Real Estate A CFO’s Lever?

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As Seen in CFO Studio Magazine Q3 2019 Issue

SHEDDING EXCESS OFFICE SPACE FACILITATED TRANSFORMATION OF A 5,000 EMPLOYEE COMPANY

Sas Mukherjee, CFO and Chief Strategy Officer for York Risk Services*, has delivered his company millions in benefits using a financial lever that few CFOs employ. When he joined York, an insurance services provider, in 2016, he saw the potential to consolidate its real estate footprint. The company, based in Jersey City, NJ, had more than 100 facilities across the United States. By year end 2018, the number of offices had dropped 43 percent, with over 31 percent reduction just in 2018.

Decreasing the size of that footprint was not the only positive result. An important outcome that York is tracking in tandem is employee engagement, which has become markedly more positive over that period.

What York needed at the time of Mukherjee’s hiring was an operational leader who was more than a traditional CFO with proven track record who could help the company drive quick transformation. And that’s what the company got.

Mukherjee’s atypical route to the CFO role includes stints as Chief Executive at two different firms, including a top private equity portfolio
company; as Managing Director at a Big Four consulting firm where he formed a center of excellence to help Fortune 500 companies develop plans and implement long-term strategic transformation; and as Shared Services CFO/Head of Strategy and Business Excellence at health care company Kaiser Permanente.

He found his niche in the CFO role with its “360-degree view of the company, a view that is grounded in solid facts and financial numbers.”
Thus, a CFO “is in a much better position to develop a realistic vision and has a higher probability of success” he says. To take that a step further, “CFOs are uniquely positioned to wield many levers to drive strategic transformation,” Mukherjee says.

He has been an evangelist for the evolving strategic role of the CFO and has been a sought after speaker delivering keynote addresses at CFO
conferences around the country. He has engaged CFOs at Executive Dinner Series events hosted by CFO Studio, discussing how real estate can be a financial lever for organizational change, among other levers.

 

Not Just Cost-Reduction
Back in 2017, Mukherjee was implementing a broad portfolio of transformation initiatives requiring access to top talent, among other criteria. Location of York’s real estate, he knew from his prior global resource and real estate optimization experience, was an important enabler. Through a competitive procurement process, he selected Jones Lang Lasalle (JLL) to be York’s commercial real estate broker, partnering with Scott Lesh, JLL Managing Director, after the two were introduced by CFO Studio’s CEO, Andrew Zezas. Mukherjee determined that any office space for York would feature elements of what Lesh calls the improved workplace experience.

The two made a good team, sharing an understanding that “the real estate lever can be equally as effective and enabling” as outsourcing or analytics for driving strategy, says Mukherjee. “We’re seeing a significant shift in the way employers are looking to attract and retain talent,”
says Lesh. “They’re giving employees spaces to collaborate and the opportunity to cross-pollinate with their colleagues.”
*York was acquired by Sedgwick in early September

In many companies it’s work-your-own hours, he adds. Huddle spaces or lunch areas that encourage getting together can be retention and collaboration facilitators, particularly with Generation Z and Millennials, whose focus is more on well being than on putting in long hours to
demonstrate their career commitment.

 

Areas of Savings
At York, Mukherjee absorbed JLL generated market data for portfolio optimization.

“What we wanted to do was leverage this opportunity to identify markets within our current footprint with best talent pools, better cost structures, higher safety or lower crime, and ease of access to airports,” says Mukherjee. “There were multiple aspects to those requirements. We had to do the analysis based on families of jobs.”

Where current employees lived—and where customers were—factored into the decisions too.

“As part of the study we did with JLL,” says Mukherjee, “we looked at tapping into locations with proximity to good schools, producing students with the skill set we needed for our future workforce, or migration patterns of workers to certain parts of the country. We looked at the availability of government tax dollars, although they didn’t play a very big role in the end.”

The course York eventually took was to create a hub and satellite model, where hubs would have at least 200 employees. Satellites were markets York had presence in that didn’t have the critical mass of employees but were strategically important.

Substantially fewer York locations meant savings in lease, maintenance, and utilities expenses. In addition,

•Leveraging existing available space to support growth avoided the cost of leasing additional space.

•Long-term commitment to occupancy costs and capital expenditures was reduced by using co working spaces (WeWork and Regus) to fill needs for offices in some cities where York needed a presence with few employees.

•Corporate policies to enable work-from-home arrangements, where appropriate, also reduced space requirements.

And then there are the soft benefits. To name just one, York adopted more cloud based technologies and “collaborative working tools for sharing documents and video meetings between employees across geographies,” says Mukherjee.

 

Sold on the Value
“Real estate was a lever to support a broader transformational journey that we were undertaking.” So real estate rationalization enabled other decisions, such as reorganizing the Finance team and anointing some of York’s existing locations as shared services hubs and promoting local leadership, says Mukherjee.

Were there tough choices? Yes, but Mukherjee emphasizes that the entire process was collaborative. “We engaged the business and operations executives to jointly agree on, ‘Here’s what’s in it for you.’ ” Business leaders who became more efficient in their use of space and in helping consolidate real estate would get a benefit on their P&L that in turn could be re-invested in employees and improving customer service.

From this point, York’s journey becomes a little harder, he says. The plan is to stay engaged with the global leadership team and, using criteria Mukherjee’s team has developed, continue to review “if the hubs and satellites we agreed on make sense and quarterly action plans. In that way we’ll keep executing on the long-term plan.”

Mukherjee is passionate that “CFOs who aspire to be more strategic should be looking at this lever and getting involved, because of the independent and unbiased view they can bring to the analytics around real estate and the bottom-line and cultural impact.” For him, rethinking real estate usage helped support “a broader transformational journey that we were undertaking—real estate wasn’t leading
that, but was enabling and supporting our shared services strategy and our brand rationalization.”

Copyright 2017