The mandate from Colin Dyer, CEO of jones Lang LaSalle
Incorporated (I LL), and Lauralee Martin, CFO and COO, was clear: "Establish
a commanding presence in our core geographic markets while continuing to grow
our profitable corporate account business.” Although the mandate was no
surprise, its execution would not be easy. Peter Roberts, CEO of JONES LANG
LASALLE Americas division, was to be in charge and knew that how he managed the
task would have a lasting impact on the organization. The next day he had to
present a proposal for restructuring the Americas division to Dyer and Martin.
The question was, which proposal? Roberts and his task force had already
narrowed down the numerous options to two: (1) an enhancement of the
account-focused integrated-product-based model put in place in 2001, or (2) a
realignment of the firm's operations around geography and key accounts.
The decision was complicated by the fact that after several
challenging years, JONES LANG LASALLE was currently thriving and appeared to
have a successful formula in place. Customers were happy, the brand was strong,
and the firm ranked among the largest and most successful global real estate
service firms in the world. Throughout its historyl JONES LANG LASALLE had
focused on providing premier services to its targeted customer base.
Originally, those customers had been corporate Clients that needed real estate
advice and transaction services in their operating locations. In the 1990s,
however, American multinational companies (MNCS) were accelerating the
expansion of their operations overseas, and they increasingly needed integrated
real estate services across multiple geographies. As globalization continued
into the 20005, MNCS began outsourcing their entire real estate departments to
professional, third-party real estate service providers.
Since 2000, JONES LANG LASALLE had focused on building an
integrated service model that would appeal to large MNCs that needed multiple
services across their global locations. This service model had proven
successful for both ]LL's clients and its bottom line. At its core, the firm
was organized around three business units that retained their own profit and
loss. These groups were overlaid with a Corporate Solutions Group, Which
ensured that the services Were delivered to key corporate clients in an
integrated way. The Corporate Solutions Group also had its own P&L
statement. While the model was working, it was becoming cumbersome as the
number of client accounts grew. In the words of one executive, "We Weren't
doing a good enough job of selling additional services into our accounts. We
Weren't doing a good enough job of bringing best practices to our accounts, nor
extracting best practices from our accounts. [And] We Weren't doing nearly a
good enough job of bringing innovation to our clients. There were many things
We needed to do to enhance our standing with our accounts. We were on a tack t0
do that, [but it Was still a Work in progress.]"
JONES LANG LASALLE's focus On large corporate accounts (or
clients), had shifted its attention away from activities in regional or local
markets. At the same time, boutique firms had gained market share in providing
services to small and medium-sized companies in local markets, which further
eroded Jones Lang Lasallelocal market presence. Jones Lang Lasalleweak presence
had led even its own large MNC clients to turn to more locally oriented firms
for transactions in those markets. But starting in 2000, JONES LANG LASALLE
conducted an experiment to expand its presence dramatically in one important
local market, New York City. Subsequently, JONES LANG LASALLE managed to build
a thriving local organization. Although this could be attributed at least
partly to the post-recession rebound in the real estate market, JONES LANG
LASALLE management recognized the impact that a focused presence could have,
and they wanted to replicate the model elsewhere.
Yet while management agreed that building a local presence
in certain core markets would benefit JONES LANG LASALLE and its corporate
clients, they were naturally resistant to changing the firm's existing
operating model. As one executive noted, "Success breeds success. This is
going Well. Why change it?”
Colin Dyer, who had joined Jones Lang LaSalle as its new CEO
in August 2004, provided the impetus for change. He had built his career on the
mission of customer service, and he vowed to give customers what they Wanted.
lf they Wanted local as Well as global service, his firrn would find a Way to
deliver. Dyer Challenged Roberts and his team in the Americas to define a
Viable plan that would serve the dual purposes of continuing to grow and
rationalize the corporate client business globally While building a respected
and capable market presence in local markets.
After months of task-force meetings and analysis, Roberts
and his team had narrowed the Options to two, and the time had come for him to
choose one to present to Dyer and Martin. He reflected on a comment Dyer had
made months before: "What do our clients really Want? HOW can We give them
what they really need? stgrt with whaj Wega-ggg@ get to, and We gan vWork Yout
the details afterwards.” Roberts was now in charge of those "details"
He had spent long hours studying the two Very different proposals before him.
Both offered the potential of realígning the organizational
center around the customer. Each would have a service offering, a Corporate
client, and a geographic dimension. Yet the plans implied very different
organizational architectures for interaction among business units. The 2001
restructuring in which they had created the Corporate Solutions Group had
proven to management that synergies among the diverse activities at JONES LANG
LASALLE existed and could be realized to achieve superior performance in
providing premium services to clients. The question for Roberts was, how best
to harness these synergies going forward?
Industry Background
In 2005, real estate accounted for an estimated 12.5% of the
total US. gross domestic product. Leading up to that point, through most 0f the
second half of the 20kh century,1 the industry had experienced a nearly
continuous upward growth trend despite several periods of slower growth. In
2005, the US. commercial real estate sector was valued at $6.6 trillion and
comprised some 4.5 billion square feet of office space.2 JONES LANG LASALLE was one of
eight U.S.based global real estate service providers in this highly competitive
market (See Exhibits 1 and 2 for basic financials of JONES LANG LASALLE and a
competitor profile.)
Effect of Globalization on Real
Estate Industry
Over the
prior decade (from 19952005), the US. commercial real estate sector had
undergone one of the most significant transformations of its history. Industry
growth had led to increased competition, in part because regional markets had
become dominated by commission-based real estate service providers. As a
result, service providers had to compete increasingly on price, which led to
eroding margins. At the same time, the global expansion of many American
companies in need of real estate services contributed to the demand for
integrated, global service providers. Global reach was now replacing intimate
knowledge of regional markets as the basis for competitive advantage, as MNCs
chose real estate service providers based on their ability to work with them in
disparate geographies in an integrated Way. In fact, some of these MNCs
realized that real estate was far from their core business and so began
outsourcing their entire real estate departments to thirdparty providers to
ensure consistent service worldwide, decrease internal real estate management
costs and inefficiencies, and leverage the expertise of professional real estate
service firms.
Along with this shift in demand, technological innovation
dramatically expanded the geographical footprint that real estate firms could
serve; the Internet gave real estate service providers access to information
about regional markets (via online real estate databases) Where they might not
have an actual physical presence.
As a result of these trends, the same regional real estate
firms that had dominated the U.S. commercial real estate service industry for
decades by offering premium services found it increasingly difficult to
compete. To make matters Worse, a global recession began in 1999 that
temporarily crippled many real estate markets, driving down values, increasing
vacancy rates, and dramatically slowing new construction.
In response, starting in the late 1990s, premium providers
like JONES LANG LASALLE attempted to sell a broader range of products and
services to reduce costs, spread overhead, increase the volume of transactions,
and differentiate their offerings. By integrating services, these providers
hoped to offer greater variety to their clients and make up in volume what they
had previously achieved in margins, While also differentiating their offerings
as real estate "solutions" (Where the sum of the parts added up to
more than the individual parts). As these providers expanded their offerings,
they began extending nationally and globally in order to appeal to the less
price-sensitive MNCs that would pay premium prices for help with the
development and implementation of global real estate strategies. Alliances and
acquisitions among real estate providers became common as industry participants
Worked to expand their scale and scope.
By 2001, global real estate players were executing
approximately one-half of all real estate service transactions Worldwide.
Bundled real estate service offerings replaced one-off transactions for this
attractive market segment, and the large real estate service providers Worked
hard to orient their business models toward the growing needs of this expanding
client base. By increasing their ability to deliver broad ranges of bundled
services, these firms differentiated themselves from competitors and continued
to grow through the difficult years during and after the recession.3
Competition for local markets In the early 20005, despite
the growth of firms offering integrated solutions to global clients,
competition intensified on two fronts: the number of firms wanting to serve
global clients increased, and local firms began to see a resurgence of business
in their local markets. Large real estate service providers found that while
global clients were willing to pay them a premium for integrated advisory
services, these clients did not always rely on them to execute all of their
real estate transactions. Local market presence and penetration had become increasingly
important to companies choosing a real estate firm for a specific transaction,
especially in prominent markets like New York. Global firms thus lost out to
boutique firms on some transactions because the boutique firms had more
"on-the-ground” resources in place and could execute the best possible
deals. The large firms struggled to offer increasingly integrated global
services while responding to their clients' local needs. At the same time, by
2004, as economic health had returned to US. metropolitan markets, local
markets had themselves became a significant growth engine due to the rapid
expansion of local companies. As a result, large firms like JONES LANG LASALLE,
which had shifted its focus to global clients, increasingly looked for Ways to
take advantage of this opportunity in local markets while not losing sight of
their integrated services business.
Customer Centricity at JLU
Throughout its history, Iones Lang LaSalle and its American
predecessor LaSalle Partners had focused on offering premium services to its
client base. Originally organized as a partnership of autonomous and discrete
service-based businesses, the firm developed a reputation for specialized
expertise in each of the service classes in which it operated. As the
commercial real estate markets had evolved, JONES LANG LASALLE had adapted its
premium-service model. The firm was an early mover in the bundled real estate
"solutions" business and began transforming itself into a global
service provider wel! before-most of its-competitors. This-transformati'on-b'egan
with the 1999 merger 'of its USt-based LaSalle Partners, a NYSE public company
and London-based Jones Lang Wootton, an independent partnership, to globalize
its operations. The combined firm was the World's leading commercial real
estate management company and the second-largest real estate
investment-management firm, offering a complete range of real estate services
in every major global market.
Phase 1: The 11.5. Model-Corporate
Solutions Group (2001)
In January 2001, the Corporate Solutions Group (CSG) Was
formed in the Americas division. (See Exhibit 3 for organizational charts
before and after the 2001 restructuring.) The Corporate Solutions Group placed
three formerly autonomous, service-based business units under a single entity
and Created a dedicated, corporate-level relationship manager function to
coordinate the efforts of these units so global clients would have a single
point of contact.
Initially, the three autonomous business units had little
more in common than recognized expertise in their respective service areas and
the corporate clients they served. The units Were known as TRG, CPS, and PDS.
~ The Tenant Representation Group
(TRG)-rnanaged every facet of the corporate leasing process for its clients,
from global planning and space location to lease negotiation and risk tolerance
assessment. The TRG was based on a local business model, which required
on-theground presence, local market knowledge and savvy, and strong sales and
deal execution skills. The TRG unit had long-term client relationships, strong
operating margins, and highly compensated management.
Corporate Property Services (CPS)-managed commercial space,
ranging from company headquarters to data centers for its clients. Working in
CPS required management and advisory expertise; and the skill sets of managers,
unlike those of the TRG, Were not location based. Competition in this business
was fierce and margins were narrow. Management compensation, while Competitive
in the industry, was substantially lower than in the "IRG
Project and Development Services (PDS)-handled real estate
development projects for corporate clients by managing all phases of the
construction process, from architect selection to building occupancy. Like the
TRG, PDS was an advisory service but was not fundamentally location based. This
was a strong and growing area of business for JONES LANG LASALLE and had
healthy margins. (For a more complete description of these business units, see
Exhibit 4.)
The quest for integrated solutions JONES LANG LASALLE's
smaller clients that needed a single service in a single market (referred to in
the industry as "lx" clients) continued to be well served by
individual business units. However, global clients needed a completely
different level of service because of their increasingly complex real estate
needs. They required service providers who could diagnose and offer solutions
to their comprehensive real estate problems, which spanned geographies and
business units. JONES LANG LASALLE already had the talent and expertise in its
ranks, but what it needed was collaboration among its different product areas
to create synergies for these important clients.
As one global management team member noted, "Clients
need solutions now, not products. If we can provide our clients with
Well-thought out, well-executed real estate solutions, we can grow our
single-service clients into multiple-service accounts [or turn 1x accounts into
3X accounts within a regíon5-ar1d on a global basis across the three business
units of JONES LANG LASALLE, these could become 9x accounts1. But we have to
make sure that all of our units are on the same page. We have to
Coordinate."
By partnering with its clients, JONES LANG LASALLE could
become a Centralized point of reference in the complex, global real estate
market. Its services would simultaneously save clients money and increase JONES
LANG LASALLE's own profitability, establishing a win-win relationship.
Integrated solutions were, in the words of one executive, llall of those things
that go into an occupancy decision: ’Do you really need 10,000 sqft. or 100,000
sq.ft.? Do you need to be downtown? Do we need to separate your business into
two different parts because of risk management? Do you need to be in Chicago,
or is it better to work out of Minneapolis? What's the location of your
employees? How's the transportation situation?”’
Jones Lang Lasalleformerly independent, service-based
businessmnit structure had Worked effectively to develop and sell the best
products within a specific service area, but it had not been able to provide
bundled, integrated services that drew from the expertise of more than one
business unit. Simply put, the old structure discouraged collaboration. There
was limited mobility in the organization: once hired, most employees Worked
solely for and within their respective business unit. Compensation and bonus
pools were determined Within units and Varied greatly among units, further
reducing the incentive to cross-sell or to pass on leads. Thus, loyalty
remained solidly with the business unit.
In light 0f these structural limitations, the reorganization
of JONES LANG LASALLE Americas in 2001 was seen as a necessary step in enabling
it to serve its corporate clients more effectively. In the new organization, a
corporate-level client management function (the CSG) would be created to sell
bundled packages of all of the products and services that JONES LANG LASALLE
offered, bringing in experts from individual business units as needed to
provide specialized, high-quality services. The business units would continue
developing products to meet client needs, but under the client manager's
guidance, they would increasingly coordinate their work with the other units to
provide clients with more innovative solutions. In this way, JONES LANG LASALLE
would differentiate itself from its competitors and, at the same time, grow the
size and loyalty of its clients. Meanwhile, smaller clients that purchased from
only one business unit in one market (1x clients) would continue to be served
directly by that group, with the hope that over time they could be grown into
3x corporate clients.
The Corporate Solutions Group Was pitched internally as
"a business philosophy or organizing principle We will use to reaffirm our
client focus and solution orientation.” As one senior JONES LANG LASALLE
executive explained of the new structure, "We won't go to market as the
Tenant Representation Group or the Project and Development Management. We'll go
to market as Iones Lang LaSalle.” According to a senior executive, the Original
corporate Client manager assigned to Jones Lang Lasalleimportant Bank of
America relationship: "Clients View t-he account in its entirety. Clients
want accountability. They Want you to run the relationship as a business, not a
product. We have been motivated by products sold, and now we need to integrate
products into the business of account management to stop selling products and
start selling solutions."
Now, client managers could focus on what was in the best
interests of their clients Without being hindered by the limitations imposed by
the business-unit structure. Client managers would coordinate teams of
business-unit staff (though these employees were not reporting directly to
them) and create the appearance of a single, unified, multi-service team for
the client. Meanwhile, the service-based units could be retained as the primary
profit centers and central organizational element
The matrix
organization created by the vertical business units and the horizontal client
function Was supported by JONES LANG LASALLE's compensation structure, which,
in essence, ensured that "the sum of the parts (client management plus
integrated business-unit services) Was greater than the parts alone.”
Compensation had been an important issue at the firm since its move to a
non~traditiona1 salary-plus bonus model in the 1970s, which had been
established to set JONES LANG LASALLE apart from its "commission-hungry”
competitors. As a result of this compensation system, each employee's bonus
came out of a pool that Was allocated to the business unit in which he or she
Worked, and so bonus was tied to the performance of the unit. Accordingly,
bonus pools were closely guarded by the business units. Under the new structure
put in place in 2000, the business units were allowed to retain their
independent compensation systems and bonus pools and were not required to share
their pools with either client managers or team members from other units. This
was particularly important to certain units because compensation varied greatly
from unit to unit. Meanwhile, the Client managers had to negotiate their salary
and bonus structures directly with the clients as add-on advisory services, in
much the same way that a consulting retainer might be structured. In other
Words, the client managers did not get any portion of the fees that were paid
for services provided, and instead had to negotiate with the client for
additional fees for their own services. At the same time, they would build a
bonus pool for themselves by also negotiating certain performance-based bonuses
from the client. In this Way, client managers would be compensated for their
ability to provide integration services, and their bonus would be directly tied
to client satisfaction and mutually agreed-on targets.
Phase 2: The Transition Period
(2001-2004)
Overall, the 2001 restructuring was viewed as a success. The
global real estate market took off, and the CSG was Well positioned to respond
to its clients’ needs. According to John Phillips, former CEO of the CSG, l'There
was truly an increased demand for [integrated] services, and we were better
prepared to respond to that demand because of the Corporate Solutions
structure. We were able to make decisions across the CSG for the good of the
group because We were all part of one entity, even though each of those
businesses still ran their own
By the fall of 2001, client managers had been assigned to
the accounts for Bank of America, Microsoft, and Sun Microsystems. Over the
years that followed, JONES LANG LASALLE won the global account management
business of numerous other MNCs including Motorola, Proctor 8: Gamble, Kaiser
Permanente, Honeywell, Host Marriott, MasterCard, Coca-Cola, General Motors,
and Cisco Systems. (See Exhibit 5 for a sample of new and expanded
relationships over the period.)
In the
words of one client executive, HWe selected JONES LANG LASALLE because they
were the only service provider that offered consistent integrated service
delivery . . . to streamline our real estate transaction and project management
services worldwide.” The Bank of America account provided a useful example.
While leasing 70% of its office space in one particular market, the Bank owned
the remaining 30% of its space in an aging building, which the Bank felt
diminished its profile in the local financial community. Under the guidance of
the client manager, JONES LANG LASALLE pulled together a strong,
multidisciplinary project team with financial analysis capabilities and market
intelligence to support the Bank's decision-making process. Through the
process, JONES LANG LASALLE was able t0 sell the owned property at a premium,
negotiate a leaseback arrangement so that the bank would have timing
flexibility in relocating its operations, lease new office space in a prime
location at highly favorable terms, and achieve increases in space efficiency
as Well as facility cost savings due to expert space planning.
The Bank of America example was repeated over and over
within the Bank as well as with other clients, and this translated into
positive results for JONES LANG LASALLE and its clients. Earl Webb, former CEO
of JONES LANG LASALLE Americas, remembered, "We did a little pioneering
Work, and starting in 2001, we Won every RFP We competed for, for a
While." (See Exhibit 1 for a financial summary.)
Information systems that Were put in place after the
restructuring enabled the firm, for the first time, to track profitability at
the client level across the business units that serviced each client. As a
client manager explained before the change, "Right now, business units
have their own Ways of deciding which are the good accounts. They may drop an
account that they think is going nowhere, but in reality, their contribution
could be the interaction that gets us in the door for a really big deal in
another unit. By the same token, some accounts just don't perform for us. We
invest a lot of time and talent, but they are just not growing for us the Way
We need them to. We've got to let those ones go.” Under the new system, all
interactions With a client Went through the client manager and were tracked in
a holistic fashion. Business units still tracked revenues and costs
attributable to their specific unit, but they were now motivated to consider
overall client profitability as Well, because an emerging profitable client for
the firm could translate into increased transaction volume and profitability
for their unit over time.
Coordination challenges among groups As the Corporate
Solutions Group and client management grew to keep up with exploding demand,
they faced rising coordination challenges in serving large clients across
business units and global markets. Among these was the ongoing tension between
business-unit managers and client managers. One business-unit manager
explained: "Account managers Want to please their accounts. It is easy for
them to promise the moon. Then they come back to us and expect us to deliver.
We have a P&L. We have to think about profitability.
Sometimes We can't make money on these deals. It hurts us.
It hurts my bonus. Sometimes the account managers don’t think about that.”
Conversely, one client manager retorted, "We spend a
lot of time developing plans with our clients` Then We come back home to pass
this by the business units. But it's not that easy. We have to negotiate with
each business unit over the services they are going to deliver and the fees
they are going to charge. My client expects lower costs for bundled services,
but that's not the Way it often turns out. The business units calculate their
piece of a contract separately, and no one Wants to carry extra costs for the
sake of the deal. So they often corne back with a package of services priced
higher than if they had been bid by separate firms. I can't take this to my
client. So I have t0 spend hours fighting with my own people to try to get a
deal. My client Wonders why it takes me so long to get them a bid."
Another client manager expressed his concerns more succinctly: "I can bring
in a deal that will clearly make money for the firm, and even then I have to
fight so many battles to push it through. Why can't the business units just see
the big picture?"
JONES LANG LASALLE management saw this tension as a healthy
form of l‘checks-and-balances" between the two groups. According to one
executive, "I think the push-pull is, candidly, quite healthy, between the
buyers of the service and the sellers of the service. [For examp1e,] you're a
service buyer, and you say, ’I want A, B and C. And the seller says,
"That's fine, but going to cost you X." And then, you say, 'Well,
maybe I only Want A, B, and half of C.’ And that's the tension that we need in
the system, and I fully expect it to be there."
Managing tradeoffs As JONES LANG LASALLE focused on
perfecting its client-based, integrated service model, the real estate service
market did not sit still. Competitors were copying JONES LANG LASALLE'S
client-based model and starting to offer integrated services, customized
solutions, and global access. Competitors that could not take market share from
JONES LANG LASALLE by winning the large MNC clients were attacking the firm's
strong position from other directions-for example, by intensive penetration of
important local markets.
Although JONES LANG LASALLE's employees were spread across
numerous metropolitan markets throughout the U5., the firm had not tried to
integrate its business-unit employees Within geographies. There was no regional
office head, no explicit cross-service coordination Within regions, and no
regional marketing or sales plan. As a result, business units continued
operating independently, supporting their corporate clients and selling to
their own local, single-service (lx) clients.
At the same time, boutique firms located in these same
markets and staffed with so-called ”hunters”-experts with local knowledge,
reputation, and sales skills-were able to go out and capture 1x clients,
sometimes growing them into 3x clients. Since these competitors were not always
multinational or even multi-location, they would not typically come to the
attention of client managers at JONES LANG LASALLE.
And because JONES LANG LASALLE had positioned itself as
professional advisors rather than "deal doers,” some of its clients, While
continuing to rely on JONES LANG LASALLE for strategic real estate guidance,
began turning to these same local firms for select transactions in local
markets. According to one executive:
A couple of our biggest corporate clients had major
requirements in New York City. And these are clients that We did everything
for-facilities, project management, leasing transactions-the Whole shebang. And
yet they had big assignments in New York City, and they didn't hire us to do
them . . . [with one of them,] I took particular interest because it was a big
deal and a long-time client, so I talked to these people. And the answer was,
"We love the Way you guys do business. We love the people that Work on our
account. We love the fact that you can do all these things, but . . . in a
market like New York, what you guys don't have is a local market penetration and
the deal volume and, therefore, the ’clout’ in that market to drive the
transaction to its absolute optimal conclusion. And we feel that New
York-centric businesses that are there can really create, through their market
awareness, market knowledge, the fact that they lease 20 million square feet a
year in New York: they know every street corner, every single floor on every
building-they can drive the best solution. And so, therefore, thanks. We love
you everywhere else, but not in New York City."
JONES LANG LASALLE could no longer overlook this segment.
uWe would win the strategy Work and win the global alliance, and yet, [our
clients] would carve out exceptions in New York and LA and San Francisco. And
we realized, ’Hold it, that's the high profitability stuff.’ We do so rnuch
consulting work and get paid nothing [to be positioned for the high-margin
Work, so] when the real gravy comes along, We don't Want it to get handed off
to somebody else.”
Recognizing that a substantial growth opportunity was being
missed, management encouraged all staff to focus harder on local market
penetration. Yet performance for local clients continued to lag, and some of JONES
LANG LASALLE'S global clients persisted in taking certain Work to local-market
experts.
The New York City Market Experiment
In the spring of 2002, in response to the loss of the local
business of several of its large corporate clients, JONES LANG LASALLE decided
to build a more commanding presence in one local market-_New York City. The
customer perception of HWe love you elsewhere, just not in New York" had
to go. Business-unit leadership was skeptical, and the TRG (Tenant
Representation Group) in New York felt threatened by the experiment. One senior
executive commented on the reservations of TRG to this experiment: "They
had [an attitude of] ’we'll go along with it under a certain set of
understandings that this is the market we're going to do. We're not going to
take this everywhere else. We buy the argument that New York is unique. But
it's unique, and we're not going to iet this happen anywhere else.’" This
did not deter management, however. As one executive pointed out, "We had
to prove the New York model out, to prove that it actually would add
incremental revenue . . . that it would not cannibalize our business, which was
the big fear.” Departing from its historical business approach, JONES LANG
LASALLE moved forward with its plan to "own" a geographic market.
In August 2002, JONES LANG LASALLE named Peter Riguardi, a
former Vice chairman of competitor Colliers ABR, to lead the effort. Earl Webb,
CEO of the Americas at that time, stated, l’Peter's proven track [record] with
clients in New York positions us to significantly increase our market share in
the largest office market in the United States. We are committed to rapid
growth in this market and are confident that adding [Peter's] market knowledge
and transaction skills to our already strong teams and client base will propel
this growth."
Riguardì Was a high-profile figure in the New York real
estate market: if anyone could build a rnajor local presence representing the
full breadth of JONES LANG LASALLE's services, Riguardi could. He was given
authority to structure an organization that would optimally serve the New York
metropolitan market. Wasting no time, Riguardi consolidated the New York-area
resources of JONES LANG LASALLE into a single organization, hired a core team
of local-market specialists and focused all efforts on responding to local
market needs. Serving as a central coordination center, the New York office
dramatically increased JONES LANG LASALLE's sales and client outreach efforts
in the metropolitan market. Riguardi was also authorized to draw from business
units not based in New York, although they were required to collaborate and
sha1-e revenue with Riguardi's organization when projects and transactions were
executed in the New York market. In cases where a corporate client required
transactions in the New York market, the activities would continue to be
overseen by the client managers and implemented by the three business-unit managers,
while at the same time being assisted by a New York regional manager assigned
by Riguardi. The model was expected to Work as follows:
° A large corporate Client needed a
certain amount of office space in the New York metropolitan area. First, a
senior Client manager would work with the Client to define a Strategy for
expansion in the New York market. The Client manager would then bring in a New
Yorkbased geographic manager who would work with the client to achieve its
goals in the local market. The market expertise and clout of the local manager
would help ensure that all aspects of the transaction were Well executed. As
the local manager was servicing JONES LANG LASALLE'S corporate clients’ needs
ín New York, the manager would aggressively seek to build the presence of JONES
LANG LASALLE among New York-based firms and convert some of the firm's 1x
clients into 3x clients.
Riguardi's team hit the ground running. Almost immediately,
the organization saw a marked improvement in its ability both to capture
business from New York-based clients and to serve the local needs of its
corporate clients in the New York market. Global corporate clients that had
switched to more transaction-oriented local firms were bringing their business
back to JONES LANG LASALLE. At the same time, local-market client business also
started to grow rapidly. The New York model caught the attention of JONES LANG
LASALLE's management team. Within a year, the commercial real estate managed by
JONES LANG LASALLE in New York City had grown nearly 25% to over 30 million
sqft., making it the third-largest commercial property manager in the
metropolitan area.6
Phase 3: A Call t0 Action (2005)
In Ianuary 2003, Peter Roberts,7 a seasoned company insider,
was named CEO of JONES LANG LASALLE Americas. His mandate was to continue
transitioning the firm to a customer-centric model and to stimulate higher
growth of revenues and profitability throughout the Americas organization.
Roberts and his managemenî team had set an aggressive
performance goal-_to achieve $100 million in annual pre-global operating profit
by the end of 2009,8 which would require double-digit growth in profitability
year-over-year. Roberts wondered if the existing structure was robust enough to
enable the firm to meet this target. This goal would require the firm to
develop new client relationships and expand existing ones. Roberts projected
that "if each individual client spends $100 a year on real estate services
[and] our capture of that spend is only 20%, We can grow our market share of
that client's real estate spend tremendously.” The relative importance of
local-market clients, and of more global clients Whose service needs spanned
multiple geographies, remained to be determined. (See Exhibits 6, 7, and 8 for
information on US. and global real estate markets.) Roberts wondered whether
his organization was delivering to clients what they were asking for. There
were many questions to consider:
0 Had JONES LANG LASALLE completed
its transition from a product-based firm to one based on integrated client
solutions?
Was it doing enough to provide
globally integrated services across its three major regions-the Americas,
Europe, and Asia?
Was Jones Lang Lasalle organizational
structure efficient enough to continue driving client value? Was it nimble
enough to enable clients to achieve their growth potential?
Was JONES LANG LASALLE staying ahead
of its competition in terms of value delivery and execution?
Assuming it made sense from a
financial standpoint, was it possible to replicate the New York market
model in other metropolitan markets?
Regarding the latter issue, Roberts knew that it had been
complex enough to coordinate the "dotted-line” relationships between
regional managers, client managers, and business-unit managers in this one
market; yet it seemed to be producing results, and clients were happy. But what
strains would be placed on the organization by establishing operations in other
local markets that had growth potential, such as Boston or Washington D.C.? And
how many other key markets should JONES LANG LASALLE expand into? Thus far, the
coordination had been only between services Within the U.S. market. What about
the ultimate goal of coordinating all three service types across all three
global regions for JONES LANG LASALLE'S multinational Clients?
By mid-2004, after months of observation and analysis,
Roberts and his management team reached the conclusion that organizational
change was indeed necessary once again. The firm's current organizational
structure was becoming a stumbling block to its ongoing progress. It would need
to be enhanced or altered to meet the growing needs of JONES LANG LASALLE's
client base. "This was just absolutely obvious to everybody,"
according to one executive. "Now, the details of filling it in, and how
you reorganize the reporting lines, and what sort of matrix you use, and who
takes responsibility for what, how you pay people, all of that-this was the
part that still needed to be Worked out.
The change in 2001 had been an invaluable start to JONES
LANG LASALLE's goal of becoming more responsive to customers. Now, after moving
part Way to that goal, the firm had proven its ability to reorient the actions
of every employee to be more customer-focused. Yet the job Was not complete. As
one manager said at this organizational turning point, "Dealing with a
large MNC cannot be done on a patchwork or local basis; it needs national and
international coordination; you need a structure for doing that, which cuts
across all previous boundaries. You need to be able to address the needs of
both local clients and big, international clients and give them each what they
Want-nationally, across product lines, and also internationally.”
In August 2004, as Roberts and his team were beginning to
articulate options to streamline the operating structure of JONES LANG LASALLE,
a new president and CEO of JONES LANG LASALLE Incorporated was appointed. Colin
Dyer, an industry outsider with experience in consulting and retailing but no
real estate background, had something that Jones Lang Lasalleboard considered
more important than real estate seniority-expertise in customer service and
experience in leading change. From the outset he was clear about his Wish to
"shake things up" at JONES LANG LASALLE. Dyer immediately challenged
what he called "the sacred cows" of JONES LANG LASALLE'S culture. In
his Words, "It Was just a matter of pushing the organization or giving it
the confidence to say, ’you can move forward and do these things.” Dyer directed
Roberts to get a proposal to him by September 2005 for how he Would restructure
his organization to accomplish the strategic objectives of the Americas’
division.
Now it was
September 2005 and Roberts was looking at the two proposals on his desk. He
pondered the advantages and disadvantages of each.
Option 1: Build a Three-Legged Stool
The first option would introduce a series of measures to
build 0n the existing structure while addressing its key areas of weakness. The
firm would continue to be organized around its three core business units (TRC,
PDS, and CPS), each of which would continue to manage its own P&L. This
would be the first leg of the stool. (See Exhibit 9 for the proposed
organizational structure.) The client management function would be the second
leg and would remain an overlay function, creating a matrix with the three
business units; and the larger, multi-service clients would be overseen by
corporate client managers. A concerted effort would be made to further
streamline this matrix organization. Some of the improvements would come in the
form of (a) enhancing shared IT systems to enable tracking 0f total client
profitability; (b) empowering client managers (and potentially, regional
managers) to make decisions that were in the mutual best interests ofthe
clients and JONES LANG LASALLE; (c) increasing reliance on
client-performance-based incentive compensation; and (d) enhancing
Communication and trust between Client managers and those Within the business
units.
The key difference between this option and the existing
organization was the addition of a third function (or third leg of the stool)
in the form of a regional organization. Like the one that had been established
in New York, this regional organization would be superimposed on the existing
matrix structure. And like the client management group, the location-based
units would have a client-facing, business development function, identifying
and selling to clients in specific geographic locations. Market areas would be
established in such locations by relying first on existing resources, and would
be grown both organically and through strategic acquisition. Each market would
have a regional head Who would develop a regional strategy and build a local
team to the sales and marketing activities of that region. While these regional
market heads would be given the autonomy to manage their regions, they would
effectively have a dotted-line reporting relationship to the other two legs of
the stool-the three core business units and. the client managers who conducted
business in their region. In turn, some of the staff working for one of the
three business units that Was located in a
regional head. Client rnarîagers megion-al-m-anagers would
divide clients based on the geographic footprint of the services a client
needed. Thus, in this model, the corporate client managers and the regional
managers would serve as the client-facing, coordination forces for clients or
geographies, enabling the three business units to focus their attention on
actual service delivery.
Iust as the client managers would "own" the
corporate clients and serve as their advisors across all business units and
global geographies, so regional managers would own local markets and the
clients that executed transactions in a single market. The client managers
would take the lead in coordinating activities that served the needs of a large
multi-geography corporate client ín a specific market. When a corporate client
needed a transaction in a local market where JONES LANG LASALLE had a regional
presence, the client manager would pull in the relevant regional manager and
business units to deliver services on the client's behalf. Conversely, when a
small client in one of the local markets needed to execute a transaction in
another market, the regional manager would take the lead. In this case, the
local markets group would Work with the relevant business unit to deliver
services to the client. If the client's needs moved beyond the local geography,
the regional manager would coordinate with a client manager to ensure that the
client's needs were being met, and if the client's needs continued to grow in
scale and scope, the client would be passed on to another client manager to be
Coordinated from a broader vantage point. When each of these three groups
(client management, business unit, and geographic organization) collaborated,
they would share the credit for that transaction with each other using a
pre-established formula to ensure that each was properly compensated for
collaborating with the others.
In
addition to shared decision-making, the reporting structure under this
three-way matrix would be shared. The client function and the regional function
would remain very lean groups, While the majority of the firm's staff would
continue to reside in one ofthe three business units. As the clientfacing
functions sold Work to their clients or within their geographic regions, they
would pull together teams from one or more of the three business units. While
the team members Would be direct reports of their business-unit manager, they
would also have dotted-line, or indirect, reporting relationships to the region
‘m which they resided. In addition, if they worked for a corporate client, they
Would also have a dotted-line Connection to the relevant client manager while
deployed on a particular project. Once the project Was complete, they would be
reassigned to another multifunctional team. The roles and responsibilities of
the different groups would be clearly defined, and the intersections among the
groups Would be closely managed.
The service-based business units would be retained as the
central organizational units and would retain primary P&L responsibility
within the firm. As one senior executive at the firm commented: l’JONES LANG
LASALLE has always been recognized for the strength of its products. FIhat's
what the brand stands for; that's what customers know they are getting.” The
business units would continue to serve as the foundation(s) of the
organization. They ensured best-in-industry products and staff, and continued
to define employees' identity within the firm. Revenues for a specific service
Offering would flow into the P&L of that business unit. Team members
Working to generate that revenue Would be compensated by that unit and their
bonus would be determined, in part, by their contribution to the revenue
generation for their unit.
Nonetheless, the client managers and regional managers would
also have parallel P&Ls that would help them manage their clients and
markets profitably. Revenues for a particular client, regardless 0f service
offering, Would be recorded by the Client managers on their P&Ls, and total
client profitability would be determined after consideration of the inputs the
client managers used from JONES LANG LASALLE. Client managers would continue to
generate their own income from incremental work they did for their clients, and
this would usually be tied to their achieving some specific goals for the
client. Client manager compensation would be based on the total amount of this
incremental income as Well as overall client revenue and profitability.
Regional managers would do the same, although they would manage P&Ls for
all of the services provided in their region, and their compensation would be
determined based on regional performance.
Incentive structures would be increasingly weighted in favor
of client and market profitability and satisfaction, rather than on individual
business-unit performance. Management would reward business units not only for
their profitability as before, but also on how well they worked together to
share clients and information, provide optimal service delivery, and grow
client business across geographies and business units.
Option 2: Organizational Realignment
The second option Roberts Was considering, more radical than
the first, aimed to break apart the existing structure and start With a
"clean slate." rIltis proposal recommended dissolving completely the
three traditional business units and establishing, in their place, two new
client-facing groups: global client management ("Clíents”) and geographic
market execution ("Markets"). (See Exhibit 9 for a depiction of the
proposed organizational structure.) The three core service offerings of the
firm would continue to exist; but rather than operating as distinct
organizational units, they would be embedded in the Clients and Markets groups.
All of the former service-line employees Would become staff members of either
the Clients or Markets function, depending on their interests, skill sets, and
career paths. In addition, a Central Business Services group would be
established to consolidate support activities including call centers,
information technology, procurement, engineering and operations consultation
services, quality control, and product training.
Clients
group The Clients group Would focus on marketing to and managing the firm's
relationships with its large, multi-service clients. The Client management role
would remain similar to what it had been before the restructuring, with client
managers working directly for client companies as the single point of contact
for all of their clients’ global real estate needs. Beyond just offering
client-facing coordination of tasks, the new Clients organization would also
encompass some service delivery activities as Well. The former PDS and CPS
units would be folded into this clientfacing unit because in the prior
organization, these units achieved their greatest leverage from working with
corporate clients and managing multiple office sites or development projects
simultaneously for a single client. As a result, it made sense for these
specialists to work directly Within the corporate Clients group. This meant
that the new Clients organization would be responsible for both coordination
and fulfillment of some of the services that JONES LANG LASALLE offered its
clients.
Client teams Would be assigned to specific client companies.
Team members would be offered the opportunity to cross-train in other service
offerings within their specific clients. They could also continue to enhance
their original service domain of expertise by sharing best practices with their
service counterparts in other client teams While receiving ongoing training and
development.
Client managers would have P&L responsibility, hiring
and firing authority, and full accountability for increasing client
profitability. They would continue to be compensated based on the
salary-plus-bonus formula, rewarding their staff based on total
client-performance metrics. According to one of the members of the task force
that made the proposal, this new organization would enable JONES LANG LASALLE
to Ilfocus on products that we've always had in the past, but we will also have
a true focus now on managing our accounts as a business, taking our accounts to
a much greater level."
Markets
group The Markets group would "own" specific major metropolitan areas
and would serve-tw@ primary-functions; First, it would manage the' local
markets-and---serve force Within these geographic areas, Working to establish
significant market penetration for JONES LANG LASALLE in core metropolitan
areas. Second, its staff would execute transactions on behalf of single- and
multiservice clients Within specific markets. These would include its own
clients who were primarily operating in local markets, as Well as those of the
Clients organization that encompassed global clients. Some service delivery
employees would be retained Within this organization. The employees of two
former groups-the TRG and the Leasing and Management Group of the parallel
Investor Services organization of JONES LANG LASALLE-Would form the foundation
of the Markets staff, since their expertise was derived from very specialized
local market intelligence. ln addition, some staff from former CPS and PDS
groups would join the Markets staff to manage local projects in these service
offerings. Additional resources would be developed or acquired as needed to
ensure rapid market penetration. The New York office would serve as a model,
which could be replicated in Boston, Washington D_C., and other U5. metropolitan
markets that JONES LANG LASALLE felt Were key to serving the expanding needs of
its corporate clients or deemed strategically important to building the firm's
market share. As one task force member working on this proposal explained,
"Our strategy is aimed at projecting a much larger footprint into the
marketplace. We expect that this team could offer clients greater personnel
depth, broader market coverage, and enhanced market knowledge and insight.
Like the Clients group, the Markets group would have
dedicated teams of local market specialists "owning" their
metropolitan areas and executing transactions across the service offerings of JONES
LANG LASALLE. The "lead" 0n a specific client would be determined
primarily by size, range of service offerings required, and geographical scope.
For example, if a corporate client purchasing multiple serůices across various
regions Wanted office space in Washington DC., the client manager (in the
Clients group) would liaise with a Washington regional manager, who would
execute the local transaction to JONES LANG LASALLE standards.
The local manager would "own" the local relationship, but would have
a dotted-line reporting relationship with the Client Manager, who would
ultimately oversee all aspects of the client portfolio and Would be responsible
for client satisfaction. Conversely, if a smaller, single-city client serviced
by a local manager in Boston wanted access to the various products and services
the firm had to offer, it Would be handled by the Markets group. However, if
the client Wanted to grow into the New York market or perhaps a foreign market
such as London, the local manager Would liaise with the Clients group and the
client would transition to a corporate client, while still maintaining a
relationship with the local manager in the Boston market.
As with the Clients group, teams in the Markets group would
have their own P&Ls, full-time teams made up of local market and product
execution specialists, hiring and firing authority, and full accountability for
growing market profitability. But unlike client teams, market teams would
consist of both advisors who developed the local strategy and portfolio of
options for a client, and "hunters" who executed transactions on a
client's behalf and sold new business for JONES LANG LASALLE. While the
advisory positions would continue to be compensated under Jones Lang Lasallesalary-plus-bonus
structure, the hunters would revert to industry-standard, commission-based
compensation structures to instill the "fight and Win’l attitude that
Riguardi had shown Was important for achieving a commanding presence in a
specific geographic area.
In order to ensure that the Clients and Markets groups were
working together effectively, an incentive system would be created to reflect
both client profitability and regional profitability, with extra benefits for
sharing and growing service offerings to clients. For instance, for large,
established corporate clients, regional managers would be provided With
incentives for efficient, timely transaction execution in their relevant local
markets. Regional managers would be rewarded for growing a local client beyond
its primary geography. Although the regional managers would be effectively
losing their clients to corporate client managers once the clients grew beyond
their local markets, the regional managers would have succeeded in establishing
a multifaceted, long-term client relationship for JONES LANG LASALLE.
Making a Decision
Roberts
Was pleased with the Work of the task force and could see the merits of each
option. Both were based on sound rationale, and both solidly aligned the firm's
activities around the clients’ emerging needs. To maintain its competitive
edge, JONES LANG LASALLE needed to be globally and locally oriented at the same
time, and playing this dual role would require distinctive skills. In the same
way that JONES LANG LASALLE was considering how to change its client-facing
activities, it needed to retain its deep product expertise within its three
core business units. Both options recognized the complexity of a clientfocused
organization that also needed to be built on product excellence. Cut-and-dry
distinctions between business units were a thing of the past. Yet there Were
still important questions that concerned Roberts:
0 Was it better to build the new organization on the
existing foundations, or start anew? Roberts knew that Dyer was not afraid to
"shake things up,” but Roberts also knew how potentially disruptive it
could be to an organization to shake things up too much.
0 How strong Was the need to build up a geographical
organization, and in how many regions? Could a leader like Riguardi be found in
every market? And if JONES LANG LASALLE pursued this goal, should it be done by
acquisition or organically?
How
important Was ongoing service-offering excellence going to be in the future,
and which proposal provided the greatest assurance for maintaining an adequate
level?
Finally, how would either
restructuring affect the morale of the organization-especially those who had
spent their careers within a single service business?
As Roberts pondered these issues, he
thought of even broader ones:
How much organizational disruption
Was good for the firm? Was this a good time for radical change?
HOW could Roberts best build on the
momentum created by the 2001 restructuring?
At what point would the "internal noise” of
restructuring distract managers from their true task of serving their
customers? Because the firm's goal was to produce an outward-oriented
organization, Roberts did not want the process of restructuring to have the
unintended consequence of focusing the organization's attention inward.
Roberts reflected on these concerns. Although he knew that
Dyer and Martin supported the idea of restructuring, he knew they would
question every aspect of the chosen plan. I-le repeated Dyer's Words in his
head: "What do our clients really want? How can We give them what they
really need?” Roberts felt he knew the answers: JONES LANG LASALLE's clients
Wanted a partner, an advocate in helping them establish the best real estate
strategy and portfolio locally, nationally, and globally. But which proposal
would be best for achieving the desired results?
