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NYU-Thesis-2010

  1. 1. AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY LEND LEASE GROUP: A CASE STUDY by Martín I. Neiman A Project in Strategy & Innovation Presented to the Faculty of Management Submitted in partial fulfillment of the Requirements for the degree Master in Science in Management Graduate School of Management POLYTECHNIC INSTITUTE OF NEW YORK UNIVERSITY August, 2010
  2. 2. "There are really two critical dimensions of success in your business. The first is finding thegood deals. Finding those projects, finding those tenants, finding those locations that aregoing to be economically attractive. The second critical dimension of the business isexecuting those deals well. So you find the project but then you are able to build it on timeand make sure it is nice and deliver it up to expectation. Now you might think that that is anopportunistic process. But it’s not. Why do you find good deals? You find them because youhave special insight into tenants in that particular area, because you have an unusualknowledge of a particular geographic region, you find them because you understand thatparticular type of project better than the other guys. Because you have superior marketintelligence, because you have superior economic intelligence. Why do you have superioreconomic intelligence or market intelligence? Because you have a strategy." Michael E. Porter, Competitive Strategy and Real Estate Development, Remarks to the 1989 Harvard Business School Real Estate Symposium.2 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  3. 3. AbstractThe current economic recession and its significant impact to the Property Industry as well asthe World Construction Industry represent an opportunity for reflection. After the enormousdamage caused by unprecedented levels of opportunism and speculation extended beyond thefinancial markets, it seems to be the perfect time to analyze the environment and rethink howto build a solid and sustainable strategic framework to be able to face the future challenges.In the present, fast-pace changes in the global markets in other industries are working asparameter for benchmarking, increasing customer expectations. Profound instability affectingmajor economies has evaporated the demand for private development. Private players arestruggling and many strong investors are hesitating to fund new projects. In Real EstateMarkets, risks are still considerably high while confidence continues to be low in manygeographic locations. The Credit Crisis has forced banks to remain conservative at the sametime as opportunistic capital continues to be on hold.In the short and medium term future, major demographic transformations will increase thedemand for housing and other facilities. In addition, the aging infrastructure is demandinggovernments a bigger economic stimulus. The year 2007 represented the inflexion pointwhere mankind reached majority of urban population. Urban areas will continue to grow andmore efficient cities will be required in the near future.In the meantime, there is a lot of interaction between government officials, regulators, theinfluential voices of the private sector and the public on new ways of fostering innovation.The necessity for innovative solutions in these industries has long been emphasized by bothinternal players and external observers. This continues to expand over professionalconsciousness, financial competitiveness, and the global community. Old practices arestarting to affect financial performances and the private sector reputation. In this environment,a 50 year-old Australian company seems to be emerging and riding through the storm.This study intends to analyze and compare Lend Lease Corporation strategic framework withthe historical behavior and culture within the Property Industry, evaluate its current position,weaknesses and opportunities to determine future challenges. Finally, this concludes with aset of recommendations to improve and strengthen a leadership position as the global providerof fully integrated sustainable property solutions.Martin i. Neiman, Aug. 20103 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  4. 4. Table of ContentsAbstract .....................................................................................................................................3 Table of Contents..................................................................................................................41.1 Introduction ........................................................................................................................6 1.1.2 Literature Survey ...........................................................................................................6 1.1.3 Data Gathering...............................................................................................................7 1.1.4 Methodology used in this document..............................................................................82.1 Theoretical Background ....................................................................................................9 2.1.1 The Conception of Strategy ...........................................................................................93.1 Presentation of the Case Study ........................................................................................19 3.1.1 Lend Lease Corporation Brief Overview ....................................................................194.1 External Environment Analysis ......................................................................................22 4.1.1 Introduction to the Property Industry ..........................................................................22 4.1.2 Overview of the main fields ........................................................................................23 4.2.1 Introduction to the Construction Industry ...................................................................25 4.2.2 Innovation Adoption in the Construction Industry ......................................................26 4.3.1 Current Challenges and Future Trends ........................................................................26 4.3.2 Global Demographic Trends & Challenges.................................................................27 4.3.3 Global Climate Trends & Challenges..........................................................................28 4.3.4 Infrastructure Trends & Challenges ............................................................................29 4.3.5 Technological Trends & Challenges ...........................................................................30 4.3.6 Information Trends & Challenges ...............................................................................33 4.3.7 Workforce Trends & Challenges .................................................................................34 4.3.8 Productivity Trends & Challenges ..............................................................................35 4.4 PEST Analysis for External Environmental Examination..............................................36 4.5 Porter Five Forces Analysis Overview ...........................................................................415.1 Internal Strategic Analysis ..............................................................................................46 5.1.1 Corporate Vision .........................................................................................................46 5.1.2 Corporate Culture ........................................................................................................46 5.1.3 Corporate Core Values ................................................................................................46 5.1.4 Corporate Value Proposition .......................................................................................47 5.1.5 Corporate Goals ...........................................................................................................47 5.1.6 Corporate Structure .....................................................................................................48 5.1.7 Stakeholders ................................................................................................................50 5.1.8 Strategic Business Relationships .................................................................................514 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  5. 5. 5.1.9 Business Segments ......................................................................................................52 5.1.10 Market Overview .......................................................................................................54 5.2 Value Chain Activity System .........................................................................................55 5.2.2 Secondary Activities ...................................................................................64 5.2.2.1.1 Procurement, the value of Stakeholders ............................................................66 5.2.2.1.2 Procurement, Total Facility Management .........................................................66 5.3 SWOT Analysis for Strategic Planning ..........................................................................73 5.4 Ansoff Matrix for Product-market Growth Analysis......................................................78 5.5 The BCG – Matrix ..........................................................................................................81 5.6 Porter Generic Strategies ................................................................................................836.1 Strategic Development - Lend Lease Strategic Mapping .................................................87 6.1.1 Value Proposition & Business Model Strategy ...........................................................87 6.1.2 Capital Allocation Strategy .........................................................................................89 6.1.3 Global – Local Collaboration Strategy ........................................................................91 6.1.4 Public Private Partnership (PPPs) Strategy.................................................................92 6.1.5 Retirement Sector Strategy ..........................................................................................94 6.1.6 Urban Regenerations Strategy .....................................................................................95 6.1.7 Sustainability Strategy .................................................................................................97 6.1.8 Innovation Strategy ...................................................................................................1057.1 Conclusion .......................................................................................................................110 7.2 Main Detected Problems ..............................................................................................112 7.2.1 Efficiency ..................................................................................................................112 7.2.2 Capital .......................................................................................................................113 7.2.3 Structure inefficiency ................................................................................................114 7.3.4 Human Resources Rewarding System.......................................................................114 7.2.5 Internal Research and Development (R&D)..............................................................1147.2 Recommendations ............................................................................................................1158.1 Bibliography....................................................................................................................1189.1 Appendix .........................................................................................................................1275 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  6. 6. 1.1 IntroductionThe main purpose of this work is to procure a strategic analysis for a leading player companyfrom the Property Industry involved in the entire value chain of this broad, extensive andexciting industry in the year 2010.As an approach to learn more about the current challenging environmental conditions and torethink about the future trends, this paper analyzes a selected corporation that participates indifferent business segments and sectors of the Property Industry worldwide. From inceptionof the development cycle, through the entire planning, design and construction process andbeyond, sometimes remaining as the asset & property manager or even the seller in somecases.This document presents the opportunity to compare a well-developed strategic frameworkbased on a clear vision of the future, with the backside of an industry carrying a historicallymonolithic culture supported by a remarkable rigidity to face and adapt to changes. Afterdriving thought this process, there will hopefully be achieved a counterpoint constructed byan analysis of the strengths together with a revision of the weakness, and opportunities.At that point, it will be possible to understand the most relevant issues affecting both theindustry and this specific corporation. Moreover, to conclude with a set of recommendationsregarding how to allocate its resources looking to face future challenges and to become aleader in providing integrated sustainable property solutions.1.1.2 Literature SurveyThe literature survey examines the literature used on this piece. The section summarizes andgives a general idea of what have been read, studied, argued and analyzed regarding thesubject. The organization of this review includes a chronological analysis of each strategicmodel taking into consideration as a working tool. It also oversee the most influential articles,books and other sources that where relevant to a particular topic, area of research, or theory,and provides a short description and a critical view of the reasons why it has been taken intoconsideration.The organization pattern systemizes well recognized academic material in an attempt toprovide a different point of view creating a theoretical background used for the developmentof the work. In addition, based on up-dated articles, books, readings, and other research, itwill describe the relevancy of each one in the building process and progress of this piece ofwork. Finally, this literature survey will put an emphasis in trends and key aspects that need tobe considered to take the best outcome out of the reading.6 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  7. 7. 1.1.3 Data GatheringThe term "Data collection" is generally used to illustrate a process of preparing and collectingdata that can be used for several purposes. In this piece of work the Data Collection processappear to obtain information from multiple angles that will supply a theoretical backgroundand for the construction of the project. In addition, the data was collected in order to provideinformation regarding the specific topic. 1As in many cases, the strongest focus on data collection took place early on the process ofaccumulation of information, and took a lower strength later during the analytical process.However, since the vast amount of elements and variables affecting the environment, theindustry and the specific company use in the case study, the data gathering process continuedto be intense during all the process, helping to give technical references, point of views, and aclear time and space reference to improve the quality of the analysis as well as the readerunderstanding of the big picture.The Data Gathering process has been structured in different stages. The first can be defined asthe "Pre-Collection activity", where the majority of the original material was found providinga basic foundation to set goals, targets of the work. Some definitions and methods wherestudied and a great part of the theoretical strategic sources were recognized. This processassisted in the overall framework creation of the work. This was one of the most crucial stepsof the whole process and even though a lot of information was capture afterwards, the valueof this original data in terms of structuring the analysis made the rest of it more organized andclear.The second stage can be considered as the "Collection" period. During this process, a lot offinding went on involving different sorts of reading. While the majority of them were comingfrom internet source, some key reading came from books found in the NYU-Poly library.Taking into consideration the limited timeframe available to develop the work, no personalinterviews, questionnaires or any contact with executives has been done. However, asubstantial amount of information came from surveys, interviews, and analysis already madethat was available on-line. As if there have been taken place interviews, this material wasextremely useful and provided real, accurate and updated-data which extremely enhance thefinal product. This interview and strategic presentations ensured both a baseline from whichto measure from and in many cases a target on what to improve. During the "Collection"period, a lot research was done regarding all the internal and external elements affecting theorganization.1 Data collection, source: http://en.wikipedia.org/wiki/Data_collection7 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  8. 8. 1.1.4 Methodology used in this documentThere are uncountable methods, theories, models and techniques created to analyze, formulateand implement strategies.2 Some have been selected according to the grade effectiveness,public recognition, and most importantly depending on the efficiency by which its use paysback to this study. In the first section of this document this methods will be described andevaluated to weather if they contribute to improve the construction of the analysis,formulation and implementation of a frame of strategies. 3This framework is structured along a Strategic Management background to conduct thedrafting, implementation and evaluation of cross-functional decision making system. Thisprocess will enable the organization to identify, focus, and achieve its long-term objectives,satisfying the mission, the vision, and assessing on the development of plans, policies andprograms designed to achieve these goals. Furthermore, it will help re-allocating resources ifneeded.The ultimate goal is to provide the enterprise with an overall direction and align each singlestrategy into a "strategic consistency". Arieu (2007), describes this consistency as the momentwhen "the actions of an organization are consistent with the expectations of management, andthese in turn are with the market and the context." 4In addition to all the theoretical background required to establish a framework of knowledgenecessary to develop analysis, a lot of research was done on the selected organization. First,an outline of was created to set a scope of work. Shortly after that, an overview examinationof the company was carried out, including internal information such as its history, missionand core competencies.Along with this, an internal strategic analysis was initiated to evaluate the firms vision, corevalues, culture, goals and objectives, market positioning and business segments, together withits products, services & project. This was followed by a breakdown of its corporate structure& global footprint, and operations activities based in Porters Value Chain Model (includinglogistics, operations, procurement, marketing & sales, services, technologies, HRM, andinfrastructure).Later on, a vast amount of material was selected to explore and understand the complexity ofall forces factors affecting the performance of the group. During this specific process, many2 List of Strategic Methods, Models, Theories, and techniques, source: http://www.12manage.com/i_s.html3 Wikipedia, Strategic Management, source: http://en.wikipedia.org/wiki/Strategic_management4 Wikipedia, Strategic Management, source: http://en.wikipedia.org/wiki/Strategic_management8 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  9. 9. different sources where consulted to create a wide picture of all the economical, political,social, technological, and physical factored involved in this dynamic environment. Soon after,based on Porters Five Forces an extended analysis of the changing competitive atmospherewas made.Afterwards, based on many sources such as internal presentations, news paper articles andfinancial statements, the company strategic mapping was analyzed. Additionally, a significantamount of projects where analyzed in detail to understand the companys approach toinnovation and Sustainability. Different Models were selected for the strategic developmentprocess. Many single strategies were categorized and placed within a major strategicmapping.The final stage includes a detailed evaluation of the wide material made possible to identifyboth internal and external problems. These issues were taken into consideration to set a list ofrecommendations for the company, to conclude on establishing the growing path to the future.2.1 Theoretical Background2.1.1 The Conception of Strategy 5The utilization of a balanced Scorecard will be need for future evaluation of the futureperformance, progress and achievements of the business. The ultimate goal is to provide theenterprise with an overall direction and align each single strategy into a "strategicconsistency". Arieu (2007), describes this consistency as the moment when "the actions of anorganization are consistent with the expectations of management, and these in turn are withthe market and the context." 6Lamb (1984) defined Strategic management as an "ongoing process that evaluates andcontrols the business and the industries in which the company is involved; assesses itscompetitors and sets goals and strategies to meet all existing and potential competitors; andthen reassesses each strategy annually or quarterly [i.e. regularly] to determine how it hasbeen implemented and whether it has succeeded or needs replacement by a new strategy tomeet changed circumstances, new technology, new competitors, a new economicenvironment., or a new social, financial, or political environment.”5 Wikipedia, Robert S. Kaplan, Balanced Scorecard, Source: http://en.wikipedia.org/wiki/Balanced_scorecard6 Wikipedia, Strategic Management, source: http://en.wikipedia.org/wiki/Strategic_management9 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  10. 10. 2.2.1 Models for Strategic Analysis2.2.2 PEST AnalysisThe PEST analysis is key for strategic management. It consists of setting the framework ofmacro-environmental factors that will shape the way business will be conducted. Therefore,identifying the appropriate factors relevant to the specific business a company will becarrying and, most importantly, applying the analysis properly could make the differencebetween being successful or not, between being profitable or going out of business eventually.PEST represents “Political, Economic, Social and Technological” analysis. Some analystsadded “Legal” into consideration since legal aspects are always important when doingbusiness. And, most importantly, with the rising concept of ‘going green’ even in the businessspheres of life, “Environmental” is now part of the acronym as well.Political factors relate to how much involvement of the government there is in any giveneconomy. Specifically, these factors include areas such as taxes, labor laws, and diplomaticrelations that will determine trade restrictions or tariffs. In addition, the government hassignificant influence in important matters such as education, health and infrastructure.Economic factors include GDP growth, exchange rates, interest rates and inflation. All ofthese have great impact in businesses. For example, exchange rates are extremely importantfor companies involved with imports and exports; inflation will affect the ability for localbusinesses to buy goods or raw materials needed for their production.Social factors are sometimes overlooked. However, they are so important that many timesthey will determine whether a company will market a product in a specific country or not. Thecustoms, religious practices, and preferences of a social group will affect directly the demandof a certain product or services in a certain region or country. These factors also include thepopulation growth rate and age distribution, and the cultural and sociological aspects of asociety. The above will certainly shape the actions of a company, as well as the production,distribution or marketing efforts.Technological change is a key component of innovation. In turn, innovation will many timesbring success to any given company. An important factor to be considered by all businessshould be the constant aim to automate processes to increase efficiency and achievetechnological advancements. One way to get there is by investing in R&D. Unfortunately,most companies nowadays are too focus in cost-cutting that they forget an important way toset themselves apart from the competition. Ultimately, investing in technology and seekingefficiencies will most likely reduce costs and make the business more profitable.10 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  11. 11. Legal aspects of business have significant influence on how companies operate. Legal factorinclude anything from consumer, antitrust, employment and discrimination laws to health andsafety laws.Environmental factors include ecological and environmental aspects that affect certainindustries directly, such as agricultural-related and tourism. Weather and climate change areshifting how companies operate. Not only that, the recent awakening and strong awareness ofpotential dangers due to the critical impacts that climate change is already causing, is alreadyshaping existing markets and creating new opportunities.After analyzing this model, it is important to understand that some factors will have a biggerimpact than others depending on the type of company and business we are dealing with. If wefocus on a company that produces military-related goods, the political factors will beextremely important as the international relations with neighboring countries will determinethe existence or not of any conflicts or wars, which will impact directly the supply anddemand of goods in such an industry. On the other hand, if we focus on a financial company,the economic factors will be the ones to take closer look at since changes in the monetarypolicy or interest rates will make an impact. However, it is still important to take into accountevery factor. Furthermore, highly complex companies should carry PEST analysis in everydepartment and for better results, the analysis should be broken into geographical significanceand pay attention to factors in all levels: local, national and global.2.2.3 Porter Five Forces AnalysisThe Five Forces analysis was developed by Michael Porter in 1979. He focused on five mainforces that determine how attractive a given industry is given the competitive elements. Thisis a very important analysis because a company’s strengths cannot be viewed in absoluteterms. Even a company that has realistic objectives and the appropriate strategies to achievethose objectives will have to deal with the competition and the external forces in order to besuccessful. Porter’s analysis is meant to help conclude how competitively intense a givenmarket is, and in this analysis, the concept of attractiveness relates directly to profitability.The higher the chances of achieving profitability, the more attractive that industry will be.And in contrast, a very competitive industry will be considered unattractive. Going back tothe consideration of internal and external factors in the SWOT and TOWS analysis, Porter’sFive Forces analysis is made of two forces deriving from internal sources and three derivingfrom external sources. The first two forces are considered vertical competition and include thebargaining power of customers and the bargaining power of suppliers. The other three forcesare defined as horizontal competition and include the threat of established competitors, thethreat of substitute products, and the threat of new competitors.11 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  12. 12. The bargaining power of buyers is the ability of customers to put the company under pressure.Some factors relevant here would be the buyer switching costs relative to the company doingso, the existence of substitute products or output, the buyers’ information accessibility, andthe dependency on the existing channels of distribution. The bargaining power of suppliers isthe ability of suppliers to put the company under pressure. If there are few substitutes, theycan represent high pressure. Some factors to consider are the suppliers switching costs relativeto the company doing so, the existence of substitute inputs, the suppliers’ informationaccessibility, and the power of distribution channels.As far as the main factors for the threat of existing competitors, companies should payattention to competitive advantages and how sustainable they are, how much more innovativethey are compared to the established competitors, and how high are the levels of advertisingexpense. When considering the threats of substitute products or services, companies shouldalways be aware of how many substitute products are available in the market and the buyers’tendency to substitutes. In addition to those, understanding product differentiation is key. Andcertainly last but not least, companies need to consider the threats of the entry of newcompetitors to the industry. The more profitable a market is, the more firms will be attractedto it. Eventually, the phenomenon of new competitors entering the market will decreaseprofitability for all participants. Profits will tend to approach zero in markets of perfect orpure competition. The main factor to consider here would be the presence of barriers to entry.Markets are more attractive when there are high entry barriers; the new competitors will havea hard time entering those markets while the players already in it will have time to consolidateand establish their image and claim a share of the pie. Some other factors to consider aregovernment policies, access to distribution, capital requirements, absolute cost advantage andlearning curve advantages.According to Porter, to make the best use out of this Five Forces analysis, companies shoulduse this method at the most basic level. Instead of using it at the industry or sector as a whole,they should use it specifically at a line-of-business level.2.2.4 Value Chain AnalysisThe Value Chain analysis was also developed by Michael Porter. This analysis highlights theimportance of value chains in every company, where products go through every component ofthe chain in order gaining value in each activity. The key idea is that products get more addedvalue from the chain of activities than they would get from the sum of the values of allactivities. Value chains are formed by the primary and support activities. The primaryactivities include the inbound logistics, the operations, the outbound logistics, the marketingand sales, and the service, while the support activities include the company’s infrastructure,12 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  13. 13. the management of human resources, the technology and research & development, and theprocurement.The concept of value chains is so important that it can be applied to entire supply chains anddistribution networks instead of just a specific company. The interactions of local valuechains are capable of creating extended value chains that were defined by Porter as a ValueSystem. The value system includes the value chains of the suppliers, the company itself, thedistribution channels, and the customers. The idea is that everyone involved in this valuesystem will benefit in one way or another.2.2.5 SWOT AnalysisThe SWOT analysis was created by Albert Humphrey. SWOT represents Strengths,Weaknesses, Opportunities, and Threats. This method is used to evaluate the key external andinternal factors that are favorable or unfavorable to carry on a project or a business as awhole. Before the analysis can be carried out, the company needs to set the objective orobjectives to be achieved. Once the ultimate goal is in place, this strategic planning willidentify the attributes that will help the company reach the objective (strengths), the attributesthat will be detrimental to reaching the objective (weaknesses), the external conditions thatwill be helpful to achieving the objective (opportunities), and the external conditions thatcould do damage to the objectives (threats).Companies that successfully carry on a SWOT analysis will have better chances or reachingtheir objectives, or even more, they will have a better shot at reaching them quicker and in acheaper and more efficient way. The reason for this is because a well done analysis willdepict clear steps of action towards achieving the objectives. The management or peopleinvolved in the decision making process will need to determine if the objective is attainablegiven the SWOTs. Otherwise, they should proceed and identify a different objective, a morerealistic one.As mentioned above, SWOT analysis is used to identify the key internal and external factorsthat are important to achieve the objective. The internal factors are internal to the organizationand the external factors are found in the external environment to the organization. In order tocarry a more significant SWOT, the management teams can use a PEST analysis to identifymore effectively the external factors (threats and opportunities).Finally, a very important note is that an attribute could be considered to be a strength for aspecific objective, but could be viewed as a weakness in achieving another objective, hencethe importance in identifying the relevant factors and selecting the objectives appropriately.13 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  14. 14. 2.2.6 TOWS AnalysisThe TOWS analysis is similar to the SWOT analysis. In fact, both acronyms make referenceto the same concepts of Strengths, Weaknesses, Opportunities, and Threats but in differentorder. The only difference is that the SWOT method emphasizes the factors in the internalenvironment (strengths and weaknesses) while the TOWS method emphasizes the externalenvironment (threats and opportunities). Either approach is very effective for companies whentrying to identify strategic options for a specific project or a whole new line of business.A strategy is essentially the path through which companies will reach their objectives. And aTOWS or SWOT analysis will show them the way. The most important takeaway afterconducting any of these two methods should be for management teams to have the ability toanswer the following key questions: how to make the most of the strengths, how to overcomethe weaknesses, how to take advantage of the opportunities, and how to deal with the threats.2.2.7 Ansoff MatrixThe Ansoff Matrix was presented by Igor Ansoff to depict different corporate growthstrategies. Essentially, the Ansoff Matrix identifies the present and potential products andconsumers for a given company. By considering growth possibilities through the existingproducts and new products, and in current markets and new markets, Ansoff describes fourstrategies given the possible product-market combinations.The first strategy is market penetration, where the company intends to achieve growth throughthe products that is already offering in the existing markets. The goal is to increase marketshare. This strategy is the least risky for a company since it leverages the already existingresources and capabilities. If the market grows, the company will grow automatically bysimply maintaining its market share. However, the danger of this strategy is saturation. If thecompany reaches the capacity limits, it will have to adopt a different strategy to keepgrowing.The second growth strategy described by Ansoff is market development. Companies applyingthis strategy will aim to grow by targeting their existing products to new segments of themarkets. This could translate into a firm extending the supply of its products in new countriesor regions. If the product is perceived by the new customers as being a high quality product atan accessible price then the company will have good chances to grow. However, companiesadopting market development over market penetration strategy will assume the higher risksassociated with trying to pursue new markets.14 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  15. 15. The third strategy is product development. This is simply the innovative desire for companiesto develop new products and target them to its existing market segments. This strategy mayapply well for companies whose strengths are more based in the customer rather than havingthe strengths in the product itself. In such cases, the firm will seek growth by developing newproducts for its already existing customer base. Just like with the market developmentstrategy, product development will carry more risk than just trying to grow by rising marketshare.And last but not least, the fourth growth strategy in the Ansoff Matrix is call diversification.When companies adopt this strategy they try to generate new business by offering newproducts in new markets. This is clearly the riskiest of all four strategies because companiesthat choose to adopt it will have to face the challenges of new product and marketdevelopment simultaneously. However, companies may see this strategy appealing if theyconsider one of the most basics foundations in finance: the higher the risk, the higher thereturns.2.2.8 Growth-Share MatrixThe BCG Matrix was created by Bruce Henderson for the Boston Consulting Group in 1968.The main purpose was to provide a chart that would help companies analyze their productlines. This way, a firm can better allocate their resources and improve in certain areas, such asstrategic and product management. From a marketing perspective, this tool is very useful forportfolio planning. This chart contains two controlling aspects: relative market share andmarket growth. In order to use this matrix appropriately, a company should place eachproduct in their portfolio onto the matrix and then plot their competitors’ products tounderstand the relative market shareThere are 4 products types that can be drawn from this matrix, depending on which quarterthey are placed on. Dogs are also known as products with a low share of a los growth market.Usually these are very profitable products as they tend to require the company’s money ratherthan generate it. Often times it is advised to eliminate these. Cash Cows are those productswith high share of low growth market. Thus, these tend to generate more money than isinvested in them, and therefore should be kept. Problem Children is a term that refers toproducts with low share of high growth market. They need a lot of resources and do notgenerate so much in return. Lastly, stars are those products that are in high growth marketswith a relatively high share of that market. These usually generate great income so it isadvised to build up this type of products. The best scenario is to have a balanced portfoliowith all these kinds of products, except for dogs.15 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  16. 16. 2.2.9 Business ModelA business model explains the grounds of how an organization produces or delivers value tocustomers. It is especially important for entrepreneurs founding a new business, but alsomanagers of established companies should dedicate significant time to business modeling toexplore alternatives of future developments and growth. The term business model is mainlyused to describe the core aspects of a business, such as its purpose, the organizationalstructure, its infrastructure, its policies, its strategies and operational processes.The essence of a business model is that it will define how companies will provide value toclients, who will pay for the products or services offered, which will bring profits into thefirms. The key enigma for companies to figure out is what clients want and how they want it.Once they identify this, they need to organize their resources to meet the client needs. Manytimes companies overlook the fact that client needs evolve and they need to evolve with them,making all the necessary adjustments to their strategies, their production lines or servicesofferings. This is why business models are crucial not only at the time of the foundation of thecompany but all throughout its existence. Examples of bad business modeling can be foundduring the dot-com crisis. On the other hand, some examples of good business models can beattributed to companies such as McDonalds, Wal-Mart, Blockbuster, Dell Computer, eBay,Starbucks, Apple, among others. These firms certainly changed their respective industries andthe customers experience in a way that business will never be the same.Today, technology plays an extremely important role and companies can take advantages ofendless revenue opportunities that could not have been even dreamed of before the internetrevolution. Some retail businesses actually generate more revenue via their e-Commercechannels than at their physical stores. Some others do not even have stores and are only web-based; Amazon.com is the perfect example. A great advantage these type of firms posses isthat they can generate revenue 24/7 and they can access markets and regions all over theworld.2.2.10 Porter Generic StrategiesMichael Porter’s generic strategies model consists of three general types of strategies thatcompanies can use to generate and maintain competitive advantages. There are two importantdimensions for these strategies. Strategic scope is a demand dimension, which considers theintended target market. Strategic strength is a supply side dimension and it is concerned withthe core competencies of the company, namely product differentiation and cost efficiency.16 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  17. 17. The 3 main strategies are known as cost leadership, differentiation and market segmentation.Cost Leadership refers to the firm gaining market share by offering the lowest prices, which isusually very appealing to cost-conscious consumers. In order to offer the lowest price whilealso maintaining profitability, a firm must operate at lower cost than its main competitors.There are three key ways to do this: achieving high asset turnover, maintaining a low directand indirect operating cost and controlling over the supply/procurement chain to ensure lowcosts .Differentiation Strategy aims to come up with a very unique product or service that will standout from throughout the industry. This differentiation among the others can be associated withany features, such as technology, brand image, design, quality, customer service and more.When this strategy is used, a firm usually will gain brand loyalty, which helps them toeliminate competition and earn above average returns .Lastly, there is the focus or strategic scope, as it describes the scope over which the companycan compete in the market by either providing the lowest price or the most unique goods. Inother words, a company can decide if they want to be part of a defined focused market or aimfor a broader mass market. If the focus is narrow, then there are only a few target markets alsoreferred to as niche strategy, where there are groups with specific needs and wants. If acompany adopts a broad focus scope, the concept is similar, to match the customers’ needsand wants of a mass market, competing on wither low prices or brand recognition andsuperior quality .2.2.11 Strategy Maps & Balanced ScorecardStrategy maps are diagrams that companies use to document their main strategic goals. Thecreation of the strategy map is the first step towards the success in strategic management. TheBalanced Scorecard is a strategic performance management tool that allows managers tomonitor the execution of the activities by the people who report to him or her. Managersidentify certain financial and non-financial measures and assign targets to them. The ideabehind this is that after conducting reviews management teams are able then to determinewhether the expectations were met by the current performance. This will lead to strengtheningcertain weak points and develop areas that need improvement.The balanced scorecard method involves a clear definition of the business strategies. Itusually takes several intense brainstorming sessions in which high-level management shouldbe involved. The participation of managers of all lines of businesses within the organization isvery important in order to consider all functions and processes involved. Transparent17 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  18. 18. communication and fluid interaction between all levels and departments may be one of thekeys to the success of a business.Robert Kaplan and David Norton highlighted four main steps in the design process of theBalanced Scorecard. First, the management has to translate the company’s vision intooperational goals. Then, the vision needs to be communicated and linked to individualperformances. The third step is business planning. And last but not least, the fourth step,which often gets overlooked, involves obtaining feedback and applying the lessons learned inorder to adjust strategies accordingly.18 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  19. 19. 3.1 Presentation of the Case Study3.1.1 Lend Lease Corporation Brief OverviewLend Lease Group, inc. is a multinational property development, property management andinvestment company based in Australia, which became one of the world leaders in providingfully integrated property solutions.3.1.2 Core CapabilitiesThe company built its position out of a highly efficient process including development,investment management, project & construction management and asset & propertymanagement capabilities, together with a strong commitment to creating and buildinginnovative and sustainable solutions, forging partnerships and delivering solid investment solutions,returns.3.1.3 Lend Lease Corporation Logo3.1.4 Lend Lease Corporation Brief History 7Lend Lease Corporation was born out of a construction business founded by Dutch immigrantDick Dusseldorp in the 1950s.The founder visited Australia looking for opportunities as partof the Dutch Company Brederos Bouwbedrijf. After his visit, Lend Lease Corporation was Bouwbedrijf.formed in 1958, to provide finance for building contracts being undertaken by Civil andCivic, as the largest shareholder. He signed a productivity agreement with the BuildingTrades Union after wining stage one of the Sydney Opera House. 8In the 1960s Lend Lease introduce superannuation for staff 20 years before becoming easeindustry practice, and becomes a progressive employer The company acquires Civil & Civic employer.from Brederos Bouwbedrijf expanding its operations all over Australia, and commences in Bouwbedrijf,New Zealand. The "Australia Square" opens becoming the country’s first lightweight concrete .building.7 Lend Lease Corporation History Highlights,Source: http://www.lendlease.com/llweb/llc/main.nsf/all/all_who_history8 Lend Lease Corporation History, source: http://en.wikipedia.org/wiki/Lend_Lease_Group19 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  20. 20. In the 1970s, Lend Lease established new brands in Singapore and the United States. Thecompany introduces Profit share for employees in Australia, continuing as a leader inemployee benefits. The Annual revenue exceeds $300m. The GPT group is formed, becomingone of the first and largest diversified property trusts in Australia. The company invests A$100m to open "MLC Center". The Prime Property Fund is formed, as one of the firstcommingled real estate accounts for US pension funds.In the early 1980s, together with the founder retirement, Lend Lease starts to be perceived asone of Australia’s leading blue chip companies, while continues to set the benchmark inemployee benefits. Australian Prime Property Funds (APPF) is founded to provide theopportunity to institutions to invest in Australian portfolios properties managed under a newprofessional platform. ACTU/Lend Lease Foundation is established as a way of encouragingpeople acquiring new skills, and looking after employee and community wellbeing. The LendLease Youth Council, the Lend Lease Apprentice Council, and several Equal OpportunityManagement programs are created. Lend Lease acquires the MLC Center becoming a whollyowned subsidiary. The Sydney Football Stadium and National Tennis Centre in Melbourneare completed.In the 1990s, both the formation of Actus Lend Lease to develop large-scale military housingcommunities, together with the acquisition of Bovis-P&Os Global Project Management,build up the companys International operations. In addition, Lend Lease expands itsoperations through the Americas and Asia and commences in Europe with the acquisition of 5real estate investment businesses from AMRESCO and The Boston Financial Group. TheBluewater Center opens, becoming a major retail and leisure destination in Europe. At thesame time, the Aquatic Centre at the Sydney Olympic site opens its doors. The EmployeeShare Plan Program is extended to US while the Lend Lease Foundation becomes global.Australian Prime Ministers Award for Business and Community Partnerships is given to theLend Lease Corporation.In the beginning of the 2000s, Lend Lease celebrates its 50th Anniversary. The companyfocuses its capabilities towards becoming one of the world’s leading fully integrated propertysolutions providers, after acquiring the MLC Center and several investment managementbusinesses in the United States. Major sales were the US Real Estate Investments EquityAdvisory, IBM Global Services Australia, Lend Lease Mortgage Capital / Holliday FenoglioFowler, and Housing & Community investing / CapMark Services. Probably one of the mostimportant ones is the Australian firm Delfin Corp., focused in residential communitiesdevelopments. The acquisition of Babcock and Brown Communities, rebranded as Lend LeasePrimelife, made Lend Lease Australias largest provider of "senior living" retirement villages.20 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  21. 21. Another major acquisitions was The Crosby Group plc., a urban regeneration specialist in theUnited Kingdom. The company wins a £1.5b "urban regeneration" in London, which includesAthletes Village at Stratford City. The GPT Group decides to split from the company andinternalize management. Millers Point Youth and Employment Partnership, chaired by LendLease, wins NSW Prime Minister’s Community Business Partnership Award for Excellence.In the past five years, Lend Lease has developed Australia’s first 5 Star Green Star and 6 StarGreen Star buildings. The company was selected as developer for Stage 1 of Barangaroo, thelargest CBD development in the history of Sydney with an end value of A$ 6 billion. Onanother major event of its history, Bovis Lend Lease is selected by the WTCMF (World TradeCenter Memorial Foundation) as Construction Manager for the US$360 million Memorial andMuseum to be built at Ground Zero in New York.99 Bovis Lend Lease History source: http://www.bovislendlease.com/llweb/bll/main.nsf/all/all_who_history21 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  22. 22. 4.1 External Environment Analysis4.1.1 Introduction to the Property Industry heThe Property industry or Real Estate Industry has shown over the last few decades one of thehighest growth in the world’s economy. Since the development of private property ownership,real estate has become a major area of business. The industry has evolved into several distinct edfields, and many different businesses have been created as a result of this, including propertyappraisal, property brokerages, property development, property management, real estatemarketing, real estate investing, relocation services, and corporate real estate. These services,businesses may specialize in a particular type of real estate, within each field, such asresidential, commercial, or industrial property. In addition, almost all construction businesseffectively has a connection to real estate.The market sector value, according to a study run by ¨The Economist¨, in developedeconomies, Real Estate Assets at the end of the year 2002 were valued in $115 trillion USdollars, and the breakdown was the following: $48t for residential, $14t for commer commercial, $20tfor equities, $20t for government bonds, $13t for corporate bonds. These make real estateassets 54% and financial assets 46% of total stocks, bonds, and real estate assets, withoutcounting bank deposits, insurance ¨reserve assets¨, natural resources, and human assets. resources,The current conditions facing the industry are difficult as a consequence of a severe economicdownturn over the past two years produced by an extremely high speculative environmentthat ended up with the Global Financial Crisis10 and the Subprime Mortgages Credit Crisis11in 2008, becoming the deepest recession since the Great Depression of 1930 1930.The map shows in red the most affected economies in the world and those where the impactwas less profound. In the following graph, it is clear the change in the US Subprime lending10 Global Financial Crisis, source: http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%93201011 Subprime Mortgages Credit Crisis source: http://en.wikipedia.org/wiki/Mortgage_crisis Crisis,22 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  23. 23. and its significant expansion between 2004 and 2006, which ended being a major factor forthe collapsing of the financial system.After two years, there are still risky clouds when we analyze the immediate outlook.However, there seems to be many opportunities in the property industry both for thosecompanies which remain liquid as well as for redefining the political agenda and theregulatory system.In Australia for example, Governments have not only stimulated economic activity with ,national-building investment programs, they also have committed to modernize the rules that buildinggovern the marketplace. The main present concerns are engaging governments to create newideas in order to redefine the regulatory tax and investment framework. They want to re regulatory, re-connect the marketplace and re engage the key stakeholders, regulators and customers with re-engageproperty industry leaders.4.1.2 Overview of the main fieldsThe main fields analyzed in this piece of work are Real Estate investment, property Estatedevelopment, property management and construction.Investments in Real Estate involve the purchase, ownership, management, rental and / or saleof real estate property to generate a profit. The corporation designed for investing in realestate is named REIT – Real Estate Investment Trust. This type of investment reduces oreliminates corporate income tax. In return, REITs are required to distribute 90% of their23 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  24. 24. income, which may be taxable, to its investors. This structure was designed to provide asimilar framework for real estate investment as mutual funds provide for investment in stocks.This type of corporation can be held as a private or public company, being the last one able tobe listed on public stock exchanges and can be qualified as a mortgage, equity of HybridCompany.Real Estate Development is a multifaceted type of business, which encompasses activitiesfrom renovation of existing buildings to purchase of raw land and the sale of improvedparcels to other individuals or companies. The Developer coordinates activities orchestratingthe development process. They are typically in charge of purchase land, determine themarketing of the property, develop the building program and design, obtain the necessarypublic approval and financing, build the structure, and lease, manage, and ultimately sell it.This may include financing the real estate deal, building or having builders build a project,creating, imagining, and controlling the process from the beginning to the end. Architects,city planners, engineers, surveyors, inspectors, contractors, leasing agents are some of thecounterparts that participate in the process. The main goal of the developer is to convert anidea into a real property that can be considered a Real Estate product. The developer is theone who takes the greatest risk and receives the greatest rewards in the industry.Property management is the field that deals with all the Real Estate operations forcommercial, industrial and/or residential properties taking a managerial role similar to otherbusinesses. It also includes the management of all personal property, equipment, tools andphysical capital assets acquired and used to build, repair and maintain the property. Themanagerial role involves the processes, systems and manpower required to manage the lifecycle of property including acquisition, control, accountability, maintenance, utilization, anddisposition.12Construction is considered a process that consists of the building or assembling aninfrastructure, as part of the field of architecture and civil engineering. At a large scale,construction is a multitasking group of activities. The job is managed by a figure namedproject manager, and supervised by others called the construction manager, design engineer,construction engineer and / or project architect. An effective planning, including technicaldocuments, scheduling, budgeting, availability of materials, logistics, legal documentation,site safety, environmental impact analysis, is essential to reach a successful execution of aproject.13 The main stakeholders and activities can be found in the appendix.12 Property Management field description, source: http://en.wikipedia.org/wiki/Real_estate13 Construction Industry Introduction, source: http://en.wikipedia.org/wiki/Construction24 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  25. 25. 4.2.1 Introduction to the Construction IndustryThe global construction industry is one of the biggest and most important industries in theplanet. The industry is mainly based in urban areas, being its contribution to the world’seconomy is extremely important both as a growth producer and employment generator aswell. Its input to the global GDP reaches one tenth of the globe’s cumulative amount, and it isthe provider of almost seven percent of the total employed person in the whole world. Theannual construction total spending estimation is close to $2.3 trillion, where $1.2 trillion wasspent in the US alone during the last period prior to the Global Financial Crisis. The offset ofits boundaries has become so immense that the energy, in the form of electricity or fuel,consumed by the industry is around two fifth of the total energy consumed all over the planet.From another point of view, the consumption of resources is also extremely high reachingalmost fifty percent of the total global resources.This very heterogeneous industry is considered the base of the world’s economy, achievedthrough development and construction of residential and commercial real estate properties,and of hard infrastructure projects including bridges, tunnels, roads, railway tracks, airports,and soft infrastructure projects such as education and health facilities. This is the reason whyeconomists analyze the World Construction Industry a method to judging the performance ofthe economic condition of a country. 14The industry has experience a boom in the past few decades and suffered several crisis due toits cyclic characteristic. The growth of the world population, especially in the "Asian Tiger"countries, China and India, has accelerated the process.The industry Facts: 15Inputs > it is the largest sector in terms of energy consumption • 2/5 of energy consumption worldwide and 1/2 of global resource utilizationOutputs > it is one of the highest influential industries for the worlds economy • Generates 1/10 of the global GDP and offers 1/7 of global employment14 World Construction Industry details,Source: http://www.economywatch.com/world-industries/construction/world.html15 World Construction Industry facts, source: http://www.economywatch.com/world-industries/construction/25 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  26. 26. The industry has been conservative and organized and unions have strong presence especiallyin developed economies. On the contrary, in developed countries is still unorganized. Growthhas been lower in comparison to other industries, being efficiency one of the main issues toreduce speed of development. Interoperability issues have probably been one of the majorproblems.16 Only in the US market $15.8 billion has been lost due to inefficiencies. However,major shifts have started to affect the industry since the inclusion of software andcommunication technologies.174.2.2 Innovation Adoption in the Construction IndustryThe construction industry has been characterized by its slow adoption of innovations, mainlybecause of some impediments. The most relevant were the resistance to change both byhumans and institutions, perception of undesirable supplementary project risk associated withinnovations, fragmentation of the industry producing a lack of financial mass necessary topursue innovation, and ineffective knowledge management due to the uniqueness of itsproducts that affected mass manufacturing principles and innovation. In summary, the focuson the short term project-based conception and the cyclic quality of the business, blockedcontinual improvement processes in the industry, while companies were more concerned indealing with new delivery methods, design standards, and legal structures for every project. 184.3.1 Current Challenges and Future TrendsThe World Construction Industry is currently facing a number of deep challenges that aredriving by internal and external forces. These conditions are motivating some profound16 Interoperability, source: http://en.wikipedia.org/wiki/Interoperability17 Stakeholders & engineering process,Source: http://en.wikipedia.org/wiki/Engineering_process_outsourcing#AEC_stakeholders18 CII, Breakthrough Strategy Committee (BTSC),Source: t https://www.construction-institute.org/scriptcontent/break.cfm?section=break26 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  27. 27. transformations in the way in which people design, build, operate, and maintain buildings andinfrastructure. While these new approaches allow to design and create new technologies toaddress challenges in the construction industry, innovations will probably affect other sectorsof the value chain such as operations, security, maintenance, emergency planning, and of 19course, urban planning, at both short and long term. An overview analysis of the majorchallenges facing the industry is essential to understand such a complex environment.Moreover after the global financial crisis, that came as a consequence of the high speculativeenvironment at the end of 2007.4.3.2 Global Demographic Trends & ChallengesDemographic changes are a major trend not only for the Property and Construction Industry,but also for the whole world economy. It is a known fact that human population is growing.This growth is impacting deeply from different perspectives. The main three impacts are theaging growth, the disparity between population growth and GDP growth, and the urbangrowth.Professor Joel Cohen from Rockefeller & Columbia University is a specialist in this subject.In a lecture given in May 2009 at the Hebrew University20, he mentioned and demonstratedhow "the World economy grew faster than population in 20th century". GDP per person grewmuch faster than human population. According to his study, in 1900, human population was1.6 billion, GDP per person was $1,263 and World GDP was $2 Trillion. In 1950, humanpopulation was 2.5 billion, GDP per person was $2,138 and World GDP was $5 Trillion. Andin 2000, human population was 6.1 billion, GDP per person was $5,204 and World GDP was$32 Trillion. The result of this study allows concluding that more people live in poverty todaythan in 1900. It has been calculated that 2.7 billion people live under US$2 per day.21 Theseare very complex issues that stand outside the boundaries of this paper. However, it isprofoundly affecting the way people is living and will be living in the next generations.The third major demographic trend is Urban Growth. The year 2007 represented an inflexionpoint where the majority of human population appeared living in cities for the first time inhistory. According to Cohens study, in the year 2000, both rural and urban populationreached 3 billion people. By 2050, it is expected to have 3 billion people living in rural areasand 9 billion living in urban conglomerates. This impressive statistic shows that within the19 Blog Between the Poles, All about infrastructure,Source:http://geospatial.blogs.com/geospatial/2007/09/convergence.html20 Human Population to 2050: Problems and Opportunities.Source: http://www.youtube.com/watch?v=-4vOz5JmBPA&feature=channel21 Human Population to 2050: Problems and Opportunities, Professor Joel Cohen from Columbia University.Lecture at the Hebrew University. Source: http://www.youtube.com/watch?v=-4vOz5JmBPA&feature=channel27 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  28. 28. next 40 years urban residents will quadruple its size, becoming 3 times larger than ruralpopulation. Even though the majority of the shifts impacts will affect developing countries,especially middle range cities (1-5 million), this is a global trend. As a consequence, to supplythese demand humans must be building an equivalent of a 1 million people city every 5 daysuntil 2050. Many issues will have to be taken into consideration in order to maintain anaverage life quality, as Energy, Water, and Waste Management will become top priorities.Energy consumption will be extremely increased and much more efficient cities will berequired. Moreover, in countries like China or India, urban growth could probably affect foodavailability generating a social disaster.22 It sounds extremely problematic indeed.Furthermore, in the next decades the global population aging over 60 years old (60+ plus) isexpected to increase from 10% to 23%. By the year 2050, 60+ is expected to triple and 80+.This is a major phenomenon shaping human demographics, and this change seems to be amajor trend affecting many industries, and the property industry is not an exception.In Professor Cohens study, he declared that "aging is a problem bought by success." He saidthat "lower fertility and long life, especially in developed countries are the two main drivers,being lower fertility its first contributor". In addition, Dr. Cohen demonstrated the differencesaffecting the demand for energy consumption connected to aging, comparing a standardfamily household with older residents. The contrast was clear. The study illustrated thevariables driven by aging showing how residential energy consumption increases, whiletransportation energy consumption decreases. As a result, older household consumption ishigher than younger household energy consumption. Finally, to summarize this idea, heexpressed that "US, China, India & Africa geographies are the main affected by this trend".This study demonstrates the importance of becoming a specialist in the retirement sector inorder to both providing sustainable solutions to mitigate the forecasted impact, plus takingadvantage of the huge market trend as well.4.3.3 Global Climate Trends & ChallengesThe awareness of the global warming phenomenon has increased from 11% to 35% in theUnited States between 2003 and 2006 according to the Global Warming Survey run by theresearch institute of MIT. In addition to this, in the US alone (the main energy consumerworldwide), buildings are responsible for over 39% of total energy consumption, 68% of totalelectricity use, and 38% of the total carbon dioxide emissions. These facts in conjunction arecausing a strong pressure on the industry to replace old techniques and to renovate oldbuildings to minimize impact on the environment as well.22 Human Population to 2050: Problems and Opportunities, Professor Joel Cohen from Columbia University.Lecture at the Hebrew University. Source: http://www.youtube.com/watch?v=-4vOz5JmBPA&feature=channel28 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  29. 29. As a consequence, in recent years, Green Council organizations are becoming moreinfluential in many countries, being the UK, the US, and Australia on the front seat of thisrevolution. Environmental organizations are pressing to reduce fossil fuel consumption ofbuildings by 50 percent by the year 2010, pursuing the goal of achieving carbon-neutralbuildings by 2030.The Leadership in Energy and Environmental Design Green Building Rating System (LEED),developed by the U.S. Green Building Council (USGBC), is setting the standards to achievingenvironmental sustainable solutions for the AEC industry. Since its creation in 1998 untilpresent, the organization has incorporated more than 14,000 professionals all over the US,which has represented more than 1,062 billion square feet of development (July 2007 USGBCfigures).4.3.4 Infrastructure Trends & ChallengesThe issue of infrastructure becoming obsolete is expected to be a major problem in manyparts of the world. The American Society of Civil Engineers (ASCE) presents reports everytwo years on the situation of infrastructure in the United States, where evaluates roads,highways, and transit among other sectors. Between 2003 and 2005 the grading has beendecreasing and barely being approved. The organization has estimated traffic congestion costsfor the US economy at $67.5 billion annually in terms of lost productivity and wasted fuel.Moreover, the Federal Highway Administration (FHwA) has reported that outdated road andbridge designs, pavement conditions, and safety low standards have implications in one thirdof all fatal highway accidents. The ASCE estimates on average 43,000 fatalities per year onvehicle accidents in the United States, with a cost of $230 billion per year to all U.S. citizens,which can be translated into $819 per resident on medical costs; lost productivity; traveldelay; and workplace, insurance and legal costs every year.The ASCE estimates an investment of $1.6 trillion over five years is required in order to bringUS infrastructure to good condition. Considering the US as one of the most advancedcountries in the world, it becomes clear that aging infrastructure is global problem.29 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  30. 30. 23The graphs show en estimation of the square footage that will be renovated betweenthe year 2010 and the year 2035, emphasizing the impact of old infrastructure on theeconomy and the construction industry.4.3.5 Technological Trends & Challenges“New computer programs may soon change the way groups of people work together -- andstart delivering the long-awaited payoff from office automation.” 24 By Louis S. Richman REPORTER ASSOCIATE Julianne Slovak June 8, 1987One of the most significant aspects that are associated with the industry trends is howtechnology is affecting every process, the way people connect to each other and the way23 Architecture 2030.org24 CNN Money, Fortune Magazine quotation, source:http://money.cnn.com/magazines/fortune/fortune_archive/1987/06/08/69109/index.htm30 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  31. 31. activities take place. These IT technologies are pacing up the work thanks to several cuttingedge technologies which are being implemented, mainly to raise the efficiency level ofengineering and designing in the industry. 25The adoption of several different types of software application systems developed since 1982,when Autodesk, Inc. first release its famous AutoCAD software, set the beginning of arevolutionary transformation, which changed the way stakeholders relate with each other.Nowadays it is very rear to find a company or a professional who is not familiar or evenproficient with these systems, which became a basic skill necessary to participate in theindustry. The AutoCAD26 has been extensively adopted as a “sort of standardized” CAD(Computer Aided Design or Computer Aided Drafting) software application for 2D and 3Ddesign and drafting. The program was one of the first to run in personal computers. At thattime, most of the versions used primitive entities such as lines, polylines, circles, arcs, andtext to virtually construct objects. Since the mid 1990s, with the API (Applicationprogramming interface), modern AutoCAD began to include a set of basic solid modeling 3Dtools. The program is available in several languages including English, German, French,Italian, Spanish, Japanese, Korean, Chinese Simplified, Chinese Traditional, Russian, Czech,Polish, Hungarian, Brazilian, Portuguese, Danish, Dutch, Swedish, Finnish, Norwegian, andVietnamese to reach the most important domestic markets. In the past 20 years, AutodeskR&D department lead the market, releasing all types of software solutions focused onproviding the AEC Industry with the necessary support to successfully accomplish the mostadvanced and complex projects. With all this amazing technology in place, however, there25 Source: http://www.economywatch.com/world-industries/construction/trends.html26 Autodesk, AutoCAD Software, Source: http://en.wikipedia.org/wiki/AutoCAD31 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  32. 32. still was a wide gap to cover in terms of how all this valuable information flows among thebig number of stakeholders in a clear and efficient way.In the recent years, many other advanced solutions for architecture, engineering, andconstruction were release by Autodesk,27 including AutoCAD Architecture, AutoCAD MEP,and AutoCAD Civil 3D, 3D Studio and Maya for modeling complex 3Dimentional surfaces.But without any doubts, the most important technology recently created is the 3D rendering &simulation model, being the relational Building Information Modeling (BIM),28 systemreleased in 2005 under the name of Revit Architecture, the most popular in the marketplace.This technology has touch the mainstream only in some developed countries, but willprobably become a worldwide standard in the next two to three years, same as AutoCAD was.From the project management point of view, the globalization process of the world’seconomy that came together with the evolution of the Internet during the mid-1990s, shapednew geographical boundaries. During the past few years, development teams increasinglybecame more remote generating a major change in the projects dynamics, its teams, and thusthe way to be managed. As a consequence, the project management started to evolve intomore collaborative processes. Big companies such as Boeing or IBM, started to adopt the firstgroupware commercial products, using electronic meeting systems to leverage key internalprojects. This phenomenon has created a need for new tools to address the gaps that emerged.Collaborative software (also known as groupware or group support systems) is a technologydesigned to help people involved in a common task achieve their goals. Several Collaborativeproject management tools (CPMT) are being developed to cover all detailed aspects ofcollaboration activities and management of the overall project and its related knowledgeareas. CPMT mostly considers business or corporate related goals with some kind of socialboundaries most commonly used for project management. Collaborative Management Toolsfacilitate to manage group activities, using several tools such as Electronic calendars, Projectmanagement systems, Workflow systems, Knowledge management, Prediction markets,Extranet systems, Social software, Online spreadsheets, Online artwork proofing, feedback,review and approval tool, HR and equipment management, Time and cost management,Online chat, Instant messaging, Telephony, Videoconferencing, Web conferencing, Dataconferencing, Application sharing, Electronic meeting systems (EMS), Synchronousconferencing, E-mail, Faxing, voice mail, Wikis, Web publishing, Revision control, Charting,27 Autodesk, Source: http://en.wikipedia.org/wiki/Autodesk28 Building Information Modeling (BIM), Source: http://en.wikipedia.org/wiki/Building_Information_Modeling32 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  33. 33. Document versioning, Document retention, Document sharing, Document repository,Evaluation and survey, and more.29 304.3.6 Information Trends & ChallengesThe property industry lifecycle includes planning, development, design, construction,operation and maintenance of facilities. The disciplines involved include developers,architects, engineers, telecommunication companies, and local governments, just to mentionsome participants. There are many specific software applications for architectural design,structural engineering, civil engineering, land development, geospatial, and surveyingapplications. Historically each discipline remained isolated from the rest and kept its ownisland of technology and information. As a result of this, often logistics turned into anightmare and operating costs became a major concern to owners, managers and operatorsreaching 90% of the facility cost over its life period. However, whether we are developing abuilding or a hard infrastructure project, the lifecycle is being compressed.These disciplines are classic information islands of comprised of data. The biggest challengeis not getting the data that already exists, but having the appropriate access to these islandsthat make it very difficult to integrate the existing information. As an example, when anemergency occurs, the rescuers need immediate availability to information regarding how thebuilding works, in terms of interiors, surroundings, access, telecommunications, etc. Currentlythere are no applications that enable access to all design and geospatial necessary files to dealwith an urgent situation.29 Collaborative Software, Source: http://en.wikipedia.org/wiki/Collaborative_software30 Interoperability, Source: http://en.wikipedia.org/wiki/Interoperability33 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  34. 34. The utility companies are facing similar challenges worldwide when they need to analyze thedata flowing within teams. Operators use CAD applications systems, large-format printings,GIS tools and databases to record the documentations and operations. The information flowresult usually is very inefficient characterized by data redundancy, redundant processes, andpoor data quality.A study run by The National Institute of Standards and Technology (NIST) trying to quantifythe efficiency in the capital facilities industry in America, showed redundant paper recordsacross the entire facility life-cycle. The research on interoperability issues including design,engineering, facility management, and business processes software systems estimated in$15.8 billion as inefficient capital facilities cost. The NIST estimated that over 60% of thisamount is directly related to operation and maintenance by owners and operators.4.3.7 Workforce Trends & ChallengesThe contraction of the workforce is a worldwide phenomenon. Statistics predict that countrieslike Canada, Germany, Italy, the UK, the US, Japan, and China will face difficulties toreplace workforce going on retirement with the new generation. Declination of labor forcebetween 34 and 44 years old is predicted to reach an 8% to 21% range of between 2010 and2016 especially in developed countries, according to "Managing the Mature Workforce"Conference Board study. In addition, workers aged 55 to 64 are expected to increase up to52%.A study from the American Public Power Association (APPA) has recently reported that theloss of critical knowledge and the inability to find skilful replacements are the biggestchallenges facing this industry. The organization declared that the average age of workers isnear to 50 and by the year 2010, 60% of the current experienced workers will retire.34 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  35. 35. A report by the U.S. Department of Labor Employment and Training Administration (ETA)showed in 2004 that the construction industry is also experiencing a shortage of workersidentifying several challenges including the main two trends: the growth of the industry, andthe retirement of the “baby boomers". The workforce contraction problem affects utilities aswell as the construction industry. In addition to this, in a recent survey of career trends in theU.S., a career in construction ranked 248th out of a possible 250 career choices.4.3.8 Productivity Trends & ChallengesThe competition within the construction industry is very high, and companies must constantlyimprove their performances to remain in the market. This challenge of continual productivityimprovement is reaching critical proportions. The US Bureau of Labor Statistics showed thatperformances of the construction industry have declined in the last 40 years, together with a200% growth of non-farm productivity in the same period.35 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  36. 36. 4.4 PEST Analysis for External Environmental ExaminationAn environmental examination has been carried out, analyzing the main variables affectingeach of the areas of the Property Industry Environment where the company participates.4.4.1 Political Environment4.4.1.1 Increased Participation of Governments – G20 • G20 Stimulus o Political efforts towards economic stimulus • Political actions towards stimulation of infrastructure developments • Increasing Political Response on Climate Change Regulation o World Green Building Council o United Nations Principles for Responsible Investments (UNPRI) o Clinton Foundation Climate Initiatives • Increased regulatory environments o Mandatory trading carbon schemes o Green building councils o Green challenges: Focus on increase collar of workers, Focus on retrofitting, Increase sustainability standards, Thumb up for green technology. • Tax incentives for Pharmaceutical Industry o US, Singapore – Puerto Rico • Stimulus on Public Private Partnerships Models 31(PPPs) as preferred mechanism o Australia, US, Canada, China. Not very strong in the UK. • Current- urgency to let projects out o Future- privatization trends to rebalance budgets • Trends o towards energy and water (alternative energies) o Big urban redevelopment (Australia, UK, China) o Emerging countries4.4.2 Economical Environment4.4.2.1 G20 Economic Stimulus • UK- tax incentives to encourage energy efficiency and low carbon growth o $750 Millions - industrial incentives o $250 Millions - education incentives31 Private Public Partnerships (PPPs) Model,Source: http://en.wikipedia.org/wiki/Public%E2%80%93private_partnership36 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  37. 37. o $70 Billions / annually – 10 years period • Australia o Total incentive $54 Billions o $3 Billion healthcare o Federal desire to privatize health • US- Obamas Huge Stimulus Package o $790 Billion total o $130 Billion to infrastructure and construction o $28 Billion social infrastructure (health and education) o Focus on refurbishment & Green building4.4.2.2 Global Property Market Conditions o After Global Financial Crisis, markets remain very challenging o Affected market conditions o Bonding and insure markets still tight o $1.4 Trillion commercial real estate loans 2010-2014 responsibilities o Threads to American economy o UK ↓--- very low confidence o Europe ↓ o US residential commercial retail ↓ o US Social infrastructure ↑ o ↑ Asia → China, Singapore, emerging countries: India, Thailand, Malaysia o Australia ↑--- extremely strong o Dubai ↓ --- no signs of recovery o Middle East ↔ very low confidence o Singapore ↑ o Emerging countries ↑- Brazil, Mexico, India, Russia o Other countries growing: Chile (economic laboratory), Central America (Costa Rica stability), Nord Africa & South Africa4.4.2.3 Transaction activities ↓ decreasing o Commercial real estate markets frozen o Residential markets in US & UK 70% less since 2006 o Residential markets in AU ↑37 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  38. 38. 4.4.2.4 Investor Stage of the Property Cycle o ↑ Competitive environment o ↑ pressure on pricing o ↓ direct negotiations o Decrease on margins o Liquidity, a lot of opportunities for good deals due to slow market o ↓ New projects in the US, Europe, Africa and Middle East o Competitors struggling o Competitors selling o ↑ Super annuation funds under management4.4.2.5 Market Trends o A- REITs de-risking (AU) o Development decreasing activities (passive market) o Residential markets ↑ (AU) o Retail sales slow o Pharmaceutical Sector – US, Singapore ↑ o Investments in green R&D ↑ o Sustainable Business markets ↑ o Sustainable refurbishment market ↑4.4.3 Social Environment4.4.3.1 Climate change cultural shifts o Environmental imperative perception o Green awareness o World Green councils o Discussions on sustainability ↑ o Agenda on sustainability o Organizations, Contractors & clients within the industry o Corporations giving sustainable reports due to social pressure o Pressure on new Triple bottom line Assessments (Not only financial)4.4.3.2 Demographics o Global population ↑ o Urban population ↑ o Aging population ↑38 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  39. 39. o Retiring population ↑ (baby-boomer generation) o Generation Y revolution4.4.3.3 Personal Income ↑ (Developing Economies Growth) o Demand for quality products and services ↑4.4.3.4 Workforce o Global market crisis layoffs o Labor force quality and security ↓ o Global downsizing o Construction industry global unemployment: 24,9 %4.4.3.5 Major Social Events o World Expo 2010, China o World Cup Soccer 2010, South Africa o Olympic games 2012, London4.4.3.6 Information & Communication Revolution o Collaboration evolution o Organizations reaching new ways of collaboration & teamwork. o 24 organizations + "Architecture 2030" asking congress to update building codes to meet energy reduction standards o Energy reduction audits & benchmarking o Industry Organizations moving towards collaboration ENVI, BSRIA, COMIT, ECBP, IMPRESS4.4.4 Technological Environment4.4.4.1 Communication Revolution o New Network of Connectivity o Autodesk – Labs & Collaboration o Building Information Modeling (BIM) 1st 100% BIM generated Building o Collaborative Project Management (CPM) o Interoperability (Public Safety) o Automation technology39 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  40. 40. 4.4.4.2 Sustainability o Still high Advocacy & Research but low Commercialization o R&D in Energy ↑ o Testing Rapid Energy Modeling Systems o New Measuring systems "BREAM"4.4.4.3 Technological advancement in new materials o Technology developments in: o Advance materials o Bioscience & healthcare o Design, engineering & advanced manufactured products o Electronics & photonics o Information & communication technology o Sustainable production & consumption4.4.4.4 Active R&D Organizations o CASE Organization (SOM), ISC Project, AVANTI Project, Building Off-Site Project, BRERFID, STRATEGIC RISK, VALID, NGCC4.4.5 Physical Environment4.4.5.1 Physical Interventions and Renovations o 80% of existing buildings in 2010 will exist in 202040 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
  41. 41. 4.5 Porter Five Forces Analysis OverviewThe World Construction Industry has been deeply affected by the Global Financial Crisis.Since September 2008, the world has witnessed the fall of the Stock Markets, failure of thebanking system, and a massive amount of bailouts. This uncertain environment has delayedand cancelled projects worldwide at a rate that has no precedent. In addition, headlinescontinue to report negative outcomes in the United States, Europe and the Middle Eastcountries, and raising the alarm of declining confidence. Most sectors of the industry arefacing their most severe downturn in more than twenty-five years, after an extended period ofeconomic growth and prosperity.The mentioned factors have dramatically shifted the forces affecting the industry in the lastthree years. While some of them might be seen as temporal variations due to the currentmarket conditions, others will re-shape the future of the industry in the years to come.Comparing the industry in 2007 with 2010, today we can find a decreasing threat of newentrants, where new competitors have lost the attractiveness or incentives to enter theindustry. There is a decreased bargain power of suppliers, where contractors have lost theability to put pressure on customers. On the other hand, there are increasing threats ofsubstitute products, thanks to an availability of suppliers of property and constructionservices. An increasing bargain power of buyers is the result of an increased ability ofcustomers to put pressure on the industry participants. Finally, a remarkable increase incompetitive rivalry is the consequence of ferocity of a distressed competition with poorpipelines, anxious to get some of the fewer projects available in the market. These changingdynamics between the industry stakeholders (contractors, competitors and customers), lead toa drastic change in the competitive environment, bringing uncertainty to the industry.Although this has been a worldwide phenomenon affecting most industries and markets of theglobal economy, both the Real Estate and the construction industries have been probably themost affected ones. The main reasons for this crisis were the increase speculativeenvironment, the growth in the commodities prices, and the collapse of the banking systemtogether with the subprime crisis, which produced a universal loss of confidence. The fact thatin any economic downturn affecting the global economy, the first being damaged willprobably be the property industry might be related both to its high productivity and itsworkforce generation capacity.3232 See appendix. FMI Management Consulting-Investment banking for the construction industry.Construction Industry Strategic Survey 2009, “Strategy in the eye of the Storm”, Exhibit 1.Source: http://www.fminet.com/article/58741 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY

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