Posted On: Oct. 31, 2017
External Environment The external environment consists of factors on which a company has no control. However these factors cannot be ignored as they influence the firm’s direction as well as their structure. They also affect the internal operations. Hence it is important to analyze the factors prevalent in the external environment so that one can understand the conditions the company is working in. this information is extremely important for planning future strategies and to make sure that the company is proactive to face the environmental changes. There are three main sub components of external environment namely:- • the remote environment, • industrial environment, and • The operational environment. Each one of these subcategories is broken down even further to analyze threats, opportunities, and constraints. The analysis of components of the external environment for RE/MAX gives an insight to alleviate threats and take advantage of prevailing opportunities. Remote Environment Economic Factors o Economic cycle – this basically deal with the health of the economy. If the economy is sluggish and is slow moving it has a direct effect on the real estate business. People would prefer to buy houses in good economic times and may even spend more if the economy has a bright outlook. They may also not mind spending money on fancy fittings and pay astronomical prices for decorative outlook of the house / property. o Interest rates – this has a direct effect on the cost to buy a mortgage. When rates are low a buyer has greater buying power. Interest rates are controlled to help spur and maintain housing activity. If the interest rate were to be raised the market for real estate could slow, thus directly affecting the business of RE/MAX. o Earned income/earning power – this indicates how much buying power does a client or prospective franchisee have? Earned income is looked at by lenders such as financial institutions or banks and effects the approval for credit or funds to finance a real estate purchase. Quite often successful realtors are recruited to join RE/MAX to provide help in assessing the earning power of the borrowers in the real sense. o Credit availability - Can a client obtain credit because credit is readily available? The recent changes in lending have left substantial impact on the ability to get credit. Less people qualify for a mortgage and often times for a lesser amount. This means a lower price point and lower return. This affects the profitability of the company. It also means there are less franchise investors available to promote the business. o Tax credits/subsidies – this act as temporary ways to boost the demand for real estate. It also provides help to regulate supply and demand. Carefully thought out and designed programs help with down payments and interest rates. o Size and scale – Size of the target market can make a market attractive to franchise investors. It implies the available supply of properties in the market that a customer can choose from. It indicated market availability for franchises as well, thus making the business attractive. does the firm’s structure facilitate effective strategy implementation? Does the firm’s culture facilitate effective strategy implementation? In other words, analyze the relationship between the firm’s environment, strategy, culture, and structure. Is there a good “fit” between them? Why or why not? Analyze the firm’s strategic leadership practices. Are the firm’s strategic leadership practices a source of competitive advantage? Why or why not? Answer to above is summarized below. Analysis is done above The analysis of external market indicates that the current external environment for RE/MAX International provides an incredible opportunity for growth. However, there are also potential threats on the horizon. While the national economy continues to overcome the recent recession, , which is partly due to the lowest interest rates in United States history, real estate markets around the globe are incredibly strong. With many of the largest real estate markets experiencing inventory levels at their lowest levels on record, real estate prices are appreciating as well. Past records have indicated that when the real estate market is healthy and growing, the number of licensed real estate associates increases as well. Ultimately, real estate associates represent RE/MAX International’s customer, through the form of selling franchises where associates can hang their real estate license. As a result of the strong housing industry, RE/MAX International is likely to surpass their franchise sales goal in 2014. The mission of the company, at the corporate level, is that of selling 131 franchises in 2014. With the boom in the market, RE/MAX International ultimately finished with 136 franchise sales for the year. Moreover, they experienced a net-agent gain of 6.7% in their company-owned regions, of which 36% of the net-agent gain was attributed to franchise sales that occurred in 2014. This is an indication that the real estate industry is very strong at present. This is a bright situation for the company. Interest rates at present are at historically low levels, and there is an overall economic growth. Hence, RE/MAX International has decided to focus on what could be one of the best stretches real estate has seen in decades. As the economy rebounds, and the millennial generation representing the largest group of consumers continues to gain wealth and stability, there is going to be a tremendous number of additional household formations coming together. As these young professionals begin to find stable income in a growing economy, they will begin to have the faith and trust required to become independent; moving out of their parents homes, or no longer having a dependence on needing roommates and instead opt to purchase a home. With this millennial generation having a need for housing and growing household formations, along with low interest rates, economic growth, and strong forecasted new construction projections, the external environment for RE/MAX International is very supportive of growth. Having a favorable external environment would help RE/MAX International in achieving its long-term goals. While conditions for an incredibly strong external environment exist, there are also multiple threats that could occur. For instance, should the Fed decide to raise interest rates, this could have a dramatic effect on the real estate market. It would increase the cost to borrow, which in turn would reduce the buying power for any potential buyers. This could also lead to a cascading effect, with the markets buying power being decreased, and prices would have to fall as well. This would eliminate the equity many homeowners have established in their real estate investments and quite often, place them into a situation where selling May no longer be an option but a necessity. As a result, this would have a dramatic impact on the inventory that would be available to the limited number of available buyers as a result of their decreased buying power. There is going to be a flood of inventory. Ultimately, there would be less of a demand for real estate associates, which would have a direct impact on the total number of RE/MAX associates in the network. The combined effect of the two would be disastrous for RE/MAX International. Technology also poses a potential threat to RE/MAX International. The availability and use of technology for real estate has advanced tremendously over the last two decades. Earlier, real estate associates used to have all of the information at their fingertips. Prior to the internet, if a potential buyer wanted to know what was available, they had no choice but were forced to contact a real estate associate in order to acquire information about listings that were available. During this period, real estate associates held all of the information. However, with the advancements of the internet, along with national real estate websites like: remax.com, Zillow, Trulia, homes.com, and realtor.com, it has shifted the balance of power for information to the consumer (buyers and sellers). Real estate associates are no longer critical in the finding phase of a real estate transaction. If technology penetrates further, and companies create a real estate transaction platform that is legal, with streamlined processes linking buyers directly with sellers without the need for real estate associates, than RE/MAX International, along with every other real estate brokerage faces an incredibly serious threat. The business will take a hit as RE/MAX International primarily relies on its franchisees to conduct business. Recommendations The economy drives spending and investing and when its good real estate is moving, but when it is down there can be a drought in property transactions. Since RE/MAX is global they can hedge this impact by leveraging growth in good economies while waiting out a bad economy in another country. Interest rates are another economic factor to be concerned with. When rates are low people buy more property because money is cheap to borrow. Conversely, when rates are high investors shift to other investments where money is cheaper to obtain. Again, RE/MAX has an advantage to weather such changes because they can look to other countries’ where rates are low or money borrowing is more liberal. Recommendations Social Factors o Demographics – it deals with the composition of a population in the market. This is a factor in determining price and types of property in demand. Different population segments have different needs. The population is aging and demand for single story homes are on the rise. Hence it provides an opportunity for the company to tap this new target segment. o RE/MAX’s reputation - the company has one of the most recognizable names and logos in the market. This has been achieved by national advertising and wide exposure in the media. It has in turn enhanced credibility with a brand built on experience, professionalism, and results. Instantly recognizable logo with the RE/MAX balloon. This can prove to be a boon for the company to generate new leads and growth in business. o Social Media – Online sphere of influence is the need of the day it makes sense to have network with others on social media channels such as YouTube, Facebook, Twitter and LinkedIN. RE/MAX does not have sufficient amount of presence here and therefore needs to expand in the social media environment to provide another media outlet to continue to push its brand to its target market. o Environmental friendly properties. There has been a trend toward more energy efficient homes and even energy producing properties. People are attracted to solar and green building. This opens a new opportunity to RE/MAX International and branch out in this virgin field of operation. o Philanthropy - RE/MAX is the exclusive real estate sponsor and supports over 170 children's hospitals. This is a good move and already has been able to raise more than $115 million for Children’s Miracle Network Hospitals. Furthermore, it is a National sponsor of the Susan G. Komen Race for the Cure. These activities would go a long way in building brand and positive image in the minds of people. The social factors that RE/MAX should focus on are demographics and reputation. The demographics of the world are changing and there are more people in position to buy property and invest in franchises. The generation X population is transitioning to a different phase and has money to spend on new primary residences as well as investment properties. They might also be interested in working for themselves by purchasing a franchise to operate. This large demographic represents a huge opportunity for RE/MAX’s current product offering without much modification. RE/MAX should continue to build its brand and protect it vehemently. The brand is the core product and helps accelerate growth by adding top agents and attracting quality franchisees. Within the brand RE/MAX needs to expand on social media advertising and continue to build environmentally friendly products. They should also continue their philanthropy endeavors as this just builds on a positive public perception. Political Factors o Form and Stability of Government – it is Important to have stability for both domestic and International markets. The question is “Does the country allows for free commerce and permits the RE/MAX model to operate efficiently? “Any restriction would hamper its growth prospect in the booming international market. o Property Rights – the moot question is “Who owns the rights to the land, water, and minerals? What can buyers expect with the transaction?” it is important that RE/MAX must abide by all property rights laws both in the US and other countries. This again would help in building an image of law abiding corporate citizen for RE/MAX International. o Infrastructure – this aspect relates to Streets, sewage, and access to food/water. Once again the question is “Does the country or region has the necessary structure to support a real estate market and what standard of living can be reached? “ The answer is yes but further development needs to be carried out by the government to make sure that it takes into consideration the needs of the growing population. RE/MAX needs to focus its attention on the political aspects in many different countries and perspective expansion countries. By selling franchises globally RE/MAX needs to know local laws and rights. The franchise model makes it less of a risk by putting the main responsibilities in the hands of the local franchise but at the same time RE/MAX has to understand a country before even considering entering that market. From a strategic position RE/MAX has to consider infrastructure and property rights so they can effectively plan for the market conditions. In the United States RE/MAX knows the rules and the taxation but has to cope with changes to lending and foreclosures. Technological Factors o Online property listings (MLS) – its competitors such as Zillow, Trulia, Realtor.com, RedFin and StreetEasy provide easy access to available properties. People are no longer completely reliant on a realtor to provide MLS information. This service used to be part of what people paid realtors for, and therefore is a threat to RE/MAX. o Online property valuation – Same as listings, these companies provide high level estimates of property values. This could also be considered a threat because consumers are now more knowledgeable and do not need to pay for this service. o Technology enabled transaction service – A full service real estate transaction completed through electronic means replacement of a realtor much like an online Legal site. This is a threat and opportunity for RE/MAX as an elimination of the realtor would be a huge blow but a hybrid model where only minimal support is needed but still a part of the service. RE/MAX needs to be proactive with these types of technology and embrace and shape them before someone else does. o Mobile applications – Allows for information at the fingertip. This can provide and advantage by giving exclusive content to the buyer and realtor. Mobile applications can keep communication strong between the realtor and buyer. It would also be a great tool for franchises to leverage. Technology can be an enormous opportunity for RE/MAX if they act quickly, however this is also a huge threat because new companies are entering this segment. Other entrants such as Zillow and Trulia are already the most popular websites for searching real estate property. RE/MAX does have its own searchable database but for now people prefer the other sites. The biggest threat would be if a company can succeed in offering full realtor services online. If a realtor can be replaced by standard computer processes the price could be significantly reduced and draw people to a website to complete a real estate transaction. This would disrupt the whole real estate industry and could cause a paradigm shift in how the industry conducts transactions. RE/MAX should plan for this and not hope the laws will prevent a company from successfully launching this service. analyze the types of strategic controls the firm uses. Are they appropriate? Why or why not? Analyze the operational control systems the firm uses. Are they appropriate? Why or why not? This is done above Internal State of Affairs Even thought the company has very healthy financial condition RE/MAX International has experienced some extremely impactful leadership changes. This internal state of affairs pertaining to change in leadership is not known to general public. Both Dave Liniger and the recently retired CEO Margaret Kelly held very different long-term visions for the company. The company was virtually split into two – different camps. Officers of the company either sided with the vision of Dave, or the vision of Margaret. Senior leaders of the company are suspicious regarding the current leadership and future succession plan. There are power struggles amongst all of the company officers. It offers a dim perspective on the impact leadership changes are having on RE/MAX Internationals network. The company follows the most generic strategy. RE/MAX International most certainly employs the basic strategic position of broad differentiation. They are extremely clear in recognizing that their most valuable asset is brand recognition. It is the most recognizable real estate brand in the world. Therefore, where there's a real estate market, RE/MAX International attempts to have real estate franchises. They are located in nearly 100 countries around the world, whereas the nearest competitor is located in just over 20 countries. They have a vast network of franchisees and affiliates that is nearly 100,000 strong. The differentiating factor for RE/MAX International is the vast size (broad) of their extremely successful network (differentiation) which is attractive to fellow successful real estate professionals from around the globe, who represent RE/MAX International’s customer. For these reasons, RE/MAX employs a broad differentiation strategic position in their business model. By following this strategy, the firm attempts to build customer loyalty. Often such loyalty translates into a firm’s ability to charge a premium price for its product” (Pearce, 202). Keeping in mind that RE/MAX International’s customer is not buyers and sellers, but rather successful real estate agents, brand recognition is their most valuable attribute. The long term objectives of the company always revolve around franchise sales, renewals, recruiting and retention. It reinforces the entrepreneurial spirit that RE/MAX International was founded on. The grand strategy that is currently being employed by RE/MAX International in order to ensure achievement of the stated long-term objectives revolves around concentrated growth and market development. analyze any actions the organization is currently taking (or has recently undertaken) to make the firm more innovative and entrepreneurial and, hence, more competitive. Are they appropriate? Why or why not? This is done above and recommendation given below Recommendations for current mission There are several key strategic issues that can be identified after analyzing facts associated with RE/MAX. For example, the change of consumer shopping preferences affected the entire real estate market industry. In order to find a house in pre-Internet era consumers had to contact real estate agents. Over the past 2 decades implantation of websites, such as Trulia or Zillow, made it possible to complete same task from a computer or a phone without any need for an agent. The company has to underline a clear vision or strategy on how it would address this kind of shift. To start with, company can look at the possibility of tying up with a website and promote its products on-line. Later on, it can examine the possibility of building its own web site and mobile application as well. Currently the growth is only through franchisees. This could pose a problem of conflict in terms of implementation of policies. The company has to put in place strict policy of recruitment and also carry out monitoring the same so that franchisees do not deviate from the mission and vision of the company. The company has positioned itself as a premium quality shop that can charge premium prices for its well-recognized brand. It has to make sure that this image is not destroyed by conflicting views expressed by disgruntled customers who post their views online. For this a special cell that caters to the service aspect of high- end customer needs to be established. At RE/MAX International, management attempt to ensure the accomplishment of long and short-term objectives through the means of multiple strategic controls. The firm has already put in place corresponding manuals that clearly define the responsibilities. The management has to put in place a much tighter premise control that ensures that the responsibilities are effectively managed and adhered to. The defaulters need to be highlighted by a proper control and replaced as and when it becomes necessary. Periodic meetings of corporate officers should be held to discuss strategic surveillance. During these meetings, key factors can be identified in the market, industry, competition, and trends. Each item should be identified, vetted, and then responded to appropriately to ensure RE/MAX International is prepared for any external factor that could affect operations. Ultimately, through a combination of premise control and strategic surveillance, the management team can pinpoint potential factors that can impact the business, and then review the responsibilities of the staff to ensure they are in line with current factors and market expectations.