Pursuing technology solutions can be a daunting task for any company, particularly if the pain points identified do not have an existing solution that aligns with their needs. In the case of CRE, the increased importance of seeking technology tools to problems such as property management automation, data analytics, low interoperability between existing applications, and […]
Pursuing technology solutions can be a daunting task for any company, particularly if the pain points identified do not have an existing solution that aligns with their needs. In the case of CRE, the increased importance of seeking technology tools to problems such as property management automation, data analytics, low interoperability between existing applications, and data abstraction solutions has become increasingly apparent in the wake of the COVID-19 pandemic.
Yet, as pain points become more defined and observable, the clearest path forward to solving the problem doesn’t not necessarily present itself.
Even in the case of a clearly defined scope of pain points, and an honest appraisal of the cost vs benefit of solving these issues, a company with either no IT team or even a modestly sized IT team, making the decision to commit to a technology solution often remains challenging.
While the dilemma to buy or build a technology solution has been written about extensively, including here in our own blog, the ways in which non-technology companies can seek partnerships and the nature of those partnerships and services is often less explored.
In an effort to shed some light we’ll be exploring the nature of different partnership structures for innovative solutions in Proptech, from outright outsourcing with independent contractors, staff augmentation, managed service providers or dedicated teams, along with the pros and cons of each.
To begin, it’s probably a good idea to define what “Proptech” means in the first place. The real estate technology market is commonly referred to as “Proptech”, short for “property technology”. While there are additional terms used to designate more specific segments of the industry such as CREtech (Commercial Real Estate Technology) or Contech (Construction technology) they fall generally under the umbrella term of Proptech.
To keep it simple – Proptech is a term used to describe technological, product and service disruptions in the real estate industry. With proptech, real estate tech companies seek to add value to their business through technologies.
And the demand for Proptech is skyrocketing.
According to a survey conducted by EY Global Real Estate, 69% of participants indicated that technology represented a key area in their strategic agenda. Yet according to the same survey, the rate of adoption of technology remains relatively low, with only 34% of respondents indicating they had implemented multiple solutions, and over 50% identifying a lack of qualified staff members as one of the dominant obstacles to engaging technology solutions.
To clarify, the majority of respondents are aware of current pain points, expressing active interest in pursuing technology solutions, and are essentially encumbered by a lack of tech talent that might enable them to pursue these solutions.
Meanwhile, the supply of Proptech providers is also growing rapidly. The latest KBW Proptech Pulse Report indicates that investment in Proptech reflects significant increases of both funding amounts, as well as new startups entering the market. Similarly Unissu, a PropTech online procurement platform, recently estimated that the number of US-based PropTech businesses has already exceeded 2,000 and is continuing to expand.
So the question is, how does one bridge the gap between the need for technology solutions by companies in the commercial real estate space, and the service providers that can actually build the solutions?
One of the simplest solutions is to hire independent contractors to bring specializations in areas like software development and design to help bring a project to fruition. While this method allows for the complete continuity of project direction from the company itself, it also puts the responsibility of recruiting, onboarding, project roadmapping, payroll entirely on the client company, which can easily be a disadvantage if agile development is an essential part of the vision for the software solution.
This is where the outsourcing of specialists from third parties comes into play. In the case of both staff augmentation, or dedicated teams, there are some benefits that are readily present from the start. Both staffing strategies are founded on the delegation of burdens like recruiting, onboarding, and payroll as the individual team members will be employees of the third party, assigned to your company’s project.
While staff augmentation and dedicated teams share this distinguishing feature, there are also some key differences between the two models. The model that will serve one company better than another boils down to a few key factors, namely the size of the project, the definition of the project scope, and the degree of oversight required of the team.
In the ideal implementation of a pure staff augmentation model, the project will be of a small to medium size, with both a clearly defined scope and established project milestones. Of particular importance are the scope and the milestones, as the staff augmentation model leaves the responsibility of managing the project itself on the primary company, rather than on the vendor.
Essentially, if the only obstacle to successfully develop or complete a well-defined project is sourcing more hands-on-deck, staff augmentation is an ideal model to use.
Used appropriately, staff augmentation effectively enables companies to boost productivity, shorten time to delivery, and save money, all the while avoiding the cumbersome task of sourcing, hiring, and onboarding talent.
Yet it is important to note that not all companies that are seeking digital transformation in the CRE space, or any industry for that matter, have the in-house technological expertise to define, plan, and manage a software solution from end to end.
When we look at the staff augmentation model in comparison to the dedicated-teams model there is a significant degree of similarity, the specific difference is the limited role of the vendor beyond staffing and HR support. That is to say the vendor does not function in a collaborative fashion with regard to project management itself. In our experience, however, the collaborative dimension with technology companies is exactly what a business needs when it comes to seeking software solutions or digital transformation.
Enter the dedicated-teams model, sometimes referred to as managed teams. Again, the burden of HR responsibilities will likewise fall on the vendor’s shoulders, allowing for team-members to be sourced, onboarded, and allocated to a project in a much shorter time frame. But the dedicated teams model is critically distinguished by the incorporation of project management.
With the integration of project management into the staffing structure, the marriage of expertise between CRE and technology specialists enables a collaborative capacity through which large scale projects can be approached both more holistically, and efficiently.
So, when is collaboration important?
The answer to this question is best thought of in the context of scale. When the size of a project gets larger, even the most well defined scope and project roadmap will inevitably be met with unforeseen challenges that will require adaptability from the project manager.
Because of this inevitability, it is crucial to have a technology centric presence on the project management team in addition to the CRE expertise that informs the overall control and direction of the solution. With the inclusion of technology expertise as a perspective, issues in software development are exponentially more likely to become reshaped as insights, and subsequently opportunities, than without the presence of a PM.
Beyond the clear benefit of a technological perspective, there are some additional advantages to the dedicated team approach, specifically the versatility and scalability of a dedicated team. With this model, team members with specific skill sets like development, design, or UX research, can be deployed strategically by the project manager to develop and respond to essential feedback loops that identify and respond to issues like bug-fixes, feature requests, or new data integration with greater speed and efficiency than a conventional staff augmentation model.
Moreover, the inclusion of a PM on a dedicated team enhances the ability of the client and vendor to communicate about challenges, options, and progress more effectively. This in turn enables the client company to delegate to the PM, allowing the client the option to redeploy internal resources to focus on core business priorities, rather than overseeing the software development itself.
While the advantages of the dedicated teams model might appear quite clear, it is important to reiterate the contextual benefits of both approaches of outsourcing. Staff augmentation is the ideal outsourcing model when the solution being sought is of a small to medium scale, and already well defined. In the exact same circumstance, a dedicated team model may be prohibitively expensive, or even unnecessary, given the project management component.
Conversely, a medium to large project particularly in the context of digital transformation at scale will likely be made more difficult without the addition of a project manager for the above mentioned reasons. In either case, the decision to outsource technological expertise should necessarily be informed by the context that surrounds a particular project, as neither the staff augmentation nor the dedicated teams model are inherently more advantageous than the other.