deep dive
insights about value of space
The true value of space
When calculating the value of office space many organizations are taking
What got us thinking...
When considering the value of office
space, traditional methods usually take
into account the initial investment that
companies make when building or
renovating a space. Some companies
even think of buildings purely as a cost
of doing business. But what if the value
of space was thought of in terms of the
return on investment companies can
realize if they plan and manage their
spaces strategically? Cost calculations
could extend beyond the obvious costs
of initial purchase price and even lifecycle costing. By helping organizations
to think of their space as a tool for
organizational change, architects and
designers help shift the paradigm in
how space is valued.
into account not only first and life-cycle costs, but also the business results,
like how much time is saved having access to the right tools, worker
satisfaction, improved productivity, and other human and social factors.
This approach is kind of like engaging both the left brain and the right
brain, and it helps organizations to think about their space as a strategic
asset, and not just a drain on the balance sheet. While gathering the “hard
cost” is fairly straightforward, looking at the value gained in social and
human factors is not as difficult as it may seem. The architectural and design
community is in a unique position to help clients think strategically about
their investment in space and help identify the return clients can make on
their investment in a well designed space.
insights about value of space
Space value calculations: Using the left and right brains
Frequently, facilities managers or building managers debate whether to use first
costs for furniture, or life-cycle costs, to value the space used by a company. In
doing that they miss a big part of the message: that the value of a space is not
just based on the value of real estate and bricks and mortar, it’s based on the
productivity and effectiveness a company gains from its investment in space.
Using space to help an organization change and intentionally develop in a particular direction
is often not part of the equation. By involving users in the process of creating a new space
and approaching space as a tool, organizations can fuel innovation and learning, and
increase the value of its space as a result. By going beyond the left brain and delving into
right brain results, you can create new measurements — like gaining 20 minutes per person
of productivity per day or increasing employee satisfaction. The point is: everything that is
important in terms of space and its value can be measured, not just what is easy and typical.
Fast pac
The average amount spent per
open office was between $3,750
and $3,815.
The average amount spent per
private office was between
$5,000 and $5,261.
Mean churn rate is 41 percent.
— 2002 International Facility
Management Association
At the start: First costs and life-cycle costs
Let’s first look at those hard “left-brained” measurements. In many areas of business,
companies are increasingly aware that the cost of owning an asset is often greater than
the original price. For example, the cost for a piece of office technology is considerably
more than just its purchase price. Paul DenHartigh, Manager of Account Operations for
Steelcase Workplace Services, estimates that for every dollar spent to purchase an asset,
two more dollars are spent to manage the item over its life-cycle. To understand why this
is, consider the costs of the following:
• Planning and design
• Selection process and purchasing activities
• Delivery and installation
• Orientation and training
• Churn/move management and reconfiguration
• Refurbishing maintenance
• Disposal
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insights about value of space
“Cost of ownership” is the term used to describe this calculation of the full range of costs
for a product. Others refer to this as life-cycle costing (technically, life-cycle costs are only
a sub-set of the total cost of ownership). Either way, by looking at the cost of ownership,
facilities managers will have a more comprehensive way to calculate the value of their
space, and, of course, allow them to manage their costs more effectively.
Capturing a complete cost of ownership picture for the office workplace requires focusing
on a range of factors, such as acquisition, deployment, operation, support, reconfiguration
and end-of-life. Only when considering this full range can a company reduce asset
management expenses, manage assets effectively, leverage and increase return on their
investment in the workplace.
Reality check: Capturing the easiest reality
Simply knowing what furniture you own, knowing where it is and having a process in place
for getting it redeployed before purchasing more furniture, is an essential level of awareness
for any firm. 82 percent of companies track how space is used; and 68 percent of
those said they tracked it for space planning purposes, according to the International
Facilities Management Association (IFMA) Project Management Benchmark Study (2002).
And of those who track space use, 40 percent use software to do so. If you’re not one of
the companies tracking space for planning purposes, that’s a good place to start.
“To a lot of organizations, buildings are just a cost, a
necessary evil if you will, of doing business.”
— Dave Lathrop, Steelcase Applied Research Consultant
The next step is to clearly identify and calculate the full cost of ownership for their
workplace furnishings — which could bring some surprises. For example, a company may
discover that a low-cost product carries significant management costs. In this situation,
the company’s most significant savings might be in streamlining management of the product
in the workplace rather than trying to simply buy it cheaper. Another strategy may be to
choose a different product that carries lower management costs. For this option, a product
with a higher purchase price could actually offer a lower total cost of ownership, due to
lower management costs. To devise such strategies, it may be useful to see what others do.
The average amount spent per open office was $3,750–3,815 and for a private office,
$5,000–5,261, according to the IFMA study. Add to that the initial cost for managing
furniture services, which can add another $260 per cube each year, according to Walter
Munroe, Account Manager with Steelcase Workplace Services. Do the math — if there are
1,000 workers in your firm and you’ve just spent $3,750,000 on cubicles for them, then
add another $260,000 to manage that furniture and the $4,100,000 figure is closer to your
real cost — and don’t forget to keep adding $260,000 each year after the initial purchase.
“Unfortunately a lot of companies don’t have a clue what they’re spending to manage their
furniture assets, but if you implement an organized, consistent furniture management
program, the costs can be closer to $150–200 per year. Those savings add up.”
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insights about value of space
Case in point, two major wireless carriers merged in 2004, and while the legalities of
the merger were complex, getting the two organizations together was arguably even
more challenging. The lengthy and complex process involved over 70,000 employees.
Each company purchased furniture from separate vendors, had different purchasing
processes and separate inventories of furniture. Steelcase’s Furniture Services
Outsourcing group reviewed this company’s existing purchasing process and extensive
inventories, and created a strategic furniture plan that:
• Avoids unnecessary purchases by reusing existing assets in storage
• Manages day-to-day requests more efficiently
• Frees up real estate and facilities staff time
• Sets measurement and benchmark standards
• Dramatically reduces costs
The newly merged company now has a much more efficient means of procurement, the
ability to re-use many assets that were currently sitting in storage, and reduces the amount
of warehouse space needed for furniture. Savings are broad-based and sustainable:
• $919,000 annually in reduced warehousing expenses (warehouse space cut 50%)
• $3.52 million in year one by reusing existing furniture
“Unfortunately a lot of
companies don’t have
a clue what they’re
spending to manage
their furniture assets,
but if you implement an
organized, consistent
furniture management
program, the costs can
be closer to $150–200
per year. Those savings
add up.”
— Walter Munroe,
Steelcase, Inc.
Workplace Services
• $1.76 million in the next two years reusing existing furniture
• $517,000 through more efficient product moves and changes
• $915,000 through re-deploying headcount from furniture project management
It’s a total savings of over $12.5 million over three years, a significant ROA, and one
more way the company can leverage its assets to keep “raising the bar.”
Part of good furniture management plan is a well thought out standards programs to
make smarter furniture acquisitions. According to the 2002 IFMA study, 55 percent
of respondents use written standards at their firms. Some organizations think about
standards as necessity for efficiency, but some users chafe at standards as being a
“cookie cutter” approach that stifles innovation. Another way to think about standards
programs is to consider developing a set of typical workstation lay-outs based on the
work style patterns of their employees. Steelcase research identified six main patterns
in which people manage their work (see “Shaping Order from Chaos: Designing
Effective Spaces for the Ways People Work”), and can be described in simple terms,
such as “Players,” “Concierge,” or “Brokers” for example. Each pattern has a corresponding workspace configuration that helps, say a “Broker” to work most effectively.
If a company understands what patterns are predominant within their organization, they
can design a standards program based on the “typical” configurations that are best for
their employees. This can not only reduce overall costs, but it can help employees work
better and smarter — how’s that for real value?
Reducing churn costs is another way to curb expenses. IFMA says each move costs
on average $729, and at an average churn rate of 41 percent, this could become a
huge expense. Standards programs, asset management, process analysis and furniture
service plans can aid a company in keeping churn costs down.
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insights about value of space
Going boldly beyond: Bringing the right brain to work
While focusing on initial and/or life-cycle costing can identify some aspects of the value of
space, the other part of the equation is the increase in productivity and overall effectiveness
that people can gain with a well designed space. By really understanding a company’s
people issues such as the desire for cultural change, dysfunctional team, social networks,
and other employee behaviors BEFORE beginning the design process, architect and
designers can create a space that helps people work better — and as a result use the
space as a tool that add value to the organization. “To a lot of organizations buildings are
just a cost, a necessary evil if you will, of doing business. But since you have to spend
money on a building, why not extract more value — make it an investment — by using
the space as a tool to impact human behavior,” says Dave Lathrop, Steelcase Applied
Research Consultant.
In organizations whose business
is the production, application and
transformation of knowledge and
whose success depends upon
human creativity, a critical management question is how to make
these individuals more creative
and effective. The design and
layout of the workplace can be
leveraged to support the formal
and informal process to make
the organization more productive.
Smith Carter, a prominent Winnipeg architectural engineering and design firm, wanted
to transcend its traditional architectural practice and turn itself into an intelligence-based
organization. This meant changing their focus toward more innovative design and research
and analysis. Believing that their space could impact their behavior and their culture, Smith
Carter engaged in a series of activities to get a deeper understanding of their organization.
Working along the Steelcase Applied Research team, they conducted studies, such as social
network analysis to understand the relationships that helped or hindered the flow of
information through the organization. They also conducted observation research to
understand how individuals and teams REALLY work. Smith Carter used this information
to guide their design of the new space to a help achieve their firm’s goals. After implementing
the design and analyzing the outcomes, Smith Carter’s CFO showed savings exceeding
$30M plus and the firm’s management felt it significantly impacted their performance overall
and its ability to achieve the direction shift the firm was aiming for. “This building is an
expression of the way people can work together better and how a workplace can contribute
to success,” says CEO Scott Stirton proudly.
Earthquakes aren’t generally good for business. But for Boeing, one earthquake in particular
helped instigate a major cultural and physical change for its 737 manufacturing site in
Renton, Washington. Carolyn Corvi, Vice President — General Manager, Airplane Production
at Boeing, seized the opportunity to move engineers and other employees right into the
massive hangar where the planes are built. “It started out as an idea about a facilities
change. It quickly turned into an opportunity for all of our people to work together to
continuously improve and trust one another to get the work done,” stated Corvi. She
pointed out to executives that the new way of bringing teams together would help meet
specific productivity and efficiency targets. “But the real point,” she says, “quickly turned into
a way to get people working together in a different way and changing our culture.”
Boeing engaged the Steelcase team and the architectural design firm NBBJ, experts in
merging manufacturing and office environments. They used a similar process as Smith
Carter and also experimented with a pilot workspace to test some of the ideas the designers
suggested for improving communication and collaboration. The results included production
gains of 50%, a space reduction of 40%, and measures revealed a newfound “connectedness” between employees and the aircraft, earlier and better problem solving, a higher
sense of urgency to improve, and a greater sense of satisfaction when planes go out
the door.
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insights about value of space
To further understand if the impact of space changes could be measured beyond financial
terms, The Georgia Institute of Technology, in a joint research project with Steelcase, studied changes made at ThoughtForm (formerly Agnew, Moyer, Smith), a communications
design firm located in Pittsburgh. A critical question in the research is “how to use spatial
design to make a given set of individuals collectively more creative and cognitively effective.”
After completing the study, the research team determined that the new space helped to
intensify interaction between employees — translation: employees were more connected
with each other in the new space — and that “intensification of interaction has positive
effects on productivity by supporting greater coordination, by making advice available, or
by spreading specialized knowledge; also that it may have positive effects of product quality”
according to the team’s report. The study also revealed that the time required to complete
projects was reduced in the new space. “Thus, there is systematic evidence that the
measurable changes in the pattern of interaction associated with the change in premises,
as well as the reported changes in the suitability of the design to support creative work, are
associated with quantifiable positive changes in productivity,” the report states.
Data from a compilation of 49 Steelcase Workplace Surveys conducted between 2004–2006
with 11,500 total participants indicates that 35% of respondents waste15 and 30 minutes
per day due to distractions in the workplace. Another 21% report wasting the same
amount of time trying to find a place to meet. How much value does that represent to a
company if their space can help employees avoid these time wasters? One Midwest
insurance firm studying the design of its IT group’s space was losing nearly $1.5 million
in productivity as its employees traveled between buildings. Planning a space with more
thoughtful adjacencies of team members alone can add up to productivity enhancements,
in this case.
Method
Data for this document was drawn
both from primary research and field
based research with Steelcase
customers. Primary research
includes a joint study conducted
between the Georgia Institute of
Technology College of Architecture
and Steelcase in 2005 which utilized
the Steelcase network analysis tool,
and space syntax, a technique
developed by Georgia Tech professors
to measure interaction in space. Other
primary data was collected from
the Steelcase Workplace Survey
conducted between 2004 and
2006. Total sample size for these
surveys was 11,500 office workers
from 49 different organizations.
Field-based research included a
variety of techniques ranging from
focus groups, interviews, observation
research, video ethnography,
surveys, and pilot spaces.
Rethinking payback: Engaging both the right and left brain
The bottom line is, when space is viewed as a tool, the value for an organization is far
greater than just the cost of the real estate, building and furniture. In fact, after looking at
both sides of the equation — the value of the physical asset and the value of increasingly
productive human beings — you might conclude that a well designed space is an investment
with a significant rate of return.
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