The Innovators’ Dilemma – Why is PropTech Adoption so Slow?

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If you are a large or a small company you need to change and transform now or you will start losing your edge to your competitors exponentially.

The innovator’s dilemma concept was first published in 1997 by Harvard professor and businessman Clayton Christensen. It expands on the concept of disruptive technologies and how large incumbent companies lose market share by listening to their customers and providing what appears to be the highest-value products, where new companies that serve low-value customers with poorly developed technology can improve that technology incrementally until it is good enough to take market share from established business quickly. Or to simplify it is not only about being the largest, strongest and with the most funds invested into new technologies but more about smart steps, pilot projects, testing the niche markets, feeling the new trends and gradually adding the right technology that creates optimal value add. Nevertheless regardless if you are a large or a small company you need to change and transform now or you will start losing your edge to your competitors exponentially.

Even though PropTech adoption by Real Estate industry is speeding up there is still very limited implementation of technology and more over the ones already adopted are often not used in its full capacity. The key reason for that and the challenge that lays ahead of the industry is that it is not so much about the technology but more about the shift in mindset change of all the stakeholders, owners, operators, and tenants.

Why is the process of PropTech implementation moving so slow? In Real Estate industry we have a complex mix of stakeholders: owners, property managers, tenants, facility managers, visitors etc. Each of them has its own stake and interests and that is why it is difficult for them to see the bigger picture. The commercial real estate (CRE) market has seen a strong shift in business logic in the last 5 years from a developer-driven market to a tenant-driven market. We see that through a leasing models shift (flex spaces) to the ESG paradigm (strongly driven by tenants’ ESG white books) and the flex working (new hybrid models of work).

As an example, an implementation of a portfolio management tool such as iNep. Is that the responsibility of the owner, maybe of the property manager or maybe even the facility manager? We at Imagine believe it is all about teamwork of stakeholders. Owner pushing the initiative for proptech investment, property manager working on implementation and facility manager to follow up on adoption and serving the tenants best.

A common question of an owner would be: Why do I need a special portfolio management tool if I have a property management company that does all this work for me? Why would I implement a tenant experience tool if my buildings are full with 98% occupancy? or Why would I improve the energy efficiency since the tenants are paying the costs? The tenants would say: Why do I need to invest in a tenant/employee experience tool? Why would I pay the rent to a landlord that is not responsive and does not understand our needs? If they don’t adapt, we will simply move to the building that has the necessary technology and responsiveness.

The thing is that new technologies address new needs and new trends which are still not established and of which even the stakeholders are not fully aware. That is why it is difficult to predict the financial effects. Owners are primarily focused on immediate financial income but with disruptive technologies, it is more about being the visionary of your industry that needs to drive the innovation not so much the CFO business as usual calculations. PropTech benefits are often not so tangible and also not visible immediately which is why many procrastinate on the decision.

PropTech is one small part of the wider digital transformation of the property industry. It describes a movement driving a mentality change within the real estate industry and its consumers regarding technology-driven innovation in the data assembly, transaction, and design of buildings and cities.

Dearsley and Baum, 2017

So how should the companies go about digital transformation in Real Estate? Cherry Pick, Unissu and Olli Vigren have recently conducted and extensive survey on Innovators in the built environment with the five core recommendations for companies to succeed in digital transformation. The first two most important success factors are that companies need to put the culture a top priority in transformation and they need to have people employed in a full-time job as innovators (research shows innovation leaders spend on average only 53% of their time on innovation). Further three recommendations are directed to the innovation leaders who need to have titles according to the content work they do (namely the “change” and “transformation”), they need to evolve their roles and their teams, and they need to become the true leaders on transformation.

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