Real Estate Value Chain Connections: Tangible and Transparent
Article in Journal of Real Estate Research · January 1999
DOI: 10.1080/10835547.1999.12090977 · Source: RePEc
CITATIONS
42
READS
16,504 1 author:
Some of the authors of this publication are also working on these related projects:
LSA in Real EstateView project Stephen Roulac
Ulster University
135PUBLICATIONS 1,973CITATIONS SEE PROFILE
All content following this page was uploaded by Stephen Roulac on 18 June 2014.
387
Real Estate Value Chain Connections: Tangible and Transparent
Stephen E. Roulac*
Abstract. Real estate plays a fundamental connecting role in the value chain. This research addresses the application of the value chain concept to how real estate facilitates the connection of inputs to the value creation process to deliver goods and services to consumers. This research provides the critical linkages in the vocabulary of strategic management. Once identified, the critical real estate value chain connections can lead to insights resulting in superior decision making. In settings emphasizing transparency, the place and space of origin and destination become more important. While a predominant amount of commerce is conducted in tangible contexts, the hypercompetitive conditions of such commerce and the proliferating substitutes for the environments in which such commerce may occur places ever more priority on the role of real estate value chain connections.
The value chain, a fundamental conceptual building block of strategic management, offers a means to consider how value is added at each significant point of the process by which business enterprises create goods and services. The value chain concept can be a powerful means of comprehending the measure of the value contribution of each process and resource employed as inputs to create output. To date, the implications of the real estate value chain connections have had only the most limited consideration by scholars.
This research addresses the application of the value chain concept to how real estate facilitates the connection of inputs to the value creation process to deliver goods and services to consumers. It’s important contribution is to provide an articulation of critical linkages in the vocabulary of strategic management. In so doing, it highlights critical real estate value chain connections in a manner that can lead to insights resulting in superior decision making.
This research provides a framework to address the important connections of real estate to commerce. A particularly significant aspect is to consider the emerging transparencies of and the new factors of production that connect real estate and commerce. Profound economic changes are introduced by the Internet, involving transactions that occur in market space rather than market place, work in the virtual office rather than the work place, and financial services in anyplace and nonspace.
These extraordinary changes realign the role of and rewards for factors of production,
*The Roulac Group, San Rafael, CA 94901 or [email protected].
both established and novel. This research provides a framework to address the profound implications of these change forces for real estate.
The conceptual underpinnings to the concept of the value chain as applied to strategic management have parallels to real estate entrepreneurial activity. A dominant thesis of strategic management is ‘‘how a firm can actually create and sustain a competitive advantage in its industry,’’ (Porter, 1985). Porter goes on to suggest that ‘‘competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceed the firm’s cost of creating it.’’ This statement reflects remarkable parallels to the objectives of real estate development—creating a property whose value exceeds the costs incurred to create it.
The Value Chain and Competitive Advantage
Porter identifies three fundamental generic competitive strategies that are employed within an industry: cost leadership, differentiation and focus on a narrow competitive scope within an industry, emphasizing either cost or differentiation within that narrow competitive scope (Porter, 1985). How effectively a firm applies these three generic strategies determines its competitive advantage. While competitive advantage ultimately is reflected by aggregate firm performance, according to Porter,
‘‘Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the many discrete activities a firm performs in designing, producing, marketing, delivering and supporting its product.’’ Porter goes on to assert that the value chain is the basic tool for gaining this understanding: ‘‘A systematic way of examining all the activities a firm performs and how they interact is necessary for analyzing the sources of competitive advantage...the value chain disaggregates a firm into its strategically relevant activities in order to understand the behavior of costs and the existing potential sources of differentiation. A firm gains competitive advantage by performing the strategically important activities more cheaply or better than its competitors.’’
Porter’s value chain construct represents a point of departure for insights into the relative contributions that real estate makes to business performance.
Comprehending the contributions that real estate makes to business performance in a value chain context is instrumental to consideration of strategic competitive issues at levels of both the firm and the industry. Just as Porter presents a comprehensive, integrated and structured approach to assessing competitive position, the real estate value chain provides a comprehensive, integrated, and structured approach to understanding the applied strategic implications and relationships of real estate decisions to business performance. This understanding of real estate value chain connections is achieved by extending the disaggregation of strategically relevant activities to consider their tangible and transparent real estate implications.
Porter suggests that the firm’s value chain is part of a larger value system, in that inputs to a firm’s value chain are outputs of its suppliers’ value chains just as the firm’s outputs are inputs to its customers’ value chains. This concept can be applied
to real estate since there is a common thread of the real estate element of the value system in that real estate supports a firm’s creating value and delivering its goods and services to its customers, which customers in turn use those goods and services in creating value for the goods and services that the firm provides to its customers. These relationships are shown in Exhibit 1.
Porter identifies a firm’s value chain as consisting of nine generic categories of activity: the five primary activities of inbound logistics, operations, outbound logistics, marketing sales and service, plus the four support activities of firm infrastructure, human resource management, technology development and procurement. In Porter’s words, ‘‘Differences among competitor value chains are a key source of competitive advantage.’’ Similarly, differences within different enterprises’ real estate value chains are crucial sources of competitive advantage.
For each of Porter’s generic value chain categories, real estate has meaningful significance. Indeed, the enterprise’s real estate strategy may predominantly emphasize such activities as marketing sales or human resource management (Nourse and Roulac, 1993). A perspective on the real estate significance of each of Porter’s generic value chain categories is provided in Exhibit 2.
Real Estate Value Chain
For real estate to command sufficient market support to generate the requisite rental revenue to justify its purchase and / or development, it must make a corresponding and consistent value contribution to the business economics of those enterprises that occupy and utilize that real estate. The revenue of the property owner is the expense of the tenant. The package of facilities, services and promotion that is represented by real estate must contribute a value to the tenant consistent with the rent that is paid.
For an enterprise that merely hopes to break even, the value can equal the rent, but no enterprise can long expect to sustain itself if it merely breaks even. Such operating economics do not provide the requisite funds for investment necessary for business continuity, let alone growth. The value inherent in the real estate utilized by the tenant must exceed what the tenant pays for that real estate.
Place and space have both profound and widely divergent strategic roles in different types of businesses. Depending on the strategic role, the value chain connection to and contribution of place and space to the enterprise’s business can vary markedly.
Some eight distinctive strategic roles of place and space—basic, resource, direct, essence, critical, integral, supportive, independent—can be identified, as shown in Exhibit 3.
For those companies that are in the business of providing space and place experiences, such as hospitality businesses, commercial office buildings and homebuilders, place and space are the basic business. Resource industries such as timber, mining and farming extract their product from the land. Other businesses have a direct strategic linkage to place and space, since the place and space strategy decisions of other businesses are largely determined by the nature and volume of demand for their goods
Exhibit 1
Value System Interdependency
Exhibit 2
Real Estate Significance for Porter’s Value Chain Generic Categories
Value Chain Generic Activity Real Estate Significance Panel A: Five Primary Activities
Inbound Logistics Accessibility and relationships to supplier locations
Operations Efficient, functional workspace
Access to workforce
Outbound Logistics Access to transportation to reach distribution system
Marketing / Sales Real estate serves promotion and advertising purposes
Direct selling environments
Service Customer convenience and access to service
facilities and service team Panel B: Four Support Activities
Forms Infrastructure Place location and space attributes largely influence effectiveness of administrative support functions and operations
Human Resource Management Strategic decisions concerning place and space have profound implications for work experiences and indeed can represent a primary corporate real estate strategy
Technology Decisions concerning place, such as Northern
California or Route 128, and space configurations conducive to innovative work are integral to value additivity sought via technology development
Procurement Ambiance of space can influence implementation
of procurement activities
and services. Furniture has direct strategies linked to place and space through its function to supporting the use and experience of its customers’ spaces.
In some businesses, place and space are the very essence of the enterprise’s strategy.
A business where the environment is the essence of the experience is a restaurant:
‘‘Location, Location, Location. It’s the mantra of the real estate world—in the restaurant business. The fact is, however, that while many people will go practically anywhere for great food, if given a gorgeous view they will ignore what’s on the plate,’’ (Bauer, 1997).
While some restaurants place their strategic emphasis on food quality, convenience or price, many emphasize place and space as the essence of their offering.
Place and space are critical to many local retail service businesses, because their customers seek direct immediate access to basic consumer goods and services on a
Exhibit 3
Strategic Role of Place and Space
Strategic Role of
Place and Space Function Example
Basic Provide, rent, sell Hotel, office owner,
homebuilder
Resource Extractive industry Timber, mining, farming
Direct Support use and experience Furniture
Essence Environment is the essence of experience
Restaurant
Critical Means of service delivery Retail, theater, amusement parks
Integral Facilitates service delivery process
Professional services, medical services, education
Supportive Environment of creativity and proximity to resources / talent
High tech areas, theater district
Independent Knowledge work Money manager
daily basis. Place and space are the critical means of service delivery in retailing and site-specific entertainment such as theaters, sport stadiums and amusement parks. For other enterprises, place and space are integral to the strategy of service delivery process, facilitating convenience, access and prestige. Space and place are integral to the delivery of both professional services and medical services. In an educational institution, place and space can be integral to the learning experience.
Conceptually, value linkages between businesses and real estate can be addressed through consideration for each business function of the value purpose of that function, and how the real estate value application relates to that value purpose for the particular business function. Each business function and value purpose is served by a particular type of real estate. These business and real estate value linkages are depicted in Exhibit 4 for primary business functions including management and marketing, organization, research and development, operations and manufacturing, promotion, selling and logistics.
Extending the consideration of business and real estate value linkages beyond the primary business functions, each of the value chain elements involved in making and delivering products and services can be connected to real estate considerations. The making and delivering products and services value chain is shown in Exhibit 5. The real estate considerations for each of the value chain elements involved in making and delivering products and services are shown in Exhibit 6.
As shown in Exhibit 6, each component element of the value chain that is involved in making and delivering products and services has particular real estate considerations. Considering the connection between real estate strategic decisions with
Exhibit 4
Value Linkages—Business and Real Estate
Business Function Value Purpose
Real Estate Value Application
Type of Real Estate Management and
Marketing
Strategize, organize and control
Facilitate business process and tasks
Office
Organization Team building Meeting place Conference
facilities, hotel Research and
Development
New product development
Contribute to creative process
Research and development Operations and
Manufacturing
Make product Production Industrial
Promotion Create and stimulate demand
Means to promote Billboard, prominent building, retail
Selling Sell products and
services
Promote sales Retail
Logistics Distribution Store supply Warehouse
the particular component of the value chain involved in making and delivering products and services can yield important strategic insights. Specifically, insights can be gained as to how particular factors influencing an enterprise’s overall business strategy relate to and influence its real estate strategy and its real estate transactions.
Ultimately, even if the enterprise does not articulate its real estate strategy as a means of formulating the particular elements of real estate transactions, there is an inherent implicit connection between a firm’s business strategy through its real estate strategy to real estate transactions (Nourse and Roulac, 1993).
Implications of Competition
Whereas competition once could be described as moderate, today businesses increasingly operate in what has been described as ‘‘conditions of hyper-competition where firms position themselves aggressively against one another,’’ (Marchand, 1996).
For example, Nieman-Marcus and Saks Fifth Avenue aggressively compete for ‘‘a very thin layer of people with a tremendous amount of disposable income...to be their store of choice,’’ (Bird, 1996). In conditions of moderate competition, which conditions, as noted, are largely of the past, firms pursued accommodating relationships, positioning themselves around rather than directly against each other, which strategies were supported by barriers that limited new entrants (Marchand, 1996). Indeed, three-dimensional environments were effectively employed in moderate competition industries, where market leaders employed cooperation to restrain competitive behavior, thereby achieving sustainable advantages (Marchand, 1996).
Manufacturing firms operating in the context of moderate competition could successfully pursue sustainable advantage through large-scale re-engineering database
Exhibit 5
Making and Delivering Products and Services Value Chain Design Product/Service
Specify Production Process
Select Suppliers
Recruit Workforce
Supervise Production Process
Sell Products and Services
Deliver Products and Services
and software application projects extending for four or five years. Such re-engineering emphases concentrated on long-term programs to align processes and systems, emphasizing high volume to achieve low cost product offerings, and structured approaches to market forecasting, production planning and control, inventory management, and financial management (Marchand, 1996).
However, in today’s environment of hyper-competition, both existing firms and new entrants continually seek to create new opportunities and destroy the leaders’
competitive advantages. Thus, continual strategic and re-engineering initiatives are fundamental both to upgrade and introduce new products and services to achieve, sustain and expand profitability.
The real estate appropriate to moderately competitive markets differs dramatically from that applying to markets characterized by hyper-competition. The scale, appearance, layout, location and symbols of real estate would vary markedly. For example, consider AT&T, which once operated in regulated communications markets characterized by minimal competition but which now exists in a highly competitive
Exhibit 6
Real Estate Value Chain Connections—Making and Delivering Products and Services
Value Chain Elements Real Estate Considerations
Design Product / Service Attributes of place inform desired service products and their attributes
Specify Production Process Make-or-buy decision has profound implications; space requirements
Where to locate production activity
Select Suppliers Suppliers’ place and space strategies influence business economics
Recruit Workforce Availability and costs of workers influence business operations and location decisions
Costs and availability of housing influence business economics
Supervise Production Process Location and form of production arrangements determine management tasks
Sell Products Role of place and space in selling process varies from dominant to negligible
Deliver Products Location factors influence delivery and service economics
communications market. The substantial, imposing, rigid granite headquarters in midtown Manhattan that previously served its style, strategy and competitive circumstances was jettisoned a few years ago as the physical symbol of the building was no longer appropriate to the competitive forces the company faced.
An effective means of considering the implications of competition is to address the issue from the perspective of the supply chain, which is a variant of the value chain, in that it reflects a sequential series of component tasks and functions that are involved in how a product reaches the market. The supply chain embraces such considerations as the primary purpose, manufacturing focus, inventory strategy, lead time focus, approach to choosing suppliers and product design strategy (Fisher, 1997).
Fundamental to designing an effective supply chain is considering whether the enterprises’ product offerings are functional with predictable demand or innovative with unpredictable demand (Fisher, 1997). The effective supply chain for functional products is one that emphasizes physically efficient processes, whereas innovative products are best served by a supply chain featuring a market-responsive process.
The physically efficient process has very different real estate implications from the market responsive process. Consider the place and space implications of the physically efficient versus market responsive processes for manufacturing, inventory strategy, suppliers and personnel (Fisher, 1997), as depicted in Exhibit 7. As seen by the characteristics of the strategic purposes, the attributes of place and space to serve those purposes differ dramatically. One consequence of these dramatic differences is
Exhibit 7
Place and Space Implication of Physically Efficient vs.
Market-Responsive Processes
Physically Efficient Market-Responsive Primary Purpose Supply predictable demand
efficiently at the lowest possible cost
Respond quickly to
unpredictable demand in order to minimize stockouts, forced markdowns and obsolete inventory
Manufacturing Focus Maintain high average utilization rate
Deploy excess buffer capacity Inventory Strategy Generate high returns and
minimize inventory throughout the chain
Deploy significant buffer stocks of parts or finished goods
Approach to Choosing Suppliers
Select primarily for cost and quality
Select primarily for speed, flexibility and quality Personnel Strategy Emphasize highly
structured, routinized work with low-cost labor
Initiative, independent judgment, creativity and flexibility
Place Implications Low cost of doing business Ready market access Space Implications High efficiency, extended
duration, tenancy commitment
Space flexibility; interior layout
Note: Exhibit adapted from Fisher, 1997.
that the costs of real estate that serves physically efficient processes may meaningfully differ from those for real estate that serves market responsive processes.
Significantly, whereas the contribution margin for businesses that emphasize a physically efficient process to produce a functional product whose demand is predictable is in the range of 5% to 20%. Those businesses that employ market responsive processes to create innovative products in response to unpredictable demand see contribution margins in the range of 20% to 60%.
Companies emphasizing market-responsive processes have very different real estate needs:
n Location—must be close to market, to minimize lead times between order-production-delivery.
n Scale—must have sufficient scale to accommodate dramatic increases in volume, so real estate capacity does not constrain market penetration opportunity.
n Improvements—tend to be highly modular design that accommodates flexibility as contrasted to rigid layout.
Exhibit 8
Retail Real Estate Decision Value Objectives and Criteria
Real Estate
Decision Value Objective Value Criteria
Region Access to market Size / quality of market
Store Location Merchandise offering Convenience / location appeal Store Design Shopping experience: enjoyable to
shopper / profitable to seller
Effectiveness of selling environment
The different place and space implications for these two processes are summarized in Exhibit 7.
Value Chain Connections
The natural symbiotic relationship between different enterprises’ value chains leads to a network of interdependent relationships. This network interdependency occurs both between firms and within firms. The intrafirm value chain interdependency may be appreciated by considering the particulars of what is involved in the sell products and services element of the making and delivering products and services value chain.
The sell products and services important subcomponent in the making and delivering products and services value chain is also a separate value chain unto itself as the retail value chain. It is helpful to start out with consideration of retail real estate decision value criteria. Three primary levels of real estate decision making in the retailing process involve selection of region, store location and store design. Each decision relates to particular value objectives and is ultimately reflected by value criteria. These relationships to and between the real estate decision, value objective and value criteria are shown in Exhibit 8.
The sale of products and services element of the making and delivering products and services value chain is inherently connected to the retail value chain, as shown in Exhibit 6. The business merchant is concerned with having a source for the products and services it proposes to offer and then with addressing a series of critical tactical decisions, each of which have far-reaching strategic consequences, that lead to a consummated transaction.
The elements that comprise the retail value chain are presented in Exhibit 9. Notably, all of the elements this chain are linked to and have important connections to real estate. The value element to deliver merchandise and services is in fact the making and delivering products and services value chain discussed earlier and depicted in Exhibit 5. As the tasks involved in conducting the transaction and assisting the customer occur within the shopping environment, they are not separately addressed.
Real estate’s role in the source product / service element of the retail value chain is shown in Exhibit 9a. If the merchant determines to make the products and services
Exhibit 9 Retail Value Chain Source Product/Service
9a
Create Demand 9b
Arrange Distribution System 9c
Attract Buyers to Distribution System 9b
Deliver Merchandise and Services 5
Provide Appealing Shopping Environment 9d
Assist Customer
Conduct Transaction
offered, then critical plant location decisions concerning the country, region, submarket and site must be addressed. While numerous other real estate considerations, including size of facility, layout and lease or buy decisions, and then the particulars of leasing and financing, also apply, they are not addressed here. If the merchant decides to buy rather than make the products and services, the manufacturers and service providers need to be carefully considered. Real estate influences on manufacture access include the location of manufacturers’ showrooms, access to shows that display merchandise and catalogs.
Real estate has a major role in creating demand and attracting the buyer to the distribution system. Of the four primary demand-stimulating activities addressed here, including advertising, promotion, direct mail and selling environment, real estate has a direct role in each except direct mail (see Exhibit 9b). The direct real estate relationships to the value elements that create demand and attract buyers to distribution system are highlighted in Exhibit 9b.
Exhibit 9a
Real Estate Role in Source of Product / Service
Make Plant Location n Plant location n Country n Region n Submarket n Site
Buy Manufacturer Access n Manufacturer access n Showrooms n Shows n Catalog
n Digitized catalog
Exhibit 9b
Real Estate Role to Create Demand and Attract Buyer to Distribution System
Advertising
n Print: newspapers, magazines n Radio, television
n Building, address*
n Billboards*
n Websites*
Direct Mail Promotion n Text n Video n Event*
n Website*
n Name on building*
Selling Environment n Store*
n Catalog n Website*
*Real estate aspect.
Beyond sourcing the products and services to be offered and creating a demand, the merchant needs to establish a distribution system. The arrange distribution system element of the retail value chain embodies considerable complexity of choices. As addressed above, the fundamental real estate decisions in retailing are concerned with region, store location and store design. For each of these three decisions, there are different ramifications for the merchant reaching customers through established retailers, his or her own store, or the World Wide Web (see Exhibit 9c).
Exhibit 9c
Arrange Distribution System
Distribution System
Real Estate Decision
Region Store Location Store Design
Panel A: Established retailer
Department Store Select stores that best reach target market
n / a n / a
Boutique in Department Store
Select stores that best reach target market
Select store; negotiate location within store
Design within store guidelines
Panel B: Own store
Shopping Center Select regions Select center; negotiate location within center
Design store within center’s guidelines Stand Alone Select regions Select locations Design store to
own standards Panel C: World wide web
Mall n / a Select mall
Stand Alone n / a n / a Design site
Exhibit 9d
Provide Appealing Shopping Environment—Real Estate
Factor Considerations
Proximity Close to major business centers and primary residential areas
Accessibility Accessible to public transit; major roads Convenience Adjacent to transit stop; easy parking
Exterior Visually appealing, inviting
Store layout Organized, efficient shopping experience Interior decor Visually appealing, inviting
Merchandise presentation Attractive displays; products accessible
The important differences have to do with the degree of independence the merchant aspires to and is able to achieve in the different selling environments. The degree of independence sought and achievable reflects the tradeoff between separateness of identity versus the demand generated by offering merchandise through a large established store, a store in a shopping center or a Web site in a specialty mall. Further, the merchant’s ability to target and reach multiple regions is dramatically influenced by the distribution strategy.
Exhibit 10
Provide Appealing Shopping Environment—Cyberspace
Factor Considerations
Proximity Computer with power source
Accessibility Accessible server
Link to high-traffic sites Indexed in search engines
Convenience Efficient navigation architecture
Easy, secure order placement
Exterior Visually appealing home page
Store Layout Organized, efficient
Interior Decor Visually appealing
Merchandise Presentation Attractive display of product / service
Similar considerations apply to decisions concerning store location and store design.
Considering store design, the more independent, self-reliant and self-determining the distribution strategy elected, the greater the autonomy in store design decisions.
Certainly, one of the great appeals of the World Wide Web is the autonomy offered in designing the selling environment and the distribution system. In addition, the non- constraints of location mean that real estate factors are not applicable in cyberspace retailing.
Once the distribution system has been specified, and buyers attracted and merchandise and services delivered, providing an appealing shopping environment is especially important. The real estate factors to consider in addressing the retail value chain element to provide appealing shopping environment include proximity, accessibility, convenience, exterior, store layout, interior decor and merchandise presentation (see Exhibit 9d). But to the extent that the distribution system includes, if not emphasizes, the World Wide Web, different considerations emerge (see Exhibit 10).
Transparent Connections
Cyberspace commerce challenges traditional thinking concerning the role of the tangible. In the transparent environment of cyberspace commerce, different priorities emerge. ‘‘But in the on-line world, there are no sensory clues to tell you when you’re almost home. ‘No location! No location! No location!’ would be the on-line real estate agent’s rallying cry,’’ (Seabrook, 1995).
Real estate has long served as a place of assembly, storage and exchange. In the new non-dimensional environment of cyberspace, every computer is a means of assembly, a printing press and a broadcast station. Functions that were served by tangible environments are now served by transparent environments.
Although cyberspace commerce promises to eliminate the need for one or more three- dimensional environments employed in assembly, storage and exchange, still the parties that meet, interact and connect in cyberspace are, for the most part, placed somewhere in a space. What emerges, then, is that individual place and space choices assume greater importance, because cyberspace commerce diminishes the need for and therefore the role of three-dimensional environments.
Decision considerations and constraints are different in cyberspace commerce than in three-dimensional tangible real estate. Applying and comparing the value criteria identified in Exhibit 8 to three-dimensional real estate and cyberspace suggests very different value chain decision considerations (see Exhibit 11). Three-dimensional real estate is defined by the geography of the three-dimensional world, whereas cyberspace commerce exists in the World Wide Web in which geography and distance are not constraints.
In cyberspace commerce, one can define many more of the variables that determine another’s experience. There is less sensory competition. Design decisions are constrained neither by the site nor by land use controls. In cyberspace, a smaller enterprise has a greater prospect of designing a truly extraordinary site to compete on more equal footing with substantial enterprises.
The changes transforming commerce are causing real estate value chain connections to be more transparent than tangible. The emergence of non-store selling environments (Roulac, 1994), non-office working environments (Roulac, 1996a) and non-plant manufacturing (Roulac, 1996b) impose highly differentiable roles for real estate in the value chain. As a consequence of these non real estate business strategies, the role of real estate is both being eliminated and transferred to other entities. An example of eliminating the real estate role is Dell Computer’s combining selling, making, managing and storing in one facility, thereby eliminating the multiple separate real estate facilities that competitors devote to these functions. Another example of eliminating real estate is the digitized showroom. An example of transferring the real estate role to other entities is Nike’s strategy of having its athletic shoes largely made by companies located in East Asia.
Central to understanding the tangibles and transparencies of real estate value chain connections is consideration of the long time, interdependent relationship between real estate and information. From earliest times, before writing implements, mechanized writing and printing were pervasively available, a building was used as a mnemonic device to aid memory and recollection (Rybczynski, 1989). Then, buildings themselves served as forms of physical communications, with the great cathedrals of Europe being repositories of stories, information and knowledge (Hugo).
Now, enterprises seeking to convey messages to motivate, inform and entertain can choose from and combine a diverse array of text, visual images, symbols, tangible representations, re-creations or actual depictions of place and space. Formats can be two-dimensional on a page, animated on a screen or three-dimensional marketing environments. The tangible and the virtual representation of the tangible are becoming
ESTATEVALUECONNECTIONS403
Exhibit 11
Value Chain Decision Considerations
Decision Value Objective Value Criteria Tangible Real Estate Cyberspace Commerce
Region Access to market Size / quality of market Strategic market selection is primary decision defined and constrained by scale, access and capacity
Universal access
Location Merchandise
offering
Convenience / appeal of location
Physical access, convenience, prestige, amenities, visual appearance of site
Access via server and visual appearance determine appeal Store Design Shopping
experience:
enjoyable to shopper / profitable to seller
Effectiveness of selling environment
Appeal, organization and flow of shopping experience
Appeal and navigability of site
VOLUME 17, NUMBER 3, 1999
more intertwined, interdependent, substitutable, competitive and connected in their roles to facilitate commerce. Significantly, the language of the Internet is the vocabulary of real estate: site, home page, access, design, traffic.
As people are presented with a proliferation of choices concerning how they consume goods and services, the choices they make concerning the places and spaces in which such decisions are made become ever more important. As enterprises have increasing ability to operate in tangible environments as well as transparent environments of non- store selling, non-store working and non-plant manufacturing, the choices they make concerning their tangible and transparent environments are ever more important.
Conclusion
Real estate plays a very fundamental connecting role in the value chain. In those settings emphasizing transparency, the place and space of origin and destination become ever more critical. Still, while a predominant amount of commerce continues to be conducted in tangible contexts, the hyper competitive conditions of such commerce and the proliferating substitutes for the environments in which such commerce may occur places ever more priority on the role of real estate value chain connections.
References
Bauer, M., Room with a Spectacular View, San Francisco Chronicle Datebook, March 2–8, 1997, 39.
Bird, L., Nieman Marcus, Saks Wage Expensive Battle for Upscale Shoppers, The Wall Street Journal, November 21, 1996, A1.
Fisher, M. L., What is the Right Supply Chain for Your Products? Harvard Business Review, March–April, 1997, 105.
Hugo, V., Notre Dame of Paris, Penguin Books.
Marchand, D. A., Are you Betting Your Company’s Supply Chain on Information Technology?
Again! Perspectives for Managers, November 1996, 1–4.
Nourse, H. and S. E. Roulac, Linking Real Estate Decisions to Corporate Strategy, Journal of Real Estate Research, 1993, 3, 475–94.
Porter, M. E., Competitive Advantage—Creating and Sustaining Superior Performance, New York, NY: The Free Press, 1985.
Roulac, S. E., Retail Real Estate in the 21st Century: Information Technology 1 Time Consciousness 1 Unintelligent Stores 5 Intelligent Shopping? NOT! Journal of Real Estate Research, 1994, 125–50.
——, Strategic Implications of Information Technology for the Real Estate Sector, The Journal of Property Finance, 1996a, 7:2, 28–44.
——, Shape of Things to Come: Retail Real Estate in the Twenty-First Century, Megatrends in Retail Real Estate, Research Issues in Real Estate, monograph series, American Real Estate Society, J. D. Benjamin (editor), Boston: Kluwer Academic Publishers, 1996b.
Rybczynski, W., The Most Beautiful House in the World, New York: Viking, 1989.
Seabrook, J., Home on the Net, The New Yorker, October 19, 1995.
