Core net academic challenge
- 1. 56% 24% 15% 5% 100 million square feet in total (56%) Leased office space (24%) Owned office space (15%) Data centers (5%) Headquarters
- 2. Illiquid to buy/construct /lease/sell easily Early termination penalties fixed on lease contracts Problems on reducing occupied office space easily Government regulation on branch closures Customers switching to other banks in the affected area Media exposure, bank reputation Inevitable layoffs, employee morale Cost increase, profit decrease, unhappy shareholders Increased complexity in transactions management
- 3. Sharing the office with other businesses (sublease/sublet option) Increasing return on per square feet through Remote expert model Offering paid educational courses to individuals and businesses and renting space Challenge: How to use office space at its full capacity? Possible solutions
- 4. Possible solution 1 Subleasing part of the office space occupied by branches with decreasing performance to subtenants (collaborating businesses) Subletting part or all of the office space occupied by branches with decreasing performance to collaborating businesses for shorter period of time with higher probability of coming back. a b Sublease/sublet options
- 5. Advantages Disadvantages Significant cost reduction in lease expenses and facilities cost Less carbon footprint due to less space taken Cost decrease, profit increase, happy shareholders Complex facilities and lease management Customer dissatisfaction due to smaller area Employee dissatisfaction due to smaller area Customer satisfaction due to less commute time between businesses 1 2 3 4 1 2 3 Opportunity cost of time spent on finding and evaluating subtenants 4
- 6. Partner2 Partner4 Partner1 Partner3 Information center (system) Input: Lease expiration Plan: To terminate the contract Input: Lease expiration Plan: To renew the contract Input: Office search Plan: Moving to a new office at the full space Input: Office search Plan: Moving to a new office at the part of the space
- 9. Possible solution 2 Providing remote expert solutions for customers by specialists in different fields Using the branch employees’ (tellers’) time efficiently by adding them to remote expert network. a b Remote expert model
- 10. Advantages Disadvantages Improved customer satisfaction Saved cost on providing experts for each branch Better use of office space Busier schedule for employees Cost increase on bonuses and trainings Not used by customers seeking face-to-face interaction 1 2 3 1 2 3
- 11. Possible solution 3 Organizing paid courses to individuals and businesses Giving branch space for rent to companies seeking a place to organize one-day seminars with no further obligation for the future a b Creating other streams of revenue
- 12. Advantages Disadvantages Increase in other income Increased personal relations with current and potential customers Better use of office space Privacy issues due to unfamiliar people entering the workplace with possibility of using bank computers Busier schedule for employees Misinterpretation by costumers and shareholders 1 2 3 1 2 3
- 13. How to make sure that CRE department obtains information on time? Reporting staff has to gather data timely and send reports to branch managers, board members and CRE department directly about the branch performance. The branch managers will analyze the reports and make recommendations to CRE department about the possible real estate decisions due to poor branch performance. CRE department will analyze the data and recommend the branch managers to implement alternative branch design: sublease/sublet options , remote expert and other revenue streams 1 2 3
- 14. HR Possible layoffs due to smaller office space occupied by low performing branches, trainings of staff Finance Negative effect on cash flow and financial leverage due to huge investments in software Legal, tax and reporting Handling legal issues of frequent sublease/sublet. Accurate record of sublease/sublet options, other income from courses on financial statements IT Trainings of remote expert team and reporting staff. Possible employee inquiries on new software Procurement Purchase of new software. Complexity on purchase of shared office facilities in shared branch offices. How will this new strategy affect non-real-estate areas?