Big builders have done a lot of tactical shifting in the past year. Some moved to a more decentralized operating model, while others have taken a more centralized approach.
But is organizational structure and operational approach really the issue today?
By nature, home building is a localized—or, at best, regionalized—business. Municipalities make their own land use and development rules. Sure, there's a Uniform Building Code, but talk to any builder, and you'll hear that “uniform” just doesn't exist.
The good news is that this complexity has probably spared home builders of a foreign invasion along the lines of the automobile industry.
So what is the best structure? The one that makes the most sense for your business to execute its exclusive strategy. To be centralized or decentralized is not a strategy, it's a tactic for strategy execution.
Haven't you found that the best land buyers in most markets are individuals rather than companies? These individuals possess relationship-building skills and have solid associations with nearly every land seller and land broker—they are locally networked. They know and understand the myriad personalities that have to be dealt with on planning and development issues. They use consumer research to target the right buyers on the right pieces of land. They have the operational prowess to bring it all together in a community offering that makes money.
Community acquisitions and openings rarely go the way they're drawn up in feasibility studies. Great builders simply have great local teams who resolve the issues favorably as they arise. It seems logical that if a building company wants to decentralize, it should focus on the functions that simply can't be done at a corporate or regional level.
They should place 80 percent of their assessment of a local operation on its ability to consistently (and profitably) perform the above outlined duties. They should do their best to keep great operating teams together. That's not easy.
However, there are many things that can be standardized. Should every market have a different way of conducting consumer research? Should every market have unique product offerings even though they are targeting the same consumers the builder serves successfully in other markets? Does it make sense that home building processes be unique to each market? Should advertising messages, collateral material, and model merchandising be left to local experts? Why risk an inconsistent consumer message in an increasingly small world? It doesn't seem efficient to reinvent these processes across your franchise no matter how big or small your footprint.
After living on both sides of this conundrum for nearly 30 years, I am pretty sure that decentralized versus centralized isn't the question. Instead, I think it's: “Are we organized for maximum efficiency and effectiveness?” Everybody's business is different. Some are expanding into new markets; others are contracting and retrenching.
Finding your balance on the optimization curve needs to be a tactical focus of leadership—it will lead to better overhead management and operational execution. It's you making your statement on how you want to fight the war, but it isn't strategy.
Strategy is the bigger issue. Strategy is about the war itself and whether this is the war you should be fighting. Strategy is about finding or creating your business' competitive advantage in the home building world and then compounding that advantage through implementation of the right tactics. Relentlessly. But we can save that topic for another day.