Boa, like many other multinational firms, was seeking to outsource its internal real estate management functions and pay for he convenience of an integrated service provider who would oversee all its real estate needs. Unfortunately, while JELL had always prided itself on being client- focused, it had not kept pace with the rapidly changing marketplace, a tact reflected in its recent lackluster financial.
XI_L was trying to respond; providing integrated services to iota would allow the firm to test a new model of customer- focused operations, If the firm successful with the Boa account, it would be well positioned to take advantage of the emerging market. But for any of this to happen, Barge needed to convince Boa that ILL was errors about providing integrated account management services.
The bank was growing increasingly frustrated with the lack of coordination among its different real estate providers and had announced plans to consolidate its business with the two or three who would be willing to “partner with it to provide forward- looking, integrated services. “Barge wanted JELL to be one of those partners and felt that Ills recent restructuring efforts-?the company was placing its three independent, product-based business units under a single organizational entity be an attribute in this endeavor.
As part Of this plan the three units would remain autonomous, but would report to a single person, Barge. At the same time, dedicated account managers would be assigned to large clients and would work on their behalf across Sill’s various product and service units to provide them with an integrated offering. Still, the restructuring was a work. In-progress, and Barge knew that in order to win the account, he would have to reassure the bank that ILL would be able to pull fifths integration effort.
Barge was confident that the account management solution offering a single, senior mint of contact to Boat who would first help the bank define its real estate goals and priorities and would then work internally to accomplish those objectives – was a winning tortilla. Barge’s plan to win the ongoing 80th business would depend on his attracting a strong candidate for new account management position, and this posed several challenges. For one, Barge would have to determine the ideal structure revenue allocation, reporting relationships, compensation plan, etc. ) for the new function.
Specifically, should it be set up as a profit or cost center? In a company where bonuses were a huge art of compensation, this was key concern. The chosen structure had Professor Runway Galatia prepared the original version Of this case, “Corporate Solutions at Jones Lang Losable,” HOBS NO. 409-NO, which is being replaced by this version prepared by Professor Runway Galatia and Research Associate Lucia Marshall. The original cases were written and researched by Professor Runway Galatia, with assistance from Research Fellows James Lloyd, Thomas Knapp, Stephanie Prefer, and Sarah Huffman.
Has cases are developed solely as the basis for class discussion. Cases are not intended o serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright @ 2009, 2010 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to v. Www. Hobs. Harvard. Dude/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. 09-111 to strike a delicate balance between satisfying the emerging needs of the account manager with those of the well-entrenched business unit managers so that together they could stream-line CSS operations, motivate employees, and reward success appropriately. Because this first account manager would serve as a model for future account managers, the individual would have to be successful both in serving Boa and in spearheading change Within ILL. Would the position be better filled by a qualified internal candidate or by someone from outside JELL?
Would a generalist from outside understand all of the firm’s product and service offerings? Would any candidate, insider or outsider. E met with resistance when trying to coordinate the activities of his or her formerly autonomous colleagues? Would qualified candidates be willing to embrace this challenge? Moreover, how would the addition of the account manager role affect the fundamentals of the organization. Would the matrix structure work? How should decision-making authority be shared? What compensation structure would best motivate the account managers and the business unit managers to work collaboratively?
How would the new tooting affect career trajectories of promising managers at the firm? Finally, how would the changes affect company oral? Barge sat back and reviewed his options. He knew that his decisions would largely determine whether or not could reverse its recent downslide and capitalize on the emerging multinational real estate market. And with the Boa meeting looming, he also knew that he must act quickly. Industry Background Real estate development experienced tremendous growth throughout the entire second half of the 20th century.
In 2001 real estate accounted for an estimated 12. 5% of the total U. S. Gross domestic product, and JELL was one of its largest players. Commercial real estate was the largest and most profitable sector Of the industry, valued at $4. 7 trillion, and comprising some 4. 4 billion square feet of Office space in 2001 _ ILL competed in this sector With four Other global real estate services firms-?CB Richard Ellis (CYBER), Trammel Crow, Cushman & Wakefield, and Grub & Ellis-?as well as a host Of national and regional players. (See Exhibit 1 for comparative information on each. Like ILL, its main competitors were partnerships of independent real estate service professionals. Globalization Trends in Commercial Real Estate In the mid-sass, the commercial real estate sector had undergone a significant transformation. Industry growth had caused a rise in competition, forcing service providers to compete increasingly on price, In response, providers attempted to sell a broader array of products and services to reduce total costs, spread overhead, increase the volume of transactions, and differentiate their offerings.
By integrating services, premium providers hoped to offer more to clients and make up in volume what they used to achieve in margin, while at the same time differentiating their offerings as real estate “solutions” where the sum of the parts added up to more than the parts alone. The global expansion f many companies in need of real estate services contributed to the demand for integrated, global service provider’* Reach was now replacing intimate knowledge of a local market as the basis for competition as global companies selected real estate service firms to expand their Operations overseas.
At the same time, these global firms began to outsource their entire real estate departments to third-party providers to ensure consistent service worldwide, decrease internal real estate management costs and inefficiencies, and leverage the expertise Of professional real estate service firms. Along With this shift n demand, technological innovation drastically expanded the geographical footprint that real estate firms could more easily serve. The internet gave real estate 2 409_111 service providers access to information on local markets-?via online real estate databases-?where they might not have had a physical presence.
Because of these industry trends, the same regional partnerships that had dominated the commercial real estate service industry for decades found it increasingly difficult to compete. Many of them expanded their product offerings and began extending their new full-service firms nationally and globally. Alliances and acquisitions were common as industry participants pursued opportune SO companies overseas and tried to differentiate themselves in scale and scope. By 2001 , global players executed approximately one-half of all real estate service transactions worldwide.
Positioning JELL for the Global Marketplace Responding to these trends towards globalization, in 1999, JELL was the result of a merger of its two formerly independent partnerships-?u. S. -based Losable Partners and London-based Jones Lang Woodlot-?to become the world’s leading commercial real estate management company and the second largest real state investment management firm. While the former had excellent coverage in North America. The latter served all of Europe and Asia. Together, they hoped to be a truly global firm that could provide integrated services within and across geographies.
Post-merger, the company employed more than 6,000 people in 43 countries, with offices in 96 markets. While the merger gave JELL the global reach and the broad array of service offerings required to compete for the higher margins of serving Mac’s, it did not provide an answer to the question of how actually to get all of the geographically dispersed, independent business units irking together. Operations within the regions continued virtually unchanged, except for the addition of regional ICES, with only limited collaboration across or within regions.
In Europe and Asia, business was further fragmented due to unique cultural and business requirements of the different nations, Indeed, the merger had failed to reverse the firm’s struggling financial. Although ILL managed more than 680 million square feet of property worldwide (equivalent to over 150% of the commercial real estate space in Manhattan in 2001) and more than $20 billion in real estate funds at the end of 2000, its performance visas offering.
The company’s market capitalization was in decline, and the threat of economic downturn in the LLC. S_ loomed. (See Exhibit 2 for stock price information and basic financial. ) Ills global management team was aware Of the complexity that it faced in responding to the demands of the new global marketplace and began seeking ways to address the issue Within months Of the merger.
Their answer first appeared in September 1999 with an internal study of market shifts that found that major corporate clients wanted Ills competent service providers to diagnose and offer solutions to their comprehensive real estate needs. The lobar management team immediately set its sights on becoming the integrated provider of choice, As it envisioned, ILL would become more than a seller of services to its global clients-?it would become its clients’ partner and advocate, providing a centralized point of reference in the complex, global real estate market.
If a client needed to move an office to a new location or to add one to a new market, JELL would he there to help, Its employees would he able to offer insight on when to lease, invest, and develop, and then would help execute the desired transactions, Once real estate resources were in place, ILL would be here to manage them. By creating synergies in real estate services for its clients, it would at the same time save clients money and increase its own profitability, establishing a win-win relationship.
Right away, however, senior management at ILL discovered the difficulties of moving from strategy to implementation While the firm’s most fundamental goal had always been providing its clients with service excellence, the actual service they were now being asked to deliver was different. 3 Listening to the customer would inform and guide their new strategy. In most cases, these large customers were rapidly expanding their businesses o disparate overseas markets. At the same time. Hey were in the midst of outsourcing their Nan-core activities such as real estate management. As a result of the growing complexity of their needs, they wanted their service providers to give them high-level problem. Solving and strategic direction. ILL senior management recognized that meeting the evolving needs of global firms seeking integrated services would require the different units of ILL to collaborate. Yet there was anything but collaboration going on.
Sill’s independent, product-based business unit structure had worked effectively o develop and sell the best products within a specific service area; it counterproductive to providing bundled, integrated services that drew from the expertise of more than one business unit. Managers within business units were hesitant to pass on business from their premier clients to other business units for fear of jeopardizing their most important relationships, Moreover, because of the high degree of specialization and competition within business units, managers oeuvre not well-equipped to cross-sell the services of the other business units.
Furthermore, there avgas limited career mobility within the organization-? nice hired, most employees worked solely within their respective business unit. Compensation varied among the three units and bonus pools resided within individual units, so this further reduced the incentive to cross-sell or to pass on leads. Communication across the units remained poor, and integrated service offerings remained a conceptual goal.
Meanwhile, Ills large accounts were being overwhelmed with sales calls from junior managers from across the organization, each offering his or her individual expertise to these valuable accounts, but none able to coordinate a broader real estate “solution. Re-organizing around the Customer In January 2001 , the executive board took action and restructured Sill’s corporate real estate services in a way that they hoped would stimulate collaboration among the business units. They started with JELL Americas, headquarters to many of their largest accounts.
If the model proved successful, they would replicate it in Europe and Asia. Large NC customers, which had been identified as their most attractive, and potentially lucrative, target market, needed integrated, coordinated services. JELL would provide these services by coordinating the activities of the business units that generated these services, The Corporate Solutions Group was established in ILL Americas to combine the three business units serving the company’s corporate clients under a single structure, and in so doing, enable the desired synergies. See Exhibit 3 for a depiction of the organizational structures before and after the restructuring, and see Exhibit 4 for a description of each of the three business units residing under the new CSS) Peter Barge, who had been the Global CEO of Hotels at ILL and a member of the firm’s Global Management Executive Committee, was named CEO of CSS ND assigned the role Of coordinating and integrating the diverse activities of the three units.
According to a training disk distributed to all corporate level employees involved in CSS, the group was “not a new business or sub-brand, but a business philosophy or organizing principle we will use to reaffirm our client focus and solution orientation. ” As one senior ILL executive explained Of the new structure, ;We won’t go to market as the ‘leasing and management group or the ‘tenant representation’ group.
Well go to market as Jones Lang Losable. ” Getting the three business units to work together as a single group, however, as a formidable task. Not only had they operated independently with separate P, compensation and incentive structures, and business accountability, but they each had unique cultures and norms that grew from these separate foundations.
There was virtually no cross-over of employees from one unit to another as employees stayed specialized in one service domain and spent their entire careers within that line of business and compensation varied a lot across the three units reflecting local markets for those skills. Reflecting on the future, Barge could not yet begin to imagine the milestones Of replicating the model in Europe and Asia, each having its own unique business units, services, business practices, and customs.
Barge immediately began communicating With the business units about the positive role of CSS. “We should look on our new structure as an enabler to work together to achieve our goals,” he said. He saw this as an opportunity to expand the pie rather than as a way to reconfigure and share the existing pie among the three business units. Already many of Ills accounts purchased services from two or more business units (so called “ex. accounts,” according to the local vernacular).
If this trend could be continued and streamlined internally, JELL could increase the business it did with existing clients, or ;turn lax and xx clients into or accounts” and attract new NC accounts interested in consolidating their real estate service providers, As one _II_L executive explained, ‘These xx global clients are the sweet spot in the industry because they have a majority to the real estate assets and are forward thinking and willing to rely on outsourcing if service providers such as ILL can provide better service for them. In addition, these mufti-service clients provided an “annuity’ of sorts for the firm because ongoing workflow was more reliable and less dependent upon economic cycles than typical transaction work. The challenge valued be to convince each of the business units to see things in this non-zero-sum manner and trust that their counterparts in the other units would do the same to provide their clients with a high level of service.
As Todd Lickerish, the CEO of CAPS, stated, ‘To provide service to xx clients, you have to be best in class in all three product classes because nobody trades down in quality of service to get the same brand. ” While the business-unit heads voiced their approval Of Barge’s vision, they didn’t ant to change. Cross-selling the products and services of other units seemed like a reasonable proposition, but none Of the business units volunteered to lead the charge. According to one executive, “Once a sale has been made by a business unit, that client is ‘owned’ and is carefully guarded by the ‘owner. You don’t want to get other units involved unless you have to. You worry about someone else messing up the relationship. ” They had nothing to gain personally from growing the account and, in their minds, everything to lose. The risk of losing a client seemed, to many, higher than the goodwill generated by Ross-selling, As John Minks, CEO of Corporate Solutions, Europe, said, JELL was “inherently resistant to cross-selling. ” The transition might be slower and harder than initially anticipated.
Creating a Corporate Account Manager Position Barge was confident that a stimulus trot outside the business units would be required to force the coordination of their activities, and weeks into his new job, he had decided that this would come in the form of dedicated, corporate-level account managers, assigned directly to the large, important clients and reporting directly to him. The underlying premise behind creating this new organization was that a centralized function would foster consistent communications and offer clients the advantage of interacting With a single ILL representative.
Historically, the account management function tasty had been dispersed throughout the business units and executed by low-level managers. Both internally and externally, the role was viewed as a necessary, but low value-added, client service. Changing the role and the perceptions was critical. Response times to client requests would be reduced as account managers both diagnosed and coordinated a response to client needs. ILL would experience economies Of scale in many aspects of serving its large clients, thus reducing internal costs.
Everyone had something to gain. Barge already had a clear vision of how centralized account managers might support the new structure: they would be partners, not just service providers, to their clients. A common lament of corporate real estate executives had been: “All real estate service providers want to do is sell me more products, and nobody listens to my problems. We (executives in corporate real estate departments) want people who can listen, understand and provide solutions. As advisors, the ewe account managers would assist with long-term planning and be focused on achieving client objectives and providing strategic insight in addition to fulfilling transactions. The new organization would be a matrix in which the product-specific business units Would continue to operate independently While the corporate account managers would operate across the various units as dictated by client needs. The account managers would create teams composed Of members of multiple business units to work on offerings for particular accounts.
While account managers would represent only one client each, business unit Taft members would likely work on teams for several clients simultaneously and would continue to report to their business unit heads, though they would also report loosely to the account manager of the team on which they worked. As Barge was perfecting the organizational model under which the CSS would operate with its new account managers and planning for its implementation, the opportunity with Boa forced him to quicken his pace.
Just one week after the official announcement of the formation of CSS, Boa one focal Americas’ largest and most valued clients, utilizing 510 JELL employees in various capacities, ad notified ILL of its decision to reduce the number of real estate service providers. 1 Frustrated with the growing number of middle managers offering uncoordinated products and services, The bank planned to pare its providers from five to two. According to Both “[The product managers] can’t immobile the resources we need. We like them, but they are too low on the totem pole. “By consolidating vendors, we feel we can get more dedicated talent and support from the corporate staff” Boa expected its ongoing real estate service providers to understand its strategy, turn the strategy into real estate requirements, and reform the services necessary to meet those requirements. In essence, the chosen providers would become partners to the future real estate success of Boa. It would be accepting proposals over the coming weeks and would be making its final provider selections within the first quarter of 2001.
Barge knew that he had to do more than create a new account manager position if he wanted to convince Boa of Ills commitment to providing integrated real estate management services. The executive Barge selected would be critical in demonstrating to the bank that he or she would be a partner in accomplishing its oils. Moreover, this individual would have to be up to the task of restructuring and growing the Boa account, selling the integration model internally, and overseeing the development of the account management role for other accounts. This first account manager would be central to the adoption of the model both by Boat and by JELL.
It the account manager tailed to provide the foreseen benefits, Barge risked losing more than the lucrative Boa account; he risked alienating his business-unit executives. This would be a delicate experiment in organizational re-design. Structuring the Account Management Function Barge would have to act quickly and decisively to select a candidate vivo would satisfy Boa’s expectations. Attracting such a candidate, however, posed a significant challenge. Numerous issues 1 At the time of the case, Boa had about 4,500 retail branches in 21 states, claiming market share leadership in California, Florida, and Texas.
With more than 142,000 employees located in nearly 40 countries, the bank earned more than $57 billion and net income of more than 57 billion in 2000. Boa had begun outsourcing real estate services in I gal., and by late 2000 had reduced its internal real estate department staff by 95%. In its western U. S. Region, the bank’s internal staff consisted Of only AS people, While its service providers’ staffs numbered more than 500 individuals. Associated with the structure of the function were critical to attracting and motivating truer account managers and ensuring that they worked effectively with the three business units.
As with any matrix structure, power and authority would be in question, and the decision of how to assign the profit and cost centers would contribute to defining the power bases of the new organization, The main challenge Barge faced was how to structure revenue allocation,’ pacifically, should the new account management function be a profit center or a cost center? Compensation was an important factor in assigning profit and cost centers as it was the underlying motivator of most activities at ILL and was central in decision making.
The system that’s set up in the sass was unique to the firm. Rather than the industry standard, commission-based compensation system, JELL had developed a salary-plus-bonus system to move the firm away from the negative perception Of real estate service providers as “cowboys” hustling deals. Sill’s model cast its employees as professional advisors cooking after their clients’ best interests. In spite Of its higher fixed costs, Barge saw the JELL pay structure as a competitive advantage especially as the company embarked on a more client. Centric strategy.
Currently, each business unit was a profit center with its own P&L. Revenues generated from corporate accounts were assigned directly to the business unit providing the product or service. All yearly revenue above a target was set aside in a bonus pool. Business unit managers and staff were expenses within their units, and incentive compensation was determined on a business-unit- weepiness-unit basis with individual bonus pools determined by business- unit profitability, Bonuses were often as high as of an executive’s annual compensation. Business units had a great deal of autonomy.
They decided the accounts they wanted to serve based on their individual profit metrics. They managed the hiring and tiring of their employees, determined compensation levels, defined reporting relationships, and developed new products. Individuals typically spent their entire careers within a business unit with the ultimate position being to head that unit. Barge recognized that it would be difficult to introduce account managers to this ell-established and somewhat rigid structure, particularly when it came to the question of how to compensate them.
While making the accounts cost centers would maintain the status quo with respect to the businesses structure, there would be pressure to create a bonus pool for them. This in turn would put pressure on the business units to share their bonus pools With the account managers, something that they would be opposed to on principle. Accounts could be set up as profit centers as well or in lieu Of business-unit profit centers, and there were some clear benefits of such a structure.
Assigning avenues and compensating managers at the account level would promote integrated decision-making, total account profitability measurement, and cross- selling. Internal studies suggested two things: that approximately one-third of Ills profits came from six large accounts which conducted business with more than one business unit in more than one geographic area (xx* accounts); and that as many as 25% fossil’s clients might be unprofitable, By tracking total contribution to an account against the cost of delivering the array of services it used, account managers could focus their time on the most profitable clients.
Moreover, account managers would be able to manage tradeoffs that involved promoting services less profitable to one business unit in the name of increasing highly profitable services of other units. The overarching question in Barge’s mind was how to use the revenue allocation system and the compensation system to promote the kind of behavior needed from both business-unit managers and account managers to create an integrated service offering, Not only did Barge’s decision impact the ability of the new business model to be successful, but it affected his ability to attract the best 7 antedates for the account management role.
Neither account managers nor business unit managers would want the other telling them how to run their businesses or whether they would meet their bonus targets. Choosing the structure that balanced power and maximized collaboration was essential. In addition to structuring the position so it would be attractive to strong candidates, finding the right person to accomplish the simultaneous tasks of restructuring and growing the Boa account and fostering acceptance of the account management position within the business units would involve tradeoffs.
What, for instance could be gained by choosing someone internally as opposed to the fresh perspective of an outsider? Would an outsider he able to traverse the internal silos around the business units? Where could he or she find anyone who understood all the service lines Jell_l_ offered? Barge wondered how he should weigh the expertise of managers who had worked their way up from apprenticeship-type origins versus the academic training of the university- educated. These and other questions had to be considered before he could proceed, yet he had to act before the Boa opportunity passed.