arguably not sufficiently discussed
by the project team, mainly because the input that I could
provide on the topic was incomplete given my limited
knowledge and lack of experience in similar situations.
However, the extremely modern building had been
constructed with an open space layout in mind, giving us
great flexibility in making changes down the track.
Finally, relevant to managerial processes was the waiting period before
entering the new premises (15 occurrences: [Mgmt]-[LT]).
Senior Partner No.2:
When the Executive Committee asked us to start considering
buildings still under construction, we had to incorporate one
new variable in our analysis of alternative options — the
passage of time prior to taking possession, which in some
case meant several years.
Table 7.4 summarizes the perceptions of senior management concerning
business implications. As apparent from the narrative and further validated through
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topic coding integration of workforce (C) and managerial processes (F), together
with a boost of corporate image (D) and a monitor over occupancy costs (A),
represented the main goals of the process.
Table 7.4: Summary of Senior Management Perceptions
As described, a final RE decision was eventually made, but only after the
unfolding of an extremely long41 and non-linear process lasting close to three years,
with a further year‘s passing before the building was occupied. The most apparent
aspect of the case is the inconsistency between the convoluted decision-making
process and the urgent nature of the matter being discussed.
Analysis of the topics discussed has identified occupancy costs, corporate
image and physical integration as the main issues, but is not sufficient to enable full
understanding of what happened during the process. There are, in fact, underlying
factors that drove the structure of the discussion, and they will be uncovered in the
next section.
7.6.2 Process of Decision (Hidden Reasons and Interplays)
For the purpose of this analysis the overall process has been divided into four main
periods:
41 Hickson et al. (1986) studied 150 strategic decision processes and found that from first mention to the point of authorization the bulk of decisions took between 4 and 24 months to process; and the other case studies of this research project showed much faster processing times.
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1. the process of acknowledging the urgency of the RE challenge but failing to
quickly resolve it due to uncertainty over the corporate priorities;
2. the phase of the urgency‘s losing momentum — mainly a result of the
diffusion of decision rights within GAMMA;
3. the period when there was poor evaluation of selected alternatives because of
lack of knowledge of large-scale RE projects; and
4. the final phase of alteration of primary goal from urgent integration of
personnel to enhancement of corporate image.
7.6.2.1 Quick response to an urgent challenge
From the historical background of the two firms, it appears neither ever had a proper
CRE strategy. After the merger, however, GAMMA gave the impression of having a
clear vision of its RE requirements: the firm wanted to quickly integrate all its
personnel into a single building to support the creation of a new corporate identity.
This CRE strategy appeared to be perfectly aligned with the overall strategic
direction of the company.
At the start of the process there seemed no confusion with respect to
GAMMA‘s threat (being too dispersed due to the recent merger) and the primary
goal (the urgent physical integration of functions and personnel) which were views
unanimously shared by all members of the organization. Urgency of the matter was
indicated by CRE issues‘ being discussed at most meetings of the Executive
Committee and the Assembly of partners, and frequently being the agenda‘s priority
issue.
Territorial Senior Partner:
After the merger in Italy we took the matter of finding a new
Real Estate setting very seriously, and in fact the issue was
often discussed at our senior management meetings.
So the process started to unfold quickly and straightforwardly. In six months
GAMMA had discussed the problem fully, formed a project team, identified a
solution and initiated negotiations. However, these were delayed and eventually
unsuccessful. In order to understand the reasons behind GAMMA‘s failing to close
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the deal, analysis must be done of the strategic direction of the company and its
multiple and conflicting goals. While it seemed that GAMMA‘s priority was to
quickly integrate the two companies, it became clear over time that a second
objective was also on the agenda: that of lowering operational costs.
Finance Partner:
In order to maintain RE costs within budget, our initial idea
was to acquire an additional portion of a building that we
were already occupying. This would have been a short-term
solution unable to support the company‘s capacity to grow.
As confirmed throughout the case, keeping occupancy costs low was a major
concern for GAMMA, eventually preventing the company from continuing
negotiations over the identified CRE solution and subsequently limiting the search
for other options to less prestigious areas of Milan. Table 7.3 listed occupancy costs
as one of the major business considerations, especially in relation to geographical
location.
Finance Partner:
Unfortunately we were not able to reach an agreement for
the acquisition of the complex we already partly owned.
Possession of that asset would have been ideal, but the costs
at that time were too high… Given the fact that buildings in
the city centre were all in that price range, we had to start
looking for alternatives in the outer circle around Milan…
Period One of the process ended with GAMMA‘s having to go back to the
blackboard to identify alternative solutions for their problem.
7.6.2.2 Urgency Loses Momentum
As GAMMA began to consider new sites distant from their existing location, delays
started to occur. The urgency of bringing people together was still alive, but
GAMMA was now facing a situation different from that previously examined: now
the company had to relocate the entire workforce to a new location whilst not simply
acquiring a portion of an existing building. Due to GAMMA‘s lack of precedent in
facing the new RE challenge, uncertainty became a characteristic of the decision-
making process, as individuals in the company had predicted.
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Territorial Senior Partner:
Following the merger at the international level, GAMMA
had already anticipated the need to find a building capable of
accommodating all new employees. Being the first time that
we had to deal with such a challenge, we expected the
process could become long and complex.
The uncertainty-associated emotions resulted in systematic processing and an
extremely limited use of heuristics (Tversky and Kahneman 1974, Kahneman and
Tversky 1979). The absence of simplifying strategies meant a very long process with
a full search strategy aiming at finding the optimal decision (Simon 1957, March and
Simon 1958).
A second reason for urgency‘s appearing to lose momentum was the
disagreement within the company over the best solution, together with the collegial
decision-making system typical of this type of organization. The presence of 71
partners with equal voting rights, no alternatives on the table and the TSP‘s not being
sufficiently powerful to impose a solution were the perfect ingredients for deviating
towards a much more convoluted decision-making process. The limited power of the
TSP is shown in Figure 7.2, which evidenced the role of the HR Senior Partner as
pivotal in the process.
Territorial Senior Partner:
As TSP I have been supported by more than 75% of
GAMMA partners during elections, but my authority in any
decision is substantially mitigated by the other partners in
the firm. All strategic decisions within GAMMA are made
collegially, and no Partner can exceed a 2.5% ownership of
the firm.
As collegial debates unfolded new issues were raised, and a change in
corporate strategy emerged. Acknowledging the industry in which they operated to
be an environment increasingly sensitive to client impressions, GAMMA deliberated
the approval for higher than usual RE costs subject to their being devoted to
improving corporate image. The rise of new issues in the middle section of the
process is evidenced in Figure 7.4.
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Thus the Executive Committee was no longer concerned only with the
acquisition of extra space for integration, but now interested in a building that could
give the company capacity to grow and strengthen its market position. So GAMMA
was now ready to accept higher RE costs as well as the risks of further delaying its
relocation: in fact, by considering buildings that were still under construction, the
initial sense of urgency declined significantly. The integration of personnel was still
the primary goal, but according to the Executive Committee it had to occur under
ideal circumstances suitable for satisfying long term requirements.
Senior Partner:
Research into the local RE market showed the lack of
buildings in the range 15,000–20,000sqm. Mainly for that
reason we had to start looking at projects still under
construction, and naturally our attention shifted a bit more
towards the corporate image that those new buildings were
going to portray… I mean, we were used to be located in
prestigious and historical buildings, while now we were
considering modern structures outside the city centre!
Period Two came to an end with three alternatives under consideration, two
of which representing buildings under construction. Cf. Table 7.2 for a comparison of
the three options.
7.6.2.3 Lack of Knowledge causes Alternatives to be Poorly Evaluated
The evaluation process was flawed from various perspectives — as confirmed by the
shortcomings42 experienced at the site in subsequent years — and instead became
regarded by senior executives as able to produce ‗the best option available‘.
The reasons behind the poor assessment of the various buildings are evident:
GAMMA lacked the expertise necessary to properly evaluate its options, the RE
Officer was a former information systems consultant with very limited experience in
42 Unforeseen limitations of the building included an increase in daily management activities and costs, shared accommodation with a major tenant when the building was designed for a single tenant, improper internal design affecting the air-conditioning system, space shortage and subsequent cultural change (loss of private offices for middle management).
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Real Estate, and there was no CRE strategy in place or global standards to be
followed43.
RE Officer:
A Real Estate Manager was not involved in the start of the
decision-making process, mainly because at that time each
one of the five offices in Milan was managed separately…
Towards the end of the process, after being put forward to
manage GAMMA‘s new building, I was asked by the project
team to contribute in determining building management
costs and practices for the various identified options.
The information collected was incomplete, as not all sources had been
accessed. Specifically, input from regular employees, clients, architects and
engineers had not been sought, either formally or informally. GAMMA‘s selection of
via Colle Rosso as the ideal building was in fact the result of extensive planning and
discussions limited to senior management; so the long decision-making process did
not reduce the number of complaints that arose once the decision was made. Most of
these complaints were tendered by parties of at best limited involvement in the
process, and for the most part related to claims that GAMMA did not properly
understand the design of the building before selecting it. While it can be reasonably
argued (as did some interviewees) that insights from lower-level management would
have not prevented the shortcomings experienced by GAMMA after implementation
of the new CRE strategy because they also lacked specialized knowledge in building
design, input from outside sources like structural engineers and architects would
have proved extremely valuable, and could possibly have led to the selection of a
different building.
Employee:
This building is highly technological. The problem is that its
design was not properly understood by our architects, who
designed an internal layout that is causing a number of
difficulties — all complicated and expensive to resolve.
43 According to GAMMA‘s regulations, the choice of RE assets is left completely to the local partners
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As well, after two years of pondering and debating there was need to reach a
final decision. With three options to choose from, the project team (becoming
increasingly anxious in its bid to find a suitable solution) came to a conclusion that
via Colle Rosso was the best option available and used persuasive arguments to
convince the rest of the partners. Those arguments emphasized the apparent
advantages of the preferred building (size and celebrated architecture) while glossing
over many of the issues that eventually carried serious implications for the future
(see Table 7.2).
Territorial Senior Partner:
We [GAMMA] were becoming increasingly anxious to see
the end of this process, and after a number of detailed
studies we [the project team] had established that via Colle
Rosso was the best option available. In a few months we
were then able to build the consensus necessary for the final
approval by the Assembly.
Given the previously-discussed organizational structure of GAMMA,
attaining the unanimous support of the Executive Committee and subsequently
satisfying the vast majority of the Assembly was still a complicated task to achieve.
Eventually, after a number of meetings and debates, the TSP, who had been directly
involved in the activities of the RE project team from the start of the process, was
able to exercise a certain level of influence in gradually attaining the support of other
key senior executives and to convince the majority of GAMMA‘s partners to
approve the proposal.
Partner:
Not all partners were favourable towards selecting the
building in via Colle Rosso, but more than 75% of us
endorsed the proposal based on the figures provided by the
project team. This portion of the Assembly was sufficient for
the new CRE strategy to be approved and for the negotiating
process to begin. Arguably, estimates of the increase in daily
management and related costs caused by the technological
sophistication and modern design of the building had not
been accurately calculated...
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7.6.2.4 Definitive shift of GAMMA’s primary objective
Although via Colle Rosso was approved by the Assembly at the end of 2002,
GAMMA did not enter the new premises until mid-2004. If the initial urgency of
integrating personnel, apparently the trigger for the entire process, had been even
partly maintained, a building in the early stages of construction like the one in via
Colle Rosso would have never been approved. Furthermore, even during the
negotiation stages that led to signing of the contract GAMMA placed much more
attention on the financial aspects of the transaction than on the waiting period
required before entering the building — which later amounted to 15 months from the
execution of the contract.
Clearly the company‘s strategic priorities had changed, and GAMMA no
longer had multiple goals to balance as had occurred in previous stages of the
process: GAMMA‘s goal was now solely that of promoting a new corporate image.
7.7 Building a Theory
In addressing the research questions, the following is relevant.
7.7.1 Business Implications linked to CRE Decisions
Of all the business considerations made in this case, amount of space, corporate
image and occupancy costs are those that drove the decision-making process. In
particular, the requirement for additional space represented the trigger issue, while
corporate image rose to the level of adjunct primary goal and provided the base for a
rationalized view of the decision. Eventually the goal of improving corporate image
was sufficient to overcome the obstructing policy of minimizing occupancy costs.
7.7.2 Characteristics of the Decision-Making Process
Figure 7.5 links all the variables discussed in the analysis of the case study. While all
the elements identified have been important in explaining how the process unfolded,
some variables have been more critical than others and have been highlighted in the
diagram.
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Figure 7.5: Analytical Framework
The characteristic of this process has been the sub-optimal outcome despite
its lengthy duration. The process took a long time because GAMMA did not have a
clear strategic direction; and the collegial decision-making of the firm impeded a
speedy process, while instead fuelling discussion and the appearance of various RE
and business considerations, which led to a range of proposals on the table. And the
absence of extant RE decisions and standard operating procedures further augmented
the level of uncertainty.
The main reason for the sub-optimal outcome was the lack of knowledge. Not
only was there an absence of it within the firm, but GAMMA did not even seek it
from external consultants; and the reason appears to be that after so much time spent
in debate there was pressure for a decision to be finally made. The TSP lacked the
power necessary to enforcing a decision at any stage of the process, but was partially
able to influence the final outcome: his role was instrumental in getting more than
75% of the partners to approve the proposal, but such a proportion would not have
previously been feasible because of his limited power in the organization. Indeed, the
TSP was the equivalent of neither a CEO nor a Managing Director, and his authority
was substantially mitigated by the other partners, each possessing 2.5% of the firm.
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8 Study Four (DELTA)
For many top-level managers throughout the world DELTA ( ) is the chosen
consulting company. Indeed, DELTA serves 147 of the world's 200 largest
corporations, with its main competitors being A.T. Kearney, Bain & Co., Boston
Consulting Group, Booz Allen Hamilton, Roland Berger and Monitor Group.
Furthermore, DELTA's practice is sufficiently diversified to enable it to compete
with Accenture and IBM for technology strategy engagements.
Although DELTA‘s global headquarters are located in New York, the
company considers itself a global corporation and has no central office. It operates
under a ‗one firm‘ principle where each location, while maintaining its unique local
characteristics (i.e., cultures and nationalities), adheres to the values and principles
that unite all. DELTA is a Partnership of around 900 worldwide, and employs about
8,000 professionals in 84 offices spread across 48 countries (Figure 8.1).
Figure 8.1: DELTA‟s Locations Worldwide
(Note: members of the Mediterranean Complex are highlighted in grey.)
DELTA offers a suite of seven consulting services to its clients, covering
Global Strategy, Corporate Finance & Strategy, Global Organization & Leadership,
Growth & Innovation, Marketing/Sales, Operations Strategy and Business
Technology Office (BTO).
A controversial aspect of DELTA's practice is that it is non-exclusive: a
conflict of interest could thus arise where different consulting teams work for direct
competitors within an industry. This works to the firm's advantage, meaning that no
clients are off-limits as might be the case for other firms. The policy also means
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DELTA must keep its client list confidential; and this emphasis on client
confidentiality within the firm means that consultants cannot discuss their work with
members of other teams44. DELTA discloses a client‘s involvement only as a result
of legal action or when the client itself makes disclosure (discouraged by DELTA).
DELTA is the leading top management consulting firm in most of the
countries in which it operates. On the basis of different performance indicators —
growth, financial output and professional impact — the Italian branch is considered
to be one of the most successful. Over the years it has focused on the quality of its
client portfolio, and today the company is serving all the largest firms in the private
and public sectors across several industries; in 2005 it attracted revenues of €210
million.
DELTA has been operating in Italy since 1969, and in June 2006 had offices
in Milan, Rome and Verona, accommodating a total of 40 partners and 318
consultants. The Milan office is the largest of the three, as demonstrated in Table 8.1,
and is actually the third-largest in Europe, just behind Düsseldorf and London.
Table 8.1: Hierarchy of DELTA‟s Personnel in Milan and Italy
To put the importance of the Milan office into perspective, its Managing
Director is responsible for all of DELTA‘s Mediterranean Complex, which includes
offices in Italy, Greece, Turkey and Israel. Furthermore, most of the 33 partners
44 As presented later in this chapter, extreme privacy re client information is one of the driving forces defining the structure of the internal layout in DELTA offices.
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based in Milan also occupy very important positions in the company‘s international
network: among the partners are leaders and co-leaders of worldwide industry
practices (e.g., electricity, telecommunications, banking and e-commerce).
8.1 Brief History of the Firm
DELTA was founded in Chicago in 1926. For many years, it was the unchallenged
leader in consulting, with alumni members going on to head up several leading
companies. Many of these are clients, indicating that defections usually generated
even more business for DELTA. In the 1950s the first offices in Europe opened, and
in the 1970s new offices were established in Australia, Asia and Latin America.
In 2006, DELTA maintained offices on all continents and in most major
cities. More than 50% of DELTA‘s consultants resided outside the USA and a
majority of the profits were derived from non-US clients. DELTA continues to be
one of the most sought-after destinations for graduates of top MBA programs, and
has been rated the most desirable employer for the past nine years in the Universum45
Survey. These views of DELTA‘s leading status are confirmed by a number of
internationally renowned newspapers including Newsweek and The Financial
Times46.
8.2 RE Positioning of DELTA prior to Implementing New CRE
Strategy
DELTA‘s presence in Italy dates from 1969, when the company opened a small
office in a prestigious building in piazza Nova, the main square in central Milan.
However, limited space soon became an issue, and DELTA was forced to look
elsewhere when the time came for expansion. But instead of relocating, the Milan
branch decided to keep its premium space in piazza Nova, and opened a second
office in another location.
Dual locations were endured until 1993, when the firm was eventually able to
concentrate its entire workforce in another building, also in piazza Nova. Even then
relocation took some time because the new building required a complete internal 45 An international corporation that surveys 250,000 MBA students and young professionals and provides ‗ideal employer‘ research, media portfolios and strategic consulting services to more than 500 clients in 28 countries. 46 Newsweek called DELTA ―by far the most influential consulting firm in the world‖. The Financial Times stated DELTA is ―the world‘s leading management consultancy‖.
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refit. Initially, DELTA took only the 3rd floor together with portions of the 2nd, 4th
and 5th floors; but its lease contract stipulated that DELTA would be given priority
over other interested parties when more space on these floors became available. This
clause represented the cornerstone of their CRE strategy to accommodate branch
growth. It was applied in 1997 to acquire the rest of the 4th floor, and again in 1999
to secure the balance of the 5th floor.
As well as the office in Milan, DELTA has a presence in two other Italian
cities — Rome and Verona. The office in Rome opened in 1988, and relocated in
2002. The choice of a new office was surprising: more emphasis was placed on
building type than on centrality of location — which may be explained by the
absence of a well-defined city centre in Rome, which has many quarters, and of
varying character (although many businesses choose to locate their Rome
headquarters in the suburb of Esposizione Universale Romana, known by its
acronym ‗EUR‘, established as an exhibition area during the Fascist Period). There
was contention also over the location of the office in Verona when it opened in 2001:
HQ in New York expressed the view that the building was too ―old‖47, but the Italian
partners argued that it was not possible to find a modern building in the centre of
Verona, and that moving to the suburbs would have diminished advantages
associated with both prestige and location.
The internal layout of DELTA office-space is characterised by the prevalence
of private offices and open space for the secretarial staff. Indeed, the firm guarantees
spacious single offices to all partners and principals, and accommodates all other
consultants in larger offices shared among only two or three. This CRE strategy is
closely aligned with the corporate goal of providing a unique employee satisfaction,
of wanting them to feel ―at home‖ when they are in their offices. Clearly, the use of
individual offices also contributes to client confidentiality.
From 2000–2003 DELTA in Italy experienced a period of exceptional
growth. The offices of Rome and Verona did not experience it as acutely as did the
Milan office, for they played a minor role in the network having been only recently
opened, and had space available for growth. On the other hand, DELTA‘s Italian
headquarters in Milan (also recently-designated Central Office of the Mediterranean
47 Little attention was placed, it seems, on its venerable antiquity
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Complex) experienced increasing difficulties in accommodating personnel without
compromising the HR policy respecting generous office space allocation.
According to interviewees, the acquisition in 2004 by the Milan office of the
1st floor of the building in piazza Nova represented the most important CRE decision
of DELTA Italy in recent times.
The following Milan branch personnel participated in the CRE decision-
making process under consideration:
Managing Director: a member of different Committees in the DELTA Network
and the Managing Director for the Mediterranean Complex;
Administration Director: responsible for Facilities Management and related
services;
Financial Officer: assessed the feasibility of identified CRE strategies from a cost
perspective to determine whether or not the company could afford new RE costs
and for how long;
Site Manager: responsible for the daily management of the facility and its
services, reporting to the Administration Director; upon Administration
Director‘s approval organizes with suppliers the restructuring of internal fit-out.
Piazza Nova is located in the very centre of Milan and it is easily accessible
from all suburbs. Cf. Appendix 4-4 for a map of the area.
8.3 Decision-Making Process
Local offices acted as the main business units but the firm maintained inter-office
policies decided by various committees responsible for making critical decisions, and
the committee members were the firm‘s Directors (i.e., senior shareholders).
When it came to searching for and selecting new premises the Italian branch,
like all DELTA branches, did not have a free rein. While the guidelines were more
indicative than prescriptive, decisions had to comply with the principles specified in
the corporate policy. In sum, DELTA CRE policies favoured:
1. Leasing instead of purchasing: the choice of not investing in Real Estate
assets was closely connected with DELTA‘s belief that success comes from
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sticking to the core business. Furthermore, the company wanted to maintain
its flexibility in terms of relocation, expansion and downsizing.
2. Central location: the office was to be located as close to the centre of the city
as possible. Proximity to clients was generally not taken into account because
they could be anywhere in the country, but many clients were headquartered
in the centre of the largest national cities.
3. Prestige: the building was to be extremely prestigious to complement
DELTA‘s leading corporate image.
4. Modern buildings: this guideline was very difficult to follow in Italy because
it generally contrasted with the more important attributes of location and
prestige. Business districts in North American and Australian cities are
invariably located in city centres, but in Italy the city centres are the historical
part rather than the CBD.
5. Generous space:worker: the ratio to which all offices tried to adhere was 24–
25sqm per employee.
6. Affordability: in case the local subsidiary could not afford the costs for the
minimum standards of centrality and prestige, Global HQ would provide the
necessary financial support. But while there were no limits on overall RE
budgeting, it was preferred that the local subsidiary pay its own way.
Figure 8.2 outlines the standard operating procedure of DELTA in dealing
with the acquisition of new office space48. The search and selection process at the
branch started when the local Partnership identified the need for a new CRE strategy,
created an internal project and handed it over to the Managing Director. The
Managing Director was then assisted by a local Partner, the Administration Director
and the Financial Officer in identifying a number of options. Once a selection was
made, a business case was put together and submitted to Global HQ in New York for
a final evaluation. Upon approval, the local Partnership could finalize negotiations
with the building‘s owner.
48 The analysis of the case will later explain why the players in the highlighted area did not participate in the process.
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Figure 8.2: Standard Operating Procedures for CRE Decision-Making
8.4 Decision-Making Process in action
The exceptional growth experienced by DELTA had got the Milan office into a
situation of distress: space shortage meant increasing difficulties in accommodating
personnel without compromising established HR policies. In 2004 a CRE strategy
was undertaken to resolve the situation. Figure 8.3 lists the most significant activities
in the process, numbered A1-A15. Archival data and a large number of semi-
structured interviews were instrumental in establishing this timeline.
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Figure 8.3: Chronological Description of Main Activities
In February 2004 (A1) Milan was appointed the central office of DELTA‘s
Mediterranean Complex, and started to experience an increasing transfer of
personnel from the other Italian offices as well as from Tel Aviv, Athens and
Istanbul. Furthermore, the business growth of the past few years continued, making it
difficult for the Site Manager to make allocations from the limited space available.
Over the previous 12 months she was able to avoid the introduction of hotelling, but
had been forced in some cases to accommodate up to five consultants per room.
Although the interviewees stated that DELTA did not lose any employees
through workplace dissatisfaction, the partners had conflicting views regarding the
company‘s space challenges. For some of them, having to reduce the amount of
space per worker was not a major problem because consultants spend most of their
time at clients‘ premises; but another group of partners was more concerned with the
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downsizing of workspace per employee for two reasons, both connected with the
culture of the firm:
1. complete satisfaction of HR had always been a fundamental tenet of
DELTA‘s, and
2. unequal treatment of employees would be counter to the non-hierarchical
philosophy of the company.
Partner:
Some of us were seriously concerned with the consequences
of progressively reducing the space to worker ratio. What we
felt most unease with was the change in culture that such a
strategy would have implied: the image we portrayed would
no longer have been complete satisfaction of HR and equal
treatment among employees...
In February 2004 an unanticipated event occurred: a co-tenant notified the
property owner of intention to not renew their leasing contract (A2) (the importance
of this episode will become clearer later in the process).
In March, at a meeting of the Council, the partners discussed the space
challenges that DELTA was facing (A3), but according to the Site Manager the issue
was never considered very important despite all agreeing that operating from a single
location streamlined communications and thus efficiency; and that while the
headquarters represented ―home‖ for consultants, corporate identity in nearby offices
would diminish, along with the sense of ―belonging‖. The discussion was never
about changing location but, rather, how to redistribute the workforce; and if need
arose, identifying an additional office in the proximity of DELTA headquarters.
Relocating to a new building was not a subject of discussion because the centrality of
the office in Milan was considered crucial by everyone, not only from an image
perspective but also in terms of functionality. Being centrally-located meant it was
easily accessible and well served by public transport and arterial roads; and it was
also close to facilities like restaurants. Even the idea of having to take on an
additional office nearby did not encourage thinking about a wholesale shift, despite
DELTA‘s experiences of the logistical difficulties and limitations of a two-location
operation in the early 1990s.
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During the process of reviewing the current space allocation and future
requirements, the Site Manager was informed about the possibility of an empty floor
within the building (A4) and immediately informed the Administration Director, who
discussed the opportunity with the Managing Director. The Managing Director gave
the approval to the Administration Director to start negotiations with the property
owner (A5) and an initial price was set by the end of April (A6).
The possibility of taking the 1st floor of the building was brought to the
attention of all partners at the next Council meeting (A7), at which the Financial
Officer was asked to prepare a report to estimate the short- and long-term impact of
the additional RE costs on the company (A8).
With this information made available to all partners, the Council met again
the following month and approved the lease of the 1st floor (A9). The next step was
for the Italian branch to prepare a report and submit it to DELTA Global
Headquarters in New York for final approval. This was accomplished by a team
composed of the Site Manager, the Administration Director and the Managing
Director. The Site Manager took pictures of the current office to show the need for
additional space, and pictures of the new floor to show how it could be utilised. The
Administration Director wrote most of the report; and the Managing Director signed
off on it before sending it to NY (A10).
The final approval from DELTA Global Headquarters came in August (A11),
and the contract was signed a few weeks later after agreeing to all leasing conditions,
which were the same as the existing contract‘s (A12). Cf. Appendix 4-4 for a visual
representation of the decision-making process (A3-A12).
The internal fit-out of the new floor and the restructuring of the existing
layout on the other four floors took a little more than two months (A13). The internal
work was undertaken using materials providing a high quality finish, although the
rigid structure of the historical building did not allow for much flexibility in the
design. Figure 8.4 shows the internal layout of the newly acquired floor. As the map
depicts, a number of conference and team rooms had been created to address the
growing need of places for teams to meet and privately discuss issues related to any
particular project.
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Figure 8.4: Internal Layout of DELTA‟s 1st Floor
In December 2004 DELTA moved in to the new premises (A14). But the
company‘s growth continued and by mid-2006 it had already absorbed all the new
space: by that time DELTA occupied five floors of the building, limiting prospects
for future expansion (even if the remaining co-tenants on the first and second floors
were to vacate).
This contributed to a widely-held view among DELTA‘s junior workforce
that additional space was needed to facilitate future growth. Indeed, in late 2006 the
Site Manager was forced to create rooms shared by up to six workstations, for senior
staff as well as for associates and junior consultants (A15). Furthermore, from one to
four new partners were elected every six months, all requiring private offices.
But senior partners still believed that space was not a huge issue, DELTA‘s
being an extremely dynamic firm: for DELTA consultants are subjected to the
practice of "up or out," having to advance in their consulting careers within a certain
time-frame or be asked to leave. In terms of client base DELTA was strongly
positioned in the Italian marketplace (catering to 90% of financial services firms and
holding a significant consulting share in other major industries), and partners
expected growth to flatten because the firm had no intention of branching out from
its core business. According to industry experts DELTA would probably hand-pick
even more its clients, creating a portfolio of very important organizations that could
afford higher fees. Since growth would be in size of project rather than in number of
them, it was expected that space shortage would not represent a major challenge for
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the future of the firm. Space-related challenges might arise were the overall strategy
of DELTA to change (e.g., search for growth outside core business), or if a major
competitor were to leave the marketplace.
In 2006 (when the data were collected), DELTA did not use any internal
survey for measuring workplace satisfaction, nor did it intend to set one up: the
offices were generally quite small compared with other companies, so the Site
Manager could interact on a personal level with every employee. Furthermore, to
ensure optimal workplace satisfaction among consultants, it was one of her
responsibilities to address everyone‘s personal needs while avoiding the creation of
conflict. In order to do this, the Site Manager always consulted with employees
affected by internal redesign before re-allocating their office space.
8.5 Conclusions Narrative of DELTA Case
In the past, the CRE strategy of DELTA seemed to have been properly aligned with
the corporate goals of the firm. The priority of being perceived as the Number 1 firm
in the industry was consistent with the image of its building in terms of prestige,
unique location and quality of internal fit-out; while space usage was aligned with
DELTA‘s strategy of hiring and retaining the very best employees available.
In this case study, the decision-making process did not follow the usual
guidelines because of the identification of an RE opportunity by the Site Manager.
The role played by the Managing Director was also critical in the process, but not in
relation of his political influence — rather, because he ensured effectiveness and
speed. The process lasted only six months, with no major discussions held at any
stage. Although space shortage was the factor that triggered the process behind the
CRE decision, it was clear that in many instances HR satisfaction was one of
DELTA‘s main concerns and that the firm sought a Real Estate strategy that was
aligned with existing internal standards. These standards included space per worker,
offices‘ being aesthetically pleasing, location‘s being central, private offices,
proximity to other co-workers and privacy.
The main topics of discussion will be fully analyzed in the next section before
linking them with the softer variables that shaped the process and substantiated its
interpretation. In the analysis section answers to process-related questions will be
sought that topic coding alone cannot answer, such as: was the decision rational
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although the process did not follow regular procedures of identifying and evaluating
options?; was the quick turnaround the result of power and influence inside the firm?
8.6 Analysis of DELTA Case Study
In the previous section, data were compiled and presented with a view to identifying
the elements of interest to this research within the context of the overall case study.
Now the same data will be analyzed in two ways: the manifest reasons discussed in
the decision-making process will be outlined (according to business considerations
and Real Estate aspects); and the rational perspective derived from this analysis will
be integrated with more hidden reasons and the concealed interplays among decision-
makers. This second analysis will provide a more comprehensive explanation of why
the process unfolded as it did.
8.6.1 Manifest Reasons for Decision (Business Considerations & RE Aspects)
As with all case studies, the first step in coding written material (transcripts of
interviews, minutes of Board meetings, corporate policies and business reports) was
to do so according to those RE topics that respondents felt could have enhanced
overall business performance. Table 8.2 shows those issues discussed throughout the
process, and the frequencies at which they appeared in the transcripts (i.e., the
number inside each quadrant represents the occurrences).
Table 8.2: Frequency of Topics Discussed within the Case
The total number of occurrences was 242, distributed over 19 of the 34
possible topics. Given that an average of 13 occurrences per topic was expected
(242/19=12.7) and that +/- 2.42 occurrences represented 1% of the total sample, the
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following nomenclature was adopted to classify the frequency of each discussed
topic:
―Low‖ for occurrences: 0 X 9 (0% X 4%)
―Medium‖ for occurrences: 9 > X 19 (4% X 8%)
―High‖ for occurrences: 19 > X (X 8%).
Whenever a topic appeared fewer than 10 times (low) it was disregarded in its
individuality but still accounted for the aggregate value of its vertical and horizontal
categories (i.e., ―business considerations‖ and ―Real Estate aspects‖). As an example,
discussions on the impact that an historical location [Loc] can have on business
flexibility [Flex] appeared only six times in the transcripts, making it a low
frequency topic. Consequently, the topic itself was not considered for further
analyses, but its value (six) contributed to make location the most-discussed Real
Estate aspect in relation to business considerations (90). The frequency of topics
recorded between 10 and 19 times was regarded as medium, while all topics that had
20 or more occurrences were ranked as highly frequent within the decision-making
process.
The key issues considered in the process and their relative frequency were
thus identified and mapped on a timeline (Figure 8.5) to locate when first they
appeared in the process, how long they were carried on, when they were dropped and
if they were resumed before reaching the final outcome. The chart below illustrates
how senior management‘s perceptions of the business implications expected to
derive from selected CRE strategies underwent changes throughout the process.
Figure 8.5: Timeline of Topics Discussed
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The following are those issues heavily discussed during the decision-making
process, and they will be addressed in turn:
Human Resources: [HR]-[Loc], [HR]-[Qu] and [HR]-[ID]
Corporate Image: [CI-ExQl] and [CI]-[Loc].
8.6.1.1 Human Resources
Since the threat faced by DELTA was space-related on the back of the exceptional
growth experienced in Italy over the period 2000–2003 and the Milan office‘s having
been designated central office of the Mediterranean Complex, it was anticipated that
amount of space [Qu] in relation to human resources [HR] would represent the most
frequently- discussed topic (36 occurrences). Space shortage had created concern
within the company that substantially reducing the amount of space:worker was
contrary to corporate culture and would eventually cause dissatisfaction in the
workplace. Limited space also meant a reduced number of conference and meeting
rooms.
Administration Director:
Faced with the ongoing difficulty of managing space due to
the increasing number of consultants, we had two
alternatives: either reduce space per worker or open a new
(smaller) office nearby. While the first option was
inconsistent with our usual practice, the second would have
arguably caused employees in the separate office not to ―feel
at home‖, thus weakening corporate identity.
Ensuring that HR felt complete satisfaction with the workplace had never
been limited just to the size of the building: as highlighted by the feedback from
several interviewees, location (25 occurrences: [HR]-[Loc) and interior design (22
occurrences: [HR]-[ID) were also regarded to be highly important.
Managing Director:
At DELTA we want to attract and retain the very best
graduates from the very best schools: an ideal workplace is
part of the package that we offer to all our employees…
Here we are easily accessible from all areas around Milan,
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benefit from great public transport, and are in close
proximity to bars, restaurants and other venues.
Site Manager:
We want our employees to feel ―at home‖ when they come
to work. The office must be a pleasant environment and we
always ensure, among other things, that up-market materials
are used to provide high quality finishes to the internal
layout of the office.
The original driver of keeping partners and employees satisfied with their
workplace, even if powerful enough to start the search for CRE alternatives, did not
represent the only element of discussion in the process. As shown through topic
coding, other important considerations were made and contributed to shape top
management perceptions. Moreover, several building characteristics seem to have
been accounted for before choosing to expand in the currently leased building.
8.6.1.2 Corporate Image
Corporate image was a force to be reckoned with from the start of the process.
DELTA owed much of its success to the unique image that it had created over the
years, and under no circumstances was this image going to be compromised by RE
changes. Partners agreed unanimously from the start of the process that the
geographic centrality of the office was not a subject on the table (33 occurrences:
[CI]-[Loc]).
Managing Director:
Being widely recognized as the best location in Milan,
piazza Nova is aligned with our corporate strategy of being
the best in the business. We started our operations in this
location some 40 years ago, and we want to maintain a
strong presence here for many years to come.
As well as location, a second characteristic of the building set apart from
debate was the type of building (31 occurrences: [CI]-[ExQl]). The prestige of an
historical building was considered priceless — much more important than having to
overcome all the difficulties linked with its physical limitations.
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Administration Director:
This is an important building with several centuries of
history. It represents a piece of heritage that people in Milan
feel proud of… Of course, the way the building was
originally built carries some limitations. It is not just that 1m
dividing walls will never allow us to make significant
modifications to our internal layout (open space is
unthinkable), but even minor changes need permission from
the City Council.
The identification of human resources and corporate image as the two main
visible drivers of the process is validated by the aggregated values of the matrix.
Human resources (83 occurrences) and corporate image (75 occurrences) were by far
the most-discussed business considerations.
8.6.1.3 Less Important Topics
Other issues discussed throughout the decision-making process but with less
frequency (medium) included the following:
limited flexibility coming from the physical constraints of an historical building
(15 occurrences: [Flex]-[ExQl]).
Site Manager:
This building is not suitable for this particular industry
sector and even less for a company like DELTA, which
requires a great level of flexibility in space allocation to
adapt to the constant changes of the firm. Flexibility in terms
of internal layout is very limited… but we have always been
aware of such limitation.
the benefits that a central location can give in terms of efficiency and
functionality (16 occurrences: [Mgmt]-[Loc]). Excellent transport and
accessibility to external venues for informal meetings (e.g., bars and restaurants)
seemed the most important issues.
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Administration Director:
Our consultants are always on the move. The current
location allows them to quickly reach major arterial roads in
any direction, airports and train stations... Another important
consideration is that stylish bars and restaurants represent
excellent venues for informal meetings with team members
or clients. In this area the choice is really vast!
Table 8.3 summarizes senior management‘s perceptions of business
implications. As validated through topic coding, satisfaction of employees with the
workplace (C) and corporate image (D) represented the most discussed issues in the
process.
Table 8.3: Summary of Senior Management Perceptions
Senior management and employees throughout the organization remained
quite happy with the acquisition of the 1st floor, and pleased with the limited time it
took DELTA to approve the decision and carry out the internal fit-out. The CRE
solution was viewed by many as ideal, although 16 months later the company was
once again experiencing space shortage. It appears that DELTA would have not been
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satisfied with a ―good enough‖ CRE solution in terms of image and prestige, but the
company did not consider a very long time horizon. This behaviour was consistent
with former practice and in line with company belief that RE issues are not of great
strategic importance.
At first glance, the problem-driven decision-making process explained so far
does not appear to have been conducted rationally. A rational process would have
followed specified guidelines for team formation, options identification, evaluations
and approval. Instead, this decision was made over a very short period of time, did
not follow usual guidelines and did not identify any alternatives.
However, the fact that the final decision was not based on the totality of
information available and a large set of alternatives does not necessarily make it
irrational. In fact, rationality was clearly present when considering the speed of the
decision-making process, which was not stripped of RE and business considerations.
Topic coding has confirmed that once the 1st floor became available, the choice was
rationally evaluated by comparing the corporate priorities of image and prestige with
other considerations that could have been compromised — space per worker,
efficiency of the workplace, etc. The rest of the analysis will link the manner in
which those considerations were presented, interpreted and actioned by the
participants with the ‗hidden‘ variables distinctive of this process — serendipity
above all others.
8.6.2 Process of Decision (Hidden Reasons and Interplays)
The decision-making process lasted only six months, a relatively short period of time
when compared with the other cases analyzed in this research project. For this
analysis, the overall process has been divided into two Periods: the first was that
during which serendipity took precedence over the regular unfolding of procedures
already in place at DELTA for addressing the challenge of space shortage; and the
second was the process, led by pragmatic rationality, which concluded with the
approval of the decision.
8.6.2.1 Serendipity leads to the unfolding of a Decision-Making Process
DELTA had historically displayed a CRE strategy closely tied to its overall corporate
objectives: the firm‘s aim was to maintain its status of Number 1 in the industry, and
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from an RE perspective it had been doing so by ensuring prestigious location,
distinctive internal fit-outs and a progressively larger hold on the building.
DELTA had experienced space shortage several times in the past and had
developed formal guidelines to deal with such situations: after its first few years of
operation the company had to temporarily open a second office at a nearby location;
in 1997 DELTA leased another portion of the building; and again more space was
added in 1999. So, even though the magnitude of the problem was on this occasion
more substantial, DELTA had the experience and know-how in dealing with this sort
of problem: the existence of precedent ensured no uncertainty over the procedures to
be adopted in the process. Similarly, the RE challenge was never seen with a great
deal of urgency. Space requirements were still being discussed by partners at
meetings of the Council, but not forcefully enough to make the issue the urgent target
of a complete decision-making process.
Site Manager:
The difficulty of satisfying everyone in the organization in
terms of space allocation did not appear all at once. It had
already been a year since I had been finding new ways to
avoid the introduction of hotelling, and in some cases I had
been forced to accommodate five consultants in a single
office. In spite of these challenges, the Council never
seemed to be too worried about the space issue.
In fact, the sequence of events described shows it was serendipity that
prevented the regular unfolding of the process. The opportunity (i.e., the co-tenant‘s
leaving the premises) arose before space shortage was identified as critical.
Site Manager:
We were very lucky that the other tenant notified the
property owner of intention to leave. All the tenants in this
building are businesses (although much smaller than us in
size) that have been here for a long time. You can never
predict if and when they will vacate the premises, and
having this tenant leave precisely when we were facing
significant space challenges was a blessing.
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Recognizing the influence of that favourable external event is crucial to
understanding why the decision-making process was incomplete in its phases and
lasted just six months: basically, the CRE strategy selected by DELTA was an
environmentally-imposed decision. Mintzberg and Waters describe a strategy as
‗imposed‘ when
the environment dictates patterns in actions either through
direct imposition or through implicitly pre-empting or
bounding organizational choice. (1985: 270)
Administration Director:
I remember been very pleased and somehow surprised when
the Site Manager first came to me and mentioned that we
might be in a position to occupy a new floor in the building.
I suppose that good fortune as well as adversities are just
part of life, and can sometimes play a major role in business
transactions or strategy.
Without the occurrence of that lucky event, DELTA would have reached a
point of space saturation requiring the unfolding of a decision-making process
according to the usual guidelines. Given interviewees‘ responses on the subject, it is
reasonable to say that DELTA would have solved the RE question either by further
reducing space per worker until new space in the building eventually became
available, or by moving some personnel into a nearby location. No other alternative
was foreseeable given DELTA‘s strong position on corporate image, and either
solution would have somewhat negatively impacted on the company in terms of
efficiency, communication, HR satisfaction and/or corporate culture.
Period One of the process ended with an RE solution‘s being identified, not
in response to an urgent problem but because an opportunity had emerged of which
DELTA was able to take advantage.
8.6.2.2 Pragmatic Rationality ensures Quick Approval
A pragmatic rationality was evident in ensuring both fast evaluation of the decision
and approval by Global Headquarters. Since the acquisition of the 1st floor was part
of an already-approved incremental CRE strategy of progressively assuming the
entire building, there appeared no need for the Managing Director to follow the
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complete formal process, which would have required the involvement of a second
Partner as well as that of independent RE agencies. Figure 8.2 provides a visual
representation of the players usually involved in CRE decision-making at DELTA.
There is no evidence that the Managing Director deliberately sought to
control information by limiting participation in the process: a complete project team
was simply not deemed necessary under the circumstances. The collected data
indicate that under normal circumstances he would have involved in the decision-
making process at least those individuals and entities required by established norms.
Administration Director:
When it was officially announced that the current tenant was
going to vacate the premises, it was clear to everyone that
our CRE strategy would be to quickly take the new space.
The involvement of additional players in the decision-
making process or the services of external RE agencies to
identify other potential RE solutions? — no longer
necessary...
Furthermore the Managing Director did not exercise his power to influence
the views of others, but was simply the pivotal point of contact to ensure a fast
process. His central role has been previously illustrated, in Figure 8.2.
Managing Director:
As always in these cases, I was directly involved in the
process. My duties were to get approval from New York
Headquarters, while ensuring that everyone in the
organization was satisfied with the decision. Of course it
was also important to get the decision approved fast in order
to avoid losing the property to a third party.
Although without as many partners as the large accounting firms, DELTA
still had 40 partners in Italy, all with equal voting rights and representative of
different practices. Such a diffusion of decision rights was sometimes an issue when
needing quick decisions; but this was not the consideration here, where none of the
partners had objections regarding the decision. The unanimous agreement among
partners is validated by topic coding, which shows a process without ambiguity in
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which two business considerations appeared to be far more important than all others
— implications for human resources and corporate image (see table 8.2).
Employee:
DELTA counts more or less 40 partners in Italy. This is a
relatively small number when compared with some other
Partnerships that compete in our industry, but it is still
consistent. Sometimes partners have different views on
specific issues; and in those cases the process of approving a
decision is not always straightforward and swift.
In other words, the decision was agreed by every Partner because of the
rationale‘s being part of DELTA‘s corporate image and culture. The company was
happy with the status quo before it started to experience significant space shortage,
and this RE solution was going to put it, at least temporarily, back in its original
situation. The issue of corporate image played an important role in keeping everyone
satisfied with the solution in hand, and issues concerning the efficiency of the
building or other aspects remained negligible.
Partner:
We‘ve been in this building since 1993 and today we occupy
almost the entire complex. A number of growth cycles has
characterized this industry over the years, and each had
similar RE consequences for our company. It has always
been a bit of a struggle to accommodate everyone
comfortably during periods of expansion, but somehow we
always managed to do so in a proper way. What I mean to
say is that if are still here in the same piazza after almost
four decades, it is because we really like this place and
believe it unique in prestige and position.
Full support by the partners, necessary for a fast approval by DELTA‘s
Global Headquarters in New York, was all the more easily achieved as 33 of the 40
Italian partners were based in Milan (and expected to benefit directly from the
decision).
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Partner:
DELTA has 40 partners in Italy with the vast majority based
in Milan, which is the central office. Most of these partners
also occupy key roles in the international industry practices
of the DELTA network. Milan office is the third-largest in
Europe, and given its successful tradition and strategic
importance, decisions made internally are rarely if ever
contested by Global Headquarters.
8.7 Building a Theory
In addressing the research questions, the following is relevant.
8.7.1 Business Implications linked to CRE Decisions
A number of business considerations was made throughout the process, but only two
achieved the level of driver: shortage of space (the trigger issue) with its close
implications for HR satisfaction and culture of the firm, and corporate image, a pillar
of DELTA‘s overall business strategy representing the basis for a rationalized
evaluation of the CRE decision.
As previously evidenced in Figure 8.5 the issue of additional office floor,
necessary to absorb growth while maintaining a generous space:worker ratio, was
present throughout the process, while corporate image appeared only at intervals. It
was particularly heavily emphasized at the beginning of the process when it was
clearly stated that DELTA would not compromise corporate image under any
circumstances; and also in the middle of the process, when the decision was
evaluated by the partners and a business case had to be created and sent for approval
to DELTA‘s Global Headquarters in New York.
Informed by the former analysis of the actions and contextual variables that
characterized this decision-making process, the quantitative count of occurrences
depicted in Table 8.2 is giving new meaning to the analysis: it is fair to say that space
issues were always present in emphasizing the importance that DELTA gave to
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satisfying staff (and consultants in particular), regarded as the organization‘s core
asset. Whenever such points were made, other aspects of the building were inevitably
brought up and discussed in relation to HR satisfaction — location and the highest
standards of internal design more than others.
8.7.2 Characteristics of the Decision-Making Process
By theorizing from the analysis of the case it is possible to derive the following
diagram (Figure 8.6), which highlights how the decision was the result of an
opportune event that led to a pragmatic type of rationality interested in a speedy
process rather than in a detailed analysis of a complete data set.
Figure 8.6: Analytical Framework
The occurrence at the start of the process of the favourable external event
meant that every phase would be significantly influenced by it. Since partners had
not manifested clear intention of deliberating a new CRE strategy and external forces
interfered on the process, it is fair to say that the decision made in this case study was
more the result of an imposed strategy.
Although the Managing Director was a powerful member of the organization,
his influence was not a driver. The pragmatic rationality that characterized the
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process was instead the result of a unanimous feeling inside DELTA that a formal
decision-making process was not required.
It is very difficult to establish if, without serendipity, the search for
alternatives would have been sequential or otherwise. What can be said with
reasonable caution, given DELTA‘s record, is that whatever process was going to be
implemented, generated alternatives would have probably been problem-directed for
addressing the company‘s immediate needs.
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9 Study Five (EPSILON)
EPSILON ( ) is a European-based firm, consistently ranking among the top three
consultancies in the Continental market, and among the top ten globally. The firm
provides a complete range of consultancy services to some of the largest
international companies, doing business with 30% of the ‗Global 100‘ and 40% of
Europe‗s leading companies. EPSILON also provides services to mid-size
companies, and advises governments on deregulation and privatization issues. In
2005 the company made approximately €550 million in revenue.
EPSILON specialises in targeting the topmost senior management of large
private companies, offering services in corporate strategy, financial restructuring and
marketing. This positions them as direct competitors with other specialist strategic
management-consulting firms such as BCG, McKinsey, AT Kearney, Booz Allen &
Hamilton, Monitor and Arthur D. Little. It is an independent Partnership wholly
owned by its partners, who currently number 140. EPSILON offers comprehensive
solutions tailored to meet client requirements through a network of 1,630 consultants,
located in 32 offices across Europe, Asia and the Americas (Figure 9.1).
Figure 9.1: EPSILON‟s Locations Worldwide
(Note: members of the Mediterranean Division are highlighted in grey.)
Originally a German firm, EPSILON‘s first international office opened in
Milan in 1969, followed a few years later by an office in Rome. The two Italian
offices are able to provide the widest necessary range of consultancy services to
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satisfy the demands of the most important clients across a very large number of
industries and functional areas.
This early expansion into Italy, one of Europe's strongest markets for the
consultancy sector, proved to be fundamental to EPSILON‘s international operations.
In 2005 the Italian branch recorded €23M in revenue across a workforce of roughly
90 employees spread amongst consultants and managers, with 30 supporting staff.
The local branch was led by an Executive Team of one partner, the Managing
Director, and seven principals. Cf. Appendix 4-5 for a visual representation of the
hierarchical structure of the firm.
9.1 Brief History of the Firm
EPSILON was established in Munich in 1967 by an academic — a Professor, in fact.
This one-man business focused on marketing consulting, and from the outset revenue
doubled annually: by 1973 the firm had become the third-largest consultancy in
Germany. In order to maintain the established growth trend, the business was
transformed into a Partnership-based management consultancy with a broad portfolio
of services. By the mid-‘80s more than half of EPSILON‘s consultancy business was
coming from strategy projects.
Consistent growth (averaging 17% p.a. after 1970) justified the opening of
multiple branch offices in Germany and expansion to several other countries49. The
international focus on strategy consulting has continued to increase, supported
institutionally by the establishment and growth of the European Community.
9.2 EPSILON’S Original Real Estate Policies
The Milan office, established (as mentioned) in 1969, has maintained its status as one
of the group's most important offices. Indeed, the Milan office is the headquarters of
the entire Mediterranean Division, which includes Greece, Turkey and Israel.
The location of this office in Milan has not changed: the space occupied,
however, has expanded and contracted over the years. The existing contract was
signed in 1997, providing the firm with 3,000sqm of usable space. Fluctuations in
space usage would have varied much more in reflecting the company‘s optimal space 49 In 1980 EPSILON was the first European consultancy to be accepted to the ACME (Association of Consulting Management Engineers) – the oldest and most renowned association of consulting firms in the US.
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requirements had it not been for Italian regulations that specify a minimum lease
period of six years. This meant EPSILON‘s rarely being in a position to implement
space optimization strategies by offering subleases, reducing the number of single
offices by converting them to open space or even relocating during periods of
downturn. Nor were they able to rapidly acquire more space during growth periods.
One of the directives delivered by EPSILON‘s new Managing Director in the
wake of stagnating growth in 2002–2006 was to significantly downsize the Italian
branch. This meant shedding almost half of the workforce with a view to generating
―a fresh spirit‖ at the firm. As was predictable, it resulted in a doubling of the
percentage of empty space in the Milan office. Interestingly, rather than
implementing a space optimization strategy, company decision-makers maintained
the existing accommodation profile, which was justified on at least four counts:
1. existing lease conditions were favourable: the building the company occupied
in Milan had historic and prestigious value, and yet they were locked in at a
rental of only €233/sqm per annum (similar buildings attracting rent of
€450/sqm per annum);
2. the building was more favourably located than many of the alternative
buildings available;
3. there was a high level of satisfaction with the building;
4. it was hoped that business growth would be restored and that space would
soon be required; or if not, EPSILON would then consider subleasing
portions of the building that were surplus to requirements.
As mentioned, EPSILON also had an office in Rome, which opened in the
mid 1970s following the success of their Milan office and the recognition that a
presence in Italy's capital city was necessary to promote the brand and provide closer
proximity to clients in the southern part of the country.
The internal décor of EPSILON‘s offices reflected the prestige of the
buildings, although a specific image had not been pursued. EPSILON executives
were happy to welcome clients to their offices, and recognised the effectiveness of
accommodation designed by leading architects as a way to impress, particularly
when hosting corporate events. However, all interviewees felt that the internal design
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of a building did not have a significant impact on the attraction or retention of
clients; and this view was reflected in the preference of senior executives to arrange
meetings at client premises.
Consultant:
Clients are more interested in people skills and intellectual
capital than in appearances.
This view is reflected in EPSILON‘s failure to harvest employee concerns
when making workplace CRE decisions. As well, Real Estate issues were not
included among the parameters used to assess levels of employee satisfaction.
Managing Director:
When we advertise new positions, we emphasize two
elements: our brand and a competitive salary. No candidate
has ever raised questions regarding the type of office he/she
will be working in. It is irrelevant!… We look for highly
qualified individuals, and people interested in Real Estate
benefits are of an old mindset that does not interest us…We
experience an annual turnover of 15%: this high rate is not
due to employees‘ being dissatisfied with their workplace,
but rather to the practice of "up or out", typical of this
industry segment.
According to interviewees, there had not been any very important CRE
decision made by EPSILON over the past few years — an admission that deciding to
freeze the existing accommodation profile was not considered greatly significant in
itself, but the decision had been taken during a downturn in business when EPSILON
was unable to maintain its revenues at a satisfactory level50. Essentially then, the
decision focussed on in this chapter is the policy opted for by the Managing Director
in 2006 — specifically, that the company maintained its existing Real Estate
positioning despite having to endure a prolonged business downturn.
EPSILON is located in via Sirio, which is within walking distance from the
main square and well serviced by public transport: cf. Appendix 4-5 for a map of the
location.
50 EPSILON made €23M in 2005
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The following key players were identified as central to the task of mapping
the decision-making process at EPSILON:
Managing Director: hired in March 2006 and appointed head of EPSILON‘s
Mediterranean Division, a role which included overseeing operations in the
offices of Milan, Rome, Greece, Turkey and Israel. The Managing Director was
also a Partner of EPSILON‘s parent company in Germany;
Principal ‗A‘: a member of the Executive Team holding the responsibility of
discussing ideas with the Technical Assistant and assessing the merit of those
needing attention;
Technical Assistant: responsible for the management of the office and its related
services.
9.3 Decision-Making Process
At EPSILON all strategic decisions, service-oriented as well as growth–related, were
made at the local level by an Executive Team and then shared with the global
Partnership Headquarters in Berlin. Following a recent restructure, non-German
citizens were no longer prevented from membership of the International Executive
Committee (IEC) of six members, one of whom was the Italian Managing Director.
This position, which headed the entire Mediterranean Division, was only recently
added to the Committee in March 2006.
As indicated, Italian lease regulations tied the negotiating parties to six-year
minimum leases with an option for a further six years, so Italian-based firms tended
to think of relocation only at 12–year intervals. This further contributed to the view
of EPSILON‘s Executive Team that Real Estate decisions were not strategic in
nature: according to the Team, many dimensions determined the success of a
managing consulting firm, but Real Estate did not rank highly.
President:
The contribution of Real Estate decisions to corporate
success is absolutely irrelevant.
Furthermore EPSILON, together with a handful of other management
companies, operated with a relatively low number of highly-paid employees: this
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meant that Real Estate costs represented only a small portion of total expenses in the
company‘s profit and loss statement compared with HR costs51.
The belief that Real Estate decisions were not considered extremely
challenging or strategically important explained why EPSILON did not have an
articulated strategy for the selection and management of Real Estate assets. Indeed,
Real Estate considerations were bundled into a list of 40 expense items that a
Technical Assistant reported on each fortnight to a selected member of the Executive
Team, the objective‘s being the lowering of overheads. In order to receive a bonus at
the end of the financial year, the Technical Assistant had to identify ways of reducing
these costs by 3% per year and of increasing annual efficiency by 5%, according to
internal pre-established parameters. Whenever the Partner or Principal approached
by the Technical Assistant considered a suggestion valid, it was discussed at Board
level; and the final decision rested in the hands of the Managing Director (Figure
9.2).
Figure 9.2: Standard Operating Procedures for CRE Decision-Making
These propositions to lower costs and increase efficiency were not to conflict
with a set of global policies redefined every year by the International Executive
Committee52. The policies were written, but remained flexible in the sense that they
51 According to strategic consulting industry experts interviewed throughout this research project, generally human resources expenditure and overhead costs were in a proportion of 4:1. In some cases the ratio was even wider, reaching 4.5:0.5. 52 The IEC is in a highlighted area because, as later discussed in the analysis, was not involved in the decision-making process.
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could be adjusted according to local standards and conditions: as a result, the Italian
office invariably made Real Estate decisions based on what the competition did.
For this reason, the minimalist Real Estate strategy pursued by EPSILON was
to:
always rent, with the purchase of Real Estate assets never seriously
contemplated;
minimise Real Estate costs, which were not to exceed 4% of total outlay;
standardise space per worker: staying as close as possible to accepted global
practices, even during downturns in the market;
allocate space based on seniority: single offices for partners and principals,
hotelling for all other positions and office staff in open space;
maintain two offices: these offices were located in the centre of Italy‘s major
cities, Milan and Rome; the strategy provided close proximity to public transport
with all consequential benefits for HR;
be located in a prestigious and preferably historic building.
provide an aesthetically-pleasing internal design (looks ranked more highly than
did functionality).
9.4 Decision-Making Process in action
To establish a chronology of activities in the evolution of the CRE decision made by
EPSILON over the course of 2006 (numbered A1-A15 in Figure 3), intra-company
emails, transcripts of Executive Team meetings and a number of semi-structured
interviews across the firm were cross-referenced.
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Figure 9.3: Chronological Description of Main Activities
In 2002 EPSILON, like other pure management consulting companies, began
experiencing a downturn in demand for services that would last a number of years.
For the first time since its inception, the Italian branch had zero growth (A1). It took
about 12 months for the company to realize that the market was probably going to
remain sluggish for some time and, consequently, to start to cut costs. The first cuts
involved consultants, by far the highest expense item for the company given the
nature of the business and the emphasis on knowledge and intellectual capital. This
reduction of personnel resulted in an amount of vacant space‘s emerging that
exceeded significantly the 20% benchmark for the industry. So EPSILON‘s
Executive Team decided to sublease out some of the space that had become available
(A2).
The downturn persisted, and two years later the company was forced into a
similar situation again, with vacant space once more exceeding 20% of total office
floor. However this time, guided by market forecasts and the existence of a number
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of potential projects in the pipeline, the Executive Team made the decision not to
sublease out (A3).
In September 2005, three months after this decision, the market clearly had
not rebounded to the extent forecasted. The Executive Team again discussed the
space allocation issue and concluded that not all the vacant space would be required
even if an unexpected growth period without major slumps was experienced between
then and 2009, the remaining contract period. They decided that because EPSILON
did not seek revenue generated from business outside its core activities, the
currently-subleased portion of the building was to be returned to the landlord.
Negotiations followed, resulting in redrafting the original contract to eliminate the
subleased portion of the office floor (A4).
In March 2006 a new Managing Director was appointed to lead EPSILON‘s
Milan office, which had just been designated Headquarters for the entire
Mediterranean Division. After reviewing the financial situation of the company, the
Managing Director‘s first strategy was to again significantly cut costs: he did this by
retrenching almost half the total workforce (A5). According to him, this strategy had
the dual purpose of reducing corporate expenditure while promoting growth by
enabling the gradual hiring of personnel with a different mindset. The new growth
strategy was presented to the Executive Team, which raised questions, among other
issues, concerning the retention of all available office space (A6).
The options under discussion were to reconsider subleasing a portion of the
building, to ask the landlord for a second alteration of the contract, to keep all vacant
space or to change location (A7). In relation to moving to a different location, the
Managing Director suggested targeting an even more prestigious address, reducing
space from 3,000sqm to 200sqm and encouraging most personnel to work from
home. The justification behind this idea, not yet implemented by any management
consulting firm in Italy, included the following:
a highly prestigious address was needed to generate a successful corporate image;
80% of work was conducted on client premises;
the office was an operating cost that didn‘t contribute to the generation of profits
in its own right, and should therefore be reduced to a minimum.
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Although appealing to all members of the Executive Team, this option was
not implemented: it required a restructuring of the entire firm and would necessitate
detailed planning far beyond that normal for Real Estate decision-making.
Arguments had been raised in favour of all four options, but in order to reach
a better-informed decision the Executive Team nominated a member to conduct
market research, the scope of which was to better understand the benefits of current
leasing arrangements by comparing them with similar alternatives. The member
nominated by the Executive Team supervised the market research, which was
conducted by the Technical Assistant with the support of external Real Estate
agencies (A8); it was completed in early May (A9) and a report prepared comparing
Real Estate options and presented to the Executive Team (A10).
The report clearly showed that the present leasing conditions were extremely
favourable compared with the average price of similar buildings. While the existing
rent was €200/sqm per annum, the asking price for buildings of similar prestige in
nearby locations was around €450/sqm. To acquire only a minor rent reduction, the
report indicated, EPSILON would need to move outside the city centre, which would
undermine the corporate image that the company had built over the years and the
global policy of the Partnership. The option of moving out was rapidly and
unanimously discarded (A11). In order to better evaluate the remaining options, the
Executive Team asked for a comparison of the percentage of current Real Estate
costs and other company costs (A12).
Principal:
We conducted a comprehensive research of the RE market in
Milan… We did not limit it to buildings in our immediate
proximity, and the results validated what some of us already
alleged: EPSILON was experiencing substantial financial
benefits from having signed a fixed lease in 1997.
A month later the additional information requested was completed and
presented to the Executive Team. The report showed that Real Estate costs
comprised 3.5% of total business expenses, had been within budget, and were
consistent with global corporate polices (Real Estate costs should not exceed 4% of
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total costs)53. However, a number of principals argued that although these figures fell
within recommended Real Estate expenditure parameters, the lack of anticipated
growth failed to justify the retention of all the vacant space (A13). Furthermore,
given that current rent prices were around €450/sqm, members of the Executive
Team were concerned that Real Estate expenses could more than double when the
lease was renewed in 2009. Table 9.1 shows the calculations based on the
assumptions of a constant rise of the property market and fixed total expenditures for
the company in years to come.
Table 9.1: Weight of RE costs of Corporate Budget
Being the only Partner among his fellow members of the Executive Team, the
Managing Director made the final decision of not changing the current Real Estate
setting until end of contract (A14). He also suggested that the three years left would
give EPSILON enough time to significantly increase its profit margins, thus
absorbing an eventual increase in leasing costs; and that a future restructure of the
business could mean that most of the workforce would be working from home by
then anyway.
Managing Director:
As I described it, we are going through difficult times during
which I have to make important strategic decisions to ensure
a quick and definite turnaround of EPSILON. Honestly I do
not think that RE decisions fall under that category; and we
could not afford to spend time discussing them.
53 The prior decisions of subleasing (A2), keeping the excess space (A3) and altering the contract (A4) had also all been made under similar financial conditions. Real Estate costs had not exceeded the 4% of total business expenses at any time.
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Cf. Appendix 4-5 for a visual representation of the decision-making process
(A6-A14). In the six months after the decision was made, new employees were hired
but revenue growth minimal (A15).
9.5 Conclusions Narrative of EPSILON Case
The official position of EPSILON was that RE decisions were not strategically
important. All interviewees shared the belief that Real Estate was not a significant
contributor to corporate success because it was largely superfluous to the delivery of
client and employee services. As well, senior management considered Real Estate
costs marginal in comparison with wages.
Given the low consideration of the RE function, every issue concerning
logistics was rarely (and then only briefly) discussed by senior management, seeming
to escape the rigour of detailed decision-making — a process that appeared to be
heavily influenced in its final stages by the Managing Director, whose role will be
further analyzed in the next section.
EPSILON had not even an ad hoc Real Estate function, but simply tried to
ensure that its Real Estate decisions (aimed at solving immediate challenges rather
than seeking long-term benefits) conformed to a set of global written policies and the
best practice of the industry. The company did not employ many resources to
identify optimal RE positioning, but looked for satisfactory solutions that met the
general requirements of the branch at any given time.
The outcome of the decision-making process (i.e., to not make any change to
the existing RE setting of the firm) seemed to be consistent with low regard of the
Real Estate function; yet discussions and considerations throughout the case
suggested that offices were not regarded only as expenses — as senior management
implied — but more as important assets for the organization in terms of corporate
image and managerial processes. The next section provides further evidence on the
issues discussed in the process and explores how the interactions among key
personnel shaped the process and its outcome.
Through this analysis answers are sought that the narrative alone cannot
provide: why did EPSILON not alter the contract, as that would have been consistent
with the plans of restructuring the firm in the near future?; was this decision to some
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extent representative of the way EPSILON runs its business and makes CRE
decisions?; is RE a matter of strategic decision or not?
9.6 Analysis of Epsilon Case Study
In the previous section, data were compiled and presented with a view to identifying
the elements of interest to this research within the context of the overall case study.
Now the same data will be analyzed in two ways: the manifest reasons discussed in
the decision-making process will be outlined (according to business considerations
and Real Estate aspects); and the rational perspective derived from this analysis will
be integrated with the concealed interplays among decision-makers and the politics
of the decision.
9.6.1 Manifest Reasons for Decision (Business Considerations & RE Aspects)
As with the other case studies, the first step in coding written material (transcripts of
interviews, minutes of Board meetings, corporate policies and intra-company emails)
was to do so according to those RE topics that respondents felt could have enhanced
overall business performance. Table 9.2 shows those issues discussed throughout the
process and the frequencies at which they appeared in the transcripts (i.e., the
number inside each quadrant represents the occurrences).
Table 9.2: Frequency of Topics Discussed within the Case
The total number of occurrences was 163, distributed over 15 of the 34
possible topics. Given that an average of 14 occurrences per topic was expected
(163/15=10.86) and that +/- 1.63 occurrences represented 1% of the total sample, the
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following nomenclature was adopted to classify the frequency of each discussed
topic.
―Low‖ for occurrences: 0 X 6 (0% X 4%)
―Medium‖ for occurrences: 6 > X 13 (4% X 8%)
―High‖ for occurrences: 13 > X (X 8%).
Whenever a topic appeared fewer than 7 times (low) it was disregarded in its
individuality but still accounted for by the aggregate value of its vertical and
horizontal categories (i.e., ―business considerations‖ and ―Real Estate aspects‖). As
an example, discussions about the impact that location [Loc] could have had on
clients [$$] appeared only three times in the transcripts, making it a low frequency
topic. Consequently, the topic itself was not considered for further analyses, but its
value (three) contributed to make location one of the most-discussed RE operating
decisions in relation to business considerations (57). The frequency of topics
recorded between 7 and 13 times was regarded as medium, while all topics that had
more than 13 occurrences were ranked as highly frequent within the decision-making
process.
Once the key issues considered in the process and their relative frequencies
were identified, they were mapped on a timeline (Figure 9.4) to ascertain when they
first appeared in the process, how long they were carried on, when they were
dropped and if they were resumed before reaching the final outcome. The chart
below illustrates how senior management‘s perceptions of the business implications
expected to derive from selected CRE strategies underwent changes throughout the
process.
Figure 9.4: Timeline of Discussed Topics
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The following issues are those intensely discussed during the decision-
making process, and they will be addressed in turn:
Occupancy costs: [OC]-[Qu], [OC]-[Loc] and [OC]-[LT]
Location: [CI]-[Loc]
Amount of space: [HR]-[Qu] and [Mgmt]-[Qu].
9.6.1.1 Occupancy Costs
Although the company considered RE costs marginal when compared with wages,
EPSILON was occupying a significant amount of office space that was not needed,
thus increasing unnecessary expenditure and contributing to loss figures.
Furthermore HR costs had already been significantly cut by drastic reduction of
personnel. The next logical step was to also cut all other costs, Real Estate expenses
included; and the first way to reduce occupancy costs was by reducing the amount of
space (36 occurrences: [OC]-[Qu]).
Principal:
The Managing Director‘s strategy has been to significantly
cut costs. In less than a month we reduced our workforce to
almost half… The Executive Team unanimously agreed with
this new strategy to overcome the recent downturn, but
questioned the need to retain all available office space.
A second way to cut RE costs was also suggested: as the original contract
with the landlord had to be altered, why not consider a complete change of building?
— moving to a less prestigious location could possibly allow the company to enter a
less expensive lease (27 occurrences: [OC]-[Loc]). However, RE market research
showed that leasing costs had almost doubled since 1997 (when the existing contract
had been signed), and similar leases were no longer available anywhere around the
city centre (10 occurrences: [OC]-[LT]). Pursuing this strategy would have implied
relocation into the periphery of Milan.
Technical Assistant:
With the support of external Real Estate agencies, I
conducted a search for alternative buildings. The research
clearly showed that the RE office market in Milan has gone
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through significant change over the past decade: while we
pay €200/sqm per annum, similar buildings attracted a rent
of €450/sqm per annum.
9.6.1.2 Location
When change of location was raised, corporate image quickly became an important
consideration (23 occurrences: [CI]-[Loc]). EPSILON wanted to retain its successful
corporate image portraying it as one of the top and most prestigious management
consulting firms in the country: in order to do this the company could not seriously
consider relocation to a peripheral area of the city. Instead, a proposal seen as worth
considering was the move to an even more prestigious address: and in terms of
available budget, this new CRE strategy could only be accomplished by reducing
office space from 3,000sqm to 200sqm and encouraging most personnel to work
from home.
Managing Director:
We are one of the top management consulting companies in
the world and cannot afford to compromise our image by
moving into a suburb. This is a highly competitive industry
sector in which brand and image represents major assets… a
highly prestigious address helps to generate and maintain
such an image.
9.6.1.3 Amount of Space
The first strategy to reduce occupancy costs was reduction of office space; and such
a move would require consideration of both managerial processes (15 occurrences:
[Mgmt]-[Qu]) and human resources (17 occurrences: [HR]-[Qu]). The relocation into
a 200sqm office in the main square of Milan was regarded as a good strategy, but the
Executive Team felt that EPSILON was not ready to go through the internal
restructure necessary for this to be accomplished in the short term.
President:
…we felt that reducing space from 3,000 to 200 sqm
required a restructuring of the entire firm and detailed
planning going far beyond simple Real Estate decisions.
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Once the relocation option had been dropped, discussion moved to the
amount of space to be maintained at the current premises. The downturn in the
market had hit the company hard, but assuming a consistent period of growth for the
next 3 years under the lead of the new Managing Director, hiring would again
become consistent with previous levels, quickly replenishing the number of
consultants and their need for offices and meeting rooms.
Principal:
We had all agreed that a change of location for the worse
was not a valid alternative, so we started discussing another
alteration to the leasing contract in terms of space. The
redrafting of the contract had been done in the past when we
sought to get rid of subleased portions of the building: now
the question was just how much space we should keep...
The original driver of reducing occupancy costs, even if forceful enough to
start the search for CRE alternatives, did not represent the only element of discussion
in the process. As shown through topic coding, other important considerations were
made in relation to building characteristics that contributed to shape top management
perceptions. The identification of occupancy costs, location and amount of space as
the three main visible drivers of the process is validated by the aggregated values of
the matrix. The most-discussed business consideration was in relation to occupancy
costs (73 occurrences), while location (57 occurrences) and amount of space (68
occurrences) were the most-discussed building characteristics.
Table 9.3 summarizes senior management‘s perceptions of business
implications. As validated through topic coding, occupancy costs (A) and corporate
image (D) represented the main goals of the process.
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Table 9.3: Summary of Senior Management Perceptions
According to how the process was unfolding and the issues that arose during
discussions at Executive Team meetings, the logical strategy should have been to
alter the original contract (Option ‗A‘ in Figure 9.5). This decision would have
allowed EPSILON to further reduce its operating costs and save money over the
following three years (i.e., until the end of the leasing contract); and such a decision
would have been consistent with the idea that all the currently available space could
not be filled up at once, even under the most optimistic growth projections.
Furthermore, the strategy would have been well aligned with the Executive Team‘s
agreement over the need to restructure the firm in the future in order to reduce space
from 3,000sqm to 200sqm and to relocate at an even more prestigious address. The
other alternatives, depicted below, were rejected as follows:
Option ‗E‘ was abandoned because EPSILON did not want to seek revenues
generated from business outside its core activities;
Option ‗D‘ was discarded because corporate image was a primary concern and
the company did not want to jeopardize it for the sake of saving some money;
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Option ‗C‘ was appealing to everyone, but the organization was not ready to
implement it because of operational difficulties.
Figure 9.5: Rationality of the Decision-Making Process
Source: developed by researcher
Instead EPSILON decided to do nothing. It retained the entire office space,
based on the precept that RE costs were below the target of 4% of total operating
costs (they had not exceeded that percentage at any time), and in spite of the
decisions regarding subleasing and altering the contract that had previously been
made under similar financial conditions (cf. activities A2 and A4 of Figure 10.3).
After implementing the decision of not changing the existing accommodation
in via Sirio, Real Estate issues were no longer discussed at Executive Team
meetings, and possibly not even in the corridors. Apparently no-one showed concern
even several months later, when the company had hired a number of new consultants
to generate the ―fresh spirit‖, but revenues had not grown proportionally.
When prompted, interviewees‘ common response was:
Real Estate decisions are not strategic in nature and they do
not determine the success or failure of a managing
consulting firm.
Yet the rest of the analysis will show that the central issues of occupancy
costs, location and space requirements were presented, interpreted and actioned by
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the participants in a strategic sense. The three manifest reasons will be contextualized
as elements of a rational process that ultimately aimed at postponing a CRE decision.
9.6.2 Process of Decision (Hidden Reasons and Interplays)
The decision-making process can be described as inconclusive because no change
was made to EPSILON‘s existing RE situation. For the purpose of this analysis, the
overall process is divided into three periods:
1. how the debate over excess space came into being and the context;
2. how the problem was analyzed while emphasizing the view of EPSILON‘s
senior executives that CRE decisions are not strategic;
3. how the Managing Director exercised his power to postpone the decision.
9.6.2.1 Ideal Environment for CRE Decision-Making
Unlike the other case studies examined in this research project, EPSILON was facing
an opportunity rather than a challenge. Having experienced the economic downturn
of 2002 and not been able to recover, the company was experiencing zero growth,
forcing management to keep reducing costs — primarily by cutting the number of
consultants. As a consequence, the firm was creating an amount of unused office
space that represented an unnecessary cost.
There was really no urgency in needing to redefine the existing CRE strategy
of the firm, given that EPSILON still had three years to go on its lease and
historically RE costs had represented a significantly small proportion of total
operating expenditure when compared with HR costs (cf. Table 9.1). However, the
company had repeatedly rid itself of excess space to avoid unnecessary costs (refer to
activities A2 and A4 in Figure 9.3) in a number of ways, consistent with its low
consideration of RE — the ideas that Real Estate represents expenses not assets, that
it is not strategic in nature and does not determine the success or failure of a
managing consulting firm.
Technical Assistant:
I have been in this role for a few years and over this period
we have dealt with the same problem [excess in workspace]
in a number of different ways… a strategy is generally
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selected based on how optimistic senior management is
regarding industry forecasts.
9.6.2.2 Theory in Use vs. Espoused Theory
According to the organization (and the Managing Director in particular), RE
decisions are not strategic, merely operational; but evidence shows differently. Table
10-2 and Figure 10-5 illustrate that senior management extensively considered
image, costs, HR and managerial processes in their assessment of the situation, and
that various options were proposed to better address one or the other issue.
This difference between theory in use and espoused theory is described by
Argyris and Schön (1974) as people having mental maps with regard to how to plan,
implement and review their actions. According to the authors these maps guide
people‘s actions rather than the theories they explicitly espouse. Inconsistency
between behaviour and belief is also discussed by other authors, who sometimes
refer to it as ―cognitive dissonance‖ (Festinger 1957, Festinger and Carlsmith 1959).
While this dissonance can be eliminated by changing beliefs or actions, it is often
and more simply resolved by changing the perception of the action: such
rationalization of actions distorts the context so that it no longer appears to be
inconsistent with the actions.
The research confirms that EPSILON had faced the same issue (i.e., excess
available office space) a number of times over the previous four years, reacting
differently each time, and had still not agreed on a standard response to the
challenge. Every time the issue arose, senior executives evaluated RE from a
strategic perspective as they discussed how to reduce costs, the consequences for
corporate image of staying vs relocating and ways to improve managerial processes
(e.g., have most of the employees work from home). Yet, although the implications
were discussed they did not become drivers for new CRE strategies because there
was confusion in the company: Management did not have a clear business strategy in
mind and an even less clear idea of what their RE framework should be.
As a result, inconsistent patch solutions (e.g., sometimes sublease and
sometimes not) to RE matters were executed, the same discussion over excess space
kept occurring, ideas like the relocation to a 200sqm office in the city centre did not
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materialize, and the outcome of the CRE decision-making process remained purely
operational and not strategic.
Period Two ended with the Executive Team‘s unanimously discarding the
option of relocating and limiting future discussions to the same old patchwork-type
solution: subleasing, altering the contract, or keeping all the space.
9.6.2.3 Postponing the decision
The decision under analysis here is representative of a series of decisions: the
company appeared hesitant about how to run their business and even more so about
how to make their CRE decisions. Recent history of the firm showed there was no
specific strategy in place. The same problem of excessive office space had appeared
numerous times and had been tackled differently on each occasion.
EPSILON‘s senior management did not comprise irrational individuals
unaware of rational decision-making theory: there was logic behind what they did.
The company had unclear goals: by doing nothing about RE, the Managing Director
was actually postponing the decision to a later stage, by which point he hoped for
more clarity regarding EPSILON‘s objectives. He was waiting to know what he
wanted out of the company before making the decision; and this was rational when
the favourable terms of the leasing agreement then current and the 3 years‘ still
remaining before the contract expired were taken into account.
As the members of the Executive Team were in total disagreement regarding
whether the best strategy would be to sublease the vacant space or to ask the landlord
for a second alternation of the original contract, the Managing Director exercised the
full extent of his powers to impose a third option — keeping all the space until the
end of the contract. Out of the eight members of the Executive Team the Managing
Director was in fact the only Partner, and as such had much greater power: his
pivotal role in CRE decision-making is illustrated in Figure 9.2.
As EPSILON was not a sole proprietorship and the presence of an Executive
Team was to limit the powers of one person and guarantee that decisions were
always made in the interests of the firm, the Managing Director could have not
enforced his decision if the rest of the Executive Team had unanimously agreed on a
different alternative; but such was not the case in relation to this RE decision.
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The Managing Director‘s proposal clearly contrasted with the goal of
minimizing occupancy costs, while both of the other alternatives discussed would
have represented a space optimization strategy. As well as his waiting for the
company to have a clearer corporate strategy, it is arguable that he had personal
interests to protect: evidence shows the Milan office‘s having achieved an important
status within EPSILON‘s network, and a significant restructuring in terms of
physical size (i.e., walls and floor-space) might portray a permanent downsizing to
the other offices around the world and Europe in particular. It should again be noted
that the Italian office had recently been named Headquarters of the entire
Mediterranean Division, and this role could have been revoked. Considering that the
Managing Director was heading the Mediterranean Division and the recently-granted
role gave him the right of being a Partner within EPSILON and one of only six
members of the International Executive Committee, it is clear that his personal career
could have suffered from a downsizing of the Milan office.
Whether or not he really believed that the industry was about to go through
an exceptionally favourable phase and had the knowledge and expertise necessary to
build the company back to its original size in a relatively short period of time, he had
to cause others to believe this to be the case. The International Executive Committee
had to be assured that he was the right person for the task and that he would quickly
and successfully pull the Italian office out of recession; and his aligned strategy of
retrenching almost half of the workforce to generate ―a fresh spirit‖ at the firm is
consistent with this interpretation.
The rest of the Executive Team offered implicit support after the Managing
Director addressed their major concerns. In particular, he satisfied the faction
wanting to sublease the unused space by putting a time horizon on his growth
forecasts, and pleased the group favouring a permanent reduction of space by
establishing himself as the promoter of a future restructure of the business. The
proposal of a new business setup was also going to silence those few who questioned
the raise in rent prices when the contract was to be renewed in 2009.
Managing Director:
I anticipate that business growth will be restored and that
space will soon be required. If not, EPSILON will then
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consider subleasing those portions of the building surplus to
requirements… Over the next three years we will have
enough time to restructure our business so that most of the
workforce will be working from home, and will be likely to
reduce even further our occupancy costs while being better
positioned...
9.7 Building a Theory
In addressing the research questions, the following is relevant.
9.7.1 Business Implications linked to CRE Decisions
A number of business considerations was made throughout the process, but only two
achieved the level of driver: occupancy costs (the trigger issue) and corporate image.
The first was the trigger issue of the process, while the second was the rational basis
for EPSILON to decide not to relocate and eventually to also maintain the office
space.
Figure 9.4 gives evidence that a reduction of occupancy costs was an issue
present throughout the process, especially in relation to a reduction of office floor-
space; while corporate image (i.e., considerations of a change in location) officially
disappeared once a unanimous decision was made not to relocate. The quantitative
count of occurrences, however, does not show that corporate image also played a
major role in the unfolding of the second decision of not reducing office space. As
discussed, the Managing Director had personal motives in ensuring that the image of
the company would not be diminished through a physical downsize strategy; but of
course such issues were not discussed with other decision-makers and therefore not
fully accounted for in the frequency of topics discussed.
A substantial use of his power by the Managing Director also explains why
considerations of space reduction were not addressed at the end of the process,
although still heavily discussed (cf. Table 9.2).
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9.7.2 Characteristics of the Decision-Making Process
By theorizing from the analysis of the case, it is possible to derive the following
diagram (Figure 9.6), which highlights how the resolution of not changing the RE
positioning of EPSILON was in reality a way for the Managing Director to postpone
the decision within a contradictory and flawed organizational context.
Figure 9.6: Analytical Framework
Strong and recurring evidence was available to substantiate the argument of
cognitive dissonance over the strategic nature of CRE. This, together with the
general confusion felt at various hierarchical levels of EPSILON, created a context in
which only very prudent RE decisions could effectively be taken into consideration.
The Managing Director reached the extreme point of not wanting to make any
changes whatsoever to the existing situation until he had a clearer understanding of
where the company was heading.
The unbalanced distribution of decision rights within the company had a
major impact on the final outcome of the process. A significant majority from
members of the Executive Team could not be obtained, and this authorized the
Managing Director to use his power to end the decision-making process: for it can be
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argued that if the seven Principles had reached a majority verdict, he would have not
been able to exercise his authority in such a radical way. Indeed, his individual
power was closely related to the degree of disagreement among the decision-makers:
according to situational leadership theory (SLT), it is the environment that influences
followers‘ readiness to accept a leader (Hersey and Blanchard 1974, Hersey et al.
2001). In EPSILON‘s case it seemed that the ideal situation for followers (the
members of the Executive Team) to be ―forced‖ to agree to the directions of the
Managing Director was when there was a high level of disagreement among the
members themselves.
Principal:
The Managing Director is a very powerful and influential
figure in the organizational structure of all EPSILON
branches. His authority is even further augmented in the
Italian case, because he is the person responsible for all the
Mediterranean Division.
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10 Study Six (ZETA)
ZETA ( ) is the third-largest strategic management and IT consulting company in
Europe. Its activities focus on the telecommunications sector (one telco client
provides more than 50% of its total revenue), but its clientele is divided among the
automotive, financial, pharmaceutical, Real Estate, chemical and manufacturing
industries. In 2005 the company earned €195M (€63M from management consulting
and €144M from IT consulting and solutions). Given the wide range of services
offered, ZETA competes with both local and multinational consulting companies, as
well as with firms providing IT-related services.
ZETA is essentially organized according to its two areas of expertise; while
the divisions are managed separately, they combine when appropriate to client needs:
1. Management Consulting (ZETA S.p.A.): facilitates turnarounds, arranges
corporate finance, harnesses technological innovation and manages change
management for major firms;
2. IT Consulting & Solutions (ZETA TEAM S.p.A.): covers the full range of IT
consultancy and services, with the capacity and critical mass needed to help
clients from the strategic planning stage right through to implementation of
solutions suggested.
At the time of this research ZETA comprised around 30 partners worldwide,
with one of the co-founders and Managing Director owning the vast majority of the
Group54. ZETA had a multinational reach offering a wide range of expert capability,
with more than 1,700 professionals (300 in management consulting and 1,400 in IT
consulting and solutions) on staff in 15 offices across 7 countries (Figure 10.1).
54 The term ‗Group‘ is used to describe a bunch of companies that are owned by another company. In ZETA‘s case the owned companies are called divisions.
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Figure 10.1: ZETA‟s Locations Worldwide
The company has been present in Italy since its incorporation in 1993, and
this country still represents the most important market for the Group. In 2005 the
Italian branch recorded €117M in revenue — €53M from ZETA S.p.A. and €64M
from ZETA TEAM S.p.A.
ZETA has eight offices in Italy: Milan (two locations), Rome (two locations),
Bologna, Turin, Cosenza and Naples. The international Headquarters are located in
Milan, where much of the ZETA workforce is sited. In total, Milan HQs employs
1,400 professionals (200 in management consulting and 1,200 in IT consulting) plus
administration staff. Cf. Appendix 4-6 for a visual representation of the hierarchical
structure of the firm.
10.1 Brief History of the Firm
The roots of ZETA Group are in 1993, when ZETA Management Consulting was set
up by two partners. The basic corporate strategy at inception was to grow, and this
remains unchanged. In 1994 ZETA commenced its international operations, choosing
to focus particularly on South America; then in 2000 the Group moved into China
and Turkey, and a few years later established a presence in India.
In keeping with its strategy of growth, ZETA not only expanded its
marketplace but also enhanced its range of services. The intention was to integrate
services provided at the strategic level with those at the operational level: and to
accomplish this objective ZETA acquired a number of software companies, to add IT
strategy and service skills to its original management consultancy.
It is widely acknowledged by industry experts that all the decisions carried
out by ZETA – Real Estate decisions included – have been to progressively increase
the value of the company. According to the Managing Director, its success is
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measured by a recent internal evaluation of around €500M. Meanwhile, the business
is negotiating a value per share that will provide ZETA with a capitalised value of
minimum €350M.
10.2 RE Positioning of ZETA prior to Implementing new CRE Strategy
In 1993 ZETA comprised a dozen or so individuals renting an apartment in a central
part of Milan. However, it wasn‘t long before the apartment could no longer contain
the staff: indeed, according to the CFO (Chief Financial Officer), the firm would
have benefited from the early adoption of a systematic decision-making process
designed to facilitate a move to more expansive accommodation. In reality, no
internal surveys were undertaken and only a limited set of possibilities considered.
Nevertheless, it is her opinion that the location in via Giaguari, found in
1995 with the help of a few external Real Estate agencies, proved to be a good
choice. The building was large enough (2,500sqm) to sustain the company‘s
expected growth, it was prestigious (XIV century), centrally located and
conveniently serviced by public transport (train, metro, buses and a special train
service, the Malpensa Express, connecting with the major international airport).
Since the company had limited capital and did not need the entire building, ZETA
started by leasing only two of the five floors available; but over the following years
as needs for new space materialized, ZETA purchased four floors inside the building
and in 2004 acquired permission from the City Council to construct a sixth floor
(150sqm).
As well as the office in Milan, ZETA acquired a building in Rome, also
prestigious and centrally located. According to the HR Associate Principal, location
and internal décor are the two building characteristics that potential employees
consider when choosing a company, although other aspects — job description,
company profile, salary, travel, career potential — are usually weighted more
heavily.
ZETA accommodation strategy in Milan demonstrated a preference for
internal layouts promoting hotelling. Rotating desks among consultants was
perceived to be a good practice for improved space utilization — and also for
efficiency, as the composition of teams changed constantly according to type and
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size of project. Managers were assigned closed offices of three to four desks rather
than open space workstations: this addressed privacy and confidentiality issues of
clients, and bolstered the workplace satisfaction of the employees themselves. But
the policy‘s success cannot be attributed simply to good decision-making in terms of
internal design; for there was little alternative given that the building‘s historical
character prevented substantial internal re-modelling.
Although there were no entire floors designated for client reception, a large
number of conference and meetings rooms was found scattered throughout for the
dual purpose of team meetings and presentations to clients. Indeed, the corporate
ethos of ZETA clearly reflected the greater importance placed on meeting rooms
than on large offices for partners.
According to those interviewed for this research, two important CRE
decisions have been made by ZETA over the past few years: the acquisition of a
three-building complex for the IT consulting practice (ZETA TEAM) and the
expansion, occurring in two stages, of the existing headquarters of ZETA for the
Management Consulting practice.
Appendix 4-6 illustrates the physical location of the two buildings. ZETA is
in via Giaguari, just a few blocks from the main square in central Milan; while ZETA
TEAM is in piazza Australia, a fast-growing area on the southern outskirts of the city
that had recently attracted other large companies.
There was consensus among those interviewed concerning the key players
throughout the decision-making process. Specifically these were:
Managing Director: Founder of the Group and the major shareholder (>50%);
Director: member of the Executive Committee responsible for management
consulting services delivered to the telecommunications sector;
HR Associate Principal: a Partner responsible for all aspects relating to personnel
in the Management Consulting practice of ZETA;
Chief Financial Officer: a Partner responsible for all financial decisions within
ZETA, including those related to Real Estate; also Site Manager (in collaboration
with the HR Associate Principal).
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10.3 Decision-Making Process
ZETA was organized as a Partnership, so all critical decisions were made by an
Executive Committee composed of the Founder and three Directors.
In relation to Real Estate, the Chief Financial Officer acted, in collaboration
with the HR Associate Principal, as Site Manager, and administered space according
to availability and company requirements. ZETA Immobiliare S.p.A., a wholly-
owned subsidiary of ZETA, owned all the parent company‘s Real Estate assets.
There was little in the way of formal guidelines put in place to assist with
Real Estate decisions. However, this does not imply that ZETA suffered from an
ambiguous, un-articulated strategy. Observation of the decisions made enables a
number of assumptions about their strategy:
1. Purchasing vs leasing: ZETA opted to buy instead of lease office space,
perceiving Real Estate as assets rather than expenses — consistent with the
overall strategy of the company to increase its market value;
2. Location: centrality was a priority — especially in the early stages of
establishing their business — in creating an image for the new brand; and
there was a need to be close to public transport;
3. Prestige and image: buildings had to be prestigious — consistent with the
nature of their business;
4. Costs: the company was not deterred by Real Estate costs.
As Real Estate decisions appeared limited to Executive Committee brief
discussions about physical requirements as they arose, ZETA apparently considered
them neither challenging nor strategically important. Thus the firm‘s goals were not
to seek an optimal RE positioning, but satisfactory solutions meeting the general
requirements of the company. And that stance explains why the Executive
Committee relied on external RE agencies to search the market once key drivers
were identified.
Managing Director:
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The decisions of ZETA are based on logical and simple
thinking. We do not seek perfection, but rather efficiency
and fast decision-making.
Moreover, with the exception of assistance from the Chief Financial Officer
and sometimes a supporting team, ZETA relinquishes responsibility to identify a
satisfactory solution to the Managing Director. However, once a selection is made
the Executive Committee must approve it before a contract can be signed with the
property owner (Figure 10.2).
Figure 10.2: Standard Operating Procedures for CRE Decision-Making
10.4 Decision-Making Process in action
Transcripts of Council Meetings and a number of semi-structured interviews across
the firm were conducted to construct a chronology of activities concerning the CRE
decisions made by ZETA between 2004–2006. These key activities are numbered
A1-A25 in Figure 10.3.
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Figure 10.3: Chronological Description of Main Activities
In 2004 ZETA implemented a new expansion strategy based on the
acquisition of a number of software companies55, in order to add IT strategy to its
existing strategic management services. In July of that year, a subdivision of ZETA
responsible for IT Consulting & Solutions was formally incorporated as ZETA
TEAM S.p.A. (A1).
Most of the newly-acquired firms had previously been renting premises in the
western suburbs of Milan, far from ZETA‘s headquarters, and were not well serviced
by public transport. Within a few months, the Executive Committee recognized the
55 IT companies acquired specialized in CRM solutions, tailor-made solutions and Web-enabled solutions
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need to integrate all these IT consultants into a single and better-serviced location
(A2).
One of the companies was renting a building close to via Giaguari, which
explains the first decision made by the Executive Committee to relocate all IT
personnel there. However, this was to be a temporary arrangement, because the lease
was due to expire in two years, with no option for renewal. This situation as well as a
desire for stability encouraged ZETA to make the decision in January 2005 to
acquire a new building for ZETA TEAM (A3).
Chief Financial Officer:
Having to move 1,200 professionals requires time and
implies significant costs for any organization. We felt that
such a situation could be avoided by owning our own
building, so the Executive Committee unanimously
approved a proposal that gave ZETA a physical stability
unusual among our competitors.
According to the Executive Committee, the search for such a building should
follow guidelines different from those used by the company in the past. In particular,
the prestige afforded by an historic building and the central location sought by
management consulting became superseded by the desire for a technological and
innovative image that only a modern building of flamboyant design could deliver.
Location remained a driver: a building in the distant suburbs was unacceptable, but a
central location not considered necessary. It was felt that they would be best served
by a location in a fast-growing area on the outskirts of the city.
ZETA Executive Committee delegated market research to an internal project
team (A4). Given the emerging interest in supporting an innovative corporate image
with premises evoking it, and based on the willingness of the Committee to finance if
necessary the external refurbishment of an existing building, the project team
approached firms of civil engineers and architects, as well as Real Estate agencies,
with a view to identifying a suitable building (A5).
The agencies and external firms contacted suggested a number of options,
and the Managing Director chose a complex of three buildings in piazza Australia
(A6), located in the city‘s south-west in a fast-growing area attracting HQs of large
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corporations. At its next meeting, the Executive Committee endorsed the decision of
the Managing Director (A7) and soon after negotiations were underway (A8). A
month after the identification of the property, a contract to purchase the complex was
already signed (A9).
Between July 2005 – May 2006 the property was fully restructured, both
externally and internally. The complex consisted of three buildings of geometrically
independent forms, functionally interconnected by passageways. Table 10.1 lists the
drivers that affected the design of the building.
Table 10.1: Features of Building in piazza Australia
Source: Adapted from Transcripts of Executive Committee Meetings
The internal layout was planned to respond to existing requirements rather
than to absolute theoretical flexibility, with the net workspace been structured
around:
individual offices,
small open spaces,
large open space single floors and
large double-height open spaces partitioned with movable walls.
It was the view of the Managing Director that office and building design by
locally-renowned architects was informed by the latest thinking, reflecting
sociological work studies. In the company brochure, ZETA describes its building
complex in the following terms:
The design theme of the office building was approached, in
line with the latest sociological studies, in pursuit of a
qualitative standard defined by environmental characteristics
contributing to the psycho-physical wellbeing of the users,
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the geometry and proportions of the internal spaces, the
typologies of natural and artificial lighting and the modality
of inside-outside relations. In designing its internal working
environment ZETA sought a model where man and his
needs were the focus of the project, not merely production,
to counter the concept of building = machine, which often
explicitly declares its intention.
Significant renovation also took place in changing the external image and
overall performance of the complex. In terms of structural design, the building would
meet advanced environmental sustainability requirements for reducing air pollution
and lowering energy consumption (through better use of natural light and innovative
low-power service systems). And the innovative image as portrayed by its efficiency
was well represented in its distinctive and recognizable exterior design.
While the newly-acquired building in piazza Australia was being renovated,
the Executive Committee recognized that the Management Consulting practice
needed additional space following the recent expansion of the company and given
expected growth in the years ahead (A10). In consideration of the significant Real
Estate investment already made, the initial view of the Managing Director was to
make piazza Australia the new headquarters of ZETA, accommodating the entire
Management Consulting practice (A11). However, before carrying out these plans, a
project team of a Director and the HR Associate Principal was established to identify
advantages and disadvantages of the strategy, define the ideal internal layout for the
new building and articulate a plan for arrangement of the workforce (A12).
In November 2005 the project team had produced (A13) and presented a
report to the Executive Committee that included the results of an internal survey
conducted among senior management consultants. After a short period of discussion
and evaluation of the survey, a decision was made not to move the Management
Consulting practice to piazza Australia (A14) but, instead, to transfer only
administration and support staff to somewhere nearby (A15). This decision resulted
from two main considerations: the acknowledgment that management and IT
consulting needed to be promoted in two distinct ways, and the concern that most
management consultants lived in the suburbs and therefore used metro or train to
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commute. From this perspective the best location for management consultants was
the existing one, which was extremely well serviced by both means of transport.
At this time it was resolved that the local Real Estate market should be
thoroughly scrutinised to identify potential alternatives (A16). Just a week later, a
neighbour informed the HR Associate Principal that the private owners of two
apartments adjacent to ZETA‘s building in via Giaguari were looking for buyers.
Subject to a structural engineer‘s approving the demolition of the dividing wall to
fully integrate the adjoining space with the existing accommodation, the Managing
Director gave his support to the idea of acquiring these premises (A17); this was
approved by the Executive Committee (A18). Contract negotiations with the property
owners followed (A19), and by the end of January 2006 ZETA acquired 350sqm of
new space (A20). Cf. Appendix 4-6 for visual representations of the decision-making
processes, organized in ways that highlight the flow of activities (A2-A9 / A10-A20)
and the roles of the key players.
The restructure and integration of the new space at ZETA‘s Headquarters
took place in February–March 2006 (A21). Once the building in via Giaguari was
ready, the entire office-space was rearranged according to the workforce distribution
strategy previously suggested by the project team at the time of moving the
Management Consulting practice to piazza Australia (A22).
In May 2006, ZETA made a third Real Estate acquisition56.
The remaining floor of the building in via Giaguari became available (A23).
According to all interviewees, the company did not require additional space at that
stage, but ZETA viewed it as a good investment that would enable the company to
pursue its objective of continuous expansion. Acquisition also increased the capital
value of the property, which was by now fully-owned and -occupied by a single
business entity. This also gave the company naming rights on the building, further
boosting the Group‘s image.
In June 2006, three months prior ZETA TEAM‘s being evicted due to lease expiry,
work on the building in piazza Australia was completed (A24).
56 The absence of a formal process behind the third RE acquisition justifies the absence of a full description of activities that led to its approval. Reference to the event has been flagged to accentuate ZETA‘s use of RE assets for enhancement of corporate image, increase of capital value and support of long-term goals.
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In October 2006 the company hired the services of an external company to
conduct its annual survey of employees, which included querying worker satisfaction
regarding workplace and related services (A25). ZETA received positive feedback on
the recent CRE decisions to invest in an innovative facility for the IT Consulting
practice as well as the internal expansion of the Management Consulting
Headquarters.
10.5 Conclusions Narrative of ZETA Case
Over the years ZETA seemed to have acquired a finely-tuned working knowledge of
Real Estate, including market trends, acquisitions and the benefits of renovations. In
contrast with most of its competitors, who tended to focus on their core business, the
company was keen to purchase its own accommodation, consistent with the
company‘s overall strategy of increasing its value.
As well as highlighting the entrenched company preference of buying rather
than leasing, this case study also showed that on numerous occasions the Group
viewed Real Estate as direct and indirect assets rather than as costs. Indeed, ZETA
perceived the ownership of buildings not only as positive figures on balance sheets,
but also as triggers for corporate image and workforce efficiency; and this was
despite comments from all interviewees that ZETA does not consider Real Estate
decisions to be challenging or strategically important. A full analysis of the topics
discussed in the case will be provided in the next section.
It terms of the process used for decision-making, it is interesting to note that
some of the CRE decisions discussed here were not the result of extensive planning
but, rather, the consequences of ZETA‘s taking advantage of opportunities as they
arose, even when there was no immediate need for additional space. This as well as
other aspects of the case will be analyzed in the second part of the chapter to answer
the following questions: did ZETA‘s senior executives misinterpret the nature of
CRE decisions by rejecting their strategic importance?; did ZETA utilize the same
decision-making process when faced with different problems or opportunities?
10.6 Analysis of ZETA Case Study
In the previous section, data were compiled and presented with a view to identifying
the elements of interest to this research within the context of the overall case study.
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Now the same data will be analyzed to highlight the most frequently-discussed topics
of the case before explaining, through the analysis of softer variables, how they
evolved and eventually shaped the process.
10.6.1 Manifest Reasons for Decisions (Business Considerations, RE Aspects)
As for all case studies, the first step in coding written material (transcripts of
interviews, minutes of Board meetings, intra-company emails and business reports)
was to do so according to those RE topics respondents felt could have enhanced
overall business performance. Table 10.2 shows those issues discussed throughout
the process and the frequencies at which they appeared in the transcripts (i.e., the
number inside each quadrant represents their occurrences).
Table 10.2: Frequency of Topics Discussed within the Case
The total number of occurrences was 261, distributed over 20 of the 34
possible topics. Given that an average of 13 occurrences per topic was expected
(261/20=13.05) and that +/- 2.61 occurrences represented 1% of the total sample, the
following nomenclature was adopted to classify the frequency of each discussed
topic.
―Low‖ for occurrences: 0 X 10 (0% X 4%)
―Medium‖ for occurrences: 10 > X 20 (4% X 8%)
―High‖ for occurrences: 20 > X (X 8%).
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Whenever a topic appeared fewer than 11 times (low) it was disregarded in its
individuality but still accounted for in the aggregate value of its vertical and
horizontal categories (i.e., ―business considerations‖ and ―Real Estate aspects‖). As
an example, discussions on the impact that internal design [ID] could have on
corporate image [CI] appeared only five times in the transcripts, making it a low
frequency topic. Consequently, the topic itself was not considered in further
analyses, but its value (five) contributed to make corporate image the most-discussed
business issues in relation to the CRE decision (66). The frequency of topics
recorded between 11 and 20 times was regarded as medium, while all topics that had
more than 20 occurrences were ranked as highly frequent within the decision-making
process.
Once the key issues and their relative frequency were considered in the
process they were mapped on a timeline (Figure 10.4) to identify when they first
appeared in the process, how long they were carried on, when they were dropped and
if they were resumed before reaching the final outcome. The chart below illustrates
how senior management‘s perceptions of business implications expected to derive
from selected CRE strategies underwent changes throughout the process: the diagram
clearly distinguishes between the three CRE decisions on the same timeline — first
the acquisition of ZETA TEAM‘s complex in piazza Australia, then the expansion of
ZETA in via Giaguari, and finally the acquisition of the remaining floor in the same
building.
Figure 10.4: Timeline of Discussed Topics
The following issues, intensely discussed during the decision-making
process, will be addressed in turn:
Amount of space: [HR]-[Qu] and [Mgmt]-[Qu]
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RE Value Creation: [RE]-[Loc] and [RE]-[Qu]
Corporate Image: [CI]-[Loc] and [CI-ExQl].
10.6.1.1 Amount of Space
For both decisions amount of space represented a major issue. In relation to the
relocation of ZETA TEAM, its personnel had to be integrated following the recent
acquisition of several software companies (31 occurrences: [Mgmt]-[Qu]).
Operating from various locations would also have been a problem for the efficient
running of managerial processes (26 occurrences: [Mgmt]-[Qu]). Additional space
was arguably even more important when discussing the expansion of the
Management Consulting practice.
Managing Director:
Our basic strategy is to grow and become one of the largest
consulting companies in the world. We started just a bit
more than a decade ago, and our biggest challenge in
relation to RE has always been to match the increase in
personnel with the physical space necessary to accommodate
them.
The original driver of new office space, even though powerful enough to start
the search for both CRE solutions, did not represent the only element of discussion in
the process. As shown through topic coding, other important considerations were
made and contributed to shaping top management perceptions. Moreover, as well as
the amount of usable floor-space several building characteristics would be accounted
for in choosing the new site.
10.6.1.2 RE Value Creation
As soon as new office floor-space became necessary, ZETA began to consider the
acquisition of new buildings: this was consistent with the perception of the company
of RE as assets and not liabilities. Considerations of value creation through RE were
made in relation to location (24 occurrences: [RE]-[Loc]) as well as size (22
occurrences: [RE]-[Qu]). Location is commonly recognized as the number one
determinant of value in RE; ZETA selected an area of fast growth that had recently
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attracted the headquarters of several large companies. In terms of size, the company
sought full building ownership rather than shared accommodation.
HR Associate Principal:
Our RE guidelines generally conform to industry standards
in terms of location, space per worker, internal design,
prestige of the building, etc. However we stand apart from
the rest because we own all our buildings… Buildings for us
are not costs, but assets that can appreciate overtime and
increase the overall value of the firm.
10.6.1.3 Corporate Image
Corporate image was always considered, representing a major consideration in the
choice between alternative locations. ZETA immediately recognized that its two
practices (Management and IT consulting) had to portray distinct identities, and
therefore required buildings with different characteristics. In particular, emphasis
was placed on location (21 occurrences: [CI]-[Loc]) and building design (29
occurrences: [CI]-[ExQl]). While Management Consulting was to be conducted from
a prestigious building located in the city centre near the headquarters of all major
competitors, the IT practice was more interested in having a functional and modern
building with vast amounts of flexible space available.
Chief Financial Officer:
Management consulting firms still require the prestige of an
historical building in the city centre. It is part of the image
expected by clients. On the other hand, the trend has recently
changed for larger auditing and IT consulting groups, which
are relocating to inner suburbs. These new locations offer
them more modern and spacious buildings...
The identification of amount of space, RE value creation and corporate image
as the three main visible drivers of the process is validated by the aggregated values
of the matrix. Amount of space (97 occurrences) was the most-discussed building
characteristic, while corporate image (66 occurrences) and RE value creation (58
occurrences) were the most-discussed business considerations.
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10.6.1.4 Less Important Topics
Other issues discussed throughout the decision-making process but with less
frequency (i.e., a medium level of occurrences) included the following:
satisfaction of human resources with their workplace: evaluated mainly in
relation to employee perceptions of location (13 occurrences: [HR]-[Loc]) and
internal design (14 occurrences: [HR]-[ID]);
HR Associate Principal:
Every year we conduct an internal survey to ensure the
constant satisfaction of our employees. The survey aims to
collect data over several dimensions, including worker
satisfaction with workplace and related services…
Workplace satisfaction is very important to us and we try to
guarantee it by addressing issues such as privacy, space
requirements, location and availability of conference rooms.
the flexibility offered by the internal design of the ICT building (16 occurrences:
[Flex]-[ID]). The modern building in piazza Australia was internally restructured
with different types of open floors to address all the needs of the company and to
allow for easy restructuring in case those needs were going to change in the
future;
HR Associate Principal:
We have created a very innovative internal design that offers
various types of rooms. The building has individual offices,
but also open spaces with movable dividing walls.
that obtaining the entire building in via Giaguari meant ZETA had naming rights,
and this carried positive implications for the image of the company (11
occurrences: [CI]-[Qu]). According to the Managing Director, possession of an
entire building as prestigious as the one in via Giaguari had further enhanced the
image of firm in the eyes of both customers and competitors.
Table 10.3 summarizes senior management‘s perceptions of business
implications. As validated through topic coding, integration of workforce (C) and
managerial processes (F), together with promoting corporate image (D) and create
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value for the company through RE assets (G), represented the main goals of the
process.
Table 10.3: Summary of Senior Management Perceptions
A few months after the move of ZETA TEAM to piazza Australia and the
expansion of ZETA in via Giaguari, an internal survey showed employees to be
highly satisfied with the recent CRE decisions. Despite the argument that in relation
to via Giaguari ZETA based its decision-making process only on logical and simple
thinking without seeking the best possible outcomes, both solutions provided the
company with sufficient space to accommodate future growth and were viewed as
satisfactory for the long term.
While the decision-making processes explained here appeared rational in
terms of a fit between corporate strategy and image of the buildings/RE value
creation, an investigation of hidden variables must also be conducted to ascertain
what drove the process and to explain how decisions were reached. The three
processes were structured differently, with two of them being problem-driven and
one opportunity-driven; but there were similarities.
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The three processes all ended with an acquisition of the premises. So despite
the mindset of ZETA‘s senior management, who did not want to consider CRE
decisions strategic, there was clearly a strong strategic motivation in buying RE
assets. Besides this contradiction between their attitude towards RE and the strategy
of acquiring buildings (even when surplus to space requirements), a second similarity
across the three decisions was the powerful role of the Managing Director, who was
always directly involved in the process. Figure 10.2 illustrates the central
involvement of the Managing Director in evaluating CRE alternatives before their
submission to the Executive Committee for final approval.
10.6.2 Process of Decision (Hidden Reasons and Interplays)
The rest of the analysis will look at the decision-making process not simply as the
result of an evaluation of economic costs/benefits but in terms of how the important
issues of space requirements, RE value creation and corporate image were presented,
interpreted and actioned by the participants. The three manifest reasons will be
contextualized as elements of a process that included external events and a number of
organizational and individual factors.
The three Periods analyzed hereafter are representative of the three distinct
CRE decisions which, as previously described, occurred in chronological fashion: the
acquisition of the building in piazza Australia for the IT practice, followed by the
purchase of a building adjacent to the existing headquarters in via Giaguari for more
comfortably accommodating the Management Consulting practice, and expansion at
the same address so as to be in possession of the entire building.
10.6.2.1 CRE Decision-Making for the IT Practice (PROBLEM-DRIVEN)
The process that led to the acquisition of the building in piazza Australia was very
rational: a problem was identified (the threat of having to manage multiple locations
following the recent acquisition of several IT companies), a number of specifications
for the building were agreed upon, an orderly search followed and, finally, an
evaluation grid was employed for the assessment (cf. Table 10.1 for a list of building
features considered in the appraisal).
Existence of precedent led to absence of uncertainty. Contrary to most
competitors, who tended to focus on their core business, ZETA was very familiar
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with RE decisions, having already acquired buildings and undertaken major
renovations in the recent past.
Managing Director:
We created a division within ZETA to deal with such
important RE decisions. We have been acquiring and
renovating buildings for years and therefore have the
necessary knowledge and experience to make decisions with
a relatively high level of confidence.
Rationality was also present in the timing of the process. ZETA did not
procrastinate in the search for alternative CRE solutions: that could have led to a
situation of urgency and, consequently, a biased process of building selection.
Urgency was never felt by the Executive Committee, it appears. As the Managing
Director explained, IT personnel had been temporarily integrated into a building the
lease for which would expire in two years, but ZETA never felt anxious or distressed
by the situation.
Managing Director:
I would not define as extremely urgent either of the
situations we were facing. We knew that decisions had to be
made, but also that time was still on our side…
The process ended with the Managing Director‘s indicating a personal
preference among the alternatives suggested by external agencies. The imbalance of
distribution of decision rights was a distinctive and acknowledged characteristic of
ZETA, due to the fact that the Managing Director, Founder of the company and
major shareholder with more than 50% ownership, had much greater power that all
other members of the Executive Committee combined. Although formally each CRE
decision had to be approved by the Committee, everyone in the firm knew that the
choice would virtually be made by the Managing Director, as was normally the case
with major investments.
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HR Associate Principal:
It is publicly known that the Managing Director started the
company and still retains more than 50% of ZETA.
Ownership gives him control over all major decisions... His
vision is the vision of the company.
The elements that most heavily influenced the selection of potential
alternatives were two considerations deriving from basic corporate strategies: the
image of the building had to be aligned with the type of business carried on inside,
and the search for alternatives had to be limited to buildings available for sale. This
analysis is also validated by Figure 11.4, illustrating the three most important
variables of the decision-making process — space (the driver), image and RE value
creation.
10.6.2.2 CRE Decision-Making for the Management Practice (PROBLEM-DRIVEN)
The need for additional space was the driver in seeking a building near via Giaguari.
The decision-making process started in the same way as did that for the case of
piazza Australia, but was suddenly abbreviated by serendipity (i.e., the adjacent
building‘s becoming available for sale). ZETA had in fact initiated the process by
looking for buildings in the proximity of their Management Consulting Headquarters,
but had coincidentally found something else and realized that was more suited to its
needs. The decision-making process then stopped, with no alternatives identified.
HR Associate Principal:
The procedures we were following would not have identified
the expansion in via Giaguari as an alternative because the
owners were selling privately without the support of RE
agencies... It was just fortunate that I discussed our space
needs informally with a neighbour, who knew the owners of
the adjacent building and was aware of their intention to sell.
In a fashion similar to the prior case, the expansion in via Giaguari was
ultimately decided by the Managing Director, who approved it, and no other
executive contested his decision — his power outweighed the Executive
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Committee‘s (which in most cases acted more like a group of advisors than actual
decision–makers).
However, while the Executive Committee would have been unable to actually
oppose the Managing Director‘s final decision, its members could still have
suggested different views, or manifested dissatisfaction and perplexity. None was
recorded in the transcripts of meetings or expressed by the interviewees, reinforcing
the argument that serendipity had presented a CRE solution deemed in line with the
corporate directions.
Managing Director:
…Yes, I have the final say over all major strategic and
investment-related decisions. Nevertheless, we have created
a culture that welcomes different perspectives. The
Executive Committee has been formed so that other partners
and Directors can express their opinions in a setting that
facilitates brainstorming and decision-making activities…
Our decisions are most often unanimous and I cannot recall
any action‘s being taken that went against the majority of
voters.
10.6.2.3 CRE Decision-Making for Management Practice (OPPORTUNITY-DRIVEN)
Unlike the other two decisions, the acquisition of the remaining floor in the
Headquarters building in via Giaguari was not driven by space requirements but was
simply a matter of opportunity: when the floor became available and the owner
manifested intentions of selling, ZETA saw the opportunity to own the entire
building. Of course, the benefits regarding corporate image (building naming rights)
and business growth (availability of extra space) were also recognized; but more
important to ZETA was the increase in capital value of the property.
A formal process could not be identified: pragmatic decision-making was
necessary to grasp the opportunity as it arose. Evidence dictates that the rationale
behind ZETA‘s acquisition of the new floor went beyond the need for additional
office space (which in previous instances represented to some extent the leverage
necessary to justify RE investments).
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So ZETA appeared to have quite a clear CRE strategy, closely tied to the
corporate objective of floating the business. This was validated by the responses of
interviewees and the actual outcomes of the processes — RE value creation‘s always
being one of the most-discussed business considerations in relation to building
selection.
HR Associate Principal:
Buildings for us are not costs but assets that can appreciate
over time and increase the overall value of the firm.
10.7 Building a Theory
In addressing the research questions, the following is relevant.
10.7.1 Business Implications linked lo CRE Decisions
A number of business considerations was made throughout the process, but only
three rose to the level of driver: shortage of space, RE value creation, and corporate
image.
As shown in Figure 10.4, shortage of space was the trigger issue, springing
from the need for full-scale integration of IT personnel on the one hand and from
growth experienced by the Management Consulting division on the other: the issue
was present throughout the process. Corporate image provided the basis for a
rationalized view through which to decide among the proposed alternatives, already
reduced based on availability for sale and potential contribution to ZETA‘s capital
value.
10.7.2 Characteristics of the Decision-Making Process
By theorizing from the analysis of the case, it is possible to derive the following
diagram (Figure 10.5), highlighting the ‗soft‘ variables of the case that had a major
impact on defining the new CRE strategy of ZETA:
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Figure 10.5: Analytical Framework
All three CRE decisions were the result of short, streamlined processes of
decision-making: recognizing the influential role of the Managing Director is the first
step in understanding the nature of the process behind them. A one-man evaluation
of alternatives clearly meant faster processing of information.
With regard to how CRE decision-making is conducted within ZETA, the
company does not seem to have a single formal process. Instead of a rigid
framework, there is a different decision-making process for each situation: very
rational in the first case, semi-rational in the second (until influenced by external
circumstances/serendipity) and completely pragmatic in the third. Thus can it be
described as dependent upon the problem or the opportunity: ZETA has different
decision-making processes that can be rational, flexible, or pragmatic.
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11 Study Seven (ETA)
ETA ( ) is ranked among the top 20 management consulting companies operating in
the Italian marketplace, and among the top three in Italy. In 2005 the Partnership
recorded revenues of €25M, a 10% increase on its previous year. ETA has operations
in twelve countries around the world (Figure 11.1), although the Italian Headquarters
in Milan and its other Italian offices are significantly larger than its international
branches. Apart from Head Office, the Group57 has a presence in Rome, Turin,
Naples, Bologna, Ancona and Padua.
Figure 11.1: ETA‟s Locations Worldwide
The firm provides three types of professional services: management
consulting, professional development workshops for top executives and research:
Management Consulting: includes services in the areas of strategy, governance
systems, value-based management, human resources, marketing and
communication, organization and management of events and forums for third
parties, international development, family business and operations;
Top executive education and briefing services: each year ETA holds a number of
workshops on topics relating to the effective management of companies and
complex organizations;
Market research and forums: over 200 seminars and forums per year with a wide
array of choices, designed for top executives and functional managers. It has held
57 In ETA‘s case, the term ‗Group‘ is used to describe a bunch of subsidiaries of which some are partly- and other wholly-owned.
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an annual flagship forum since 1975 — one of the most important gatherings of
top executives in Europe: during the three-day workshop, Heads of State,
Ministers, top representatives of European institutions, Nobel laureates, business
leaders and experts from around the world discuss behind closed doors issues that
have a significant impact on the global economy and upon society as a whole.
ETA can count around 180 employees in Italy and abroad, of whom there are
seven partners, 30 senior professionals and 50 professionals, the balance being made
up of junior professionals, analysts, graduates and operating staff. Cf. Appendix 4-7
for a visual representation of the firm‘s hierarchical structure.
11.1 Brief History of the Firm
ETA was established in 1965 — one of the first consultancy firms in Italy. At the
time, 80% of its business derived from multi-client activities (organization of events,
workshops, etc.), while only 20% came from strategic and organizational consulting
services (mono-client). Over the following 40 years the core business activity slowly
shifted towards strategic consulting services, which at the time of writing represented
60% of the overall business and, according to ETA‘s partners, still had potential for
future growth.
President:
The Group is today still in transition phase: we are
redirecting the company towards strategic consulting. Of
course, multi-client services will remain a key business
function of the Group, but the potential for growth in this
area is limited. Instead, today‘s market conditions are
favouring the growth of mono-client activities. The
difficulty lies in the fact that competition in strategic
consulting is fierce and relies heavily on image and
professionalism... being a relatively small company we must
make our image superior to that of larger organizations.
Institutionally, ETA evolved from being a private one-man business to a
Partnership. Although the Founder still maintained control of the Group in terms of
ownership, strategic and operational decisions were no longer made by him alone: a
Board of Directors, made up of the seven partners with equal voting rights, made the
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decisions. The Board met every four to five weeks to discuss the strategic and
organizational issues of the organization.
Functional managers, who in the past had to put requests directly to the
President, were now invited to participate in the Board Meetings when specific needs
arose concerning their areas of interest. In these instances they were asked to provide
technical recommendations based on detailed analyses. According to interviewees,
ETA was discussing the creation of a new job position — that of COO — the holder
of which would be the point of contact for all operational managers. The role would
comprise coordination of the various activities of the firm, and regularly deliver to
the Board a view that integrates all office needs.
11.2 RE Positioning of ETA prior to Implementing the New CRE
Strategy
ETA was headquartered in Milan at via Albatross in an unnamed building, quite old
but still in good condition. ETA had occupied these premises since 1998, when the
decision was made to bring together its operations under the one roof so as to
improve efficiency (the company had one office for the consulting group, one for the
general administration, one for delivery of some of the multi-client services and one
within the President‘s residence).
As well as its operational offices in via Albatross, ETA leased a small office
in via Omen, in the very heart of Milan. The reason for this second office was the
reception of clients or eminent keynote speakers — the Pope, Heads of State, etc. —
who had been invited to participate in major multi-client events. All multi-client
services accommodated attendees in conference rooms rented from major hotel
chains across Italy (e.g. Marriot, Sheraton): cf. Appendix 4-7 for a geographical
representation of ETA‘s offices.
ETA did not have any written policy in regard to its CRE decisions.
However, there were a number of unwritten practices in relation to space allocation
that the Real Estate Manager of 30 years‘ experience had been following for
definition of common areas as well as the work environments of each category
within the organization — i.e., partners, senior professionals, professionals, junior
professionals, analysts, graduates and operating staff:
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Partners generally required closed offices of 15-20sqm;
Senior professionals were entitled to single offices of 10-12sqm;
Professionals shared offices of around 15sqm;
Junior professionals, analysts and graduates shared open space;
Secretaries were also located in open space, but had larger desks because of their
more complex, archives-related requirements;
Additionally:
15%-20% of total space was dedicated to corridors, restrooms, stairs/elevators,
coffee area and storerooms;
10% was dedicated to meeting rooms;
20% was left for future growth.
Real Estate Manager:
When searching for a new facility, the first step is for me to
receive detailed information about the company‘s new
organizational structure; then I apply a number of
parameters to estimate the necessary space required.
In mid-2004, after enjoying a record year of sales and profits with assumed
stable growth in coming years, the firm decided it was time to acquire new office
space to more easily accommodate existing and future personnel. The Board decided
to allocate an additional €100,000–150,000 per year for Real Estate costs and
considered two options: either expanding within the existing building by leasing an
additional floor or relocating the entire Group to new premises closer to the city
centre of Milan.
Below is a list of those individuals in the organizational structure of ETA
who were directly involved in the decision-making process:
President: Founder and Partner with 80% ownership;
Partner ―A‖: Partner in charge of the organization and security practice;
Partner ―B‖: Managing Partner in charge of the strategy practice;
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Partner ―C‖: Partner in charge of the HRM practice;
Partner ―D‖: Partner responsible for handling the Group‘s Partnerships;
Partner ―E‖: Partner in charge of all international activities;
Partner ―F‖: Partner in charge of the banking practice; assigned the supervision
of the internal RE project;
Chief Financial Officer (CFO): responsible for all financial decisions taken by
ETA, including those related to Real Estate investments;
Real Estate Manager: responsible for all the internal and external logistics;
expected to optimize space usage and to proactively inform the Board of any
issue concerning space requirements (e.g., number of desks required, sqm
necessary for the coffee area, etc.).
11.3 Decision-Making Process
Decision-making in important CRE matters in ETA was a process that generally
required a limited number of iterative steps (Figure 11.2). The Real Estate Manager
talked to co-workers across the entire organization and listened to their ideas and
criticisms in relation to the work environment. He constantly integrated this
information with other quantitative data concerning the space necessary to satisfy the
physical requirements of the company, and every so often presented his views to the
Board of Directors. The partners, whose views often helped determine the issues
presented by the Real Estate Manager, decided on the importance and the urgency of
such matters. If the problems were regarded as important, the Board agreed on some
general guidelines (price, sqm, etc.) and created an internal project team often placed
under the supervision of a Partner. The project team, sometimes assisted by a number
of chosen independent Real Estate agencies, would conduct research in the local
office market and regularly update the Board. Once a number of different realistic
options was on the table and/or time was running out, the partners decided what
action to take.
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Figure 11.2: Standard Operating Procedures for CRE Decision-Making
11.4 Decision-Making Process in action
The information presented in this section relies on primary and secondary data — the
latter being mainly represented by the transcripts of Board of Directors meetings, and
used to establish a chronology of key activities in the evolution of CRE decisions at
ETA in the period 2004–2006. These activities are reported in Figure 11.3 and
numbered A1-A26. And semi-structured interviews conducted across all levels of the
organization have been used to cross-validate the content of the transcripts, to
provide a better understanding of the overall process and to recognize the different
views of those individuals who were not members of the Board.
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Figure 11.3: Chronological Description of Main Activities
In 1998 ETA brought its four different offices together into a single building
in via Albatross, leasing two floors with a total space of 1,200sqm (A1). Four years
later, following a phase of substantial growth, ETA exercised a special condition of
the existing contract that gave it the right to expand into the 3rd floor of the building
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(588 sqm) at the same cost per sqm as that of four years earlier (A2). In early 2004,
six years after execution, the contract expired and ETA decided to enforce its right as
tenant to remain on the premises for an additional six years (A3).
Although the lease of over 1,788sqm had just been extended, the company
again found itself in a situation of space shortage. Between January and June 2004,
the Real Estate Manager struggled to accommodate the needs of the Company (A4):
Real Estate Office Manager:
…there is no more space left for new employees: when
project teams are assembled I always have to rethink the
entire floor. This situation makes my job much more
difficult than it already is. The situation is also hard on the
employees, who have constantly to change desks.
Although space shortage was the most significant issue, complaints regarding
other issues emerged. For some partners, the Real Estate solution found in 1998 was
old, and damaging to the company‘s profitability. Those of this persuasion argued
that the internal design was depressing, the office layout impractical and, even more
importantly, the image of the building negative to potential clients. For the rest of the
Board members however, via Albatross was very well located compared with areas
in a similar price range, and the premises catered for future expansion of the Group
(i.e., the company leased only three of the five floors available to it in the building).
This argument also put forward the idea that, if necessary, renovations by renowned
architects could improve the image of the building, thereby elevating the company‘s
status.
Some employees expressed diverging views in the various private interviews.
There was consensus on the need for more space, while the provision of additional
meeting rooms was also considered quite important; however, there was
disagreement on the best strategy for achieving these and other needs. Views seemed
generated by self-interest (such as relocating closer to home or closer to a client),
although complaints about the level of noise and lack of privacy in open space were
typical of junior staff. One employee made the following submission, for instance:
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Employee:
We often face difficulties working within groups. The
problem derives from the fact that we [analysts] are all
located in open space, and sometimes we have the need to
work in groups of three or more; but there are not enough
places to do so in a quiet environment.
At a Board Meeting on 17 September 2004, the RE Manager informed all the
partners that the occupant of the 4th floor (500sqm) was vacating [OPTION #1].
Given that the Real Estate Manager‘s role entailed determining space requirements
within the constraints of minimizing occupancy costs, a presentation was delivered to
the Board emphasizing the practicality of and savings in acquiring the newly-
available space in comparison with relocating. Included in the submission was his
statement that while no formal survey had been conducted, the verbal feedback
regularly received from employees reflected an acceptable level of existing
workplace satisfaction.
The President of ETA strongly supported the views of the Real Estate
Manager, but the other partners argued for the decision to be postponed so that a
wider selection of options could be considered. The meeting settled on two
resolutions that satisfied both parties: a Board Member was asked to work closely
with the CFO in negotiations to acquire the 4th floor; while the Real Estate Manager
was commissioned to identify and inspect other potentially suitable buildings and
report back to the Board in six months (A5). The Real Estate Manager was allocated
a budget and given a set of criteria that any potential building should meet,
comprising minimum space of 1,100sqm, proximity to restaurants and bars, easy
access to the freeway and location in an area north-west of Milan. Part of the
transcription of the Board meeting is reproduced below:
President:
OK... We all realize that we need to expand our offices. The
RE Manager has repeatedly informed us of the limited space
left available and the problems he has in moving personnel.
Furthermore, if we expect to continue our 10% growth rate
every year we definitely need to expand our premises. In this
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regard, I personally agree with taking on the 4th floor of this
building, but I‘d like to see a Member of the Board assisting
the CFO in the negotiation process. Obviously this operation
implies added costs for the organization, and some of you
might suggest that we need to reconsider keeping the office
in via Omen. It is my strong belief that via Albatross is not
an office to which we can invite high-profile clients and
speakers, so we need to maintain the office in via Omen.
Partner ―A‖:
I think we are facing an important decision here. We
definitely need extra space and this location is not ideal to
receive clients; however we should consider other options
before entering into this contract. By taking the 4th floor we
are not only going to substantially increase our Real Estate
outgoings but we are also going to enter into a contract that
will tie us to this building for at least another six years.
Partner ―E‖:
My suggestion is to move out of via Albatross. We should
look for a new location, something more modern and well-
equipped. We should take the top floor of a skyscraper
following the recent example of other forward-thinking
companies.
Partner ―A‖:
This is definitely a good idea, but I do not think we have
enough time to conduct a comprehensive search of the RE
market. The leasing company has asked us to make a
decision fairly quickly and we will have to meet with them
before the end of this month.
Partner ―C‖:
I know of a building that has recently become available and
could be worth looking at. Perhaps we can ask the RE
Manager to investigate and refer to us at the next meeting,
together with a few other alternatives?
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Over the following six months, the Real Estate Manager, who was originally
hired in 1998 to find new headquarters, carried out extensive research of the local
Real Estate office market in order to identify a list of alternative buildings (A6). The
same tools used in 1998 were used again, which included Internet Websites (e.g.,
casa.it, attico.it and virgilio.it), local newspapers (e.g., Il Corriere della Sera), and
the solicitation of support from independent Real Estate agencies.
Although a large number of ICT companies had been forced to close down or
move to the suburbs due to the recent downturn in the IT industry sector, there were
few vacant office buildings available. Furthermore, rent had been exponentially
increasing since ETA executed the contract for via Albatross in 1998. Given all of
these factors, the Real Estate Manager was able to identify only two alternative
buildings: Site ‗A‘ and Site ‗B‘.
It was then that the 1st floor of the current building became available, giving
the RE Manager four alternatives to consider (A7). Table 11.1 reveals a comparison
of the four options in terms of costs and space (A8), presented by the RE Manager at
the 24 May 2005 Board Meeting (A9).
Table 11.1: CRE Alternatives offered by Real Estate Manager
Source: Financial Report Forecasting the Costs of RE Decisions
The two relocation options canvassed were dismissed because they were
considered by all partners to be too expensive. After inspecting both floors of the
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existing building, the Board unanimously decided to pursue acquiring the 4th one,
subject to the following conditions:
length of the contract: option to exit the contract on provision of 12 months‘
notice;
financial conditions: €90,000/year + €18,500/year for management fees,
equalling €160/sqm, which compared favourably with the alleged market average
of €220-250/sqm in the surrounding area;
waiting period: an option to enter the premises by 01 September 2005 and to
begin remodelling by July 2005.
All partners agreed that the decision to acquire the 4th floor would not only
provide additional meeting rooms, but would also positively influence the mood and
wellbeing of all employees.
The Real Estate Manager was asked to consult architects and obtain a clear
estimate of the remodelling costs. A cost breakdown was furnished at the next
meeting of the Board, detailing expenses prior to expansion into the new premises. It
was estimated that €30,000 was needed for renovations, while a further €20,000
would have to be spent on second-phase improvements to further enhance the image
of the offices. The Board approved the estimates and submitted the report to the
President for final approval, which was immediately forthcoming (A10).
Negotiations moved ahead rapidly: the landlord agreed to all the conditions
outlined by ETA (A11) and a new contract for the 4th floor was signed on 10 July
(A12). However, decisions were re-visited by the Group just a few weeks later, when
a new Partner joined the company and was inducted as a member of the Board:
Partner ―F‖, ex-Partner of Price Waterhouse Coopers (1995-2000) and Boston
Consulting Group (2000-2005).
This recent arrival believed strongly that ETA should reconsider its Real
Estate strategy to seek a building that was, if not prestigious, at least more
innovative, practical and consistent with the image of the company (A13). His claim
was based on a number of different considerations.
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These began with his recent personal experiences of McKinsey, PWC and
Boston Consulting Group, which helped forge his impressions of how Real Estate
impacts on corporate image; for those organizations placed corporate image second
only to the talent of their people, with the combination of the two reflecting the ―real
assets‖ of strategic management consulting companies. According to Partner ―F‖,
two types of buildings could contribute to creating a good corporate image — either
a prestigious historical building in the city centre (e.g., DELTA‘s premises), or a
modern and innovative building on the outskirts of the city allowing for more
efficient office layouts and better communication (e.g., the BETA and GAMMA
models).
In regard to via Albatross, the new Partner strongly criticized the anonymity
of the premises as well as the internal design of the offices. He argued that the
current Real Estate assets of the company did not portray a good corporate image of
ETA to its clients. When informed about the decision to restructure the recently
acquired 4th floor, Partner ―F‖ took issue with the Real Estate Manager regarding the
proposed upgrade: according to the new Partner, the budget-driven works planned
would have not helped to improve the image of the company.
Partner ―F‖:
What good architects recommend for a company like ours
are very flexible solutions that can be easily reconfigured in
a single day, as necessities arise. The building in via
Albatross is such, but it is stylistically awful. The design is
inexistent and there is absolutely nothing that promotes the
image of the Group. These huge, empty and very ordinary
rooms are the result of a design typical of the ‘80s. I am sure
that space can be utilised now in a much more efficient way,
and that the choice of different materials and colours can
make offices look more pleasant, comfortable, and
consistent with the image that the Group wants to portray.
Partner ―F‖ also raised the point that workplace image significantly impacts
on the recruitment of talent, critical to an industry affected by a very high turnover
rate. The consulting industry is demanding in terms of working hours and therefore a
lot of time is spent in the office. ETA and its competitors offer positions that are
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keenly sought by expert consultants, and the conditions of the workplace should be a
significant draw card (all else being relatively equal). According to Partner ―F‖, ETA
was not availing itself of some of the best talent available simply because prospective
employees were unimpressed by the workplace conditions.
As well, the Partner argued against the inefficiency caused by the
organization‘s operations being over four separate floors in a building also housing
co-tenants. This was part of his final point: a loss of space because of the common
areas (corridors, lounges, restrooms, etc.) required for each of the floors.
Partner ―F‖ was put in charge of a new internal RE project (A14), but since
the contract for the 4th floor had already been signed, he was asked by the Board to
focus on the internal design by seeking the advice of reputable architects regarding
how to improve the overall image of the company.
Real Estate Manager:
We did not feel that our offices were damaging our image,
but of course this concept was very important and worthy of
our full attention. It was possible that our offices were a little
outdated... the problem is that when you grow within an
organization, you settle in and you do not pay attention to
such details — there are always more urgent matters to
attend to.
At the 3 October 2005 Board Meeting, and following negotiations with a
leading design firm, Partner ―F‖ presented a clear estimate of the costs required to
make what he claimed were
the minimum changes necessary to have a facility in which
clients can be received without shame (Table 11.2).
His argument was that ETA should have regarded the suggested restructuring
costs as an investment in corporate image rather than an incremental hike in Real
Estate costs. To reinforce the argument, Partner ―F‖ cited the Real Estate strategies
of a number of competitors (including BETA and GAMMA), and the Board
unanimously agreed that ETA needed to promote an image similar, if not better, to
those presented by these top international consulting firms if it were to compete
successfully.
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Table 11.2: Cost Estimate to Restructure of via Albatross
Source: Internal Report outlining the Restructuring Costs of via Albatross
Once all the partners had verbally agreed to invest an additional €145,000 in
Real Estate, Partner ―F‖ suggested that the Board also reconsider the option of
moving out of via Albatross to seek a single floor, open-space solution. According to
both the Partner and the Real Estate Manager this type of design would reduce space
requirements by 10%–15% because of the elimination of common areas (stairs,
corridors, closets, bathrooms, e.g.). In this respect the buildings previously identified
(Site ‗A‘ and Site ‗B‘) by the Real Estate Manager would have meant further Real
Estate costs of roughly €200,000. However, a reduction by 250-300sqm of space
required corresponded to a saving of roughly €75,000; this meant that moving into a
new building (€125,000) could now be favourably financially compared with
remodelling the existing premises (€145,000).
Specifically, Partner ―F‖ suggested Site ‗C‘, a prestigious building of the
early 1900s that had been recently renovated (A15-A16). The first floor comprised
an area of 1700sqm at a leasing cost of €408,000 per annum for the first two years,
and €510,000 p.a. from the third year. The advantages argued by Partner ―F‖ for Site
‗C‖ over a renovated via Albatross are outlined in Table 11.3 (A17).
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Table 11.3: Benefits of Option 5: Moving to Site „C‟
Source: PowerPoint presentation, Partner ―F‖
The resolution coming out of this long meeting noted that, although the
contract for the 4th floor in via Albatross had already been signed, a directive should
be issued to contact the RE leasing agency, expressing interest in the building at Site
‗C‘ and seeking exclusive negotiations (A18). (As it turned out, the agency was
already negotiating privately with another organization, which eventually succeeded
in acquiring the building.)
Below is a partial transcription of the Board meeting.
Partner ―D‖:
I think that the costs of moving into a completely new
building would have too strong an impact on our budget…
Relocating might take several weeks, during which we
would not be able to conduct business as usual. Therefore
the costs of moving are not just what the transport company
will charge us, but also the losses from not producing as
normal. I say that the idea of Site ‗C‘ is good and worth
considering, but at this time we simply cannot afford it.
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Partner ―F‖:
Even allowing for an additional €100,000 for moving, it is
still my opinion that ETA would be in a better long-term
position if we were to move into new premises. The building
in via Albatross is too old, and I consider the restructuring of
the 4th floor an expensive patchwork that will last maybe a
few years. It is easy to predict that in a couple of years we
will be in the same situation as we are now, but with a fit-out
investment already made in via Albatross and maybe more
adverse Real Estate market conditions.
Partner ―B‖:
What we have to reflect on is whether or not it is wise to
accept all the costs and discomforts of relocating to an area
only arguably better than the one we are in at this time. It is
my opinion that Site ‗C‘ is not much better than via
Albatross, and I am sure everyone in this room agrees that it
surely is not as prestigious as via Omen.
At the next meeting, the project team was asked to conduct further research in
an attempt to find other potentially suitable buildings in appealing locations (A19).
The CFO was asked to prepare by the end of the month a document that fully
analyzed the various options.
Over the following few weeks, the project team explored the local market and
identified an office building at Site ‗D‘ (A20). In the meantime, the CFO submitted
to the Board a succinct report (A21), comparing the various options in financial
terms (Table 11.4).
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Table 11.4: Comparison of CRE Options
Source: Single Page Financial Document Prepared by CFO
On 23 November, the project team presented to the Board the proposal of Site
‗D‘, but after visiting the premises some of the partners were not impressed (A22):
this prompted the team to undertake yet more research (A23). At the following Board
meeting (13 January), the team indicated yet another building (at one time the
headquarters of BETA) (A24): the building located at Site ‗E‘ offered 2,300sqm and
proximity to public transport; but it was also rejected, because considered too
expensive and not positioned in a prestigious enough location (A25).
A week later, a private meeting was held between the President, the two
second most senior partners and the CFO. Given all the information collected over
the previous 12 months and the concern expressed by some partners about the
potential future growth of their Divisions, a CRE strategy with short- and long-term
considerations was drafted and agreed to by all the participants:
Taking time to consider a number of different options
remaining at the current locations for the next 2–3 years;
continuing to search for new premises without the pressure of having to make a
decision in the short term. It was understood that the RE Manager would
coordinate research and debrief the Board on a regular basis;
considering the possibility of buying new premises in the event that profits
exceed expectations;
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Restructuring works in via Albatross
requesting quotes from a number of architects to significantly improve the image
of the company;
using the 4th floor to accommodate Partner offices, client reception and a number
of conference rooms;
reconfiguring all other floors to optimize space through the creation of large staff
rooms and hotelling, with a limited number of offices for key managers;
investing in virtual communication technologies to facilitate long-distance
meetings and home-based work.
The proposal was submitted to the Board on 23 February 2006 and was
approved by the majority of the partners on the same day (A26). Cf. Appendix 4-7
for a visual representation of the decision-making process (A4-A26).
11.5 Conclusions Narrative of ETA Case
Many comments were noted during the course of the interviews: fifteen people
discussed their views of the decision-making process, variously described as
―professional‖, ―long‖, ―tedious‖ and/or ―exciting‖. The Real Estate Manager, for
example, expressed the view that decisions were taken much more rapidly before the
constitution of the Partnership, when the President was the only person in charge;
and all the operational managers who experienced the transition of ETA from private
company to Partnership shared this opinion. On the other hand, partners agreed that
more democratic decision-making catered for improved choices. Finally, the vast
majority of the employees trusted the judgement of the Board, were satisfied with the
process and did not manifest a desire for greater participation. The role of the main
players will be further analyzed in the next section; for now it is sufficient to note
that the final decision appeared to be made by a subgroup of the Board of Directors.
In terms of ETA‘s perspective of RE assets, the company had historically
approached Real Estate as a necessary cost to solve problems of space shortage. The
decision-making process that evolved and is recorded here, however, shows more
complex considerations —encompassing corporate image, employee satisfaction,
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recruitment, client proximity, intra-company communications, efficiency and
flexibility. The next section clearly identifies these topics of discussion while
providing further evidence to show how the interactions among key personnel shaped
the process and its outcomes.
With the main topics of discussion identified, the analysis will seek to explain
the reasons for the process‘ unfolding as it did: why did all members of the Board
agree to the acquisition of the 4th floor in a relatively short period of time?; why did
they almost disregard the already agreed to and implemented solution of the space
problem and look for alternative solutions?; why did the process take so long, with
continuous iterations?; why did the criteria for evaluation change?; and why did the
process reach closure without any of the alternative solutions‘ being implemented?
As we will see, ETA‘s change in organizational structure (from sole
proprietorship to Partnership), the consequent changes in the process of decision-
making and culture, the entrance of a new Partner who could be said to represent the
new direction for the firm, his influence on the process and the game-playing he
indulged in to advance his propositions, the formation of a coalition and the power
differences among partners — all these factors had major roles in explaining what
occurred.
11.6 Analysis of ETA Case Study
In the previous section, data were compiled and presented with a view to identifying
the elements of interest to this research within the context of the overall case study.
Now the same data will be analyzed in two ways: the manifest reasons discussed in
the decision-making process will be outlined (according to business considerations
and Real Estate aspects); and the rational perspective derived from this analysis will
be integrated with the concealed interplays among decision-makers, the strategic
direction of the firm, and the politics of the decision.
11.6.1 Manifest Reasons for Decision (Business Considerations, RE Aspects)
As with all the case studies, the first step in coding written material (transcripts of
interviews, minutes of Board Meetings, corporate policies and intra-company emails)
was to do so according to those RE topics that respondents felt could enhance overall
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business performance. Table 11.5 shows those issues discussed throughout the
process and the frequencies at which they appeared in the transcripts (i.e., the
number inside each quadrant represents the occurrences).
Table 11.5: Frequency of Topics Discussed within the Case
The total number of occurrences was 252, distributed over 20 of the 34
possible topics. Given that an average of 13 occurrences per topic was anticipated
(252/20=12.6) and that +/- 2.52 occurrences represented 1% of the total sample, the
following nomenclature was adopted to classify the frequency of each discussed
topic.
―Low‖ for occurrences: 0 X 10 (0% X 4%)
―Medium‖ for occurrences: 10 > X 20 (4% X 8%)
―High‖ for occurrences: 20 > X (X 8%)
Whenever a topic appeared fewer than 11 times (low) it was disregarded in its
individuality but still accounted for in the aggregate value of its vertical and
horizontal categories (―business considerations‖ and ―Real Estate aspects‖). As an
example, discussions on the impact that exterior quality of a building [ExQl] might
have on occupancy costs [OC] appeared only 10 times in the transcripts, making it a
low frequency topic. Consequently, the topic itself was not considered for further
analyses, but its value (10) contributed to make occupancy costs by far the most
discussed business issue in relation to the CRE decision (89). The frequency of
topics recorded between 11 and 20 times was regarded as medium, while all topics
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that had more than 20 occurrences were ranked as highly frequent within the
decision-making process.
Once the key issues considered in the process and their relative frequency
were identified, they were mapped on a timeline (Figure 11.4) to identify when they
first appeared in the process, how long they were carried on, when they were
dropped and if they were resumed before reaching the final outcome. The chart
below illustrates how senior management‘s perceptions of business implications
expected to derive from selected CRE strategies underwent changes throughout the
process.
Figure 11.4: Timeline of Topics Discussed
The following issues are those that were intensely discussed during the
decision-making process, and they will be addressed in turn:
Amount of space: [HR]-[Qu]
Corporate Image: [CI]-[Loc], [CI]-[ID], and [CI-ExQl]
Occupancy costs: [OC]-[Loc], [OC]-[ID], [OC]-[Qu], and [OC]-[LT].
11.6.1.1 Amount of Space
Having undergone growth and being in anticipation of even further expansion, ETA
was in need of extra space (33 occurrences: [HR]-[Qu]). In particular, the company
had been redirecting its core business from multi-client activities to strategic
consulting services, which often required more personnel.
Partner ―A‖:
We have been progressively shifting our focus towards
strategic consulting... We now offer a number of specialized
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services that require individuals with differing skills.
Furthermore, we work on bigger projects than in the past,
requiring large teams of consultants.
Although the need for additional space triggered the search for CRE
alternatives, it did not represent the only element of discussion in the process. As
shown through topic coding, other important considerations were made and
contributed to shaping top management perceptions. Moreover, several building
characteristics were accounted for in choosing the new site as well as the amount of
usable floor area. The aggregated values of the matrix show that amount of space (60
occurrences) was in fact only third in the ranking of the most-discussed building
characteristics, behind internal design (78 occurrences) and location (70
occurrences).
11.6.1.2 Corporate Image
Corporate image was a heavily-debated issue: it appeared numerous times in the
process and was considered from different angles. When discussing relocation, the
argument was that a new site could either improve or weaken the image of ETA (25
occurrences: [CI]-[Loc]), depending on the surroundings.
Partner ―E‖:
ETA‘s new vision is to become the best international
boutique service company, with a strong and proud
European ethos and offering unique solutions and
approaches to clients to maximize return and performance.
To do so we must be positioned in an area that is developing
and that attracts successful businesses.
Lengthy discussions were also held about the internal design of the building
(21 occurrences: [CI]-[ID]), considered by some to be very outdated and possibly
damaging to ETA‘s image.
Partner ―F‖:
The building in via Albatross is stylistically awful. The
design is non-existent and there is absolutely nothing that
promotes the image of the Group. I am sure the selection of
different materials and colours can make offices look more
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pleasant, comfortable and consistent with the image we want
to portray.
With minor emphasis, corporate image was also discussed in evaluating the
external quality of the building (11 occurrences: [CI]-[ExQl]). That situated in via
Albatross, for instance, was neither historical nor innovative in its design. While
other competitors in the industry were choosing one of these two alternatives, ETA
was headquartered in an old building and this was a concern for a few partners.
11.6.1.3 Occupancy Costs
ETA had allocated a specific sum for the additional RE requirements of the
company. As different alternatives were identified, considerations followed
regarding costs associated and how far they deviated from the original estimate. A
number of different perspectives was considered in relation to this. Initially, two
opposing strategies had been identified: either expand within the existing building
(22 occurrences: [OC]-[ID]) or relocate ETA elsewhere (28 occurrences: [OC]-
[Loc]).
Real Estate Manager:
We had always perceived a building only in terms of costs
on a Profit and Loss statement... Whether we were going to
relocate or expand inside this building, our goal was to find
additional space while minimizing outgoings.
The acquisition of a new floor inside the existing building did not allow room
for debate over how much space should be added. But amount of space was a major
issue when comparing the costs of alternative buildings (17 occurrences: [OC]-[Qu]).
A fourth and final consideration about occupancy costs related to leasing conditions
(12 occurrences: [OC]-[LT]): the acquisition of the 4th floor in via Albatross was
subject to a number of conditions that included a cost per sqm much lower than the
average in the same urban area.
Partner ―B‖:
During the process we considered buildings of various sizes,
ranging between 1,700sqm–2,400sqm, distributed over one
or multiple floors… 700sqm can represent quite a difference
in price, so we recognized the benefits of an open space,
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single floor solution, which generally allowed a space
reduction of 10–15%.
The identification of corporate image and occupancy costs as the two main
visible business considerations of the process is validated by the aggregated values of
the matrix, as they ranked first (89 occurrences) and second (57 occurrences).
11.6.1.4 Less Important Topics
An issue being discussed throughout the decision-making process but with less
frequency (medium level of occurrence) was the need for an internal design that
would maximize either flexibility of adjusting to future expansion or reduction of
business operations (15 occurrences: [Flex]-[ID]).
President:
We have always ensured a flexible design of the office space
that can be easily and quickly reconfigured as necessary.
During the first six months of 2004 the RE Manager had to
readjust the offices every other week to accommodate new
employees and create rooms for project teams…The new
CRE strategy had to follow the same old principle.
Table 11.6 summarizes senior management‘s perceptions of business
implications. As validated through topic coding, lowering occupancy costs (A) and
guaranteeing sufficient space for HR (C), together with a boost of corporate image
(D), represented the main goals of the process.
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Table 11.6: Summary of Senior Management Perceptions
Interviewees‘ responses have revealed a moderate level of satisfaction with
the CRE solution implemented at ETA. The acquisition and renovation of the 4th
floor had finally been perceived as a ―good enough‖ temporary solution to support
the company‘s growth while gradually aligning RE with the corporate image that the
company wanted to portray.
The analysis of the topics under discussion is not enough for us to understand
fully what happened in the process: there are underlying factors that drove the
structure of the discussions on image, occupancy costs and space quantity. Therefore
topic coding is only a first step in the analysis; now we need to analyse the process
and its relationships to determine how it unfolded.
In the next section the focus of the analysis will shift towards softer variables
including the change in ETA‘s organizational structure, the subsequent diffusion of
decision rights among partners, the influence of a new player whose attributes
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espoused the new strategic direction of ETA and, eventually, the power differences
between Board members based on their individual success as partners.
11.6.2 Process of Decision (Hidden Reasons and Interplays)
The overall process can be divided into five main Periods:
1. the process of approving the acquisition of the 4th floor culminating in the
signing of the contract;
2. the entrance of a new player, Partner ―F‖, and the introduction of image as a
critical consideration;
3. the game-playing of Partner ―F‖ that led to ETA‘s considering relocation as a
possible solution with concomitant disregard for the contract recently signed;
4. the coming up with their own solutions by various partners;
5. the restoration of order by an agreement made between the three most senior
and powerful members of the Board.
11.6.2.1 The Signing of the Contract for the 4th Floor
There had never been a formal CRE strategy in place at ETA. The company had
historically perceived RE only as space requirements, and the implicit solution to be
implemented was that of gradual expansion within the existing building as the need
arose. There was no evidence of an articulated strategy to be followed: the RE
Manager simply met a series of laid-down criteria for establishing how much space
was needed. It was perhaps part of an RE strategy, but could not be considered
representative of one; for example, the RE Manager had nothing about image listed
among his criteria. And they were not written anywhere, seeming to exist only in the
RE Manager‘s head.
So ETA was not preoccupied with the space challenge in terms of procedures
to be followed, because similar problems had arisen in the past and solved by the
(same) RE Manager. As well as having confidence in operating procedures, ETA felt
no state of urgency: employees and Board members had been arguing about space
shortage over several months while the RE Manager had struggled to accommodate
the needs of the company, but formal procedures had still to be initiated. The
narrative shows it was in fact serendipity that got the whole process in motion: the
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opportunity of the co-tenant‘s leaving the premises arose before space shortage was
seen as being sufficiently urgent to initiate the search for solutions (cf. activity A5 in
Figure 11.3).
Real Estate Manager:
We seriously needed some extra space… In line with our
existing RE strategy, I thought that having a co-tenant
leaving the building was a very fortunate opportunity that we
had to secure immediately.
Without the occurrence of that fortunate opportunity, ETA would arguably
have reached a point of space saturation that would have required the unfolding of a
decision-making process; but that was not the case in this situation.
Partner ―B‖:
We had been talking about RE on several occasions at Board
Meetings as well as more informally. However, a search for
solutions had yet to be implemented, mainly because we
were still unsure of what to look for…
Historically, the RE Manager made recommendations to the President, who
considered RE simply a cost item and approved expansions based on current space
needs and future expectations of the company. This kind of simplistic approach in
evaluating RE investments is validated by Table 11.1, which compares various
alternatives purely in terms of costs and size.
Following a decision to be more participative and collaborative, ETA had
opened up the firm‘s capital to other partners and was now governed by a Board.
Figure 11.2 shows that in relation to CRE decision-making, too, the decisive role was
held by the Board rather than by an individual. Whilst this new institutional form had
been functioning for a few years, this was the first time that the Board had faced an
important RE decision. From the transcripts of Board Meetings it appears that, being
unsure of what to do, partners approved the suggestions of the RE Manager, just as
the President acting on his own used to do. The Board did not have a clear definition
of what it was that they wanted: they seemed to be happy to follow the advice of the
RE Manager in relation to how much space was needed and how much money. In the
end, the leasing of the 4th floor appeared the logical continuation of what could only
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be termed an ‗informal‘ CRE strategy, started in 1998 — to incrementally take over
the entire building.
Within ETA there used to be one way of making decisions — through the
President, the sole owner; and the feeling emanating from the interviews was that as
a group the Board had not completed the transition from these ‗old ways‘ to the new,
more participative method of working. In fact the issue of image, together with the
perception that ETA required a better building in a superior location, had already
been advanced by some partners before the appearance of Partner ―F‖, but without
sufficient confidence. Alternatives were suggested but quickly discarded as too
expensive. The approval for the 4th floor was a relatively fast and unanimous
decision: it was a clear indication that they had not stabilized, but were still trying
new things without fully understanding how to work together in the new setting.
Partner ―A‖:
I was not the only one among the partners to hold that
relocation should have been considered as a viable
alternative; but then we all decided to stick with the existing
building... The difference in costs was the factor that united
us.
Period One ended with a signed contract and the space problem‘s being
apparently solved. This point in time is indicated by activity A12 in Figure 11.3.
11.6.2.2 Addition of a New Player and Introduction of Image as a Critical Aspect
When Partner ―F‖ joined the company, the composition of the decision-making team
changed and so did the dynamics of the process. The new Partner had brought with
him the practices of his previous work experience, and he emphasised different
criteria for the selection of Real Estate.
Partner ―F‖:
I was a Partner in Price Waterhouse Coopers and Boston
Consulting Group for several years, after a significant period
at McKinsey…
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Unlike the other members of the Board, he did not have the baggage of
working with ETA‘s President. Furthermore, he came from a different context in
which collegial decision-making was the culture, and his concept of what the process
should be was different. So he spoke his mind freely, and his attitude challenged the
traditional way of thinking in the Partnership.
As stated, the decision of acquiring the 4th floor had not been perceived by
everyone as the optimal solution; and some partners had agreed only because they
did not have sufficient CRE knowledge to sustain the debate or the mindset to
challenge the established corporate policy of minimizing occupancy costs. As
collective decision-making started to function, the limitations of the existing RE
solution emerged: the team realized they had made a decision based on certain
arguments, but that other issues (like image) should also have been carefully
considered.
Partner ―A‖:
… we should consider other options before entering into this
contract. By taking the 4th floor we are not only going to
substantially increase our Real Estate expenses, but we are
also going to enter into a contract that will tie us to this
building for at least another six years.
Period Two of the process ended with ETA‘s facing a new RE problem that
was not space-related but focused primarily on image. So the addition of a new
player had changed the setting, and the new RE problem was creating a background
of difficulty and uncertainty for the team.
11.6.2.3 Negotiation Games of Partner “F” bring back Relocation as a Viable Solution
In this setting of confusion and indecision, Partner ―F‖ was seen as a point of
reference, especially as he had recent experience in those companies that ETA
wanted to emulate. In fact, one of the reasons Partner ―F‖ had been invited to join the
firm was because of his background; so in a sense he was indeed the agent to help
ETA realize their new business strategy. Of course it was not he alone; but his being
a Member of the Board was part of the implementation of this change of balance
between multi-client activities and consulting services.
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Partner ―F‖ emphasised strongly, through real examples, that in order to be
more like a strategic management consulting firm ETA had to treat its image as such
organizations did; and in terms of Real Estate this meant doing something other than
simply expanding into the 4th floor. His powerful argument was:
we cannot have the old-style Real Estate with the new-style
business strategy, because the expectations clients have of
the image of strategic management consulting companies are
different.
It did not take long for the other partners to see that this was valid, and to
realize that the RE decision they had just made was inconsistent with the newly-
espoused strategy and aims. As a result the partners started to challenge the process,
and suddenly it was as if the decision of acquiring the 4th floor had never been made,
even though the contract had been signed and carried legal obligations.
This series of events explains why a new person who had just joined the team
seemed to exercise so much influence — including over the President, who was
presumably completely happy with the decision already made.
Partner ―F‖ did not limit himself to suggesting a set of new criteria, but
became more deeply involved in the process and played a very clever negotiation
game to widen the range of options available and eventually see his preference up
front. As is sometimes the case in retail sales, a ‗bait and switch‘ strategy was played
out: first he got the Board to accept image as an important element for consideration,
then he estimated the costs to refit the 4th floor (cf. Table 11.2), and finally he
suggested that for just a little bit more— or even the same amount — ETA could
relocate somewhere else. Table 11.3 was taken from the presentation given by
Partner ―F‖ to the rest of the Board, and illustrates how for the first time, CRE
decisions were evaluated in terms other than purely finance- or space-related (as had
been the case in the analysis previously conducted by the RE Manager, reproduced in
Table 11.1).
It was a combination of all these factors that enabled Partner ―F‖ to derail the
whole process and take it back to square one.
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11.6.2.4 Various Partners Coming Up with their own Solutions
Once the discussion over RE alternatives had been fully and officially reopened,
ETA was facing the highest level of uncertainty and confusion to that point: Partner
―F‖ had completely destabilized the situation. He had also, in fact, provided a
rallying point for the other partners who had possibly thought about image and other
issues but had never raised them effectively because of being accustomed to the ‗old
ways‘ of making decisions. However, his influence progressively diminished. His
insights and suggestions had been taken on-board as testified to by the fact that
image had become a recognized key variable in comparing CRE options
(substantiated by image‘s being among the headings in Table 11.4, corporate image‘s
representing the second-most important business consideration in Table 11.5 and the
issue‘s being present until the end of the process in Figure 11.4); but then the
partners with more years of service and proven success within the firm came up with
new suggestions.
However, because of the equal distribution of decision rights among members
of the Board, the more alternatives that were identified, the more difficult it became
to identify a solution that satisfied everyone. Consequently the process entered a long
phase of indecision, characterized by several iterative processes of decision-making
during which options were identified and then dropped. The level of disagreement is
demonstrated by the fact that a decision was still lacking after seven alternatives had
been evaluated (activity A24 in Figure 11.3 relates to the seventh option considered).
In Appendix 4-7, a diagrammatical representation of the process by activity
illustrates the iterative process that led to a search of the local RE market four times
in one year.
A second justification for this prolonged process‘ being unable to reach an
agreeable outcome seems to be that none of the partners was used to this new kind of
group decision-making. They had no clear understanding of what was needed and did
not know how to structure the process to get things done efficiently.
A positive aspect is that the President was trying to make the new system
work, as was the entire Board — which is why the entire process appeared so
confused and irrational, for they had made a decision but then acted as if they had
not. The President could arguably have stopped the process much earlier: given the
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history of the firm, his charisma and his retained ownership (80%), he was still the
dominant player and theoretically had the power to impose his will on the other
partners. But he decided not to intervene: the decision had long since been made to
open up the firm to being more collegial. What he actually did in this process was,
consciously or not, to let the discussion play itself out: and it seems he made the
decision of not forcing the outcome because he understood that diffusion of decision
rights would be beneficial to the firm in the longer term58.
To validate the argument that the President willingly favoured a more
prolonged and convoluted RE decision-making process because he saw it as
something like a training exercise for the partners to learn to make group decisions is
the fact that he welcomed Partner ―F‖‘s insights, doing his best to be seen as living
with what Partner ―F‖ said the firm should do. He was also obviously aware that
there was some way to go before the Board was familiarised with the collegial way
of making decisions.
President:
Years ago, we decided to restructure ETA so that it could
grow bigger and faster. The decision implied that, although I
maintained 80% ownership, I was going to share control of
the company equally with the other partners… This
sometimes causes decisions to be delayed.
11.6.2.5 Order is Restored by a Powerful Coalition
Following the decision of the President not to intervene, the process rolled
along for seven months. Some interviewees testified that they felt worn out by the
lengthy process, and wanted a decision to be made.
Partner ―A‖:
We had been disagreeing about the most appropriate CRE
solution for almost two years and it was time to get an
agreement and move on… besides, better solutions could
always have been identified in the future, but for the time
58 A fact supporting the view re the President‘s commitment to a more partnership-type system: as of July 2008 the firm is 20% owned by each partner — a logical follow-on from where this decision-making process was heading.
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being we needed a strategy that could meet our immediate
needs.
Possibly somewhat frustrated with failure of the new collegial system of
decision-making, the President called for a special meeting, aiming at receiving the
support of the two other most influential senior partners in ETA. The meeting was
successful, with the three executives finding an agreement which was then
immediately approved by the remaining members of the Board without further
interference.
President:
We decided to remain at the current location for the next 2-3
years. This decision took pressure off our backs, giving us
enough time to more attentively consider RE solutions for
the longer term.
Though power over decision-making through being a successful Partner
seemed important to obtain closure, it had been irrelevant throughout the other
phases of the process. In terms of influence on occurrences of the previous 18
months, it had been the newest Board Member, who had brought in nothing to the
Partnership and demonstrated the same, who carried the most weight: and on the
other hand, Partner ―F‖ had no control at all over the final decision. This
demonstrates that there were several sources of power within the firm: his power as
the agent of the new strategy was symbolic and carried influence, but when it came
to closure the income generated by individual partners came into play.
Partner ―C‖:
…although the Board operates according to the one-man-
one-vote policy, there are some members who are more
influential than others… Basically we do not all contribute
to ETA‘s profits in the same way, and this, of course, has its
consequences...
11.7 Building a Theory
In addressing the research questions, the following is relevant.
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11.7.1 Business Implications linked to CRE Decisions
A number of business considerations was made throughout the process but only three
achieved the level of driver — shortage of space (the trigger issue), corporate image,
and occupancy costs.
As shown in Figure 11.4, the key driver of additional office space deemed
necessary to accommodate the existing and anticipated growth of ETA was present
throughout the process. The other two issues appeared at intervals, with corporate
image representing the basis for the rationalized view of a process that should have
considered alternative buildings and, in contrast, occupancy cost used as the rationale
to limit the number of realistic options during the first part of the process.
The same diagram, re-examined after completing the analysis of the hidden
variables and interplays of the case, can be read in a more meaningful way. In
particular, it illustrates how internal design, basically ignored during the first half of
the decision-making process, then became a heavily-discussed issue in relation to
both corporate image and occupancy costs. It was so important, in fact, that it
prompted the resumption of the process.
11.7.2 Characteristics of the Decision-Making Process
By theorizing from the analysis of the case, it is possible to derive the following
diagram (Figure 11.5), which shows all the variables discussed while highlighting
those that had a major impact.
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Figure 11.5: Analytical Framework
The need for space and the caution regarding RE costs were suggesting a
small number of alternatives and, consequently, a relatively rapid process: indeed,
the process appeared to end with the signing of the contract for the 4th floor
following established routines and procedures. The rationale displayed by this
pragmatic decision was aimed more at a speedy process guaranteeing success in
negotiations with the landlord than at a detailed analysis of the situation and potential
alternatives. Furthermore, ETA lacked the necessary experience and acumen to
undertake a complete analysis.
Although at the end ETA decided to stick with the decision already made, the
overall process lasted close to two years and saw seven different alternatives
evaluated. Recognizing the change in the organizational structure of ETA and
subsequent diffusion of decision rights among partners, the role played by Partner
―F‖ who espoused the new strategic direction of ETA, and eventually the differences
in power among Board members based on their individual success as partners are all
crucial to understanding the complexity of the process.
As stated, the diffusion of decision rights was an established fact within ETA,
because all manner of strategic decision had already been made collegially since the
President‘s decision to change the legal status of the firm from sole proprietorship to
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Partnership. According to ETA‘s partners, their organization was much simpler than
the decision-making environment typical of larger competitors, where partners
numbered more than a hundred, represented business units with different goals and
interacted with one another only at designated meetings. Nevertheless, the equal
distribution of decision rights among ETA‘s seven partners had already led to some
resolutions‘ being delayed.
Real Estate Manager:
…decisions were taken much more rapidly before the
constitution of the Partnership, back when the President was
the only person in charge.
This participative environment, promoted by everyone and especially by the
President, had been inhibited by previous RE practices and the lack of knowledge,
but found a way of flourishing when Partner ―F‖ joined the Board. He was passionate
and knowledgeable about the issue being discussed, and his involvement changed the
rules of the game: he was the element that set in motion the second part of the
process.
Once the process had recommenced, and disagreement among decision-
makers had reached a dead end, the influence exercised by the most powerful
members of the firm ended it. Decision rights was not the issue, for all the partners
had the same amount; but influence appeared to be an important one. In the first
instance it was that of the President, who exercised his power by calling a private
meeting with the two other most senior partners in ETA and identified a solution;
and then it was that of this small coalition over the rest of the Board members.
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12 Integrative Analysis
The seven cases presented in chapters 5 to 11 have brought out a substantial diversity
of CRE decision-making processes. Table 12.1 provides a brief summary of the
contexts in which the decisions were made, comparing the case studies in terms of
CRE decision type, duration of the processes and organizational structures of the
firms.
Table 12.1: Summary of Case Contexts
The nine CRE decisions summarized in the table resulted from processes that
were mainly unstructured: even the few organizations that had some structure and
loose guidelines for decision-making in CRE (e.g., ALPHA and DELTA) did not
follow them strictly. This characteristic is not something that could be anticipated at
the start of the project, but emerged gradually through the analysis of the cases.
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As indicated in the table, there does not seem to be a systematic correlation
between duration of the process and type of CRE decision or organizational
structure59. Consulting companies small (e.g., ETA) or large (e.g., ALPHA) had
similar needs that triggered the search for alternative CRE strategies, and the
duration of their decision-making processes was not a result of their size. As will be
shown later in the chapter, nor is there a correlation between organizational structure
and success. These findings are important to strengthen the validity of the research
and to argue that the work will be relevant also to other, similar professional services
organizations.
12.1 Successful Strategic Decisions are Balanced
Figure 12.1 illustrates the theory that the researcher has derived from the analysis of
the cases: successful strategic decisions are those that balance out problem
complexity, process richness and process cohesion. While aiming to describe what
happens most of the time in the processes of CRE decision-making, the model does
not pretend to describe in detail everything that happens all of the time. Given the
diversity of variables impacting on the processes it would have been a task more than
merely challenging to seek validity in a more detailed model60.
Figure 12.1: Balancing Tensions for Success
Source: developed by researcher
59 The presence of international governing bodies was largely irrelevant 60 Detailed diagrammatic representations of CRE processes have been illustrated and described at the end of each individual case study
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The diagram shows how the search for a new CRE decision was generally the
result of a clearly-identified trigger issue. As repeatedly validated in the cases and
more closely examined later in this chapter, the single issue was soon joined by
several others that fuelled further discussion. The organization in fact embarked —
or should have done — upon a process of decision-making where this single issue is
soon joined by other strategic considerations While discussion invigorates the
richness of the process, its broadening is good to only a certain point (i.e., the solid
circle in the diagram), beyond which it becomes counterproductive to the success of
the final decision. To prevent discussion from blowing out of proportions, successful
companies ensured (or were lucky enough to find) equilibrium with internal forces
that guaranteed cohesion of the process, ensuring a relatively prompt outcome.
The single framework of theory represents the main contribution of this
research. In fact, as was shown in the cases — and will become even more apparent
at the end of the cross-case analysis — the single process of linear decision-making
put forward by Real Estate authors captures some of what is happening in most
processes but is insufficient to enable understanding of how CRE decisions are made.
The framework proposed here, although couched in more general terms, is expected
to allow analysts to grasp the rational elements of linear decision-making but to also
integrate them with the no less important events that occur underneath a process and
cause it to be more or less successful.
All the research questions listed in chapter 3 will be addressed in the next two
sections of this chapter (12.2 and 12.3). Their answers will help build the theoretical
framework (section 12.4), which introduces concepts that go well beyond the initial
open-ended questions. From the literature the researcher could not in fact determine
in which way success had to be redefined, knowing only that there was an
opportunity to integrate the findings from various theories used. As well, complexity,
process richness and cohesion emerged as key concepts through the analysis of the
cases (Orton, 1997; Strauss and Corbin, 1994), and could not be anticipated in
advance given the lack of empirical evidence of previous studies. Finally, section
12.5 discusses the model for successful decision-making and the data from the cases
in relation to the theories of decision-making that have most profoundly informed
this research (Cyert and March,1963; Mintzberg et al., 1976; Eisenhardt, 1989b).
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12.2 Content of CRE Decision-Making
Research question One was ―What influences organizations‘ CRE decisions and how
do they, in turn, influence other core strategic concerns?‖: this section will address
the sub-questions (a), (b) and (c) in the context of defining successful CRE decisions.
But what makes a decision-making process more or less successful? According to the
CRE literature, a decision that‘s successful is linked with a significant number of
strategic concerns; however, from a behavioural perspective we know it is
impossible to satisfy all of those often-conflicting goals. This study has shown that
success is multi-dimensional and contextualized; firms consider only a selected
number of the criteria suggested by the CRE literature, and they do not assign them
the same importance (nor they are all achievable).
12.2.1 Success as Indicated by the CRE Literature
After summing up all the manifest reasons for decisions made in the cases, the
researcher sought to establish which business considerations and which RE aspects
of a building were the most discussed throughout the various decision-making
processes. Table 12.2 summarizes the topics of high and medium occurrences in each
case: the letters in bold represent issues considered very frequently, while italic
letters represent topics occurring on a medium level61. For example, the impact that
location [Loc] could have on occupancy costs [OC] was an issue intensely discussed
by four companies (ALPHA, GAMMA, EPSILON and ETA). On the other hand, the
impact that location [Loc] could have on clients [$$] was greatly discussed by BETA
but with less consistency by ALPHA. The impact that location [Loc] could have on
flexibility [Flex] was not considered to be important by any of the seven
organizations.
61 Topics identified as low and only partially discussed within individual cases have not been considered for cross-case analysis. This decision was made because of the very large quantity of information available when combining all the case studies, and with the aim of bringing out only the dominant topics discussed.
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Table 12.2: Manifest Reasons for Decisions
(Note: each square of the matrix is divided into two rows: the first is divided
into seven columns — one for each organization — and illustrates whether or not a
specific topic was discussed; the second sums up the organizations in which the topic
was discussed.)
Research Question 1a: ―What issues are considered when making CRE decisions?‖
Topic coding confirmed that not all issues identified by the CRE body of literature
drive decision-making in the same way and determine the success or otherwise of a
decision. In fact, only a few considerations were made consistently across cases and
with substantial emphasis. Out of the 34 possible topics — which already represented
a condensed version of the matrix developed by Nourse and Roulac in 1993 (see
Appendix 2-2) — 13 were either never discussed or were of low frequency, while
another eight were discussed only in one of the seven cases. There is no evidence in
this research of a full investigation of the links between RE and corporate strategy
but, rather, the motivated and uncomplicated search for information suggested by
organizational behaviour theories was confirmed by the study.
As illustrated in the table, space-related discussions (Qu=19) were present
throughout each case, particularly in relation to human resources (HR=14). This
result is consistent with the fact that space-related issues always represented the
trigger factor of decision-making processes. Table 12.3 illustrates more specifically
those business considerations and RE aspects of a building that triggered the search
for alternative RE solutions: a big ‗X‘ represents a primary driver and a small ‗x‘ a
secondary driver. In most cases business growth demanded a physical expansion of
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the premises (i.e., there was a shortage of space), which often appeared to be long
overdue. The COO of ALPHA, referring to a record high 120% occupancy rate
revealed:
We could no longer operate under those conditions. I was
often forced to contact the RE Senior Director to redesign
the floors and our employees were extremely frustrated with
the situation...
while the RE Manager of ETA described an unmanageable and unsustainable
situation:
…there is no more space left for new employees. When
project teams are assembled I always have to rethink the
entire floor.
Table 12.3: Trigger Issues
A second event prompting the search for alternative RE solutions was
company merger with ensuing need to physically integrate personnel. Especially in
the cases of BETA and GAMMA (mergers of industry giants) moving workforces
into a single location was perceived as essential for the success of the business. The
case of EPSILON was to a certain extent unique, as the company was not facing any
pressing issue but simply considering a reduction of office space (i.e., opportunity
more than threat). Unlike some of its competitors‘ constant growth over a number of
years EPSILON had experienced slumps, and had much more office floor than
required. This situation was clearly inconsistent with the company strategy of cutting
expenditure to reduce losses and, according to some members of the organization, it
had to be rectified by getting rid of the extra space.
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Research Question 1b: ―What are the issues that trigger the search for new CRE
strategies?‖
Evidence suggests the triggers‘ being always space-related. This consideration is in
complete contrast with the prescriptive ‗best practice‘ of CRE theories that suggest
proactive RE strategies are initiated to obtain competitive advantage in the long term.
There is no evidence of a holistic perception of RE value: rather, that problems are
tackled in sequential order as they present.
Despite the claim by some firms (EPSILON and ZETA) that RE is not
strategic, the analysis of strategic issues discussed in the seven cases has strongly
validated the argument that RE is not only an expense in the company‘s Profit and
Loss statements but overlaps with a variety of other strategic concerns; and it is this
link between corporate strategy and CRE that enriches what would otherwise be a
linear and simple process. Topic coding has shown that decision-makers, on account
perhaps of a lack of habitual processes and standard operating procedures, generally
take time to realize the nature of the connections between corporate strategy and
CRE.
In all cases organizations started their processes by identifying only a space-
related trigger issue — generally a threat. It seems natural that CRE decisions, being
as they are sporadic, requiring of substantial investment and limiting to a company‘s
flexibility in the future, would always be intensely discussed, thus prompting the
surfacing of other issues in the form of either multiple goals or inconsistencies
between building/s selected and strategic organizational objectives. Among the
various issues arising in the discussions two were most prominent — image and
costs.
Corporate image was linked regularly with location. Interviews, transcripts of
Board meetings, business cases and company brochures repeatedly suggested the
importance of image to management consulting companies. In terms of RE decisions
it was often sought via a prime location, but also via building specifications. In fact,
five of the seven companies discussed the exterior quality of a building for image
purposes, and four of them did so consistently enough to elevate the issue to high.
The level of occupancy costs was a concern for several organizations, with attempts
to contain it through changes in location, size or quality of the building. Other
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researchers had already identified a reduction in occupancy costs to be an important
consideration: although limited to interviews with RE managers, the study by
Lindholm, Gibler et al. (2006) discovered that reducing costs was the most valuable
way CREM could add value to the core business.
Research Question 1c: ―How do the issues evolve over time?‖
Discussion inevitably seemed to facilitate the surfacing of numerous considerations
beyond the initial trigger issue specific to each individual case; however, by the end
of the process only a few issues remained to shape the final decision. Generally
among these were the ideas of image and corporate identity, which appeared central
to top management teams in making CRE decisions. The departure from ‗best
practice‘ in theory, in terms of the evolution of themes, is that in reality
organizations cannot identify all the strategic implications of RE at the start of the
process, but must follow a much more gradual process of self-discovery.
Furthermore, towards the end of the process organizations are faced with the fact that
multiple goals cannot all be simultaneously addressed; thus are they forced to
choose.
In conclusion there is strong evidence that a small range of very similar
trigger issues relating to space drives the processes of CRE. A significant number of
other important considerations arise as the processes progress, but these are ranked
differently across cases; only image appears to manifest consistency.
The difference across cases regarding strategic concerns when making CRE
decisions was the result of different organizational structures with different strategic
priorities, cultures and past practices62. So success of CRE decisions was context-
dependent (Gibler and Black, 2004) and it could not be determined by either the
consideration or the overlooking of any specific issues, but it had to be based on
other factors.
62 It is the aim of this research to study decision-making processes rather than compare practices. See the Appendix for an overall view of how management consulting firms are geographically positioned in the Italian marketplace and what practices they generally favour based on their organizational structure and core business.
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12.2.2 A New Set of Parameters for Success
While firms interpreted success of CRE decisions differently, some traits of success
common across cases enable comparison. Table 12.4 provides a summary of how
successful the various decisions were according to these additional factors and ranks
them. Five factors have been identified that seemed to systematically influence the
success or otherwise of a decision:
1. did the newly-implemented CRE strategy address the trigger issue?
2. were limitations of the selected strategy properly identified and disclosed?
3. was the strategy consistent with other major strategic company concerns
identified during the process?
4. did the strategy provide long-term benefits for the firm?
5. did the strategy result in a general sense of satisfaction across the
organization?
Table 12.4: Success of CRE Decisions
Source: developed by researcher
A sense of satisfaction throughout an organization seemed an indication of
the decision‘s relative soundness as seen by the key participants in the case, and it
can be considered to be approximately the sum of the other four issues. The only
exception to this is ALPHA, where the negative responses of some employees
appeared to reflect more the decision of selecting that particular building than the
decision under scrutiny of taking possession of the entire premises.
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ZETA produced the most successful decisions, for all three gave rise to a
considerable sense of satisfaction across the firm; the company addressed the trigger
issue as well as other identified links between RE and strategic concerns; and the
buildings did not manifest unforeseen limitations but were anticipated as providers of
long-term benefits. On the opposite side of the spectrum were EPSILON, GAMMA
and ETA, which appeared to produce the least successful CRE decisions. EPSILON
did not resolve the trigger issue (excess space) and the outcome of the process caused
a general sense of dissatisfaction within the firm. GAMMA opted for a building that
later manifested a significant number of problems, from poor ventilation system to a
substantial increase in day-to-day management activities. These unforeseen
limitations caused discontent among employees, who judged the CRE decision more
on the basis of their daily interaction with the building than on its potential long-term
benefits. ETA ranked low in terms of overall success even though employees
manifested a fair level of satisfaction towards the outcome of the process. The lack of
success was primarily determined by the organization‘s recognising the limitations of
the existing building and its mismatch with the new corporate goals yet failing to
make substantial changes adequate to address those issues. The implemented solution
was temporary and the process arguably incomplete.
The remaining three organizations produced moderately successful CRE
decisions. DELTA and ALPHA continued their expansion inside buildings deemed
ideal for their overall business strategies and corporate identity. ALPHA was also
anticipating additional long-term benefits by relocating its highly profitable
Broadband Delivery Centre. Finally, BETA made a complex decision recognising
many of the links between their new CRE strategy and other strategic concerns of the
organization. Unfortunately, like GAMMA, they also failed to promptly recognise
the limitations of the building, which included severe transport difficulties (heavy
traffic, limited parking and restricted access to public transport).
12.3 Process of CRE Decision-Making
Research question Two was ―How does studying CRE decisions help better
understand strategic decision-making processes?‖. This section will address the sub-
questions (a), (b), (c), (d), (e) and (f) while assessing the likelihood of CRE‘s being
systematically perceived as a more strategic issue. Here there are obstacles going
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beyond a tendency (at least at the start of the process) to view RE as a narrow
problem; and this study has identified the following two among them:
1. processes‘ not being designed to include non-members of the top
management team (RE managers in particular, as argued by CRE authors and
practitioners63); and
2. top management teams‘ having non-RE backgrounds and orientation.
12.3.1 Processes Without Non-Members of the Top Management Team
Across the cases there was clearly a lack of meetings designed to obtain input from
other sources such as managers, consultants, staff and clients. This demonstrates a
significant departure from the usual discourse of management consulting firms,
where there is often a claim that they aim to facilitate participation not only among
partners but also the lower levels of their organizational hierarchy. In this research,
companies conducted limited internal surveys to gather insight and sought restricted
inputs from selected operational departments (i.e., Finance).
Research Question 2a: ―Do organizations constantly gather and exchange
information across departments in order to proactively manage key business
resources (e.g., functional space)?‖
The search for information was not ongoing and did not seek to integrate input from
a multiplicity of departments. Instead, the evidence has repeatedly suggested that the
search process was biased by the trigger issue and other organizational conditions
such as the demands of the dominant coalition, serendipity and urgency; and it
seldom continued once a satisfactory solution was identified.
Most importantly, RE managers did not generally play any major role in the
decision-making processes: there was no evidence of the meaningful communication
between senior management and RE officers recommended by CRE authors (Then
2000, Roulac 2001). Table 12.5 shows that ALPHA was the only exception; because
instead of having operational staff responsible for facilities management, they were
using a Senior Director, who also represented the interests of the entire EEMEA
(Eastern Europe, Middle East and Africa) region. His responsibilities were much
63 It has yet to be established whether or not their involvement would make a significant difference
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broader than those of the other RE officers and he was able to play a key role in the
decision-making process surrounding the selection of a new CRE strategy.
Table 12.5: Comparison of RE Departments & Functions
The same table also highlights differences across cases regarding the
structuring of RE departments and the job titles given to employees responsible for
RE management. In terms of organizational structures, the three large auditing-based
companies plus one local firm all had separate legal entities responsible for their
buildings, whether they regarded them as assets (ZETA64) or operating costs
(ALPHA, BETA, GAMMA). However, these entities existed simply for legal
purposes: they had no major impact on decision-making procedures.
All seven firms were organized (or at least functioned) as Partnerships, but no
clear pattern could be identified in relation to how job titles and responsibilities were
assigned when discussing RE issues. While ALPHA had a Senior Director
responsible for RE services, ZETA did not have a designated person (the CFO in
collaboration with the HR Associate Principal acted as a Site Manager); all the other
firms had some sort of officer — ‗Technical Assistant‘, ‗RE Manager‘ or ‗Site
64 ZETA was the only company to consider its office buildings as assets. The finding is consistent with the study conducted by Gale and Case (1989) which reported only 38% of the organizations to treat RE as a source of profit or cash flows.
275
Manager‘ — whose responsibility was mainly to conduct daily management of the
facilities and related services, and who had very limited strategic decision-making
involvement, if any (Osgood Jr. 2004).
The limited autonomy of most RE managers can be seen in the fact that every
organization required discussions regarding RE issues to be had by a governing
body, whether Council, Executive Team or Board of Directors. In half the cases
(GAMMA, DELTA, EPSILON) the RE Manager was not even invited to present his
views, but had simply to inform one of the senior executives, who then decided
whether or not the issues should be discussed at Board level65. Interviews conducted
with all RE managers confirmed that the main task required of them was to optimize
space usage once a building had been selected, meaning reducing occupancy costs to
a minimum66 (Stoy and Kytzia 2004). This finding is consistent with the results of
the study by Gibler and Black revealing that RE managers in real practice generally
share the view that CRE continues to fill a basic role in providing work-space at low
cost, and that RE managers are not
in the forefront, leading organizations in changing the way
they think about space and its relationship to productivity
and profitability beyond the cost of leasing or purchasing
needed space. (Gibler and Black 2004:148)
Research Question 2b: ―Can functional managers — e.g., Real Estate managers —
facilitate the link between departmental decisions (i.e., Real Estate) and corporate
strategy?‖
Integrative analysis of the cases indicates that it is very unlikely that RE managers
would be in a position of influence when discussing CRE strategies without having a
clearly-identified strategic role within the organization. The effect RE managers can
have on decision-making when regularly left out of important discussion forums is
extremely limited — reduced to addressing office space requirements. On this issue,
it appears that CRE decision-making practice reflects the prescriptive ‗best practice‘
in theory.
65 Interviews revealed that ETA will soon implement the same practice 66 This finding is inconsistent with the ‗Evolution of CRE‘ depicted by Roulac (2001). According to Table 2.1, cost reduction was the managerial orientation of the Administrative Era.
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Arguably the only firm that didn‘t seem too concerned about having the RE
Manager reducing occupancy costs was DELTA, whose primary focus had
traditionally been on corporate image. The ideas of image and corporate identity
have been raised in all cases and are clearly central to the top management team in
making CRE decisions. This finding is consistent with organizational identity
concerning those features of the organization its members perceive as ostensibly
central, enduring and distinctive in character (Dutton and Dukerich 1991, Albert and
Whetten, 1985). A building is in fact a major communication vehicle in conveying
the answer to the question ―what kind of organization is this?‖ (Brown, 2001). A
second reason that would explain the consistent appearance of image as a key issue is
suggested by Mintzberg, who stated that
when an opportunity is matched with a problem, a manager
is more likely to initiate decision-making action (1976:253).
As previously shown the problem, in the case of CRE decisions, is always
space-related (trigger issue), while improving corporate image through a more
modern and larger building could represent the opportunity.
Research Question 2c: ―Can strategic decisions such as CRE support
simultaneously the multiple organizational goals co-existing within an
organization?‖
Sometimes two or even three goals can be addressed simultaneously by the same
CRE strategy. However, the various cases here have shown that individual and
departmental goals exist inside organizations and they feed discussion because
personal views generally conflict. If not controlled, these debates remain unresolved,
causing the entire process to be unsuccessful. The solution in real practice is to build
fast consensus through strong leadership and the formation of coalitions.
12.3.2 Top Management Team generally without RE Background, Orientation
CRE strategies were always responsive to space-related challenges; and senior
executives at EPSILON (a poor successful outcome) and ZETA (a highly-successful
outcome) repeatedly stated their view of RE, making it clear that for them choosing a
building was not a strategic decision. This being the mentality, it is hard to envisage
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those proactive solutions advanced by CRE authors actually being implemented
(Timm, 2004). On the other hand, the analysis of the cases supports and in part
explains the findings of other CRE authors — a lack of knowledge and
understanding regarding relating Real Estate assets to overall business strategy
(Nourse 1990, Rodriguez and Sirmans 1996).
Research Question 2d: ―Are organizations proactive towards strategic decisions like
CRE?; are they prone to make risky strategic decisions to develop long-term
competitive advantages?‖
By establishing that the search for information related to RE was not an ongoing
process, the study also demonstrated the lack of proactive searching for improved
CRE strategies: in its place were reactive solutions to problems that were often
identified very late. Long-term strategies were sometimes implemented following
carefully calculated risk analyses by those organizations that already had a finely-
tuned working knowledge of Real Estate.
As stated, linear decision-making processes often became inadequate to
describe what occurred in the firms studied. All companies used unstructured
processes as they faced infrequent and ill-defined strategic issues for which they had
no developed standard operating procedures or guidelines. Decision-makers were
often facing conflicting goals so that they had to make trade-offs. The decision-
making processes were often influenced by the culture, identity or internal power
relationships.
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Research Question 2e: ―Do organizations use unstructured processes or validated
standard operating procedures to make strategic decisions, such as CRE?‖
When dealing with CRE issues, organizations could not rely on established routines.
There were sometimes step-by-step processes of approval in place, and on other
occasions they pursued an incremental CRE strategy that influenced the final
outcome of the decision-making process. However, the scenario was always
different; because even if a similar problem had arisen in the past, the organization
had since changed in terms of its size, goals, senior management, etc., as had its
external environment (competitors, customers expectations, e.g.) It would have been
a mistake for a company to assume that RE challenges could be resolved through a
few predetermined alternatives in a routine way.
As well as the complexities of CRE decisions, strategic issues also turned up
later in the processes because managers were not familiar with Real Estate. A scant
RE knowledge within the industry was revealed: there was neither the existence of
prior CRE-related studies conducted internally by the seven organizations nor the
adoption of KPIs67 proposed by the literature (Bon, McMahan et al. 1994) to quantify
the value of their existing CRE practices. Arguably, a deeper understanding of CRE
would have facilitated constructive discussion leading more promptly to
acknowledging the potential strategic value of buildings.
67 Examples of suggested indicators include reduction in employee turnover from increase in space per worker, acquisition of new customers due to a change in location, etc.
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Research Question 2f: ―Does the use of management tools and control systems
allow corporate decision-makers to study all possible alternatives, together with their
consequences, before making decisions?‖
The study did not uncover sufficient information to answer this question. In theory,
the management tools and control systems endorsed by the literature could help
managers make better and faster decisions — at the very least by forcing them to
improve their scant RE knowledge. However, the complete absence of Decision
Support Systems (DSS) for CRE in the seven cases makes it impossible for the
researcher to assess their real potential. But it should be said that the optimal
decisions sought by CRE authors would still remain unreachable because of the
evidence in the cases of satisficing, power plays, aversion to risk, biased information
search and so on.
In conclusion, the process of CRE decision-making is not simple and linear,
but manifests a number of limitations and complexities, minimized only by properly
balancing the forces that relentlessly push it in all sorts of directions.
12.4 Building the Model
Providing responses regarding the content of CRE decisions has allowed the
redefinition of ‗success‘; while addressing the questions regarding the process of
CRE decision-making has pointed up the necessity of reaching some sort of balance
in discussion. The research questions and their respective answers derived from the
integrative analysis of the cases provided the basis on which to build the model,
based on the theory that successful decisions derive from balanced processes.
This section of the chapter defines the variables of the model (i.e., problem
complexity, process cohesion and process richness) in terms of meaning,
measurement and inter-relationships. At the same time, the analysis investigates
potential patterns in relation to success of the decision.
The first step will look at the relationship between problem complexity and
process duration. Since process duration does not necessarily equate with process
richness, the next step of the analysis will examine the relationship between the last-
mentioned and problem complexity: the aim will be to identify the level of process
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richness beyond which further discussions and evaluations become
counterproductive. Finally, the process richness will be mapped against the cohesive
apparatus of each case to try to envisage whether or not successful decisions are
clustered in a single specified area.
12.4.1.1 Systematic Connection between Success and Problem Complexity’s handling over time
In this section of the analysis we are aiming to ascertain if there was a pattern to be
found in the success of a decision and the time it took an organization to reach it
based on the complexity of the problem faced. While duration was given in the
number of months it took the company to make the decision, complexity was more of
a judgement call based on the narrative of the cases and responses from interviewees
(Table 12.6).
Table 12.6: Complexity of CRE Decisions
BETA and GAMMA faced the most complex CRE problem — that of
merging industry giants; then came ZETA‘s first CRE decision (a), which dealt with
the integration of a number of newly-acquired small IT firms; ALPHA, ETA and
DELTA needed to find additional space because of recent growth in management
consulting, and so did ZETA (b), though the situation was much less pressing.
Finally, ZETA (c) and EPSILON shared a very low level of complexity, as neither of
those CRE decisions was in response to a threat but was addressing a business
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opportunity — reducing operating costs for EPSILON and increasing the company‘s
capital value for ZETA.
Figure 12.2 maps the two dimensions of time (to make a decision) and
complexity (of the problem). Green triangles represent highly successful decisions,
black squares are representative of relatively successful outcomes and red circled
squares represent the least successful decisions. There is an evident pattern showing:
the likelihood of success drops when a process becomes extremely long. While
revealing that the more complex the problem, the longer to find a suitable solution,
the diagram also gives an approximate indication of the time it should take to make a
CRE decision: as a general rule of thumb, it appears that to be successful a decision
has to be made within 1–1½ years from identification of the trigger.
ETA and certainly GAMMA are ―off the chart‖ in terms of timing and both
appear to have produced the least impressive CRE decisions. The third-least
successful decision was made by EPSILON, in the diagram located among more
successful ones: the justification is that the company reduced the overall time of the
process by not making a decision that had to be implemented. Furthermore, the case
study shows that ideas were presented and discussed, but only in an abstract way: no
tangible alternatives were ever evaluated in detail as occurred in other cases.
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Figure 12.2: Pattern of Relationship between Complexity and Duration
(Note: ZETA (c) overlaps with EPSILON).
Although the number of analyzed cases is limited they are scattered across
the quadrant, with examples of success and failure for very simple as well as very
complex decisions. Future research might elucidate these initial findings.
12.4.2 Problem Complexity and the right amount of Process Richness
Having defined success and mapped it in relation to process duration and problem
complexity, the next step in validating the proposed framework is to establish a
connection between complexity of the problem and richness of the process. The aim
here is to identify the level of richness beyond which further discussions and
evaluations become counterproductive.
Three variables have been considered for evaluation of the richness of a
decision-making process in the context of CRE:
1. number of alternatives considered,
2. number of topics discussed, and
3. degree of collegiality in decision-making.
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Table 12.7 illustrates that the number of topics discussed was relatively high
and consistent across all case studies68, making this quantitative metric alone
inadequate for this particular assessment. But the other two variables varied
significantly, creating a wide spread in the overall rating of process richness.
Table 12.7: Richness of Process
Source: developed by researcher
While all other decisions were based on the discussion of between six and
nine main topics69, ZETA (c) was the result of just one consideration: increasing the
capital value of the property. Probably because of a finely-tuned working knowledge
of Real Estate acquired over the years, ZETA made all its decisions as results of
relatively simple processes that considered limited or no alternatives. The
consideration of only one building was also a characteristic of the processes
implemented by DELTA, ALPHA and BETA. On the other hand, ETA and
GAMMA pursued convoluted processes with many alternatives proposed70 and
thoroughly evaluated; and a second characteristic of these two firms was the high
degree of collegial decision-making, part of GAMMA‘s ethos (a large Partnership
with a high diffusion of decision rights), and imposed on ETA where the President
opted not to do exercise his influence to promote a cultural change within the
organization.
This rating for richness was then mapped against complexity of the problem
in Figure 12.3. The overall result is that an overly-rich process, characterized by the
68 The only exception was the third decision made by ZETA, where the conditions were unique given the absence of a trigger issue 69 Cf. Table 12.2 70 ETA considered seven alternatives and GAMMA four before concluding the process
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identification of multiple alternatives and a substantial number of iterations
necessary to reach a final approval, may become detrimental to success.
Figure 12.3: Process Richness vs Problem Complexity
(Note: DELTA overlaps with ALPHA).
The dotted line connects the most successful decisions across cases. It
appears that beyond a relatively high level of problem complexity a process should
not seek greater richness. In other words, even if the problem on hand is highly
complex, an organization should not try to address that by screening an ever-
increasing number of alternatives and/or by substantially increasing the number of
decision-makers. If higher than needed richness is not favourable, neither is the
opposite. As illustrated in the diagram, problem complexity cannot be properly
addressed by poorly-informed processes, or the outcome will be just moderate.
The two most complex problems were faced by GAMMA and BETA.
Although BETA was slightly more successful in its decision than was its competitor,
the diagram illustrates how they both missed a highly successful outcome, but for
opposing reasons: while BETA considered only one option as a result of controlling
information and delegating substantial power to an influential member of the
organization, GAMMA lacked the presence of a powerful and united coalition, did
not try to refrain from participative decision-making and ended up with a multitude
of diverse alternatives. Arguably, the outcome of a well-informed process with two
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or three alternatives evaluated by an expert panel would have been more likely to see
them end up on the dotted line. But how can organizations ensure that a process does
not become too rich and that it flows steadily with rigour and intent? The next
section will address this issue, introducing the concepts of leadership, presence of a
dominant coalition and urgency.
Another clear example is provided by ETA, positioned far from DELTA
although they were both facing the same level of complexity. As described in the
cases, the two organizations solved their problem in the same way by quickly taking
advantage of a fortunate event — a co-tenant‘s leaving the premises. However, ETA
carried on its search for better alternatives as disagreement among decision-makers
escalated. This different process occurred because, unlike DELTA, ETA lacked
shared and consolidated corporate goals. The same issue was even more apparent in
EPSILON‘s case, where factions of the Executive Team suggested very diverse
alternatives because of conflicting understandings of the company‘s overall goals
and direction (Goodman et al., 1980). This issue of sharing overall corporate goals
inside an organization will also be discussed in the next section in relation to process
cohesion.
12.4.3 Keeping Process Richness Under Control
The previous section directed attention to the right balance between problem
complexity and process richness that an organization must strike in order to be
successful. Those organizations that were able to keep the evolution of the process
fairly undisputed shared some commonalities which have been grouped in Table 12.8
and contributed to what has been called ‗Cohesion of Process‘.
Table 12.8: Cohesion of Process
Source: developed by researcher
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The presence in the process of a strong leader (ALPHA), the weight exercised
by a united dominant coalition or at least a significant number of their members
(ZETA), the high degree of urgency felt across the organization (BETA) and shared
corporate goals (DELTA) were the four aspects that, planned or not, profoundly
shaped the processes across the cases, and did so by speeding them up. These four
characteristics of the organizations are particularly important in this part of the
analysis because they acted as agents in preventing the richness of CRE decision-
making processes from excessive escalation.
Leadership and power appeared in different shapes across the cases and had
strong similarities among similar types of organizations — large Partnerships like
GAMMA, BETA and ALPHA, for instance, lacked the presence of an individual
with a large majority of ownership and decision-making rights. However, there were
major differences in the firms‘ behaviour. While GAMMA conducted its process by
almost ignoring the power plays that usually exist in highly complex systems like
organizations, ALPHA and BETA had strong coalitions, built from the start of the
process, which essentially took control of it and ensured fast approval. Multinational
strategic consulting firms (DELTA and EPSILON) shared the presence of a
dominant figure, whose power was not derived from a larger share in the company
but more from the status of his/her job title: while the Managing Director at DELTA
had the support of the entire firm, the Managing Director of EPSILON enforced his
will on the rest of the Executive Team. Finally, the local players (ZETA and ETA)
also shared similarities in terms of power distribution, with one controlling member
of the organization holding more than 50% ownership. However, while the
Managing Director of ZETA was directly involved in the three decisions so as to
guarantee a short and streamlined process, the President of ETA willingly pulled
back, favouring a process in which every Partner was asked to participate but which
thus became more prolonged and confused.
And urgency is another element of process cohesion. Although initially a
characteristic of the problem under scrutiny, it was the responsibility of the
organization to keep it from waning as the process progressed. Once again, a
comparison between BETA and GAMMA illustrates the case: while the former
ensured that a sense of urgency was always alive throughout the firm, the case of the
latter clearly tells how urgency lost momentum, then declined significantly and
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eventually disappeared as the firm opted for a building in the early stages of
construction.
Figure 12.4 shows that while most of the companies were able to ensure a
high level of process cohesion, some did not. Those organizations not reaching a
high level of process cohesion witnessed their processes becoming too rich, and
ultimately ended up with less successful outcomes.
Figure 12.4: Process Richness vs Cohesion
(Note: DELTA overlaps with ZETA (b)).
The bubble in the diagram illustrates the cluster of six out of nine CRE
decisions, which regardless of the level of process richness manifested a high or very
high level of process cohesion. Since there does not seem to be a direct correlation
between richness and cohesion, it can be argued that cohesion is a characteristic
more of the organization than of the specific process. Again, future research will
provide additional validation (or contradiction) of these initial findings.
12.5 Informing Strategic Decision-Making
In addition to answering the open-ended research questions and building a model for
successful decision-making, this research also contributes to closing a gap in
decision-making theory. Cyert and March (1963), Mintzberg et al. (1976) and
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Eisenhardt (1989b) make very important contributions to single dimensions of
decision-making processes, but the literature is currently lacking a way of bringing
those dimensions together into a single framework. While providing more empirical
evidence for each theory of decision-making, the model presented in this thesis also
reinterprets the mono-dimensional arguments of those prominent authors in a way
that can be seen as fresh, multi-dimensional and dynamic.
In terms of the structure of decision-making processes, acknowledgement that
CRE decisions are strategic because expensive, time-consuming, and difficult to
reverse is not sufficient to establish that the process of reaching them should be
standardised. Quite the opposite: CRE decisions manifest some characteristics
supporting the argument of keeping decision-making processes fairly unstructured.
According to Mintzberg et al.,
Unstructured refers to decision processes that have not been
encountered in quite the same form and for which no
predetermined and explicit set of ordered responses exists in
the organization. (1976:246)
CRE decisions are in fact very infrequent and always different because the
structure of the organization changes over time, as do the corporate goals and needs.
This is why the strategic implications were never self-evident and rarely appeared
with the same intensity across cases. Managers were always deceived into believing
that CRE decisions were about a space-related issue that was apparently relatively
simple; and only as the processes got under way did they start to uncover the hidden
complexities and difficulties involved in managing them.
The evidence of this empirical study validates Mintzberg‘s assertion that
strategic decision processes are immensely complex and
dynamic (1976:274)
and the various cases illustrate different types of processes in which
techniques for strategic decision-making such as strategic planning and cost-benefit
analysis were useful only to a certain extent because insufficient to cope with the
complexity of the processes found at the strategy level.
The three process phases — identification, development and selection —
identified by Mintzberg (1976) were encountered in all cases, with some strong
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similarities and differences emerging. This study found that during the identification
phase organizations generally tended to react to problems and avoid uncertainty
rather than seeking risky opportunities (Cyert and March, 1963; Braybrooke and
Lindblom, 1963). Only ZETA in its third CRE decision manifested purely
opportunistic behaviour, while all other eight decisions were problem-driven.
A convincing similarity was found in relation to information search. As part
of the development phase, solutions were always sought from familiar sources in the
immediate proximity before embarking upon more active search procedures (Cyert
and March 1963). DELTA, ZETA, and ETA became aware of additional office space
in the existing building through local informants.
Finally, the researcher did not encounter in all of the cases, in their selection
phases, the multi-stage, iterative process involving progressively deepening
investigation of alternatives suggested by Mintzberg (1976). On the contrary, the
majority of firms (ZETA, DELTA, ALPHA and BETA) actually considered only one
building option.
The various cases provided evidence for most of the supporting routines and
dynamics factors identified by Mintzberg (1976). ETA and EPSILON were clear
examples of failure recycle, where solutions previously rejected became acceptable
simply because no better solution was identified or managers decided to postpone the
process of decision-making until one turned up. ETA was a good example of
interrupt, with the process suspended following the introduction of a new member to
the Board. However, political routines (Pfeffer 1981; Pettigrew, 1972; Carter, 1971;
Bower, 1970; Gore, 1964) and comprehension cycles (Pfiffner, 1960; Diesing, 1967)
represented a constant in all cases. Political activities had different forms and
objectives: sometimes individuals influenced the process to satisfy their personal and
institutional needs (ALPHA); in other cases these were used to clarify the power
relationships within the organization (EPSILON, ZETA); in some they contributed to
promoting change in organizational cultures (ETA); and in others they helped bring
about consensus (BETA, GAMMA, DELTA). In terms of the comprehension cycles,
the strategic implications of CRE decisions were never self-evident, and managers
came gradually to comprehend the various complexities only as the processes were
under way.
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A contribution to the management literature came, as well as from analysis of
the structure of decision processes, from studying the duration of strategic decisions
and assessing whether or not a connection with performance existed. In ―high-
velocity‖ environments like the microcomputer industry (Eisenhardt, 1989b), fast
decision-making is associated with better performance, and consensus, through
conflict resolution, is critical for decision speed. The findings of this research project
suggest that decisions made in slow-moving environments like CRE‘s share some
similarities with the work of Eisenhardt (1989b): the case studies in which
disagreement was not quickly resolved (ETA and GAMMA) ended up with
extremely long processes and less successful outcomes. This research has also
provided the opportunity of identifying differences between high- and low-velocity
environments: Eisenhardt (1989b) established that fast processes, when successful,
involve a larger number of alternatives, while evidence from this study suggests that
slow processes are the ones in which more options are considered.
Decision speed is critical to success, so it could be said that several of the
organizations limited their alternatives to just one to avoid the risk of failing to
resolve conflict over multiple options. As evidenced in the cases of EPSILON and
ETA, participants could become passionate about their preferred solutions and stand
firm in the face of disagreement (Garvin and Roberto, 2001). Given the imbalance of
decision-making rights, EPSILON would have quickly resolved the process even
with multiple alternatives on the table, but companies like ALPHA or BETA would
probably have taken much longer. According to Garvin and Roberto,
many executives approach decision-making in a way that
neither puts enough options on the table nor permits
sufficient evaluation to ensure that they can make the best
choice (2001:108).
Both those cases ended up with satisfactory outcomes, but the decision-
makers clearly influenced the processes by controlling participation, manipulating
information and seeking solid support by key organizational members. All of those
actions made the processes largely political.
This research has identified the difficulty of finding the right balance between
richness and cohesion to ensure a process that is sufficiently rich and yet quick
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enough to deliver a prompt outcome; a process that encourages collaborative
problem-solving, remains open to alternatives, presents balanced arguments and
accepts constructive criticisms, but that also has mechanisms in place for breaking
deadlocks when discussions become an endless loop (Garvin and Roberto, 2001).
Strong leadership appeared to be the key factor across cases in solving or avoiding
standstill situations (Nurmi and Darling, 1997; Darling and Walker, 2001).
12.6 Conclusions of Integrative Analysis
Three subgroup s comprised the study: large auditing/IT-based firms (ALPHA,
BETA, and GAMMA), multinational strategic consulting firms (DELTA, EPSILON)
and local players (ZETA, ETA). The collected evidence suggests that CRE decision-
making processes are not group-dependent; so it can be argued that the findings of
this research project might be transferable to other sectors in the professional
services industry.
The organizations that were more successful in their CRE decision-making
processes operated slightly differently from those less successful71. The way in
which those organizations dealt with space-related challenges and took advantage of
opportunities as they arose was the result of fast and well-balanced processes backed
up by strong leadership, limited disagreement, an ongoing sense of urgency and
confidence in their corporate direction. On the other hand, organizations that
promoted true collegial decision-making practices, lacked a precise strategic focus
and without the involvement of a strong leader ended up with excessively long
processes and less successful outcomes.
A contribution of this study is to develop some general guidelines for success
in CRE decision-making, ‗success‘ being defined as ‗long-term satisfactory CRE
solutions capable of addressing the trigger issue and other strategic concerns of the
organization‘. The research findings suggest that CRE decisions have to be the result
of relatively-contained processes (up to 12–18 months for highly complex decisions),
the process undertaken has to be low to moderately rich depending on the complexity
of the problem in hand and the organization should have a strong system in place to 71 The claim refers only to the context of CRE decisions and not to the overall success of a company. It is not being argued that if a company in a particular context made a poor CRE decision is to be branded a poorly-managed organization that is unsuccessful in the marketplace. One of the aims of the study is to learn about successful CRE decision-making processes, and this can be accomplished only by also considering less successful sets of circumstances.
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ensure process cohesion. This last should be a properly-balanced combination of
strong leadership, presence of a dominant coalition, urgency and shared overall
corporate goals. More precise guidelines would not be transferable outside of the
study‘s narrow context.
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13 Contribution and Conclusion
13.1 Introduction
The final chapter summarizes both the methodological and theoretical contributions
of the thesis. It also identifies limitations of the study and suggests a number of
possible areas for future research.
This thesis examined unstructured strategic decision-making processes in the
context of CRE decisions made by top-tier management consulting firms in Italy. It
considered how such organizations operated. It argued that a better understanding of
CRE decision-making would contribute significantly to both the theory and practice
of CRE. In relation specifically to theory, the contribution was not limited to the
relatively young CRE literature, but also to the vast literature on strategic decision-
making.
13.2 Contributions
This section identifies the significant original contributions made by this research to
the literatures of management and CRE. In particular, the thesis makes a contribution
to CRE decision-making processes, intended as a particular type of strategic
unstructured processes.
13.2.1 Contributions to Management Literature
The thesis‘ main contribution is that of providing a multi-dimensional model of
successful decision-making that builds on Cyert and March (1963), Mintzberg (1976)
and Eisenhardt (1989b) to look at strategic decisions‘ being successful when they
result from processes that balance out richness, cohesion and problem complexity. In
fact, successful decision-making is not just about being comprehensive or simple,
structured or unstructured, fast or slow: it is about finding the right balance, based on
the situation.
Additionally, the study of CRE allowed for the application of some theories
and frameworks of organization and decision-making to a scenario uncommon in the
management literature. As well, management consulting is an industry sector not
often explored in the literature. Its study allows for most of the research findings to
be generalised (at least in part) to apply to companies that deliver similar types of
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professional services. Arguably, financial institutions and legal offices, for instance,
could face similar recurring space-related challenges and undertake analogous
processes.
13.2.2 Contributions to Real Estate Literature
The existing literature on CRE has been important in emphasizing that corporate
operational Real Estate assets represent the physical resource base that supports any
business; and also in flagging the links between RE decisions and corporate strategy.
However, the evolution of CRE sophistication described in the literature review has
not emerged strongly in this study. If in most organizations, RE assets were
perceived as strategic and as such potential sources for competitive advantage72, no
evidence was found to indicate RE departments being proactive and their managers
recognized as ‗business strategists‘73. Apparently unsupported by empirical evidence,
the prescriptive theory of CRE decision-making appears to be some form of aspiring
evolution not reflected in real practice and has gone too far in its later stages, looking
at decision-making simply as a rational event and ignoring the processual aspects of
organizational decision-making.
The first contribution of this research was to empirically test the prescriptions
of CRE literature across a number of cases. For the first time, the unit of analysis
became the organizational and managerial processes behind CRE decisions rather
than the decision itself.
While empirically testing the validity of CRE prescriptions, the researcher
enhanced analysis by utilization of management literature, a path not previously
taken by other researchers. The introduction to the CRE body of literature of a new
vocabulary, inclusive of ideas such as bounded rationality, biased search, conflicting
goals, etc., represents the second major contribution of the study.
And the empirical testing of the CRE prescriptions within real companies,
using theories and frameworks of organization and decision-making, revealed that
some features of that literature are useful to inform regarding the practice of
decision-makers and others less so. The critical discussion from the perspective of
behavioural organization theories highlighted the fact that a robust conceptualisation
72 Cf. Table 2.1. 73 Cf. Table 2.2.
295
of CRE decision-making requires a much richer perspective, incorporating a process
view of decision-making and accommodating the complexity inherent in such
decisions. In particular, the gap between CRE decision-making in practice and the
prescriptive ‗best practice‘ of the theory was proven as follows.
Content-Related Findings
Not all the issues identified by the CRE body of literature drive decision-making
in the same way and determine the success or otherwise of a decision.
Organizations do not conduct a full investigation of the links between RE and
corporate strategy, but rather a motivated and uncomplicated search for
information.
The trigger is always a space-related issue.
Organizations are unable to identify all the strategic implications of RE at the
start of the process, following instead a much more gradual process of self-
discovery.
Towards the end of the process organizations are faced with the fact that multiple
goals cannot all be addressed simultaneously; thus they are forced to make a
selection.
Process-Related Findings
No evidence exists of a holistic perception of RE value: rather, problems are
tackled sequentially as they present.
Individual and departmental goals exist inside organizations; these support
discussion because personal views generally conflict.
The search for information is not ongoing and does not seek to integrate inputs
from multiple departments.
The search process is biased by the trigger issue and other organizational
conditions like the demands of a dominant coalition, serendipity or urgency; and
it seldom continues once a satisfactory solution has been identified.
There is a lack of a proactive searching for improved CRE strategies: instead
responsive solutions are found to problems that are often identified very late.
296
There is a complete absence of Decision Support Systems (DSS) for CRE: even
were they implemented, the optimal decisions sought by CRE authors would still
remain unreachable because of the evidence in the cases of satisficing, power
plays, aversion to risk, biased information search, etc.
As a result of the research findings, the CRE literature has in part been
reformulated by this study, making RE ‗best practice‘ more pragmatic and usable by
managers. Specifically, the definition of an original theoretical framework to support
successful decision-making has led to the following claims:
Redefinition of success: according to the CRE literature a good decision is one
that addresses all the strategic links — or at least discusses them all. Successful
RE decisions in this study have resulted, instead, from processes that looked at
the key issues but ignored other potential issues. Having a full investigation of
the links between RE and corporate strategy, therefore, is detrimental to the
quality of the decision-making process.
Balance of richness and complexity: no RE problem is complex enough to
necessarily require a full investigation of all the strategic links — a process
demanding an excessive amount of time, that would have a negative impact on
the appropriate balance between process richness and problem complexity.
Process cohesion: changes in the physical environment are likely to affect every
member of the organization, prompting multiple discussions and debates. Most
organizations require systems of cohesion capable of finding and maintaining the
right balance with process richness to ensure a relatively prompt outcome.
The fifth contribution of this thesis relates to the more practical implications
for CRE decision-makers. From a content standpoint, it was determined that the
strategic implications of CRE decisions are not self-evident and generally hidden by
an apparently simple trigger issue; and that they vary greatly across cases, although
image and corporate identity appear to be core to the top management teams. In
terms of the process, it is of practical use for managers to take into account the fact
that fast processes should be favoured because speed is of critical importance for
success. Additionally, this research assessed the use of unstructured processes vs
rigid and standardised routines, and determined that developing research tools to
look at CRE decisions in a structured way is unlikely to be successful because of the
297
peculiar nature of CRE decisions. These are in fact context-dependent, very
infrequent and highly complex, features that favour the use of unstructured
processes.
The next section of this chapter presents the limitations of this study; and the
chapter concludes by suggesting some areas for future research.
13.3 Limitations of the Research
The first limitation is the use of retrospective data: the findings from interviews rely
on organizational members‘ reflections of their experiences over prior periods. Solid
secondary data, including transcripts of BoD Meetings, provided some protection
from skewed or disaffected recollections. Furthermore, the researcher is confident of
the conclusions reported in this thesis on the grounds that there was a high degree of
consistency across interviewee responses.
A second limitation caused by the data was that the analysis resulted bounded
by the examination of sources entirely internal to the process. A complete
examination of CRE decision-making could also include an investigation of external
legislative and societal factors shaping the decision, such as taxation and political
considerations involved in property ownership.
Third, the framework applied of counting occurrences of strategic topics
discussed had its limitations in terms of assessing the relative importance to the
decision, because importance and frequency did not necessarily equate in all cases.
The researcher was aware that this framework was not theoretically valid as a
standalone tool, so the findings of the analyses were systematically compared with
the narrative of the cases. Furthermore, the study was primarily interested in the few
topics of the process that drove it, rather than in the quantitative comparison of all
topics discussed. While this was important for identifying the primary manifest
reasons for decision, the main contribution of this thesis has been to uncover the
hidden reasons and interplays behind the process.
In addition, the study manifests a number of limitations for managerial
practice: the research findings should be used with that in mind.
The research was conducted within only one industry sector and in only one
country: while general concepts appear to be transferable to other countries and
298
industry sectors — Italy being a developed western nation where business is part
of the global environment, Italian management consulting firms being part of
international networks, and management consulting being a relatively globalised
industry with processes and standards that are international — this thesis still
remains an exploratory study that requires further validation and generalization,
and a high level of detail is not realistic.
The theoretical framework developed in the study expands our knowledge and
understanding of the structure and the processes of decision-making, but is of
limited use for a manager in a practical sense. A theoretical understanding of the
concepts and forces that come into play is very important, but the manager will
not be able to extract precise prescriptions from this study. Analysis of the
various CRE decisions was always conducted after the fact: in the case of a
current CRE decision it would be very difficult for a manager to decide from this
research on the correct degree of process richness and the level of cohesion
required.
13.4 Future Research Directions
This work offers several avenues for future research in CRE decision-making
processes:
1. The partial and preliminary findings need to be further confirmed and
validated by comparative studies. Some of the questions that future
researchers can address include: what other industries share similarities with
management consulting in handling their CRE decisions?; are the findings of
this thesis similar in contexts where firms make RE decisions more frequently
(e.g., retailing)?; are the findings transferable to other countries?
2. From a theoretical perspective, an interesting research questions that remains
unaddressed is the extent to which CRE processes can sometimes bring about
change in the overall strategy of a business.
3. The proposed theoretical framework relies heavily on the concepts of process
richness and process cohesion: these can be further improved by expanding
the breadth of dimensions considered or by improving their methods of
evaluation. In terms of cohesion, there is room to debate whether or not it
299
should be more accurately classified as a characteristic of the organization
rather than of the process. Also, more research is necessary to explicate the
role of leadership in that context.
4. Future research can provide further evidence in support of or against the
initial findings concerning patterns of relationships between problem
complexity and process duration, process richness and cohesion, duration and
performance.
13.5 Conclusion
This research investigated the structure of unstructured decision-making processes in
the context of CRE. The research highlights the complexity of CRE decisions and
concludes that it is not sensible to seek a standardized approach.
If this thesis assists and encourages more research into organizational and
managerial processes behind CRE decisions, it will have served its underlying
purpose.
300
301
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APPENDIXES
Appendix 1: The Management Consulting Industry
There are many definitions of consulting and of its application to problems and
challenges faced by management. Setting aside stylistic and semantic differences,
two basic approaches emerge: the first considers consultants helpers or enablers,
taking a broad functional view of consulting according to which people in various
positions can provide such help inside the organization. Thus, a manager can also act
as a consultant if he or she gives advice and help to a fellow manager or to
subordinates (rather than directing/issuing orders to them). The second views
consulting as a specialized professional service and emphasizes a number of
characteristics that such service must possess. According to Greiner and Metzger,
management consulting is an advisory service contracted for
and provided to organizations by specialized trained and
qualified persons who assist, in an objective and independent
manner, the client organization to identify management
problems, analyse such problems, recommend solutions to
these problems, and help, when requested, in the
implementation of solutions (1983:7).
Similar, more or less detailed definitions are used by other authors and by
professional associations and institutes of management consultants. According to the
International Council of Management Consulting Institutes (ICMCI), for example,
management consulting is the rendering of independent
advice and assistance about the process of management to
clients with management responsibilities.
This research addresses management consulting as a specific sector of
professional activity — essentially, an advisory service. Although the responsibility
of consultants is in principle only on the quality and integrity of their advice, the
consultant often needs to do more than give ―pure‖ advice. In current consulting
practice there is a general tendency to extend advice over the whole change cycle:
i.e., the client uses the consultant‘s services for as long as necessary while
implementing what the consultant advises. Furthermore, in addition to advising
clients, many consultants do other things that are closely-related and complementary
314
to their advisory roles: training, encouraging and morally supporting the client,
negotiating on behalf of the client, or performing certain activities in the client
organization together with its staff, for instance.
The term ‗assistance‘ can also cover services that are not consulting per se, or
are at best on the borderline between consulting and other professional and business
services — outsourcing is a good example. Many firms in management and
Information Technology (IT) consulting also provide services, such as information
processing, bookkeeping, record-keeping, marketing, selling, distribution,
advertising, recruitment, research and design, on a long-term contract basis.
Appendix 1-1: Historical Perspective
While management practice is as old as civilization, management theory is only
about 100 years old, and management consultancy a little more than 75. One of the
first consulting firms of the kind known today was established in Chicago in 1914 by
Edwin Booz under the name ―Business Research Services‖. James O. McKinsey, a
protagonist of the general management and comprehensive diagnostic approach to
business enterprise and today regarded as one of the founders of the consulting
profession, established his own consulting firm in 1925.
In the 1920s and 1930s, management consulting was gaining ground, not only
in the United States and in Great Britain but also in France, Germany and other
industrialized countries. Yet there were only a few firms, prestigious but rather
small; and their services were used mainly for the larger business corporations.
The years of growth and prosperity for the profession came after the Second
World War. Post-war reconstruction, the rapid expansion of business coupled with
the acceleration of technological change, emergence of developing economies and
the growing internationalization of the world‘s industry, commerce and finance all
gave rise to particularly favourable opportunities and growing demands for
management consulting. This was the period in which most of the consulting
organizations that exist today were established, and in which the consulting business
attained the power and technical reputation it enjoys today.
315
Appendix 1-2: Current Consulting Scene
The growth of the consulting sector reflects the steady high demand for consulting.
The estimated value of the world consulting market was US$102 billion in 1999, up
260 per cent from 1992 when the total revenues attained some US$28.3 billion. The
1999 estimate for spending on consulting in Europe was US$33 billion. Average
annual growth rates of the world market attained 25 per cent in 1990–94 and 18.9 per
cent in 1995–99. At present, the total number of management, business and IT
consultants, including e-business consultants, may be in the range of 650,000–
750,000. These figures can only be estimates, because the scope of consulting has
not been precisely delimited and data are collected from various sources. However,
the figures give a clear indication of orders of magnitude and trends.
Over the past decade the consulting sector has undergone considerable
restructuring and it is still far from being stable. Between 1990 and 1999 the 20
largest firms held some 50 per cent of the world market; and the proportion increased
in 2000 to nearly 60 per cent as a result of faster growth of the large firms, mergers
and acquisitions. This growth also swept away the division between management and
IT consulting, especially in the large consulting firms. These have become providers
of integrated and multidisciplinary services, able to respond to virtually any demand
from their clients. While a few years ago it was possible to discern distinct types
among the large consulting firms, this is no longer possible. It is true that some
leading firms have maintained the technical profile thanks to which they attained
their present technical reputation and market position; but services in general have
become more homogenized, as many firms have copied competitors when offering
new consulting products. Emphasis on service integration and complete packages has
also made companies‘ service offerings more similar.
The giants of the industry include former auditing companies, IT
consultancies and strategy houses (Figure A1.1). They operate as multifunctional and
transnational firms, with offices or affiliated companies in most developed countries.
316
Figure A1.1: Professional Service Infrastructure
Source: Krub (2002:54)
The first subgroup is made up of those accounting firms in which
Management Advisory Services (MAS) Divisions have grown in recent decades into
major multifunctional management consultancies. When the ‗Big Eight‘ entered
management consulting in the early 1980s it was obvious that their audit experience
and relationships with audit clients were major assets in their progressing rapidly. In
fact they quickly became the world‘s largest professional firms, not only in
accounting and audit, but also, specifically, in management consulting. Accenture
(former Andersen Consulting) is at the top of the ranking with 62,000 employees and
revenues of US$8.9 billion in 2000. Price Waterhouse, after the merger in 1998 with
Coopers & Lybrand, has become the world‘s fourth-largest management and
business consultancy with 34,000 employees and annual consulting revenues of
US$6.6 billion in 2000. The other three are KPMG, Capgemini (which acquired the
consulting wing of Ernst & Young in 2000) and Deloitte (acquiring Arthur Andersen
in 2003). Because of the already-reduced number of these major firms, it is unlikely
that further mergers will be allowed by the antitrust regulators.
The 2002 indictment of Enron and WorldCom and the subsequent collapse of
Arthur Andersen resulted in stringent US Securities and Exchange Commission
rulings on auditor independence. One such result was the adoption of the Sarbanes-
Oxley Act, which required auditor independence and separation of core audit from
317
general consulting. The increasing pressure to avoid conflict of interests by not
providing consulting services to their audit clients forced the Big Four to divest
themselves of their interests in management consulting: in 2000 Ernst & Young sold
its consulting services to Capgemini and in 2002 PricewaterhouseCoopers sold its
consultancy business to IBM. However, a major part of the practice of the firms is
still to provide business advice in addition to auditing services, notably in taxation
and corporate finance.
The second subgroup is a consequence of the movement into management
and IT consulting markets by large non-consulting firms from the manufacturing,
utilities and service sectors: Hewlett-Packard, for instance, employed 6,000
consultants in 1999; and IBM started in 1992 to increase the number of its
consultants, to have 50,000 by the end of 2000 and thus become the world‘s largest
combined IT/management consulting company measured in terms of annual revenue
from consulting (US$10.2 billion).
These first two subgroups are similar in terms of size, diversification of
services and fees they charge to clients. For all these reasons, large corporations that
were born as either auditing or IT companies will be treated, within the scope of this
research, as belonging to the same group.
A third subgroup is represented by firms particularly focused on corporate
strategy, company organization, business restructuring and other general
management issues, and which position themselves as advisers to management on
key issues of strategy (the so-called ―strategy houses‖) and total business
development. ―Pure play‖ consulting firms with distinct expertise in strategy and
general business development include McKinsey, Boston Consulting Group, Bain,
Booz-Allen & Hamilton, A.T. Kerney and Roland Berger. These firms typically
declare considerably higher earnings per consultant thanks to the higher fees applied
to strategy consulting than to now largely-standardized and -commoditized services
in IT and similar systems. As an example, in 2000 McKinsey earned US$470,000 per
consultant and Bain US$380,000, while Andersen earned US$150,000 and IBM
US$204,000.
Medium-sized and small firms, which face considerable challenges for
survival, continue to account for an important share of the consulting market,
318
especially in Europe (42.3 per cent in 1999). On the other end of the scale, thousands
of independent practitioners and small Partnerships of 2-5 consultants still survive
against the power of large consultancies. These actually represent 82 per cent of
consultancy firms in Europe, but delivered only 10 per cent of consulting services in
1999.
Appendix 1-3: The Italian Market
Appendix 1-3-1: Industry Sector Profile
The Italian market for management consulting services was estimated at more than
€2 billion in 2002 (Table A1.1). After an unprecedented period of growth, with
yearly increases of 15% or more, the consulting sector was negatively impacted in
2002 by a global economic slowdown. Nevertheless, the sector did not suffer
excessively and recovered more quickly than other industries.
According to a 1999 survey by FEACO (European Federation of
Management Consultancies Associations), Italy is the fifth-largest market in Europe
for management consulting services, with a 4.9% share of the total European market.
Assoconsult (the Italian Association of Consulting Firms) estimated the market in
Italy to comprise about 3,100 firms employing 23,500 professionals, ranging from
global competitors (many of which are of US origin) offering a full-range of state of
the art services to a few ―national champions‖, and a number of local or niche
players and ―gurus‖. Small firms with revenues of less than €500,000 represented
92% of the total number of firms.
Table A1.1: Market Size (€ Millions)
Sources: International Business Strategies; Assoconsult (Italian Association of Consulting Firms); interviews; business press articles
Although Italy is still a low-intensive consulting market in which the top 20
firms take about 40% of overall fee revenues, most of its large multinational
319
consulting firms are well established, accounting for as much as 55% of the total
market, and subsidiaries of US firms about one-third. In addition to consulting many
of these firms provide technology and solutions in the area of information services,
as well as outsourcing services.
Appendix 1-3-2: Overview of the Top 20 Companies
The top 20 consulting firms in the Italian market represent a good mix (Table A1.2)
of the corporate realities described. They include IT or accounting companies whose
Management Advisory Services (MAS) divisions have grown in recent decades into
major multifunctional management consultancies, multinational strategy houses and
local players.
Table A1.2: The Top 20 Consulting Firms in Italy
Source: developed by researcher
Appendix 1-3-3: Future Trends
As well as the level of competition‘s increasing due to entrance into the marketplace
of various new players, pure management consulting companies will also see their
market-shares reduced because of a price war, initiated mainly by former auditing
companies and IT consultancies. The cost for services offered by pure strategic
management consulting companies (e.g., McKinsey, Roland Berger) is extremely
high, accessible only by the largest private companies. As the Managing Director of
Roland Berger pointed out,
320
Italian clients who fall within this category are just the four
large industrial groups of Telecom, Fiat, Eni, and Enel, plus
railways and postal services and a number of mid-cap
companies. The public sector used to consist of pure
strategic management players, but recently the tendering
process has shown itself more favourable to bidding firms
that can lower their consulting fees without damaging their
corporate identity.
The reaction of pure management consulting firms is expected to be the
provision of an even more specialized service to clients with concomitant rise in fees
and a further reduction in the number of clients and projects. In other words, growth
will be in project size.
321
Appendix 2: Detailed Tables from CRE Literature
Appendix 2.1: RE Considerations of Strategic Driving Forces
Table A2.3: Strategic Driving Forces
322
Source: Edwards (2004:140-141)
323
Appendix 2.2: Linking Real Property Operating Decisions to Real Estate Strategies
Table A2.4: RE Operating Decisions and Strategies REAL PROPERTY OPERATING DECISIONS
Real Estate Strategies Location Quantity Tenancy
Duration Identity / Signage
Building Size / Character
Building Amenities
Exterior Quality
Company Space
Mechanical Systems
Information / Communication Systems
Ownership Rights Financing Control Risk
Management
Occupancy Cost Minimization
Remote, less popular regions and sites
Minimum space per employee
General purpose building
Less important
Less important
Lesser priority
Minimize financial responsibility
Cost-of-capital trade-offs drive decision
Inconsistent with cost minimization
Minimise financial exposure
Flexibility Less prime location
Short-term leases – options
Built to favour easy modification
Important
Promote Human Resources Objectives
Accessible to where workers live/want to live
More space per employee
Long term High priority
Premium ambience and furnishings
Comfortable working ambience
High priority
Promote Marketing Message
Prestige and high visibility very important
Own or long-term lease
Critical Landmark structure Very
important
Consistent with marketing message
Important relative to continuity of marketing message
Priority
Promote Sales and Selling Process
Prestige and/or high traffic location
Lease for flexibility Critical Consider
selling
Critical impact on selling environment
Important Significant re impacts of adjacent uses
Facilitate Production, Operations, Service Delivery
Access to customers and suppliers
Own or long-term lease
Appropriate for primary purposes
Specialized facility
Appropriate temperature Priority
Significant re impacts of adjacent uses
Facilitate Managerial Process and Knowledge Work
Sufficient to promote effective work
Important Contribute to effective work
Critical priority
Positive working environment
priority
Capture the Real Estate Value Creation of the Business
Consider impacts on demand of location decisions
Secure more space than needed for own use
Longer terms Dominant
tenant critical critical strategic priority
critical
Aggressive value creation involves more risk
Source: Adapted from Nourse and Roulac (1993: 490-491)
324
Appendix 2-3: CRE Strategies and Contributions to Competitive Advantage
Table A2.5: CRE as a Source of Competitive Advantage
CONTRIBUTIONS OF SUPERIOR CORPORATE PROPERTY STRATEGY TO COMPETITIVE ADVANTAGE
CRE Strategies Create and Retain Customers
Attract and Retain Outstanding People
Contribute to Effective Business Processes
Promote Organizational Values / Culture
Stimulate Innovation and Learning
Impact Core Competency
Enhance Shareholder Wealth
Minimize Occupancy Cost
Positive if customer seeking low cost supplier; prospectively negative for other customer selection criteria
Substantially negative if not provide appealing work environment. Positive if people perceive occupancy cost savings result in higher compensation.
Substantially negative if work environment compromises business process. May be positive otherwise.
Positive, if low cost values are emphasized; substantial negative if not
Positive if objective is the solution of problems without spending resources; substantially negative if not.
Positive if low cost provider; could compromise other competencies.
May be positive if low cost strategy or in short term; if otherwise, prospectively detrimental to long term objectives.
Increase Flexibility Positive to the extent it enhances superior customer service
Conducive to attract and retain those workers who favour change
Very positive to dynamic circumstances.
Reinforces adaptability, which may or may not be congruent with values and culture
Promotes improvisational approaches, may not compromise more thoughtful longer term approaches
Possibly positive; possibly negative
Prospectively positive, as minimises financial commitment to businesses facilities whose lack of adaptability could impose excessive costs.
Promote Human Resource Objectives
Satisfied employees lead to satisfied customers Integral Probably positive Uncertain Yes Probably positive Yes
Promote Marketing Message Yes
Yes – strong external marketing messages for improving retention
Strong external marketing messages can complement business processes
Yes
May be conducive, but a very strong marketing message could discourage innovation and learning
Possibly directly related, possibly tangentially
Yes
Promote Sales and Selling Process Yes Uncertain Positive Uncertain Uncertain Could have
variable impact Yes
Facilitate Production, Operations, Services & Delivery
The better the enterprise is in its production, operations, services and delivery, the more customers will be attracted
Effective production, operations, services and delivery make company more appealing to work for
Yes Most probably positive Most probably positive Likely to be positive Yes
Facilitate Managerial Process Positive impact Positive impact Positive impact
Enhances likelihood of reinforcing values and culture
Can be crucial means of stimulating innovation and learning
Crucial Very positive
Capture Real Estate Value Creation of Business
Uncertain Uncertain Uncertain Uncertain Uncertain Uncertain Yes
Source: Adapted from Roulac (2001:146-147)
325
Appendix 3: Distribution of Topics in Case Studies
Figure A3.2: Frequency Bar Graphs of Case Studies
326
Appendix 4: Additional Information on Case Studies
Appendix 4-1: ALPHA ( )
Appendix 4-1-1: Organizational Structure
ALPHA employs approximately 6,300 professionals in Italy, organized in a
hierarchical structure as indicated in Figure A4.1.
Figure A4.3: Hierarchical Structure of ALPHA
327
Appendix 4-1-2: Location
ALPHA‘s CRE decision-making process led to the acquisition of the entire building
in via del Canaletto. The map below illustrates the physical location of the building
— not in the historical centre of Rome but in the new business district. It is easily
accessible via the motorway (identified by the blue line).
Figure A4.4: Rome City Map
Appendix 4-1-3: Decision-Making Process
The activities performed during the decision-making process (A4-A16) have been
arranged in chronological order. The first diagram provides a visual representation of
the steps taken; the second emphasizes more the roles of the key players in the
process while drawing distinctions between events, process and decisions. For this
Figure, ―events‖ are occurrences that take place in a defined and quantifiable period
of time; ―processes‖ are a series of actions, changes, or functions bringing about a
result; and a ―decision‖ is the passing of judgment on an issue under consideration
(i.e., a verdict).
328
Figure A4.5: Activity-Based Mapping Process
Figure A4.6: Role-Based Process Responsibility
329
Appendix 4-2: BETA ( )
Appendix 4-2-1: Organizational Structure
BETA has a workforce of around 2,500 employees in Italy, organized hierarchically.
Figure A4.7: Hierarchical Structure of BETA
330
Appendix 4-2-2: Location
As indicated in the map below, via Tortorella is located south of the Milan city
centre. The area has recently become the new precinct of the fashion industry, but is
not yet well serviced by public transport.
Figure A4.8: Milan City Map
Appendix 4-2-3: Decision-Making Process
The next two Figures focus on the key activities of the decision-making process,
highlighting different aspects of it. The first draws attention to the activities (A3-
A15), providing a visual representation of the steps taken; the second emphasizes the
roles of the key players in the process and draws distinctions between events
(concrete milestone), processes (achievement of various objectives) and decisions
(substantive policy outcomes). The RE Manager has been specifically listed in the
diagram to emphasize the irony of his being uninvolved in any phase of the process.
RE Manager:
Being responsible for the daily management of the
company‘s Real Estate assets and its related services, it is
my duty to report to the Council of senior partners any
space-related challenge and to deal with them regularly until
the problems are solved. However, in this particular case, the
Real Estate decision was regarded as strategic rather than
operational, and therefore my input was not requested at any
stage of the decision-making process.
331
Figure A4.9: Activity-Based Mapping Process
Figure A4.10: Role-Based Mapping Process
332
Appendix 4-3: GAMMA ( )
Appendix 4-3-1: Organizational Structure
GAMMA has a workforce of approximately 1,500 employees in Italy, organized in a
hierarchical structure.
Figure A4.11: Hierarchical Structure of GAMMA
333
Appendix 4-3-2: Location
Via Colle Rosso is located on the western side of the outer circle around the centre of
Milan. The outer line on the map, punctuated with numbers that have E and A
prefixes, is the motorway, and it represents the geographical borders of the City.
Although GAMMA is not located in the main centre of Milan, it is positioned
in the recognised commercial area, well serviced by roads and public transport.
Figure A4.12: Milan City Map
Appendix 4-3-3: Decision-Making Process
The next two Figures focus on the key activities of the decision-making process (A3-
A18) and highlight different aspects of it. The first draws attention to the activities of
the decision-making process, providing a visual representation of the steps taken; the
second reflects this sequential progression while emphasizing the roles of the key
players in the process and drawing distinctions between events (concrete milestones),
processes (the achievement of various objectives) and decisions (substantive policy
outcomes).
334
Figure A4.13: Activity-Based Mapping Process
Figure A4.14: Role-Based Mapping Process
335
Appendix 4-4: DELTA ( )
Appendix 4-4-1: Organizational Structure
DELTA has a workforce of around 400 employees in Italy, organized hierarchically.
Figure A4.15: Hierarchical Structure of DELTA
336
Appendix 4-4-2: Location
Piazza Nova is in the very centre of Milan and easily accessible from all suburbs.
According to the Administration Officer, the location‘s prestige continues to grow, as
in 2006 the office space in this location realised close to €20,000/sqm.
Figure A4.16: Milan City Map
Appendix 4-4-3: Decision-Making Process
The activities performed during the decision-making process (A3-A12), have been
arranged in a chronological order. The first diagram provides a visual representation
of the activities, while the other emphasizes the roles of the key players. A
distinction is also made between events, process and decisions. ―Events‖ are
considered occurrences that take place in a defined and quantifiable period of time;
―processes‖ are a series of actions, changes, or functions bringing about a result; and
finally a ―decision‖ is the passing of judgment on an issue under consideration (i.e., a
verdict).
337
Figure A4.17: Activity-Based Mapping Process
Figure A4.18: Role-Based Mapping Process
338
Appendix 4-5: EPSILON ( )
Appendix 4-5-1: Organizational Structure
EPSILON has a workforce of nearly 100 employees in Italy, organized in a
hierarchical structure.
Figure A4.19: Hierarchical Structure of EPSILON
339
Appendix 4-5-2: Location
EPSILON is located in via Sirio, within walking distance from the main piazza and
well serviced by public transport. This prestigious address demands higher than
average cost per sqm.
Figure A4.20: Milan City Map
Appendix 4-5-3: Decision-Making Process
The key activities that formed the decision-making process (A6-A14) have been
arranged in chronological order. The first Figure illustrates the sequence of the steps
taken; the second emphasizes more the roles of the players in the process while
drawing distinctions between events, process and decisions. In this respect, ―event‖
is understood to be a concrete milestone while ―process‖ is conceptualised as the
achieving of various objectives, and finally ―decisions‖ are held to be substantive
policy outcomes.
340
Figure A4.21: Activity-Based Mapping Process
Figure A4.22: Role-Based Mapping Process
341
Appendix 4-6: ZETA ( )
Appendix 4-6-1: Organizational Structure
ZETA has a workforce of around 1,500 employees in Italy, organized in a
hierarchical structure.
Figure A4.23: Hierarchical Structure of ZETA
342
Appendix 4-6-2: Location
ZETA‘s CRE decision-making processes led to the acquisition of two separate
buildings in Milan, one for Management Consulting and one for their IT Consulting
& Solutions division:
Management Consulting: via Giaguari is just a few blocks from the main square
in central Milan;
IT Consulting & Solutions (ZETA TEAM): piazza Australia is a fast-growing
area on the southern outskirts of the city, recently attracting other large
companies.
Figure A4.24: Milan City Map
Appendix 4-6-3: Decision-Making Process
While the third RE acquisition lacked a formal process, ZETA‘s two earlier decisions
were the result of fairly complex processes. These are depicted below in visual
representation of the steps taken while the roles of the key players in the process are
emphasized. A distinction between events, process and decisions is also illustrated:
―event‖ being understood as a concrete milestone, ―process‖ measured as the
achieving of various objectives, and ―decisions‖ perceived to be substantive policy
outcomes.
343
1. The acquisition of the building in Piazza Australia for ZETA TEAM (A2-
A9):
Figure A4.25: Activity-Based Mapping Process (a)
Figure A4.26: Role-Based Mapping Process (a)
344
2. The acquisition of adjacent spaces in via Giaguari for the Management
Consulting practice (A10-A20):
Figure A4.27: Activity-Based Mapping Process (b)
Figure A4.28: Role-Based Mapping Process (b)
345
Appendix 4-7: ETA ( )
Appendix 4-7-1: Organizational Structure
ETA has a workforce of around 150 employees in Italy, organized in a hierarchical
structure.
Figure A4.29: Hierarchical Structure of ETA
346
Appendix 4-7-2: Location
ETA had two offices in Milan — a large operational one in via Albatross and a much
smaller one in via Omen (for receiving important clients and eminent keynote
speakers).
As illustrated below, via Albatross is located on the western side of the outer
of two circles around Milan‘s centre, in a recognised commercial area well serviced
by roads and public transport. The blue line on the map punctuated with numbers
with E and A prefixes is the motorway, and represents the geographical borders of
the City. Via Omen instead is located in the very heart of Milan, also (of course) well
serviced by public transport, and offering many venues for entertaining clients.
Figure A4.30: Milan City Map
Appendix 4-7-3: Decision-Making Process
The next two Figures focus on the key activities of the decision-making process and
highlight different aspects of it. The first draws attention to the activities (A4-A26),
providing a visual representation of the steps taken; the second emphasizes the roles
of the key players in the process and draws distinctions between events (concrete
milestones), processes (the achievement of various objectives) and decisions
(substantive policy outcomes).
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Figure A4.31: Activity-Based Mapping Process
Figure A4.32: Role-Based Mapping Process
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Appendix 5: CRE Decision-Making Trends in Italy
Appendix 5-1: Geographical Locations of Consulting Firms in Italy
In order to understand the CRE strategies of top Italian management consulting firms
it is first important to clarify the difference in the way Italian cities are structured
when compared with more modern cities in North America, Australia or even Asia.
While in modern cities major corporations are headquartered in what is called the
CBD (Central Business District), an area of the city generally characterized by
skyscrapers and post-modern buildings, the centres of Italian cities generally
correspond with the historical city centre, which is instead crammed with churches
and other artistic buildings from medieval times or even earlier. The buildings in
these areas are of course very prestigious but they are also regarded as ―artistic
heritage‖. The consequences are twofold: complete lack of space for modern office
buildings, and great difficulty in obtaining permits for renovations.
This situation forces firms needing modern facilities or requiring considerable
amounts of space to move to the outskirts of the cities and often to build their own
premises. The table below shows that this has been the strategic choice undertaken
by all major accounting firms analyzed during this research (ALPHA, BETA, and
GAMMA).
Table A5.6: Comparison of CRE Strategies
Previously, the trend was for accounting firms to have their headquarters in
the city centre and to have a number of offices scattered across the city and in other
(minor) towns — necessary because the services they offered required proximity
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with their clients. It was only in the mid-‘70s that they also started offering
consulting services, requiring thereby more integration of their employees.
Pure consulting companies, on the other hand, whether branches of
multinational companies (DELTA, EPSILON) or local entrepreneurial activities
(ZETA, ETA), have preferred to maintain their headquarters in the centres of the two
largest Italian cities — Milan and Rome — even if this necessitated having to solve
space difficulties and inflexible layouts (for these companies the option of remaining
in the city centre was possible because of their much smaller size). In 2007, the cost
of renting office space in the Milan city centre ranged between €200-500/sqm per
annum. The maps below show the locations of the selected case studies in Italy and
Milan.
Figure A5.33: Map of Italy
Figure A5.34: Map of Milan
Appendix 5-2: Common RE Practices, Italian Consulting Industry
In terms of RE practices it appeared that the firms followed generally the same
guidelines, often defined by the industry leaders, although some differences arose
across industry segments. As described, in terms of geographical location there were
differing trends between pure strategic management consulting companies and
auditing-/high-tech-based companies.
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All seven but one favoured leasing over purchasing74, and two reasons
seemed to stand out:
1. the difficulties for a Partnership in managing a Real Estate investment,
particularly in terms of Partner dissolution, and
2. the advantage of having more freedom in relocating or adjusting space as
required.
The issue of flexibility of space allocation was closely connected with
hotelling, a practice that appeared to be heavily promoted and used in phases of
growth but not adopted during periods of decline. In some instances, companies even
suggested a complete restructure of their business to allow employees to work from
home, thus reducing occupancy costs to a minimum, whilst receiving clients in a
highly prestigious but small representative office in the heart of the city. The
Managing Director of EPSILON estimated that
Over the next three years we will have enough time to
restructure our business so that most of the workforce will
be working from home, and we will be likely to reduce even
further occupancy costs while being better positioned...
On the other hand, some companies positioning image over all other RE
aspects (and able to afford it) never changed their Real Estate strategies based on
fluctuations in demand for service. The Site Manager of DELTA, for example, stated
that
We have been in the same building for many years and have
never renounced to or subleased portions of our offices.
Some of our competitors have done so because they do not
have as stable a position in the market as we do.
In relation to space distribution and amount of space per worker, there was
strong evidence that management consulting firms tried to stay as close as possible to
industry standards, although internal parameters were often defined and
recommended to all branches around the world. Open space is slowly becoming an
industry standard in Italy (as elsewhere) even though the practice is still not fully
74 ZETA‘s strategy appeared to differ mainly because of its alignment with the overall corporate strategy of increasing the company‘s market value
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embraced by all firms, especially among partners and senior executives. In fact, all
seven companies included single offices for directors/senior partners and shared
rooms for principals/senior managers, there being multiple reasons behind the
difficulty of implementing a full-scale open-floor design. Officially companies seem
to favour closed offices for senior executives for both personal privacy and
confidentiality of client information; however, interviewees have often referred to the
loss of status apparent in being deprived of a private office.
Finally, two trends were noticeable in relation to type of building sought by
large accounting- or ICT-based firms versus the smaller, pure management
consulting companies: the first group appeared to seek practical RE solutions —
buildings generally modern, environmentally friendly, efficient in terms of energy
consumption and space usage and generally portraying an image of technological
innovation — while the pure management consulting companies still gave preference
to historical buildings.
It was understood that the advantages of having a prestigious address far
outweighed the difficulties of managing a building with several physical constraints.
The Site Manager at DELTA, in describing their Milan office, was recorded as
saying:
This building is not suitable for our industry sector and even
less for a company like DELTA, which requires a great level
of flexibility in space allocation to adapt to the constant
changes of the firm. Flexibility in terms of internal layout is
very limited; but we have always been aware of such
limitation.
Interestingly enough, the ZETA case further corroborated the view that
management consulting needs to portray a different image from that of IT consulting
or auditing. The company recognized that its two practices (Management and IT
consulting) had to portray distinct identities, thus requiring buildings with quite
different characteristics.