One FM’s View of the Immediate Future

As part of an annual scan process we go through in preparation for the beginning of the budget season our organization takes a hard look at the financial world around us. Right now it’s not a pretty picture. Pick an indicator - residential or commercial real estate, manufacturing, job creation – they’re all in trouble. Okay, we know that. But what does it mean for FM's?

Capital to fund projects is going to be hard to come by. The majority of large projects will stay on the back burner as emphasis remains on improving the bottom line through productivity gains and cost savings. Projects that do make it through the approval gauntlet will most certainly be under increased pressure to meet or beat budget and schedule targets. Given current economic indicators corporate capital is expected to remain constrained through at least the next two years.

Commercial real estate will remain in distress through 2011. Default rates continue to rise and are expected to reach 5% this year with the bottom not coming until 2011 at the earliest. That means even tighter credit at a time when many commercial loans are due to reset. Landlords caught in the squeeze are in trouble. Watch your landlord relationships and their financial health. Their risk is your risk. It might be your opportunity as well.

Emphasis on cutting costs and boosting productivity will escalate. Many companies have made the easy cuts and still have to improve to survive, but additional staff cuts run the risk of so deeply depleting the talent pool as to be too risky. For others, the need to improve is a key to competitiveness even if they have so far remained unscathed. Companies will dial up Continuous Improvement initiatives, but the initiatives must demonstrate hard gains through specific metrics. This will include second tier metrics to make certain that credit is not claimed for gains in one sector, cost as an example, at the expense of another, i.e. quality or revenue.

FM service providers are still under pressure. Virtually every firm you depend upon for service or support is under financial duress. Some have improved their position over the last year and most will make it through, but some will not. Keep a close eye on those that are most critical to your operations or present large financial risk should they fail. One way of doing this is to include corporate financial health information in your routine monthly or quarterly contract reviews. They will expect you to be asking so don’t be shy about it. You should be monitoring key ratios, borrowing capacity, credit rating and stock value as a minimum.

Opportunities exist to gain contract concessions. It might be a lease as noted above or renegotiating terms with your largest outsourced service providers. In most cases FM’s will have several of these opportunities. Your goal here is to drive down the cost of the contract in exchange for considerations in their favor such as extending the term of the contract, while maintaining enough resource to get the job done without endangering quality.

Adoption of alternative office strategies will become more common. Even organizations that traditionally have not ventured into this territory will do so. Companies will analyze occupancy and presence data to understand the scale and scope of stranded real estate investment. For companies who need to grow doing so without real estate expansion will become a priority. Densities will increase with shifts in office entitlement policies and standards.

Smart FM’s will watch the scoreboard. You may not consider yourself an economist but now more than ever you need to understand the basics of how business works in this very interdependent world. You should be watching basic market indicators relevant to your business and thinking strategically about risk and opportunity. FM’s should be knocking on the CFO’s door with observations and trends, and proposing actions to take advantage of opportunities and/or mitigate risk. You don’t have to have details. Demonstrating that you are keeping your finger on the pulse and understand what the data potentially means to your business will raise your own stock and protect the company’s as well. Go knock on the door, don’t wait to answer the phone.

Building A Data Center Is Always About Size

Building a data center is a large undertaking. The costs are big, the risk is big and often the size is big - sometimes bigger than it needs to be. It seems there is a seduction to data center projects. Big is better. Build big and reap the economies of scale in both the engineering and purchasing domains. Spend tomorrow’s capital today when it’s cheaper.

Yesterday, maybe. Not today. Here is an alternative strategy.

Build a big box but do not completely engineer it or provision it. Build only what you need when you need it. Build in modular format and replicate the modules as you grow into the big box.

What, you say? Have multiple projects over years to build out the same size space? What sense does that make?

Perfect sense. For starters this strategy has the following immediate advantages.

• Deferring investments and interest until needed not only makes financial sense, it also avoids stranding capital in technology that has become obsolete or inefficient by the time it’s needed.

• Small projects have shorter planning timelines.

• Saves on conditioning and maintaining space and equipment over time.

• Allows you to take advantage of design and technology knowledge increases for all new projects.

• Allows you to build tiered modules and save the cost of building system robustness where it’s not needed.

Tier 1 centers cost an average of $9.9 million for each 10Ksf. Tier 2 centers average $19.3 million, Tier 3 $25.6 million, and Tier 4 centers average $34.5 million for every 10Ksf.

Those are hefty costs my friend. If you are considering a data center project also consider building smart. More and more that means building for today and not for tomorrow.

Leaders Who Serve

Over three decades ago our second son was born. I still remember that day and the emotions that came with it, but I also remember a very important leadership lesson I learned that day.

Serving in the Air Force and home between overseas tours I was fortunate to be there for his birth. I hadn’t been able to be there for our first so this was a special moment for me. But there were problems. We were scheduled to have the baby at a small community hospital on the northern outskirts of Phoenix. Just a few days before the birth the doctors became very concerned about some abnormalities and advised us that this may be a difficult one. They weren’t as worried about the birth as they were about what would happen immediately after, concerned that the baby would need a full blood transfusion. This small hospital did not have the capability to do the procedure, and due to legal and insurance issues we could not have the birth at the only hospital in the area capable of the procedure.

We were concerned of course. I was struggling not to show the depth of my concern to my wife, but I was worried. We were alone and this was about the biggest trial we had faced as a couple. She was depending on me and I couldn’t let her down.

At the hospital the labor took a long time. At some point I felt I needed to get outside and get some fresh air. It didn’t look like anything was going to happen soon and I felt I needed a break, so I stepped outside. To my surprise, there sat a U.S. Air Force rescue helicopter on the pad with the crew standing around. The flight crew along with a medic and nurse, just standing around. I thought they must have just brought an accident victim in and were waiting to return to base, so I went over to talk with them. Most of these were guys I knew.

That’s when I learned the lesson in leadership. They hadn’t brought in an accident victim. They were on a “training mission,” one arranged by our squadron C.O. They were there, with the flight plan already filed, waiting to take my new baby to a downtown hospital capable of doing the blood procedure if needed. I was stunned. I barely even knew our C.O. and had no idea he even knew we were expecting, much less that there was a problem. I still don’t know how he found out. But I know what he did, I know what it meant to me, and I know what it taught me.

One of a leader’s most important jobs is to remove obstacles that hinder the success of others. Too often we see leadership positions as a zenith of power and influence. Some see the leader’s job as that of being “super boss,” pressuring and pushing, mandating and demanding. Some focus on goals and trends, analyzing information to ferret out the levers that when pulled will steer the organization on a new course. Still others will tell you that a leader’s job is to envision and motivate. I suppose all of those are true and needed at certain points, but there are also leadership characteristics that I don’t think change with the circumstances. For one, leaders care. They care about their people, they care about their community, and they care about what affects them.

Leaders who understand this know the value of serving others from the leadership role. They understand how that commitment engenders commitment in return, how that loyalty reaps loyalty, how the humility of serving someone else can elevate the server as it honors the one being served.

Leaders with a servant attitude succeed, don’t think they don’t. Look around and you will see them. Leaders who genuinely care and are passionate, leaders to whom people gather because of shared values, goals and partnership. These leaders are not weak. To the contrary they have the strength of their values to undergird them when hard choices have to be made. They have something else as well – they have the trust of those they lead because the trust has been earned through shared experiences.

In the end we were fortunate that our child did not need the procedure. Two days later I took home a healthy and beaming Mom and baby. But we could have needed it. And if we had the resources were there, put in place and arranged by a leader who cared.

Meanderings and Musings

Do you enjoy your work? I do. In fact, I often tell people that I feel like the little kid who grew up and didn't have to give up his Tonka toys. And I mean it. Sure, it's challenging and sometimes downright hard, but I love what I do.

Right now I am very thankful to have a place to go do it everyday. I've been bored and I've been busy. Busy is more fun and pays better.

I was reminded last week that not all toys are Tonka toys, be they big or small. If you're as left-brained as I am toys come in all kinds of forms. Last week it was a six sigma refresher course and man, did we have toys to play with! Fishbones, X-Y Matrix, FMEA sheets and on and on and on. Yeah, it was fun.

I've been thinking about my next car. Naturally I want it to be green but hey, I'm a speed freak too. What's a guy to do? How about this?

OK, a slight diversion here. What I really want for my commute is one of these. Not bad for a home built, eh?

Speaking of Continuous Improvement projects (we were, right?) I must admit to a failure. Last year I took on a large project mainly out of frustration with the status quo. The result was predictable. Any time you try to "boil the ocean" you shouldn't be too surprised when it doesn't work. And this project didn't deliver the goods. But, we still achieved a lot. Project checklists, design and building standards, a PM toolkit in our collaboration environment, staff who can now process map with the best, a shorter cycle time on major project provisioning processes. I'll take those results as a satisfactory "silver medal." And I will remember to check the size of my ego the next time.

I am thinking about my FM friends on the U.S. east coast and wishing you all well. I'll bet you've built up some pretty good arm strength these last three weeks with all the snow shoveling. Keep your chin up, Spring Training camps are open in Florida and Arizona - better days are just ahead.

I am helping a non-profit with a site search and have been playing around with GIS tools. We're not quite where we need to be in the shareware world yet but they are moving fast. Assuming you are familiar with Google Earth and Google Maps, try doing a batch upload of target information. There are a few sites that try, but none that I've found that do it well. Anyone have advice?

"The Age of Consumer Capitalism" by Roger Martin in the current issue of the Harvard Business Review suggests that corporate attention to shareholder value over the past three decades has actually hurt shareholder value. In a nutshell, "next quarter" decisions motivated to improve shareholder value often come at the expense of decisions that improve customer value. In the long run customers vote with their purchasing decisions and then....guess what happens to shareholder value. Seems so simple, doesn't it?

OK, that's enough for this week. Work hard, and enjoy it.