Leveraging IT to Reinvent the Real Estate Industry
The real estate industry is beset with several hurdles in the path of efficiency. There is the regulatory obstacle which is the most prominent - consisting of laws drafted local bodies like panchayats/municipalities, state level regulations and central regulations such as those governing the environment and forest conservation.
The financing hurdle is the second most cumbersome for the real-estate industry. Construction of real estate projects, whether they are commercial or residential or mixed-use can take anywhere from a minimum of two years to six years depending on the size and the location. Construction is an inherently long-term investment by virtue of the duration of construction but with no access to long-term funding (eg. Provident funds, insurance etc.) and is forced to resort to medium-term funding at higher interest rates. Since this is neither a long-term investment nor a short-term use of funds, the return on equity is paramount to the success of the project as an investment vehicle.
This brings us to the next crucial aspect of any real-estate project - Project management. If the project isn’t managed efficiently, it can lead to delays, excessive use of funding, poor return on equity and overall failure of the project.
The real estate industry by its nature is highly fragmented with thousands of small developers and dominated by a few big players in each local region. To differentiate, companies need to focus on developing brand equity, customer focus and ethics to ensure long-term success and higher margins for their product.
In this scenario, what value can Information Security and governance provide to the CIO of a real-estate firm? These can provide the crucial sustainable competitive advantage to companies among a highly brand-agnostic customer base.
If Information regarding regulations is mapped and leveraged properly to monitor compliance to local, state and central laws, it can help prevent litigation risk which is the bete-noire of most real-estate companies today. A framework such as Deloitte’s ICRM (Integrated Compliance and Risk Management) framework implemented with legal requirements mapped by experts in the domain along with IT related compliances and standards mapped by IT experts is a perfect example in this direction. It ensures compliance to different statutory regulations without the overhead of maintaining separate regulations and standards in silos. Monitoring compliance using this framework with suitable automation (via eGRC tools) can be as simple as clicking for the current status of approvals.
A holistic approach to legal and other compliances is important to ensure the entire organization knows the current approval status of a project. An unintended benefit of this compliance approach ensures the Sales teams and CRM teams aren’t in the dark and are able to communicate to the customers, regarding the current status of their projects. Considering customer focus is the one thing which customers state as lacking in the real-estate industry, transparent communication (especially for companies which want to build brand value among customers and gain higher margins for their product) can be a cutting edge differentiator.
Financing cost and project management are tightly correlated as explained previously. A laser focus on project management (with an ITIL-emphasis tailored for real-estate) can ensure project delays are minimized and financing costs are kept in check. Project management tools can help provided they are customized for the real-estate industry (keeping the inventory-dependent nature of the industry in mind) and not real-estate versions of IT tools. An ITIL-focused company with excellent project management can reduce the project execution time by up to 50%. If enough inventory of raw material (steel and cement form up to 40%-60% of project input costs) of is made available prior to use by tracking inventory as well as progress in construction, it can eliminate delays due to non-availability of material.
Ensuring proper tracking of progress leads to accountability for execution progress and delays in the project. It enhances the governance perspective for senior management who now have visibility to the project status and can drill down to find causes of delays. By helping build a knowledgebase which can be location-specific, project management ensures companies avoid pitfalls in future projects. Real-estate being an inherently people-driven industry, project management ensures this dependency on people is reduced and the IP (location-specific knowledge) is available to the organization once critical employees leave.
Once the holistic compliance approach and focused project management aspects are implemented, the reduction in delays and execution time for projects can lead to higher return on equity and reduced dependency on external sources of funding. The higher capital efficiency can be passed onto customers in the form of pricing advantages (a necessity in a recessionary environment). This forms a good hedging strategy for the organization in an industry where price-sensitive customers can decide the inventory a company holds and in turn future capital efficiency. Thus a virtuous cycle is created.
When transparency, cost benefits, streamlined project execution and customer focus fructify into reality; customers value the organization as a brand and this enhances the brand equity for the company in the eyes of customers. Brand equity when harnessed by the organization, can be a sustainable competitive advantage in a highly fragmented industry.
To sum it up; CIOs of real estate firms hold the key to sustainable competitive advantage for their organizations provided they leverage concepts already widely prevalent in the IT industry to help their organizations become all they can be.
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