Deconcentration: a strategic imperative in corporate real estate.

Since the Industrial Revolution, work has been concentrated in specific sites and facilities. The resulting workplace model--often defined in modern corporations by large, monolithic buildings in fixed locations--benefited employers and employees alike in the "steady state" world of the past century Today, however, new needs, new norms and new capabilities are making the Industrial-era workplace a costly, inefficient drag on economic growth and organizational performance.

The Information era offers the opportunity to rethink, reposition and redesign the Industrial-era workplace. Advanced communications and information technologies--when coupled with flexible organization structures and work practices--allow companies to redistribute work to numerous single- and multi-purpose sites, within cities, across regions and globally, without compromising the collaboration and efficiencies of collocation in a specific facility. We call this strategy deconcentration. Carefully designed and executed, it may strengthen competitive advantage. improve customer service, increase employee productivity, and reduce total real estate costs.

Deconcentration is no fad. Indeed, it has been the underlying trend in urban development in the U.S. and Europe for more than five decades. The impetus began with manufacturers whose scale and search for efficiencies required vast, horizontal production floorplates. After World War II, corporations of all types began to migrate from cities to suburbs in search of large administrative, research and warehouse space. As a boy in the 1950s, I watched in awe as my father, a pioneer in assembling suburban sites for major companies such as AT&T, Ford, IBM, and Warner-Lambert, envisioned the transformation of farmland to the corporate campuses we now see throughout the metropolitan New York-New Jersey area. Suppliers and service firms quickly followed to support these large enterprises. Their executives and professionals, tiring of long commutes to the city, drove the parallel demand for suburban offices. Residential, retail and hotel development naturally ensued. Consequently, suburban growth has steadily outpaced c enter city growth, despite the impressive recent progress in revitalizing traditional downtowns in several major cities.

The terrorist attacks on September 11, 2001, accelerated and redefined this long-term trend in the New York region. Many firms' headquarters, branch office and back office operations, clustered in the Wall Street area, were demolished or severely damaged. Companies were compelled to restore operations within days and to relocate within weeks. Executives made quick, profound decisions in hours that would have entailed months of deliberation under normal conditions. Professionals and specialists in many fields learned how much they could accomplish from homes, hotels, and other remote locations. Meetings were hastily rearranged through videoconferencing, with large savings in time and travel.

Today, the sense of crisis within these companies has largely passed. Critical infrastructure has been restored and travel is being resumed. Managers have strengthened and institutionalized security and contingency plans. Workers displaced to backup or temporary locations have returned to their former offices.

Still, there is--in a very real sense--no going back. Thousands of people learned that they could operate effectively from their homes and other remote locations, and could "meet" electronically with customers and colleagues alike. For the firms most directly affected, significant reductions in travel time and cost are now being built into business plans and budgets. For all others, the attacks forced reconsideration of long-held beliefs and revealed the potential for change in other metropolitan areas. Concerns about physical security and business disruption will linger. A recent BCG survey revealed that "business continuity" has now surfaced as a top management concern. And continuing economic uncertainty will ensure that global interest in workplace security as well as productivity will remain. As one CEO observed recently, "A year ago, facilities were not even on my radar; now the/re right in the center."

For companies everywhere, the upshot is that deconcentrating the workplace is no longer an option, but an imperative. As a result, senior executives across industries and regions have found themselves re-examining their corporate infrastructure. As they do so, the key questions remain the same as ever--yet the answers are no longer as intuitive or straightforward as they once were. Consider:

* Where should we locate--and what should we build? Today, location is increasingly a matter of security and interoperability as well as customer service, cost, and convenience. Advances in wireless communications and computing can both liberate vast numbers of employees from their tethers to specific locations and allow firms to manage broadly dispersed operations. Yet these technologies also increase dependence on power and telecommunications grids. So in planning and building their workplace infrastructure, companies must find new ways to balance three interlocking and potentially conflicting tradeoffs: access (for customers and employees), layout (for efficient and effective operations), and mass (to minimize visibility and over-concentration).

* How can we mitigate and manage infrastructure risks? Financial and environmental risks have long been high on management agendas. Since September 11, physical threats to employee safety and infrastructure security have risen to paramount concerns. Firms must determine how to disperse employees and facilities not only for maximum benefit but also with minimum risk to the individuals, the company, and the community. Tradeoffs between physical and systems security (to pre-empt risk), back-up operations sites (for business continuity in the event of disasters), and insurance (to pay for disaster recovery) require especially robust and informed judgments, as the solutions affect every company stakeholder.

* When and how should we transform the workplace? Managers must decide how to organize functions and people to reduce risks while improving operational efficiency and effectiveness. There are no pat answers to basic questions, such as: Who should work in corporate facilities, and who could work elsewhere? How can we maintain team integrity, as well as the social and intellectual benefits of teamwork, when individuals and work units are dispersed across multiple sites and time zones? Which policies and practices--from removing executive suites to installing individual incentives--will cause employees to accept deconcentration without diluting the underlying values that determine the firm's culture and ensure its long-term success?

* Which facilities should we keep and which should we sell? Decisions to lease) buy, build, or dispose of corporate facilities can be made only after the above three questions are answered. The toughest choices usually involve disposition, simply because most line managers find it easier to acquire new space than to eliminate existing excess space. Therefore, it is up to senior executives to determine which current facilities should be maintained, both to sustain ongoing performance and to ensure business continuity, and which should be disposed. Then, they should move decisively to rationalize the facilities portfolio by separating surplus facilities from the company's mainstream real estate activities. Even large portfolios of "legacy assets" can be reconfigured through disposals and adaptive re-use, provided they are priced to the market and managed separately--but this takes a highly focused, disciplined effort.

Until recently, decision makers tended to ignore these questions about corporate infrastructure until they were confronted, periodically, by needs to relocate operations, build new plants, or reduce staff (and, consequently, realign the facilities that house them). Then, with little preparation, these executives either tried to become instant experts, or delegated the decisions to specialists several rungs down the organizational ladder, or outsourced the function entirely.

Such an approach is no longer tenable. In most organizations, infrastructure is the largest balance sheet asset and the second highest operating expense. It can help or hinder the achievement of organizational mission and objectives. And it is critically important to the organization's strategic positioning, competitive advantage and operating performance.

PRINCIPLES OF DECONCENTRATION

Deconcentration changes the paradigm for managing corporate infrastructure. Until recently, a company's infrastructure was defined both by its real estate and by its information systems. These two elements were, and in most firms still are, managed through separate, distinct decision processes and functional organizations. However, in the mid-1990s, several major companies, including American Express, AT&T and IBM began pursuing innovative organizational and systems concepts that fused the places where people work with the technologies they use to communicate and compute, wherever they are. Today, these two elements of the workplace are inextricably intertwined--witness the trend toward global "24/7" operations--and they form the foundation for three broad principles that will help executives to frame and execute deconcentration strategies.