Homebuilders Shouldn't Sacrifice Company Culture for Bottom Line

Taking a lesson from the esteemed Ritz-Carlton, PB columnist Paul Cardis shares why it’s better to trim costs than to sacrifice your company culture.
By Paul Cardis | August 31, 2007

As the housing industry enters a second wave of suppressed sales, it worries me to see so many large home builders slashing expenditures in an attempt to achieve a particular bottom line with little regard to the impact these cuts will have on long-term customer equity.

Though it is every executive's responsibility to run an efficient operation and survive tough times, the cuts I'm seeing are gutting companies of key personnel and entire quality-assurance departments, thereby sacrificing their future ability to meet today's standards of quality and survive long-term.

It is important for a company to stick to its cultural beliefs and to resist jettisoning everything it stands for to make the bottom line. This reminds me of a story Horst Schulze, Ritz-Carlton's founding president, told me.

He recalled visiting one of the Ritz-Carlton hotels in New York just after Sept. 11 and noticing the staff had not put the traditional bouquet of fresh-cut flowers in the hotel's lobby. When Schulze asked why the flowers were missing, the hotel manager replied there were no guests in the hotel because of the attack on the World Trade Center, so he decided to forgo the flowers in an attempt to save money.

Smart decision? Not according to Schulze.

Despite how dire the economic situation looked for the hotel, Schulze was not willing to sacrifice the high level of service and amenities customers had come to expect from Ritz-Carlton. For Schulze, survival meant ensuring the standard of quality and longevity of the brand during down times. Schulze instructed the hotel manager to order the flowers and found other areas to trim in the company.

In the home building industry, high performing builders seem best prepared to follow Schulze's advice to hold true to their corporate cultures during tough times. Because of their leadership and company culture, they tend to be more adaptable to respond to market forces. This makes it easier for them to implement changes and make smart cuts that maintain resources and preserve their customer equity. Many less-advanced builders don't have the savvy to adapt and gut their resources. Their customer equity diminishes along with their brand. Today, there are reports of big builders quickly downsizing, switching to cheaper materials to get the bottom line they want and firing their QA departments.

I caution builders not to destroy all of the hard work that went into building their culture of quality. The housing slump won't last forever. Tomorrow's customers will expect even higher quality products and services than they do today. Those builders who maintain customer delight through these trying times will be the ones to profit the most.

During hard times, it's more important than ever to offer quality products, knowledgeable staff and support after the sale. Most builders already offer a good value, but in a suppressed economy you need to give more. In fact, everything you do to succeed during good times — a strong team spirit, a motivated staff, a corporate culture focused on customer delight, etc. — is that much more important during bad times.

Delighting customers in the current economic environment may not be easy, but it is certainly possible. How well you succeed will be a true test of your leadership skills and abilities.

Author Information
Paul Cardis is CEO of AVID Ratings Co., a research and consulting firm specializing in customer satisfaction for the home-building industry. He can be reached at paul.cardis@avidratings.com.


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