Apocalypse Now: Is a Shattered Industry What It Takes?

(first published on Escape from Averageness® in June 2009, in the midst of the Great Housing Recession, what we term The End of the Age of Homebuilder Entitlement®;  updated and reposted here, at the start of what is certain to become another housing and economic recession)

Everyone likes to talk about the “green shoots” that appear and disappear in the housing market and in the homebuilding industry, as the hopeful evidence for a return to business-as-usual.  I think the worst Residential Fixed Investment disaster in three generations should count for more than a return to business-as-usual.

If we are going to pay this steep a price, why not just blow up the dysfunctional business model of production homebuilding?

It is a solution that has undoubtedly crossed the minds of every one of us who understand Lean Production and the Toyota Production System;  those of us who understand Theory of Constraints and Critical Chain Project Management;  those of us who understand Six Sigma and the effect of variation;  those of us who understand production physics;  those of us who stare across the chasm, and roll our eyes at everything we see.

Custom homebuilding is excluded.  The building of one-off or highly-individualized homes could benefit from the selective use of the tools in the toolbox, but custom homebuilding is a separate, specialized value stream.  It is a separate culture.

So, what is the vision of a post-apocalyptic homebuilding industry?  To cite a few:

— One in which the deal-driven mentality that pervades the industry is at least relegated to the land side of the business, and is replaced with a much more disciplined, process-centric approach to production homebuilding.

— One in which the constant question is:  Does this create value?  And, the decisions are based on the outcome.

— One in which builders achieve 6:1 Inventory Turns, and the debate about build-to-order (presale) versus build-to-forecast (inventory or spec) becomes a moot point (Note:  Toyota has not solved this one, either;  they still build-to-forecast and swamp dealer lots with inventory).

— One in which building companies need negligible working capital for production operations, and one in which cash on the Balance Sheet is not the defining competitive advantage of large, public homebuilding companies.

— One in which size is not defined by the number of closings, or the Revenue generated by those closings;  rather, size is defined by the amount of work-in-process and internal production capacity, where growth is not a strategy, and higher productivity is;  where strategy is not “more-for-more”, but rather “more without more”.

— One in which homebuilding companies do not strip-mine the value stream by outsourcing 90% of the work, with all of the attendant duplication in overhead and difficulty in coordinating schedules and resources, and, instead, actually built the houses.

— One which understands that a homebuilding company is first and foremost a project portfolio organization.

— One in which geographic expansion and increased market share are not the only models for growth.

— One on which the absurd cost approach used in the NAHB Chart of Accounts Income Statement is changed, so that builders could actually use the information that it provides to make decisions.  You know, small decisions, like determining breakeven and the cost of production capacity.

— One in which a preoccupation with “Industry Best Practices” is recognized as the self-limitation that it is.

 

If you want to know more, contact me:  flgroves@saiconsulting.com;  you can visit our website:  saiconsulting.com;  you can cone to a Pipeline workshop™:  buildervelocity.com

Buy the book:  virtualbookworm.com/the-pipeline-a-picture-of-homebuilding-production   Always available on Amazon:  amazon.com/Pipeline-Picture-Homebuilding-Production