AS SUMMER DREW TO A CLOSE, INFORMATION technology mavens of a half-dozen or so top 10 home builders met one afternoon in Austin, Texas. For almost two years, they'd griped about deficiencies in the information systems and technologies with which they try to provide their expanding enterprises information across an array of divisional, disciplinary, and project lines that get more bewildering by the day. Now, all that venting—not only about what was wrong with software applications they put to use, but about the hesitancy of their companies' top brass to back them in the investments necessary to fix the problems—seems to be leading somewhere.
Oracle's 2004 acquisition of PeopleSoft (and its Enterprise One and JD Edwards software) in one fell swoop sucked out one of the key market competitors in business information management services, and it upped the ante of urgency for the power group of home builder CIOs. They emerged from the Austin session with renewed commitment to exploring the development—along with likely software vendors Microsoft, Oracle, and SAP—of industry-specific construction management systems that can finally handle their Fortune 200 scale. Dramatically, the executives agreed that collaboration may be the only way they're going to specify standards that will allow information to flow helpfully across their Balkanized organizations. Also dramatically, they're hoping, by teaming up to spell out interface standards and clarify cost benefits, to force the hands of both their bosses and the outside business-software community to put real money into solving a problem that worsens every day.
I.T.'S A NIGHTMARE Home building's fierce agglomeration in the past few years into 1,000 firms that sell nearly three out of every five new homes in the nation, has created scores of new business empires coast-to-coast, and, with that, a full-blown information technology nightmare. From a financial resources, land control, and local knowledge standpoint, home builder roll-ups make clear sense. Still, when it comes to the multi-layered matrices of communicating, coordinating, tracking, negotiating, accounting, managing, and decision supporting, home building's infomation infrastructure is, at best, like Rube Goldberg on steroids. And few seem to have the time or inclination to think about a worst-case scenario.
Problem is—what else?—money. Too much for some, too little for others. Home builders, collectively, spend about $15 million annually on back-office business software and $200 million totally on information technology, nowhere near sufficient heft to cause the nation's biggest providers (Oracle and SAP ) to cater to them by developing accounting, analytics, tracking, and other systems that fundamentally mirror the transactional structure of big and growing home building organizations. At the same time, home builders' top management's fixation on revenue, gross margins, on-time closings, capital, and land has put information infrastructure upgrades way down on most of their priorities lists.
REACHING CRITICAL SCALE Still, to listen to information tech leaders, systemic information flow problems will—if they haven't already—hurt these growing enterprises' bottom line. (But, arguably, not as much as a blown land deal or company purchase.)
According to a survey Denver-based consultancy Symbius Corp. did with Big Builder, the top five software frustrations among builders range from inadequate integration to software not being robust enough (see “I.T. Angst,” page 73). “It's as simple as our community structure not being embedded in any of the software,” says Jerry Batt, CIO of Pulte, who created “Pulte Home Builder Suite” through a mix of original programming and tweaking the heck out of a few off-the-shelf products over the years. “We're looking for business-to-consumer references. The fact that we have the kind of B-to-C marketing generally isn't represented.”
Tools do exist that include the community structure and other unique needs of home builders, but most (the Pivotal sales tool being one exception) can't handle the scale of the biggest builders, who might have thousands of sales people on a Saturday morning all trying to input leads, or construction service staff trying to access real-time scheduling information. “When the top home builders started to crack $8, $9, $10 billion—those are enterprises now,” says Batt. “We're all Fortune 200 companies, and the market that's out there just isn't built for that size enterprise.”
Oracle's ingestion of PeopleSoft means these burgeoning enterprises have even less leverage to get systems designed to meet their specific needs, since there's one fewer player in the arena of providers. “This has come to a head because of the Oracle acquisition,” says Tim Costello, chairman and CEO of Builder Homesite, a builder consortium that is active in the group that met in September. “I think you have the background for a perfect storm.”
PUT UP OR SHUT UP So, just at a moment when home builders critically need solutions that reflect their organizational models, the likelihood that they'll be able to get systems customized to their needs on an individual basis is nil. Collectively, they have a better chance, but, as the Austin meeting suggests, they're going to have to kick their spending up a notch to make headway with vendors. By comparison, the retail industry, which historically has resisted spending large amounts on technology, increased information technology capital expenditures by 15 percent in 2004, according to the National Retail Federation.
“[Retailers] are investing in business analytics,” says Dave Hogan, CIO of the NRF. For example, companies are using new software to determine the best ways to set prices, such as deciding when precisely to do mark-downs—functions that require real-time, streaming data. With the enhanced information to guide their decisions, says Hogan, “People are adding an additional tenth of a point to their gross margin.”