Relationship of Real Estate to Business Strategy Flashcards
What is the definition of Business Strategy?
A business strategy is a set of guiding principles that, when communicated and adopted within an organisation generates a desired pattern of decision making.
What is the current situation?
Corporate property is often not considered a strategic asset (Veale, 1989)
Property matters are dealt with on an ad-hoc basis (Gibler et al., 2002)
Why should you align business strategy and real estate?
- exposed to a bigger business picture
- cost reduction
- efficiency
- building needs to be fit for purpose
- right location
- right size
- branding
- type of space
How would you scan the environment?
1) PESTLE analysis
2) Ansoff Matrix
- compares new and existing products with new and existing markets
What are the relative business strategies
COTH
Competitive
Operational
Human Resources
Technology
What is a competitive business strategy?
Organisations with a competitive strategy have the ability to produce products and services the market is willing to buyPorter (1996)
Five Forces - determine the competitiveness of an industry
1) Bargaining power of substitutes
2) Threat of substitutes
3) Threat of new entrants
4) Jockeying for position amongst current competitors
5) Bargaining power of customers
Porter Competitive Strategies:
1) Low cost
2) Differentiation
3) Focus
The Boston Matrix
1) Cash Cow
2) Problem Child
3) Star
4) Dog
How can competitive business strategy be applied to real estate?
Five forces:
If you know the competitiveness of your industry, and the areas that your industry is most competitive you can consider how to adapt your real estate to put you at a competitive advantage.
e.g. if a supermarket was concerned about the current competitors, if it had a location strategy where it planned new locations in prime spaces, it could get the best spots and be ahead of the competitors.
Competitive strategies:
By being aware of the competitive strategy a business is following, and applying this to their real estate it can ensure that the strategy is followed though.
E.g. Cost leadership = if your business is focused on reducing costs, making sure that an awareness of your leases that are up for renewal, energy efficiency, work design efficiency.
Boston Matrix:
By being aware of the section their business is in a and applying this to their real estate it can ensure that the strategy is followed though
- Dog = concerned about disposals
- Star = acquires a lot of real estate
- Problem child = wants a flexible office solution
- Cash Cow = wants a low cost real estate solution
What are operational strategies and how can they be applied to real estate?
Operational business strategies are strategies that are set in order to achieve the businesses objectives.
Real Estate can assist with operational strategies e.g. Managing Risk strategy = Rent buildings instead of buy, spread portfolio
What are human resource strategies and how can they be applied to real estate?
Human Resources Strategies:
Human resource strategy is a process that identifies current and future human resources needs for an organization to achieve its goals.
Application to Real Estate
If you make a building a good place to work, people are likely to work better, enjoy work more. E.g. like lots of light, plants, right temperature, correct desk to employee ratio
What are technological strategies and how can they be applied to real estate?
Technology strategy is the overall plan, which consists of objectives, principles and tactics relating to use of technologies within a particular organization.
Application to Real Estate
- New working practices e.g. Flexi-offices, Co-working
- Less space per desk as laptops are smaller
- Working from home, therefore less desk space needed
- Efficiency of work and design of the work environment
What are the main constraints affecting the relationship between business strategy and real estate?
Employees resisting change
Lead time problem
Space Overshoot
What is “employees resisting change” and how can we overcome it?
Employees Resisting ChangeManagers and employees view change differently
For managers, change is an opportunity to:
- Strengthen the business by aligning operations with strategy
- Take on new professional challenges and risk
- Advance their careers
For employees, change is neither sought nor welcomed
- It is disruptive and intrusive
- It upsets the balance
How to overcome
Examine the “personal compacts’ between employees and the company (Harvard Business Review, 1995)
- Employees and organisations have reciprocal obligations and mutual commitments
- Managers need to define the new terms and persuade employees to accept them
- Need to address the formal, psychological and social issues
What is the lead time problem and how can we overcome it?
- The lead time is the amount of time that elapses between a decision and its implementation
- Need to find a new location
- Get planning permission
- Renovation requires interim plans
- Might need to acquire finance/sell another building
How to overcome
- Plan ahead
- Take advantage of property
- Have a strategy that looks forward, not back
What is space overshoot and how can we overcome it?
- The amount of space required per worker is decreasing, which means often offices have more space than is required
- Also, with laptops people are able to work from home more, and not be in the office the whole time
How to overcome
Flexible offices – Gibson and Lizieri Operational Model (1999)
Businesses should have a combination of the following
Core portfolio
- Freehold/long leasehold
- Means businesses can control all aspects and change use
1st Periphery
- Short leasehold/licence
- Some services expected
- Ability to exit
2nd Periphery
- “Pay as you use”
- Required at short notice
- Could be specialist space
- Becoming more popular: EY want 1/3 of space to be flexible by 2025, 1/3 of we works membership is larger corporate clients (Financial Times, 2019)
Veale (1989)
Property is not considered a key part of the business
