12 Dec What Real Estate Developers can learn from Agile methods
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The restraints of a linear value chain in Real Estate
Please raise your hand if you have ever felt overwhelmed by both the innovation challenges as well as the opportunities in Real Estate. Combinatorial influences are playing out that will most probably change the industry forever; society expects real estate to move towards circular business models and deliver solutions for a healthy, safe, resilient built environment while digital innovation contributes to the market’s ever increasing expectations.
How can an industry that is known for its reluctance to innovate, deal with the increasing complexity while at the same time get up to speed with adopting new technologies that will help it meet changing market demands?
In the good old days life seemed so simple. A linear value chain supported clear, top-down decision making processes that involved demarcated stakeholders with every step delivering a property to end-users who hadn’t been involved in the development stage. In many, if not most cases, the world probably still works like that. But we can all feel it; something is in the air. The world is changing, faster than ever. We have to literally built a different world
Yet it’s tempting to look at Real Estate development – just like at any other industry – as a structured process that is divided in clear phases, which deliver end-products with predictable life-cycles. It makes life simple. However, in practice life is less simple, and project development tends to be less linear, often requiring re-definitions in the design and construction phase that may be repeated when the market demand changes – and with it the purpose of a property. This reality causes a constant tension field with the current lineair business operations.
Another problem with looking at any industry as a linear system is that it restrains incentives for innovation and offers little opportunities for exponential growth. Its individual parts (silo’s) only look to increase their own margins from the tunnel vision of their own position in the value chain. In the end the total value created by the chain will never be more than the sum of its parts, whereas an integral, circular approach will open up multiple leads for exponential growth.
The first industry to experience the showdown of the linear value chain as a restrictive system was the IT industry.
15 years ago, the IT value chain was not much different from the one in Real Estate. You might even remember; IT development companies built applications with little interest for the end-user’s demands, let alone user-experience. And they had resellers – serving as agents – that sold and maintained these applications. Remember how happy IT customers and end-users were back in those days? I remember. I sold SAP software and sometimes trained end-users. It often felt like customers were paying fortunes to have their businesses shoved into a straight jacket. Just mentioning this in passing…
But then it all changed pretty quickly. The internet paved the way for widely accessible as-a-service propositions as a opposed to costly single-use-licenses; PaaS, IaaS, SaaS, etc. As these business models gained momentum around the millennium they unleashed an industrial revolution that resulted in the empowerment of the end-user, new insights in market demand, strong incentives for innovation and endless leads for new value models. Out went vendor-lock in, in came opportunities for exponential growth, as long as your business could deal with the increased complexity. As the linear value chain transformed into a value circle – an eco-system – businesses had as many opportunities as they had interconnections and I believe real estate might go through a similar transformation. It might feel overwhelming, but the opportunities are endless.
So how did IT deal with the complexity and the speed at which the market demand changed?
A way to be pragmatic about the dynamics; Agile Development Methods
While X-as-a-Service and subscription based business models did significantly increase the TAM (Total Addressable Market), they also made it easier for customers to migrate to other solutions. That tilted business strategies and forced the industry to look closely at customer/end-user expectations. Customer feedback loops became essential to ensure a competitive advantage. This inherently drove innovation but also created complexity. Customers not only demanded user-friendly software, they also wanted seamless platform experiences that required IT businesses to create new business models with multiple partners, resulting in many interdependencies between different applications; hence the incredible rise of the API (Application Programming Interface) developers to connect all these dots.
Imagine what this meant for software development methods. Where to start validating, prioritizing and processing end-user input? How to wrap your brain around the interdependencies on a user platform with different applications and system updates that impact hundreds of connections with third-party applications? And where to start when building from scratch?
The industry needed to take a totally different approach to development as it became much more iterative, increasingly dynamic and entwined. The starting point was the acceptance that the only thing that is constant in life is change, so the guiding principle for new methods was agility. Different new methods started to evolve into what we now know as Lean, Scrum, Kanban, Extreme Programming, et cetera. All of which – when practiced with diligence – are incredibly pragmatic tools to break down complexity and work fast and efficient.
So, now that platform technology and as-a-service models are also disrupting the real estate industry, it seems that there is no valid reasoning left for the linear paradigm that still seems awkwardly persistent in Real Estate. So let’s dive into the learning-curve of the IT industry and learn how the real estate industry can tap into the potential of integral value chains and agile business operations.
How can Real Estate capitalize on the learning curve of the IT industry?
Like the IT industry, Real Estate also has to cope with the incredible dynamics of a networked economy and society. Customers and end-users expect intelligent solutions for healthy, green work environments and affordable, sustainable housing in safe, resilient cities. That is pretty demanding. Yet it seems that very few players in the industry are genuinely exploring new ways of real estate development capable of catering to these changing market demands. In the Netherlands OVG, Blauwhoed, VolkerWessel and BPD come to mind, yet there is considerably more talk about transformative project development, intelligent, adaptive buildings and smart cities than there are poster-projects. Why? I think Real Estate has hardly begun processing all the opportunities and challenges of user-centric, intelligent design and they are slowly starting to grasp the implications.
The business of suits and slow, steady bricks will need to reconcile with the business of t-shirts and fast, agile bits. A culture shock? Understandably yes, however Real Estate needs to catch up quickly since tech giants like Alphabet, Bill Gates Cascade Investments Facebook and IBM are invading the Real Estate market and they have been dealt pretty good cards for taking the lead.
Look at the best practices!
Back to poster-projects. Most likely, The Edge in Amsterdam will be mentioned quite often by those asked. This only further supports my reasoning, since the spiritual father of the Edge is Erik Ubels an IT genius, former CIO of Deloitte and now CTO of OVG. He eloquently explained to me how he projected his personal experience with product development in IT on the development of the smartest, most sustainable building in the world. And even though some people will always be quick to point out its flaws, The Edge, to this day, is still one of the most incredible lighthouses for the future of real estate. And of course Ubels wouldn’t have made it that far without Real Estate Developer OVG trusting his vision.
And now Schiphol Airport and its CRE sister, Schiphol Real Estate are partnering with Microsoft to create the Best Digital Airport of the world. When I heard Schiphol’s ambassadors present their Digital Airport Program at our PropTechNL meetup, October 23rd, they spoke the language of IT professionals, breaking the complexity down into pragmatic building blocks, talking about ‘user scenarios’, ‘test environments’, ‘living labs’ and ‘incremental deliveries’.
In contrast, in another great project I was involved in, which aims to develop the most liveable, healthy and intelligent residential area in the world, we seemed to be struggling to connect the dots. At the start of the project there was a heated discussion if ‘IT & Data’ should be a core topic in the development process. Surprisingly enough that was a matter of debate. However, once the guiding principles for this project were set, project managers were asked to each develop a long-term master plan for an intelligent residential area around demarcated topics (silo’s) like; Healthy living, Built Environment, Mobility and Energy, Data & Infrastructure. Quite a challenge. A couple of months down the road it became a struggle to align the separate plans. Adopting an agile development methodology from the start could avoid such bottlenecks.
First an important note: When applying agile methods outside IT, it is important to see agile as more of a mindset than a specific methodology.
With regards to property development, agile methods can offer a refreshing alternative to plan-based or traditional project management which is carried out from an engineering-based perspective on the assumption that problems are fully specifiable and that optimal and predictable solutions exist for every problem. (Nils O. E. Olsson, 2015) By contrast, agile business operations acknowledges the challenges of an unpredictable world by relying on people and their creativity rather than on processes (Dybå and Dingsøyr, 2008).
All agile methods acknowledge three guiding principles: involving the customer and the end-user, incremental delivery and embracing change.
- Involving the customer and end-users
This is where the magic starts. Instead of designing a top-down master plan for Real Estate development, start with defining the main user-personas and simply describe how they experience an area and/or a specific building. You will immediately feel the pragmatic power of this approach. No matter how high over your start, you will soon be able to identify the building blocks of the property’s experience, as well as their interdependencies. In IT these stories help to start with the development of a demo which you can then present to a beta-customer for feedback (Important note; you will do well to accept that valuable ideas can come from any source, even if a kid – if she is an end-user of the property).
Developing a ‘test version’ of a Real Estate project for beta-users might seem a challenging idea, but there are numerous ways to present a Real Estate ‘demo’ to users. Depending on the project scope and phase, you could consider developing a digital twin. Customers and end-users can interface with these digital twins by experiencing a space via augmented-reality(AR) apps and glasses. Ultimately, anytime anyone has a query about the project, they’ll start by consulting its digital twin. Another approach could be the implementation of a living-lab and makerspaces.
2. Incremental delivery
Continuously processing customer- and end-user input all throughout a product’s life cycle implies incremental delivery. In incremental delivery each successive version of the product is usable, and each builds upon the previous version by adding augmented functionality that was developed based on customer and end-user input. How to translate this principle to Real Estate development will again depend on the scope of a project and the development phase. But whatever phase you are in, you need to make sure that you have implemented the right feedback loops with end-users and project stakeholders, and that you push your final decisions to the last possible moment. That means that you do not put off valuable ideas for improvements, simply because decisions have been made already.
3. Embracing change
This final guiding principle is the soul or maybe the mantra of any agile method. No matter how much this seems to conflict with the nature of bricks, the willingness and capacity to be adaptive should be at the core of any intelligent design and development process.
I won’t go as far as to say that MVRDV’s barba vision will become a reality anytime soon, but one can surely imagine how the acceptance of change is essential to the success of user-centric, modular and circular real estate. And I will go as far as to say that the level of adaptivity of buildings and their environment will be a determining factor in the assessment of their value within the next 10 years.
Real Estate needs to partner with IT geniuses
The Real Estate industry which is – often according to its own professionals – so disinclined to change, will do well to explore agile development methods to cope with the growing dynamics and complexity of today’s market. It will help capitalize the incredible opportunities that are equally there. No matter what the scope of a project is, including some progressive digital minds in your project that are used to working with agile project management tools like scrum, will certainly provide very valuable eye openers. Although my field research did not result in inside information on whether scrum like methods are being used in real estate development today, my reasoning is not unique and I trust it will catch on in 2018.
And with that prediction I would like to close my arguments for agile development and scrum like project management methodologies in Real Estate.
Thanks to Menno Lammers @ProptechNL for his feedback
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