Cutthroats Now Comrades

Outsider teaches being good e-market neighbors.

Sitting in a Chicago conference room in March, executives from three of the countrys largest commercial real estate companies peered at one another with a little skepticism and a lot of anxiety.

It was the first meeting of CB Richard Ellis Services Inc., Jones Lang LaSalle Inc. and Trammell Crow Co. since the companies had decided weeks earlier to pursue an e-marketplace initiative called Project Octane. Even though a press release was about to go out, the fierce competitors still werent sure whether they could work together.

"We all looked across the table from one another and thought, What the hell are we doing here?" said Joseph Fitzpatrick, executive vice president of e-business strategies at CB Richard Ellis, of Los Angeles.

Their initial doubt underscores the biggest hurdle industry-led e-marketplaces face in their cooperative efforts—overcoming long-standing competitiveness and distrust. Such roadblocks often lead to the demise of alliances. But in the case of Project Octane, members avoided a potential collapse by relying on a disinterested party—outside consultancy Lante Corp., of Chicago—and by using a strong dose of persistence to overcome their differences and industry politics.

"Its really about having a common focus and a common goal," said Jenna Palaez, an analyst at Jupiter Research Inc., in San Francisco. "Having a third-party person in there [can help consortia] come to that point."

Relying on an outside consultant isnt risk-free. Lante, like many of its competitors, has laid off employees recently; it cut 19 percent of its work force last month. But its Project Octane team has stayed intact, and CB Richard Ellis Fitzpatrick said the alliance remains confident in Lante.

Over three months, the doubt slowly eroded as the partners began to collaborate and share insights into one anothers businesses in areas such as proprietary data on operations, future marketing plans and business positioning. The core operating and working teams started to meet weekly, Fitzpatrick said.

Even after they grew comfortable sitting together, they still needed prodding to make decisions and overcome stalemates. By July, they had brought in Lante. In addition to offering traditional consulting on strategy and technology selection, Peter Hutto, the principal at Lante who led the project, also serves as an arbitrator and facilitator.

Lantes involvement coincided with the group meeting its first priority on its own: finding a way to buy maintenance, repair and operations goods for the 1.2 billion square feet of properties the companies manage. The group accomplished that in July when it acquired a $30 million stake in SiteStuff. com Inc., a procurement portal for commercial real estate in Austin, Texas.

Group members viewed this move as proof that they could work together to make decisions and then act—quickly. Only 20 days elapsed between when the group found the opportunity and when it signed off on the deal, said Mark Rose, chief innovation officer at Jones Lang LaSalle, of Chicago. In September, Insignia Financial Group Inc., of New York, joined Project Octane and is considering investing in SiteStuff.

But the members of Project Octane didnt rest on their laurels. The more formidable challenge of developing a transactional e-marketplace where brokers, landlords and corporate property owners could collaborate and complete commercial real estate deals still lay ahead. Each of the four companies had agreed to contribute an initial $10 million to the project, and they knew they couldnt do it without outside help.

So they turned to Lante. When Hutto stepped in, he said, the CEOs of the companies involved were disconnected from the executives they had charged to initiate the project, and they werent aligned with internal teams. The problem wasnt unwillingness to work together but uncertainty about the projects strategy. Each company had different ideas about key goals and objectives.

Hutto decided it was time to pull out a time-honored consulting trick—a three-column chart. He and his team helped the real estate alliance map out, in one column, simple statements about what the new business will and will not do. The second column listed remaining questions about the venture. In the third, they outlined the actions that would answer the questions.

"Working with a consortium is very simple and mind-numbingly complex," Hutto said. "You can employ simple techniques and distill things to their essence, but its complex because you need to be skilled interpersonally and be good conceptually and operationally."

Project Octane is a prime example of the organizational complexity of the industry alliances forming to create e-marketplaces. Unlike others such as Covisint LLC, led by the Big Three automakers, the companies forming Project Octane didnt create a separate entity to oversee its development. Instead, combined with a four-person team from Lante, the organizational chart spans 24 people.

Hutto and the Lante team in some cases take on responsibilities that the group might have trouble handling, such as selecting a technology platform to use for the e-marketplace. Lante is leading that decision by not only taking input from all the companies but also by differentiating real technology opinion from vendor bias, Hutto said. Lante deals directly with vendors and evaluates them objectively.

A decision on a technology platform is expected by mid-January. The consortium plans to select e-marketplace transaction technology either by acquiring software from developers such as Ariba Inc. and Commerce One Inc. or by buying an existing exchange, Fitzpatrick said.

As the Project Octane members near a decision, theyve become much more comfortable working together since that spring day in Chicago. They now talk almost daily in conference calls and, when they reach a tough decision, they try to follow a mantra stated by Rose, of Jones Lang LaSalle: "You need to keep the vision and keep the passion."