Home Builders’ Manifesto Destiny: Change or Bid Goodbye
One way to phrase the situation for those in the business and operations of new residential construction (and, in the mean time stop paying attention to meaningless, volatile, and highly flawed monthly national data on where housing is in its economic cycle):
Change the skill-set from capacity to ability.
That’s the way FMI Corp. principal Clark Ellis described the challenge for home building companies. It sounds so simple.
Home building companies, until around Spring 2007, had four key stakeholders: home buyers, financial investors, suppliers and local decision-makers, and staff. No longer. A fifth critical stakeholder has emerged out of the profound dislocation that came along with deleveraging household, business, and government economies: Broad public perception and Congress.
Going back to Clark Ellis’ phrase to describe the structural challenge of every home builder to migrate from being a Capacity organization to an Ability organization, the addition of this fifth critical stakeholder makes the challenge that much harder.
Look at the nation’s car business. It grew into empires based on capacity. It has become rubble because it has not found ability. For two deathwish decades Detroit pitted its gearhead engineers against its blustery marketeers. They one-upped and undermined one another into oblivion.
When Capacity was the goal, home builders rose to it with gusto. Now that Ability is the goal, it means having to blow up a lot of the way things worked before. Financial realities forced some of that, but downsizing and other cost actions only get organizations part the way there.
For practical purposes, value engineering, as most people use the term in new-home construction operations, is a misnomer. It’s really a cost strip-out process, as opposed to engineering process and product for optimized value.
So taking out product costs, and getting leaner in overheads and operational expenses, and cutting production time, and renegotiating loan terms and land deals, and eliminating waste are necessary actions. Those steps are strides toward Ability, but they don’t get you there.
What will get you across the chasm from Capacity to Ability is not just cost engineering, but making the new-home a purchase experience like no other. Ability means giving a home buyer prospect something that sets your home apart from a design, community experience, value, and quality standpoint. To become an Ability organization, it’s not enough to be efficient, althought that is a must. You’ve got to be different as well as efficient.
Clearly, save a few anomalous markets, new-home builders are either going to have to compete with distressed home sales for months and months to come or they’re going to go away. Home prices continue to come farther down to earth in relation to household incomes and rent comparisons, and interest rates hover at historically manageable levels.
The three question marks for Josephine Homebuyer are these: Can I get a loan? Will I keep my income at its current level? and Will the price of the house stay stable enough that I won’t be underwater on the loan in a year?
In the economic, financial, and credit environment that we’re in now, a total cost of homeownership analysis could be an increasingly strong argument for people to buy new. More efficient, more repair-free, easier to maintain homes in more sustainable communities may prove to offset the apparent price advantage of buying a foreclosure.
Ability needs to happen holistically. You can’t have it in sales without achieving it in land strategy, operational processes, finance, product development, purchasing and sourcing.
Getting to expanded Capacity was levering up the model and accelerating its output. Getting to Ability is changing the model.
It’s putting a name and a face and an identity on your home buyer. According to yesterday’s new home sales data, there’s only about 32,000 of them a month (unadjusted) to go around for everybody. That’s not nothing, but it certainly calls for Ability vs. Capacity to meet their need.
If you do that though, you’ll be taking care of those other four stake holders, the financial partners, suppliers and municipal decision-makers, employees, and John Q. Public and his elected U.S. representatives.
Comments
4 Responses to “Home Builders’ Manifesto Destiny: Change or Bid Goodbye”
Leave a Reply
[...] admin wrote an interesting post today onHere’s a quick excerptThe three question marks for Josephine Homebuyer are these: Can I get a loan? Will I keep my income at its current level? and Will the price of the house stay stable enough that I won’t be underwater on the loan in a year? … [...]
[...] Read more: Home Builders' Manifesto Destiny: Change or Bid Goodbye | Housing … [...]
[...] Read the full article here… [...]
Well … I did many of those things but in the end it didn’t matter. There just was not enough work to go around. Lost a cabinet business that was successful for 10 years, now nothing to show for the effort.