A method for launching new operations without the fear of cannibalizing core existing operations—The challenge attempted by INNOVELIOS

An eagerness for internal innovation can now be seen in many companies, but there are a non-insignificant number of cases where the more the new operations that look to change the industry, the more the sales of existing operations are snatched away. In such cases, there are instances where internal adjustments are not smoothly conducted and operations are put on hold. The issue of whether to carry out reforms via new operations or protect the sales of existing operations is a dilemma that many companies face.
Here, we have spoken to the Director of Mitsubishi Estate Group’s INNOVELIOS Co., Ltd., a company that has, amidst concern over cannibalism of existing operations, managed to release its services without any major issues. This July, the company released an app called KURASEL that provides apartment self-management-related support.
If apartments can be self-managed, management companies are unnecessary. We spoke to Director Yasushi Ando about how KURASEL arrived at its release, with the “Mitsubishi Jisho Community” management company, a competitor, also present in the same group.

INDEX

・Discrepancies between assumptions and actual circumstances iidentified in Mitsubishi Jisho Community’s user interviews
・“Just because we do not do something does not mean that other companies also would not”—A remark pushing people forward
・“Segmenting existing operation users in detail”—One trick for success with new operations
・Key points

Yasushi Ando
INNOVELIOS Co., Ltd. Director, Managing Executive Officer
After graduating from university, Mr. Ando joined a major food service industry company, as he always had the desire to manage a restaurant himself. After abandoning his plans once the gap between ideas and actual circumstances became evident, in 2005, he joined Marubeni Community (now Mitsubishi Jisho Community). After working in the Real Estate Agency Operations Department, the Corporate Planning Department, and the Operations Strategy Department, he took on his current post in June 2020.

Discrepancies between assumptions and actual circumstances identified in Mitsubishi Jisho Community’s user interviews

Mr. Ando was originally a member of Mitsubishi Jisho Community’s Corporate Planning Department, engaged in building and apartment management. Since 2018, he has held a post in the Operations Strategy Office where he is responsible for drafting new operations and utilizing IT to optimize the company’s internal affairs. Once put in charge of new operations, creating a task force team was Mr. Ando’s first move.

Ando: “As I had worked in the Corporate Planning Department, I had a general grasp of who worked in which department. From among those employees, I selected and brought together five who enjoyed new challenges, thus assembling an unofficial task force. We regularly came together and generated ideas.”

「Mr. Ando also spoke about the operation idea’s twists and turns that occurred with KURASEL before the app’s release.

Ando: “As Mitsubishi Jisho Community is a company that takes on apartment management affairs, ideas of providing services for people performing apartment self-management have been present since the company’s inception. ‘Apartment self-management’ refers to people inhabiting an apartment collecting management fees necessary for the management of the apartment, making payments for water and electricity charges for common-use facilities and areas, carrying out cleaning and repair arrangements, etc. I do not have exact figures for this on hand, but around 10% of the apartments in the world are said to be self-managed.
Management fees also necessitate settlements, with financial statements to be produced, same as with a company. As those affairs are too complicated, many apartments (around 90% in total) entrust them to a management company instead. Given just how demanding apartment management is, we thought that those conducting self-management must surely have some issues that trouble or worry them. After the task force was assembled, we went to speak to people about what kinds of issues were troubling them.”

However, even after assembling the team and holding discussions, Mr. Ando says that decisive ideas were not generated. It was then that he went to listen to the thoughts of people in the Board of Directors for apartments under self-management.

Ando: “As nothing could be done even if one worried about something, in the summer of 2018, we went to multiple self-managed apartments to listen to what people had to say. We did propose our ideas as well, but we found that they diverged from actual circumstances.
Self-management was being conducted smoothly in the case of these apartments, so the people to whom we spoke had no particular worries or faced no troublesome issues. At each location we visited, we found a leader with company experience who was managing the apartments in a manner that skillfully involved the residents. They said that things were initially quite difficult but they were now able to carry out self-management without major issues, working in a trial-and-error manner.”

The interview results differed from what Mr. Ando and his group had expected users to say regarding whether self-management was going smoothly. However, Mr. Ando continued with his efforts, and these interview results did lead to new business ideas.

Ando: “We came to understand that those conducting self-management were already free of any particular need, but we thought that if we were to condense their management know-how, we could provide value in the future to people conducting self-management. Apartments at which self-management was going smoothly had reliable leaders. I thought that it would be good if we could create an app that could serve in the place of these leaders.”

“Just because we do not do something does not mean that other companies would not”—A remark pushing people forward

Mr. Ando’s app idea for making apartment self-management easy resulted in both supporting and opposing views within the company. Given that the idea could seize a portion of the existing apartment management operation market, this is hardly surprising.

Ando: “The idea was solidified to a certain degree, and there was a small period of hesitancy prior to making internal proposals. I could conceive of a situation in which the upper management would not consent to proceeding with operations that would outright negate existing operations. However, during some lighter conversations at a meeting, discussing operation ideas and planning, including those feelings of hesitancy, a meeting participant from the Mitsubishi Estate Housing Task Planning Department (Mitsubishi Estate Group Housing Operations General Department) suggested taking the lead even if there was a certain nervousness about it, noting that even if we chose not to proceed with this idea, there was no guarantee that other companies would do the same, and in fact some would likely go through with it. I made up my mind on hearing this.
Actually having made the release, I could feel the weight of those words. In addition to responses to matters outside our suppositions, there were many difficulties in starting up this business, such as the actual development work, app development partner selection, coordination with banks and other third parties, and patent application procedures. If other companies had instead beaten us to the punch, I think it would have then taken us around three years to catch up.
Even if, provisionally, a service superior to ours was to appear in the future, the tools that we have grown accustomed to using are not the ones that can readily be changed. In that sense, this is surely a major first-mover advantage, isn’t it?”

With his increased confidence, thanks to the advice of a Mitsubishi Estate employee, how did Mr. Ando then deal with opposing opinions and comments? He says that a message he received from the management had a huge impact on him.

Ando: “I think that a message we had previously received from the management, suggesting that we ‘reconsider and review existing businesses,’ was significant. When we actually began operations, we were helped majorly by the President of the company, who told an executive involved in existing operations that he would like us to be supported to work together with the plan of growing together.
When we then proceeded to explain our operations to branch managers around Japan, messages sent by our management were of great help. As the idea of ‘the current management business model having its limit’ was one that had been regularly discussed since even before that time, our business was readily accepted by many branch managers. In this business, sales do not suddenly fall for management companies; therefore, had management not sent out those messages, branch managers would probably not have sensed the risk they faced at the same level they now do, and they probably would not have accepted things as smoothly as they have.”

While there was some internal opposition in the company, Mr. Ando says that they were able to get past it without major issues thanks to the management’s help. However, he adds that he was making the necessary behind-the-scenes arrangements as well.

Ando: “To establish an understanding on this matter within the company, I spent a great amount of time on communicating matters to our stakeholders. Decisions for a variety of matters were made in a 10 to 20-minute discussion in the Board of Directors meeting, but new operation ideas could not be conveyed in such a short amount of time. By taking the time to convey matters to parties involved in existing operations, we were able to build relationships that would then prove cooperative. Further, as the people we were speaking to were well-acquainted with apartment management, there were also instances where we received beneficial advice, such as adding a certain menu to the content of a service, etc.
I think that preparing and discussing multiple patterns was effective for planning. With new operations in particular, there is a tendency toward establishing unreasonable operation plans. As that alone would not give us confidence, we prepared a number of patterns, such as a realistic operation plan, an extended operation plan, etc., which we discussed. I believe that also presenting the management with an operation plan that supposes the worst-case scenario lets them know how much damage would result should such a failure occur, which ultimately makes it easier to convince them.”

“Segmenting existing operation users in detail”—One trick for success with new operations

Mr. Ando says that more than four months after the KURASEL app was released, the number of inquiries that came in exceeded their expectations, adding that he also saw inquiries that he had not expected.

Ando: “Our app carried with it an image of competition for management company business (switching from a management company to self-management), but we also received comments from management companies saying that they had used our app and reduced their management operations. Discussions are also progressing concerning a major management company outside the Mitsubishi Estate Group using our app starting in 2021 with new property construction. Both sides being able to get past group boundaries and work together is extremely rare in apartment management operations.
There were also inquiries from apartments at which self-management had failed. For the people we had interviewed, self-management at their apartments was going smoothly, but there were also those for whom it was not, as one would imagine. When self-management is not smoothly carried out, if management fees cannot be collected, then necessary repairs and cleaning cannot be performed.
We had imagined that there would be apartments for which self-management was not going smoothly, but a closer look at the situation revealed many examples of such apartments across Japan. Having said that, entrusting management affairs to an apartment management company does result in a drastic increase in management costs, which carries its own difficulties. Governing bodies for such apartments are also sending us inquiries stating that they have heard of an app that makes smooth self-management possible.”

KURASEL is doing well, with its number of users increasing, but what kind of ideas and plans are being developed for the future?

Ando: “The current app only allows for self-management at a minimum level. However, an app that can be used only to conduct self-management is not interesting. I think that it would be good to add functionality for managing resident communities, to send out beneficial information to improve the apartments. We are aiming for an app that makes both apartment management associations and residents happy.
In the future, I would like to see an increase in the number of people involved with apartments and work with an awareness of the people concerned. With household finances, for example, I think that a member of the family will have a certain amount of money, and they will have a grasp of where money is being used in the current month. However, there are many cases in apartment management where all management fee accounting is left up to a management company. I would like them to create apartments that are pleasant to be in, with an awareness placed on the persons involved, while using KURASEL to conduct self-management.”

Finally, Mr. Ando provided a message for people who are afraid that new operations can cannibalize existing operations.

Ando: “I think that detailed segmentation of existing operation targets would be good. Among users currently utilizing existing operations, we can expect that there would be people who truly wish to use them as well as those who do not but have no other option. With the latter group, it is highly possible that people will move away from the service at some point. Given this, what about considering scenarios in which such users can then be picked up? Major airline companies provide LCCs, and phone carriers offer low-cost SIM cards, right? By creating new services, if users who have moved away from the service can then be picked up, simple cannibalism will not occur.
When we began to look at services as well, we were able to build quality relationships with existing management companies. For example, there were instances where a management company receives an inquiry but is not well-suited to meet that customer’s needs and therefore introduces us to the person who made the initial inquiry. We are now able to thoroughly pursue customers with whom we previously simply had to part.
As this too is something that we only learned after having advanced in our operations, for those who are uneasy or anxious, I think it would be good to begin with a single step forward.”