newsletters \ What's Next for the Real Estate + Procurement Power Couple?: Aligned partnerships go beyond cost savings, offer risk-sharing, aligned values and innovation
What makes a strong power couple? Both parties wanting the same things. Today's most-successful partnerships - in popular culture, politics and business - are a result of collaboration to achieve mutual long-term goals. As procurement teams become more involved in corporate real estate (CRE) outsourcing, CRE and procurement have the opportunity to advance employee engagement, innovation and workforce empowerment in a new model of outsourcing.
Consider this scenario: A global financial services company recently issued a request for proposal for a facilities management services provider. Such RFPs are issued regularly - but this one read more like a call for a management consultant than for a real estate services vendor. It was looking for an autonomous strategic partner that could rethink the facilities management role to focus on enabling work, productivity and profitability.
Outsourcing 3.0: A New Paradigm
Procurement is more involved in outsourcing than ever, resulting in more shared responsibility, objectives and risks. Motivated by C-suite mandates, CRE leaders are looking to centralize their operations with service providers that will share the risks and rewards in their clients' businesses. Leading CRE thinkers see the same potential for savings and value creation in today's property portfolios as IT experts saw in proprietary computer systems more than a decade ago.
This new approach is becoming more universally applied as procurement executives - long-familiar with IT outsourcing - expand their scope into the real estate function. In JLL's recent
Global Corporate Real Estate Trends survey (GCRES) of more than 630 corporate real estate executives around the world, 69 percent described procurement as being actively involved in corporate real estate. Thirty-six percent described procurement as being involved "on a permanent basis" overall. And at large companies with headcounts of more than 100,000, an even higher percentage - 47 percent - reported permanent involvement.
From Commodity to Strategy
For forward-looking companies, real estate is not a physical commodity, but a strategic weapon. CRE outsourcing is being reshaped into a form that closely resembles the now-standard approach to managing IT, where a single vendor or two manages a firm's entire infrastructure, from desktop computers to the trove of applications and data in the cloud.
CRE partners are no longer engaged merely to manage property portfolios and operate buildings. Now they're valued for their proprietary technology and expert understanding of the workplace. Procurement departments are adding efficiency and transparency through standardized processes, but need to partner with their CRE teams to build a shared understanding of real estate's contribution to corporate strategy. Procurement's tendency is to focus on price - but without sufficient CRE-procurement collaboration, a company risks undervaluing its real estate partners or constraining their abilities to deliver long-term productivity gains.
Next-level procurement and CRE
While pressure mounts from the C-suite to tackle broader and more challenging CRE agendas, skill gaps are becoming evident. Competing demands to reduce costs and improve workplace productivity have fueled growth in the CRE outsourcing market since 2011, and that growth is expected to continue over the next three years.
The involvement of procurement in real estate works most effectively when goals such as employee engagement and innovation are stated as shared objectives, along with price. Many CRE teams are engaging in transformative outsourcing relationships involving performance-based incentives, key performance indicators and risk-sharing to generate value from deeper partnerships. These long-term relationships can enable service providers to make more knowledgeable, personalized recommendations in CRE planning strategy.
However, corporate real estate executives share a concern that procurement is not familiar enough with the real estate function to work together toward strategic goals. In the GCRES, 58 percent of CRE executives said that procurement has a limited knowledge of real estate and the nature and complexity of the services being procured. Yet, procurement has a critical role to play in furthering the evolution of CRE outsourcing.
More organizations have begun formalizing collaborative organizational structures that position CRE teams as partners with HR, IT and finance, a trend expected to continue as CRE teams respond to pressure to shift a singular focus on cost-cutting to more nuanced workplace productivity objectives. Together, CRE and procurement have the opportunity to pursue this model of shared services integration that could potentially benefit workers, workplace and real estate portfolio productivity alike.
Through CRE partnerships, strategic sourcing professionals are poised to create value for the enterprise through worker enablement, talent attraction and retention, and employee engagement. The right real estate partner with the right strategy can help optimize the balance sheet and meet corporate goals ranging from M&A to sustainability. As CRE outsourcing becomes a strategic priority, procurement can serve as a catalyst for furthering collaboration, productivity and collaboration.
JLL is committed to helping CRE organizations understand and navigate the intricacies of commercial real estate. Our platform makes the difference with 48,000+ professionals and 1,000 locations linked by a single management structure, so you can expect one experience around the globe. No other firm has more LEED professionals who can help meet your sustainability goals. Because we manage 600+ million square feet of corporate space, we have the experience and scale to operate facilities with maximum efficiency, safety and employ comfort. For more, visit