When do you change a successful business strategy?
The obvious answer is before you have to, the reality is that if you haven’t started it may be too late.
For most companies the rate of change inside the organisation is much slower than the rate of change on the outside. The impact is compounded by the speed of change itself accelerating.
There are many reasons for this slow response to change, being a victim of past success, organisation size, structure and culture. Unfortunately, the pressure to perform in the short term and inherent risk aversion also prevents long term growth transformation. Whatever the reasons may be the reality is that 50% of the companies currently included in the S&P500 will most likely be replaced in the next 10 years. Even Jeff Bezos stated that one day Amazon will fail. Companies like Apple are struggling with growth innovation and now starting to look at significant alternative sources of growth in many other industries. The race is on in terms of who will still be relevant in 10 years.
When talking to Real Estate players its clear how slow this industry has been in preparing for the future and many players still believe that the industry will not experience a dramatic change for reasons such as:
The industry not being product or service providers like the retailers and banks
The industry being about strong relationships and trust
The investment strategies have historically delivered
In reality, real estate today is nothing more than a service to occupiers, its late in the cycle and difficult to find value, obsolescence is accelerating, yields are under pressure, there are new market entrants and even more importantly technology is changing stakeholder expectations. This comes at a time when most industry players are still using excel for data management.
There are many parallels with the conversations I had within the banking and asset management industry less than 10 years ago, all citing regulatory protection, strong customer relationships and high barriers to entry protecting their future growth.
These banks are now compelled to change their business strategy and are trying to play catch-up with many fintech entrants such as Tandem, Ant Financial, Apple, Robinhood, Revolt, retailers looking for growth in financial services, payment solutions and even technologies enabling peer to peer lending. All aimed at providing customers with a seamless, adaptable and experimental experiences.
Today, banks are struggling with profitability and growth. UBS’s first quarter results was one of the worst in recent history, SocGen slashing Euro500million of costs and jobs after profits warning, Deutsche is firing dozens of employees. Even the desirable brands in asset management, such as BlackRock are struggling to find growth and they are looking at new revenue streams.
How can the Real Estate industry better prepare for the future?
1. Become a Smart Business
Automation of operating decisions
·Decision making fueled by predictive data analytics, creating the capability for rapid response to changing market conditions and preferences; enabling new pricing models and gaining a competitive edge
Optimisation of the supply chain and efficiencies by removing the non-value add in a digital future
Find opportunities to collaborate, create new sources of revenue and own the entire real estate eco-system
2. Don’t view the competition as just the existing players but consider new entrants from any industry
Understand their operating modes
3. Stop using todays assumptions to predict future growth
4. Know when to lead and when to follow on technology
5. Innovate not to catch-up with the competition but to create new experiences. Don’t wait for stakeholders to make change inevitable, anticipate and solve future problems today by using design thinking
6. Clearly define the organisation’s value add and differentiation. Question the relevance thereof for the (digital) future
Organisations won’t be disappointed if they expect a future filled with volatility, complexity and uncertainty. The successful organisation is today focussed on what the future may look like, where they are now and how they want to position themselves in the next 5 to 10 years.