You've succeeded at making discipline essential to your home building business. Now, the time has come to take a hard look at your strategic core.
In high-volume home building, management of customer segmentation, strategic and tactical talent, capital allocation, operations, logistics, trades, material and product supply chain, geographical diversification, and building lots themselves all mystically seem to magnetically gravitate within an 80-20 force field.
Juran's refinement of the Pareto Principle–to "the vital few and the useful many"–potentially enables strategic leadership and managers at all levels to zero in on what's most important, focus resources, expand opportunity, and reduce risk. What's more, this principle and its shorthand corollary, "less is more," seem to hold true at any point on real estate's dizzying parabola from peak to trough, whether the bears are running or the bulls.
Recognizing that a country's distribution of wealth adheres to 80-20 Rule dictates gives leaders of that particular nation the means to plan ahead with respect to revenue sources and allotment, i.e. who has and who needs. They can then prioritize and manage.
For home builders, the allocation of financial and business resources, the concentration of geographical operations, the precise selection of lots to sandbag and those to retain, the criteria to make very hard human resources decisions, the management of labor and materials supply, the remodeling of designs and floor plans for one's land positions in a buyer's versus a seller's market, even the rationalization of the company's strategic agenda can all benefit by looking at how 80 percent of needed outcomes derive from 20 percent of contributing forces.
For obvious reasons, it's well worth looking at things, including how the 80-20 Rule works in your business, in an entirely new light. The data for housing is grim, and the outlook now is for a longer stretch of hard times than anyone would have thought as the business first took its turn in late 2005.
David Lowman, president & CEO of Chase Home Lending, sums up the current situation this way: "It's bad. It's going to get worse. But it could be worse. And, eventually, it will get better."
Lowman, like any realistic housing economics expert, derives no comfort from the Fed's decision to lower interest rates in September. The 50-basis point cut pales in importance compared with the reasoning behind the move–fear for the health of the economy. Take job and income growth out of the current picture, and Lowman's comment that "it could be worse" suddenly kicks into play.
So, as you deal with the 12-month stretch ahead that will test the best cash and balance sheet discipline to the limit, how does the 80-20 Rule apply? For the near term, the critical few and the useful many need to be boiled down to two four-letter words: plan and sell. Focus on just these two imperatives, even at some cost to other strategic cornerstones.
Plan for supply to grow. Plan for existing home prices to finally cave. Plan for even higher cancellation rates as the pricing knife falls. Plan for bank work outs, possibly even a failure. Plan for headlines that continue to misstate facts and make matters worse. Most of all, plan to transform your organization from a construction firm into a sales organization. Probably 20 percent of dreams account for 80 percent of dreams-come-true.