Agency Risks in Outsourcing Corporate Real Estate Functions

By Gibler, Karen M.; Black, Roy T. | The Journal of Real Estate Research, April-June 2004 | Go to article overview

Agency Risks in Outsourcing Corporate Real Estate Functions


Gibler, Karen M., Black, Roy T., The Journal of Real Estate Research


Abstract

Firms outsource business functions to focus on core competencies and cut operating expenses. However, companies must consider agency costs in determining the optimal staffing/ outsourcing balance. Analysis of the views of corporate real estate managers and real estate service providers indicate that although they share a common vision of the role of corporate real estate, providers focus more on traditional real estate tasks than on corporate business strategy. The optimum balance of staffing/outsourcing may consist of a corporate real estate staff that understands the overall corporate strategy and devotes its resources to strategic planning, program development, contracting and monitoring outsourced tasks.

Introduction

Throughout the 1990s, management experts preached the need for businesses to focus on their core competencies, relegating support functions nonessential to their competitive differential to outside service providers. The reasoning is that specialists can provide such services in a more cost-effective manner than corporate staff can. One area that most companies consider non-core is real estate. all companies require space to house employees, goods and productive processes; however, most corporations do not specialize in real property. They must choose between whether to maintain a corporate real estate staff to manage real property, outsource all real estate and facilities management activities, or hire a core real estate staff to handle critical strategic and managerial decisions while overseeing the outsourcing of specific real estate tasks to service providers.

The decision of whether and how to outsource can have major financial impact. The return of firms to specialization follows research that indicates that firms operating in multiple lines of business tend to have lower values than portfolios of focused firms (Berger and Ofek, 1995; Lang and Stulz, 1994; Comment and Jarrell, 1995; Servaes, 1996; and Aggarwal and Samwick, 2003) and that spinning off unrelated units increases the value of the parent firm (Daley, Mehrotra and Sivakumar, 1997; and Desai and Jain, 1999). Commercial real estate accounts for at least 30% of real estate assets in the United States and corporations control approximately one-fifth of U.S. real estate (DiLuia, Shlaes and Tapajna, 1991). In some industries, real estate may comprise up to three-fourths of the firm's assets (Johnson and Keasler, 1993). Outsourcing of real estate and other services has grown to at least a $340 billion dollar industry in the U.S. according to the Outsourcing Institute (2000).

While outsourcing may produce an increase in short-term returns, it also may result in lower investment in development of internal skills necessary for the firm's long-term competitive advantage. Internal cross-functional integration is not possible when tasks are performed outside the firm. Once a firm limits or ceases investment in any competence, it may be difficult and time consuming to renew that competence. Prolonged extensive outsourcing may denigrate the firm's existing skill set and, thereby, its long-term competitiveness. Reliance on outside providers decreases the company's operational control. Thus, short-term savings reflected in financial measures may not reflect all the long-term strategic costs of the outsourcing decision (Lei and Hitt, 1995).

For outsourcing to assist in achieving corporate goals, the client/principal must work closely with provider/agent to ensure that the interests of each party are being fulfilled. Companies need to find loyal, reliable vendors who can be trusted and who share a common vision with the client company (Dess, Rasheed, McLaughlin and Priem 1995). The client must effectively communicate the company's objectives and expectations to the provider to ensure understanding. In addition, the provider must agree to support the client's objectives and assist the client in using real estate to achieve the corporation's goals. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Agency Risks in Outsourcing Corporate Real Estate Functions
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.