Sunday, March 29, 2009

It’s Time to Monitor Your FM/CRE Supply Chain

Most FM’s/CRE’s are dependent upon a wide range of service and material providers. If you have checked on the financial health of your key providers recently you may have gotten a few surprises. The S&P 500 shareholder value index is down 56% (as of early March) but many providers have suffered deeper losses, some to the point they are on failure watch lists. Here are a few real examples.

Office supply company -98%

Custodial equipment and supply company -96%

Provider of outsourced FM services -78%

Electric utility company -60%

Provider of outsourced food services -44%

Each of the providers listed above is a national top tier company in their market segment and each has suffered substantial loss of shareholder value. Those losses may result in any number of impacts to customers, including staffing changes, decreases in quality and attempts to maximize billings.

In addition, take a very close look at your Real Estate relationships. Many REIT’s and building owners are in distress due to reduced property values, high vacancy rates and lease defaults. If you are a Landlord through ownership, management, or sub-leases then a monthly watch on tenant’s health is a prudent step. One simple way to do this is by dashboarding shareholder value as a percentage as was done with the companies listed above. Another method is tracking share price, debt/equity ratios, etc. Whichever metric you decide upon make certain the context is both valid (choose the right measure) and equitable (sensible across segment boundaries).

Sunday, March 22, 2009

Renegotiating Leases

During economic downturns it is common for tenants and sub-tenants to attempt to renegotiate existing leases. This may be motivated by a need to contain costs or a desire to take advantage of lower markets to extend existing commitments at lower rates. In either event substantial operating cost reductions are possible, making the attempt worthwhile if not necessary.

In previous recessions landlords were sometimes willing to buy tenants out of existing leases in other buildings as a way of bringing them into their building, in order to increase occupancy and capture tenants who would remain in place after the downturn. At some cases this “buyout” included costs of exiting the lease, relocation, and TI development. That is not the case in this downturn, however, because capital is not available in the credit market. For CRE’s and FM’s in the position of having to renegotiate this removes one of their levers on the existing landlord.

Further, landlords are not going to agree simply because you say you need relief. Naturally they are interested in your financial health because it has a direct bearing on their own. If you really need relief it is likely that some accommodation will be made. But it will not be a short or easy process. Be prepared to provide financial statements going back several years and cash flow projections and scenarios for the next few years as well. This is important data for the landlord to analyze as they consider your request. They will want to understand how legitimate your claims of financial distress are and what affect it may have on their property should you be forced to go elsewhere.

Also expect them to ask what else you are cutting back on and be able to prove your claims. Landlords are in a difficult position themselves and must make sure that they have completed a thorough due diligence process before agreeing to any sort of financial relief. They will expect that you are making cost reductions in several areas, not just looking to them alone.

Sunday, March 15, 2009

Overlooked Data Center Energy Efficiency Opportunities

In the February issue of Today’s Facility Manager, Steve Yellen writes that every watt saved at the computing device level results in a cumulative savings of 2.84 watts at the facility level. His article does a good job explaining how this savings is accumulated and what actions are needed to capture the savings. Suffice it to say that the additional savings occur at each component level (PDU, UPS, Cooling, Switchgear, etc.).

In the article, Yellen discusses two key data center metrics. The first, Power Usage Effectiveness (PUE), is calculated by dividing the amount of power entering the data center by the amount of power used to run the computing infrastructure within it. That is helpful, but considers only the IT load number and does not address IT strategy. Put another way, it will tell you how well matched your power provision is to the IT load, but will not tell you how smart the IT load is.

The second metric he mentions is Computer Units per Second per Watt (CUPS/W) which includes IT performance in the calculation. This may be a more meaningful metric but does not yet have the wide acceptance necessary to qualify as an industry benchmark.

The U.S. Environmental Protection Agency (EPA) projects that U.S. data center power consumption will grow from its 2006 level of 61 billion kilowatts to 100 billion kilowatts in 2011. Think about that for a minute - a 64% growth in data center power consumption in a five year span. Couple that with expected escalations in the cost of electricity and you begin to see why FM’s managing large data centers are working to wring every watt of efficiency out of their systems and why large boxes are appearing on remote parts of the landscape where power is relatively less expensive.

If you are responsible for data center operations or infrastructure then you will be well served by knowing your power/cooling profiles and partnering with your IT group to maximize data center efficiency. You cannot do that without a close and constant watch on capacity and demand information and a partnership with IT operators.

To read Yellen’s article in its entirety, visit

Sunday, March 8, 2009

CRE and FM Staffing Models Changing

One effect of the economic downturn is the acceleration of a shift already underway in how companies meet their talent resource needs. Traditional staffing models relied predominantly on corporate employees. Temporary workers were often regarded as little more than fill ins, and consultants were thought of as high-priced problem solvers to be used sparingly. Not so anymore.

This shift began earlier in part because younger workers have different ideas about who they want to work for, where they want to work, and how long they want to work. Many organizations were already making changes in staffing models to accommodate the demands of important new talent. Now, however, that shift has received a dramatic boost, thanks to the economic realities of the day.

Younger workers are typically less concerned about corporate benefits and more concerned about the contribution they are allowed to make across a wide spectrum and their perceived freedom to control their own destiny. They see “free agency” as a way of both enhancing their contribution by working with many organizations, and improving their long term compensation in the process. Now, more and more companies are agreeing with them, motivated in part by cost savings but also because free agency allows them to deploy a better aligned resource set against any given problem or project. Both employees and employer see it as an advantage, not a penalty. And now this perspective is not only the purview of the young. More mature workers are embracing this model as well, some to widen the opportunities they have and some to facilitate a transition to the next phase of life.

So who are these “free agents?” They have many labels. Temporary employee, leased employee, contingent worker, specialist, independent contractor, strategic partner, and to some extent consultants are all what we refer to today as “free agents.” Some project that in the foreseeable future 80% of staffing needs will be filled by free agents, compared to the more traditional 80% “owned” staff model.

Organizations that choose to go this route will have to resolve inherent conflicts between this new staffing model and the stability needs of daily business.

· How will you maintain standards of care?

· How will processes remain in control?

· How will corporate culture adapt to include, support, nurture…and then release these players?

· How will this change affect your customers, and their satisfaction with you?

One very important question to ask yourself is…what about you? Are you one of these new free agents? If you think you might be, what does it take to be successful? How will you need to change?

Ah, there’s that word again. Change. Get used to it.

Monday, March 2, 2009

Surviving and Thriving In A Downturn

Right now things aren’t looking so good. The Recession is now forecast to run through 2009 with rosiest predictions foretelling improvement in 2010. No matter when improvement actually comes, one thing is clear; it’s not going to be soon enough.

What are FM’s to do? Many of you may wonder if your own position is safe. Others must give bad news to coworkers and friends. It’s tough, and not uncommon to feel a sense of loss of control. Helplessness, however, is not healthy or helpful. It is important that you keep your attitude up and focus on positive actions that will contribute to positive change. That, really, is the only way it turns around. The government can throw as many life lines as it wants to, but in the end each one of us has to pull ourselves up.

Here are a few thoughts on what it will take to create a lasting turnaround. It is up to each business, each CEO, each manager and each worker to do their part. It will be hard work but as I said a couple of weeks ago, a good crisis is a terrible thing to waste.

Customer Service is important again. Back in style as a way of developing buyer loyalty, strong Customer Service initiatives will differentiate good firms from bad ones. The market knows, and the market votes.

The only way you know your Customer Service profile is to ask. Good firms do, and they measure and track customer perceptions and make changes accordingly. The point here is that you can’t change if you don’t know, you can’t know if you don’t measure, and you can’t measure if you don’t ask. Got it?

Favor solutions over services. Whether you are an in-house organization or face external customers directly, you should think of yourself as being in the solution business. You deliver solutions through your products or services, but the customer can probably get those anywhere. In times like this, solutions will differentiate you from the “low cost provider” of services alone.

Forget yesterday. It’s time to throw the old assumptions out the door. Simply put, what worked then won’t work now. It’s tempting to say “if we just do what we’ve always done but do it a little smarter” then all your problems will take care of themselves. It’s a lie, don’t believe it.

Take advantage of the opportunity to create a sense of urgency. Mobilize your people and engage them in the renewal process. Let them be a part of creating the smarter, better, leaner, more efficient organization that will emerge. Don’t feed them doom and gloom. Challenge them, energize them, empower them, and support them.

Check your alignment. Over time core values and mission can become diluted by good ideas and initiatives that are the enemy of the best. Search for and prune away these resource robbers that muddle the vision and direction of the enterprise.

Make sure your plan is big and small. Big change requires big thinking, strategy formation, socialization, and detailed execution. It’s not going to happen quickly. But, don’t fall into the trap of setting one large change initiative in place and then starting the march up the hill. The troops will get tired too fast. Once you have the big plan, break it down into smaller plans. Think in 100 day bites. This provides a sense of accomplishment, a chance to celebrate, and it develops momentum.

Take care of your most valuable resource. Retaining and recruiting good staff should be a priority item. It is these people, after all, who create the value the customer buys. You may need to be creative (probably a good thing) in how you do it, but look for opportunities to acquire good talent that other firms are forced to let go, and make sure you keep your own all-stars.