Facility IT and the Future Workforce

Much is being said these days about how technology will transform and shape the workforce of tomorrow. This dialog tends to be focused on how these changes will affect us — the members of the modern workforce — and what it will be like to “go to work” 5, 10, or 20 years from now. The question posed in this article is the relationship between this workforce and facilities that will house them.

To set the stage, let’s unwrap a little of what is being said:

The freelance talent portal Toptal talks about a “blended workforce of freelance and permanent staff.” While Toptal is focused on how to manage the mix of workers, it seems to me that having a “blended workforce” will pose a unique set of challenges as far as the provision of a flexible workplace that will be needed to house them.

CBRE’s announcement of a “flexible office solution” to relocate a client headquarters to a floor of a WeWork location tells me that real estate mantra should now be location, location, and flexibility. This came out of CBRE’s Agile Real Estate Knowledge Hub, which helps companies better understand the different aspects of “agile real estate”.

As opined by Matt Ernst on the New Deal, “Comfort as a Service” is a framework to think about what the future workforce will expect from their workplace. Matt talks about the perception of comfort, and innovations to put control of the environment in the hands of occupants.

We also see the global migration to cities, specifically into smarter cities, which to a large degree means smarter buildings where we work and conduct commerce. The trend of smart cities is very much aligned with the anticipation of the connected demographics of the future workforce.

The bottom line is that going forward, the world’s workforce will expect the same flexibility, comfort, experience, and quality from their workplaces as they do in their smart homes, in their Uber, and in coffee shops. And the building owners who can’t meet that demand will be left in the dust.

How does this relate to Facility IT?

One way to understand the dilemma is to understand the economics of buildings. A key to this is that buildings last for decades, and everything from the financing the building to the life of mechanical equipment is geared around this. Buildings are expensive, and managing them is a balance between maintaining the building and managing its value. This is especially the case with REIT’s and owners who lease their properties.

The two important economic metrics to understand are the value of the building and its NOI (Net Operating Income). The ratio of NOI/Value is referred to as the CAP rate, or the rate of return from the asset, which is typically 4%-8% for commercial buildings, the CAP rate varies by building type, location, and other factors. So, a building with an NOI of $1M and a CAP rate of 6% would reflect an asset value of approximately $17M (Value = NOI/CAP).

Let’s consider a proposed technology upgrade to the building. A vendor proposal that decreases the building’s operating costs by $100,000 would increase the NOI by the same amount, thus increasing the value of the building by $1.7M, an attractive proposal. On the other hand, a proposal that would reduce the NOI by $100,000 would reduce the asset value by $1.7M, very unlikely to proceed. In reality, technology projects will impact the NOI in a complex combination of negative and positive ways; the key takeaway is that, in this example, everything is multiplied by 17!

This creates asset-leverage, where the asset owner views everything in an asset-centric manner, making a building nothing more than a financial note. This business model is the antithesis of the flexibility necessary for the needs of the agile workforce because their productivity is not part of the building owner’s calculus.

Take another view, the 3–30–300 rule proposed by JLL. As a rule of thumb per sqft cost, JLL posits that $3 goes to energy, $30 runs the facility, and $300 is spent on the workforce. So, if a system vendor proposes a project that would “increase the value of a sqft by 10%”, that’s worth $0.30 in energy saving, $3 facility cost reduction, or $30 of workforce productivity improvement.

So, while dollars spent on workforce-focused technology may increase the operating cost by 10% ($3), if it improves workforce productivity by the same 10% ($30), the net result is increasing the facility’s value by $27/sqft. This can be used to justify and increase the rent, which in turn increase the NOI, and consequently increases the asset value. I call this workforce-leverage.

It’s about the right leverage.

The above is a key problem that WeWork is addressing, by removing the focus on long-term leases (asset-leverage) and creating a new business model that benefits from the value created for today’s workforce (workforce-leverage). So unless WeWork owns all buildings (I’m sure investors don’t mind this idea), or other innovative companies come up with other solutions, building owners and all of those involved in the operation of facilities need to rethink how the facility is managed in the age of the App.

The core of solving this problem is making facilities effective for the user (workforce). This, of course, is the business model of disruptive tech companies like Uber, Airbnb, and Amazon. The choice for facility practitioners is clear; continue to fight the hard-to-win asset-leverage arguments, or focus on the highly rewarding workforce-leverage opportunities.

This is where Facility IT comes in. In this regard, you should see Facility IT as a framework to bring together the key players necessary for the agile and flexible operation of a facility. The key here is addressing the expectations of the iPhone carrying, Uber riding, Instagrammers that will make up the workforce of tomorrow.

A changing workforce can only be serviced by new thinking about facilities, that’s Facility IT.

For more on Facility IT, read my previous post on Facility IT.

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