unstructured strategic decision-making processes - QUT ePrints

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

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 monodimensional 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 TABLE of CONTENTS LIST OF FIGURES LIST OF TABLES STATEMENT OF ORIGINAL AUTHORSHIP ACKNOWLEDGEMENTS 1 Introduction and Overview 2 Literature Review 2.1

RE: Separate Function or Foundation for a Systems Perspective?

2.1.1 2.1.2 2.1.3

2.2

Managerial Implications in Goal Setting and Choice Selection

2.2.1 2.2.2 2.2.3 2.2.4

3 4

The Operational and Strategic Roles of Real Estate Managers Goal-setting and the Management of Decisional Processes Development of Management Tools and Control Systems Conclusions regarding Managerial Implications

7 12 13

14 14 15 19 21

2.3

Final Observations

22

4.1 4.2 4.3

Methodology Overview Sampling Data Collection Methods

35 36 40

Research Questions Methodology

4.3.1 4.3.2

4.4

Interviews Secondary Data

44

Within-Case Analysis Cross-Case Analysis

45 50

4.5 4.6

Validity Ethical Clearance Issues

51 53

5.1 5.2 5.3 5.4 5.5 5.6

Brief History of the Firm RE Positioning prior to Implementation of New CRE Strategy Decision-Making Process Decision-Making Process in action Conclusions Narrative of ALPHA Case Analysis of ALPHA Case Study

57 58 59 61 69 70

Study One (ALPHA)

5.6.1 5.6.1.1 5.6.1.2 5.6.1.3 5.6.1.4

5.6.2 5.6.2.1 5.6.2.2 5.6.2.3 5.6.2.4

31 35

40 43

Data Analysis

4.4.1 4.4.2

5

The Links between RE Decisions and Corporate Strategy Difficulties in aligning Managerial and CRE Performance Measures Conclusions regarding Systemic Perspective

7

i iii ix xi xiii xv 1 5

Manifest Reasons for Decision (Business Considerations & RE Aspects) Quantity of Space Occupancy Costs Corporate Image Less Important Topics

70 72 73 74 75

Process of Decision (Hidden Reasons and Interplays) Overlapping Goals at the Start of the Process Stratagems Carried out at the Local Level Identification of only One Option Coalition for Fast Approval

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78 79 80 82 84

55

5.7

Building a Theory

5.7.1 5.7.2

6

Study Two (BETA)

6.1 6.2 6.3 6.4 6.5 6.6

Brief History of the Firm RE Positioning of BETA prior to implementing new CRE Strategy Decision-Making Process Decision-Making Process in action Conclusions Narrative of BETA Case Analysis of BETA Case Study

6.6.1 6.6.1.1 6.6.1.2 6.6.1.3 6.6.1.4

6.6.2 6.6.2.1 6.6.2.2 6.6.2.3

6.7

7

6.7.1 6.7.2

Amount of Space Location Corporate image Less Important Topics

Process of Decision (Hidden Reasons and Interplays) Urgency and Uncertainty Create the Setting for a Fast Process Identification of only One Option Satisficing eventually puts an end to the process

7.6.2 7.6.2.1 7.6.2.2 7.6.2.3 7.6.2.4

7.7

Business Implications linked to CRE Decisions Characteristics of the Decision-Making Process

Amount of Space Corporate image Costs Less Important Topics

Process of Decision (Hidden Reasons and Interplays) Quick response to an urgent challenge Urgency Loses Momentum Lack of Knowledge causes Alternatives to be Poorly Evaluated Definitive shift of GAMMA‟s primary objective

8.6.1.1

121 122 123 125 132 133

119

139 140 141 143 146

146


Brief History of the Firm RE Positioning of DELTA prior to Implementing New CRE Strategy Decision-Making Process Decision-Making Process in action Conclusions Narrative of DELTA Case Analysis of DELTA Case Study

8.6.1

115 116

135 136 137 137

Study Four (DELTA)

8.1 8.2 8.3 8.4 8.5 8.6

110 111 114

Manifest Reasons for Decision (Business Considerations & RE Aspects) 133

Building a Theory

7.7.1 7.7.2

110

115

Brief History of the Firm RE Positioning of Gamma prior to Implementing new CRE Strategy Decision-Making Process Decision-Making Process in action Conclusions Narrative of GAMMA Case Analysis of GAMMA Case Study

7.6.1.1 7.6.1.2 7.6.1.3 7.6.1.4

89 89 91 92 101 103

87

105 106 106 107

Study Three (GAMMA)

7.1 7.2 7.3 7.4 7.5 7.6

84 84


Building a Theory

7.6.1

8

84

Business Implications Linked to CRE Decisions Characteristics of the Decision-Making Process

146 146

151 151 153 155 160 161

Manifest Reasons for Decision (Business Considerations & RE Aspects) 161 Human Resources

163

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149

8.6.1.2 8.6.1.3

8.6.2

Corporate Image Less Important Topics

Process of Decision (Hidden Reasons and Interplays)

8.6.2.1 8.6.2.2

8.7

9

164 165

Serendipity leads to the unfolding of a Decision-Making Process Pragmatic Rationality ensures Quick Approval

Building a Theory

8.7.1 8.7.2

Brief History of the Firm EPSILON‟S Original Real Estate Policies Decision-Making Process Decision-Making Process in action Conclusions Narrative of EPSILON Case Analysis of Epsilon Case Study

9.6.1

9.6.2

Occupancy Costs Location Amount of Space

10

10.1 10.2 10.3 10.4 10.5 10.6

Ideal Environment for CRE Decision-Making Theory in Use vs Espoused Theory Postponing the decision

Building a Theory Business Implications linked to CRE Decisions Characteristics of the Decision-Making Process

Brief History of the Firm RE Positioning of ZETA prior to Implementing new CRE Strategy Decision-Making Process Decision-Making Process in action Conclusions Narrative of ZETA Case Analysis of ZETA Case Study Manifest Reasons for Decisions (Business Considerations, RE Aspects)

10.6.1.1 10.6.1.2 10.6.1.3 10.6.1.4

10.6.2

10.7

11

194 195 196

198 199

202 203 205 206 212 212

201

213 215 215 216 217

219

CRE Decision-Making for the IT Practice (PROBLEM-DRIVEN) 219 CRE Decision-Making for the Management Practice (PROBLEM-DRIVEN) 221 CRE Decision-Making for Management Practice (OPPORTUNITY-DRIVEN) 222

Building a Theory

10.7.1 10.7.2

11.1 11.2 11.3 11.4 11.5

Amount of Space RE Value Creation Corporate Image Less Important Topics


10.6.2.1 10.6.2.2 10.6.2.3

194

198

Study Six (ZETA)

10.6.1

176 176 179 181 186 187

175

189 190 190


9.6.2.1 9.6.2.2 9.6.2.3

9.7.1 9.7.2

172 173


9.6.1.1 9.6.1.2 9.6.1.3

9.7

167 169

172


Study Five (EPSILON)

9.1 9.2 9.3 9.4 9.5 9.6

167

223

Business Implications linked lo CRE Decisions Characteristics of the Decision-Making Process

Study Seven (ETA)

Brief History of the Firm RE Positioning of ETA prior to Implementing the New CRE Strategy Decision-Making Process Decision-Making Process in action Conclusions Narrative of ETA Case v

223 223

226 227 229 230 243

225

11.6

Analysis of ETA Case Study

11.6.1

11.6.1.1 11.6.1.2 11.6.1.3 11.6.1.4

11.6.2

12

12.3 12.4

13

13.1 13.2 13.3 13.4 13.5

258

Successful Strategic Decisions are Balanced Content of CRE Decision-Making

264 266

Success as Indicated by the CRE Literature A New Set of Parameters for Success

266 271

Processes Without Non-Members of the Top Management Team Top Management Team generally without RE Background, Orientation

Building the Model

263

272 273 276

279

Systematic Connection between Success and Problem Complexity‟s handling 280

Problem Complexity and the right amount of Process Richness Keeping Process Richness Under Control

282 285

Informing Strategic Decision-Making Conclusions of Integrative Analysis

287 291

Introduction Contributions

293 293

Contribution and Conclusion

13.2.1 13.2.2

251 253 254 256 257

259 259

12.4.1.1 over time

12.4.2 12.4.3

251


Process of CRE Decision-Making

12.3.1 12.3.2

12.5 12.6

The Signing of the Contract for the 4th Floor Addition of a New Player and Introduction of Image as a Critical Aspect Negotiation Games of Partner “F” bring back Relocation as a Viable Solution Various Partners Coming Up with their own Solutions Order is Restored by a Powerful Coalition

Integrative Analysis

12.2.1 12.2.2

244 246 247 248 249

Building a Theory

11.7.1 11.7.2

12.1 12.2

Amount of Space Corporate Image Occupancy Costs Less Important Topics


11.6.2.1 11.6.2.2 11.6.2.3 11.6.2.4 11.6.2.5

11.7

244

Manifest Reasons for Decision (Business Considerations, RE Aspects)

Contributions to Management Literature Contributions to Real Estate Literature

Limitations of the Research Future Research Directions Conclusion

293 294

297 298 299

REFERENCES APPENDIXES

Appendix 1: The Management Consulting Industry Appendix 1-1: Historical Perspective Appendix 1-2: Current Consulting Scene Appendix 1-3: The Italian Market

Appendix 1-3-1: Industry Sector Profile Appendix 1-3-2: Overview of the Top 20 Companies Appendix 1-3-3: Future Trends

Appendix 2: Detailed Tables from CRE Literature

313 314 315 318

318 319 319

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 vi

293

301 313

Appendix 3: Distribution of Topics in Case Studies Appendix 4: Additional Information on Case Studies Appendix 4-1: ALPHA ( )

325 326 326

Appendix 4-1-1: Organizational Structure Appendix 4-1-2: Location Appendix 4-1-3: Decision-Making Process

Appendix 4-2: BETA ( )

326 327 327

329


329 330 330

332

Appendix 4-3: GAMMA ( ) Appendix 4-3-1: Organizational Structure Appendix 4-3-2: Location Appendix 4-3-3: Decision-Making Process

Appendix 4-4: DELTA ( )

332 333 333

335


335 336 336

338

Appendix 4-5: EPSILON ( ) Appendix 4-5-1: Organizational Structure Appendix 4-5-2: Location Appendix 4-5-3: Decision-Making Process

Appendix 4-6: ZETA ( )

338 339 339

341


Appendix 4-7: ETA ( )

341 342 342

345


Appendix 5: CRE Decision-Making Trends in Italy

Appendix 5-1: Geographical Locations of Consulting Firms in Italy Appendix 5-2: Common RE Practices, Italian Consulting Industry

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345 346 346

348 348 349

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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 ix

Figure 12.1:Balancing Tensions for Success ____________________________ Figure 12.2: Pattern of Relationship between Complexity and Duration _______ Figure 12.3: Process Richness vs Problem Complexity ____________________ Figure 12.4: Process Richness vs Cohesion ____________________________ Figure A1.1: Professional Service Infrastructure _________________________ Figure A3.1: Frequency Bar Graphs of Case Studies _____________________ Figure A4.1: Hierarchical Structure of ALPHA ___________________________ Figure A4.2: Rome City Map ________________________________________ Figure A4.3: Activity-Based Mapping Process ___________________________ Figure A4.4: Role-Based Process Responsibility _________________________ Figure A4.5: Hierarchical Structure of BETA ____________________________ Figure A4.6: Milan City Map _________________________________________ Figure A4.7: Activity-Based Mapping Process ___________________________ Figure A4.8: Role-Based Mapping Process _____________________________ Figure A4.9: Hierarchical Structure of GAMMA __________________________ Figure A4.10: Milan City Map ________________________________________ Figure A4.11: Activity-Based Mapping Process __________________________ Figure A4.12: Role-Based Mapping Process ____________________________ Figure A4.13: Hierarchical Structure of DELTA __________________________ Figure A4.14: Milan City Map ________________________________________ Figure A4.15: Activity-Based Mapping Process __________________________ Figure A4.16: Role-Based Mapping Process ____________________________ Figure A4.17: Hierarchical Structure of EPSILON ________________________ Figure A4.18: Milan City Map ________________________________________ Figure A4.19: Activity-Based Mapping Process __________________________ Figure A4.20: Role-Based Mapping Process ____________________________ Figure A4.21: Hierarchical Structure of ZETA ___________________________ Figure A4.22: Milan City Map ________________________________________ Figure A4.23: Activity-Based Mapping Process (a) _______________________ Figure A4.24: Role-Based Mapping Process (a) _________________________ Figure A4.25: Activity-Based Mapping Process (b) _______________________ Figure A4.26: Role-Based Mapping Process (b) _________________________ Figure A4.27: Hierarchical Structure of ETA ____________________________ Figure A4.28: Milan City Map ________________________________________ Figure A4.29: Activity-Based Mapping Process __________________________ Figure A4.30: Role-Based Mapping Process ____________________________ Figure A5.1: Map of Italy ___________________________________________ Figure A5.2: Map of Milan __________________________________________

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264 282 284 287 316 325 326 327 328 328 329 330 331 331 332 333 334 334 335 336 337 337 338 339 340 340 341 342 343 343 344 344 345 346 347 347 349 349

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 xi

Table 12.7: Richness of Process _____________________________________ Table 12.8: Cohesion of Processes ___________________________________ Table A1.1: Market Size (€ Millions) ___________________________________ Table A1.2: The Top 20 Consulting Firms in Italy ________________________ Table A2.1: Strategic Driving Forces __________________________________ Table A2.2: RE Operating Decisions and Strategies ______________________ Table A2.3: CRE as a Source of Competitive Advantage __________________ Table A5.1: Comparison of CRE Strategies _____________________________

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283 285 318 319 321 323 324 348

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 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 decisionmaking 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 1

(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. 2

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 decisionmakers, 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), 3

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 decisionmaking 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.

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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 5

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.

6

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. 7

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

8

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. 9

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).

10

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).

11

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. 12

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 decisionrendering system often influenced by a dominant coalition, represented somewhat 13

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 14

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). 15

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 16

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 17

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. 18

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 industryinitiated 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; 19

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 20

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 decisionmaking 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 21

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). 22

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

23

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 24

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).

25

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.

26

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: 27

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 information5

In the remainder of the document, references to politics and political behaviour are limited to organizational level phenomena. 28

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.

29

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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? 31

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 decisionmaking 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? 32

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‘ 33

Figure 3.1: Proposed Research Framework

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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.

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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). 36

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 decisionmaking 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 37

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: 38

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 39

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 BertauxWiame, 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 decisionmaking 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 40

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 decisionmaking 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. 41

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. 42

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 43

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 explanationbuilding 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.

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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 In the remainder of the document, the word ‗design‘ or ‗redesigning‘ refers to building design and not organizational design. 10

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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

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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 decisionmaking 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.

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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, 50

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 51

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;

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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.

53

54

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.

55

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; 56

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):

57

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. 58

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. 59

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 60

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.

61

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 62

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 decisionmakers and to build stronger business cases when seeking approvals from the Capital Committee.

63

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 decisionmakers 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 64

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;

65

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). 66

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 shortand 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). 67

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

68

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 69

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

Medium for occurrences: 8 > X

4%),

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 71

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 72

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 decisionmaking 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 19

The proposed addition of 2,000 sqm of space implied the acquisition of the entire building An estimated costs of $18-19M 73

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 74

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). 75

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 76

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 goaldriven, 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 77

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 counterproductive, 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 reexamination. 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. 78

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 79

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 buckpassing and a final decision‘s never being made — especially when considering the

21 22

A Senior Director, responsible for the performance of all Real Estate assets in the EEMEA region 20 years‘ experience in the company 80

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% 81

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. 83

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 84

support of key organizational members, can collectively explain the political process that unfolded in ALPHA. Figure 5.5: Analytical Framework

85

86

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 postSecond 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 exAndersen 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. 89

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. 91

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 92

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. 93

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 businessfunction-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 multidisciplinary 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 semicentral 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 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. 29

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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. 97

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-plussix 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 99

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 100

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. 101

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 103

following nomenclature was adopted to classify the frequency of each discussed topic. ― Low‖ for occurrences: 0

X

11 (0% X

― Medium‖ for occurrences: 11 > X

4%)

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 106

limit our array of options, but having a large single building was expected to boost the image of being a unique multidisciplinary 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 fitouts 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. 109

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 110

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 111

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 112

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 114

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. 115

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 116

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 117

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. 121

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 123

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 128

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

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An Italian daily business newspaper headquartered in Milan that reports on business politics, commercial and labour law, and corporate news. 129

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. 130

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. 131

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 132

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%)

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 decisionmaking 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. 135

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 decisionmaking 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 semiperipheral 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 7.1 137

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 138

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:

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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. 139

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 140

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 decisionmaking process, as individuals in the company had predicted. 141

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. 142

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

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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). 143

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.

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According to GAMMA‘s regulations, the choice of RE assets is left completely to the local partners 144

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... 145

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. 146


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.

147

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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 149

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‖. 151

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 152

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 decisionmaking 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 153

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. 154


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 semistructured interviews were instrumental in establishing this timeline.

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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. 157

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 159

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 160

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 decisionmakers. 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 161

following nomenclature was adopted to classify the frequency of each discussed topic: ― Low‖ for occurrences: 0

X

9 (0% X


4%)

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 ―f eel 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, 163

benefit from great public transport, and are in close proximity to bars, restaurants and other venues.

Site Manager: We want our employees to feel ―a t 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 166

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 167

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. 168

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 169

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 decisionmaking 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 decisionmaking 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 170

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 172

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. 176

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 177

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 level 50. 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 178

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 179

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. 180

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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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 182

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. 183

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. 185

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 186

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 187

following nomenclature was adopted to classify the frequency of each discussed topic. ― Low‖ for occurrences: 0

X

6 (0% X


4%)

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 decisionmaking 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 189

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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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


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 194

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. 196

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 197

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 floorspace; 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 199

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. 201

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 202

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 203

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). 204

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 whollyowned 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:

205

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.

206


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 207

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 208

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, 209

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

210

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. 211

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. 212

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%)

20 (4% X

― High‖ for occurrences: 20 > X (X 8%).

213

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 (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] 214

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 217

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. 218

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 219

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 (PROBLEMDRIVEN)

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 221

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 (OPPORTUNITYDRIVEN)

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). 222

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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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. 225

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 226

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: 227

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; 228

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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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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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 231

(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 newlyavailable 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 233

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 wellequipped. 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? 234

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 235

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 237

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. 238

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. 240

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, 243

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 decisionmaking 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 244

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%)

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 245

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 246

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 247

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, 248

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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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

250

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 251

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 252

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…

253

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. 254

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 newlyespoused 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 256

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 decisionmaking process was heading. 257

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-manone-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.

259


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 260

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 decisionmakers 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.

261

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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 Detailed diagrammatic representations of CRE processes have been illustrated and described at the end of each individual case study 60

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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. 266

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: ―W hat 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 267

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. 268

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 spacerelated 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 269

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 contextdependent (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. 270

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


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.

271

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 subquestions (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 272

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 273

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. 274

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 level 65. 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 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. 66

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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 276

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 finelytuned 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 decisionmaking 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. 278

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 lastmentioned and problem complexity: the aim will be to identify the level of process 279

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

280

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.

281

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. 282

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


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 283

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 everincreasing 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 284

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


285

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 decisionmaking 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 286

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 287

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 288

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. 289

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 ― highvelocity‖ 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 decisionmakers 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 290

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 decisionmaking 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 successful 71. 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. 291

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 decisionmaking.

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 293

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 advantage 72, 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 73

Cf. Table 2.1. Cf. Table 2.2. 294

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 selfdiscovery. 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. 295

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 296

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 297

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 298

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.

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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 313

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.

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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.

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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 SarbanesOxley Act, which required auditor independence and separation of core audit from 316

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, 317

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 318

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


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, 319

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.

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Appendix 2: Detailed Tables from CRE Literature Appendix 2.1: RE Considerations of Strategic Driving Forces Table A2.3: Strategic Driving Forces

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Source: Edwards (2004:140-141)

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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

Occupancy Cost Minimization

Remote, less popular regions and sites

Minimum space per employee

Flexibility

Less prime location

Promote Human Resources Objectives

Accessible to where workers live/want to live

Promote Marketing Message

Prestige and high visibility very important

Own or long-term lease

Critical

Promote Sales and Selling Process

Prestige and/or high traffic location

Lease for flexibility

Critical

Facilitate Production, Operations, Service Delivery

Access to customers and suppliers

Own or long-term lease

Facilitate Managerial Process and Knowledge Work Capture the Real Estate Value Creation of the Business

Tenancy Duration

Building Size / Character

Building Amenities

Exterior Quality

Company Space

General purpose building

Less important

Less important

Lesser priority

Short-term leases – options More space per employee

Secure more space than needed for own use

Premium ambience and furnishings

High priority

Landmark structure

Appropriate for primary purposes

Important

Longer terms

Mechanical Systems

Information / Communication Systems

Ownership Rights

Financing

Control

Risk Management

Minimize financial responsibility

Cost-ofcapital trade-offs drive decision

Inconsistent with cost minimization

Minimise financial exposure

Built to favour easy modification

Long term

Sufficient to promote effective work Consider impacts on demand of location decisions

Identity / Signage

Contribute to effective work

Very important

Consistent with marketing message

Consider selling

Critical impact on selling environment

Important Comfortable working ambience

High priority Important relative to continuity of marketing message Important

Significant re impacts of adjacent uses Significant re impacts of adjacent uses

Specialized facility

Appropriate temperature

Priority

Critical priority

Positive working environment

priority

Dominant tenant

Priority

critical

critical strategic priority

critical

Aggressive value creation involves more risk

Source: Adapted from Nourse and Roulac (1993: 490-491)

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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 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

Yes

May be conducive, but a very strong marketing message could discourage innovation and learning

Possibly directly related, possibly tangentially

Yes

CRE Strategies

Promote Marketing Message

Yes

Yes – strong external marketing messages for improving retention

Strong external marketing messages can complement business processes

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)

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Appendix 3: Distribution of Topics in Case Studies Figure A3.2: Frequency Bar Graphs of Case Studies

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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

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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).

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Figure A4.5: Activity-Based Mapping Process

Figure A4.6: Role-Based Process Responsibility

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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

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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


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 (A3A15), 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. 330


Figure A4.10: Role-Based Mapping Process

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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

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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


The next two Figures focus on the key activities of the decision-making process (A3A18) 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).

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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

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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


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).

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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

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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


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.

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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

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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


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.

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1. The acquisition of the building in Piazza Australia for ZETA TEAM (A2A9): Figure A4.25: Activity-Based Mapping Process (a)

Figure A4.26: Role-Based Mapping Process (a)

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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)

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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

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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


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). 346



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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 350

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.

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