One SME’s Quest to Find a New Path and It Is Blue Too
Why challenging the status quo pays off
EMG provides data and intelligence for owners, lenders and occupants of facilities across the United States by conducting technical assessments required through the life cycle of real estate. Whether the needs are a result of transaction, strategic or capital planning, energy efficiency, or the execution of branding or maintenance projects, the company has been on a blue ocean journey for the past few years. Headquartered in Maryland, USA, EMG serves clients large and small who are faced with making or executing significant decisions in their real estate portfolios.
Nestor Benavides, the President of EMG, is leading EMG’s blue ocean journey. His objective: to transform EMG from a red ocean player to a blue ocean pioneer. The Blue Ocean Strategy Team spoke to Benavides to learn more about EMG’s journey.
Blue ocean strategy is for those who believe in the possibility that you can create something amazing in the world.Click to tweet
The Red Ocean Scenario
The BOS Team: How would you describe the red ocean scenario that EMG was up against?
: When I arrived at EMG, it didn’t take long for me to discover that the transactional space EMG competed in was cluttered. Competition was fierce. While EMG was a capable competitor, the variability in month-to-month revenue was a significant challenge. The variability in the workload made it such that we were either stretched for resources (stuffed), or worried about insufficient utilization of the staff ( starving). As a result, the business was in a constant state of stress, organizationally and financially.
We would make money on the busy months and lose money on the light months. The financial performance wasn’t outstanding. It was a typical red ocean situation with a company competing well enough to survive but not thrive. Executives started to spent most of their time on the cost structure and the culture of the company.
Like many companies in the U.S., and indeed around the world, we were hit hard by the recession that followed in the wake of the 2007/2008 global financial crisis. In fact when the recession struck, because of our business’ dependence on the commercial real estate transactional market, sales more than halved.
Crises often contain the seeds of opportunity and this proved to be the case for us. Competing in the red ocean had already been tough and the recession made it tougher. Recovering from the blow dealt by the recession required a new strategic approach; business as usual was no longer an appealing option. The executive team wanted a strategy that provided greater diversification and a more deliberate growth.
Blue Ocean Perspective
BOS: What was your blue ocean moment, which inspired you to pursue blue ocean strategy for EMG?
: Searching for a new approach, and still thinking about issues of strategy, execution and culture, I returned to Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne, which I had read several years previously.
In re-reading the book, it hit me that EMG must stop competing on terms set by others. Realizing that we had been doing exactly that, I resolved to pursue a different approach and started to think about our situation from a blue ocean perspective. It seemed to point the way to a very different future, one that I was determined to explore.
BOS: How did EMG go about crafting a new strategic approach?
: I brought the entire executive team together to consider a blue ocean approach, involving eight people including the CEO, COO, CFO, the Head of Sales and Directors of the company’s various sales divisions. They drew strategy canvases, some a little reluctantly at first. As at many companies, strategizing and planning had a bad name since it mostly involved getting bogged down in spreadsheets and interminable negotiations about budgets.
The task of drawing a strategy canvas was different however; it got us thinking about new possibilities and we began reimagining our own company. To further inspire my executive team, I asked them to come to the initial meeting with examples of companies that they thought had taken a blue ocean approach.
I spoke about Cirque du Soleil and [yellow tail] while others suggested Apple, Starbucks, Uber, and even EMG’s initial strategy at its inception nearly 30 years ago. Thinking about how these companies had created new market space and broken away from the competition helped us challenge old assumptions and explore new ideas.
At the start of the process I felt that the company was a bit confused about who we were and who we were trying to be. We offered so many different services and we had so many different clients, and yet we still failed to understand our core competencies and our competitive advantage. We were trying to be all things to all people and compete on so many different fronts. The strategy canvases really brought that home to us. Applying blue ocean strategy helped us refocus and determine the type of client we needed to concentrate on in the future – those with numerous properties, and particularly those with geographically distributed portfolios.
Over several meetings and iterations, it became apparent to us that we had been stuck in a red ocean trying to compete on pricing, marketing, and regional knowledge. A realization went round the room that EMG was not as unique as perhaps we thought it was. As long as our company anchored itself on the transactional services, we would be at the mercy of the markets. We realized we had no real control over the market. If it shrank, we shrank too.
BOS: How has the process shifted your strategy?
: Seeing the reality of the red ocean situation got us focused on exploring new strategic directions. A blue ocean concept emerged at the end of the deliberations: ‘technical excellence in a scalable way.’ No other company was offering the level nor breath of technical expertise with the reach, capacity and consistency of EMG. We had a platform to provide value far beyond the transactional services market.
Seeing the reality of the red ocean situation made us explore new strategic directions. – Nestor Benavides, EMGClick to tweet
That blue ocean concept described a shift in our strategy to focus on three key factors: providing independent up front assessments needed by our clients for making decisions unbiased by trying to sell follow-on products and services (as our competitors did); introducing a time guarantee to demonstrate the reliability of our execution; and disassociating our clients markets (and sales efforts) from the technical sales divisions so that clients could access the firm’s full range of services more efficiently.
Our competitors wrote technical reports that often tried to convince clients to hire them for whatever technical work was recommended in the report. We, by contrast, decided not to do that. We would focus instead on giving clients the very best unbiased intelligence on which to base their decisions on matters such as construction, design or different types of maintenance. This important difference gave us great credibility with clients who trust the independence of the reports and appreciate that those reports are not being used as a sales tool. We called this independent analysis, ‘decision intelligence’.
We also created a ‘time guarantee’ becoming the first and only company in the industry to offer one. Our ‘on time or on us’ guarantee ensures that a report is delivered to the client when it is promised, or it’s free. The guarantee has proven to be very successful, and it has been the deciding factor on various large portfolios. Over 15,000 reports have been completed since the guarantee was introduced, only four of which were late.
Another component of our new strategy was to disassociate clients from divisions. Our different sales divisions simply reflected the services we were offering rather than being designed to fully understand a client’s needs and cater to them. We ended up with clients that we sold project management to, clients that we sold capital planning services to, and clients that we sold transactional services to. We were missing opportunities to provide a full range of what I call ‘decision intelligence’ to clients who in fact needed all of these facets at different points in their ownership or occupancy of their facilities.
For clients, interacting with different divisions could almost be like interacting with an entirely different company. Reducing internal silos meant that the full range of services offered across the company could be made easily accessible to our clients, wherever they were in the country, and via a single point of contact. Scale was key to our future prospects as it would allow us to provide a full and efficient service to clients anywhere in the U.S. We already had a nationwide presence and we were operating in some international markets too such as Canada, Mexico and Puerto Rico. Further growth could allow us to not only stand apart with large clients, who had many properties that were geographically distributed, but also to reduce costs locally, especially travel costs. Our costs could be further reduced by using less experienced project managers but with tighter central controls, and via process innovations in data collection.
There was also a debate on where to use the best salespeople. This was really a debate about how we saw our future: would we carry on doing similar things to what we’d done in the past or would we really commit to a new strategy? I felt that putting our best sales people on projects that signified a new direction would symbolize our commitment to doing things differently.
To make this feasible, a percent of the top sales people have been transferred to work on new projects. Across the sales team as a whole, everyone is encouraged to sell across divisions in their role.
The new strategy that we came up with, was an attempt to both raise value to clients and reduce costs for the company. Value that had previously been trapped within our company and its various silos, but could be released in the process of rethinking the way we did business.
The Results to Date of the Blue Ocean Journey
BOS: What have been the results so far of your blue ocean journey?
: Today more than half of our sales come from non-transactional services (in 2007 10% of our sales came from non-transactional services), the decision intelligence that we are now providing to clients. This is a significant shift from our traditional circumstances and a reflection of the new market space that we are creating.
Deeper relationships are being developed with clients and we are delivering ongoing and regular value to clients rather than just doing one off pieces of work, when clients buy or sell properties for example. One client that had historically been worth $50,000 dollars per year in sales is now a multi-million dollar per year client.
Such success has enabled us to make 300 new hires in the last three years; creating quality jobs across the country. With over 500 employees, only 50-60 of whom are based in the head office, it’s inevitable to have multiple cultures within our own firm. But the adoption of blue ocean strategy is proving to be a unifying factor and each new hire has a session at which our blue ocean strategy is explained to them. I deliver many of those sessions myself.
It’s logistically and technically difficult to do what we do and as a result we don’t see any other company offering our breath of services in the market, nor our on time or on us guarantee.
BOS: Any last takeaway or point of reflection?
: Pursuing a blue ocean strategic move has amounted to a mind-set change within our company. We used to be all about ‘don’t screw it up’ but I wanted us to have the attitude of ‘let’s leave a mark and redefine things; let’s challenge things’. Blue ocean strategy helped us do that. Having had first-hand experience of applying blue ocean strategy, I believe that it is for those who desire to produce something of value and who believe in the possibility that you can create something amazing.
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