Information Driving ROI

Since I last posted, lots have been happening. Specifically, the sub prime mess has hit, many financial service firms are still not sure how much they’ve lost, credit markets have tightened, and subsequently real estate prices have been affected. What is apparent is that the need for accurate and timely information is paramount.

This brings me to our annual summit, which we hosted several months ago. The Summit is a great opportunity for our clients to share their company’s information challenges and strategy with each other, both in informal conversations and through formal presentations. The overriding theme was that the amount of information a company collects is expanding at an exponential rate and that companies have to successfully harness it to maintain and improve operating efficiencies, profit margins, and competitive positioning. (scale, grow, and manage risk).

The discussions were very exciting and focused on the many ways in which clients are using Request to improve business processes. Here’s what we heard:

- Increasing the data set that resides in our warehouse;
- Providing third party data contributors with the means to populate Request directly;
- Providing third party information consumers ways of directly accessing Request;
- Streamlining other process solutions to reside within Request so that they are made more efficient and to bring more eyes more often to Request…reinforcing the goal of Request being the single source of the truth and the one place to go to get all information on investment and portfolio level data.

Two specific examples that were focused on reflect the above thinking:

- A client’s 3rd party property managers contribute key information to the owner’s annual asset plans. The property manager’s information is delivered through excel spreadsheets and word documents. Before this information gets keyed into the asset plan, their write ups must be approved by both the asset and portfolio manager. This results in a lot of back and forth communication between all 3 parties. This time consuming and cumbersome process was streamlined by our client creating input forms for the third party property manager to fill out that then go through a work flow/ sign off process and then get automatically integrated into the asset plans. The benefits are many: no reentering of data, the visibility to see at any one point, what’s been approved and at what stage, the introduction of a consistent process throughout all property, asset, and portfolio managers, and overall…time savings.

- Another client has integrated SharePoint into the Request dashboard. The client uses SharePoint for document management and asset specific content. This information can now be accessed from the Request, with the goal of making Request the one stop shop for asset, portfolio, and investment level information.

This is all driven by the value of information. I was talking to a manager of a large open-ended fund, who stated that one specific report that Request provides could save him a million dollars. Now this is what I call ROI!

A Great Article on Fund Infrastructure

I recently read an article that addresses the booming private equity real estate market. Written by Josh Herrenkohl, Sr. Manager at Ernst & Young, Survival of the fittest funds addresses where the industry's focus has and hasn't been. His discussion of inefficient processes, lack of transparency and technology suggests that the industry could be headed for serious challenges and credibility concerns. Josh does a great job in articulating the risks. Thanks Josh!

Sticking to Your Core - Buy versus Build

Several times a year, people I know ask me if I ever thought about buying real estate. I always tell them that to do that is a full time job, requiring full time focus, and there are companies out there who do that for a living 100% of their day.

In any business, venturing out of your core competency is risky.

Far too often I see real estate companies make this mistake when it comes to making software decisions, namely, buy versus build decisions. When there is already an existing product available, it makes virtually no sense to build. This is a position I feel extremely strongly about and something that experience has repeatedly taught me.

Speaking from experience:

1. Everybody, including most software engineers, underestimates what it takes to develop software correctly...it is extremely difficult;
2. The longer it takes to develop and deploy, the more your business suffers;
3. Don’t stray from your core expertise, you will have a high risk of failure;
4. For the most part, software people want to develop software even when it can be purchased;
5. The first time around for anything is never close to being as best as it can be…your first times are used for learning;
6. Developing software in general has a high risk of failure;
7. Documentation is oftentimes not written, but is critical to the ongoing success of any project;
8. When developing software, even software companies buy as many off-the-shelf components as possible rather than build them. It quickens time to market, reduces the number of employees and areas of expertise needed, and provides continuous improvement in those components;
9. Competition drives greatness and improvement; a software product company needs to keep on improving to succeed. When you build internally, there is no competition, thus your custom-builds will stagnate and quickly become outdated;
10. A product that is used by your peers gets influenced by the experience of your peers; a software solution built internally is all alone and doesn’t benefit from anyone else’s intelligence;
11. Software engineers are in high demand and change jobs often. Do you want more employees or less?
12. What happens when you’re software engineers leave, does the knowledge go with them? Who retrains the new hires on the program? Even with detailed and clear documentation, challenges remain and the business is affected;
13. Buying and implementing an existing application is a lot faster and cheaper than building one…Starting from scratch means business requirements take a long time, developing the database schema and structures demands lots of internal high level business resources, and thinking of reports from a blank slate is always harder than configuring existing ones;
14. Software, like any business, is complex, changing and requires full time focus.

The next time you think about hiring programmers or software consultants, ask yourself a couple of questions “Does this piece of software already exist”; if it does, “Is the software dedicated to real estate”, and then finally, “Does that vendor have satisfied clients”. If the answers are yes, don’t build.

Truth in Advertising

Here at Resolve Technology, we take great offense to Intuit’s claim on their recent press release that their product Impact is “a new, first-of-a-kind portfolio modeling and analysis tool”. For Intuit, it is new, but it is certainly not first of a kind.

• Resolve’s Portfolio Maximizer (RPM) application has been on the market for over a year before Impact arrived;
• IRES has acknowledged Resolve’s RPM product as a competitor to existing MRI clients.

While we take pride that our industry leading vision is being followed by other software companies, we don’t like disingenuous claims.

The Revolution in Information Demand

The real estate industry is in the process of a “demand for information” revolution. Everybody wants it: both internal and external to the organization. The ability to collect it and disseminate is becoming so important that it’s impacting productivity and profitability.

Two key points:

1. Demand for information is growing exponentially;
2. Those companies that can deliver information accurately and quickly will have a huge competitive advantage over those who can't. Over time, this advantage will become a bigger factor in achieving success.

Over the last 6 months, several major events have occurred that support and drive this:

1. We were recently invited to meet with the country’s largest pension fund to discuss ways to streamline their current manual data collection process. They will soon be releasing an RFP to automate this process;
2. Our last 3 Request clients (our business intelligence solution) plan on extending Request to their investors so that the investors can have direct, immediate, and easy access to information that will allow them to become self-sufficient on accessing their investment information (imagine being in a bake-off for investor capital and competing against a firm that offers direct and dynamic information access – I believe this falls under the category of gaining investor confidence and credibility);
3. State Street Bank’s Private Edge Group’s clients have been clamoring for more visibility into their real estate holdings. In response to this, State Street recently licensed Request for the purpose of providing their pension fund clients with automated access into and across all of their real estate investments regardless of investment partner. The first pension fund to sign up for this offering is CalSTRS;
4. At the most recent NCREIF conference in Seattle, 2 firms that help pension funds select which partners to invest in, made separate statements about how the speed in which an investment manager/partner delivers due diligence type information to them is becoming a large factor in rating that investment partner.

The information demanders want their data to be accurate, they want it at their fingertips, and they want to be able to do things with it…like analyze it, view trends, manage risk, and they want to do this over their entire portfolio, eliminating the borders between investments and investment partners.

Currently, collecting and disseminating information is manual, costly, time intensive, and non-scalable. As portfolios get bigger, returns seek their historic norm, real estate asset allocations increase, and investments become more distant (geographically and ownership), information demand will grow and the problem will get worse.

Delivering information in hard copy is inefficient. Posting PDFs on the web for clients to download is almost identical as delivering hard copy. It doesn’t allow the user to do anything with it. Many people think that collecting information through web forms is the solution, but it is not. Web forms mean double entry, and double entry means input errors. On the data receiver’s side, web forms translate into checking the inputs against the hard copy. Web forms also imply that the entity that holds the data does not have an electronic process for using it.

The solution is to pull the information directly out of the source systems that participate in the day to day operations and processes where that information resides. This is the only way that I can think of to keep the data up to date and accurate. Being current and accurate is critical because you will no longer have the luxury of time to create, update, and audit the reports, you will no longer have the time to call around the office to get the information you need. The information has to be in an electronic collectible format to be able to satisfy immediate information demand. Within a company, automated processes have to be in place whereby people use and see the data.

Get ready, because the day will soon be here when your investors will have as much visibility into their portfolio as you do.