After the U.S. federal government bailed General Motors (GM), then GM CEO and Chairman Ed Whitacre, Jr. told a reporter that he reviews only six metrics to determine the performance of a company or organization. Ed Whitacre, Jr. was the CEO of one of the “Baby Bells” (SBC) when the federal government broke up the old AT&T in the 1980s. He later merged SBC with several other Baby Bells, including Pacific Bell, and eventually acquired AT&T to form the current communications giant that exists today, at&t. After he retired, President Obama tapped him to head up the new GM, which he returned to profitability after years of losses and near bankruptcy.
As a real estate and facilities management (REFM) professional, I have been searching for ways to better communicate performance and impact to executives who rarely understand REFM-speak: the jargon and common ways that we talk to each other and our contractors about space, projects and facilities operations. In order to be successful, we need to speak the language of business and learn how our world affects these six key metrics:
- Market Share
- Operating Profit
- Cash Flow
- Customer Satisfaction
Let’s examine each of these metrics and see how they tie into the world of a Real Estate and Facilities Management.
Anyone who has read any of Jack Walsh’s books knows what a huge proponent Mr. Walsh is of Market Share. Jack Walsh (and I’m sure many other business leaders) believes that if your product or service is not number one or two in market share, then you have a problem with your business. This is one reason why mergers and acquisitions are so popular because they can be a quick way to gain market share and possibly enable your organization to get to or near the top.
I consulted for a company that had recently consisted of two companies: one was number two in market share and the other was number three. When the number three company announced plans to acquire the number four market share company, the number two company quickly worked out a deal to acquire the number three company (nixing the deal between numbers 3 and 4), which made it the new number one market share company in its industry.
Why is this important? In addition to hopefully gaining some R&D, manufacturing and administrative synergies with the merger, suddenly the company was in the spotlight of the media, Wall Street and its competitors. Instead of being an also-ran company, the expectations for the new number one market share company increased exponentially. This meant that the all organizations, including the REFM group needed to “step it up” a few notches and prove to everyone that it deserved to be number one.
So, look at the market share position of your company’s products and services; are they currently number one or have plans to be? If so, you need to be ready to support them like a top—notch organization or you may become an also-ran.
You may think that there’s not much that the REFM organization can do to effect the revenue of the company, but the REFM organization plays a crucial role supporting the organization’s ability to support revenue plans, especially if revenue suddenly increases or decreases. How do you prepare for this? The best way is to know that you have the right amount and the right type of facilities. Are your facility plans in-line with the organization’s revenue plans?
In today’s fast-pace business world, you need tools, such as a CAFM system to be ready for rapid changes. This is your foundation for your strategic facilities plan where you can readily access the data you need to support your plans and how they are aligned with the top goals of the organization.
Investors look closely at Operating Profit every quarter to evaluate a company’s performance. After deducting the cost of revenue (what did it cost to make or purchase the company’s products), R&D, SG&A and any non-recurring costs, you end up with the operating profit or loss. A small reduction (less than 5%) of the REFM operating budget can have a significant impact on the company’s Income Statement, often improving the EPS by a penny or more. A penny may not sound like much, but it can make a huge impression to investors who can significantly affect your company’s stock price. Therefore, anything that you can do to reduce costs – think sustainability programs – can be quite valuable to your company.
Cash flow is a financial metric on the company’s balance sheet that indicates the financial health of a company. Obviously, cash is good and if the latest balance sheet shows an increase of “cash and cash equivalents” then generally the company is operating well: revenues may be increasing and / or operations are well-run.
For REFM, continuous improvement in operations, including savings from implementing sustainability initiatives can help improve cash flow. In addition, investing in a CAFM system to better manage space can result in an optimized portfolio and help avoid wasteful investments in excess space. Additionally, managing your vendors well by ensuring that they fully perform their contractual obligations can help you to avoid wasteful spending. While finding ways to improve your company’s cash flow is a worthy objective for every REFM professional, delaying vendor payments beyond the agreed upon terms is not a good or sustainable practice. This is not fair to your vendors, especially small ones that receive a significant amount of their revenue supporting your operations.
The quality of a product or service can have a significant impact on the success of the company’s offerings. Just as companies can look to 3rd-party unbiased firms to assess and rate products (think Consumer Reports as an example), the REFM organization has its own means to measure the quality of its products (space and facilities) and services.
Benchmarking is a terrific way to measure quality that is an often-used tool in the REFM toolbox. Virtually any part of your facilities, from space to operations can be measured and benchmarked against past performance and comparable operations. There are several ways to benchmark your operations:
- Start your own benchmark study and invite colleagues to join
- Hire a company that performs benchmarking studies or participate in one for free. If you participate in IFMA’s benchmarking studies, for example, you will receive the study report for free
- Use an on-line tool such as the “Energy Star” benchmarking tool to compare the energy performance of your facilities to industry standards to begin understanding opportunities for energy savings
Surveys are another useful way to measure the quality of your operations, which I will cover in the final key metric.
Just as your company needs to know what its customers think of its products and services, you should know how your customers think of their facilities and associated services. Surveys are the best way to find out. As with benchmarking, you need to establish a baseline of current performance that can be used to set future performance goals and determine where improvement is needed.
Another way to survey your customers is to provide a link to a simple survey after completing every Facility Work Order (FWO). As you gather data regarding your service levels, you will begin to understand your team’s performance better as well as identify problem areas that you can begin to address by discussing performance concerns with your customers. Again, keep the survey simple: I use a scale from 1 to 5 and anytime that I receive a score less than 3, I want to have a conversation with the person who gave us a low score to find out where the problems are, determine how to improve services and ensure that future work is completed in a satisfactory manner.
Communications – Speak the Language
Understanding and incorporating these six core metrics into your vocabulary and reports to your executives will enable you to communicate more effectively with them when you are proposing new projects and changes to your operating expenses. Your executives may prefer a few other business metrics, but start using these six core metrics. Once you begin to speak the language of your executives they will realize that you understand their world which will lead to greater success for you and your organization.
To differentiate between the old AT&T and the new company, the new company is referred to as at&t, all lower case.