UNSTRUCTURED STRATEGIC DECISION-MAKING PROCESSES: … · 12.5 Informing Strategic Decision-Making 287 12.6 Conclusions of Integrative Analysis 291 13 Contribution and Conclusion 293

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

i

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 mono-

dimensional 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.

ii

iii

TABLE of CONTENTS

ABSTRACT i TABLE of CONTENTS iii LIST OF FIGURES ix

LIST OF TABLES xi STATEMENT OF ORIGINAL AUTHORSHIP xiii ACKNOWLEDGEMENTS xv

1 Introduction and Overview 1

2 Literature Review 5

2.1 RE: Separate Function or Foundation for a Systems Perspective? 7 2.1.1 The Links between RE Decisions and Corporate Strategy 7 2.1.2 Difficulties in aligning Managerial and CRE Performance Measures 12 2.1.3 Conclusions regarding Systemic Perspective 13

2.2 Managerial Implications in Goal Setting and Choice Selection 14 2.2.1 The Operational and Strategic Roles of Real Estate Managers 14 2.2.2 Goal-setting and the Management of Decisional Processes 15 2.2.3 Development of Management Tools and Control Systems 19 2.2.4 Conclusions regarding Managerial Implications 21

2.3 Final Observations 22

3 Research Questions 31

4 Methodology 35

4.1 Methodology Overview 35

4.2 Sampling 36

4.3 Data Collection Methods 40 4.3.1 Interviews 40 4.3.2 Secondary Data 43

4.4 Data Analysis 44 4.4.1 Within-Case Analysis 45 4.4.2 Cross-Case Analysis 50

4.5 Validity 51

4.6 Ethical Clearance Issues 53

5 Study One (ALPHA) 55

5.1 Brief History of the Firm 57

5.2 RE Positioning prior to Implementation of New CRE Strategy 58

5.3 Decision-Making Process 59

5.4 Decision-Making Process in action 61

5.5 Conclusions Narrative of ALPHA Case 69

5.6 Analysis of ALPHA Case Study 70 5.6.1 Manifest Reasons for Decision (Business Considerations & RE Aspects) 70

5.6.1.1 Quantity of Space 72 5.6.1.2 Occupancy Costs 73 5.6.1.3 Corporate Image 74 5.6.1.4 Less Important Topics 75

5.6.2 Process of Decision (Hidden Reasons and Interplays) 78 5.6.2.1 Overlapping Goals at the Start of the Process 79 5.6.2.2 Stratagems Carried out at the Local Level 80 5.6.2.3 Identification of only One Option 82 5.6.2.4 Coalition for Fast Approval 84

iv

5.7 Building a Theory 84 5.7.1 Business Implications Linked to CRE Decisions 84 5.7.2 Characteristics of the Decision-Making Process 84

6 Study Two (BETA) 87


6.2 RE Positioning of BETA prior to implementing new CRE Strategy 89



6.5 Conclusions Narrative of BETA Case 101

6.6 Analysis of BETA Case Study 103 6.6.1 Manifest Reasons for Decision (Business Considerations & RE Aspects) 103

6.6.1.1 Amount of Space 105 6.6.1.2 Location 106 6.6.1.3 Corporate image 106 6.6.1.4 Less Important Topics 107

6.6.2 Process of Decision (Hidden Reasons and Interplays) 110 6.6.2.1 Urgency and Uncertainty Create the Setting for a Fast Process 110 6.6.2.2 Identification of only One Option 111 6.6.2.3 Satisficing eventually puts an end to the process 114

6.7 Building a Theory 115 6.7.1 Business Implications linked to CRE Decisions 115 6.7.2 Characteristics of the Decision-Making Process 116

7 Study Three (GAMMA) 119


7.2 RE Positioning of Gamma prior to Implementing new CRE Strategy 122



7.5 Conclusions Narrative of GAMMA Case 132

7.6 Analysis of GAMMA Case Study 133 7.6.1 Manifest Reasons for Decision (Business Considerations & RE Aspects) 133

7.6.1.1 Amount of Space 135 7.6.1.2 Corporate image 136 7.6.1.3 Costs 137 7.6.1.4 Less Important Topics 137

7.6.2 Process of Decision (Hidden Reasons and Interplays) 139 7.6.2.1 Quick response to an urgent challenge 140 7.6.2.2 Urgency Loses Momentum 141 7.6.2.3 Lack of Knowledge causes Alternatives to be Poorly Evaluated 143 7.6.2.4 Definitive shift of GAMMA‟s primary objective 146


8 Study Four (DELTA) 149


8.2 RE Positioning of DELTA prior to Implementing New CRE Strategy 151



8.5 Conclusions Narrative of DELTA Case 160

8.6 Analysis of DELTA Case Study 161 8.6.1 Manifest Reasons for Decision (Business Considerations & RE Aspects) 161

8.6.1.1 Human Resources 163

v

8.6.1.2 Corporate Image 164 8.6.1.3 Less Important Topics 165

8.6.2 Process of Decision (Hidden Reasons and Interplays) 167 8.6.2.1 Serendipity leads to the unfolding of a Decision-Making Process 167 8.6.2.2 Pragmatic Rationality ensures Quick Approval 169


9 Study Five (EPSILON) 175


9.2 EPSILON‟S Original Real Estate Policies 176



9.5 Conclusions Narrative of EPSILON Case 186

9.6 Analysis of Epsilon Case Study 187 9.6.1 Manifest Reasons for Decision (Business Considerations & RE Aspects) 187

9.6.1.1 Occupancy Costs 189 9.6.1.2 Location 190 9.6.1.3 Amount of Space 190

9.6.2 Process of Decision (Hidden Reasons and Interplays) 194 9.6.2.1 Ideal Environment for CRE Decision-Making 194 9.6.2.2 Theory in Use vs Espoused Theory 195 9.6.2.3 Postponing the decision 196


10 Study Six (ZETA) 201


10.2 RE Positioning of ZETA prior to Implementing new CRE Strategy 203



10.5 Conclusions Narrative of ZETA Case 212

10.6 Analysis of ZETA Case Study 212 10.6.1 Manifest Reasons for Decisions (Business Considerations, RE Aspects) 213

10.6.1.1 Amount of Space 215 10.6.1.2 RE Value Creation 215 10.6.1.3 Corporate Image 216 10.6.1.4 Less Important Topics 217

10.6.2 Process of Decision (Hidden Reasons and Interplays) 219 10.6.2.1 CRE Decision-Making for the IT Practice (PROBLEM-DRIVEN) 219 10.6.2.2 CRE Decision-Making for the Management Practice (PROBLEM-DRIVEN) 221 10.6.2.3 CRE Decision-Making for Management Practice (OPPORTUNITY-DRIVEN) 222

10.7 Building a Theory 223 10.7.1 Business Implications linked lo CRE Decisions 223 10.7.2 Characteristics of the Decision-Making Process 223

11 Study Seven (ETA) 225


11.2 RE Positioning of ETA prior to Implementing the New CRE Strategy 227



11.5 Conclusions Narrative of ETA Case 243

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11.6 Analysis of ETA Case Study 244 11.6.1 Manifest Reasons for Decision (Business Considerations, RE Aspects) 244

11.6.1.1 Amount of Space 246 11.6.1.2 Corporate Image 247 11.6.1.3 Occupancy Costs 248 11.6.1.4 Less Important Topics 249

11.6.2 Process of Decision (Hidden Reasons and Interplays) 251 11.6.2.1 The Signing of the Contract for the 4th Floor 251 11.6.2.2 Addition of a New Player and Introduction of Image as a Critical Aspect 253 11.6.2.3 Negotiation Games of Partner “F” bring back Relocation as a Viable Solution 254 11.6.2.4 Various Partners Coming Up with their own Solutions 256 11.6.2.5 Order is Restored by a Powerful Coalition 257


12 Integrative Analysis 263

12.1 Successful Strategic Decisions are Balanced 264

12.2 Content of CRE Decision-Making 266 12.2.1 Success as Indicated by the CRE Literature 266 12.2.2 A New Set of Parameters for Success 271

12.3 Process of CRE Decision-Making 272 12.3.1 Processes Without Non-Members of the Top Management Team 273 12.3.2 Top Management Team generally without RE Background, Orientation 276

12.4 Building the Model 279 12.4.1.1 Systematic Connection between Success and Problem Complexity‟s handling over time 280

12.4.2 Problem Complexity and the right amount of Process Richness 282 12.4.3 Keeping Process Richness Under Control 285

12.5 Informing Strategic Decision-Making 287

12.6 Conclusions of Integrative Analysis 291

13 Contribution and Conclusion 293

13.1 Introduction 293

13.2 Contributions 293 13.2.1 Contributions to Management Literature 293 13.2.2 Contributions to Real Estate Literature 294

13.3 Limitations of the Research 297

13.4 Future Research Directions 298

13.5 Conclusion 299

REFERENCES 301

APPENDIXES 313

Appendix 1: The Management Consulting Industry 313 Appendix 1-1: Historical Perspective 314 Appendix 1-2: Current Consulting Scene 315 Appendix 1-3: The Italian Market 318

Appendix 1-3-1: Industry Sector Profile 318 Appendix 1-3-2: Overview of the Top 20 Companies 319 Appendix 1-3-3: Future Trends 319

Appendix 2: Detailed Tables from CRE Literature 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

vii

Appendix 3: Distribution of Topics in Case Studies 325

Appendix 4: Additional Information on Case Studies 326

Appendix 4-1: ALPHA ( ) 326 Appendix 4-1-1: Organizational Structure 326 Appendix 4-1-2: Location 327 Appendix 4-1-3: Decision-Making Process 327

Appendix 4-2: BETA ( ) 329 Appendix 4-2-1: Organizational Structure 329 Appendix 4-2-2: Location 330 Appendix 4-2-3: Decision-Making Process 330

Appendix 4-3: GAMMA ( ) 332 Appendix 4-3-1: Organizational Structure 332 Appendix 4-3-2: Location 333 Appendix 4-3-3: Decision-Making Process 333

Appendix 4-4: DELTA ( ) 335 Appendix 4-4-1: Organizational Structure 335 Appendix 4-4-2: Location 336 Appendix 4-4-3: Decision-Making Process 336

Appendix 4-5: EPSILON ( ) 338 Appendix 4-5-1: Organizational Structure 338 Appendix 4-5-2: Location 339 Appendix 4-5-3: Decision-Making Process 339

Appendix 4-6: ZETA ( ) 341 Appendix 4-6-1: Organizational Structure 341 Appendix 4-6-2: Location 342 Appendix 4-6-3: Decision-Making Process 342

Appendix 4-7: ETA ( ) 345 Appendix 4-7-1: Organizational Structure 345 Appendix 4-7-2: Location 346 Appendix 4-7-3: Decision-Making Process 346

Appendix 5: CRE Decision-Making Trends in Italy 348 Appendix 5-1: Geographical Locations of Consulting Firms in Italy 348 Appendix 5-2: Common RE Practices, Italian Consulting Industry 349

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ix

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 8.1: DELTA‟s Locations Worldwide ______________________________ 149



Figure 8.4: Internal Layout of DELTA‟s 1st Floor _________________________ 159

Figure 8.5: Timeline of Topics Discussed_______________________________ 162


Figure 9.1: EPSILON‟s Locations Worldwide ____________________________ 175



Figure 9.4: Timeline of Discussed Topics_______________________________ 188

Figure 9.5: Rationality of the Decision-Making Process ____________________ 193


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

x

Figure 12.1:Balancing Tensions for Success ____________________________ 264

Figure 12.2: Pattern of Relationship between Complexity and Duration _______ 282

Figure 12.3: Process Richness vs Problem Complexity ____________________ 284

Figure 12.4: Process Richness vs Cohesion ____________________________ 287

Figure A1.1: Professional Service Infrastructure _________________________ 316

Figure A3.1: Frequency Bar Graphs of Case Studies _____________________ 325

Figure A4.1: Hierarchical Structure of ALPHA ___________________________ 326

Figure A4.2: Rome City Map ________________________________________ 327

Figure A4.3: Activity-Based Mapping Process ___________________________ 328

Figure A4.4: Role-Based Process Responsibility _________________________ 328

Figure A4.5: Hierarchical Structure of BETA ____________________________ 329

Figure A4.6: Milan City Map _________________________________________ 330

Figure A4.7: Activity-Based Mapping Process ___________________________ 331

Figure A4.8: Role-Based Mapping Process _____________________________ 331

Figure A4.9: Hierarchical Structure of GAMMA __________________________ 332

Figure A4.10: Milan City Map ________________________________________ 333

Figure A4.11: Activity-Based Mapping Process __________________________ 334

Figure A4.12: Role-Based Mapping Process ____________________________ 334

Figure A4.13: Hierarchical Structure of DELTA __________________________ 335




Figure A4.17: Hierarchical Structure of EPSILON ________________________ 338




Figure A4.21: Hierarchical Structure of ZETA ___________________________ 341


Figure A4.23: Activity-Based Mapping Process (a) _______________________ 343

Figure A4.24: Role-Based Mapping Process (a) _________________________ 343

Figure A4.25: Activity-Based Mapping Process (b) _______________________ 344

Figure A4.26: Role-Based Mapping Process (b) _________________________ 344

Figure A4.27: Hierarchical Structure of ETA ____________________________ 345




Figure A5.1: Map of Italy ___________________________________________ 349

Figure A5.2: Map of Milan __________________________________________ 349

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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 8.1: Hierarchy of DELTA‟s Personnel in Milan and Italy _______________ 150



Table 9.1: Weight of RE costs of Corporate Budget_______________________ 185



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

xii

Table 12.7: Richness of Process _____________________________________ 283

Table 12.8: Cohesion of Processes ___________________________________ 285

Table A1.1: Market Size (€ Millions) ___________________________________ 318

Table A1.2: The Top 20 Consulting Firms in Italy ________________________ 319

Table A2.1: Strategic Driving Forces __________________________________ 321

Table A2.2: RE Operating Decisions and Strategies ______________________ 323

Table A2.3: CRE as a Source of Competitive Advantage __________________ 324

Table A5.1: Comparison of CRE Strategies _____________________________ 348

xiii

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:

xiv

xv

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.

xvi

1

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 decision-

making 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

2

(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.

3

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 decision-

makers, 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),

4

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 decision-

making 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.

5

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

6

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.

7

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.

8

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

9

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.

10

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).

11

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).

12

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.

13

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 decision-

rendering system often influenced by a dominant coalition, represented somewhat

14

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

15

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).

16

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

17

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

18

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.

19

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 industry-

initiated 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;

20

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

21

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 decision-

making 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

22

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).

23

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

24

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

25

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).

26

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.

27

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:

28

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 information- 5 In the remainder of the document, references to politics and political behaviour are limited to organizational level phenomena.

29

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.

30

31

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?

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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 decision-

making 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?

33

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‘

34

Figure 3.1: Proposed Research Framework

35

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.

36

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).

37

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 decision-

making 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

38

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:

39

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

40

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 Bertaux-

Wiame, 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 decision-

making

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

41

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 decision-

making 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.

42

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.

43

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

44

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 explanation-

building 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.

45

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

46

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

47

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 decision-

making 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.

49

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).

50

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,

51

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

52

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;

53

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.

54

55

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.

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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;

57

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):

58

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.

59

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.

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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

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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.

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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

63

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 decision-makers and to build stronger business cases when seeking approvals from the Capital Committee.

64

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 decision-

makers 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

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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;

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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).

67

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 short-

and 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).

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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

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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

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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 4%),

Medium for occurrences: 8 > X 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

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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

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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 decision-

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

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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

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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).

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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

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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 goal-

driven, 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

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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 re-

examination. 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.

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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

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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 buck-

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

21 A Senior Director, responsible for the performance of all Real Estate assets in the EEMEA region 22 20 years‘ experience in the company

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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%

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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.

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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

85

support of key organizational members, can collectively explain the political process

that unfolded in ALPHA.


86

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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;

88

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.

89


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 post-

Second 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 ex-

Andersen 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.

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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.


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.

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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


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

93

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.


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.

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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 business-

function-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 multi-

disciplinary 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 semi-

central 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 29 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.

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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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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.

98

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-plus-

six 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

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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

101

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.

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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.


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).


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

104

following nomenclature was adopted to classify the frequency of each discussed

topic.

―Low‖ for occurrences: 0 X 11 (0% X 4%)

―Medium‖ for occurrences: 11 > X 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.


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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.

106

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.


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

107

limit our array of options, but having a large single building

was expected to boost the image of being a unique multi-

disciplinary 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.


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.


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]).

108

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.


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.

109


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 fit-

outs 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.

110

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.


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

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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.


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

112

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

113

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).

114

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

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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.


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.

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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.



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.


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

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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.


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

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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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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.

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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.


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

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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).


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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.


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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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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

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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

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

130

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.

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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.

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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

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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.


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.


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(284/18=15.78) and that +/- 2.84 occurrences represented 1% of the total sample, the


topic.



―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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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 decision-

making process, and they will be addressed in turn.


Corporate Image: [CI]-[Loc] and [CI-ExQl]

Costs: [OC]-[Loc].


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.

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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 decision-

making 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 semi-

peripheral 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.


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

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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]).


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]).


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

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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.


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.


For the purpose of this analysis the overall process has been divided into four main

periods:

41 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.

140

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.


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

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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 decision-

making process, as individuals in the company had predicted.

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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.


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.

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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

42 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).

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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.

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

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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).


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...

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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.




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.


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.

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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.

148

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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

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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.

151

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).


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‖.

152

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

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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 decision-

making 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.


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

154

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.

155



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 semi-

structured 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.

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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

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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

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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



Now the same data will be analyzed in two ways: the manifest reasons discussed in


and Real Estate aspects); and the rational perspective derived from this analysis will

be integrated with more hidden reasons and the concealed interplays among decision-

makers. This second analysis will provide a more comprehensive explanation of why

the process unfolded as it did.


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


process, and the frequencies at which they appeared in the transcripts (i.e., the

number inside each quadrant represents the occurrences).





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topic:





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.


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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 ―feel

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,

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benefit from great public transport, and are in close

proximity to bars, restaurants and other venues.

Site Manager:

We want our employees to feel ―at 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.


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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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.



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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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!


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.


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

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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.


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

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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.

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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)


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

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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 decision-

making process at least those individuals and entities required by established norms.


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 decision-

making 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

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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.





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

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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.


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.


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

174

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.


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.

177

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

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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 level50. 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

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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.


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

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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).


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.

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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).


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

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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.

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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.

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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

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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






be integrated with the concealed interplays among decision-makers and the politics

of the decision.


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


process and the frequencies at which they appeared in the transcripts (i.e., the






188


topic.





individuality but still accounted for by the aggregate value of its vertical and


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


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.


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The following issues are those intensely discussed during the decision-

making 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].


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

190

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.


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.


implications. As validated through topic coding, occupancy costs (A) and corporate

image (D) represented the main goals of the process.

192


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;

193

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

194

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.


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

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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

196

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.

197

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

198

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...





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 floor-

space; 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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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.


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

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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.

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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.


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

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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

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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).

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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 wholly-

owned 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:

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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).



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.

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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

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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

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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,

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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

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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.

212

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



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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).






topic.




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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


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.


The following issues, intensely discussed during the decision-making

process, will be addressed in turn:


215

RE Value Creation: [RE]-[Loc] and [RE]-[Qu]

Corporate Image: [CI]-[Loc] and [CI-ExQl].


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

216

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.


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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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]);


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;


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.


implications. As validated through topic coding, integration of workforce (C) and

managerial processes (F), together with promoting corporate image (D) and create

218

value for the company through RE assets (G), represented the main goals of the

process.


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.

219

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.


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

220

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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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 (PROBLEM-DRIVEN)

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.


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

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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 (OPPORTUNITY-DRIVEN)

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).

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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.


Buildings for us are not costs but assets that can appreciate

over time and increase the overall value of the firm.



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.



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.

226

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.


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

227

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:

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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;

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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.).


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.

230



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.

231


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

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(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 newly-

available 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

234

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 well-

equipped. 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?

235

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

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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.

237

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

238

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.


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.

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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.

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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,

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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 decision-

making 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






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

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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




possible topics. Given that an average of 13 occurrences per topic was anticipated



topic.



―High‖ for occurrences: 20 > X (X 8%)



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

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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.


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].


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

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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).


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

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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.


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]).


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,

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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).


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.


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

251

espoused the new strategic direction of ETA and, eventually, the power differences

between Board members based on their individual success as partners.


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

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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).


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

253

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…

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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.

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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 newly-

espoused 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

257

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 decision-making process was heading.

258

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-man-

one-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...



259


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.



diagram (Figure 11.5), which shows all the variables discussed while highlighting

those that had a major impact.

260


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

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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.


…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 decision-

makers 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.

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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


59 The presence of international governing bodies was largely irrelevant 60 Detailed diagrammatic representations of CRE processes have been illustrated and described at the end of each individual case study

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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.

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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: ―What 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

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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.

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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 space-

related 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

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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 context-

dependent (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.

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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.

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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 sub-

questions (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

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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

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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.

275

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 level65. 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 66 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.

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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

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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 finely-

tuned 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 decision-

making 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.

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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 last-

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

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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

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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.

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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.

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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

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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 ever-

increasing 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

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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


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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 decision-

making 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

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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

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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

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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.

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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 ―high-

velocity‖ 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 decision-

makers 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

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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 decision-

making 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 successful71. 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.

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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 decision-

making.

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

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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 advantage72, 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 Cf. Table 2.1. 73 Cf. Table 2.2.

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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 self-

discovery.

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.

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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

297

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

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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

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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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301

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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

314

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.

316

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 Sarbanes-

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

317

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,

318

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

319

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,

320

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.

321

Appendix 2: Detailed Tables from CRE Literature

Appendix 2.1: RE Considerations of Strategic Driving Forces

Table A2.3: Strategic Driving Forces

322

Source: Edwards (2004:140-141)

323

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 Tenancy

Duration Identity / Signage

Building Size / Character

Building Amenities

Exterior Quality

Company Space

Mechanical Systems

Information / Communication Systems

Ownership Rights Financing Control Risk

Management

Occupancy Cost Minimization

Remote, less popular regions and sites

Minimum space per employee

General purpose building

Less important

Less important

Lesser priority

Minimize financial responsibility

Cost-of-capital trade-offs drive decision

Inconsistent with cost minimization

Minimise financial exposure

Flexibility Less prime location

Short-term leases – options

Built to favour easy modification

Important

Promote Human Resources Objectives

Accessible to where workers live/want to live

More space per employee

Long term High priority

Premium ambience and furnishings

Comfortable working ambience

High priority

Promote Marketing Message

Prestige and high visibility very important

Own or long-term lease

Critical Landmark structure Very

important

Consistent with marketing message

Important relative to continuity of marketing message

Priority

Promote Sales and Selling Process

Prestige and/or high traffic location

Lease for flexibility Critical Consider

selling

Critical impact on selling environment

Important Significant re impacts of adjacent uses

Facilitate Production, Operations, Service Delivery

Access to customers and suppliers

Own or long-term lease

Appropriate for primary purposes

Specialized facility

Appropriate temperature Priority

Significant re impacts of adjacent uses

Facilitate Managerial Process and Knowledge Work

Sufficient to promote effective work

Important Contribute to effective work

Critical priority

Positive working environment

priority

Capture the Real Estate Value Creation of the Business

Consider impacts on demand of location decisions

Secure more space than needed for own use

Longer terms Dominant

tenant critical critical strategic priority

critical

Aggressive value creation involves more risk

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

324

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

CRE Strategies 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

Promote Marketing Message Yes

Yes – strong external marketing messages for improving retention

Strong external marketing messages can complement business processes

Yes

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

Possibly directly related, possibly tangentially

Yes

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)

325

Appendix 3: Distribution of Topics in Case Studies

Figure A3.2: Frequency Bar Graphs of Case Studies

326

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

327

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).

328

Figure A4.5: Activity-Based Mapping Process

Figure A4.6: Role-Based Process Responsibility

329

Appendix 4-2: BETA ( )


BETA has a workforce of around 2,500 employees in Italy, organized hierarchically.

Figure A4.7: Hierarchical Structure of BETA

330


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 (A3-

A15), 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.

331


Figure A4.10: Role-Based Mapping Process

332

Appendix 4-3: GAMMA ( )


GAMMA has a workforce of approximately 1,500 employees in Italy, organized in a

hierarchical structure.

Figure A4.11: Hierarchical Structure of GAMMA

333


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.



The next two Figures focus on the key activities of the decision-making process (A3-

A18) 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).

334



335

Appendix 4-4: DELTA ( )


DELTA has a workforce of around 400 employees in Italy, organized hierarchically.

Figure A4.15: Hierarchical Structure of DELTA

336


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.



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).

337



338

Appendix 4-5: EPSILON ( )


EPSILON has a workforce of nearly 100 employees in Italy, organized in a


Figure A4.19: Hierarchical Structure of EPSILON

339


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.



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.

340



341

Appendix 4-6: ZETA ( )


ZETA has a workforce of around 1,500 employees in Italy, organized in a


Figure A4.23: Hierarchical Structure of ZETA

342


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.



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.

343

1. The acquisition of the building in Piazza Australia for ZETA TEAM (A2-

A9):

Figure A4.25: Activity-Based Mapping Process (a)

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

344

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)

345

Appendix 4-7: ETA ( )


ETA has a workforce of around 150 employees in Italy, organized in a hierarchical

structure.

Figure A4.29: Hierarchical Structure of ETA

346


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.



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).

347



348

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

349

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.

350

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

351

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.

UNSTRUCTURED STRATEGIC DECISION-MAKING PROCESSES: … · 12.5 Informing Strategic Decision-Making 287 12.6 Conclusions of Integrative Analysis 291 13 Contribution and Conclusion 293

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