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The smart approach to offices: Have space, will travel?

It is ironic, in a number of ways, that this interview should be taking place in a 29th floor office of One Canada Square, the landmark tower that dominates Canary Wharf. For one thing, it looks out over the Millennium Dome, providing a convenient symbol for this special issue. The theme ?Time is money? echoes as one looks down on the expensive construction site which must ? must ? meet the year 2000 deadline. ?Time is money? also permeates the Canary Wharf site itself. Not so many years ago, it was a white elephant, dragging down its creators and casting a metaphorical shadow over all of Docklands as large as its literal umbra. Today, all floors but the 50th are occupied and the whole place buzzes with people and commerce. Arguably, the entire development needed more time back in the 1980s just as much as it needed more money ? and decent transport links. We are here to interview Peter Jenkins, financial director of the phenomenally fast-growing Regus business centre group. Regus?s business makes the final and most intriguing link between this interview and its surroundings: we are sitting in an edifice which will long be a prime example of the scale and the permanence of commercial property, and yet, Regus?s business is to make commercial property available to clients for as little as #49 a day. From massive, permanent fixed asset to affordable, disposable item: Regus is making money out of transforming the whole timeframe for commercial property usage. ?That?s the whole proposition,? Jenkins says. ?It?s amazing that it?s not been done before.? The business was started in Brussels by serial entrepreneur Mark Dixon in 1989, though it really began to take off in 1992, after he merged his fledgling two-site business centre operation with a slightly larger, similar organisation, then bought out the recession-afflicted majority shareholder. By the end of 1998, Regus will have opened around 170 business centres in 40 countries, and 300 by the time the sun rises over hundreds of thousands of revellers at the Millennium Dome. ?It?s almost doubling in size every year,? Jenkins says. To understand the growth, it?s important to understand the product offering, and why it?s proving so attractive. The core product is the ability to rent an office in a Regus centre for (typically) three months to a year. ?You can have any sort of shape of office you want,? Jenkins explains. ?The key to this is the flexibility; you can take more space or take less space, and take the type of space you want.? But it would be a mistake to think that Regus is doing little more than turning a big asset into lots of smaller bundles. For one thing, there?s the charging structure: Regus charges a price-per-person, per period. This is the ultimate in turning a fixed overhead into a variable cost ? at least, one that varies with headcount. Included in the bill is all the furniture and office services. Extras include phone bills, photocopying, secretarial support and the like ? but it?s a ?sign today, start tomorrow? service provision. Regus boasts that the contract is just one page long. ?When you enter into property commitments, normally it?s done by property people and you?re taking on leases and service charges and these rates bills,? Jenkins explains, ?and you?re not really quite sure what the full costs are. With some leases you can take on you?ve got repair and maintenance clauses built into them.? He draws an analogy: it?s car ownership (uncertain residual values, insurance costs, maintenance bills) versus contract hire (#500 a month for three years, then hand the keys back). At first glance, you might think that it is small, start-up companies that are going to be attracted by this kind of proposition. But you?d be wrong: small companies and one-man consultancies make up only about 10% of Regus?s revenues in the UK, less than that elsewhere. Local businesses in the UK make up perhaps 20% of revenue, national companies 30%, and multinationals 40%. In fact, the Regus client list reads like the FTSE-100 or Fortune 1000: Barclays Bank, BT, Kodak, Coopers & Lybrand (a former employer, as it happens), Microsoft, Walt Disney, SBC Warburg, even Marriott Hotels, which you might have thought would have had enough suites of their own to not have to bother with going to Regus. But why? ?Large multinationals are using us for a variety of reasons,? Jenkins explains. ?They?re bringing in bridgehead teams, they?re going into countries to establish businesses. I believe Marks & Spencer used Regus when they went into Germany. We have temporary expansions, businesses that have got special projects where they deliberately want their people away from their own space.? The per-head charging structure, plus the flexibility to be able to offer more or less space as client requirements change, apparently proves attractive not just during the good times, but during downturns, as well: ?We?ve got people using us on the downside as they move from being one large organisation of maybe 100 people and they want to move to 50. They may use us as an interim base as they shed maybe 10 people at a time.? This makes the business less vulnerable to recession, perhaps, than might at first appear to be the case. ?You have to remember that this business was started in the last recession,? Jenkins says. ?Sure, it was a much smaller business than it is today, but while people might not want to do the bridgehead teams, they might be less inclined to take on commitments. If you?re in the middle of recession you really don?t want to take on that 15-year lease. You?ll move into a business centre. ?We?re already seeing this in Moscow: we opened in Moscow earlier this year, just before the economic downturn over there, but we?re doing quite well there. But it?s different sorts of clients that we?re getting for different reasons than we envisaged. Principally it?s people saying, ?Look: we still need to do some business in Moscow, but who knows what?s going to happen in Russia in a year?s time, two years? time? Let?s just move into a Regus business centre and we can then play it by ear and move out after three months.?? The value of this kind of service to the clients makes it clear again that, though Regus is making long-term commitments in office property so as to be able to offer short-term office property facilities, Jenkins does not consider it to be a property company: ?If you look at the income and profit margins that we?re making, quite a lot of those come from the services that we provide, not just from the fact that we?re buying property long and selling it short. It?s the fact that we provide advanced telephony systems, IT services, the secretarial support, the organising of couriers and sandwiches and all the support services that the staff in the office can provide. Therefore, we would see ourselves as a business services company rather than as a property company. That?s certainly the sector where we intend to be quoted in due course.? There are other service offerings in the Regus portfolio, too. At the opposite end, in a sense, from the office hire facility is a service called Link which effectively offers no office at all: clients get an address, an e-mail, a fax and a telephone number, which Regus staff will answer using the client?s own greeting (thanks to the sophisticated telephony). Want to recruit staff from Warsaw? Set up a Regus Link ?office? and have the CVs sent there. ?If you want us to, we can sift the CVs to an agreed criteria,? Jenkins says. Ready to interview the short-listed candidates? Meeting rooms, office, or video conferencing facilities can be hired out for as short a period as half a day under an arrangement branded as Touchdown. Reverting to the earlier analogy, this is Avis and Hertz rent-a-car stuff: arrive and drive. ?More and more, people are going to be wanting rooms, we believe, by the day,? Jenkins argues. ?The movement of people not wanting or needing to be in the same place all the time, is a growing business trend. You can be here today, Leeds tomorrow, Staines the day after, and have exactly the same working environment. You?re not working out the back of your car or perching in some hotel lobby.? The consistency of the quality of the whole service offering throughout the hundreds of Regus business centres is an important part of the offering. What comes with that is the branding ? and here, Regus has managed to turn the most solid and tangible asset, property, into the most intangible: intellectual property. ?When you arrive at Moscow you?d choose Avis or Hertz, even if they were twice the price of Mr Smolenski?s Car Hire at Moscow airport,? Jenkins says. ?The business traveller, particularly in remote locations, will choose the brand because you know you?re going to get reliability and quality from them ? and that?s exactly the Regus proposition.? Jenkins expects that the business centre concept will eventually become as popular and widespread as it is in the United States. At that stage, the branding will come into its own: ?What then marks Regus out from the competition is the brand and the quality and the service levels and all those sorts of things that go along with being a brand.? The fact that Regus has grown from six centres in 1992 to a business that is opening up a new centre somewhere in the world every two or three days prompts questions about management of the growth. It helps, Jenkins says, that the product is essentially the same, wherever you go. ?We are growing in the same product or range of products, in every country. Sure, there are obviously local differences, but we have an operations manual and we have a team of people who go in and set a centre up. The specification is pretty much the same across the world,? Jenkins says. ?It?s slightly more complicated in finance because you?ve got local laws and tax regimes and those sorts of things ? banking arrangements, which are not the same the world over. But we set our nominal ledgers up the same in each country and we?ve got a standard chart of accounts for people to report back to the UK. So from that point of view ? the operational finance ? we have the same booking and billing system in each centre ? those things are pretty standardised and you can therefore train the people to operate to the Regus standard.? Jenkins has, in fact, one member on his staff who is spending his whole time travelling the world recruiting finance people. The basic structure is, national financial controllers with regional financial directors above them. But however simple the structure or standardised the format, there?s still a lot of recruitment going on: ?I think we?re getting pretty good at knowing what we want from people: we want people who can fit into the Regus culture, who are technically able, and we want people who can do more than that,? Jenkins says. ?Certainly at our regional finance director level, we want people who can actually contribute to the running of the business. The regional finance director and the regional managing director should be adding value and driving the profitability in those regions, not just keeping the books and making sure that our financial controls are right. That?s really down at the next level, the financial controller level.? Jenkins is rather keen on internal controls, especially since one episode when he was group financial controller at Harrisons & Crosfield, a once-sleepy group in the ?overseas traders? sector now known as Elementis, and listed under ?chemicals?. Jenkins joined the group while it was going through a major change-management programme. The divisional management structure had been disbanded to enable tighter control from the centre. Shortly after he joined, Jenkins was sent out to the Far East to find out exactly why the plantations unit was making so much money. ?One gets concerned with substantial increases in profits in exactly the same way you get concerned with substantial, sudden decreases in profits,? Jenkins warns. So he flew out to Papua New Guinea, stopping off en route to see the palm oil trader in Singapore. ?He was effectively trading in palm oil futures on the Singapore exchange.? And that?s where the huge profits were coming from. But ironically, Jenkins was there exactly the same weekend that one Nick Leeson fled his job on the Singapore futures exchange, leaving Barings a crumpled wreck. ?We were fine,? says Jenkins of Harrisons & Crosfield?s position. ?Our man was not doing anything he shouldn?t ? but there was no control: there was nothing to stop him going off and taking huge positions in palm oil futures if he?d wanted to. He had actually just done a very good job. I guess the moral of the story is, There but for the grace of God go I. Obviously I put in the appropriate controls immediately!? In a previous job at Coca-Cola & Schweppes Beverages, Jenkins was put in charge of market research, commercial information, sales forecasting ? ?lots of things that in most FMCG companies are in the marketing department,? Jenkins says. ?These were financial planners ? but some management accountants ? and about 15 people who were sales forecasters and market research and commercial information people. I put them together into small teams which then serviced the various client needs within the organisation, so there?d be a team of people interacting with the grocery team, a team interacting with the brands team, and so on. And each one would have a financial planner and management accountant and a sales forecaster and a market research person. ?I think the major success I had when I was there was that you could pick up a report and you wouldn?t know whether it was written by a qualified accountant or whether it had been written by somebody who?d come through a market research route.? It?s tempting to think that the forecasting role in a huge, FMCG multinational is completely different to his current role in a small but rapidly-growing business. ?There are quite a lot of parallels between Regus and Coca-Cola-Schweppes,? Jenkins insists. ?Although the growth rate is quite different, it is a fast-moving innovative organisation with lots of things happening: threats such as Sainsbury Cola and Virgin Cola, and you are always competing with Pepsi. It is a fast-moving, dynamic environment in the same way that Regus is.? And with brand values to match. ANDREW SAWERS CURRICULUM VITAE Name: Peter Jenkins Age: 41 Qualifications: FCA (1992); BSc (economics & statistics) (Southampton, 1978) Career:
1978-82 Neville Russell, Manchester: Audit senior 1982-86 Coopers & Lybrand, London: Audit manager 1986-88 Lex Service plc: Group accountant 1988-90 Lex Commercials: Finance director 1990-91 Lex Service plc: Manager of financial planning 1991-94 Coca-Cola & Schweppes Beverages: Financial controller, commercial (1991-93) Commercial financial & information director (1993-94) 1995-98 Harrisons & Crosfield plc: Group financial controller Acting group finance director (1996) 1998- Group finance director, Regus Jenkins on working for an entrepreneur rather than a plc:
?He [Mark Dixon] is not acting on a day-to-day basis as if he?s the share-holder. He is acting as if he?s the chief executive of the business. But obviously he is wearing two hats and there?s no getting away from that.? Jenkins on being vetted by venture capital backers:
?We went through many hours of discussions on business performance. They?re not just trying to understand the business, they?re trying to understand how much you understand about the business, as well.? Jenkins on timing for a planned stockmarket listing:
?Depending on market conditions, 2000 or 2001. But quite frankly, managing the growth and delivering and achieving the business plan is a higher priority for us at the moment.?

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