Strategic Planning for Real Estate Companies

By Hewlett, Charles A. | Journal of Property Management, January-February 1999 | Go to article overview
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Strategic Planning for Real Estate Companies

Hewlett, Charles A., Journal of Property Management

Strategic planning helps a company decide what it wants to be when it grows up.

Broadly defined, strategic planning shows a company where it is going and how it plans to get there. Especially at a time when the real estate industry is changing and consolidating so rapidly, it is important to define company goals in both absolute and relative terms and to tie goals to specific tactics. Without this important step, strategic planning becomes only an empty exercise that does not reach any goal.

On the other hand, a company with a well-defined strategic plan and business strategy has the distinct advantage of having clearly articulated common direction for the company. For publicly traded companies, this clear focus garners a premium from analysts and shareholders. For all real estate companies, a strategic plan and the strategic planning process itself offers a competitive edge and enables the company to measure achievements against expectations.

Strategy and Business Plans

The outcome of the strategy planning process is a strategy plan document, designed to identify the goals and objectives of a company and the strategies that will be used to reach them. The intent of the strategy plan is to identify guiding principles of an organization that will pass the test of time and reflect a point of view regarding future business operations.

The starting point of a strategy plan is the mission statement which is the organization's fundamental reason for existence and serves as a perpetual guiding star on the horizon.

Core values support the mission statement and are essential and enduring tenets, not to be compromised for financial gain or short-term expediency. Strategies are the means to accomplish the company's goals, providing a framework for establishing the actions or tactics that will be used on a day-to-day basis.

The Strategic Process

The strategic planning process consists of four basic steps:

* Situation Analysis

* Strategy Planning

* Implementation

* Assessment

Situation analysis. Before determining a strategic road map for a business, it is vital to understand where the business is now in terms of its own competencies, in relation to competitors, and in relation to its industry and the economy as a whole.

Begin by assessing the company. Does the description of the company's current mission actually correspond with what the company does and how it operates? Does it measure up to its own standards?

What are the company's greatest assets and strongest core competencies? A company that does not have clearly definable core competencies is probably doomed to play a marginal role in the industry.

How is the company organized and how are personnel compensated? Does the mix of employees and their skills correspond to the business needs of the organization? What are the relative profitabilities of the company's activities?

Most companies know if they are profitable, but they do not always know which specific activities produced what percentage of that profit. If the company buys land, develops apartments, and then manages those apartments, where is more of the profitability produced. If most of the profits come from one area, it may be prudent to consider limiting your activity to that area, or begin to work toward improving efficiencies and profits in less profitable areas.

Next, assess the competition. What advantages and skills do your competitors possess?

How do they measure up in terms of profitability and market penetration?

What trends do you see emerging among competitors?

In assessing competitors, it is important to think locally, regionally, nationally, and even internationally.

Assess the industry and the economy. Understanding the current condition of the real estate industry and where it is going are critically important to successful strategic planning.

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