Yesterday an old friend called to interview me for an article he’s writing about the impact of technology on the home building industry. He described previous interviews with multiple home building executives and other members of the industry intelligentsia who were excited about both what has happened in the past and what’s on the near horizon.
Now it was my turn to weigh in on the impact of technology, the benefits produced, and the wonders to come.
I immediately flashed back to a recent builder meeting at which a colleague and I spent an hour interviewing a group of 10 suppliers and trades for a Midwestern builder. They liked the builder and felt the product was well designed and easy to build. They were paid fairly and on time. They thought scheduling was “pretty good.”
But despite access to an online scheduling portal from a big-name software company, most of the actual scheduling and updates were done by the field superintendent by phone. We call this a “clue” to the question about technology’s use and value in home building.
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A Scout By Any Other Name ...
This clue provoked my favorite question to trades and suppliers: “Do you use scouts to verify if jobs are ready before you send your crews or make deliveries?” All of the participants at that meeting raised their hands, with an affable lumber supply rep adding, “Hey, that’s just home building. You do what you have to do,” which generated nods of agreement and nervous laughter around the room.
But one of the participants interjected that there was one large builder in town that he never had to scout. “Good as gold,” is how he described the schedule, adding, “If they say the house is ready, you can take it to the bank. And we get the schedule well in advance, not by last-minute phone calls, which makes all the difference in the world.” Of the other 25 builders of significance they do business with, all were scouted because, he said, their published schedules—whether online, on paper, or verbal—simply could not be trusted.
Am I cherry-picking a bad example? No. Since the big crash more than a decade ago, this is not an unusual case; in fact, it’s the norm. I’ve asked suppliers and trades across the country and the answer is always that scouts are the primary way to verify jobsite readiness.
"Today, with the benefit of seemingly limitless software programs to manage our schedules, it’s rare to find a builder consistently hitting a 120-day schedule, with 150 to 180 days being far more common."
I’m compelled to mention here that two of my mentors, now-retired builders Mike Rhoads and Gary Grant, both abhorred even the notion (much less the practice) of scouting jobsites. Gary built more than 600 units annually and Mike as many as 1,200. If you asked them how technology enabled them to achieve that volume, both would just laugh, greatly preferring the manual whiteboards with movable magnetic labels that proliferated in their offices and construction trailers, a real-time status report at a glance.
Back then, 90 days from frame start to final was a basic benchmark for production building of any type, and the best builders included foundations in that three-month window, even for basement homes. The very best ran schedules of 60 to 65 days, with some even in the low 40s. Technology wasn’t a factor. Today, with the benefit of seemingly limitless software programs to manage our schedules, it’s rare to find a builder consistently hitting a 120-day schedule, with 150 to 180 days being far more common. And from what my colleagues and I see in the field right now, the reality is actually eight to nine months, or up to 270-plus days.
Unless you’re a builder that never owns land and gets regular construction draws through the building process, these inflated schedules simply kill your return on invested capital, rendering spec homes unprofitable. It seems that as the use of technology has increased, our ability to maintain a schedule has faltered. Why is that?
My TrueNorth colleagues and I get a good look at the impact of technology on home building and try to stay abreast of the incredible number of technological solutions targeted at improving product and process. Working with 20-plus builders in a typical year and presenting at the International Builders’ Show (among other industry events), conducting one or two in-depth builder evaluations for the National Housing Quality Awards, and having long discussions with builders during events such as the Housing Innovation Summit, gives us a pretty strong sample size on the topic.
A couple of years ago, a client asked me to create a list of the best software systems for handling everything from back-office tasks to scheduling. That builder had formed a team to investigate these options, with the goal of choosing a solution to implement nationwide; he hoped I could help narrow down the list for them.
Of the more than 25 I turned up, I picked the five established systems that appeared to have the strongest capabilities for this very large, multiple-division builder, plus two smaller, emerging systems that had potential. (I should note, there were many other systems that seemed capable for production builders of a smaller size and still others for custom builders.)
After this builder team spent the better part of a year evaluating these systems and meeting with most, if not all, of the providers, they concluded that none of them could meet their needs. I was shocked. Having this builder as a client would be a huge feather in any technology purveyor’s cap, yet none convinced the builder they had the answer.
Of course, the websites for these and similar systems explain how theirs is the most builder-friendly, most integrated, has the most and best features, and solves just about every problem a builder may ever encounter. That’s great, and if just half of those claims prove out, we should expect significant improvements in efficiency and productivity. Besides streamlining accounting functions, we’d solve issues around take-offs, purchase orders, schedules, plan libraries, specifications for base houses, and options and selections—with all of the information available online for the builder and others.
We’d also simplify the options and selections process for the customer and improve communication with them from contract, through construction, and all the way to warranty. And most systems can be accessed by suppliers and trade contractors via an online portal for easy, anytime, anywhere access. Of course, systems like this can’t help but reduce costs, variance, and cycle time, while enabling fewer people to manage more units. Or so go the claims.
Where Are the Results?
On the production side, there has been a seemingly nonstop parade of new processes, none of which have historically made any notable dent in conventional on-site stick building. But today’s continuing labor shortages and increased material prices are driving the call for new solutions. Some are updated editions of long-standing off-site construction methods taken to a higher level, while others truly push the envelope.
Consider open-frame wall panels—the simplest prefab item other than plated roof trusses. They’ve been around for decades, yet fewer than 1.5% of new homes built in 2019—just 13,000 units—were panelized, according to Census data. Why? Panels should save schedule time, on-site labor, and materials, although by and large that isn’t the reality. With so much experience and opportunity, how can this be?
"Variance is up across the board among all types of product, a clear sign of inefficiency aggravated by the fact that virtually no one measures variance correctly."
One of the most radical innovations—a personal favorite—is based on a modular “core” containing all of the mechanicals and the kitchen and baths, which is constructed off-site, then set in place using a crane. Living spaces are then built around it. Efficient, elegant, brilliant. Will this be a common solution 10 years from now? History says no, but it’s truly a different way of thinking and building.
Honestly, there’s no end to impressive technologies for both product and process. But what about results? How much impact has technology actually had on our industry? Schedules are worse, not better. So is cost variance, which is, on average, much higher now than it was in the pre-crash era. (For an in-depth review of that analysis, email [email protected] with “Variance PDF” in the subject line and I’ll send you a series of columns about it.)
Variance is up across the board among all types of product, a clear sign of inefficiency aggravated by the fact that virtually no one measures variance correctly, counting labor and materials but neglecting overhead and schedule delay—two large factors. Once again, technology should help, but as yet, it hasn’t.
As I described all of this to my interviewer, I recalled the story of BuildNet, which blew through some hundred-plus millions of investment dollars, bought every software vendor in sight, hired tons of smart folks, and was poised to be a major market disruptor ... before it blew sky-high in the NASDAQ meltdown, joining Build USA, a would-be building material supply chain disruptor, and others on the dot-bomb scrap heap. So much for totally changing the way people buy homes and how we build them.
The Match Game
Those were all two decades ago, and almost nothing has changed in those “spaces.”
Now, let’s get back to the present for one final example, a recent experience with a builder that does several hundred units of both entry-level and move-up product in the South. They had plans for major growth and had invested in some of the best software and hired strong new people. Yet, in our interviews with suppliers and trades, the same major frustration reared its head.
This is how one mechanical trade described it: “If you laid out—side by side—the plans and specifications we received to bid on, next to the POs we later received to actually build the home, then checked what it shows on the portal, none of them match!”
He and about 15 other suppliers and trades told an identical story and how it slowed their crews, confused the office staff, delayed the schedule, and generated variances. Simply put, it cost them money, eating away at their margin. This precluded any notion of the builder qualifying as their builder of choice.
Think about it. These are all issues the technology is supposed to solve. There are countless studies showing that home building lags behind almost every other industry in the country in productivity. While industries such as automotive and electronics show production improvements in hundreds of percent, home building shows next to none, sometimes even in the negative. Whether you reference data from McKinsey, the Bureau of Labor Statistics, or several university studies, home building just hasn’t kept up, despite the wide array of available technology.
I’ll conclude here and set up my next column with a huge leap, given the studies, statistics, and examples just cited. I assert that there’s nothing wrong with the technology for both process and product improvement. In fact, it’s quite capable and can serve as the base for genuine improvement in the home building industry, in spite of historical (though not universal) resistance to adopt or integrate such technology into the home building industry.
If, as I claim, the technology is good, then what’s the problem? Why isn’t it being adopted? I’ve been wracking my brain over this question for more than a decade now, and I think I have the answer—and perhaps even the solution. If you can beat me to it, I’d love to hear your input. Email me at [email protected] and let’s talk it over. Perhaps before another decade is up, we’ll see the results technology has always promised.