Marginal gains make a difference

danielle-sandersonThe 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 – six 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 is 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.

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 it is today.

It took a handful of visionaries – British Land, Land Securities and SEGRO –  to set the direction. 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 embraced the notion that the provision of commercial property is a business, and businesses need satisfied customers 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 Rs of real estate:

  • revenue – by spending more;
  • retention – by staying longer; and
  • 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.

In 2012, I returned to university some 25-plus years after reading physics at Oxford. 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.

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 was that a rise in occupier satisfaction by one level (on a five-point scale) will typically improve total returns by 1.9% a year.

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

Surprisingly, “soft” skills such as empathy, understanding and trustworthiness were found to be more important to occupiers than the “hard” financials.

First, there’s 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.

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

And finally, 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.

There is a clear customer experience gap to be closed and the commercial imperative to do it.

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

Danielle Sanderson is a senior consultant at customer experience consultancy RealService and a visiting lecturer at the Bartlett School of Planning, University College London