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What BPO Can Do.

Over the last decade, outsourcing has grown from a fuzzy business buzzword into a clear success story, spawning an alphabet soup of service choices -- ERP, BPO, ASP, SLA and BSP. While the terms can be confusing, the business principles involved remain classic and immutable they are all about basic economics and maximizing shareholder value. Companies outsource to reduce operating costs, improve company focus, reduce risk, improve quality and gain flexibility.

The right outsourcing decisions recognize two prosaic economic concepts: specialization of labor and economy of scale. All businesses have core capabilities that are the true engines of shareholder value, and their non-core functions are best left to those who can perform those tasks with a high degree of quality and efficiency. This is true because outsourcing suppliers can bring many levers to bear upon such functions -- such as access, scale and expertise and those fulcrums produce added value to both the supplier and the buyer. As a rule, expertise is greatly enhanced by investments in technology.

Technology and the Web have vastly increased the forces that have helped outsourcing become so popular. Companies such as Sara Lee Corp. and Nike Inc. have become famous for outsourcing some or all of their non-core functions, including the actual manufacturing of their products. Many other companies have outsourced everything from IT itself, to human resources, finance and accounting, and customer relationship management. So, what's next?

Tangible assets have long been the forgotten stepchild on the balance sheet. CFOs and their staffs spend considerable time managing cash, credit relationships, equity and accounts receivable. But it seems to be the rare company that efficiently manages its property, plant and equipment. Leases disappear into musty file rooms, maintenance is a chore left to those least able to avoid it and facilities managers sometimes seem to occupy a Siberian outpost on the organization chart.

Ironically, whether real estate is reflected on the balance sheet or not, it remains a critical factor of production for almost all businesses. Yet, many CFOs rely upon inadequate technology and staff in order to manage these assets. It is no coincidence that real estate management is also a non-core function for most companies.

Nonetheless, real estate management remains a critical success factor for most businesses from both an operational as well as a financial standpoint. Lease commitments must be tracked and managed properly, common area maintenance (CAM) charges must be reviewed and lease renewals and escalations must be anticipated. Repairs and maintenance should be tracked by building, Vendors must be managed for cost and performance, and related expenses should be analyzed relative to budget and alternatives.

Walt Disney Co. is famous for using computerized maintenance management systems (CMMS) to retain the "new" look and feel at its theme parks. Some businesses now use similar programs to do the same for their office buildings, production facilities and equipment. Companies manage their real estate space for vacancies movement of personnel and availability of telecommunications and IT infrastructure. Additional real estate functions include project management; procurement and purchasing; transactional management; conference room scheduling; furniture, fixtures and equipment management, and much more.

While smaller companies often rely upon paper systems and spreadsheets, dedicated computer aided facilities management (CAFM) software has existed for many years. Companies such as Aperture Technologies (www.aperture.com), FIS (www.fisinc.com), Workplace IQ (www.workplacleiq.coin) and Archibus (www.archibus.com) have provided outstanding software to streamline real estate portfolio management. Installation of such software allows a CFO to use his or her staff more efficiently, and to track and manage much of the data underlying the company's real estate portfolios.

An interesting, relatively new alternative to acquiring software is the subscription model offered by application service providers (ASPs) Mid-sized companies are especially attracted to ASPs because such models help them reap technological advantages without major investments in software and hardware. Instead, companies can access the applications over the Internet on a subscription basis, which is scalable as their facility management needs wax and wane. Companies such as Peregrine Systems (www.peregrine.com) offer portfolio management software on an ASP basis, and company staff can use such applications to manage real estate, control costs and optimize their internal facilities management processes. And, they can access that data on a secure Web site, day and night.

However, true outsourcing of non-core services requires transferring ownership of the process itself, and only by doing so can a CEO realize all of the economic benefits. As explained by Peter BendorSamuel in Turning lead into Gold The Demystification of Outsourcing, "Outsourcing takes place when an organization transfers the ownership of a business process to a supplier. When a buyer hands over a process to a supplier, it also hands over the responsibility to determine if the tasks involved are appropriate, and, if appropriate, how they should be executed. The appropriateness and how-to decisions belong to the supplier."

The firm of BIGeREALESTATE Inc. (www.big-e-realestate.com) combines the advantages of an ASP with the benefits of offering BPO, or business process outsourcing. Known more simply as "BIGe," the firm, a portfolio company of Cushman & Wakefield, provides Web-based enterprise resource planning (ERP) applications and BPO services that enable corporations to manage their real estate-related assets. For a detailed example of the services an outsourcer like this can provide, see the accompanying box, "The Benefits of Outsourcing: A Client Case Study."

Whichever solutions CFOs select, however, more efficient and effective management of their real estate is an important enhancement to shareholder value. These efficiencies are even more important when the economy offers challenges, such as those evident in the current climate.

Craig C. Lindsay is a Partner in the Phoenix office of Tatum CFO Partners, LLP, and serves as CFO of BIGeREALESTATE, Inc.

The Benefits Of Outsourcing: A Client Case Study

Portfolio Description

Headquartered in the Southeast, the client is a U.S.-based global energy company that provides power production, distribution operations and related diversified services. Its property portfolio consists of more than 9 million square feet in a seven-state area, comprised of a variety of office, power plant, service center, industrial warehouse, retail and learning center/conference facilities. More than 12,000 company employees, plus a number of third-party tenants, are housed at these locations.

Objectives

The client elected to outsource a variety of facility-related real estate services previously provided by internal sources. The outsourcing supplier was expected to provide fully integrated database, accounting, lease and space management services. The client wanted to realize operating cost savings and to obtain high-quality maintenance programs and outstanding customer service. The facility-related functions considered for outsourcing included 5.4 million square feet of commercial property (exclusive of power plants), within 430 properties at 240 sites.

Solutions

The transition and ongoing real estate services of BIGe include the following.

* Established and maintained a national call center operation, with full documentation of performance, related costs and business unit charge-back capabilities -- all in real time via the client's Web site.

* Implemented a comprehensive program that systematically schedules and dispatches preventative maintenance task assignments.

* Created and maintains a lease administration database system. (This entails a lease abstracting effort and the scanning of more than 28,000 pages of documents.) All reporting, document management, accounting, bill payment, rent collections and audit services are accessible via the Web around the clock.

* Created and maintains a space administration database including computer-assisted design (CAD) drawings, head count and furniture, fixtures and equipment (FF&E) assets that is fully integrated with the lease administration database.

* Provides reporting, cost allocation, accounting, vacancy analysis, fixed-asset tracking, business unit allocations and strategic planning services for the client's entire portfolio.

* Provides ongoing systems integration, technology support and maintenance for all services.

Benefits to the Client

* Saved more than $500,000 in software and systems integration one-time costs.

* Saved more than $100,000 a year in ongoing systems and software maintenance costs.

* Reduced real estate operating costs by 15 percent a year in the first year through a reduction in facility maintenance costs, space per person and recoveries of money through lease audits and collection of rents from subtenants.

* More efficient and effective access to comprehensive real estate portfolio information via its fully integrated, customized BIGe Web site.
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Author:Lindsay, Craig C.
Publication:Financial Executive
Geographic Code:1USA
Date:Sep 1, 2001
Words:1365
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