How commercial CBD office owners are shuffling towards disruption
It is regularly observed that in time of industry transition, a market’s dominant players lose sight of what is happening around them. Their business models make them rich and complacent because they come to dominate the top, price-insensitive segments of the market that make most of the money. They cease to focus on the the bottom end of town, those lower-yield segments from which new demand will emerge.
Harvard Business School professor Clayton Christensen, an authority on the subject, has for years written that industrial disruption is as inevitable and ultimately unavoidable. His classic example is Toyota’s introduction to the US market of a small, affordable car. The local motor industry didn’t see it as a threat because its players could only conceive of producing large and increasingly luxurious versions of existing models. Typically, at first, those running the old system won’t notice the change as a few ‘edge’ customers move over to the rival’s new solution. As in Toyota’s example, when they do, the dominant incumbents assume it’s not significant.
Industries never welcome newcomers, but then there comes a tipping point at which the new entrant becomes more than a minor irritant by continuing to steal more of the incumbent’s sales. The established business remains in denial that this incursion will last and declares it a passing fashion, or fad. Finally, the entrant’s new model succeeds so well that it becomes the main game. When they’ve squandered most of the time they had to adapt, the managers of the old organisation suddenly wonder where their business went. This pattern is repetitive, and, once seen, ubiquitous.
Co-working is the disruptors’ new vehicle.
Co-working is unbundling the workplace
Bundling is a technique of offering two or more complementary goods or services together as a discounted package deal. Consider Microsoft Office an archetypal bundle. As a phenomenon given new impetus by the internet, however, unbundling may be seen as an opportunity by a new competitor able to pick off the individual lines of an incumbent to make money where the incumbent can’t. As we’ve seen in the unbundling of financial services, it may then rebundle them with those of another organisation on which that competitor also can’t make money. The new entrant, however, profits because it sees the world differently.
It is arguable that against the traditional model of office leasing, in increasing instances of co-working, the workplace is already being unbundled and repackaged.
The business model described byUS academic and management author John Hagel as an “infrastructure business” fits that of the commercial property owner. Its focus is on managing high volume, routine processing activities, aggregating participants and transactions. Such businesses are driven by a cost-focused efficiency culture in which the key capability is to drive down cost per transaction, and to standardise, as variability tends to push up costs.
The inherent uncertainties of co-working’s unit of sale of a single desk per month and the complications of providing supporting services geared to the interests of a specific niche of customers does not fit the model of an infrastructure provider. Co-working at its best requires true customer care, collaboration and insight, none of which are the CPOs’ standout qualities.
It’s not necessarily about the workplace
Workplace strategy may in a definitional sense be only half-correctly named, as it itself is moving away from being primarily a consideration of property to becoming one concerned fundamentally with the design and delivery of work. And it’s not just any work, but that conducted in ‘knowledge factories’, and how it is to be executed. It is much more about strategy than workplace. It is also likely that those who work in strategy will learn about workplace strategy much faster than those blinkered property folks preoccupied with selling square-metre solutions of physical workplace.
Property owners should be concerned that in their future battles over leases they are unlikely to be taking on the sorts of minds they are used to dealing with. The argument is no longer over square metres and years. The challenges for owners, agents and those representing large occupiers are largely the same: accommodating something they have never seen and whose shape is initially hard to discern and measure. The challenge is to conceive of a future in which the workplace is about designing work itself around the knowledge that must be created and transferred, and not just the spaces in which it will take place.
Location might be valuable – if you want to attract the right people, it’s still location, location, location, right? However, we need to rethink knowledge-creating work’s evolving relationship to both the virtual and physical spaces in which it occurs. This requires a new set of competencies, and they aren’t principally property focused. The absolute focus should be on producing knowledge-generating workplace assets because existing alternatives have diminishing value.
Workplace strategy is knowledge architecture
Workplace strategy is at its heart ‘knowledge architecture’, and its techniques and technologies are going to refashion the business models of all it touches. To paraphrase Bill Gates, as in anything, we may overestimate the impact of new technologies in the short term, but we are definitely likely to underestimate them in the long term. We may be sure the current owners of commercial CBD workspace are mindful of this emerging risk to their livelihoods. But at this point of how they intend to fight back, we may be less certain – especially over that longer term.
Part one of this article can be found here.
Graham Lauren is a director of Shiro Architects in Sydney and is building a specialist knowledge-architecture briefing practice. This piece was first published on medium.com/workplace-strategy.
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