Six Sigma for Corporate Real Estate

Intel's Increased Risk Profile

The bigger you are, the harder you (might) fall....by which I mean that as facilities groups get their seat at the executive table with other important functions to add more value, we also take on more risk.

There has been press lately that mainly conservative Intel has been experimenting with flexible facilities with unassigned desks.  This is likely to be a good thing for the company but now they are playing a bigger game with employee productivity.  Flexible programs require more interaction with technology and the management practices to be effective (Intel could reference their high tech cousins Sun Microsystems and Motorola).

A six sigma approach to workplace strategy would have started with the high level objectives (employee productivity?  cost savings?) and then established a transfer function, just a simple map of what factors would be necessary for a successful program.  A six sigma approach would also do a preliminary risk assessment and recognized that a potential failure mode might be managers not knowing how to work with employees that are not tied to the same desk every day.

The new space looks good.  And functional.  But the news coverage doesn't discuss changes to underlying management protocols.  Let's see what happens.

Good Six Sigma projects are just like any other good project

One of my basic rules for applying six sigma in corporate real estate is "Don't check your business judgment at the door."

New six sigma practitioners always ask for ideas about project topics.  Although it is helpful to have examples (and there are some classics, e.g., MAC process improvement), some times the question comes because people are distracted by the methodology.  My response is always "Tell me what you are working on in your business, regardless of six sigma" or "What are your goals for the year?"  At least that gets the conversation going.

Consider where you might be having pain in each functional area (transactions, projects, facilities...), consider what your business is asking for (help on sustainability, business continuity, better access to talent, cost reduction). 

The project ideas will be easy from there.

P.S.  Just in case you're looking for examples, here are a few:

• Improve cycle time for capital projects
• Improve quality of capital project scoping process
• Design a framework for managing CRE part of corporate social responsibility; Phase 2:  Improve sustainability of built environment
• Improve quality of critical environment facility support
• Improve utilization of a regional portfolio
• Design new metro strategy
• Reduce cost in materials sourcing

Are you Designing or are you Improving?

Off the top of my head I can't think of any place else in business where there is such a bright line between "designing" and "improving" than in Six Sigma methods.  One might be tempted to think that this is a distinction without a difference, since you can't improve without designing something new.

But, alas!

In Six Sigma, we differentiate between the two.  And every group that I've worked with has asked similar questions about why and when to use either the Design methodology or the Improvement methodology.  The reason it's important goes beyond the academic objective of "I want to better understand six sigma" in these ways:

1. How to prove the project is important.  Both methods have a Define phase where this issue is addressed.  But a Design project needs to focus on opportunity -- e.g., you just did a portfolio review and feel there is opportunity to restack your Denver metro.  Improvement focuses on problem-solving -- e.g., you see from customer satisfaction scores that you have a problem in your Move/Add/Change process.
2. How to identify solution components.  In an Improve project, you have historic data (or facts) coming in to the project and one of your main tasks is to look at root causes the performance of which, if improved, would achieve your customers' expectations.  In a Design project you are not currently providing the service so you have to use a lot more customer input to make up for your lack of historic performance information.  You need this additional customer input to zero in on your solution.

These are just a couple of issues to consider.  One of the most common questions about applying Design or Improve methods in six sigma is driven by the assumption of whether or not there is already a process.  People usually feel that if there is not a common workflow, written down, articulated, understood by all, that there is not a process.  Not true!  If you do the work today, there is a process -- use the Improve (DMAIC) method.

How to measure project risk

Let's say you are in the retail outlet business -- a clothing store, a hotel, drugstore.  You build two hundred stores a year and you need to measure the risk in your business.  In other words, you can't wait until your stores are built to see how you are doing.  You can't use "on time performance" of the last few stores to predict the on time performance of the next few.

What key metric should you monitor to gauge risk or likelihood that your stores will be ready for advertising, staffing, and celebration?

I'll suggest that one useful metric would be what I call V/D index -- the "variation / duration index."  It's related to a question about "the 95% forecast range for all key milestones."  It is calculated like this:

Presume 200 projects to open new retail stores.  The projects all start on January 1 and consists of only one milestone:  Project Completion.  All projects are expected to last 180 days.

1. Ask each project manager to log, for each project, their forecast dates for completion of each critical project milestone.  E.g., "Enter the date range for which you are 95% of actual completion of this milestone."  For example, the project manager might put in that he is 95% confident that the store will be ready between June 15 and July 10.
2. Count the number of days in the range.  In this example, the number is (7/10)-(6/15) = 25 days.
3. Divide the number of days by the number of days for the project.  (25 days) / (180 days) = 13.9 V/D Index
4. This gives you a measurement of risk normalized by project duration. 

For the project above, report the 13.9 V/D Index.  This can also be easily aggregated for a portfolio of projects.

How do you make this real?  Once you start measuring it, put a reward system in place.  Reward people who hit tighter forecast ranges and punish people who complete milestones outside the range.

More concerned about budget risk than schedule risk?  This same method can be altered into a V/B Index, a "Variation / Budget Index."

Assume mobility doen't matter for productivity

Contrary to human nature, Six Sigma wants you to start with the assumption that "nothing matters."  This is not an existential philosophy but one that serves to reinforce the important principle that we must reserve our precious resources for the vital few. 

The search for the vital few is so important to Six Sigma practitioners that we are willing to go to extremes to live up to the mission.  You might say that all factors are presumed innocent (irrelevant) until proven guilty (vital).

(Now, this is overstating the issue a bit -- as any real estate broker will tell you, LOCATION is a vital x for real estate property value.)

The point is that before you make a business decision to act on a perceived cause of good (or bad) performance, make sure you prove the issue is vital.  The Six Sigma tools involved here are hypthosis tests.  The going-in assumption is that the cause doesn't matter ("null hypothesis").  You set out to prove this and if you can't, you may make the case that the cause does indeed matter.

Is employee mobility a vital x to employee productivity?  Start with the assumption it's not.  Try to prove it.  If you can't prove it doesn't matter then it probably does.  Mental gymnastics?  Perhaps...but the discipline of hypothesis testing that comes from adopting Six Sigma can help guide useful business discussions about priorities.

Getting Your Leadership Team Looking in the Same Direction

Beware the leadership team that has opposing views of the future!

Last week I was working with a client's leadership team that is beginning to use more formal process excellence methodologies -- for governing their operations, doing business improvement projects, etc.  We were going through "champion's training" and the lights really started going on when we started talking about their business transfer functions.

The concept is reminiscent of high school algebra:  Y=f(x).  In this case, Y is effective CRE management, or a good metro plan, or a strategic sustainability program.  The (x) is the critical drivers of success. 

A metro plan is an easy example -- an effective result is a function of sub-objectives such as reducing vacancy, staying on schedule, improving adjacencies, reducing cost/head, and meeting occupier satisfaction targets.  Although it's simple, the concept really focuses the leadership team on a common understanding of how success will be achieved, where to focus improvement efforts, and how to review the program.

Breaking down a new program such as a company's first view of their sustainability strategy is even a better application for getting the leaders to look in the same direction.

So keep it in mind -- when you're trying to align the team around the critical few drivers of success, create a transfer function as a brainstorm exercise and use it for managing the way forward.  Six Sigma is tailor made for achieving this.

See my podcast?

As I've mentioned, Jones Lang LaSalle has started publishing 90-second video podcasts about various corporate real estate topics.  They are in the "Something to think about" theme (as you will quickly see). 

I just published one on using landfill gas recovery as an alternative fuel.  It wasn't the smoothest delivery I've ever made, but you'll get the basic idea.

Decent Eats in Overland Park, KS

This being my first visit to the area, I feel compelled to alert readers that there were two hits and a miss in the food department:

Yia Yia's euro bistro -- a favorite among the local Sprint Nextel crowd, and for good reason.  Very good food and very good service.

Jack Stack Barbecue -- a local multi-site restaurant and, all in all, acceptable food quality.  I think the babyback ribs I cook at home are a bit better (more tender) but the sauces are decent.  Beware the waiter plying his video production services.  I recommend sitting in the bar.

Jose Pepper's mexican restaurant -- Good margaritas.

Final punchlist items?

I stayed in a hotel last night that advertises itself as a cool place to stay (by virtue of its "living room" approach to the lobby -- wine bar, soft seating and TVs to encourage socializing....But the final rennovations haven't been completed, even to the point of blueprints being left in conspicuous places in the lobby area.

But don't just blame construction for the down-tick in customer sat -- you would think that even though the breakfast buffet had to be served in a conference room until the lobby was done that they could make up for the unfinished-ness by having some sort of decent food.  The food they served was unworthy of the brand.

At the end of the day, it's up to local operations of the hotel to insist on things being done right.  And the whole team needs to deliver.

Basic risk management skills

We've been doing a fair amount of work with a client interested in preventing "CNN moments" by understanding where they have operational risk in their portfolio.

In a recent workshop, we spent time with one team to help them understand how to:

1. Identify, analyze, and prioritize risk
2. Translate property risk/issues into business language
3. Communicate risks and action plans to reduce risk

In this particular case, we were focused on business risks emerging from mechanical, electrical, plumbing and other systems -- a pretty wide net.  We talked about everything from water intrusion and the risks associated with energized water pools, to air flow reduction due to engineers having build an elaborate ping pong arena in a lab.

I have to say, the team was pretty into it.  They saw this as a way to make a better case for action on their top priority investments.