A leading AI Political Speech for our times

Last week the mainstream press remained fixated on Tony Blair’s migration and tax comments, close on the heels of Sir Keir Starmer’s newly-assembled government.

If one ignores this, we may manage to digest one of the leading British political speeches about Artificial Intelligence:

When we listen to Blair’s speech on its own terms, “there is only one game-changer” he wants to focus minds on: we are living through a global AI revolution. In brief, a second Industrial Revolution. He points to potential savings of £25BN in public sector alone (if you can manage unionised fears), and a boost in productivity gains across the entire private sector.

Global Consensus on AI

Global organisations agree AI progress is unfolding at unforeseen speed. Financial markets are dominated by AI-driven tech companies – replacing many of the 1990s corporates that were around when Blair came to power. More recently this year JLL‘s Head of Global Capital Markets came back from Davos to write that “AI is the driving force for Commercial Real Estate”. Perhaps a premature use of the present simple tense, but it’s a safe bet that this global opinion will age like a fine wine.

Billions flowing into AI

The magnitude of technological change is unstoppable and Blair’s speech charts out paths that can be pursued by the new Labour government. This critical momentum is not achieved thanks to simple hardware/software progress (that is a prerequisite), but because the essential human ingredient is now in place: a shift in global mindset. Worldwide attitudes towards AI have changed as quickly as ChatGPT can write you a poem combining a Dickensian style with Tim Key wit:

A poem about Oliver Twist asking for one more square foot of space, combining Dickensian style with Tim Key wit, by ChatGPT (in under 30 secs):

In a dim-lit corner of yon workhouse grim,
Where shadows dance upon the pallid walls,
There stood young Oliver, so slight and slim,
His voice a whisper midst the nightly calls.

"Please, sir," he spoke, with eyes of earnest fear,
"I beg but one more square of floor to tread.
For in this cramped expanse, so stark and drear,
I find too scarce the room to rest my head."

The master, plump and clad in coat so fine,
Gazed down with eyes that shone like polished coal.
"One square foot more, you say? That line of thine,
Shows wit that belies your pauper's role."

White Collar workers are increasingly exposed

Millions of internet users tasted the future with similar experiences to the above. This wave of human experience matters because it means that it becomes commonplace. Executives can then muster conviction to make things happen and invest far more.

Beyond personal usage, AI is also entering the workplace at an unprecedented speed. Every white collar employee is exposed thanks to a newly-positioned and resurgent Microsoft with AI becoming a core part of Microsoft Office in every office. And more is to come with the next $200 billion of investment flowing into AI innovation according to Goldman Sachs.

In our last blog, BlackRock‘s London office discovered tenancy schedules can be imported instantly with technology that has been around for years. This also happens to be the purpose of some start-up software products. But employees can find a single button in Excel that does most of that particular laborious job for you ‘for free’.

It should be noted that the quality of service may not be as good as a dedicated start-up product, but this isn’t important. Microsoft AI influence succeeds because it has a minimum viable feature that wins commercially: it offers unrivalled accessibility for millions of everyday Excel users. No surprise that Microsoft Excel continues to live up to its nickname as the ‘start-up killer’.

The fear of the unknown

Roosevelt’s phrase “there is nothing to fear but fear itself” rings true when we meet real estate professionals who struggle to explore existing AI powers available today. If software engineers rejected British scientist Geoffrey Hilton’s techniques (the father of neural networks and LLMs) for many years, it is no surprise that many Chartered Surveyors will take some time to discover AI benefits.

In our first meeting with our best initial client M&G Real Estate we can look back in amusing hindsight at how a senior Director called Dashflow AI technology ‘a fraud’ in an all-hands meeting in 2018. Luckily, careful discussion and collaborative engagement overcame these natural initial reactions. The Director is now a speaker on today’s innovation speaking circuit and also works for the Government, so lessons are being shared rapidly in public and private sectors alike.

Where fear does remain, it often centres around the ultimate value of human contribution. As we like to reiterate: AI won’t replace humans. But people who know how to use AI will replace those who don’t use it. AI is just another tool and another skillset. Like having English and German languages for a Pan-European fund manager job spec, or being able to use Microsoft Office for professional presentations.

AI is fast becoming one of the next indispensable office skillsets. HR teams will increasingly use it to help filter and manage the hundreds of applications that flood in for each LinkedIN job opening, and thereby help future proof their organisations.

Well-meaning Managers and Undesirable Outcomes

“Leaders must either invest a reasonable amount of time attending to fears and feelings or squander an unreasonable amount of time trying to manage ineffective and unproductive behaviour.” – Brene Brown.

Fear is often found in well-meaning managers. And these well-meaning managers often adopt a perverse risk management approach. While they have been paid to be cautious around institutional risk and used a well-trodden due diligence playbook as an investment manager, the same approach does not translate to exploring and implementing AI solutions.

Tony Blair points out that the true risk of being left behind by new technology, is from “being too timid”. i.e. too fearful. A proper risk-based approach is to be decisively bolder when pockets of technology fear are identified within management circles.

Supply-and-Demand dynamic: Team ideation and execution

Ambitious global projects that previously took decades, can now be done in a matter of years or even months. Smaller team tools and prototypes for Capital Market investment workflows can be done in a matter of months or even weeks.

Perhaps a colleague had a great idea in the 1990s or early 2000s. There are good reasons that idea should be revisited with today’s practical and agile methodologies.

In today’s Extreme Programming landscape – it can take weeks or even days to build a prototype at a fraction of historical costs. The opportunities for AI efficiencies continue to expand every week. The cost effectiveness of tech today can be a challenge to comprehend while all hiring, staff and regulatory ESG costs continue to rise to higher eye-watering levels.

This means that the tech Supply side can meet Executives’ Demands for better solutions at an incredible rate. Prototypes can be tested faster, bad ideas thrown away without major painful investment, and best approaches can be pursued based on real outcomes. This demand-supply dynamic is an essential tenet that enables the second Industrial Revolution.

And the Demand-Supply equation is not just a linear increase. It is also highly synergistic. One advance in one industry feeds into another sector. E.g. some of the technology principles behind BlackRock ‘s interest in importing tenancy schedules feeds into the early identification of cancer in hospital scanning departments.

Blair warns that this Industrial Revolution does not originate from the UK like our 19th century claim to fame. But that the competition today is global and rampant, and the urgency to thrive in future is far more pressing today.

An AI Call to Action for Real Estate Executives

While JLL can rightly point to the fact that “structured data” is very useful for AI solutions compared to “unstructured data”, this is not a reason to hold back on AI adoption. Cleaning, structuring and deleting data is a never-ending journey. The classic visual example of data is a simple map. Google maps is full of wrong and ‘dirty’ data, but sufficiently useful for millions of people to reach their destinations every day.

Tony Blair does not spend time crystal balling into the far flung future on the back of AI pipe dreams. He sticks to the practical. Blair highlights what Dashflow’s pro-active clients readily recognise: forget about what may come tomorrow; so much is possible and proven now –today– by AI tools already at their disposal. One can achieve so much more with a cost effective outlay.

While JLL can rightly point to the fact that “structured data” is useful for AI solutions compared to “unstructured data”, this is not a reason to hold back on AI adoption. Cleaning, structuring and deleting data is a never-ending journey. The classic visual example of data is a simple map. Google maps is full of wrong and ‘dirty’ data, but sufficiently useful for millions of people to reach their destinations every day.

The same goes for much of AI. Your data may be cleaner tomorrow, but this is no reason for a business to avoid using AI until it reaches the end of an imaginary rainbow where all data is reckoned to be the new gold. This is a classic fiction. And it is also a risk-averse managerial position that avoids the harder work of deciding upon a strategy and marshalling a plan for success:

Many British FTSE CTOs block innovation by claiming that they need to ‘get their house organised’ first. Only when they have all their data ‘structured’ (i.e. “clean”) will they then pursue AI adoption. This is proving to be a corrosive and backward approach for UK productivity potential. If a teenager can use AI for school homework today. If Ivy League courses in USA already oblige students to incorporate the use of AI contributions… delaying AI adoption in the British workplace due to ‘data hygiene’ does not make any sense.

So much time can be saved with AI, so many client satisfaction levels can be elevated and so many more deals can be pursued by entrepreneurial and agile teams. So long as they make a start and rearrange daily habits into smarter, leaner and systematic AI processes.

Don’t get run over by the AI Train

Some companies lose, but the best reinvent themselves. This applies at both a property level (look at the slower-reacting British REITS vs London Metric’s nimble rise) as well as at technology companies (look at the radical restructuring at ex-Twitter and continued success as X).

Businesses that embrace AI and its associated computing powers are no longer edging one step ahead of the competition. They are sailing many knots ahead of their peer groups.

On a trip to Ireland, Colliers and CBRE presented to their investment client on a joint mandate. One party used Powerpoint slides, and the second party used Dashflow to show map flyovers, explain interactive ROI metrics and produce XLSX models and Powerpoint handouts On Demand. Needless to say, a lasting impression was left by the advisor that simply used interactive and responsive technology during a live institutional client discussion.

Clients that are open to AI experience a morale-boosting step change in productivity compared to technology naysayers who refuse to learn new tricks. As the CEO of Prologis recently stated, get on the AI train or get run over.

Commercial Real Estate and Capital Markets

Thankfully the world is changing in terms of real estate workplace attitudes. Very few Capital Markets professionals now claim in public (and proudly) that they do not open Excel files or do not comprehend the cashflow work done by their junior Analysts. Neither are they proud to shout about the fact that they don’t understand how a new device like an iPad works. Nor do they profess ignorance about how cloud technologies work, which would simply reflect poorly on the expertise required today to help explain the rise of data centres to institutional clients.

A look in the mirror

The reality is that, like Blair’s public sector ambitions, AI affects most workflows in the office. Including Capital Markets, Asset Mgmt. teams and Fund Management white collar labour. It impacts how real estate professionals achieve exponentially more with their time at their own desktop/laptop – whether at home or at the office. But to achieve change, it requires a team effort. Not a siloed approach.

Many traditional large businesses set-up narrowly-constituted innovation committees to ‘look after’ and monitor innovation. Or worse, they set-up a superficial ‘incubator’ initiatives like a Silicon Valley TV episode. These initiatives often lack funding and seek ‘freebies’ at the expense of start-ups.

According to Entrepreneur Magazine, when one boss asked employees half-jokingly to bring him any million dollar idea, one brave employee asked why he should serve up a million dollar idea. While there were laughs around the room, this was the correct answer. Why would an average-paid employee introduce a million-dollar game-changing idea?

By way of example, our innovation contacts at Oxford Properties Group, Nuveen, a TIAA company , Avison Young and CBRE have left their companies to set-up a start-up and pursue their own million-dollar ideas. Typically within barely 24-36 months of earning ‘head of innovation’ reputation, networking profusely, canvassing ideas and preparing to move on. There are no doubt many more examples.

So perhaps crowning an innovation leader in-house and expecting them to make great strides within a large and established organisation does not make sense. To paraphrase Alex Goryachev Alex Goryachev, smarter businesses move in ‘small and swift’ steps vs ‘vast and slow’ projects which often die in ‘muddy waters’.

Innovation committees do not appear to be the way forward. It lets most of the organisation off the hook when everyone should be accountable and responsible for making themselves more productive. Finding better and more efficient ways of doing smaller steps. In the office, the most efficient way of doing something better happens to be the use of existing technology, and then sharing it with others.

Tech adoption is becoming what we do on a personal and granular level

The best corporate adopters of technology tend to be led by engaged senior leadership surrounded by good team players. Proactive teams that are steeped in the daily work which they suspect can be automated some how. They recognise inefficiencies and wish they could serve clients better, faster and whenever they wish to raise investment queries.

Team players are prepared to spend a few minutes Googling, speaking to people and finding out what works. They don’t treat tech adoption as an alien process belonging to future thinkers anointed by an organisation. Adopting tech is part and parcel of what they do already and regularly – whether it’s learning to import rentrolls in Excel at BlackRock or downloading their next child’s learning app on their iPad.

Good Risk Management Cultures Raise Alarms

Every professional should hear alarm bells ringing when they are paid £50,000 or £100,000+ and find themselves copying & pasting materials – whether it be screenshots of maps or columns of tenancy schedule data or paragraphs within written reports. These tasks (not the job itself) are destined to be eradicated by more efficient professionals who are adept at using AI – i.e. colleagues who are just better at using computers. While it may sound obvious, every mouse movement or keystroke or finger tap a human can do on a computer, computers can be instructed to do this themselves at trail blazing speed.

Example Red Flags

Every Senior Executive should, for example, raise a due diligence flag when they encounter a different butchered cashflow model presented to Investment Committee for an identical fund strategy. This is happening everyday in the home of financial services in the City of London.

Payroll strategies should raise red flags if team members are not incentivised to, not only complete everyday property transactions, but introduce AI efficiencies for long-term success. See the notable hiring of strategic advisor Alex Edmans at Europa who demonstrates that growing the profitability pie can be achieved at no expense to other business priorities such as ESG matters.

The AI march is so far and wide because it can improve so many processes from back-office to front-office: the way new deals are sourced (efficiently and smartly), how value-added investments are underwritten (safely and conveniently), how deal ideas are shared via investor relations (powerfully and convincingly), and ultimately raise team morale by reducing costly administration (e.g. lowering the churn of costly Analysts).

Start with people

Blair suggests that we need to educate ourselves and adjust recruitment strategies. Whether you like him or not, his speeches leave in the shade many of the individuals who sit in the Parliamentary chamber and entire Select Committees. Perhaps it has something to do with the power and substance of his content as well as his style these days.

We’d add that not only do the private and public sectors need to look at recruitment, but citizens need to vote for STEM-focused MPs. Only 17% of Parliament were educated in STEM (Science, Technology, Engineering, Mathematics) subjects, and only one STEM minister sat in the 2019 UK cabinet.

There is a lot to do, including with the AI management of the country.

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