Could some of the most in-demand housing markets be cooling off?
Do Embrace Change and Product Diversity
Last January, we introduced the concept for this column—a list of dos and don’ts for a new home building company organized to grow toward local market domination.
Last January, we introduced the concept for this column - a list of dos and don’ts for a new home building company organized to grow toward local market domination. One of the earliest ideas introduced was that the company should be organized to embrace change and diversity in the housing products to be built.
It’s a bold concept, but one that seems logical if you accept the supposition that market segments in the new millennium are likely to continue to fragment into smaller and smaller niches. Taken to an extreme, we can look toward the day when every product the organization builds might be truly unique, crafted to fit one site and meet the needs of one specific set of buyers.
But can you really build a big company organized to do a succession of totally different projects, each aimed at a targeted set of location-specific buyers?
I think you may be able to give that impression, crafting a company that offers what seems to be unique product to customers, but maintains a degree of repetitive function in the back office and on the job site.
Conditioned by consumer product manufacturers like Dell and Toyota, today’s housing consumers expect to get exactly what they want in a house, just as they can get exactly what they want in a computer or a car. But neither Dell nor Toyota actually builds a custom product to meet that demand. It only seems custom.
20th century builders tried to meet the demand for unique product with mass customization in the sales office and design studio, without developing a production system to deliver what they were selling. The result was chaos on the job site, loss of control, and demoralization of the workforce.
Our new millennium builder will come at it from the other direction, building organization, discipline, and repetition at the job site, but crafting it to present a matrix of CAD-generated permutations, and combinations that meet not all, but 90% of the customization requests targeted buyers dream up.
With good, site-specific market and consumer research, you can work all of this out ahead of time. "It can be done," says Denver management consultant Chuck Shinn. "The product has to be customer-driven. But by taking the time on the front end to do the research and then plan and price every option and upgrade, you could structure a product matrix to meet buyers’ desires for customization. You could use virtual reality to present the choices to the customer in the sales office."
You’d create the perception of a custom product, but on the job site, it would all be pre-planned variations, like an option play in football.
All of this sounds good, but try to implement it and you’ll run into a few problems. Charlotte management consultant Chuck Graham points out one: "Most production builders have experience and culture that produces value for customers at one price point, or at most, a tight range," he says. "Even moving from $150,000 to $250,000, you have to use different components, products, even trade contractors. The quality expectations of buyers are different.
"It would be very difficult for one organization to pull off those different price points, let alone different location niches like downtown townhouses and suburban estate homes."
Not an insurmountable problem, says Houston builder Randy Birdwell. "You’d need to organize the company into separate divisions or profit centers to do different types of projects. Those divisions could be organized at specific price points, or along geographic lines."
I think price point, as Graham suggests, may be the best place to start. Housing products priced at $150,000 could take a lot of different forms to suit different locations and target markets, but the component products and pieces ought not to vary so much that different people would be required. If you can keep the same teams of employees and trade contractors together, I think they can deal with a different product built from the same kit of parts.
"The housing product may be the easiest part of it," says Shinn. "Home building is as much a service business as it is a form of product manufacturing. Servicing first-time buyers is very different from the set of services required by mature families buying rural estate homes or those for empty-nesters buying in urban infill locations.
"And the governments, political processes, and regulatory environments would also be very different between rural and urban locations."
Well, I never said this would be easy. Just remember that, even if the umbrella organization has to hover over a collection of divisions, the key is organizing from the job site back to the sales office to present choices to buyers.