Corporate Real Estate alignment: a preference-based design and decision approach
One of the long-standing issues in the field of corporate real estate management is the alignment of an organization’s real estate to its corporate strategy. In the last thirty years, fourteen Corporate Real Estate (CRE) alignment models have been made. In some of these CRE alignment models it is indicated that they strive for maximum or optimum added value. Even though extensive research into these existing CRE alignment models has provided us with valuable insights into the steps, components, relationships and variables that are needed in the alignment process, these models still fall short in two ways. Most models pay little to no attention to
1 The design of new CRE portfolios;
2 The selection of a new CRE portfolio that adds most value to the organization.
How a CRE manager is able to design and select an optimum alternative in an operational way remains a black box in many alignment models.
In CRE alignment models, the authors generally use either the stakeholder or the shareholder approach. Both approaches received criticism in the past. Kaplan and Norton (2006) state that the shareholder approach with purely financial measures of performance are not sufficient to yield effective management decisions. Jensen (2010) criticizes the stakeholder approach and states that managers in an organization need to define what is better and what is worse which forms the basis of making decisions. In his view, putting them in opposite positions is not correct because both are of a different nature. In fact, Jensen (2010, p. 33) states “ ... whether firms should maximize value or not, we must separate two distinct issues;
1 Should the firm [organization] have a single-valued objective?;
2 And, if so, should that objective be value maximization or something else ...?"
I agree with Jensen’s view that a single-valued objective function is needed, but argue that in our CREM domain a financial measure is not fully suitable. A financial measure is not suitable, because values (also referred to as qualities) of buildings fall in two general categories.
These categories are often interrelated and overlap in practice as explained by Volker (2010, p. 17), the categories are:
–– “technical, physical, hard, functional, objective or tangible qualities;
–– perceptual, soft, subjective, judgmental or intangible values.”
These intangibles are vital to CRE management but often suppressed. Real estate decision making therefore needs to be able to include all of these values in order to be purposeful. If they are treated separately, the restriction is that one effect can be more difficult to monetize than the other effect, as shown by Mouter (2012) and if multiple measures are used as in the stakeholder approach ”if you take one set of quantifiable impacts and one set of non-quantifiable impacts in an appraisal, one set will dominate” (Mishan, in Mouter, 2012, p. 10).
Research aim: The aim of this research is to enhance CRE alignment by improving CRE decision making in such a way that corporate real estate managers are able to determine the added value of a particular corporate real estate strategy quickly and iteratively design many alternative real estate portfolios.
Conclusions about developing the Preference-based Accommodation Strategy design and decision approach
This research successfully developed, tested and evaluated a new design and decision approach in corporate real estate alignment that makes it possible to design alternative CRE portfolios and then to select the portfolio that adds most value to the organization. The originality of this research to (1) define value as technically equivalent to preference and (2) use a design and decision approach for the alignment problem. This new approach is called the Preference-based Accommodation Strategy design and decision approach (PAS). PAS was developed and tested in accordance with the five stages of an operations research project. PAS is constructed upon fifteen basic concepts and definitions from management science, decision theory and design methodology.
Preference Measurement and Preference-Based Design are the most important basic concepts. By using the overall preference (value) score as overall performance measure, based on a single-valued objective function, CRE managers are able to select a new CRE portfolio that adds the most value to the organization. Following Barzilai (2010), all tangible and intangible values are categorized either as physical or nonphysical properties of an object. To enable the application of mathematical operations to these non-physical properties, such as preference, Barzilai (2010) developed a theory of (preference) measurement as well as a practical evaluation methodology Preference Function Modeling for constructing proper preference scales. To enable the design of alternatives the Preference-based Design method (Binnekamp, 2011) is used as particular technique in the domain of design and decision systems. By adjusting this method it can be used on portfolio level.
PAS is structured around three decision making rationalities (Kickert, in De Leeuw, 2002). The three components are; the steps (procedural rationality), the stakeholders & activities (structural rationality) and the mathematical model (substantive rationality) as shown in Figure S.1. The substantive rationality enables the decision maker to choose an alternative based on the bounded rationality perspective. The procedural rationality enables the decision maker to take into account the time perspective when selecting an alternative and the structural rationality enables that more than one decision maker is involved. By using all concepts past experience has benefited the development of PAS. For PAS to be operational all components are connected coherently.
The coherence between the components is shown in a flowchart in Figure S.2. In the steps, decision makers define decision variables representing accommodation aspects that make the accommocation stratgy tangible and iteratively test and adjust these variables by designing new alternative real estate portfolios. The alternative design that adds most value to the organization, i.e. has the highest overall preference score, is the portfolio that optimally aligns real estate to corporate strategy. The activities that the participants perform are a series of interviews and workshops, while the system engineer builds the accompanying mathematical models. The approach overcomes the problems inherent to the current models and uses explicit scales for measuring preference, i.e. value, defined by stakeholders themselves.
Conclusions about testing PAS
PAS is tested successfully in three pilot studies. All pilot studies show that the stakeholders were able to perform all the steps and activities, including the steps to determine preference curves (step 2) and the design alternatives themselves (step 5). The stakeholders were able to design an alternative CRE portfolio with a higher overall preference than in the current situation Table S.1. An added value of 54, 17 and 5 (out of a 100) was achieved either by the stakeholders (in step 5a) or the optimization tool (in step 5b). In the last step, all stakeholders accepted that alternative as the final outcome. Next to that, there is an indication, based on the third pilot study, that the use of the preference curves in PAS improved the representation of the stakeholders preferences than in their current scorecard system.
In the first and third pilot, alternative CRE portfolios have been generated with an optimization tool (step 5b). Due to the nature of third pilot the brute force approach was used successfully in generating a global optimum (see Table S.1). In the first pilot, the algorithm (step 5b) was not able to generate a local optimum because a subset of the alternatives was infeasible. The feasible set of alternatives could not be characterized mathematically and was not available to the algorithm. The brute force approach is preferable to the search algorithm as it finds a global optimum instead of a local optimum but has as disadvantage that it often cannot be used when a pilot is too complex. In PAS, stakeholders design alternatives (step 5a), and use the PFM algorithm to rate them as has been done for the first two pilots.
Conclusions about evaluating PAS; iteration is the key
In all three pilots the stakeholders as well as the observers evaluated PAS very positively. According to the stakeholders, determining preferences and refining and adjusting them in collective workshops is the attractive part of PAS. The participants indicated that, whilst the method of determining preferences is easy, accurately determining which preference is related to a certain decision variable value is not.
Assigning preference scores to decision variable values can be arbitrary at first. By repeating the cycle of determining preferences and making designs a number of times, the stakeholders see the effect of the decisions made in the design, and how their preferences affect those decisions. In all pilot studies the decision makers used the opportunity to either add or remove decision variables and change curves, weights or constraints. The use of such a learning process in the context of work practice and problem solving is described by Schön (1987) as reflection in action.
Conclusions about reflecting upon PAS
PAS as design and decision approach can be used as add-on to existing CRE alignment management models. However, using PAS as add-on in these models creates methodical difficulties. The structure of these models is often not congruent with the PAS structure. To avoid these difficulties, PAS is also described both from a systems’ management perspective (De Leeuw, 2002).
The three pilot studies showed that PAS can be applied in different organizations, and for different types of problems with a different level of complexity. In comparison, the first two pilots were more complex because more stakeholders were involved and more interventions were possible. Applying this approach to multiple context-dependent cases has yielded more valuable results than just applying it to one case. Based on the results of this study, it is justified that PAS can be used for a wide range of real estate portfolio types.
Appel-Meulenbroek, R., Brown, M. G., & Ramakers, Y. (2010). Strategic alignment of corporate real estate. Paper presented at the European Real Estate Society (ERES) Conference, Milano.
Appel-Meulenbroek, R. (2010). Knowledge sharing through co-presence: added value of facilities. Facilities, 28(3/4), 189-205.
Arkesteijn, M., Binnekamp, R., & De Jonge, H. (2017). Improving decision making in CRE alignment, by using a preference-based accommodation strategy design approach. Journal of Corporate Real Estate, 19(4), 239-264.
Arkesteijn, M., Valks, B., Binnekamp, R., Barendse, P., & De Jonge, H. (2015). Designing a preference-based accommodation strategy: a pilot study at Delft University of Technology. Journal of Corporate Real Estate, 17(2), 98-121.
Arkesteijn, M. H., & Binnekamp, R. (2013). Real estate portfolio decision making. In A. V. Gheorghe, Macera, M. and Katina, P.F. (Ed.), Infranomics: Sustainability, Engineering Design and Governance (pp. 89-99.). Dordrecht: Springer.
Arkesteijn, M. H., & Heywood, C. (2013). Enhancing alignment processed between CRE & organisational strategy. Paper presented at the Corenet Global EMEA summit, Amsterdam
Barendse, P., Binnekamp, R., De Graaf, R., Van Gunsteren, L., & Van Loon, P. (2012). Operations Research Methods: For managerial multi-actor design and decision analysis. In: Amsterdam: IOS Press.
Barzilai, J. (2007). On the Mathematical Foundations of Economic Theory. Dept. of Industrial Engineering, Dalhousie University, Halifax, Nova Scotia, Canada. Retrieved from http://scientificmetrics.com/publications.html.
Barzilai, J. (2010). Preference Function Modelling: The Mathematical Foundations of Decision Theory. In M. Ehrgott, J. R. Figueira, & S. Greco (Eds.), Trends in Multiple Criteria Decision Analysis (pp. 57-86). Boston, MA: Springer US.
Barzilai, J. (2015). An elementary demand theory error.[Retrieved from https://youtu.be/L8dA544TFwA; http://scientificmetrics.com/presentations.html
Barzilai, J. (2016). A Unified Consumer Demand Theory. Dalhousie University. Halifax, Nova Scotia, Canada. Retrieved from http://scientificmetrics.com/downloads/publications/Barzilai_2016_Unified_Demand_Theory.pdf
Belton, V., & Stewart, T. (2002). Multiple criteria decision analysis: an integrated approach: Springer Science & Business Media.
Binnekamp, R., Van Gunsteren, L. A., & Van Loon, P. P. (2006). Open Design, a Stakeholder-oriented Approach in Architecture, Urban Planning, and Project Management. Amsterdam: IOS Press.
Binnekamp, R. (2010). Preference-based design in architecture: IOS Press.
Brackertz, N. and Kenley, R. (2002). A service delivery approach to facility performance for local governments. Facilities, 20(3/4), 127-135.
Brute-force search. (2018). Retrieved from https://en.wikipedia.org/wiki/Brute-force_search d.d. 2019-05.
Chaffee, E.E. (1985), Three models of strategy, Academy of Management Review, Vol. 10 No. 1,
pp. 98-98. CoreNet Global. (2015). The essential guide to corporate real estate (1st ed.). Atlanta, Georgia: Corenet Global, Inc.
De Chernatony, L., & Harris, F. (2000). Added value: its nature, roles and sustainability. European Journal of Marketing, 34(1/2), 39-56.
De Graaf, R. (2018). [Descriptions of the functions].
De Jonge, H., Arkesteijn, M. H., Den Heijer, A. C., Vande Putte, H. J. M., & De Vries, J. C. (2008). Corporate real estate management: Designing an Accommodation Strategy (DAS Frame). Delft. Department Real Estate and Housing, Faculty of Architecture, TU Delft.
De Jonge, H., Arkesteijn, M. H., den Heijer, A. C., Vande Putte, H. J. M., de Vries, J. C., & van der Zwart, J. (2009). Corporate Real Estate Management. Designing an Accommodation Strategy (DAS Frame). Delft. Department Real Estate and Housing, Faculty of Architecture, TU Delft.
De Leeuw, A.C.J. (2002). Bedrijfskundig management (second ed.): Koninklijke Van Gorcum.
De Visser, H., Arkesteijn, M., Binnekamp, R., & De Graaf, R. (2017). Improving CRE decision making at Oracle: Implementing the PAS procedure with a brute force approach. Paper presented at the European Real Estate Society (ERES), Delft.
De Visser, H. J. (2016). Testing the improved PAS methodology: Implementation of a search algorithm. (MSc MSc), Delft University of technology,
De Vries, J. (2007). Presteren door vastgoed: Eburon Uitgeverij BV.
De Vries, J. C., Van der Voordt, D.J M., & Arkesteijn, M.H. (2004). Afstemming organisatie en vastgoed [Alignment organisation and real estate] . In Van der Voordt D.J.M. and Den Heijer, A.C. (Ed.), Inleiding vastgoedmanagement [Introduction Real Estate Management] (pp. 164-183). Delft: Delft University of Technology.
Den Heijer, A. (2011). Managing the university campus - Information to support real estate decisions. Delft: Eburon Academic Publishers.
Dewulf, G., Den Heijer, A., de Puy, L., & Van der Schaaf, P. (1999). Het managen van vastgoed binnen een publieke organisatie (managing real estate within a public organisation). Delft: DUP.
Dunn, D., Ellzey, K., Valenziano, S. F., Materna, R., Kurtz, T., & Zimmerman, C. (2004). CoRE 2010 Integrated Resource & Infrastructure Solutions. Atlanta:
Dym, C., & Little, P. (2004). Engineering Design: A Project-Based Introduction, Hoboken. In: NJ.: John Wiley & Sons Inc.
Edwards, V., & Ellison, L. (2003). Corporate property management: Aligning real estate and business strategy. Blackwell Science: Malden, MA.
Englert, J. (2001). The Strategic alignment handbook: IDRC.
Franco, L. A., & Montibeller, G. (2010). Facilitated modelling in operational research. European Journal of Operational Research, 205(3), 489-500.
Fritzsche, C., Hoepel, H., Kaper, L., & Van Ommeren, O. (2004). Huisvesting is strategisch goed, wegwijzer voor vastgoedmanagement in ziekenhuizen (Real estate is a strategic asset, manual for real estate management in hospitals). Amersfoort: Twynstra Gudde Adviseurs en Managers
Gerritse, C. (1999). Kosten en kwaliteit: Sturing van de relatie kosten/kwaliteit in de vroege fasen van het huisvestingsproces. Delft: Bouwmanagement en Vastgoedbeheer Technische Universiteit Delft Faculteit Bouwkunde.
Gerritse, C. (2008). Controlling Costs and Quality : in the early phases of the accomodation process. Delft: VSSD.
Haynes, B. P. (2008). Impact of workplace connectivity on office productivity. Journal of Corporate Real Estate, 10(4), 286-302.
Heywood, C. (2011), “Approaches to aligning corporate real estate and organisational strategy” European Real Estate Society (ERES) Conference, European Real Estate Society, Eindhoven.
Heywood, C., & Arkesteijn, M. (2017). Alignment and Theory in Corporate Real Estate Alignment Models. International Journal of Strategic Property Management, 21(2), 144-158.
Heywood, C., & Arkesteijn, M. (2018). Analysing fourteen graphical representations of corporate real estate alignment models. Journal of Corporate Real Estate, 20(1), 16-40.
Heywood, C., & Kenley, R. (2008). The Sustainable Competitive Advantage Model for corporate real estate. Journal of Corporate Real Estate, 10(2), 85-109.
Heywood, C., & Kenley, R. (2013). Five axioms for corporate real estate management: A polemical review of the literature. Paper presented at the 18th Pacific Rim Real Estate Society (PRRES) Conference, Melbourne.
Hofman, P. (2006, 31-01-2006). De filosofie van een weerloos citaat. Trouw, p. 1. Retrieved from https://www.trouw.nl/nieuws/de-filosofie-van-een-weerloos-citaat d.d. 2016-07
ISO, BSEN (2005). 9000: 2005 Quality management systems. Fundamentals and vocabulary. British Standards Institution.
Jensen, M. C. (2010). Value maximization, stakeholder theory, and the corporate objective function. Journal of applied corporate finance, 22(1), 32-42.
Jensen, P. A., van der Voordt, T., & Coenen, C. (2012). The added value of facilities management: concepts, findings and perspectives: Polyteknisk Forlag Lyngby.
Joldersma, C., & Roelofs, E. (2004). The impact of soft OR-methods on problem structuring. European Journal of Operational Research, 152(3), 696-708.
Joroff, M., Louargand, M., Lambert, S., Becker, F. (1993). Strategic management of the fifth resource: corporate real estate.
Kaplan, R. S., & Norton, D. P. (2006). Alignment: Using the Balanced Scorecard to create corporate synergies. Boston: Harvard Business School Press.
Kraak, T., & Netten, M. (2013). Effecten herziene curricula op ruimtegebruik. Delf. Retrieved from
Krumm, P., Dewulf, G. P., & De Jonge, H. (2000). What is corporate real estate? In Successful corporate real estate. Dewulf, G., P. Krumm & H. de Jonge eds. (pp. 27-34): Arko Publishers.
Labovitz, G., & Rosansky, V. (1997). The power of alignment: How great companies stay centred and accomplish extraordinary things. New York: John Wiley & Sons.
Lindholm, A. L., Gibler, K. M., & Leväinen, K. I. (2006). Modeling the value-adding attributes of real estate to the wealth maximization of the firm. Journal of Real Estate Research, 28(4), 445-475.
Lindholm, A.-L., & Leväinen, K. I. (2006). A framework for identifying and measuring value added by corporate real estate. Journal of Corporate Real Estate, 8(1), 38-46.
Markt gemeentelijk vastgoed zwaar onderschat. (2011). Vastgoedmarkt.
Materna, R., & Parker, J. R. (1998). Corporate infrastructure resource management: an emerging source of competitive advantage (Research Bulletin No. 22). Atlanta.
Mintzberg, H. (1994), The fall and rise of strategic planning, Harvard Business Review, January. Mintzberg, H., Ahlstrand, B., & Lampel, J. (1998). Strategy Safari: The complete guide through the Wilds of Strategic Management. London, Pearson Education Limited.
Mintzberg, H., Ahlstrand, B., & Lampel, J. (2005). Strategy bites back: It is far more, and less, than you ever imagined. London, Pearson Education Limited.
Mouter, N. (2012). Voordelen en nadelen van de Maatschappelijke Kosten en Baten analyse nader uitgewerkt. Paper presented at the Colloquium Vervoersplanologisch Speurwerk, Amsterdam.
Nourse, H. O., & Roulac, S. E. (1993). Linking Real Estate Decisions to Corporate Strategy. Journal of Real Estate Research, 8(4), 475-494.
O’Mara, M. A. (1999). Strategy and place: managing corporate real estate and facilities for competitive advantage. New York: The Free Press.
Osgood Jr, R. T. (2004). Translating organisational strategy into real estate action: The strategy alignment model. Journal of Corporate Real Estate, 6(2), 106 - 117.
Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior performance. New York, NY: Free Press.
Ragsdale, C. T. (2008). Managerial Decison Modeling (revised edition ed.). Mason, Ohio, USA: South-Western, a part of Cengage Learning.
Revealed preference. (2019). Retrieved from https://en.wikipedia.org/wiki/Revealed_preference
Riedel, R., Fransoo, J., Wiers, V., Fischer, K., Cegarra, J., & Jentsch, D. (2010). Building decision support systems for acceptance. In Behavioral operations in planning and scheduling (pp. 231-295): Springer.
Riratanaphong, C., Van der Voordt, D. J. M., & Sarasoja, A. L. (2012). Performance measurement in the context of crem and fm. In P. A. Jensen, D. J. M. Van der Voordt, & C. Coenen (Eds.), The added avlue of facilities management: concepts, findaings and perspectives. Lyngby: Polyteknisk Forlag.
Roadmap Onderwijsruimtes TU Delft (v1.0) (Roadmap Educational Spaces). (2014). TU Delft. Delft.
Roulac, S. E. (2001). Corporate property strategy is integral to corporate business strategy. Journal of Real Estate Research, 22(1/2), 129-152.
Scheffer, J. J. L., Singer, B. P., & Van Meerwijk, M. C. C. (2006). Enhancing the contribution of corporate real estate to corporate strategy. Journal of Corporate Real Estate, 8(4), 188-197.
Scholtes, H. H. M. (2012). Transparantie, icoon van een dolende overheid. Boom Lemma Den Haag, The Netherlands.
Schön, D. A. (1987). The reflective practitioner: how professionals think in action. San Francisco: Jossey-Bass.
Scientific Metrics, (2002-2016). Tetra Quickstart Guide. Retrieved from http://scientificmetrics.com/downloads/sdm/Tetra%20Quickstart%20Guide.pdf
Sharp, D. (2013). Risks ahead: the transformation of the corporate real estate function. Journal of Corporate Real Estate, 15(3/4), 231-243.
Simon, H. A. (1997). Administrative Behavior: A Study of Decision-Making Processes in Strategic Decision Making Processes in Administrative Organizations. (4th ed.). New York: MacMillan.
Snyder, N. and Glueck, W.F. (1980), How managers plan – the analysis of managers’ activities,
Long Range Planning, Vol. 13 No. 1, pp. 70-76.
Tazelaar, J., & Schonau, W. (2010). Professioneel gemeentelijk vastgoed; stand van professionalisering bij gemeenten Amersfoort.
Tetra Quickstart Guide. (2002-2016). Scientific Metrics. Retrieved from http://scientificmetrics.com/downloads/sdm/Tetra%20Quickstart%20Guide.pdf retrieved 21-12-2018.
Teuben, B. J. J., Waldmann, M., & Hordijk, A. C. . (2007). An Inventory of Municipal Real Estate; The case of the Netherlands. Paper presented at the European Real Estate Society, ERES 2007, London, UK.
Then, D. S.-S. (2005). A proactive property management model that integrates real estate provision and facilities services management. International Journal of Strategic Property Management, 9(1), 33-42.
Then, D. S. S., & Tan, T. H. (2010). Real estate and facilities management alignment to business needs: A conceptual model. Paper presented at the International Conference on Construction and Real Estate Management, Brisbane.
Then, D. S.-S., & Tan, T. H. (2013). Facilities management and the business of managing assets. Abingdon: Routledge.
Then, D. S.-s., Tan, T.-h., Santovito, R. F., & Jensen, P. A. (2014). Attributes of alignment of real estate and facilities management to business needs: An international comparative analysis. Journal of Corporate Real Estate, 16(2), 80-96.
Valks, B. (2013). Designing and Testing a Strategy Game. (MSc MSc), Delft University of technology, Delft.
Van der Schaaf, P. (2002). Public Real Estate Management; Challenges for Governements. Delft: DUP Science.
Van Der Zwart, J. (2014). Building for a better hospital: Value-adding management & design of healthcare real estate. Delft: Architecture and the Built environement, TU Delft.
Van der Zwart, J., Arkesteijn, M. H., & Van der Voordt, D. J. M. (2009, 2-3 April). Ways to study corporate real estate management in healthcare: an analytical framework. Paper presented at the HaCIRIC conference (Health and Care Infrastructure Research and Innovation Centre), Brighton,UK.
Van Loon, P. P. (1998). Interorganisational design: a new approach to team design in architecture and urban planning. Delft: Publicatiebureau Bouwkunde.
Van Loon, P., Barendse, P., & Duerink, S. (2012). The Urban Decision Room: A multi actor design engineering simulation system. Paper presented at the CESUN 2012: 3rd International Engineering Systems Symposium, Delft University of Technology, The Netherlands, 18-20 June 2012.
Van Loon, P. P., Heurkens, E. W., & Bronkhorst, S. . (2008). The urban decision room. Amsterdam: IOS Press.
Vijverberg, G. (2002). Accommodation functionality assessment in office buildings. Facilities, 20(3/4), 94-103.
Volker, L. (2010). Deciding about Design Quality: Value judgements and decision making in the selection of architects by public clients under European tendering regulations: Sidestone Pr.
Weatherhead, M. (1997). Real estate in corporate strategy. Houndmills, Basingstoke: Macmillan Press
White, A. D. (1998). Corporate real estate strategies: Managing the delivery of optimum solutions. Journal of Corporate Real Estate, 1(1), 64-74.
Whitley, R. (2000). The intellectual and social organization of the sciences: Oxford University Press on Demand.
Wills, P. C. (2005). Aligning Corporate real estate and business strategies. Paper presented at the 11th Pacific Rim Real Estate Society (PRRES) Conference, Melbourne.
Wills, P. C. (2008). Corporate real estate practice in Australia. Journal of Corporate Real Estate, 10(1), 40-53.
Wilson, C., Hagarty, D., & Gauthier, J. (2004). Results using the balanced scorecard in the public sector. Journal of Corporate Real Estate, 6(1), 53-64.
This work is licensed under a Creative Commons Attribution 4.0 International License.