Historically, one of the chief characteristics that made commercial real estate (CRE) attractive to generations of investors was its relative stability and predictability. It should be no surprise then that the industry as a whole doesn’t move fast and break things.
Today, however, real estate organizations need to be a lot more like tech companies if they are to successfully manage a whole host of challenges stemming from things like climate change, WFH, e-commerce and Covid. How can an industry conditioned to value staying the same adapt to such a rapidly changing business climate?
As a proptech company, LeasePilot has a foot in both the CRE and the technology industries, which gives us a unique perspective on how real estate organizations can become more agile and resilient. In this blog post I want to share with you my take on a goal setting methodology called Objectives and Key Results (generally referred to as OKRs) that was developed by tech companies like Intel, Google and Microsoft. These companies have used OKRs to pivot their entire organizations with astonishing speed in the face of changing circumstances. I think there is a lot real estate companies can learn from their example.
What are OKRs?
The definitive work on OKRs is a book called Measure What Matters, by John Doerr, a Partner at the Silicon Valley venture capital firm Kleiner Perkins. Measure What Matters is an amazing read and I highly recommend checking it out.
In the book, John Doerr explains what OKRs are through case studies largely drawn from the tech industry. I thought that was a great approach, so here I’ll describe OKRs by sharing 2 hypothetical OKRs for a fictitious office tower owner I call OfficeCo. I’ll then zero in on a handful of characteristics of OKRs that make them useful and relevant for CRE owners.
OfficeCo Sample OKRs for 2021
Company Objective #1:
For OfficeCo to be recognized by our tenants and the CRE industry as top-of-class for customer service and satisfaction
As measured by:
KR1: Attaining a net promoter score of 68 or higher from tenants currently occupying space in our portfolio.
KR2: Achieving a tenant retention rate of 80% (including relocations within our portfolio).
KR3: OfficeCo being selected as a Finalist for the Excellence in Customer Service awards at National Association of Office and Industrial Properties’ (NAIOP’s) annual Gala.
Leasing Team Objective #1:
Materially increase customer responsiveness over the course of a lease negotiation
As measured by:
KR1: Reducing initial lease draft time-frames from 7 business days to no more than 1 business day after the LOI is finalized.
KR2: Reducing the overall LOI to signed lease cycle by 15 days.
KR3: Reducing average tenant legal spend by 15%.
OKRs are made up of Objectives which are aspirational and Key Results, which are measurable.
The first thing that is worth noting about OKRs is that they are made of two components: “objectives” and “key results”.
Objectives are aspirational statements that represent the direction management wants to move in. For example, OfficeCo’s objective is “For OfficeCo to be recognized by our tenants and the CRE industry as top-of-class for customer service and satisfaction”. This is a great objective because it gives a team something to strive for that has meaning and purpose. It is not, on its own, however, measurable.
The key results (or KRs), on the other hand, are entirely objective and are either achieved or not achieved. For example, one of OfficeCo’s KRs is “achieving a tenant retention rate of 80% (including relocations within our portfolio)”. OfficeCo’s tenant retention rate at the end of 2021 either is or isn’t 80%. There is no gray area.
KRs release the creativity of an organization because they are framed as outcomes rather than activities.
Well crafted KRs express what needs to be accomplished (i.e., outcomes) without prescribing how that thing should be accomplished (i.e., activities). For example, “achieving a tenant retention rate of 80 % (including relocations within our portfolio),” is a good KR. What needs to happen is crystal clear, while the way to get there is left for the team to figure out.
Alternatively, “having a leasing representative reach out to each tenant 180 days before a lease expiration to understand their needs” may be a good activity within an overall tenant retention plan, but it is not a KR because it describes how to do something without specifying any desired impact on the business.
OKRs force teams out of their comfort zone because they are ambitious and time bound.
It’s easy for a team to think incrementally when it comes to change, and that is especially true for an inherently conservative industry like commercial real estate. To force people to think out-of-the-box goals need to be big and happen fast. OfficeCo, for example, has an objective to become the best in the industry for customer service and satisfaction by the end of 2021. If they are at the bottom of the pack today, cleaning the common areas more frequently won’t cut it. Instead, OfficeCo will have to do something big like roll out a tenant experience platform like HqO in the next 90 days that gives occupants a universal remote control for the building to gain access, make service requests, and provide feedback.
OKRs keep teams in sync because their objectives have to come from a company KR.
OKRs help each team within an organization stay in sync because that team’s objectives have to be derived from one of the company’s KRs. For example, one of OfficeCo’s company KRs is “attaining a net promoter score of 68 or higher from tenants currently occupying space in our portfolio.” In turn, OfficeCo’s leasing team set one of their objectives as, “to materially increase customer responsiveness over the course of a lease negotiation” with one of their KRs being to reduce “initial lease draft time-frames from 7 business days to no more than 1 business day after the LOI is finalized”.
OKRs can help CRE companies become agile and resilient
So, how can an industry conditioned to value staying the same adapt to such a rapidly changing business climate? As the technology industry has learned, the best way to manage change is to make your organization capable of changing faster than your competitors. That is the essence of building an agile and resilient organization. Developing these capabilities requires having management set the vision, direction and required outcomes, while giving individual contributors the freedom to figure out how to make it happen. That’s exactly what OKRs are designed to do and why I think they are a valuable tool for CRE organizations.
If any one reading this post is already using OKRs in your CRE business, please reach out. We’d love to hear your stories and possibly include them in our upcoming eBook on digital transformation in the real estate industry!