When we consider the odds now that the housing recovery can continue to ladder upward, rung by rung into 2016 and beyond, it may be hard not to get caught up in the spectator sport-like quality of the favoring vs. opposing economic and demographic forces at play.
Jackson Hole may be done and Burning Man may have just begun, but the lot by lot, home by home, neighborhood by neighborhood, customer by customer work is a full-contact, participatory sport all the way. Excel and delight in it. Play, or get ready to get steam-rolled by consolidation or elimination, because those forces are part of the recovery dynamic we're seeing play out in the months ahead.
If Spring and early Summer are principally about selling, then Fall and the fourth quarter are--in broad strokes--more about completions. Profitable ones. If taking down a home site starts a capital-intensive sprint for a home builder to create value on that lot and sell it profitably to an eventual home buyer, then there's a lot of sprinting going on right about now.
If you think the Fed's interest rate policies, or China's currency devaluation, or Millennials student debt load are factors that will significantly impair your ability to make your numbers; to find your buyers; to move your product; to generate economic profit on each of your homes and every one of your neighborhoods, then it's time to rethink whether this sport is the right one or not.
As a matter of fact, it is time to rethink things anyway, and why not? For too long, home building, like other artisanal practices, has muscled through the reality that volume and quality were mutually exclusive propositions. You could have quantity or you could have high-standards of quality, but you could not have both.
That may be changing; and it may be changing because it must. Scale normally means profit. Customization and variation tend to be enemies of scale, which, in turn, detract from profit. However, personalization--a user experience that allows the home buyer/resident to materially shape design, function, and livability in a home as he or she spends time there--is practically a cost-of-entry that impacts floor-plans, functional space, mechanicals placement, future-proofing, etc. Personalization, rather than detracting from economic profit, must add to it.
So how will home builders bust through this barrier that stands between quantity and quality?
Have you heard of Nick Dokoozlian? He's VP for viticulture, chemistry and enology at E&J Gallo Winery in Modesto, Calif. I heard about him from tech author Steve Lohr's Data-ism: The Revolution Transforming Decision Making, Consumer Behavior, and Almost Everything Else. Now, what's fascinating about Dokoozlian is that he worked with IBM, capturing satellite-generated imagery, with weather science, with sensor and microprocessor and electron microscopic analysis of soil chemistry, and teased these thousands of moving-target data points into a way to tend wine grape vines into a myth-busting finding. Quantity and quality are not mutually exclusive.
The analogy Steve Lohr and the viticultural wizard Dokoozlian came up with is that each vine is like a medical patient. Each is a satellite image shot from space, showing a leaf canopy that displays light waves that show its relative health and robustness during critical parts of its journey toward harvest time, like a "botanical pulse rate." Each vine gets the real-time care and feeding--water, nutrients, light, temperature, etc.--to optimize its output. High quantity and high quality wine grapes become possible, maximizing the economic profit-making capability of each vine.
Work in process, home by home and community by community is where home building enterprises' rubber meets the road on a hyper-local basis. What if we could design communities, and design operational processes, and capture and use data on a real-time, as needed basis to give each home the "care and feeding" it needed in its start-to-completion process?
Data and machine-learning's role in home building process is in its infancy, but among the steps needed to unleash the potential for data to improve processes and economic outcomes in the start-to-completion of each vertical project is a heightened recognition of one's current processes.
LGI Homes ceo Eric Lipar will tell you he and his team can put a new hire into the organization's system at any point of entry, and the new associate will succeed and thrive, thanks to the company's solid process.
But many companies work at such a close-up level in their current operations, that it's difficult for them to recognize their processes, which makes it particularly difficult for them to self-diagnose what may not be working as well as it might.
Process improvement assumes a sharp awareness of one's processes.
Many executives might be surprised by the number of intuitive or instinctive decisions they may take during WIP that actually detract from the economic profitability of that project.
That's because WIP is never simply WIP, but rather a critical chain of projects under management that impinge on and impact one another. No where is this clearer than in a BuilderVelocity "Pipeline Workshop," which is at its basis, a level-set of where instinct-oriented decisions can fly in the face of a healthy return on assets.
There's a Pipeline Workshop coming up, and BUILDER is delighted to be a supporter of the work of SAI Consulting principal Fletcher L. Groves III and the folks at Continuum Advisory Group--principal Clark Ellis and consultant Brandon Hart.
Be advised, however, the Pipeline Workshop, like home building, is for participants, not spectators. So, come prepared to play the game, and you may learn that volume and quality do not necessarily rule one another out.