(the second edition of The Pipeline: A Picture of Homebuilding Production© was published in January 2016)
The second edition of The Pipeline: A Picture of Homebuilding Production© remains a business book. Yes – it is about the principles and disciplines of production management, as they relate to – and as they are applied toward – the specific conditions, requirements, and parameters found in the homebuilding industry. But – it is also a business book, because there is a difference between being in the homebuilding business, and being in the business of building homes.
I am told that the Introductions written for business books typically answer this question: Why should you purchase this book?
In the case of The Pipeline, I would say it is because improving performance on the velocity side of the Return on Assets is the best path – perhaps the only path – to achieving sustainable competitive separation.
Because that path is an escape from averageness.
The issue is not whether the velocity side of economic return is more important than the margin side of economic return; Gross Income derived from making more on each house you build (margin) has the same contributory value, dollar-for-dollar, as the Gross Income derived from building more houses with a planned, finite, and controlled amount of inventory and capacity (velocity).
Nor is it necessarily a choice. Sometimes the circumstances favor one or the other, but we don’t have to choose between efforts to increase Return on Sales and efforts to increase Asset Turn; margin and velocity are driven by different aspects of the business, and they generally don’t react to, or adversely affect, each other.
It is, simply, that higher margin – while as desirable, beneficial, and important as higher velocity – is not a strategy for creating a lasting competitive advantage; between higher margin and higher velocity, higher margin is the easier, more common strategy. The same is true of the opposite to higher velocity, which is higher capacity. Adding production capacity (and the required inventory) is a “more-for-more” proposition. It’s the easy, more-traveled road.
You can add production capacity, but don’t expect it to set you apart.
As business strategies, higher margin and more capacity can be co-opted. True, sustainable, competitive separation comes more from doing what your competition will not – or cannot – do. Like finding ways to become more productive, to “do more with less”.
Consider the situation that confronted RB Builders, the homebuilding company portrayed in the book (and chronicled earlier in The Saga of RB Builders©), facing the world at the close of 2007, at the end of the halcyon period 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 other builders’ “best practices”, content to be good, no-better-but-no-worse than the other builders with whom it competed, a building company with a middle-of-the-road approach to delivering the value its homebuyers demanded.
“The previous 10 years had been good for RB Builders. But, it was becoming a dangerous approach to business, because – as the saying goes – “the only thing in the middle of the road are yellow lines and dead armadillos”.
“It was becoming a homebuilding no-man’s 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 all looked the same, sounded the same, and priced the same. 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.”
The world doesn’t need any more average homebuilding companies; it has enough of them.
The Pipeline: A Picture of Homebuilding Production©, Second Edition is available through the publisher’s bookstore, and from any of the main booksellers (amazon.com, barnesandnoble.com, or booksamillion.com).
It is always carried in-stock on amazon.com: http://amzn.com/1621378047