Three steps to heaven: marginal gains make a difference

Author: 
Dr Danielle Sanderson MA (Oxon), DPhil (Reading)
Friday, March 10, 2017

The doctrine of marginal gains, the simple idea that the way to outperform in sport is to target small incremental improvements, is now taking the business world by storm.
Dave Brailsford, the performance director of British Cycling, has demonstrated that by making a 1% improvement in a whole host of areas, the cumulative gains end up being hugely significant. For British Cycling this was measured in gold medals won (6 at the Rio de Janeiro Olympic Games).

But can this doctrine be applied to the property industry, and specifically to the landlord and tenant relationship?

That’s what I sought to discover as part of my PhD studies at Henley Business School. I wanted to test whether property returns could be enhanced by finding incremental ways to improve the business relationship between landlord and tenant. The good news is that my research demonstrates that making 3 key improvements in your relationship with tenants can equal huge returns. Let me explain…

Intuitive approach

When I started working as a consultant in the property industry a decade ago, customer service was still perceived by many to be a soft, fluffy, nice-to-have extra – and not the boardroom issue that it is today.

It took a handful of visionaries, the likes of British Land, Land Securities and SEGRO, to set the direction. Their CEO’s could see that the days of treating occupiers with disdain had come to an end. With long commercial leases consigned to history, and lease flexibility the new name of the game, they were quick to grasp that occupiers are mobile and that their custom must be earned. They were among the first to embrace the notion that the provision of commercial property is a business, and businesses need satisfied customers in order to survive.

The early adopters of the customer-focused approach to property management intuitively knew that satisfied customers were more likely to be loyal customers capable of boosting a landlord’s performance in the 3 R’s of real estate:

  1. Revenue = by spending more
  2. Retention = by staying longer
  3. Reputation = by saying good things in the market

But where was the proof? No firm, objective evidence existed to show that investment in so-called ‘soft’ customer service could create ‘hard’ financial returns.

The proof

In 2012, I jumped at the chance to take a break from the world of work and return to university some 25+ years after reading physics at Oxford in the 1980s.

The purpose of my property industry-sponsored PhD at the School of Real Estate & Planning at Henley Business School, part of the University of Reading, was to find out whether good customer service improves commercial property performance. The sponsors – Lord Samuel of Wych Cross Memorial Trust, RealService and RealService Best Practice Group – were looking for objective proof not intuition. To find this evidence I analysed more than 4,400 interviews that RealService had conducted with occupiers of shopping centres, retail parks, multi-tenanted office buildings, business parks and industrial estates over a 12-year period, and compared the financial performance of 274 of these assets with their peers.

The most significant finding in my research is that a rise in occupier satisfaction by one level (on a five point scale) will typically improve total returns by 1.9% a year.

Simply put, a positive relationship exists between financial performance and the satisfaction of occupiers at a property. The potential for marginal gains is huge!

3 Steps to Heaven

So what do you have to do to achieve this significant marginal gain?

An important part of my research involved looking into what landlords need to do to increase occupier satisfaction. Surprisingly, ‘soft’ skills like empathy, understanding and trustworthiness were found to be more important to occupiers than the ‘hard’ financials.

Here’s what I found in a nutshell:
Empathy: Owners and managers who communicate well and can demonstrate a genuine understanding of their occupiers’ business needs will have more satisfied occupiers. This boils down to investing time in building good professional working relationships with occupiers.

Assurance: Owners and property managers who deliver what they promise and can be trusted will outperform. It’s OK for owners to be assertive but never aggressive.

Transparency: It is important that occupiers understand how their service charge money is being spent. Among the best ways to increase occupiers’ perceptions of value for money is to ensure that all documentation is transparent and clear.

The Business Case

My research shows that there is a clear customer experience gap to be closed and the commercial imperative to do it. The timing couldn’t be more important with uncertainty over Brexit affecting property values and intensifying focus on income returns and retention in the light of weaker occupier markets.

The early adopters of the customer-focused approach to property management have been using customer service to provide them with marginal gains and competitive edge for years. We now have evidence that their hunch was right.

I hope that my research findings will encourage more property owners and managers to analyse the impact of their approach to property management and occupier engagement on property performance. This big data driven approach to identifying the things that make a tangible difference is exactly the kind of discipline seen in the world of sport.

My vision is that improving customer experience will become an integral part of an owner’s business strategy and that we will be able to track the marginal gains objectively. I’d love to see the results being reported openly in financial and annual reports as standard practice.

It’s been a long time coming, but with the expectation of a 1.9% total return loyalty bonus, we can expect far more owners and managers to join the gold-rush.

Dr Danielle Sanderson is a senior consultant at customer experience consultancy, RealService, and a visiting lecturer at the Bartlett School of Planning, University College London, teaching various modules including Real Estate Management. She is also a former international athlete, having represented Great Britain 21 times, and is a committee member of the Society of Property Researchers.

Get in contact at info@real-service.co.uk or +44 (0) 203 3393 9603

Friday, March 10, 2017