Could some of the most in-demand housing markets be cooling off?
Straight From the Heartland
NHQ Silver Award winner, Don Simon Homes, is a model of team commitment to quality and the quality process.
|The Don Simon Homes management team (from left): Steve Lendborg, JoAnn Cartwright, Bill Bublitz (kneeling), Dan Gorski, David Simon, Don Simon, Karen Simon-Dreyer, Jeff Simon, Alex Saloutos, Marlene Barmish, Gary Zajicek (kneeling) and Dave Kinzler.
It is the rare home building company that not only rises to the level of its local competition but goes well beyond to levels of quality and customer satisfaction exhibited by the best companies in the industry, anywhere. Such is the case with Don Simon Homes, a 44-year-old, family-owned builder that has made a habit of continual improvement operationally and in overall strategy and market leadership. As this year’s winner of a National Housing Quality Silver Award, the company has steadily pushed its market share higher while earning a reputation for quality and customer satisfaction.
Operating in Dane County, Wis. -- home to the state capital, Madison -- Don Simon Homes has thrived on the stability of the area’s state government labor force. Economic booms are rare here. So, too, are economic busts. And like other large university towns, Madison is also a market poised to ride the the new economy alongside its highly educated work force. Last year, nearly 1,400 new lots were created in Madison, a 141% increase over the previous year. But a solid market is only part of the reason why the prospects are so good for Don Simon Homes. It is securing entitlements for the biggest project in county history. If all goes according to schedule, Don Simon Homes will win final approval of the project this winter and break ground next summer.
Called "Project New Town," the yet-unnamed mixed-use community would combine traditional neighborhood design, a retail-driven town center, acres of green space and a diversity of new home types. The first of its kind in central Wisconsin, the 500-acre master plan would call for 1,600 homes, townhouses and apartments when fully built out— an impressive step forward for a company that will build 255 homes this year.
The potential offered by Project New Town is a direct result of a massive re-engineering that began nearly eight years ago. In 1994, Don Simon Homes deliberately reversed its sales volume by half to implement quality systems and processes. The builder since has increased its market share by 78% and has made even bigger gains from an internal operations standpoint. During the past 12 quarters Don Simon Homes has:
- met or exceeded a gross-margin target of 20.5%.
- kept the construction costs of its homes within a 1% range of budget.
- with few exceptions, limited the number of building days to 67, measuring from the start of framing to certificate of occupancy.
- has conducted 30-day and 11-month customer satisfaction surveys on each of its buyers, with 95% or more responding "Yes, will recommend."
At the time of its re-engineering, the builder was looking for answers to its state of managed chaos, low margins versus industry benchmarks, and dissatisfied customers, company president David P. Simon says. "We started benchmarking and tracking data -- looking at everything that we could measure that might impact the direction of the company. Then we focused on improving customer satisfaction dramatically, improving the team and the overall impact on margins."
Today the company is an organization with all the right processes for continual improvement in place. In fact, the management program itself is perhaps more impressive than the excellent results it enables.
A Home Building GainShare Program
Whether a builder adheres to principles of TQM, ISO 9000 or one of any number of other quality programs, most models rely upon a solid foundation of leadership. It is leadership not only from the day-to-day guidance of senior managers, but also leadership in the form of clearly expressed written statements of mission, vision and values. It is the foundation on which other building blocks of quality processes can be laid. Those building blocks include:
- a strong strategic plan.
- mechanisms for increasing customer satisfaction.
- excellent performance management processes.
- strong hiring, human resources practices and training.
- quality construction practices.
- strong supplier partnerships.
And while all of these elements are firmly in place at Don Simon Homes, the company has put distance between it and other builders around the country in terms of leadership, strategy and performance management. Its processes have matured to the point where refinements in practices and new programs are quickly replacing others. In fact, one of these process innovations has broken new ground and promises to become a new best practice for the industry as a whole.
|Team meetings, such as this one led by David Simon in September, are held every other week as forums for goal setting and assessment.
Borrowing from the manufacturing sector, Don Simon Homes converted a bonus program concept called GainShare and fit it to the home building process. GainShare provides individual bonuses to all team members based on the organization’s success in meeting 14 pre-established, monthly benchmarks. Unlike profit sharing, in which there is scant linkage between individual performance and company results, GainShare spells out what each staff member must do to enable the company to meet its goals.
"We wanted to provide a reason for self-improvement and a direct correlation between what the team does on a daily basis and how that ties into the results," Simon notes. "GainShare provides that correlation."
The company is in its third year of "keeping score." and so far the team has missed its monthly performance benchmarks only twice -- during the second and third months after "going live" in July 1997. The program is tracked monthly and pays out quarterly. And the payouts are significant.
In 2000, the company will pay out $276,000. A team member can get 1% to 3%, based on that person’s overall impact on achieving benchmarks, says Simon. The company expects a $327,000 payout in 2001.
Setting benchmarks is a balancing act that is the work of a committee of managers and team members, explains Simon. The GainShare committee must distinguish between performance targets that are achievable and the level at which the company must perform to meet its continually improving targets. One of the first performance goals was to meet or exceed gross margins of 20.5% each month. In GainShare’s latest iteration, the benchmark for gross margin is up to 22.5%. This, however, is not intended to be unrealistically high. According to Simon, benchmarks are typically raised only when the company has shown it can perform at the new level over several months.
Other GainShare benchmarks include:
- customer satisfaction based on 30-day surveys.
- customer satisfaction based on 11-month surveys.
- sales goals.
- overall customer satisfaction ratings.
- punch list sign-offs by customers before close.
- 30-day service list sign-offs by customers.
- 11-month service list sign-offs by customers.
- maintenance of construction budgets within a 1% deviation.
- four days or more between plan signing and the dig date.
- orientations conducted seven days before closing.
- 45-day limits to close out job costs.
Linking Goals to Action
In terms of strategic planning -- a key aspect of most quality management processes -- Don Simon Homes has identified five success drivers. From "maximizing customer satisfaction with final product and overall building experience" to "designing, integrating and aligning all business functions to maximize efficiency and profits throughout the organization," these success drivers are the genesis of the company’s strategic plan.
From these, the company has formulated a continuously updated working document that lists the "competitive forces" at play. These include the company’s strengths, weaknesses, opportunities and threats, as well as major trends across the industry and the economy. Once listed, these "competitive forces" become the basis for long-term and short-term strategies. Tactics are then assigned to each strategy and take the form of one or more action items. As of September, the company had 35 short-term and seven long-term strategic action items in process.
Monitoring and controlling the company’s progress on each action item is a highly structured affair at Don Simon Homes. Responsible individuals and due dates are set and agreed upon by senior management for each goal and action item. Examples of current short-term action items include refining the company’s success measures, upgrading its information technology and new personnel recruitment and training. Long-term items include new product development and diversification of new venture opportunities.
Living the Vision and Values
Effective communication of mission, vision and values is a particularly strong attribute at Don Simon Homes. Through staff meetings, one-on-one feedback meetings between supervisors and staff, and frequent department meetings, each member of the Don Simon Homes team is clearly aligned with the company’s goals and principles and how his or her role in the organization affects overall results.
Key to building strong lines of communication are written supporting statements and philosophies that underscore the company’s vision. At Don Simon Homes, that vision, among other things, is to be the "model of excellence in home building." It is a statement supported by six written values, six partnering principles and a quality development document. In addition to measuring customer satisfaction, progress in these areas is tracked through an annual internal survey. The 60-question document asks team members to assess mission-, vision- and values-related attributes such as empowerment and trust. "We think it is important to know that everyone is walking the talk," Simon adds.
And as Don Simon Homes moves forward with "Project New Town," each of the necessary processes is in place for the company to handle its growth effectively. Notes Simon, "Once you get to the top of the hill, it is like a well-run engine and you are constantly fine-tuning it, looking for areas of improvement."