A lesson in how essential truths endure and key best practices remain relevant
My favorite aspect of the annual NAHB International Builders’ Show is running into old friends. Usually these are clients from the past 10 or 12 years, but now and then I encounter someone from my past life, more than 20 years ago, where I spent the better part of a decade with a national builder.
So it was on the last day of the show that I ran into Bobby, now a director of purchasing for a division of one of the nation’s top 10 builders, at the always-beautiful Kohler booth. Right after he was hired on as a recent college graduate, Bobby had participated in the training classes I led. I was gratified to learn that those classes had made a big impact on him, and he said that in the 19 years I’ve been writing my monthly column, he’s never missed a single one. We chatted for a while, and then Bobby stopped, looked at me thoughtfully, and said, “Scott, what amazes me is that even after all these years in the business, you’ve never turned old school.” I laughed, then asked exactly what he meant. What does it mean to be “old school” anyway?
Bobby gave me a recent example, describing how a few years back he took a new position as purchasing director at one of the largest divisions of a national builder to straighten things out. From all accounts, he had done a great job reducing trade turnover, building relationships, and working hard to earn the coveted status of “builder of choice.” In his market, that meant everything with the trade shortages his division faced.
There’s a New Sheriff in Town
Bobby did so well that his division president worked the system to top him out in the bonus pool. Bobby got the maximum possible bonus for two years running. Then a couple of significant changes transpired. First, the division president left to become a regional president with a competitor. Corporate sent in a new guy hired from another builder. This guy was younger than Bobby, which aggravated Bobby a bit, realizing he hadn’t been considered for the job. And although Bobby liked the new president well enough, along with him came the new VP of finance and accounting who had more than a decade with the company, but on the other side of the country.
The VP and Bobby had met just a few times, and it only took a short while to see that the finance VP, knowing all the company systems, policies, and politics, wielded the most power and authority. Then came the directive from the VP: “Document on a spreadsheet, for all suppliers and trades, that the company receives the absolute lowest bid price.”
Bobby was floored. He knew two things up front: First, it was impossible to meet the request. Suppliers, trades, and other builders rarely share that information and, to make it worse, the finance VP actually asked Bobby to get the prices being paid by the builder’s top five competitors. Competitors weren’t about to share that information, and if a lumber dealer supplies 25 builders, which isn’t at all unusual, how do you document that no one ever gets a lower price on anything? Same for cabinets or countertops or framing labor. Bobby’s second realization was that his finance VP understood nothing about purchasing. But surely, Bobby thought, to be a VP of finance, you have to be smart, and anyone with brains knows the only thing that matters is total cost, not bid price. Bobby then described his repeated attempts to sit down and reason with the VP.
In an attempt to help the VP get a grasp of the issue, Bobby went through example after example about quality, delivery, schedule, site cleanliness, safety—all the things you must consider; the factors that can morph a low bid price into the highest total cost. He made spreadsheets with costs for each category, trying to put it in terms the finance VP would understand. Bobby even printed out and shared some of the columns I’ve written on this subject over the years—all to no avail. The finance VP wasn’t reading, and he wasn’t budging. He wanted all of the additional factors to go his way, along with the lowest bid price. Period. And Bobby’s attempts to appeal to the new division president repeatedly fell on deaf ears.
Master of Disaster
Bobby described the past year to me as a disaster. It began with the new painters he was forced to hire. Whereas his old painters were on time, on schedule, delivered great quality, and cleaned up after themselves, now Bobby had superintendents and warranty techs carping nonstop about schedule and cleanup and, even worse, he had customers complaining about product quality. All for the want of about $150 per house.
Next was a shake-up in framing, the costs of which had increased for Bobby’s company just as they had everywhere else in the country. After going with the low-bid contractor, within a month Bobby was hearing it from all sides, with the HVAC and drywall installers leading the chorus of boos.
The HVAC contractor became extremely frustrated with the framer for not following the plan, causing conflicts and collisions and requiring additional ductwork that Bobby couldn’t approve on a VPO because the finance VP wouldn’t hear of it. “A bid is a bid. Deal with it,” the VP declared. Then Bobby was forced to put HVAC work out for rebid, and another company—one that he had used only reluctantly in the past due to quality issues—came in low. According to Bobby, “stupid low.” Guess who got the business? Guess who paid the price?
The scenario played out again and again with roofers, drywallers, lumber dealers, masons, landscapers, et al. In just one year, a smooth-running operation had turned into a mess, with schedules ballooning, quality scores dropping, trades in an uproar, turnover in the field, and margins eroding. Of course, the finance VP’s answer was to double down on all the “crybaby suppliers and trades,” and guess who got the blame for all of it? No, not Bobby; it was the new division president. Bobby told me he thought the guy would be canned within the quarter. The finance VP’s latest brainstorm was to demand monthly rebids for lumber, truss, and engineered wood. Another prescription for increasing total cost.
Bobby and I both wondered aloud how it was possible for someone with an MBA and nearly 20 years’ experience to progress through a company with increasing responsibility, receive a good six-figure salary, and somehow not understand the basic but critical difference between Bid Price and Total Cost. This finance VP had cost the company seven-figure money that previous year but had succeeded in convincing his own boss and regional management that the previous regime’s success had been a sham and he had arrived just in time to save it. Of course, the VP claimed that his saving the division “required a lot of changes that resulted in a short-term falloff, but will certainly be recouped in the not-too-long run.”
It didn’t help Bobby much when I told him I’d seen this same scenario played out countless times, and not just with VPs of finance but with every other discipline in home building.
Talked out, Bobby sighed and said that if things didn’t change soon, he was going to look for another job, maybe with a smaller builder this time. I tried to give him some words of encouragement and told him that with his level of experience, if he put himself out there in the market, offers would quickly come in. I offered to be a reference and keep an ear out. Bobby displayed a surprisingly good attitude, even though he expected to be the next victim of the finance VP’s delusions, saying it was just one more experience that would help him later down the road in his career.
Old School or New School?
So what does it mean to be “old school”? I’m often perplexed by this. On one hand, a lot of what I learned from my best mentors was considered old school a few decades ago: a contract with two-way scopes of work signed for every house; a start package as good as gospel; the need to find the best suppliers and trades, build the relationships, and negotiate for the best crews; using a sole source whenever it makes sense; creating start packages that are 100 percent bulletproof; managing your customers to your process with no late change orders; getting in every house, every day; maintaining the schedule at all costs, etc.—so much of what I’ve written about over the years in this column.
Funny thing though, when I’m out there preaching this gospel each week somewhere in the U.S. or Canada, these ideas aren’t taken as old school at all. Most builders still consider them current, pushing the envelope, and asking the management team to do things it doesn’t normally do.
I hear other consultants I know well, who are either 60-plus years old or very close to it—guys such as Charlie Scott, Bob Schultz, Bob Whitten, and Chuck Shinn—describe this same phenomenon. Has old school become new? Not really. The truth is, the knowledge possessed by these guys—the things we all learned from our own mentors long years ago—hasn’t changed. Time provides some refinement, some better ways of communicating, and an accumulation of evidence to support the principles. All combine to make the knowledge more accessible. But regardless of whether you put it in a box marked “old school” or “new school,” the essential truths endure. The profound irony though is that people continue to ignore these truths to a level that guarantees job security for far more consultants than the industry should need.
Last week I got an email from Bobby with the coup de grace. Yes, the division president was fired and another young guy was dispatched to take his place. But the biggest news was that the division finance VP had been moved up to the regional level and had just sent out his “documented low bid on everything” edict to every division under him. Bobby’s job was still intact for now, but with his note to me came an attachment—Bobby’s freshly updated résumé.
In the end, it matters not whether you label Bobby old school or new school, but his employer is about to lose one of its best guys and the profit he brought to the company. A more enlightened competitor is about to snap him up.