Archive for January, 2009

Does the world really need one more average homebuilding company?

Posted January 27, 2009 By Fletcher Groves

“As RB Builders did its planning and budgeting for the then-upcoming year, 2008 looked to have market and economic conditions very similar to those in 2007. In 2007, RB Builders produced Gross Margins of 22%, earning Gross Income of $11 million, down significantly from the 30%+ margins it enjoyed during the final, halcyon years of what had since become famously known as “The Age of Homebuilder Entitlement”.

“In many ways, RB Builders was a product of that age, just another homebuilding company, satisfied with occasionally adopting the “best practices” of other builders, content to be good, no-better-but-no-worse than the other builders with whom it competed. It was a homebuilding company with a middle-of-the-road approach to delivering the value homebuyers demanded. Although its owners knew what housing cycles were like, its management did not. Terms like TEFRA and RTC were faint acronyms from a different era. For the past 10 years, life had been good. But, it was becoming a dangerous approach, because – as the saying went – “the only thing in the middle of the road are yellow lines and dead armadillos”.

“It was becoming homebuilding no-mans land.

“Locked into an operating model – into organizational structures, management systems, processes, cultures, and employees – that could not deliver extraordinary levels of distinctive value, the company found itself dumped into a teeming mass of homebuilders that looked-alike and sounded-alike. Now, indistinguishable from other builders, and unable to create any type of competitive advantage, RB Builders was trapped and sinking – like a modern-day dinosaur – into the tar pits of average-ness.”

That was a short excerpt from the opening of “The Saga of RB Builders”. RB Builders is a mythical homebuilding company that we use from time-to-time to get our points across to clients. When I speak at IBS and other conferences, I sometimes ask my audience this question: “Does the world really need one more average homebuilding company?” For the longest time, I was convinced that their collective answer was simply, “Yes”.

I think 2008 changed a lot of that thinking. But I doubt that the changed thoughts really provided any clue about what they should do about it.

In the beginning . . .

Posted January 24, 2009 By Fletcher Groves

My name is Fletcher Groves. I am a Vice President and Senior Consultant with SAI Consulting, Inc. SAI is engaged almost exclusively with clients in the residential sector of the construction industry vertical – marketing-speak for homebuilding companies.

Our consulting work occurs almost entirely on the velocity side of the return on assets equation. Our world is about improving operating performance and business outcomes. We have a distinct, constraint-management, systems-oriented approach to improving business performance, delivered via a distinct, results-based consulting approach.

We provide a lot of resources on our website (www.saiconsulting.com), but I look forward to the opportunity to share additional concepts with you in this format, and to hear your responses and your ideas.