Home builders have long considered Information Technology, or IT, a necessary evil at best. Building is an old business, and it's still a very manual one. Many residential builders would prefer to do everything on paper, if only they had enough people for the work. Human resources are scarce in building, though, and there aren't enough people, paper, and whiteboards to manage dynamic growth and keep a company on track. Indeed, the sustained home building boom of the past ten years created multiple sources of management pain for builders: inconsistent data, geographic variations in processes and systems, and growth itself. If forecasts are right, builders will soon face an entirely new affliction—a slowing market. For pain relief, big builder CIOs turned to IT, only to find that no silver bullets exist. So CIOs have stepped up to the task of alleviating their own pain by finding creative solutions that work. While no single solution can change home building, the cumulative solutions may very well shift the industry's management and decision-making paradigms.
PAIN AND RELIEF Until about 10 years ago, builders—even big builders—were perfectly happy managing the flow of information on houses and transactions with paper, pens, clipboards, whiteboards, push-pins, and the telephone. But when companies grew so big that divisions no longer did things the same way or even used the same terminology, it became harder and harder to get information. And when the information finally arrived, it was often inaccurate, obsolete, or didn't match up with other sources. When data are inconsistent, an organization's true condition and performance can't be determined.
For example, builders must know how many prospects they have. One client of customer relationship management software developer Pivotal Corp. found that it was entering prospects' names 28 separate times. “There were errors and different ways of inputting names,” says Steven Lewkowitz, Pivotal's home builder professional services director. In such a situation, the builder can't tell whether there's one customer—or 28. What's needed is a single version of the truth.
Until two years ago, Standard Pacific Homes suffered from inconsistent data in the form of the plans issued to every subcontractor who planned to bid on a job. Subcontractors got complete plan sets, even though they'd only be bidding and working on one element of the construction. Often, plans changed after the sub got his copy, but the sub wouldn't know. When the sub submitted a bid, it didn't match the job. That required follow-up to figure out the problem, new plans, new bids—all of which cost time and money.
Today, six divisions of Standard Pacific maintain a single version of the truth through Autodesk's graphical project collaboration tool, Buzzsaw. Through the software, plans can be accessed online, and the trades see only the plan they need. When changes occur, the software automatically filters them to a list of subs. Bids are more consistent, since everyone operates from the same numbers. Buzzsaw will eventually be deployed throughout the whole company, and it's only one of many data centralization initiatives Standard Pacific is implementing. “We want to use one integrated system so data only gets entered in one place,” says Robert Kelle, vice president and CIO of Standard Pacific. “As information formerly buried in niches starts to flow more easily, then we'll see strategic benefits.”
In March 2004, Meritage attacked this decentralized structure with a new ERP system—Oracle's JD Edwards EnterpriseOne Homebuilder Management. Deployment began with pilot projects in a couple of the company's smaller divisions. Since then, one-third of the company's divisions have been converted, and the rest will convert this year. “We are in the process of creating an internal environment for improving processes, and that's tactical,” says CIO Steven Pardee. “But the goal is to provide more, better, and more accurate information to management—and that's strategic.”
Acquisitions aren't the only way builders grow, of course. They also simultaneously increase production volumes—i.e., undergo “organic” growth. When this happens, big builders experience the same performance bottlenecks they get from geographic variations in process, plus they encounter the profound difficulties of keeping up with the fast pace of change. Toll Brothers, for example, grew approximately 20 percent or more per year from 1993 through 2003. In 2004 and 2005, the growth rates were 60 percent and 80 percent. “Rapid growth is a major force that makes us run very fast to keep up,” says George Nelson, Toll's CIO. “Real procedural and organizational changes happen as the company grows. We must identify the opportunities and determine how to manage them so everyone is prepared.”
To cope with extraordinary rates of growth, Nelson's IT group developed a company-spanning communications network that “provides as close to 100 percent availability to all remote office locations as possible,” he says. “It allows us the connectivity we need to support our applications and growth.” The IT group also built new Web portals that let customers look at home models and options. They also created a customer information system that pipes lead and prospect information to employees and management. “You must have infrastructure, or you'll hit a wall,” he says. “You must have scalability or you'll break down.”
Although the need to manage growth has been the genesis of big builders' push for IT solutions, ironically, the forecast slowdown in the market in 2006 will most likely drive an even stronger push. “In the acquisition process, some big builders acquired volume but didn't deploy standard business practices to the extent they could have,” says James Waldrop, CEO and president of building solutions firm Home-Sphere. “When the market slows, these builders must improve internal operational efficiency rather than selling, selling, selling. This requires better deployment of technology.”