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aves of “creative destruction” will see large numbers of managerial, professional and technical personnel put out to pasture because the technology is so good.
These were only some of the conclusions to come out of the Copenhagen World Congress of the Industrial Development Research Council (IDRC), the pre-eminent corporate real estate (CRE) association, on Sept. 9-12 in the Danish capital’s Radisson Hotel, which drew a record 270 participants.
In the stage-setting opening speech, David Pearce Snyder, lifestyles editor of The Futurist, painted a landscape of upheaval and mutation.
Said Snyder: “The Internet will provoke fundamental changes that will transform human behavior in as radical a way as the invention of money. While the use of money allowed us to specialize at what we do best, the Internet, by eliminating intermediaries, is taking this specialization planetwide unleashing the world’s best talents with economies of scale unheard of before.”
The Times They Are a Changin’
Snyder maintains the current explosion of information technology over the net is the historic third “outbreak” stage of the new technology atop the 50-year gestation period since World War II.
“In the current lift-off stage that each new transformational technology has experienced, the process will rip through every aspect of social and business life and bring an unimaginable transformation in lifestyle to both the industrial and developing world,” Snyder said.
Phenomenal growth, reported Snyder, will quickly begin to show up in the numbers. The explosion of hypergrowth, Snyder said, will cause a boom in per-capita income in Europe as the birth rate in some countries dips below replacement levels. Worldwide, thanks to the IT revolution, Snyder said gross domestic product (GDP) will triple to US$94 trillion by mid-century and triple again to $294 trillion by century’s end. In the developing world, most notably China, India and Africa, population growth will be “vertical.”
On the business front, Snyder sees Internet usage shrinking overhead costs for transaction from the traditional $50-$70 to a marginal $1-$5 and cutting overall operating costs for firms by a minimum of 10 percent.
Said Snyder: “Not having access to high-speed, broadband Internet access in the years ahead will be like not being on a railroad line or near a major airport in the last century.”
The flood of information, Snyder explained, will force decision-makers to barricade themselves inside their core business, outsourcing non-core functions that others do better. In a face off with management, Snyder sees human resources agencies, like Kelly Girls and Manpower, emerging on a planetary scale for all of the independent labor in the marketplace.
“You’ve heard of entrepreneurship,” Snyder remarked. “We’re now going to see extrapreneurship as staffs and non-core production is outsourced. Principal producers will employ less than one-third the labor needed to make any one product, and the 15 percent of the labor force providing high-value-added skills will be self-employed. The rest will be evenly divided between temporary labor or employed by subcontractors. In the future, if you want a job, you’re going to need an agent. One quarter of all work will eventually be done at home by independents and the Internet will be the glue.”
Dr. Prentice Knight, vice president, knowledge discovery, IDRC, agrees. In an introductory congress session, Knight unveiled conclusions from a series of two-day IDRC “discovery forums” bringing together more than two dozen senior commercial real estate management leaders to share their experiences and plans. The rap sessions aimed at surfacing the best thinking among members of IDRC to adapt to the new world of e-commerce.
“Over the next two years the field of corporate real estate will undergo its most profound change ever,” Knight said.
Knight sees e-commerce, both business to business (B2B) and business to consumer (B2C), fundamentally changing the distribution channels for products and services even among the old-line traditional firms. Citing Amazon’s high-profile success over the Internet, Knight maintained the firm’s competitive edge was in logistics, not in the nature of its Internet site.
Said Knight “E-commerce over the Internet is changing the optimum location of production and distribution centers. But it is also modifying the nature of the distribution centers themselves. High technology is maximizing the use of warehouse space and logistics is becoming one of the fundamental driver of business success.”
Snyder pointed to centralization of purchasing by Ford, General Motors and DaimlerChrysler on one Web site. In Europe, Proctor and Gamble, Nestle and Heinz have joined with a large hotel group to do business on a single site. Cisco Systems has even devolved its core business from that of a producer to concentrating on being an integrator of Web activity.
Knight cited a B2B Internet study by Morgan Stanley Dean Witter that describes this new type of business model as a tightly co-ordinated and mutually supportive federation of functionally specialized companies in a command chain through on-line web “hubs” that generate economies of scale “never possible before.”
“The Internet is enabling companies to form ‘business webs,’ a corporate trend to collaboration among groups of companies,” Knight added. “This in turn is generating greater specialization and more outsourcing than ever before.”
The Impact on Real Estate
Said Knight: “In a fragmented industry like corporate real estate the line between in-house core managers and service providers is blurring more than ever. We’re going to see disintermediation of old services and re-intermediation of new services with the creation of common platforms where these service providers and corporate end users can start to do business, communicate and collaborate.”
According to both speakers, the impact on real estate is only beginning to emerge.
“In the commercial realty business, people who bring together landlords, buyers and users will be vulnerable,” Snyder said. “Start-up firms are emerging to replace traditional brokerage companies by providing a total range of services as an adjunct to rental of the space. This extends beyond simply renting properties extending from providing furniture to accounting and computer support. Customer expectations of what to expect from the broker will rise. Brokers will have to become increasingly specialised.”
Knight agrees, noting the sale by Cushman & Wakefield (C&W) of its property market research department. Knight said: “New Internet-based third parties are becoming major players in providing property market information. C&W decided that that was not where there would be value created in the future.”
Who will remain when the dust settles? Knight sees the major brokers specializing in the “unique, complex transactions requiring high skills, with standardized transactions shifting to the Internet.”
“The emergence of third party research providers will diminish the numbers of major brokers and raise the number of independents,” said Snyder.
Snyder feels real estate will be one of the best-placed sectors of the economy to benefit from the new technology; he explains, “Human resources are selling the finance people on the idea that they should be a ground level force for better morale, lower costs and higher productivity and that’s in the workplace.”
