Facility Solutions: Are You Ready to Change?

A business’s ability to quickly respond to change is required to be successful in our world of disruption and new opportunities. Agility is defined as the ability of a business system to rapidly respond to change by adapting its initial stable configuration. Every element of an organization must be able to respond to change so it supports rather than gets in the way of evolving business goals and methodologies. This includes facilities.

Staff occupancy remains the second highest and least flexible cost for most credit unions. Owned facilities may require departments with critical adjacency needs to move to other buildings, reducing efficiency and productivity. An owned building may not be expandable. It may be difficult to sell for book value due to location. Or, it may provide flexible short- and long-range occupancy at a cost much less than leasing. Many credit unions would prefer to not have their headquarters or branches on the books. A few have formed a credit union service organization to own their buildings and remove the burden.

Leasing can be a flexible solution, but it comes with pros and cons. When you chart occupancy cost over 20 years, the cost of leasing starts below owning and then crosses above owning at about seven years as lease rates steadily increase while owned rates remain generally the same with the exception of capital improvements.

Leasing is often considered more flexible than owning. Whether this is really true depends on the situation. Let’s say you are two years into a 10-year lease and you realize you need to relocate to increase your ability to attract the most qualified staff or you merged with a larger organization and need to centralize. You need to pay the remainder of the lease, buy it out or sublet to others, often at the discretion of your landlord. Leasing does remove the initial capital expense of owning, but you still must put the lease on your books.

So, if occupancy is restricting our agility, how do we create a flexible occupancy plan for headquarters and the branch network that increases the ease of change while ensuring rational financial objectives? The process requires thinking about business objectives in a new way. Rather than seeing the goal set in concreate five to 10 years out, formalize objectives with variables. For example, a goal of 500 new small business accounts per year by 2021 may be just a part of a credit union’s strategy, but like all others, you need to consider in that strategy the evolution of the existing branch network and the impact of your strategy on staffing, space and costs. Agility comes from planning for a wide variety of business possibilities, determining how potential changes will be accommodated and the associated costs.

bdc, a business development bank in Canada, recently wrote an article titled, “Business Agility: 8 Improve Reaction Time.” These steps can be used to help analyze your facility situation and increase agility. 

1. Focus. Determine your credit union’s core competencies. Do you have staff that can help imagine the future and lead change? Do they have the ability to understand the impact on the member and staff experience, staffing types, options and cost of occupancy? Can they help drive your real estate strategy?
    
2. Relevance. Determine the markets for your products and services. Who are the target audiences? Are your existing branches and headquarters properly located to support on-the-ground growth? Is the headquarters properly located to attract the best staff, provide an efficient connection between markets and support expanding technologies? What happens to your HQ and branches if you merge.
    
3. Versatility. Can you create versatility in your headquarters by outsourcing, purchasing and then selling loans, retaining or selling servicing, or allowing some staff to work in the field? Can the branch network be right-sized in terms of types, staffing, cost of branches/offices and number of locations in each market? The decline in transactions and rise in member engagement and user experience engineering across all delivery channels is driving the reformation of credit union investments in people and places.
    
4. Lean operations. You should eliminate or simplify all processes that don’t ultimately create value for your customer. Does a beautiful headquarters add value for members 200 miles away? Would a small contact office provide the same benefit at a lower cost and wider distribution? If in five years 85 percent of your business operates through digital channels, what is the purpose of headquarters and branch facilities for members? Could HQ staff be located in a much lower cost high-tech facility so the CU can sell, sublet or partially occupy the main branch and lending offices? Lean can mean low-cost facilities. It can also mean smart occupancy. Recently a credit union client was looking to rent, build, lease or purchase a new building. Its 10-year needs were 54,000 square feet. We developed six primary occupancy scenarios addressing variables in business goals, organization structure and the economy. The projected 20-year occupancy costs ranged between $7.5 million and $32 million. The lowest cost and most flexible solution was purchasing a partially leased 85,000 square foot building in a very strong lease market.
    
5. Commitment and teamwork. Staff the company with individuals who have the right aptitudes and attitudes. We know the work environment has a strong influence on staff satisfaction resulting in a positive member experience. As mentioned above, is your HQ located to attract the best staff or can you allow them to operate remotely? Is it better to gather all your staff in one location to help facilitate relationship building, efficiency and living the brand? Or, do you have a strategy to create loyalty and a common bond when staff are remote?
    
6. Continuous improvement. Build future thinking and change management into your expectations of staff. By doing this you can get a head start on changes that will impact the high cost of facility occupancy. Bring your facility manager into the conversations to understand your direction and help integrate occupancy realities to show you how your facilities can be used to help, rather than hinder, change. For example, years ago, I managed facilities for a national bank. When I took over I noticed the occupancy cycle (the average length of time staff remained in one location in the headquarters) was less than a year. In addition, there where many complaints about how the facilities department managed moving the 8,000-plus staff members around the building. I mentioned this to the CEO. He asked me how I was going to fix this. From then forward facilities was included in strategic business planning. The average occupancy cycle improved to 2.5 years, saving millions in moving costs. Complaints dropped to nearly zero.
    
7. Simplicity. Make all processes and the organizational structure as simple as possible. In terms of planning occupancy strategies, simple is best. After all the analysis of potential business and occupancy scenarios, the key decision elements should be rendered based on flexibility, cost and added value to members.
    
8. Vigilance. All plans are old as soon as they are written. A strategic headquarters occupancy or branching plan should not be put on the shelf for review in one or two years. It should be reviewed every time a business goal, process or disruption is discussed. By doing this you will be ahead of change.

People and facilities are likely in our future for many decades. There is no longer a battle between facilities and technology as the right solution. Most agree the future is about who we are, who is our target market and how we bring people and technology together for mutual success. Agility planning in business and facilities will help us get there.

Paul Seibert, CMC, is an independent facilities and real estate consultant under Paul Seibert Consulting, Seattle.