Traditionally, land is associated with ‘Physical Space” to build the organisation. Land can be termed as a piece of land through which organisation is assumed to be existing. Organisation delivers the value in products to customers by creating structure over land. It creates offices, factories, homes, extracts natural resources (minerals, oil, agricultural produce), etc. either on or through land. Land has many uses and it depends on the user to how to use the land.
Land has always been considered a valuable asset. Wars have been fought to grab the land. The owner of the land is considered more powerful than tenant. Even entire Mahabharat was written describing the war for securing a piece of land.
MacDonald’s built its empire on using real estate as a financial engine besides building excellent processes. Read the article by John Wiley & Sons, Inc. giving details about McDonald’s business model.
Why Land Required?
- Organisation’s physical resources exist on land → land is required for installing fixed assets, operating machines → Human resources work / live on land
- Value creation process (i.e. production system) uses land
- Statutory authorities, customers want some physical address to communicate with organisation; virtual organisations without any physical office do not give any confidence to stakeholders (customers, investors, manpower, statutory authorities, etc.)
- Basic resources (minerals, oils, agricultural produce, water, etc.) are extracted from land → processed and consumed by other processes
Costs associated with Land
- Purchase cost of land alongwith brokerage payments
- Statutory charges for registering the title of land in the name of the owner
- Construction cost of building
- Development cost if needs of organisation changes for using land for different purpose. E.g. lot of real estate organisations changed the land use of agricultural land to convert into residential and commercial buildings
- Lease rental payment in case of leased land
- Municipal taxes payment
- Least cost till balance among soil-water-plantation-air is maintained → otherwise land creates imbalance in the atmosphere → global warming because of disturbance of balance
Important developments in the owned / leased land
- World moving towards virtual world where everything lies on internet connected from billions of people / households / organisations
- Organisations moving their processes to cloud computing (leased computer space on the internet)→ improved accessibility from anywhere in the world → 24 X 7 operations with organisations not shutting down anytime → reducing the need of land
- Dell has always been supplying computers through internet without physical stores over the years à catching up of similar business model with other organisations
- Concept of global worker with mobile number being only physical address is reality now → the person can operate from anywhere (residence / restaurant / hotel, etc.); organisation may not own any land to operate in the territory from where the enquiry / complaint originates
- Despite virtual world; customers want to have look & feel of the goods → organisations moving to online stores + franchisee model for giving look & feel of goods
Traditional / Normal ways of working in the owned / leased land
- Organisations taking the land on lease or owning it à creating the buildings, factories, etc. over the land à commencement of operations
- Organisation opening the branch offices / sale outlets on owned / leased land
Conflicts with owned / leased land
- Owned vs. Lease / rented Land
- Lease / rental
- In developing countries, buying a piece of land is nightmare especially at prime locations where customer access / footfall is high
- Lease cost is considered as variable cost and not fixed-one-time cost. Lease cost is deducted from Revenue earned to calculated how much is earned by the organisation → Facilitate “continue vs. exit” decision since organisation can terminate lease at any point of time after giving notice + without incurring disposal cost of land
- Organisation can quit easily when revenue comes down
- Land has appreciation value depending upon its location, access to customers, visibility, etc. Higher the customer access; higher the appreciation
- Owning a land gives a sense of permanency to organisation that it can operate from that location for time immortal → factories are generally built on owned land
- If the organisation has very sound business plan → better to own land since growth in an organisation brings more people / organisations in vicinity → appreciation in land value + continuity of operations.
- E.g. presence of Haldiram / McDonald’s brings more customers to not only the eating joints but to other organisations in vicinity.
- Furnishing costs go waste once leased location is vacated since new occupant modifies according to its needs
- Periodical revision of rentals upward
- Chances of non-renewal of lease by landlord unless tenant in a position to dictate the terms of lease to landlord à Organisation losing location advantage
Some of the Process Implementation with owned / leased land
- Least process-maintenance for land
- Title of land to be secured (maximum disputes pertain to title of land)
- Original documents to be kept at secured fire-resistant place
- Periodic inspection of documents for safe-keeping
- Regular landscaping, plantations, etc. on land for creating cleaner air