Service Innovation in Real Estate

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JOURNEY OF DISCOVERY SERVICE INNOVATION FORCE OF INDUSTRY CHANGE 5 SLIDE DECK Please ensure you click the hyperlinks as you navigate 28 July 2014

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To succeed in the future we will need to boost the real estate profession's “innovation quotient”, and be recognized by consumers as innovative. This Report uses case studies from within and outside of real estate to examine ways organized real estate can transform our value through service innovation. This research report is a part of the British Columbia Real Estate Association's Journey of Discovery. BCREA launched the Journey of Discovery (JOD) to help our organization and BC’s eleven member boards strategically plan for the next five years. This project seeks to understand where the greatest contributions of products and services could be for increasing the innovation of REALTORS® in service of their consumers. If organized real estate is to effectively adapt to and proactively initiate change, which we believe is necessary now more than ever, the first stage is to gain a solid understanding of the current and future states of the industry. For access to the slides with links and our other reports, please visit http://web.bcrea.bc.ca/jod/reports.htm This presentation was prepared by CE Holmes Consulting, Solvable & Monique Morden Consulting

Transcript of Service Innovation in Real Estate

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JOURNEY OF DISCOVERY

SERVICE INNOVATION

FORCE OF INDUSTRY CHANGE 5SLIDE DECK

Please ensure you click the hyperlinks as you navigate

28 July 2014

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lower expenses to counter smaller revenue streams.• REALTOR® membership decline: The combination of

compensation model shifts, increased REALTOR® spe-cialization, escalating consumer autonomy, and a push towards increased Professionalism may result in a signifi-cant decrease in the number of BC REALTORS®.

• REALTOR® performance gap widens: With the advance-ment of REALTOR® technologies and the adoption rates of those technologies highly correlated to REALTOR® success, we might see the gap between the top perform-ers and underperformers increasing. This could leave few REALTORS® left in the middle. Conversely, previous underperformers could leave the industry, to be replaced by those who used to be in the middle as the new under-performing class.

The Race We Are Running: In What is Strategy, Michael Porter defines the difference between operational effective-ness and strategy: • Operational Effectiveness is assimilating, attaining and

extending best practices.• Strategic Positioning is creating a unique and sustainable

competitive position.Put more simply, operational effectiveness is running the same race faster, while strategic positioning is running a different race.

What Race Are We Running?

Is BC ORE determined to run a different race? If so, should BCREA take a strategic direction that helps take us on this different course?

Overview: Both the rate of industry change since our last strategic plan, as well as anticipated change in the near future demand that we re-identify who we serve, what we serve and how we serve “customers” without any precon-ceived notions of the outcome. If we are to continue to thrive over the next five years, we need to address fun-damental questions around our service model. While the other four JOD Forces of Industry Change address signifi-cant ‘product’ opportunities, this Forces Report addresses innovations in service delivery by exploring case studies from other industries.

REALTOR® Assumptions: Based on the research con-ducted during the Journey of Discovery, we have identi-fied potential forces of REALTOR® change. Each of these could have significant bearing on how BCREA serves REALTORS® and Brokers in the future:• Shifting compensation models: More varied types of

compensation models, as well as the potential of REALTORS® earning less per transaction, might de-mand more transactions per REALTOR® to maintain prior income levels. We recognize that REALTORS® may have

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Image Credit: The Æsop for Children, Illustrator Milo Winter

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How does our culture of innovation compare to those of other professions?

We are all familiar with the four scenarios posed during the CREA Futures project. BCREA intends to align our strategic plan with supporting a future wherein REALTORS® are both highly valued by consumers, and consumers have a myriad of options to meet their needs. Research demonstrates that both high service quality and being perceived as innovative are key determining factors of whether consumers switch providers (and likely whether they con-tinue to use REALTORS®). We can only achieve our desired future outcome by boosting the “Innovation Quotient” of the Profession, and by being recog-nized by consumers as innovative. Companies will step in to fill the innovation gaps left by ORE, as exemplified by the recent merger of the two portal giants, Zillow and Trulia. And yet JOD research makes a clear case for a lack of per-ceived innovation by consumers. From consumers hosting REALTOR® audi-tions to identify the seemingly invisible points of differentiation between REALTORS®, to homogeneous, basic marketing plans that they feel could have been better created themselves, to sentiments about listing price deter-mination being cookie cutter–consumers are struggling with REALTORS® who are delivering below expectations.

Organized real estate is in an ideal position both to support strategies encour-aging greater innovation across BC real estate, as well as to ensure BCREA’s services are innovative. In fact, these two levels of innovation should be inex-tricably intertwined as a measure of BCREA success. And yet, we have no quantifiable benchmark and tracking method for our own Innovation Quotient. Luckily, researchers have done the work for us, devising a corporate culture test based on studying the innovation of 759 companies. If we first identify our own innovation strengths and weaknesses, we will be that much more likely to encourage innovation both within our organization and within BC real estate.

Encouraging Innovation

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Image Credit: Six Building Blocks of an Innovative Culture, How Innovative Is Your Company’s Culture?, MIT Sloan Management Review

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BUILDING BLOCKS FACTORS ELEMENTS SURVEY QUESTIONS

ELEMENT SCORE

FACTOR AVERAGE

BUILDING BLOCK AVERAGE

Entrepreneurial

Hungry We have a burning desire to explore opportunities and to create new things.

AmbiguityWe have a healthy appetite and tolerance for ambiguity when pursuing new opportunities.

Action–orientedWe avoid analysis paralysis when we identify new opportunities by exhibit-ing a bias towards action.

Creativity

Imagination We encourage new ways of thinking and solutions from diverse perspectives.

Autonomy Our workplace provides us the freedom to pursue new opportunities.

Playful We take delight in being spontaneous and are not afraid to laugh at ourselves.

Learning

Curiosity We are good at asking questions in the pursuit of the unknown.

Experiment We are constantly experimenting in our innovation efforts.

Failure OK We are not afraid to fail, and we treat failure as a learning opportunity.

Energize

InspireOur leaders inspire us with a vision for the future and articulation of opportu-nities for the organization.

Challenge Our leaders frequently challenge us to think and act entrepreneurially.

Model Our leaders model the right innovation behaviors for others to follow.

Engage

Coach Our leaders devote time to coach and provide feedback in our innovation efforts.

Initiative In our organization, people at all levels proactively take initiative to innovate.

SupportOur leaders provide support to project team members during both suc-cesses and failures.

Enable

InfluenceOur leaders use appropriate influence strategies to help us navigate around organizational obstacles.

Adapt Our leaders are able to modify and change course of action when needed.

Grit Our leaders persist in following opportunities even in the face of adversity.

Collaboration

Community We have a community that speaks a common language about innovation.

Diversity We appreciate, respect and leverage the differences that exist within our community.

Teamwork We work well together in teams to capture opportunities.

Safety

Trust We are consistent in actually doing the things that we say we value.

Integrity We question decisions and actions that are inconsistent with our values.

OpennessWe are able to freely voice our opinions, even about unconventional or con-troversial ideas.

Simplicity

No bureaucracy We minimize rules, policies, bureaucracy and rigidity to simplify our workplace.

Accountability People take responsibility for their own actions and avoid blaming others.

Decision- making

Our people know exactly how to get started and move initiatives through the organization.

People

Champions We have committed leaders who are willing to be champions of innovation.

Experts We have access to innovation experts who can support our projects.

Talent We have the internal talent to succeed in our innovation projects.

Systems

SelectionWe have the right recruiting and hiring systems in place to support a culture of innovation.

Communication We have good collaboration tools to support our innovation efforts.

EcosystemWe are good at leveraging our relationships with suppliers and vendors to pursue innovation.

Projects

Time We give people dedicated time to pursue new opportunities.

Money We have dedicated finances to pursue new opportunities.

Space We have dedicated physical and/or virtual space to pursue new opportunities.

THE BUILDING BLOCKS OF INNOVATION SURVEY Our culture of innovation model has a total of six building blocks, 18 factors and 54 elements. (Each building block has three factors, and each factor consists of three elements.) Survey respondents should rate their organization on each of the 54 elements, on a scale of 1 to 5, using the following scale: 1 = Not at all; 2 = To a small extent; 3 = To a moderate extent; 4 = To a great extent; 5 = To a very great extent.

The overall average scores for elements are further averaged to provide the factor score, and the factor averages similarly result in the building block average. That average of the six building blocks is what we call the group’s “Innovation Quotient.” Please note that the value of the survey increases as the sample size increases, particularly when respon-dents come from different levels of the corporate hierarchy and different units of the company.

Ideate

Generate We systematically generate ideas from a vast and diverse set of sources.

FilterWe methodically filter and refine ideas to identify the most promising oppor-tunities.

Prioritize We select opportunities based on a clearly articulated risk portfolio.

Shape

Prototype We move promising opportunities quickly into prototyping.

IterateWe have effective feedback loops between our organization and the voice of the customer.

Fail smart We quickly stop projects based on predefined failure criteria.

Capture

FlexibilityOur processes are tailored to be flexible and context-based rather than con-trol- and bureaucracy-based.

Launch We quickly go to market with the most promising opportunities.

Scale We rapidly allocate resources to scale initiatives that show market promise.

External

Customers Our customers think of us as an innovative organization.

Competitors Our innovation performance is much better than other firms in our industry.

FinancialOur innovation efforts have led us to better financial performance than others in our industry.

Enterprise

Purpose We treat innovation as a long-term strategy rather than a short-term fix.

Discipline We have a deliberate, comprehensive and disciplined approach to innovation.

CapabilitiesOur innovation projects have helped our organization develop new capabili-ties that we did not have three years ago.

Individual

Satisfaction I am satisfied with my level of participation in our innovation initiatives.

GrowthWe deliberately stretch and build our people’s competencies by their partici-pation in new initiatives.

RewardWe reward people for participating in potentially risky opportunities, irre-spective of the outcome.

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How might organized real estate incubate innovation?

Innovation can come in the form of direct service delivery by the association, as well as indirectly by supporting new platforms for innovation across the Profession for others to create those services. In the U.S., we see multiple exam-ples of real estate innovation being fostered through start-up incubators. There is the Inman Incubator, Realogy FWD, and NAR REach. It was particularly interesting to look at the business model behind REach, which is run by NAR’s investment wing (yes, they have one) called Second Centu-ry Ventures LLC. In exchange for expertise, networking con-nections, and marketing, startups pay $25,000 to join AND give 2-5% of equity to Second Century Ventures. While the implications on the revenue side of REach are interesting, as it provides a new, perpetual revenue stream for ORE, there are also cultural, ripple effects of an incubator.

Through the structure of an incubator, could BC ORE en-courage a stronger culture of innovation amongst REALTORS® and Brokers due to networking, content exposure and other levels of participation? Additionally, an incubator could provide a new venue for diversifying the age and experience of BC ORE leadership by engaging entrepreneurs as advisors.

Innovation Through Incubation

How might organized real estate attract younger, top per-formers to the profession?

BC REALTORS® don’t need to see the data to know that we have a disproportionate percentage of REALTORS® over 50 versus those under 40. BCREA data shows over 50% of members are over 50, compared to 25% under 40. The 2013 Imprev Thought Leadership Survey showed that the biggest business challenge facing Brokerages is attracting younger agents. 36% of Brokers said they are “not able to get top producers to apply.” With only 44% of REALTORS® likely or somewhat likely to recommend real estate as a career according to CREA, this problem is unlikely to go away. It is imperative that BC ORE continues to pursue initiatives to attract young, talented professionals to keep the trend line moving up in REALTORS® under 40 entering the profession.

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Image Credit: NAR REach

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Could higher barriers to becoming a REALTOR® increase innovation and service quality?

One of the critical roles ORE plays in the province is in determining the requirements to become a REALTOR®. While RECBC determines the licensee requirements, ORE can determine what is required to receive the designation of REALTOR®. The REALTOR® Professionalism Report discussed ‘raising the bar’ on the credentials to become a REALTOR®, wherein the REALTOR® designation would be both harder to attain and retain, and therefore more scarce. Throughout the JOD research process, we have heard these points echoed consistently in discussions with REALTORS®, Brokers or members of ORE. We can say with confidence that there is both an appetite and desire for this kind of change.

However, we were also interested in considering a differ-ent tact. By having a fixed number of REALTORS®, could innovation and/or service quality increase?

This Report draws on the taxi industry. While we recognize that qualifications to become a taxi driver are lower than those to become a real estate agent, JOD research seeks to look across industries where we can glean both how to

Barriers to Entry

capitalize on opportunities and avoid pitfalls. Before we get to the service innovation in the taxi industry, we first wanted to look at how they use market forces such as a fixed num-ber of licenses to standardize or increase service quality.

Looking at BC taxi regulation, a single company (equiva-lent to a Brokerage) may have the authority to operate 100 vehicles under its license. The 100 vehicles/license has created dynamic, market-based pricing for the licenses due to scarcity, varying from $6,000 in parts of B.C. to as much as $320,000 in Vancouver. A Study of the Taxi Industry in British Columbia is quick to point out the stifling regulation prohibiting innovation by these licensees, even going so far as to suggest the need for adopting shared ride systems more than a decade before the words “collaborative economy” were ever mentioned.

The taxi industry can perhaps both be an example of how not to overregulate innovation out of the system, at the same time showcasing a market-based pricing mechanism for licensees that would clearly alter the economics of the REALTOR®. We think it is worth considering the ramifica-tions on service quality, efficiency, and innovation these type of market effects could have on the value of a REALTOR® license.

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Image Credit: Jerry “Woody”, “GREAT BRITAIN, ENGLAND, MANCHESTER 2007” under Creative Commons Attribution-ShareAlike 2.0 Generic

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Would innovation in the REALTOR®/consumer connec-tion better serve consumers and benefit REALTORS®?

Speaking of taxis, regulation and service innovation, we have been intrigued by the U.S. startup, Uber, now valued at $18B after just five years in business.

“If you’ve never used Uber, here’s how it works: Press a button on your smartphone to summon a ride. A few minutes later (during which time you can chart a driver’s progress toward your location) up rolls the car. The driver doesn’t accept cash, not even for a tip. Instead, the app automatically charges the passenger’s credit card once the transaction is completed.” BusinessInsider, 16 May 2014

While there are many fascinating aspects of Uber including its legal disputes with regulators, let’s first focus on its role in bringing consumers and providers together. Of course, this is a familiar concept to all of us, from the role of mem-ber boards to REALTOR.ca. However, an element of Uber’s magic was their ability to foster a highly efficient two-sided market where benefits were equal for both consumers and providers. • Passengers benefit from increased service speed, in-

creased quality (through ratings, reviews, licensing), transaction ease, and transparent pricing; and

Two Birds, One Stone

• Drivers benefit through lead generation, customer pre-qualification, and transaction processing.

Given the REALTOR® Match Report findings on the impor-tance of ratings, we were particularly intrigued at how they factor into the Uber mobile app. Yes, passengers can see the ratings of various drivers nearby and choose which one they want to request based on the number of stars. But, remember, Uber is a two-sided market serving both pas-sengers AND drivers. Uber allows drivers to rate passen-gers as well. Thus, drivers can choose whether to accept or decline a passenger request based on their star rating. The ratings system not only improves the passenger experi-ence, but also the driver experience as well.

It should come as no surprise that Uber takes exactly the opposite approach to licensing as the traditional taxi indus-try mentioned on the previous slide. Instead of increasing the barriers to entry, they make the barriers to entry low and the barriers to staying in very high–having less than 4.6/5 will actually have drivers deactivated from the system. Thus, Uber is similar to the Redfin example shared in REALTOR® Professionalism Report where desired outcomes (satisfac-tion) are aligned with employment and compensation.

If ORE could help support a two-sided market ala Uber, would consumer perceptions of REALTOR® innovation and service quality increase?

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Image Credit: Über Cool, Über Cab, Sweet Lemon

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How can we transform the boundaries of REALTOR® services?

While Uber started as a car service dispatch company, now the company is being discussed as a next generation logistics company that could compete with FedEx or UPS. As Uber investor Shervin Pishevar described Uber’s grand vision to Inc, “Uber is building a digital mesh — a grid that goes over the cities. Once you have that grid running, in everyone’s pockets, there is a lot of potential for what you can build as a platform. Uber is in the empire-building phase.”If BC ORE was to think of REALTORS® as a kind of “mesh” running over our urban and rural locations, what innovative opportunities for service might emerge?

Recently, Fast Company wrote about the short-term apart-ment/house company, Airbnb, and their service transforma-tion in self-identifying as “a full-blown hospitality brand, one that delivers a seamless end-to-end experience when its customers travel…Airbnb would no longer be about where you stay, but what you do--and whom you do it with--while you’re there.” Airbnb commissioned a Pixar animator to sto-ryboard the entire trip experience frame by frame (think real estate transaction process while reading):

Expand the Boundaries

“The 30 slides now hang around Airbnb’s product studio like the Stations of the Cross, each radiating empathy for each particular emotional moment in a trip: the guest’s arrival at the airport, her transportation, the first interaction with the host, and more. When we critique our designs, we literally say, ‘Which frame is this helping to improve?’”

The dedication to the hospitality transformation also in-cluded a set of nine hospitality standards to make the Airbnb guest experience more consistent across hosts, a physical “hospitality lab” to train and observe hosts, offline workshops, and online webinars. What could the resulting service innovations be if ORE were to build a similar kind of benchmark service standards and innovation infrastructure for continuous REALTOR® experimentation and learning in a safe environment?

Within the Consumer Autonomy and Transaction View re-ports, we spoke specifically about the transaction process and the opportunities for REALTORS® within each stage. We point to companies that have built massive, vertically integrated business across a single stage, such as Zillow and Trulia in the Search phase. We are inspired by the kind of expansionary thinking of Uber and Airbnb, and see sig-nificant opportunity for service innovation in the real estate transaction process, both holistically and within stages.

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Image Credit: Airbnb Hospitality

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How might organized real estate respond to changing ownership models?

Both Uber and Airbnb are direct responses to changes in desired ownership models otherwise known as the “collab-orative” or “sharing” economy. As The Economist points out, “it is time to start caring about sharing.”

It has not taken long for the foundations of many industries to be shaken by economic impacts of collaborative con-sumption. Per the Altimeter Group, “Every car-sharing vehicle reduces car ownership by 9-13 vehicles; a revenue loss of at least $270,000 to an aver-age auto manufacturer. The cascading impact to the eco-system has far-reaching impacts to auto loans, car insur-ance, fuel, auto parts, and other services.”The very metrics companies are now using for measuring financial success are changing, from the past of units sold to the future of units used.

We can already see signs of how the sharing economy might take its toll on real estate sales by looking at leading markets such as San Francisco with the recent rejuvena-tion of shared living spaces; however, this time it is with an entirely different financial class. In describing one of the 50

Caring About Sharing

shared spaces in and around San Francisco, The New Yorker reports, “it’s part of a network of places where the new mode of American success is being borne out.” In other words, these spaces are not filled with debt ridden, unemployed Millennials, but rather traditional first time homebuyers. A biologist from the NASA Ames Research Center who lives in a 5,000 square foot cooperative house told The New York Times, “What we’re doing is using a house with enormous square footage to house a decent number of people making normal human incomes.”

The Altimeter Group notes that the “currency in the Collab-orative Economy is trust.” Given that Millennials most ORE as a source for valuable information about REALTORS® (see REALTOR® Match), is there a natural brand alignment to take a leadership role in the real estate profession adapt-ing to the sharing economy? How could ORE prepare and enable REALTORS® to participate rather than fall victim to a fundamental shift in home ownership by Millennials?

As the saying goes, to the victor goes the spoils.

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Image Credits: The Economist | Shutterstock | Derek Bacon

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Tomorrow’s Lawyer REALTOR®

Could the unbundling of real estate services lead to greater professional sustainability?

Oxford scholar Richard Susskind identified the impera-tive for lawyers and judges to work differently starting in the late 1990s. Large corporations could no longer afford the level of legal services they needed, while the average person wasn’t able to access the justice system. Susskind called for the deconstructing of legal work into discrete tasks, so each part could be sourced far more efficiently.

The profession subsequently responded to Susskind’s thesis with legislative changes in countries across the globe allowing limited scope retainers (see Unbundling Legal Services). The Canadian Bar Association (CBA) acknowledges that the rise of unbundling is in part due to the desire to lower the cost of litigation; the other part is “a cultural shift that is taking place in the information age.”

Law was facing “a drive towards efficiency” through new systems and processes. Attorney Goeff Pulford summa-rized the viewpoint,Clients are not prepared to pay our traditional high fees for what they correctly view as essentially process work: they’ll pay for legal advice, but not something a software program can do just as well as a lawyer. More to the point, clients now have a choice: an emerging fleet of providers, many from outside the legal profession, is perfecting offer-

ings that deliver reliable solutions to commonplace legal needs at a fraction of our price.Pulford calls for an approach shift in order to keep bilions of dollars of process oriented work on lawyers books rather than lose the revenue to competitors. In Susskind’s To-morrow’s Lawyers, the first driver for change is “more for less”–delivering more legal services at less cost.

Susskind’s second driver is liberalization–enabling non-lawyers to deliver services that currently are provided only by lawyers. In 2011, David Eaves wrote about a non-profit funded by members of Canada’s provincial and territo-rial law societies, CANLII, who makes accessible court judgments, tribunal decisions, statutes and regulations for lawyers and all Canadians. Martindale-Hubbell and its online property lawyers.com pairs legal information with reputational profiles of one million lawyers worldwide, even providing each lawyer with an International Standard Lawyer Number.

Perhaps we can take comfort in the fact that we are not alone–just look at the CBA Legal Futures Initiative. On the other hand, the legal profession is further along than organ-ized real estate in structural transformation of how the legal profession delivers value to customers, and how consum-ers access the tools and expertise they require. While Susskind says “the Golden Age of Law may be over,” will we be saying the same of real estate in five years?

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Image Credits: Richard Susskind, The End of Lawyers? | Lawyers.com

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