For much of the northern third of the planet, December has forever meant shorter days and longer nights—less daylight for toil and more dark hours to reflect on what's been, what is and isn't, and what will be.
The winter solstice sunrise, for the Druid builders of Stonehenge, was an annual testament to rituals around the inevitability of cycles, not just of seasons and ellipsoidal orbits, but also of power and might itself. Whether power ebbed or flowed, or if a tulip bulb was worth a loaf of bread or five wagon-loads of gold, or whether even there was a bumper crop or a drought, December always seemed the appropriate time for the question: “What have you learned?”
Leaders of large home building organizations mostly bristle at the question. Still caught in a warp of uncertainty about when the longest, darkest night of this market correction might be, CEOs commonly respond to the question “What did you learn from this downturn?” with a sheepish, apologetic, “What-can-I-say?” grin and a shrug. Without the usual suspect—a broad economic recession—to pin the blame on, there seem to be as many explanations for the downturn as there are CEOs offering them up.
This is not to say that previous soft-, hard-, and crash landings in real estate have not been instructive. Many players today are markedly different from those “long and wrong” companies that populated home building's colorful past. Without doubt, today's stiffest challenges will prove that many large and less large companies have morphed into disciplined, professionally managed, financially sound, geographically diversified, and operationally adaptive organizations.
What 2007 looks like, then, from a certain level, is a time that the community is pre-occupied with tactics that orbit two essential strategic strands—culture and flexibility. The tactical adjustments will center on taking down costs to synch operations to new market volumes, generating cash by closing on current and forthcoming orders, and preparing as astutely as possible for opportunities as they emerge from the woodwork.
The uneasy lesson of 2006 may be that 25 percent to 30 percent swings in price and volume may come as naturally to the market and the home building economy again and again as surely as 100 million more people will be added to the U.S. population base by 2040. The timing, frequency, and sharpness of those gyrations may be ever a mystery, so when the market comes roaring back in a year or two, industry leaders should check some of their exuberance at the reopened door and manage their people, customers, and stakeholders to expect tougher times ahead.
That doesn't mean leaving money on the table. It means that, if nothing else, strategy should probably build in lightning-fast 25 percent or 30 percent market over-corrections and price-appreciation “bubbles” as part of capital structure, staffing, and operational planning. So when they occur, rather than shrugging your shoulders, you can say, “We've planned on this market change; it's part of our strategy.”
Easier said than done. But it may be worth the trouble to quantify how much you are paying today in lost share value, employee productivity, materials, labor, product costs, and home prices for the habit of continually surprising your respective customer groups as you experience market cyclicality. If the past four years were huge but you have to give so much of it back in 12 months or less, why not look at the net gains through the down cycle and model business expectations around that benchmark?
For me, exactly 24 months into covering your business, I have begun to learn what a remarkable group of leaders and managers you are, whatever the market conditions. You may have gotten to know the dream team of BIG BUILDER editors and contributing writers. Well, we're committed to redoubling our efforts in '07 to be an indispensable part of your information pipeline.
Have peaceful, joyful, reflective holidays, and we'll pray for revival in the months ahead.