WhitePaper January 2003

Barovick looks to the newly forged strategic program to bring about the long-awaited convergence of services and--hopefully--to put the woes of '02 behind him.

"With the focus on global services, the nature of our business will change, and we'll move more away from the one-off small deals and focus on national accounts. We'll also move to a continuum of services--the integration of transaction, consulting and management services. That's the integrated platform that the company never had before."

With those words, Barry M. Barovick, president and CEO of Manhattan-based Grubb & Ellis, officially launched what has been termed Project Iowa, a strategic directive that will at long last--he hopes--bring his vision of integrated services to reality.

But the program is designed to do much more. It's been a year of highly publicized unrest at Grubb, and Iowa embodies Barovick's fix for that unrest, which he admits spread from the rank and file to the upper echelons of management. Iowa, he says, is not just another top-down recital of the corporate homily but rather a "living document" that was built from the bottom up--the result of intensive meetings with every owned and affiliate office to gauge where they were and what--in the opinion of that rank and file--they need to make the firm a success. "What was an interesting discovery is that the local broker wanted the same thing we wanted."

This was especially true in the wake of rumors that there was a potential sale to CB Richard Ellis. The reaction in the field was "here we go again," says the company leader. "They were saying, 'Barry's our seventh CEO, and now he's trying to sell the company.' It was another change and nobody wanted to hear about another change. It created huge unrest in the field."

Putting out Fires

The plan began in the wake of the CBRE rumors, when Barovick circuited the country, listening to the locals vent and doing his best to re-assure them about the stability of the company and his commitment to it. On his red-eye flight back to New York, Barovick determined to call all senior executives together to start the process of reconfiguring Grubb & Ellis around the issues he uncovered. The revelation that a watershed strategic program was called for came, he says, while passing over the plain states. Hence the program's name.

Holing up the firm's regional managing directors, business-line leaders and C-suite occupants at Manhattan's Omni Hotel, the leader "walked into the meeting and explained the situation," he reports. "I said that the first expectation was that they leave their titles and egos at the door, that this was about saving the company and creating a positive working environment in which to change Grubb & Ellis.

While he admits that perceptions varied on the degree of unrest that boiled in the field, they did agree that having a business plan and "leadership coming together" was an important part of stabilization."

He credits Elizabeth S. Kulik, now chief of strategy and planning, with the insistence that the plan not come from New York, but rather that it be truly a company plan and that it come from the field.

"Top-down is never successful in this business," says Kulik. "These guys know their business and clients and they know what works. If you haven't eaten what you've killed you don't really understand it. Management needed that perspective to make it an effective plan. Everyone has to own it."

Which meant that everyone needed input to it, so Barovick and company were on the road again to all of the branches to more specifically identify the needs of each outpost. After a two-week national blitz, he took the plan to the shareholders, who gave it their full support.

The Plan Comes Together

"We put together an organizational process that was totally inclusive," Barovick reports. "We stripped historical and current roles and responsibilities, which also created unrest at the top, and asked different people to head different components of the

plan."

As important as the plan itself was a structure to set it up--a reporting process that guaranteed the

global program would not lose that hometown touch. It started with what is called a guiding coalition of six professionals in each of the local offices. This group fed into a CEO roundtable. Now that the first formulation of Iowa is in place, discussions are being held on how often the coalition will meet.

As Iowa gains momentum, the CEO roundtable is likely to morph into an executive committee that will meet monthly. The executive committee will include the C-suite--Barovick, CFO Ian Bress, Kulik and EVP Ray O'Keefe--and the national directors of all the business lines. Maureen Ehrenberg (management services); Greg Sherwood transactions) Ed Lubieniecki (consulting); Craig Morris (global services, assisting Kulik); Keith Misner (financial services); and Sylvia Ahi (marketing and communications). "While the service lines are not very different from what we had before," says Kulik, "we can now knit these cohesively for our clients. These people will assemble the teams that will assist a client in services throughout all of the business lines."

Key to Iowa--and certainly a prime reason for the ongoing meetings--is a microanalysis of every office and marketplace. It includes a forecast of local business and a full breakdown by property type, business line and historical problems in both the office and the marketplace. It also includes a list of needs for success. "I tell you," boasts Barovick, "no one else has the detail of information that we have right now."

If the needs list mentions staffing, the plan also encompasses a pro forma and financial matrix against which all new hires are measured. "If you need a new person, tell us why," states Barovick, "and that person will be supplied with an IRR analysis. We look at the bottom-line profit for the company, and it goes to the board. So if the new hire wants a signing bonus, we ask what the return and what the historicals are."

Integration at Last?

Beyond the need to get the entire company onto a single page, the core of Iowa lies in its ability to integrate the firm's transaction, management and consulting services. Barovick has taken some heat for being focused on consulting to the detriment of transactions. He insists his detractors are wrong. "We want transactions," he says, "it's the core of our business, and it's where we're going to make the most money."

But times, he says, are a-changing, and brokerage needs support. "Large corporate boards won't be comfortable with a million-dollar let alone a $400-million real estate decision without having a foundation of financial analysis, knowledge and information. Regulatory and economic controls have changed corporate America, which means that we need to focus on delivering integrated services to our clients and becoming a relationship firm rather than going deal by deal." Rather than downplaying transactions, he says, "this will increase the transaction stream, beef up the pipeline of future deals and deliver value along the chain." And always, he adds, execution is at the local level.

Where From Here?

Iowa in its current formulation is no cure-all, and Barovick admits that unrest is "still evident. But the program is still in its infancy, and the firm is already gearing up for Iowa 2004, which will continue to address formerly unaddressed issues of concern. These include "different ownership models that give participation to the local offices," he says. "There may also be changes to the firm's "national configuration based on the market knowledge we have."

Despite the remnant doubt, Barovick and Kulik believe this is the platform for integration on both a services and psychological plane. "If we hadn't gone through the Iowa process, this would have never been accepted in Grubb & Ellis because everyone would have thought we were be trying to take over the local accounts," says Barovick. "But this has come from them. Unabashedly, we have the best model in the business."

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