July 8, 2020 | Tyler Staton
There is a clear opportunity for digital transformation to bring a range of benefits to landlords, agents and tenants. Yet as an industry, real estate has been struggling to transform itself. There are a range of reasons for this, but in this blog post we will be focusing on the challenges real estate players face once they have made the decision to embark on a digital journey.
Talox has now been involved in nearly two dozen digital transformation initiatives launched by both landlords and agents. Through our experience we have identified several common challenges that real estate organizations face and must overcome in order to successfully transform.
Here are the top 5 challenges:
1. Culture Shock
According to a KPMG poll on Proptech, 48% of real estate organizations do not have a clear digital innovation strategy. This inhibits the ability of the organizational structure to support digital transformation. In contrast, 97% believe that digital transformation will impact their business. While everyone seems aware of the effects of technology on the industry, there remains a large gap in clearly identifying how to capitalize on the potential. The lack of a unified vision, competing priorities and a narrow mindset of employees result in technology silos and is a large reason why digital initiatives fail.
2. Executive Sponsorship Evaporates
Digital transformation is tech-powered but people-led, and it starts from the top. Change is difficult for people, and digital transformation is a hard and long journey - especially for middle management, who usually bears the brunt of the destabilizing effects of changes. It is therefore easy for executives to cave to pressure from team members the moment the journey hits a rough patch. However, it is precisely at this time that the executive needs to show leadership even if it appears unpopular. Take as example, Tesla and SpaceX CEO Elon Musk, who ranked 1st on Forbes’ list of America's most innovative leaders in 2019. Musk stated that setting up an organizational structure so that, “innovation is rewarded and lack of innovation is punished” has a “massive” effect on creating a successful transformation. While this can be a challenge for many leaders, Musk’s successes in innovation speak for themselves.
3. Talent Deficit
Digital transformations require adaptable people with new types of high-level talent in order to be successful. These skill sets are not currently found in large quantities within the traditionally conservative real estate industry, causing demand to far outstrip supply. Digital transformations that lack knowledge, awareness and talents will certainly fall short. Therefore, organizations who invest in training, employee development and accumulating knowledge will gain an edge over those who don’t. However, trying to go it alone is also problematic and organizations should look outside the property sector for supplemental talent and should not fall into the trap of trying to do everything themselves. Startups and 3rd party organizations are an important resource in achieving digital goals.
4. The Technology Trap
While technology is central to innovation, it is important that business needs drive the transformation. The focus must remain on outcomes, not on the technology itself. A tool that doesn’t effectively increase operational efficiency or address a client's needs doesn’t deliver much value. For example, there is a difference between concluding there is a need to transact space digitally and deciding that a specific technology, such as blockchain, is the tool that will get you there. Real estate executives need to be aware of this distinction and not make hasty technology decisions.
5. Lack of Velocity
The scope of a digital transformation and the pace of progress can create issues. According to a survey by Wipro digital, over half of investments in digital transformations take two to three years to realize, while only 4% are realized within one year. Long drawn out initiatives make it difficult to keep teams motivated and gives more nimble competitors an opportunity to out maneuver you. Breaking larger initiatives into smaller chunks and using agile methodologies can help avoid ballooning scopes that can turn an exciting digitization project into a grueling slog.
For real estate organizations embarking on the digital transformation journey without adequate preparation and clarity, the risks are high. Companies that lack an understanding of the potential pitfalls and challenges stand little chance of executing their digital strategies effectively. Smart, cautious, and consistent efforts can save enterprises from digital transformation failures, but it is important to be realistic and prepared for the road ahead.
KPMG - The Road to Opportunity
Elon Musk - Interview from Air Warfare Symposium 2020