Monthly Archives: January 2012

A Face For Radio

By Ken Ashley

January 18th, 2012 (ATLANTA)

It was an honor and an all around neat experience to participate in Michael Bull’s Commercial Real Estate Radio show last week (link is at the bottom of this post). Michael assembled a panel of David Tennery, principal of Regent Partners, John Davidson, principal of

WKRP?

Parmenter Realty Partners, and yours truly. Ryan Severino, senior economist for REIS, dialed in by phone from New York. While my fellow panelists are all knowledgeable real estate thought-leaders, the clear consensus was that the entire panel had faces built for radio.

The mechanics of radio broadcasting are fascinating. I’ve never been in a sound studio before, but all the gear was really cool. It looked vaguely like a NASA control panel. I started to do my best Tom Hanks impression from Apollo 13, but the producer looked like she meant business.

Michael Bull created the show over a year and half ago, and in that time, has developed into quite a pro. His lead-ins were flawless, and his elocution perfect. I have a new found admiration for both qualities, by the way. So what was Michael’s

See What I Mean About Radio Face?

cheery advice to his panelist? “This radio thing is so easy, because even though tens of thousands of people will hear you, you can’t see them.” Thanks Michael … I feel better already.

A few highlights from the show:

  • Ryan Severino said that the national office vacancy rate declined by 30 basis points compared to 2010. Asking rents year over year rose by 1.6%, which is the first such increase since 2008.
  • The panelists agreed that a modest recovery is under way in US office.
  • When asked why we weren’t recovering faster, I suggested that the FUD Factor of fear, uncertainty and doubt is holding back corporate America. This fear factor is causing reticence to expand. Lets hope this changes soon.
  • Industries that will produce the most demand for office space are healthcare, technology, energy and education.
  • The office of the future will encourage collaboration and help highly compensated knowledge workers innovate and generate higher revenue.
  • Owner incentives seem to be moderating from the high levels of 2009 and 2010.

I hope you will take some time to listen to the show. The “talk time” (there’s an industry term for you) is 38 minutes.

Here’s the link – http://www.commercialrealestateshow.com/usoffice11812.html

CFOs and Billy Joel

By Ken Ashley

January 12th, 2012 (ATLANTA)

In the early 80’s, I remember first hearing the haunting anthem to America’s manufacturing challenges in the song “Allentown” by Billy Joel.  In the ditty, Joel chronicles the demise of Bethlehem Steel (it went bankrupt in 2001 and is now a casino) and its impact on families in the Eastern Pennsylvania area around  Allentown.

Manufacturing Heating Up?

The song represented the concern many Americans had over manufacturing’s demise in our country. Good men and women, through no fault of their own, were thrown out of work based on apparent labor savings in foreign cities they had never heard of.

For nearly three decades, Americans have fretted about manufacturing jobs leaving our shores (“offshoring”) and headed to many foreign locales. China got many of these plants, but in fact, a lot of the jobs ended up in nations from Vietnam to India. This phenomenon, and the raw emotion surrounding it, caused everyone from politicians to ordinary Americans to worry that our great country was somehow in a slow downward demise.

There was certainly evidence to suggest that we, as a nation, were in trouble. According to CFO Magazine, the United States lost nearly 8 million manufacturing jobs since 1980. The segment still employees 12 million in this country and accounts for 12% of GDP and 9% of the workforce.

The Death of Manufacturing Exaggerated

However, there is good news in the past 6 months or so. Many publications are recounting a remarkable shift from the offshoring that caused the pain in the Billy Joel song.

One example: in the most recent CFO Magazine, Randy Myers writes of the resurgence of American manufacturing in an article entitled Gearing Up.  The article tells the story of Peerless Industries, a privately held maker of audio-video mounting systems. The company, which has $100 million in annual sales, decided to spend nearly $20 million to open a 300,000 square foot manufacturing facility in Aurora, Illinois. This facility will consolidate multiple locations in Illinois but also in China. The company is “poised and ready for any major upturn in business,” says vice president of finance John Logerquist.

Your Place or Mine?

Peerless is just one example of many manufacturers moving operations back to the US.  Inboundlogistics.com’s Lisa Harrington reports on the resurgence to “onshoring or reshoring” in “Is U.S. Manufacturing coming back?” “U.S. consumers could see more products labeled ‘Made in the USA’

Yes We Can!

on store shelves in the near future,” reports Harrington. “As labor rates in China soar and manufacturers discover unforeseen complications at overseas production facilities, many businesses are revisiting the advantages of keeping operations close to home.”

Labor is critical because of the high cost of transportation, taxes and other costs that are incurred when products are manufactured in other countries. Harrington goes on to say “Because wage rates account for 20 to 30 percent of a product’s total cost, manufacturing in…areas of China will be only 10 to 15 percent cheaper than in the United States—even before inventory and shipping costs are considered.” When the labor advantage goes away, the business case for foreign manufacturing drops into the single digits or evaporates completely.

Labor cost is only part of the picture. Accenture recently conducted a study of nearly 300 manufacturers and produced a report on the current state of manufacturing in the US. “Getting closer to the customer allows for improved flexibility to respond to uncertain demand and unknown customer requests in an agile way with fast delivery times, while maintaining high quality and optimized costs,” write study author John Ferreira, executive director of Accenture’s North American Manufacturing practice.

“In the first part of the rush to China, engineering and manufacturing leaders made outsourcing decisions based only on production and labor costs,” notes David Morgan, CEO of D.W. Morgan Company, a global transportation and logistics provider based in Pleasanton, Calif. “Logistics wasn’t invited to the party. Companies thought they would save 50 percent, but ended up saving only 10 percent once they factored in all the supply chain variables” said Morgan in the inboundlogistics.com report.

Rightshoring

The reshoring phenomenon is gathering steam and could result in 2-3 million jobs in the United States, according to Boston Consulting Group’s senior partner Harold Sirkin in a report (summarized here) that his consultancy released.

Of course, plants located in foreign lands won’t necesarrily be shut down.  The location of manufacturing in the future has a lot to do with the total cost of getting goods to the customer. “It depends on what goods they’re making and what markets they’re serving” says Sirkin in CFO Magazine. “We don’t expect plants to be closing in China” based on local needs. “When companies make a new plant decision, they may put it in the U.S. and repurpose the plant in China to produce goods for the Chinese market.”

CFO’s and real estate directors can reach out to site selectors and logisticians that can help calculate the total cost of options including labor cost and skill, real estate costs and available incentives. The team can then fold these costs into a model that accounts for customer and logistics issues to spit out which locations work best for the project.

Allentown

Business leaders have to make the right call for their own organizations, of course. The United States may or may not be the best location for a plant,  but the fact that the trend is getting more press coverage is encouraging as the much hoped for recovery gains steam.

Back in Allentown, unemployment is as high as it’s been since 1986, according the the US Bureau of Labor Statistics. The community, and many like it across

Soon to Sing A New Song?

America, hope that all the consultants are correct; they could use some jobs for a few good men and women in the cold winter of 2012.

When the resurgence comes, maybe Billy Joel can finally write a new and happier song about America’s manufacturing might.

Steve Jobs and….Workplace Design

By Ken Ashley

January 3rd, 2012 (ATLANTA)

As 2012 begins, I finally got a chance to read the biography of one of 2011’s most high profile leaders; Steve Jobs. The 600 page best seller is a very good read and chock full of interesting anecdotes about Jobs. The fact that it took so many words to tell his life story is striking and certainly indicates that he lived a full, fast-paced and amazingly successful business life. The cover art shows Jobs famous “stare” the captivated investors and partners and terrified lesser beings in meetings.

That Famous Stare - You'll Blink First

As it turns out, the denizen of all things computing, the visionary that created digital worldwide communications was a big fan of… in person meetings.  In the authorized biography, author Walter Isaascon describes Jobs innovation and genius as the principle architect of the Pixar headquarters. In this interesting vignette Isaacson tells the story of Steve Jobs and his take on workplace design. The original Pixar build-to-suit delivered in 2000 (a new $64 million, 150,000 square foot Pixar building is under construction nearby).

Given that Jobs used many of the same principles in the creation of the new Apple “Space Ship” Headquarters (profiled here by my friend Coy Davidson) still under construction in Cupertino, Jobs liked the results at Pixar. As you might know, and as is recounted in the book, Jobs had very strong ideas was not to be trifled with in terms of design and function.

The new Apple iteration will be a four-story, three million-square foot building set to hold 3,000 employees. This design philosophy will impact many at the worlds most valuable company. However, many of the formative design ideas come from the original Pixar office building.

“Interaction = Innovation”

Jobs knew that innovation and creativity don’t happen in cubes or though email.

Pixar designer and Academy Award-winning director (The Incredibles and Ratatouille) Brad Bird does a good job of describing the Pixar building that Jobs created:

“If you walk around downstairs in the animation area, you’ll see that it is unhinged. People are allowed to create whatever front to their office they want. One guy might build a front that’s like a Western town. Someone else might do something that looks like Hawaii…John [Lasseter – Pixar’s Chief Creative Officer] believes that if you have a loose, free kind of atmosphere, it helps creativity.”

“Then there’s our building. In the center, he created this big atrium area, which seems initially like a waste of space. The reason he did it was that everybody goes

Sketch of The Atrium Exterior

off and works in their individual areas. People who work on software code are here, people who animate are there, and people who do designs are over there. Steve put the mailboxes, the meetings rooms, the cafeteria, and, most insidiously and brilliantly, the bathrooms in the center—which initially drove us crazy—so that you run into everybody during the course of a day. [Jobs] realized that when people run into each other, when they make eye contact, things happen. So he made it impossible for you not to run into the rest of the company.”

The Master of Design Creates Office Buildings Too

It’s fascinating to follow the thoughts of one of the world’s great innovators.

In an interview with Jobs towards the end of his life, Isaacson quotes the Pixar leader: “There’s a temptation in our networked age to think that ideas can be developed by email and iChat. That’s crazy. Creativity comes from spontaneous meetings, from random discussions. You run into someone, you ask what they’re doing, you say ‘Wow,” and soon you’re cooking up all sorts of ideas.”

Jobs and his team selected a site then tore down an old Del Monte fruit cannery in Emeryville, California, which is between Berkley and Oakland just across the Bay Bridge.  Typically into the smallest details  “Jobs obsessed over every aspect of the new building” says Isaacson. Not only did Jobs pick the steel for the beams, but instructed the steel workers on how to make the product to his specifications.

“The Right Kind Of Building Can Do Great Things For Culture”

Ed Catmull, who was then Pixar’s president, said “the Pixar building was Steve’s own movie.”  “ Steve had this belief that the right kind of building can do great things for a culture,” continued Catmull.

When planning for the new Pixar building, leadership originally wanted something similar to a standard Hollywood studio with a number of separate

iMeeting Nirvana

buildings. However, the Disney artists at Pixar said multiple buildings made them feel isolated. Not only did Jobs agree, but he ordered one building with a large atrium in the center that would encourage “random encounters.”

And so it was; the building was designed so that people could meet and talk in the central atrium. John Lasseter, Pixar’s Chief Creative Officer said “I kept running into people that I hadn’t seen for months. I’ve never seen a building that promoted collaboration and creativity as well as this one.

The Love Lounge

Sometimes great architectural attributes are accidental. A Pixar animator found a small access door in the back of his new office and managed (of course) to explore the opening. He found that after a short crawl, he got to a mechanical room that provided access to the air conditioning. Isaacson recounts:

“He and his colleagues commandeered the secret room, festooned it with Christmas lights….and bar equipment. A video camera installed in the corridor

Accidental Coolness

allowed occupants to monitor who might be approaching. Pixar design lead Lasseter and Steve Jobs himself brought important visitor there and had them sign the wall. The signatures include Michael Eisner, Roy Disney, Tim Allen, and Randy Newman.”

Just because the architect didn’t design it doesn’t mean that cool features can’t happen organically in buildings.

CRE Lessons

Jobs was especially elegant when discussing his legacy toward the end of the book: “What drove me? I think most creative people want to express appreciation for …taking advantage… of work that has been done by others before us.” “I didn’t invent the language of mathematics I use.” “ Everything I do depends on other member of our species and the shoulders that we stand on.” “We use the talents that we have….to add something to that flow.” “That’s what has driven me.”

The master of innovation Steve Jobs created six industries (personal computers, animated movies, iTunes music, iPhones, tablet computing and digital publishing). Isaacson tells of Jobs many failures in the book, but Jobs was not afraid of risks including in the office environment. The fact that he designed three major office buildings merits close observation to see how his approach can work in the broader corporate America.

In commercial real estate some look at the standard build out as acceptable and safe. New design ideas can be dismissed quickly because we get outside of our comfort zone.  I’ve personally attended many design meetings where the team seems to be worried about “industry standards,” which translates to what is everyone else doing. It’s certainly OK to be aware of where the industry is headed, but I bet Jobs would tell us to not be constrained by it.

Then there is the budget issue, which is the great limiter of design. Of course we must count the beans, but not loose site of innovation that drives productivity, which is really the Holy Grail of office space creation.

Finally, focus on big game changing ideas and know that your instinct, combined with the guidance of a trusted architect is usually correct. Of course, few are as talented as Jobs at design, but you know your business best. When selecting an architect, find someone who can work with you to create an environment suitable to your culture instead of creating magazine cover shots with your new office.

Perhaps we can infuse more passion into the corporate office creation process – and take a few risks. The results of a design that works can dramatically impact an organization and its productivity. Steve Jobs affected the lives of millions but even he would certainly have agreed: you have to lead as well as challenge conventional wisdom. Be resolute in your convictions however, because innovation is not for wimps. When you succeed, Walter Isaacson is looking for his next biography subject.