But beyond cost savings and operational efficiencies, the move represents a significant cultural shift for CVX. In addition to moving into a new physical space, CVX is also adopting a new approach to space planning and utilization.

"We're not known in the marketplace as a young, dynamic company but we are going to be," says Steve Hopkins, vice president and general manager in CVX's Business and Real Estate Services (BRES) group. "Employee demographics are such that to attract and retain new, young talent the culture of the company needs to change. That can be facilitated through a change in work environment."

The new Houston building will be fit out at a much higher density than most buildings in CVX's current facility portfolio. To achieve the higher density, the building will include a much higher proportion of open-plan offices, another significant departure.

"This whole project is justified on the positive net present value financials of defragmenting space, but we hope that the cultural change is also a positive experience and that we'll reap intangible benefits of workforce productivity," says Hopkins. "These are of course difficult to measure but we have confidence they'll accrue."

Finding Lasting Efficiencies

When Chevron and Texaco merged in late 2001, the company's combined services organization achieved $53 million in synergy savings through asset rationalization, releasing significant space through lease termination, subletting or sale. (For more information on the merger and its organizational challenges, see ChevronTexaco Operating Company Expands Scorecard System and The New ChevronTexaco: A Union of Equals.)

To move beyond these types of one-time savings, however BRES entered a comprehensive cost reduction study throughout the company that focused on people and processes for cost-savings opportunities. The study identified $100 million savings. By far the most significant savings, $60 million at least by Hopkins' estimate, came from evaluating corporate space standards.

"There's a recognition among people in corporate real estate that the most significant cost driver for your organization is the amount of space that you use," says Hopkins. "We didn't want to find ourselves average or above average in terms of space utilization. We want to be among the organizations with a higher density, so we can achieve the lower cost structure that comes with that higher density.

"Before the merger, Chevron and Texaco both had largely closed-plan environments, with upwards of 60 percent of space assigned as private offices," says Hopkins. "This legacy currently results in gross square footage per person of 373. Our goal is 290 square feet per person, roughly a 20 percent reduction."

Hopkins notes that one important early goal of the new space standards was to eliminate private offices below the middle management level. The standard has since evolved to essentially 100 percent open plan.

Restack and Restructure

Hopkins compares the change that will be accomplished by the move in Houston to a flashbulb because it allows new standards to be adopted within a short period of time. Throughout the remainder of CVX's eight-million-sf corporate office portfolio, the shift to the new standards will take more time.

A more typical example is the CVX headquarters campus in San Ramon, Calif., where the company has 1.5 million sf of office space.

"Even though there was seven million sf of vacant office space in Houston, we were very fortunate to find 1.2 million all in one block," says Hopkins. "In the San Francisco Bay Area, we have a lot of infrastructure investments already made, and without a perfect portfolio opportunity like the one in Houston presenting itself, it makes more sense to restack and restructure."

Business unit presidents have the option of 15' x 20' private offices (they too may be in the open environment). Corporate executives will be in roughly 20' x 20' offices that were built when the headquarters moved to San Ramon.

Workspace standards are 8' x 8' or 8' x 12', depending on work function. There will be a 10-to-1 ratio of open assigned workspace to unassigned workspace (i.e., huddle rooms, collaborative space, offices, etc.). Huddle rooms are 10' x 12'. Individual organizations will determine the use of their unassigned space.

In addition, new technology will be available to support collaboration, including pre-set AV in conference rooms, headsets for phones to preclude the need to use speakerphones, and convenient LAN drops for laptops. A new modular furniture system (provided by Steelcase through a global contract) will support a variety of work styles and business needs.

"We're thinking that the time line to restructure and restack to the higher density in the company's office facilities will be at least three to five years," Hopkins continues. "Assuming our population doesn't change, we may be able to sell a building or two at the end of that process."

Business Case for De-fragmenting

The business case for de-fragmenting existing facilities is based on two associated areas for savings. The first comes from finding marketable space and releasing it to the market.

"If we get to a standard environment, we will actually be able to reduce our vacancy factor significantly," says Hopkins. "We will be able to get rid of what we call 'tiny bubbles' scattered around in our office environment. We will be able to move groups that are out of standard into standard. The goal is to come up with marketable space."

Benefits within CVX fall into four categories:
Savings—Individual groups will be billed for less space and group members can be moved around less expensively.
Productivity—Project teams can be located closer to colleagues within their operating group and/or closer to other key operating groups
Profitability—Improved productivity and lower costs will increase ROCE (return on capital employed).
Flexibility—Team members can be redeployed more quickly and with less investment.

"We can tell operating units that, on average, if they reduce space by 30 percent, they will get a 30 percent reduction in their bill, plus future churn savings," says Hopkins.

Churn Rates Up, Churn Costs Drop

Churn costs are the second area for savings to be gained from de-fragmenting space and moving to higher density. Currently, 40 percent of CVX move costs are a result of churn costs: move costs, tenant improvements, and furniture.

"We discovered these were very high because we had a tendency to customize the space as we moved people," says Hopkins, noting that CVX's churn costs can be as high as $15,000 per person. The new target will be less than $500.

Hopkins points out that the new, more consistent space standards will actually make it easier for work units to form and dissolve. As a result, churn rates could actually be higher.

"It should be less costly because you're just pushing a dolly of boxes down the corridor to the next work unit rather than having all the construction cost associated with tenant improvements."

Corporate Governance Simplified

Hopkins points out that the change management issues are a significant challenge with a major cultural change such as the new higher density standards. Not the least of these is enforcement.

"One of the issues that we knew would be important in this was making sure that there wasn't 'slippage' in the form of a lot of exceptions being granted," says Hopkins.

Fortunately for BRES, corporate governance has been simplified by a higher authority: the chairman of ChevronTexaco. After BRES made their proposal for higher density to the corporate executive committee, the chairman stated that any requests for exemption from the new space standards must go through the office of the chairman.

"That helped us with our governance model quite a bit, as you can imagine," says Hopkins. "Once it's known that the chairman is on board, that really helps our cause."

By Lee Ingalls

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