New Horizons for Quality

A revolution is upon the home building industry, driven by leaders who are employing new management strategies with exceptional business results.
By By Edward Caldeira, NAHB Research Center | September 30, 1999
A revolution is upon the home building industry, driven by leaders who are employing new management strategies with exceptional business results. They are changing the basis for competition.

What is evolving as the new basis for competition? How will organizations need to change? What business shifts will occur? What new competencies are required? These are all questions that every builder needs to answer individually. Those who do can deploy their resources wisely to build a better future; those who don’t face a future decidedly more difficult than the past.

The winners of the National Housing Quality Award exemplify the kinds of best practices that are setting the industry’s new standard. Their organizations are raising the bar on quality and customer satisfaction. This includes new innovations that broaden their service offerings and increase the performance expectations of home buyers. They are re-engineering the construction process; their job sites look a lot more like a factory and function at the same high level associated with in-plant production. Driving these improvements is a mature system of business management. At every level in the organization, the science of management is taking hold.

Raising the Bar on Customer Satisfaction
As the ability of quality-oriented builders to satisfy customers continues to mature, the stakes for all home builders are rising. Not only are leading builders consistently successful at satisfying customers, they are finding new ways to raise customer expectations and then exceed them. The next few years will bring major changes in the customer satisfaction arena.

Leading builders already have customer satisfaction ratings in the 90% range. As satisfaction levels increase, the number of referrals increases at a greater rate. They recognize that while marginally satisfied home buyers might make referrals, highly satisfied home buyers are a highly productive source of referrals. Also, referrals are more likely to be satisfied customers. The goal is to improve customer satisfaction levels, transforming merely satisfied customers into evangelical advocates for the builder.

"If you’re not a 95 or above player in the industry, you’re not in the industry," says Ken Neumann of Neumann Homes. "We all sit around here and say, ‘That’s never going to happen in this industry.’ That’s going to happen."

Leading builders also are focusing on a higher performance standard: If you don’t like your house, we will buy it back. Only quality builders can stand behind an offer like this, and that is the powerful message it gives to potential home buyers.

Paul Estridge, The Estridge Co. (Indianapolis), explains how his company delivers on that service promise. "We say to our customer: ‘If you don’t like this home, we’ll build you another. There are some problems with your home. We did some things wrong, and to take care of them now would be such an inconvenience that we’ll be glad to build you another house in the same community. We will even move the flowers planted in the back yard.’"

Estridge says he has made good on that offer five times in the last 16 years. While not a simple solution, it is the ultimate way to solve the problem. Recently, Estridge met with a customer who has a wet basement. "We’ve put in three sump pumps, and it’s still fills up. There’s a ground water problem there. We’re legally not responsible for it, but I told him, 'If we can’t fix it, we will buy the house back from you and build you another one.' The confrontation immediately went away."

Today, a good home buying experience is just as important as the home to overall customer satisfaction. Leading builders use each contact with the buyer as an opportunity to add value and exceed expectations. They choreograph the whole customer experience: a pleasant sales and selection process, smooth construction activity, no-surprise closings and 24-hour completion of warranty items into a coordinated play to capture the heart and soul of home buyers.

Neumann Homes’ 15/24/7 service program is a perfect example. Company policy states that any customer request must be acknowledged within 15 minutes. That doesn’t mean every problem must be solved in that time frame, but a company representative must respond to it and make sure to understand the issue. The company has as an internal mandate that 90% of all customer requests be solved in 24 hours and every problem must be solved within seven days.

"We don’t publicize 15/24/7. It’s an internal thing for us because the response time to customers is absolutely critical," explains Neumann.

Ensuring customer satisfaction is critical as ratings become public knowledge. J.D. Power's home buyer satisfaction surveys, now in several major markets, are an indicator of more to come. Like mortgage rates, home buyer satisfaction performance will appear in newspapers on a regular basis. The independent surveys may be co-sponsored by the customer satisfaction leaders in each market.

Whether or not builders like it, buyers’ expectations are increasing. Ever-demanding expectations are transferring from consumer goods and automobiles to home building. Twenty years ago car buyers expected warranty problems, but not today. The same holds true for homes. Customers expect to be treated well and have trouble-free homes delivered on time.

Unmet expectations lead to customer dissatisfaction, and educating homeowners on the "realities of construction" is not the long-term answer. "The consumer is not the ignorant one -- it’s the builder," says Pat Hamill of Oakwood Homes. "We must create adaptive companies to meet consumer needs. They don’t want to go learn [about home building]."

Leading builders listen to what customers really expect and then develop the capabilities to exceed those expectations, i.e., complete homes with zero defects. This ensures customer satisfaction and presents the opportunity to highly satisfy home buyers who understand the accomplishment.

Estridge uses a simple litmus test to help everyone in the company define quality: Is this the type of quality you want for your own family? "It’s the golden rule, and while it may sound subjective, it pierces through all the technical BS and helps our people understand."

Re-Engineering the Construction Process
Builders are recognizing limitations of the existing home building production system and the inefficiencies embedded in it. No longer is it enough to improve the existing system. Industry leaders are beginning to reap the benefits of changing the production system.

Even-flow production is sweeping production builders across the country. One house a month, week or day -- it doesn’t matter so long as homes are slotted into a schedule that sets a steady pace for production.

"Since we went to even-flow production, we’ve cut our actual build time and improved our delivery dates," explains Hamill. "We were able to build a couple hundred extra homes this year with absolutely the same work force. Panelization wasn’t the key to building more homes with less labor; it was going to even-flow."

Predictable work allows trades to reduce crew sizes and cycle times for the same volume of work. Building spec houses is not required. Reduced costs allow these builders to offer compelling value, creating construction backlogs that feed the system.

Another important component in the changing construction process is the relationship between builder and the trades. Trade partnering started as a win-win relationship based solely upon shared cost reduction. The easy cost savings have been found. Now that leading builders are driven to re-engineer the construction process, they need higher levels of collaboration, cooperation and teamwork to make it work.

Leading builders are developing their trade base into the kind of companies they need as partners. They are doing this by strengthening their foundations for partnership based upon shared values and common business goals. The equity of "win-win" is being replaced by "If it is good for the trade contractors, it is good for the builder." With solid partnerships in place, the ability to re-engineer core construction processes is greatly enhanced.

Better Business Management
Builders are building better companies. Leading builders have sales of $1.2 million to $1.4 million per employee, more than 50% higher than the industry norm of about $800,000 per employee. As the level of sophistication in business management rises, the gap between traditional builders and the leaders is growing. The leaders are developing processes that bring higher levels of operational performance and the creation of new organizational competencies.

Organizations become amazingly efficient when everyone pulls in the same direction. Termed "organizational alignment," the goal is to develop a cohesive culture with common values, vision and goals.

"We are teaching all of our senior staff how to manage by our values," says Diane Rivera, director of quality for Shea Homes San Diego. "Our mission, our vision and our principles are very important to us. It drives everything that we do."

Leading builders create organizational alignment by crafting their network of activities into a unified business system. Each activity is designed to support the company mission and vision, as well as other functions throughout the organization. This disciplined approach to management keeps everyone focused on doing the right things in an efficient manner. Some exceptional builders take organizational alignment one step further into the organizations of their suppliers and trade contractors.

Creating Quality
The best way to transform any company is simply to start. Learn from the leaders profiled here. For a free copy of the complete report "New Horizons in Quality Management," call the NAHB Research Center’s HomeBase Hotline at 800/898-2842.


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