Guilty With Explanation

Why should home builders care about information technology (IT)? Well, when IT is properly tied to business processes, it helps field supers stay on schedule, professionalizes the salespeople, and strengthens communications with subs—all factors that can help home builders double productivity without adding staff. Unfortunately, based on the results of a survey we conducted with Specpan, home builders have yet to fully embrace ITas a strategic tool.

Small builders (building fewer than 300 homes a year) spend less than 0.2 percent of their annual revenues on IT (see “No Comparison,” page 422). More than 10 years into the launch of the World Wide Web, roughly 60 percent of small builders have Web sites, but only about 13 percent of those who run sites manage Web-based collaboration platforms for suppliers and subs (see “Still Marketing Fare,” page 426). When you look at the whole group surveyed, slightly more than 7 percent run collaboration applications.

Big builders (building more than 300 homes) also don't tend to spend much on IT. On average, big builder IT spending is well below 1 percent of annual revenues, between 0.4 percent and 0.6 percent. And while all 147 big builders surveyed run company Web sites, just 34 percent manage Web-based collaboration platforms for suppliers and subs, a low number for such sizable companies. But before we spend anymore time tearing builders to shreds for their lack of IT expertise, could it be that the numbers tell only a small slice of the story?

Average IT spending as a percentage of annual revenues in 2005:

Jim Janco, vice president of Montgomery Homes in Broomfield, Colo., thinks so. For Janco, whose company builds about six to eight homes a year and hopes eventually to build about 15 to 20 homes a year, what the data doesn't quantify is the frustration level among builders. Janco says most home builders would love to deploy an integrated software system that helps them manage the home building process, but such a system doesn't exist.

“There's no product on the market that will take a builder from plan development into actual budget building into a sales tool and convert a package to write a sales contract,” says Janco. “There are programs like FAST and J.D. Edwards that get you close, but you still need a translation to run the reports and create the purchase agreements,” he says, adding that “small guys like us are not going to take the time and money to try and integrate everything.”

Craig Schweikart, a consultant from Shinn Consulting who works closely with builders on technology projects, says the home building industry is begging for a white software knight.

“This market is hungry for someone to take a leadership role,” says Schweikart. “Someone who can capture the imagination of builders will gain huge market share,” he says, adding that builders may finally change their minds about IT when the market turns and they are unable to stay profitable by simply raising new-home prices.

For now, the white knight is elusive. At press time, a handful of big builders were meeting to discuss the possibility of developing a standard system. Not much has happened with Oracle since it finally bought PeopleSoft last year, and the SAP deployments, while somewhat successful at Morrison Homes, are expensive and cumbersome.

Software maker Latista has a sales and operations system that may work for big builders, but the company has only a few builders using the software thus far and at press time was still unsure if it was going to build an accounting system from scratch or partner with another software company.

On the small builder side, about 44 percent of our group uses either QuickBooks or MasterBuilder, far from a single integrated solution. And the old standbys such as Timberline/BUILDER MT, BuildSoft (now BUILDER 360), and Constellation, which absorbed FAST, NewStar, and Computers for Tracts, were plodding along, still promising a full system sometime in the next year or two. The Canadian group Reflex Real Estate Solutions says it has an integrated solution, but it will have to prove it. And Microsoft entered the fray with a big public relations blitz last summer, but it will take several years for the software maker to establish the Solomon accounting system as a serious player with eternally skeptical home builders.

Mike Rulli, director of information systems for Drees Homes in Fort Mitchell, Ky., says the large builder, with 3,062 closings in 2004, spends between 0.3 percent and 0.4 percent of annual revenues on IT.

Rulli says the reason for the low number compared with other industries (manufacturing averages 2.1 percent of annual revenues, and finance and insurance average 6.8 percent) is that there aren't as many software needs between competing departments and divisions as there are in larger automotive, aerospace, and financial firms.

“We have about 1,200 to 1,400 employees,” he says. “And to get the work done, the number of people walking our sites is 18,000 to 20,000 people, but we don't computerize them and don't see that expense in our budgets like we would if they were our employees,” he continues, adding that “we don't have inventory management systems that manage drywall screws; it's really out with the subs.”

Charles Irsch, the chief information officer from Centex, No. 4 on the BUILDER 100 list, with 32,896 closings in 2004, says it's simple: “New homes are high-priced products with relatively low transaction volumes, so technology is not a competitive differentiator in the home buyer's eyes,” adding that there's also a difference between companies that build 300 to 500 homes and Centex Corp., Pulte Homes, Lennar Corp., and D.R. Horton, all companies that closed in excess of 30,000 homes in 2004.

Irsch maintains that most of the really large builders are doing things such as building extranets to subs and suppliers and offering home option and upgrade tools online that let potential customers model various selections to determine total cost. From our reporting over the years we know for certain that Centex does. Lennar does. Drees does. Beazer does. And certainly many other home builders are deploying technology and building value into their companies.

One smaller builder that sees enormous value in IT is Gladstone Homes, which builds about 200 homes annually in Chicago's western suburbs near Naperville, Ill. For starters, Gladstone has three full-time IT people on staff, a personnel investment almost unheard of for a small home builder. According to our survey, three out of four small builders have only one to two people working on IT, and the vast majority of them are outside contractors.

David Bolger, the company's president, points to three bottom-line benefits IT brings to the company. He says IT lets the company run its purchasing department with one person instead of three; delivers accurate, real-time sales, purchasing, and construction information; and reduces turnover, since the staff now has the computer tools they need to do the job and his workers are less likely to leave because they are frustrated.

“Our people are less stressed and find the workload manageable and organized,” says Bolger, who adds that the company built a system it calls GladSoft, software that integrates Microsoft Solomon accounting software and Microsoft's customer relationship management (CRM) software into Microsoft Outlook, the maker's popular e-mail program.

“The CRM package is integrated into Outlook,” says Bolger, “so within Outlook our people can go into a customer file and see all the e-mails pertaining to that customer, contracts, phone calls, commission structures, and selections,” he says, adding that “technology is the great equalizer” for small builders like Gladstone.

A home builder such as Gladstone Homes is a rare bird in this industry. If you spend some time reviewing the data, the survey clearly points to how home builders are unerutilizing information technology:

Either home builders are using the software in some form and don't know what it's called—a real possibility, especially for large builders—or the CRM software people are in real trouble trying to sell to this industry. The leading CRM software among big builders was Builder1440, with nearly 9 percent of our group—and not one vendor topped more than 2 percent penetration with the small builders (see “What's CRM?” page 424).

Home builders are clearly “guilty with explanation.” Although some of the arguments about home builder staffs being streamlined compared with other industries and the lack of an integrated solution are valid, home builders still experience a disconnect with IT.

“In other industries, we work with companies that have roughly $15 million in revenue, and they'll spend $100,000 on a new system,” says David Thikoll, a consultant with Cardamel Consulting, a group that works closely with builders on Microsoft Solomon deployments. “But home builders will get choked up about $50,000 or $60,000,” he says.

“The low IT spending numbers don't surprise me,” says consultant Joe Stoddard of SMA Consulting. “I always say we rank up there with fish hatcheries, and I don't really know what to do about it,” he says, adding that builders may change when the market slows down.

It's impossible to predict 2006 as the breakthrough year in which home builders see the light and adopt technology. But the aftermath of Hurricane Katrina, including increased gas prices and materials shortages, may slow the housing market this year, so it may finally be time for builders to take a closer look at the technology aisle at this year's International Builders' Show.

BUILDER explanations for the low IT spending and lack-luster deployment as an industry may be somewhat valid, but after the boom of the past few years, few people will feel sorry for a builder if his company can't cut it anymore. The technology solutions may not be perfect, but sitting still and doing nothing has to be unacceptable to home builders who plan to stick around.

Home building spends much less on information technology as a percentage of annual revenues compared with other industries.

SOURCES: BUILDER, FORRESTER RESEARCH

A clear majority of the PCs at home building companies have Internet access.

Most small builders don't know of or don't use customer relationship management software. Large builders do better, but there's still a knowledge gap.

For the most part, builder Web sites are still used to post marketing brochures and company information, not for business processes. Nearly 60 percent of small builders surveyed run Web sites and all 147 big builder respondents have Web sites.

The BUILDER IT Survey is based on survey responses from BUILDER and BIG BUILDER magazines' subscription lists. BUILDER e-mailed online surveys to 50,404 readers of both magazines, yielding 633 responses from small builders and 147 responses from big builders. Online research firm Specpan worked closely with BUILDER to design the online questionnaire, collect the data, and deliver final reports. Copies of the PowerPoint reports for the small builder and big builder categories are available at www.builderonline.com.