Business Management: Then vs. Now
It’s often said little has changed in home building over the past 30 or so years. Too many times, I’ve expressed that view myself. Yet, when I stand back and consider the totality of it, I ultimately have to disagree.
True, the basic model remains: develop or buy a lot, add a foundation, framing, insulation, mechanicals, roof, doors, windows, drywall, flooring, paint, exterior covering, trim, flatwork, and maybe landscaping and voilà! there’s your new home.
But there have also been many product advancements (think plastic pipe, housewrap, improvements in HVAC efficiency, vastly more flooring options, and endless “green” choices, among many others). Even so, I think the most notable changes have been in building processes, not in products and systems—some good, some not so good.
While ruminating on this topic with a long-time industry friend who just retired, a dozen “old-school” operating practices came to mind. Here they are, with a quick take on where we stand today. Is this progress? You decide.
1. Churn and burn
“We build houses to turn the land asset because that’s where the money is.” That’s the way it was back in the day, to the point where making money on the house itself was often a secondary consideration. Get in, get out, and move on—as fast as you can. Then, we had “absorption of fixed cost” beat into our heads daily—the more you build in a given time frame, the less capital required. Each unit becomes more profitable than the last. That’s not a bad strategy—except when it’s the only strategy and it undermines construction and operational quality.
Today: We’re more conscious of product quality and meeting the needs of customers, and even trades. But understanding the value of each schedule day seems to have slipped among builder employees and is rarely emphasized outside of the C-suite, costing considerable profit.
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2. Schedule is everything
In my 35 years in the mix, I’ve found at least one universal truth: “The best builders are the best schedulers, and the best schedulers are the best builders.”
Today: With building schedules now running double or more what they were in the mid-2000s, we seem to have lost our appreciation for the schedule’s critical importance. Instead, more attention is focused on profit from the house itself. That’s good, but it must be coupled with a reliable schedule.
3. Brute-force quality
Years ago, at a companywide meeting with 20-some construction VPs, a heated discussion arose about just how good we were—or weren’t—at producing quality product. One VP, who had the guts to tell it like it was, famously described our process as “Build ’em up, fix ’em up, buy ’em a puppy!” Continual in-process rework and finishing homes after move-in was standard procedure back then.
Today: There’s been meaningful movement upstream to prevent problems in the product. Yet, when compared with industries such as automotive, electronics, and even health care, home building still has a long way to go.
4. Customer satisfaction as a guiding principle
Two generations ago, homeowner feedback surveys were a rarity. When we did finally get around to doing comprehensive customer feedback surveys, the results were all over the board and thus useless to solve quality problems or pinpoint issues.
We interpreted survey responses with higher scores as indicating customers were feeling good, but as we later learned, those scores weren’t all that strong, while scores on the low end incited weak explanations and excuses. In fact, we were asking the wrong questions, or asking them in the wrong way.
Today: It’s difficult to find a builder that doesn’t have a professionally developed customer satisfaction survey. Presuming the data is used not just to fix problems but also for prevention, that’s a major improvement that touches (or should touch) every aspect of the operation.
5. Bid price rules
This practice used to be virtually universal. Intellectually, people understand my admonition of “The only thing that buying on bid price alone guarantees is you will never operate by lowest total cost.” And total cost is the only thing that matters.
Today: Progress in this area is lacking. In workshops, I often ask builders what differentiates one supplier or trade from another. The replies include factors such as quality, delivery, maintaining schedule, having well-trained staff, and working effectively with both internal and field personnel. Other factors, like safety and liability, are more subtle, but important nonetheless. I then challenge the builders to study each criteria they listed, beyond bid price, and tell me which ones can be disregarded as unimportant.
Go ahead, get your purchasing, construction, and warranty folks together and ask them the same questions. Write and tell me what happens and what you decide.
6. Everything’s a commodity
Recognizing the fallacy of this axiom evolves from No. 5, but is still a substantial leap for many builders to actually take.
Today: Decades in home building brought me to this conclusion: “In the real world, there is no such thing as a commodity.” If you don’t get that, you simply don’t know how to measure … and thus understand the real truth about “commodities.”
Take two competing lumber dealers selling you exactly the same 50-sheet stack of OSB from the same manufacturer, made in the same plant. That’s as close as you get to a commodity, right? Hardly. What about delivery, not just on time but to the right place on the jobsite? Are the loads stacked to help framers work more efficiently? Are they banded and loaded with care to prevent damage to multiple sheets? How about helping you select the most appropriate materials? Does the dealer check both take-offs and engineering to help you reduce waste? Now, is that OSB still a commodity?
7. Black lines are sufficient
In the “way back,” site-specific construction drawings were for custom homes only. For everything else, building mirror-image plans from the same prints was de rigueur.
Today: We’ve gotten better, though significant gaps still exist. My experience—and that of countless clients and other builders—shows the only reason to produce site-specific plans with detailed construction drawings is if you care about making more money.
8. Plan reviews with suppliers and trades
Back then, with a few notable exceptions, most builders would have asked, “What does that even mean?”
Today: No one today disputes the absolute value of this step, yet it is still relatively rare to find it in practice. I apprenticed with a VP who insisted on it for every new plan. At the mechanical inspection stage, for the first new unit, he would gather the superintendent, the project manager, and folks from both Purchasing and Design.
On site, we would meet up with key trades and suppliers.
We’d walk the house together with the sole purpose of determining what could be done—individually and together—to make the home easier or faster to build, and how we might swap in alternative materials, reduce waste, or even just make some cosmetic improvements.
This plan review process worked every single time and it evolved into another key element: working through the process upstream, on paper, with key suppliers and trades before the first dirt was even moved.
This process always produces results, yet it is still rarely put into practice—something I’ve never understood. Save time, improve efficiency, reduce material waste—all leading to increased profit. What in the world are we waiting for?
9. Managing by outcome measurements only
This is the old habit of “driving while looking in the rear-view mirror.” For example, if you diligently record cycle time broken down into its major elements, your processes will “talk to you.” But it must be available in real time, not a report at the end of a project or time period.
Today: Builders have improved in this area, but we still have a long way to go. Ironically, although software has made it far easier to track variance and other key process measures, that does little good if the numbers going into the software are wrong.
10. You don’t need software to run a home building company
Software systems—mostly “back-office” accounting programs—began to make inroads helping manage businesses during the 1980s and then really took off in the ’90s. By the year 2000, almost every builder had a third-party system, and those of us around for it witnessed a near frenzy of companies promising to “change the industry forever”... which then blew up when the dot-com bubble burst in October 2000.
There have been many product advancements, but I think the most notable changes have been in building processes, not in products and systems—some good, some not so good
Today: Since then, more players have entered the market, and software’s sophistication has grown immeasurably to encompass scheduling, purchasing, 3D design, customer management, and more. I’d be the first to advise any company building more than 50 units annually to implement one of these systems and to use it daily. But as I wrote in a previous column, you must commit to thoroughly train every user and keep all databases updated daily.
11. Off-site construction is for house trailers
This one’s a real conundrum. Sears Modern Homes built on-site homes from detailed kits of precut and factory-built components a century ago, yet deep adoption of off-site methods beyond HUD-code homes has progressed only minimally since then.
Today: The opportunity for the pervasive application of manufacturing technology to home building is limitless, yet implementation has been sporadic at best. We’ve reached about 65% full or at least partial application of factory-built trusses, but only 3% to 5% of homes make use of panelized walls to any degree. You’ll find off-site construction of stairs common in some markets, nonexistent in others.
There are myriad explanations why home builders have been so slow to adopt off-site construction methods, but billions of dollars are being invested in it now, and I believe we’ll look back in five years and wonder what took us so long.
12. Building science applications
The early ’90s was the birth of genuine building science in home building, thanks to a parade of widespread product and system failures, among them fire-retardant plywood, faulty fire boxes, and cracking concrete slabs in Texas, among others.
Today: Building science has taken off all over the country, but we still regularly find builders that need, but have never had, a building science assessment ... and are surprised when we push them on it.
Is Home Building on the Cusp of a Revolution?
I’m sure many of you can think of more “Then vs. Now” examples, and I hope you’ll send them to me for a follow-up column.
Let’s be honest, though. We all must face the facts reported by the U.S. Bureau of Labor Statistics: Home building productivity growth lags well behind virtually every other U.S. industry.
In my view, home building is on the cusp of a revolution in which nearly all of the now-versus-then changes will be viewed positively, making quality housing more attainable at all price points.
Again, I’m most interested in your observations, so send them along, and I hope there are a few “under 30s” out there who will save this column and write an update 35 years from now in 2058! I wish I could be around to see what happens.
For a free PDF of Scott’s “Preparing for the Downturn” and “Bridging the Margin Gap” column series, email your request with contact information to [email protected]. You may reach Scott at [email protected] or 248.446.1275.
