INTEGRATE & SUCCESSFULLY CONTROL YOUR VALUE CHAIN: SOBHA’S SECRET TO QUALITY
AT A GLANCE
While sub-contracting and divided processes have long
characterized the real estate industry, Dubai-based developer,
Sobha Group, has chosen a different path, building its reputation
on a backward integration model focused on quality. By owning
and controlling every link in its value chain, the group, founded
in 1976 by Indian entrepreneur PNC Menon, has enjoyed four
decades of growth across the GCC, India and beyond.
Sobha’s Eight Factors for Integrated Success:
• Deliver quality for demanding clients.
• See opportunity where opportunity is.
• Be very clear about your model.
• Have the right management in place.
• Empower your people.
• Understand your markets.
• Use capital wisely.
• Diversify in geographies.
The answer lies in the supply chain. The more control a company
has over its supply chain, the more it is able to offer choice to its
clients, differentiate itself from the competition, and reap higher
profits. This applies not only to real estate, but to businesses
across a full spectrum of sectors. However, while companies in
some industries typically take a more involved approach to their
respective value chains, real estate developers do not. Instead,
they mostly choose from what is available and are rarely in a
position to self-perform the work. With this situation remaining
unchanged for many years, the real estate industry appears to
have concluded that it simply doesn’t make business sense to
innovate, integrate or control their value chains.
Let’s see why this consensus persists, and why one company
in particular has opted to disagree.
PERSPECTIVES
ON INTEGRATION
While most building companies do not attempt to fully integrate
their value chains, those that have tried have suffered from
a utopian business plan full of ideas about mass production
and factory building. Baseline management thinking has been
mostly absent, as has a clear plan for implementation. The
upfront investment shouldn’t be an obstacle, but it often is, and
the majority of ideas about backward integration have been
unrealized, despite the best intentions of their champions.
Taking a holistic view, some glaring shortfalls common to
these failed attempts emerge: inefficient use of labor, preva‑
lent wastage, and speed at the expense of quality.
To elaborate, the predominant paradigm of integration in r eal
estate development tries to emulate a factory, prioritizing
speed and cost over quality and design, and aiming for mass
and homogenous production through economies of scale. In
this paradigm, integration in real estate is primarily seen from
the industrial and pre-fabrication perspective.
52 Emerging Markets Business Summer 2016 • Issue No. 1
This approach has three key flaws:
1. It ignores the client and the end user–it follows an intro‑
verted and myopic perspective.
2. It forgets real estate fundamentals–it is driven by ideal‑
ism.
3. It does not leverage the right kind of projects externally
and the proper management and governance structures
internally–it is caught up in ignorance.
Companies trying to follow this example, or avoiding the
temptation to integrate at all, reach a basic conclusion: if there
were a demand for higher quality and true customization,
then it would have happened by now. But, there is a different
perspective on integration, focused on quality.
This perspective is much rarer in real estate, but developers
that manage to get integration right can outperform the
competition. Firms that succeed tend to focus on meeting
the demands of the higher end of the market, are much more
quality- and design-oriented, and manage to deliver on time
by carefully controlling their value chains.
Their ‘backward integration’ model, which sees the company
own and control every link in the chain, can be found within
a single brand and corporate structure, or through multiple
companies with autonomous management, but unified
through single leadership. Technology and other resources
can contribute to the integrated project delivery mechanism,
but companies that take this approach never forget that they
are real estate developers and cannot become a factory that
produces objects to sell to consumers.
This backward integration paradigm comprises three key
success factors:
1. It strives to understand client needs and market trends
that can be met by full integration of services–it is extro‑
verted and restless.
2. It positions integration within the real estate industry fun‑
damentals–it is pragmatic.
3. It selects the right kind of projects that help the firm de‑
velop integrated capabilities—it exemplifies best practices
in innovation.