“Real estate is all about people and relationships” proclaimed the energetic owner of a very successful local real estate agency. Enthusiasm can be infectious. There is no more positive way to start the day than having coffee with a master in their field with a real intuitive ‘gut feel’ for the market and a passion to match.
It is certainly much more enjoyable than staring into a spreadsheet with hundreds of rows of data and calculations. This quantitative feasibility model attempts to predict the future viability of a property development project. It is based on testing logical hypotheses using past numerical evidence and objective ‘humanless’ measurement in an assumed world of fully informed rational participants…..if only.
The authors of “The Moment of Clarity” describe how LEGO, Adidas, Intel, Samsung and others use ‘Sense-making’ to turnaround performance, improve product design and set strategy for their businesses using a very human experiential and contextual approach.
[Madsbjerg, Christian and Mikkel B. Rasmussen, “The Moment of Clarity: Using the Human Sciences to Solve Your Toughest Business Problems”, Harvard Business Review Press, 2014.]
Madsbjerg and Rasmussen describe how relying on quantitative analysis and default thinking means you can miss the future for your business. If you are constantly looking into the past rather than experiencing the present, you will have real trouble grasping the future.
“We call our method sense-making because it describes the experience of connecting the dots amid a sea of confusing data. Through sense-making we arrive at moments of clarity” [page 78].
Sense-making is about really understanding your customers by observing them in their real life context. You collect as much data about them and their interactions as possible. The data is trawled through and analysts given time to let the information ferment to identify patterns from which you create key insights. You forecast the potential impact on your business and only then do you look to build forward looking business solutions [page 105].
Sense-making has many applications to real estate. Especially in residential real estate the numbers you ‘forecast’ are only ever likely to be proven wrong. The most sophisticated econometric analysis cannot predict the turning of a real estate market nor inform us as to the financial metrics of herd mentality.
Purchasing a home characterises the findings of recent studies evaluating how people buy.
“We rarely know what we want. We almost never fully grasp the market and most important, we almost always buy something at a different price than we thought we would” [page 32].
Houses may be purchased in dollars, loans granted in ratios and percentages and floor plans measured in square metres but value is perceived in a very human context. This is where psychology and culture tend to dominate and very often overrule so called rationale behavior (despite what many Valuers think!).
The first action when sense-making is to re-frame your problem as a phenomenon.
“Phenomenology is the study of how people experience life” [page 79].
Rather than trying to jump to find solutions to the question ‘how do we sell more apartments?’ you ask ‘what is the role of inner city living?’.
Instead of saying ‘how do we deliver 1000 houses profitably over the next 2 years?’ you investigate ‘what makes a house a valuable home and where is this value missing most in our society’.
Yes it all sounds very soft and fluffy, but the authors do a much better job than me in showing how this can be used to solve business’s biggest problems.
“Ethnography, the process of observing documenting and then analysing behavior” [page 90] can be used to examine and collect data on inner city living.
Why do people want or need to live in the CBD?
How do they live in their apartment?
How do they travel and what common activities do they undertake?
What do they actually use in the kitchen?
What shops do they commonly visit on their way to and from work?
How do they use cars and parking?
How do they arrange furniture and store household items?
What do they show friends and family when they come to visit?
How is their timetable different or similar to people living outside the CBD?
Let’s say you analyse how people live in the CBD and find a pattern, that whilst everyone has a kitchen, they use the oven on average only once every two weeks but use the microwave daily. On initial inspection of this data ovens are not an important item. However, when guests come over they all comment on how ‘cool’ the kitchen with the large wall oven looks. This may lead to the insight that many apartment dwellers like to be seen to have a full Masterchef kitchen, but rarely actually use it.
The potential business impact when selling could be to focus on the look of the wall oven, not its functionality and sell up the benefits of a full function and regularly used microwave. [Page 155 for associated discussion how Samsung improved market share around by focusing on televisions as stylish pieces of furniture].
Or what if the ethnographer documents the daily activities of stay at home mums (and dads) in a large subdivision. A pattern is discovered how time efficiency for the stay at home parent provides the most value – more ‘valuable’ than the effect of the bread winner’s lengthy commute.
The stay at home parent values a logical and consistent traffic free route from home, to pre-school, to school, to supermarket or other task centres and back to home in the mornings. A similar journey albeit loaded with after school activities and other tasks occurs in the afternoons. In the intervening period whilst at home the kitchen has become a default office – with online trading (goods and investments) undertaken by the stay at home parent an emerging theme.
This may provide the insight that stay at home parents are busy, have time constraints, value efficient transport routes and when at home now tend to spend more time in a business like activity than household chores.
The impact for property development business could be a sales focus less on distance to work and more on specific amenity in the surrounding area. It could also mean developing to embrace stay at home parents taking a more active role in online based investing and design in ‘kitchen or pantry offices’.
When we were researching to develop a medical center I remember one site visit where the architect asked me to look up while we walked around the halls of the clinic. They had done extensive investigation from the patients view point whilst being wheeled around on the hospital bed ready to go into the pre-surgery area. The result was calming artwork and way finding signage (to reduce disorientation) on the ceiling. Perhaps a similar sense-making type exercise helped create this luminous ceiling Philips have developed for an Intensive Care unit in Germany.
The authors provide more sophisticated examples of sense-making in other industries and tackling strategy as well as product and environment design.
They extend the discussion to leadership and the need for leaders with perspective [page 173]. The understanding of consumer behavior can be wasted if leaders do not find a way to interpret and implement appropriate strategy across an organisation – connecting the different quantitative and qualitative worlds.
The authors contend that leaders should look out to the furthest of four horizons; moving past yourself (career) and the company towards industry and society [page 173].
It is then, once the organisation knows how customers actually experience life when moments of clarity happen [page 173] .