Occupier Solution

08 August 2007

E.ON occupied a new purpose-built and fully operational facility within 14 months of concluding a partnership agreement that avoided the long-term risks associated with a capital investment, or the security and access issues of outsourcing. John Gotley explains.

THE GAS AND ELECTRICITY MARKETS IN THE UK were deregulated in the 1990's nineties, but until then, customers were captive to the local electricity and gas supplier. De-regulation opened the market up, not only to existing players in other regions, but to new entrants from the UK and abroad. Virtually overnight the utility market changed with more demanding and discerning customers that were ready to switch loyalty from one provider to another. In turn this meant that the market had to adapt, become more dynamic and aggressive. Planning horizons were foreshortened and flexibility became key.

Market fluctuations also had an effect on managing property portfolios and were something that E.ON had to consider carefully as part of its overall strategy. After selling off its freehold premises in Arnold on the northern outskirts of Nottingham for residential redevelopment, the company was faced with the relocation of an existing operation comprising call centre and back office functions (HR, Payroll and IT). With little time available the options were seemingly limited to either taking a longterm lease or building a new freehold property.

Business planning
These options both had their merits, but in the long-term, both may have proved to be inadequate. E.ON was very much aware that the terms 'dynamic' and '[property lease' were at odds with each other from the outset. There was nothing flexible about a property lease and they were reluctant to tie themselves into a 15-year commitment on a business planning horizon that was no more than 36 months.

E.ON had originally been introduced to occupier solutions specialist Port@l via its Retail Division as they had previously set up a 175-seat facility for E.ON's operation in Rotherham.

Established in 2000, Port@l is part of a unique amalgamation of three best-of-breed' specialist companies (Cannock, Port@l and Direct Dialogue) that share similar ownership. This commonality is a critical point because it overcomes many of the difficulties and discontinuities encountered by partnerships.

The core offering of this amalgam is space and infrastructure (environment, IT and telephony) on a managed service basis. Port@l call this ¡®organisational hosting' or simply 'hosting', and it allows their clients to retain ownership of their 'crown jewels' such as brand custodianship, culture, people, processes, intellectual capital, business applications and, in the case of call centres, the actual interaction with customers. In addition to working with E.ON, Port@l has also worked with HfS Loans and Barclays Bank.

Based on a similar model to their Rotherham facility, E.ON decided to partner with Port@l who sourced a green field site to develop a new 52,000 sq ft in-house centre of excellence suitable for over 600 employees.

It would be delivered within 14 months. Initial contact to raise the need occurred in June 2000. Just 14 months later in August 2001, and only 10 months after the contract was signed, 533 staff transferred into the building. The advantage over a lease or a freehold property was that it could be custom-built to the utility's own specifications, incorporating its own policies on energy-saving and sustainability, and without the need to make a major capital investment or take on a long-term liability. In fact, the commitment from E.ON was the critical factor - just 5 years which was in stark contrast to normal lease agreements.

Retained
Unlike an outsourcing contract this approach enabled E.ON to retain ownership of their crown jewels', the valuable parts of their business, such as their people, brand custodianship, culture, processes, applications, intellectual capital and where applicable customer interaction. From an IT perspective, the model enabled the day-to-day management of IT to be run by their own staff, yet some of the infrastructure was provided and owned by a third party and was delivered at an agreed per workstation/month basis at a cost that was defined at the outset.

Constant change
Over the years that the contract has run, the number of workstations delivered on site has varied by 20 per cent and the layout of the workspaces has continually altered. The type of the operations delivered from the facility have also differed - for example, there are now no call centre seats in operation. Yet in spite of these variables, this 'Occupier Solutions' model has enabled E.ON to accommodate these changes efficiently and effectively within the terms of the contract and without the need for major investment in the facility or to outsource to a third-party.

The partnership avoided some of the main constraining factors of traditional solutions such as:
....Implementation overruns of time and cost
....Delays caused in signing off traditional capital projects
....Long-term leases and the associated liability created
....Expenditure of capital and the associated risk of write-offs
....Rigidity - inability to adapt to changing circumstances In addition, the company gains more financial clarity:
....Guaranteed pricing avoided costly overruns
....Operational contracting meant that infrastructure and support services were governed by service level agreement
....Predictability of cost from the outset.

Port@l delivers all the FM components (catering, cleaning, security, reception, building management, environmental control, office moves etc.) to service level. The company has two Site Account Managers who manage the day-to-day activity on the site. They also have quarterly account review meetings with all of their clients. Port@l has such a flat structure and an open dialogue policy that there are no barriers to communication, and clients have little difficultly getting hold of anyone. In particular Portal's Managing Director John Gotley makes himself available to all of the company's clients and ensures that he attends all quarterly reviews.

As a result of this structure and the excellent relationships Port@l has with E.ON personnel, they are involved from the outset in any new plans which have ranged from simple desk moves to entire reconfigurations of floors to the doubling in size of the comms room from 5,000 sq ft. to 10,000 sq ft.

Mitigating risk
The environment in which operational facilities such as data or call centres work is more dynamic than ever. Unfortunately, dynamism often translates into uncertainty, and uncertainty into risk. For major organisations contemplating investing in a new building and infrastructure questions arise such as, what will be the exact capacity requirements, both now and in 5-10 years time? What type of technology platform should be implemented and when will it need replacing? Will the current infrastructure support the needs of the business during this period?

All these imponderables make the prospect of delivering new premises a daunting task for even the most practised and experienced property manager. However as demonstrated by E.ON, options do exist that can mitigate and share this risk, accommodate unforeseen change and bring a degree of comfort into long-term premises and facilities planning.

● John Gotley is Managing Director at space and infrastructure supplier, Port@l FIND MORE ON AT
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