With the objective of growing a business whilst increasing efficiency and profits, heads of finance and operations occupy seats at the tops of their organisations and are expected to provide leadership and innovation but often have little opportunity to collaborate with peers in competitor businesses and get inspiration for many mutual challenges.
We invited a group of Global CFOs and COOs from some of the largest and most prominent real estate investment managers to a wide-ranging discussion in order to foster an understanding of current issues and common experiences, share best practice and discuss opportunities for improvement with the goal of operating as a best in class organisation.
Integration and Implementation of New Systems
In the digital age, one of the most pertinent topics on the minds of CFOs and COOs is data management and the implementation and integration of new systems. The growth experienced by some funds has meant that some systems are not very well-integrated, making cross-border work tricky. One panellist explained how their business is now global but, from a data management and IT perspective, still looks like 10 or 15 different business. Lots of time has been invested in considering new systems to try, how to make existing IT systems commercially and operationally better, and piece the different businesses together, such that internal processes and deal execution can be turbocharged.
However, regardless of the efforts of the operations team to integrate and standardise systems, these implementations are not without their challenges, particularly where employees are used to certain software and processes. In this vein, one panellist explained how their change from a balance sheet to a funds business has created operational challenges as treasury and cash management are still viewed as back-office functions, meaning that attempts to implement new systems and processes in these areas have often been neglected by the mothership.
Once new systems have been implemented, there comes a further challenge, as one COO pointed out: actually getting employees to use it. How have managers met this challenge? One fund has focused on highlighting how using efficient new technology improves the business’ bottom line and hence affects their overall compensation. Key here is ensuring that the company’s strategic goals are at the forefront, rather than just telling employees to use new technology. Another has focused on building operating models internally, noting that organisations tend to be more sceptical of processes and systems created by external consultants, whilst this is mitigated if it has the company’s fingerprints on it. This ‘for us, by us’ approach has made it easier to encourage colleagues to use new processes and embrace the technology.
Existing Technology – is it fit for purpose?
Despite advances in technology over recent years, our participants commented that many of the programs are not necessarily fit for purpose or tailored to the evolving needs of the real estate industry. Argus and Yardi were singled out as the culprits in this regard, with one panellist explaining that Argus is cumbersome to use and is not cloud native, making it difficult to integrate with other systems. There appears, therefore, to be a gap in the market, namely building a better solution to support real estate asset and portfolio management teams in their needs. Another COO noted that, even when Argus works well, there is a challenge in upskilling colleagues to use it or in finding talent with subject matter expertise, with some having resorted to hiring support functions in Asia.
The Finance Team of the Future
During our discussion, the ‘p’ word came up frequently. The pandemic has led to real estate funds reconsidering how their internal finance functions work and ensuring that they are fit for the future. One panellist noted that the silver lining to the pandemic has been the embracing of new technologies and the questions that arise from this: do you need accountants in one hub? Can resources be flexed by bringing in team members from different offices? Is there a need for auditors to roam around the office when data can be shared remotely? By splitting finance functions across several locations (indeed allowing some team members to mainly work from home) yet adopting the technology available to them, much of which is already available, it may be possible to streamline processes and create a more efficient finance function.
In order for this to work, however, it will be important to hire technologically adept individuals. As one panellist commented, ‘data is an asset class, no different to real estate’. Ensuring that finance teams can extract value from the data they hold is therefore going to be crucial in the finance team of the future. Our panellists agreed that accounting and finance skills are therefore no longer enough; finance teams need to be able to work with data quickly and interpret it in the correct way, rather than just ‘punching numbers’. Those with excellent accounting skills but proficient in technology, and potentially also coding will therefore be highly prized going forward.
Real estate funds are already considering the shape that this data savvy finance team of the future will take. Some have brought their FP&A team closer to their valuations team, whilst others have introduced valuation support teams who are integrated as part of a centralised team. Other funds have hired accounting graduates in Asia and helped them to learn Argus in order for them to support real estate asset management and investment teams, even from the other side of the globe.
The finance team of the future is therefore likely to be less centralised, less technophobic and will certainly spend less time grinding in Excel spreadsheets than it has done in the past.
Flexible Working – out of sight, out of mind?
The growing open-mindedness towards flexible working over the last year has been another topic prominent in the minds of CFOs and COOs. Paradoxically, working from home has brought some colleagues closer together, with one representative from a North American based organisation pointing out that they see more of their team in Europe and Asia than they had done prior to the pandemic, owing to the ubiquity of Zoom and Microsoft Teams calls. In a sense, months of lockdown have therefore eliminated distance.
However, some participants noted that home working has had its drawbacks, creating an ‘out of sight, out of mind’ mentality, where issues are overlooked due to the inability to interact with colleagues in an office environment, creating operational challenges for our industry as co-workers are subsequently unable to come together to solve problems. Another pointed out that home working has had a particularly detrimental effect on junior colleagues’ ability to develop; the challenges of remote onboarding and not being close to their mentors has stunted the growth in their learning.
Whilst our panellists pointed out that there was an expectation among some junior staff during recruitment processes that they would be able to work from home for 3 or 4 days a week in the post-pandemic era, they cast doubt on whether this would be workable in reality. Not only is being in an office important for team integration but, as one participant reported, productivity for those employees who have returned to the office has skyrocketed. Being at home has also been a burden for some, particularly the additional childcare responsibilities, as well as the blurring of boundaries between work and personal life. Nevertheless, one panellist commented that day-to-day performance remains strong and most employees still hit deadlines.
Will it be essential to offer flexible working after the pandemic? On this question, our panel were united – allowing colleagues to work from home for at least some of the time will be vital to attract and retain talent. However, this is likely to form part of a wider package and those firms who already offered flexibility before the pandemic are now struggling to find their USP; one participant noted ‘what people really want is investment in them’. As a result, whilst flexible working looks set to stay, it is only one way of enticing and retaining talent.
The challenges of ensuring that systems and processes are properly implemented, making finance teams fit for purpose and simultaneously steering a business through the pandemic, when, in many cases, colleagues have not been physically present in an office for months, has certainly kept finance and operations teams busy over the last year. Over the next year, building the operating model of the future looks set to remain high on the list of priorities for many senior leadership teams, and we look forward to discussing their respective approaches and experiences in another session.
This was the first in a series of Bohill Partners CFO/COO roundtables, where we gather a small group leaders from the global real estate investment management industry to identify common issues and discuss opportunities to benefit the sector.