AS MARKETS TIGHTEN AND builders look for ways to protect their margins, the next few years could prove to be a good time for consultants who can show them how. Clark Ellis certainly thinks so. Ellis is a principal at FMI, a Raleigh, N.C.–based firm that helps builders, building supply companies, and building product manufacturers streamline their operations. After eight years of working with commercial builders, he now leads FMI's new residential construction practice, which he helped launch last September.
Ellis thinks that the time is right to offer what he has learned to the country's top home builders. “Over the last few years, revenue and delivery sides have been more important for home builders, but that's changing,” he says. “Builders who want to preserve their margins will have to pay closer attention to costs.” That includes the costs borne by all of the sub trades.
But before a builder can control these, everyone on the construction team will have to rethink how they work together. Ellis says that helping them learn how to do that is one of the most valuable services he and his team can offer.
FIRST ACT This interest in process improvement dates back to the mid-'90s, when, after a stint playing guitar in bars and nightclubs, Ellis landed a job managing stagehands at the University of North Carolina's Memorial Hall theater in Chapel Hill. He was responsible for sound, lighting, rigging, and stage management for 800 programs per year in Memorial Hall and other venues. “The stage labor business is very similar to construction,” Ellis notes. “You have a crew of people, a structure to build, a deadline, a budget. It's ultra-intense project management.”
When he started, there was very little coordination between trades—a legacy of the unionized world of professional theater. “It was very regimented, with electricians, carpenters, and sound technicians all working separately,” says Ellis. That was an inefficient way to run an operation staffed mostly by part-time students. Since the university theater wasn't bound by union rules, Ellis began cross-training everyone he hired in the various trades and required only that experienced people supervise them.
He also set up management training for the student supervisors. “I didn't know what I was doing, but I borrowed some books [and] put together a four-day technical training program and then a management training program,” Ellis says. “By the time I left three years later, we had done such a good job [of] training students that they could do anything that needed to be done.”
The work was rewarding enough that it changed his career path. “It stoked my hunger for management rather than stage,” he recalls. So he signed up for graduate school, earned an MBA, and then went to work at FMI in 1998.
DIALOG COACH Given his background, it's not surprising that Ellis says that creating “collaborative business relationships” between builders and their business partners is one of his specialties. In fact, he sees this as a critical first step to controlling costs, because in a bid environment, it's the trade contractors, not the builders, who have the most detailed knowledge about building costs. “Nearly every builder I talk with thinks that they understand their costs,” he says, “but at what level? The builder knows that the dry-wall package will cost $5,000, but the dry-wall sub doesn't share the details of how he arrived at that figure.”
Ellis says that the only way to overcome this is to bring together traditionally separate trades and functions—from the supplier to the electrical contractor to the drywall company—and help them learn to collaborate in a more detailed way than any of them thought possible. “We try to move people away from the bid environment because it drives a lot of bad behavior,” he says. “If the builder wants to engage subcontractors on a cost-improvement basis, the nature of the business relationship has to be changed.”
This attempt at culture change usually meets a lot of resistance. Overcoming that resistance takes hard numbers, good negotiating skills, and patience. Proving to the builder that it is worth the effort is usually just a matter of showing them the money. “We start by doing a detailed cost analysis that shows the builder how much can be saved,” he says.
Learn more about markets featured in this article: Raleigh, NC.