Spring/Summer 2014: Processing The Profits
July 9, 2014
Businesses operating in the Private Rented Sector (PRS) can increase profitability through Process Improvements.
Let’s begin by understanding the state of the UK PRS in early 2014, using the limited, and sometimes conflicting, datasets available. The UK PRS demonstrates all the characteristics of an immature market in that:
- 89% of landlords are private individuals and are responsible for 71% of all dwellings in the PRS (DCLG Private Landlord Survey 2010)
- 78% of all landlords only own a single dwelling for rent (DCLG Private Landlords Survey 2010)
- Only 8% of landlords stated they were full time landlords (DCLG Private Landlords Survey 2010)
- There has been an increase, from 2,445,000 households in 2005 to 3,483,000 households in 2011-2012, within the PRS (DCLG Committee – First Report The Private Rented Sector).
The result? A cottage industry of individuals supplementing their income, or funding their retirement, through an investment vehicle that they manage on a part-time and ‘best efforts’ basis. This dysfunctional approach invites near daily newspaper headlines about rogue landlords, unsuitable tenants, dilapidated premises and increasingly stringent conditions on buy-to-let lending.
So, is there a magic wand that will solve all problems and improve profitability for businesses that provide investment, development, asset management, lettings and property management services to the PRS? Probably not… but they could make a positive start by revisiting a simple discipline called Process, and its application within their own operations.
Simply put, a Process is a series of actions, changes or functions bringing about a result. When implemented correctly, it manifests itself to customers in the form of effective customer service, whilst saving the business a significant amount of time and money. If ignored, or implemented poorly, the impact on the bottom line will be painful both in the short and long terms.
Let’s take a real life example. In Figure 1 there are three emails from Vodafone as part of the renewal of a mobile phone contract. Based on their robust back-end processes, the emails allow a customer to track the progress of their order from placement through to warehousing, right up to the estimated delivery date and time of their shiny new phone.
Quite rightly, the functional and technical specifications that underpin this complex stream of activity are invisible to the customer. But by keeping the customer constantly updated, simply using email, the Vodafone brand conveys an image of seamless efficiency.
More importantly, from a cost perspective, it materially reduces the number of enquiries to its Call Centre, resulting in a negligible ‘cost-to-serve’ of its existing customer base and, by inference, improved profitability.
So, what are the steps for any business that decides to pay attention to Process Improvement? Depending on scale, complexity and budget, it can either hire a global Process Improvement Consulting firm or a local independent, who will begin by helping to define the end state, project plan, milestones and deliverables.
There is an important, and sometimes unrecognised, advantage in hiring an outsider to help. It allows someone to ask that all important question – “Why?” – and not accept the glib response that derails most Process Improvement Programs … “Because we have always done it this way!”.
Process Improvement consultants can also bring some of the latest industry developments into play to significantly alter the operations of the business. Key amongst these are Outsourcing (or even Offshoring) and Cloud Technology. Let’s examine each one in a bit more detail.
Outsourcing involves handing over a function or activity to a company who is better positioned to undertake it, usually with cost savings and quality improvements. If the services are performed outside the UK, typically in low cost locations such as India, the activity is referred to as Offshoring. So, for example, an Asset Management business employing 50 people could Outsource or Offshore some of its Finance functions, such as payroll processing, time and expense reporting, accounts payable and more.
Cloud Technology includes, amongst other things, the ability to access applications and data when outside the office. Using another example, a property development company could subscribe to, for example, Microsoft Office365 for £10 per user, per month.
Each employee would then have access to email plus all the usual software, such as Word, Excel, Powerpoint, etc, and each user could also retrieve any of the files stored in the Cloud (in this case OneDrive) on practically any device ranging from a laptop, tablet and even a smartphone. All of which reduces the need for an in-house IT department with all its associated costs.
Process Improvements can be implemented across multiple dimensions. These could include horizontal activities such as all the tasks associated with a new order, regardless of whether the department involved was marketing, finance, warehousing or customer service. Alternatively, there could be vertical process improvements, which typically takes place within a single division, department or function.
A well thought out Process Improvement Program can also serve to provide a business with key differentiators vis-à-vis their competition, often known as their Unique Selling Proposition (USP).
Take the case of Young Group, who recently replaced their accounting systems. Instead of simply replicating their original system, they listened to their clients’ requirements, one of which related to annual UK tax returns.
The need was, prima facie, simple as they wanted to give their clients data on the rents received and expenses incurred in the same format as that required by Section UKP2 (Qs 20-43) of the UK tax return. Not only would this save the clients endless hours reconciling data provided by Young Group but also avoid introducing unintended (and potentially expensive) errors.
Thanks to their Process Improvement Program, they can now provide the necessary data in the relevant configuration, thereby strengthening their valuable brand (and existing customer loyalty) even further.
Once the base Process Improvement Program recommendations have been implemented, there is still scope for continuous improvement. Over time, robust business processes can be industrialised and automated, making the cost savings even greater. The key stumbling block, as with most things in life, appears to be ‘getting started’, given the multiple demands on the time of a typical PRS business owner.
So, how can we summarise the impact of Process Improvement on businesses that service the PRS?