Small is Beautiful.

Last week we announced the winners of the Best Estate Agent Guide Awards*. Across all regions, size bands and business models, the top 3% of agencies have been identified following the most rigorous and exhaustive assessment of the industry – over 3 billion data sets, 1 million listings, 25,000 branches and 15,000 agencies were included.

At the EA Masters event on 10th October we will publish the summary of our research along with our latest Home Moving Trends, Landlord and Tenant surveys but there’s one insight I feel compelled to share with you now.

Small is beautiful. As a general rule of thumb, the single branch agencies perform better than those we categorise as “small” (2-5 branches). In turn, these small agencies excel compared with their “medium” counterparts (6-20 branches). And to complete the picture, the medium sized firms tend to outperform the large networks (21+ branches). Of course there are exceptions, some large, medium and small agencies are among the very best in the country, but if you take each grouping, the average score declines as the size of the business expands.

In some ways this seems counterintuitive. The larger the agency the more likely it is to have access to more resources and in theory should be able to employ specialists for support functions such as marketing, finance, IT, recruitment, etc. whereas the single branch business owners are likely to be, by necessity, a “jack of all trades”. Also, the larger networks can negotiate volume discounts with a number of suppliers which in turn should allow them to invest more. But on average bigger = poorer, as agencies expand so typically their average score declines.

A few weeks ago I attended the World Business Forum and heard Professor Gary Hamel quote Max Weber, the late 19th century political economist:

“Bureaucracy develops the more perfectly the more it is dehumanised.”

Hamel went on to suggest how bureaucracy damages performance, he observed:

  • Management layers get added
  • Leaders get more isolated
  • Decision cycles take longer
  • Policies get more formalised
  • Rules proliferate
  • Staff groups grow more powerful
  • The organisation becomes balkanised
  • Employees lose their ‘share of voice’
  • Legal has to sign off on everything
  • There is less risk-taking
  • Everything becomes political

And then Hamel noted that companies become:

  • Timid
  • Complex
  • Bloated
  • Insular
  • Hierarchical
  • Repressive

My sense is that the solution for the larger firms is to break down their frontline operations into the smallest possible, i.e. one branch, and then give the authority (and responsibility) to an individual for all aspects of running it – appointing the team, deciding remuneration and incentives, controlling their own marketing budget, etc.

If you’re thinking along the lines of, “that’s fine in theory but won’t work in practice”, then can I suggest you have a look at – they’ve taken decentralisation to such a level that the local branches decide on the interest rates to charge customers and this, along with many other initiatives, has resulted in their being No.1 for customer satisfaction and higher than average profits for the last 46 years.

*The winners of the Best Estate Agent Guide Awards can be seen here:

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