11/16/11

Change Tolerance

Infrastructure Series (Part 8)

The Infrastructure series will posted on Tuesdays, Wednesdays and Thursdays through the month of November 2011.

Building codes are always changing to accommodate requirements for environmental conditions, disruptions and calamities. These codes are reviewed and amended periodically and when an event occurs to force change.

The infrastructure of companies, organizations and even industries incorporate design, function and operational codes, often originating from company founding. Some tolerance for change is built in, but often major structural change that is environmental is like an earthquake. If measured on the Richter scale it would be a 6 – 9 depending on where you are in the country. It has left few untouched and the aftershocks will continue for quite a while. Few companies were built to tolerate the impact that has reached almost every sector of the US economy since real estate is estimated to touch one out of every four dollars in the U.S. economy.

While the impact is significant and will require a lot of work it has not been fatal. That was highly evident in the spirit and passion of the 22,000 who attended the NAR Convention and Expo last week. Similar to a natural disaster, rebuilding brings the opportunity to incorporate change and new codes. The industry will be stronger as a result with better sustainability, but it will never again be the same as what we have known.

Franchisors will experience some of the greatest infrastructure changes including:

  • Change in the fee models. No longer is the brand of a franchise driving the value, hence a model where revenues are primarily built on royalty fees for branded name and identifier use will be history. Newer models will have less dependence on royalty fees and greater revenue from fee for service. The differentiators between franchises and member oriented marketing groups will continue to fade.
  • Change in services offered. Like many other industries, there will be greater emphasis put on outsourced talent and tools allowing greater expansion and contraction and change without embedded costs.
Companies, dependent on size and configuration, will take the greatest impact.
  • There will be a growth of small and single practitioner to boutique companies who operate lean and mean, often in virtual locations with few affiliations and a very limited infrastructure.
  • Mid-size companies will find it even more difficult to operate profitably. Without an affiliation they will not be able to offer competitive tools and services to their agents and or customers. The exception will be in small communities where there is not much competition and where there is enough distance from a major metropolitan area that the company cannot be impacted by Internet offerings into their area.
  • Large companies will grow as enterprises with fewer needs for franchise affiliation and more affinity for membership oriented services and peer companies. In many cases, these companies will replace the franchisors building and servicing affinity and aligned companies. There will also be significant change in roles, size and configuration of management teams. Large companies will see the consumer as the center of a multi-faceted sale not the sale.

Associations will be forced to redefine their value proposition and relevancy as well as refine targeted affiliations. There will be greater competition from aligned member models for dollars.


Sales People will seek leadership and value in companies they affiliate with. Expectations will be increased especially from those entering the profession for career growth and development, culture that has a virtual reach and sustainability. There will be less emphasis on “me” and greater emphasis on business.
  • Commissions – Will become more aligned with the value proposition offered with less commoditization or simply jumping for greener grass. Newer people entering the business see compensation far differently than those who got caught in the feeding frenzy of more.
  • Specialization – As the population of the industry continues to decrease and realign, anticipate greater specialization including into targeted markets and long term service plans.
  • Technical and mobile requirements will continue to increase with expectations that the best of companies will provide leadership and guidance in offering, selection and training of tools best aligned with business objectives.
  • Communications and Culture will be key elements in defining companies of choice.

As the consumers become more accustomed to businesses with an integrated fabric of full service options, there will be greater requirement for seamless communications, transparency to marketing and processes as well as demand for expertise over relationship. Long term and multi-layer customer relationships will be highly available but will need to be earned rather than assumed in a sphere of influence. Fees paid for services will be cumulative rather than limited to commission on a single transaction. There will be less tolerance for sloppiness or marginal expertise. The reduction and in many cases elimination of equity has significantly changed factors of demand, spending and consumer planning for fulfillment of real estate needs and investment.

While these are definite changes to infrastructure, some of these changes could not be made or with the positive impact that should be realized without the economic impact that hit real estate. There are many more changes that we could have addressed and in greater depth but that will need to be a longer publication.

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