The Pipeline: A Picture of Homebuilding Production©, Second Edition: The Escape from Averageness

(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 both a management book and a business book.  Yes, it is a management book, because 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 – for a homebuilder intent on 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;  they are co-equal components of Return on Assets.  Gross Income derived from making more on each house built (higher margin) has the same contributory value, dollar-for-dollar, as Gross Income derived from building more houses with a planned, finite, and controlled amount of inventory and production capacity (higher velocity).

Nor is it necessarily a choice.  Although the circumstances sometime favor one or the other, we don’t have to choose between efforts to increase Return on Sales and efforts to increase Asset Turnover;  margin and velocity are driven by different aspects of the business, so they generally don’t react to, or adversely affect, each other.

It is simply that, while just as desirable, beneficial, and important as higher velocity, higher margin is not a strategy for creating lasting competitive advantage;  between higher margin and higher velocity, higher margin is the easier, more common strategy.  And, the strategy of achieving higher margin typically has to be augmented with an insistence on having more 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 separate you from your competition.

As a business strategy, higher margin augmented with additional capacity can be readily co-opted;  true competitive separation that is also sustainable comes more from doing what your competition will not do – and likely cannot do.  Like finding ways to become more productive, to “do more without more”.

Consider the situation that confronted RB Builders, the homebuilding company portrayed in The Pipeline©  (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 an organizational structure, management system, processes, culture, 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 already has enough of them.

 

The Pipeline: A Picture of Homebuilding Production©, Second Edition is available POD through the publisher’s bookstore, and from any of the main booksellers (amazon.com, barnesandnoble.com, or booksamillion.com).

virtualbookworm.com/collections/the-pipeline-a-picture-of-homebuilding-production

It is typically carried in-stock on amazon.com:  amazon.com/Pipeline/1621378047

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