In a hyper-competitive environment, when every home builder is looking to minimize expenses and preserve cash flow, we've seen a trend toward centralizing decision making, reducing regional and local choices, and flattening organizational structure so that senior management engages more closely in day-to-day activities. Move decision making from the many to the few in order to improve organizational control. In a stressful world, simple is better. But is it?
Public and private home builders have adopted strategies to minimize and streamline product design, reducing the number of plans in order to reduce overhead. Back-office and purchasing activities are being consolidated; KB Home recently announced it is closing its Denver accounting center. PulteGroup indicated it wouldn't replace its chief operating officer; instead, CEO Richard Dugas has stepped up to a more active role in the operations. The thought: “Let's control decision making at higher levels.”
What seems to make common sense may actually defeat the intended purpose, however. Organizational and leadership theory is evolving. All companies, including home builders, face a complex, competitive landscape. The ability to adapt, where knowledge is a core commodity driving innovation, is critical to organizational survival and success.
A theory born of mathematics, complexity theory, is influencing current thinking on how organizations successfully address today's hyper-competitive and complex environment. Complexity theory suggests that as things get trickier, organizations need to match the environment by evolving more complexly, rather than by attempting to simplify operations.
Complex adaptive systems (CAS) develop within organizations as groups of individuals whose collective purpose is a single issue. These small groups form clusters within organizations by themselves to tackle a problem. The behavior of CAS is emergent—a nonlinear suddenness solving problems and creating change. Innovation and learning occur when emergence develops a solution to an existing problem. Organizations, applying CAS to strategic management, can adapt to a rapidly changing environment; self-organized groups within organizations can quickly solve problems.
We see this often in our organizations. For instance, in our company our operations people developed a strategy to overcome a recurring, significant problem. Like nearly every other builder, we contract for Dumpsters. On average, we'd fill three Dumpsters for every home built, at a cost of $1,800 per home. Thing is, much of the trash wasn't ours! It came from homeowners and others who found a Dumpster a target to dump anything and everything, to the point of overflowing.
Here was the brilliant solution—simply get rid of Dumpsters. You might think, “That makes no sense; they have a trash problem and now they're getting rid of Dumpsters!” But our operations people saw Dumpsters as inviting trash. So they worked with our trades so that each would be responsible for removing his or her trash from the jobsite. We agreed to pay the framers and the drywall company a small fee for the cost of removing their excess material from the site.
Today, our jobsites are pristine and we save more than $150,000 for every 100 homes we build. Last year, this effort contributed nearly half a million dollars to our bottom line. This solution wasn't top down, but bottom up.
An organization's leadership should create an environment that enables CAS to form and solve problems. We traditionally view leaders as individuals who solve problems, intervening when crises threaten. The emerging view, however, is that such action stifles creativity, innovation, and problem solving.
In a complex and hyper-competitive environment, the one thing builders can least afford to do is stifle creativity, innovation, and problem solving.