The American Heritage Dictionary defines “innovation,” simply and elegantly, as “the process of making improvements by introducing something new.” It would seem that most builders could use more than a dollop of innovation right now, as they face a coming year that's shaping up to be a repeat of 2006, with diminished buyer demand and eroding sales. To weather the recent market softness, large production builders have focused on slashing expenses and modulating their construction machines. Some builders, though, are also taking this momentary pause in their markets' growth to rethink certain aspects of their businesses and to experiment with new ideas that, ideally, will better position their companies to capitalize when buyers finally get off the fence again.

Builders, of course, aren't shy about touting their innovation bona fides. Go to the Web site of Russell Eppright Custom Homes, and one of the first screens to pop up is headlined “Leadership and Innovation,” a claim based on the company being named the No. 1 custom builder in Austin, Texas, by the Austin Business Journal. In September, Pulte Homes attributed its first-time ranking on InformationWeek's Top 500 list partly to being recognized for an “innovative” centralized Web-based tool for managing home building and customer relations.

But the bottom line is that innovation, real or imagined, is meaningful only when it translates into quantifiable progress. For example, not too long ago, Carlsbad, Calif.–based Barratt American decided to shift its corporate culture toward improving customer relations. Previously, customer relations had been “hidden in the back of the company and viewed as an emergency room—only meant to deal with defects as they arose,” says Chris Alexander, who owns Synergy Executive Education, a consulting firm Barratt hired to retrain its employees in order to make customer service central to its business model. Barratt has since discovered that customers receiving “exceptional” service are far more likely to refer friends and relatives than those who were merely satisfied. One in five of those “exceptional service” referrals, on average, becomes a sale.

The four builders and one developer BUILDER profiles on the following pages are succeeding because they've embraced innovation as an operational strategy. A common thread among all the companies cited is that the changes they've made are, by and large, neither extravagant nor expensive and hinge on the near-missionary zeal of a few leaders within their organizations who are executing, enhancing, and sustaining these programs.

Most of these innovations, either directly or indirectly, are customer focused at a time when it appears that buyers are going to need more than generous incentives to come in from the cold.

Learn more about markets featured in this article: Austin, TX.