By Wendy Leibowitz. Randy Myers, the senior vice president of construction at Pardee Homes, was analyzing plumbing callbacks in Las Vegas. For the first time in his 17 years at Pardee, he says, he was able to do the analysis in depth, using hard data painstakingly gathered during the past year. What the data were showing, Myers said, was an unusual concentration of plumbing callbacks and that the vast majority of them occurred when a particular plumber worked under a specific foreman.

It didn't take Myers long to review the findings with the plumber and the foreman. "We instituted some checklists and quality controls," said Myers, and in a relatively short time, "we got a better quality job."

Myers is one of a number of senior executives at Pardee, the Los Angeles-based unit of Weyerhaeuser Real Estate Co., who is beginning to see not only better quality work but the fruits of implementing Six Sigma process improvement.

"Before Six Sigma, we just said, 'Everyone watch your plumbing. It's causing us problems,' " said Myers. Now, like a surgeon using a new generation of diagnostics, Myers is beginning to know more precisely the problems his construction teams are encountering and, more importantly, how to respond.

Despite its painstaking training and tracking methods, Six Sigma is gaining traction at Pardee, where it is set to proliferate in every department throughout the company after its first year of implementation. It's a discipline that's also penetrating the cultures at big builders across the country, from Jim Walter Homes, in Tampa, Fla., to Delcor Homes, in Milford, Mich., to Shea Homes, in Walnut, Calif.

Skeptics still abound. Many builders argue the Six Sigma process, developed by Motorola and popularized by General Electric, is better suited for controlled environments rather than home building, which must deal with fickle customers, third-party labor, weather, and dozens of other variables that are not easily controlled.

Even CEOs who believe in Six Sigma face an uphill battle implementing the program. That can be especially true where a lack of resources and universal buy-in for previous management initiatives (remember TQM) can doom even the best new programs to a simple loss of inertia. Then there is the matter of expectations when data are gathered and problems diagnosed, but solutions aren't apparent and those that are require a lot of testing.

Still, the pioneering work of Pardee and others suggests Six Sigma, in one form or another, will become an essential management tool for big builders seeking to improve quality as well as profits.

While the data on bottom-line improvements is trickling in, there are hints of real savings and improvement, at least for Pardee. For 2002, its first full year of using Six Sigma, Pardee invested approximately $400,000, says president and CEO Mike McGee. The Six Sigma investment will increase to about $450,000 in 2003, says McGee. He estimates Pardee's savings at $1.5 million. Improvements in employee morale and overall customer satisfaction: priceless, he says.

The Six Sigma Seed

McGee says he was fascinated with Six Sigma from the moment he heard about it, in part because it fit with his personal philosophy. "I have always embraced the concept of total, continual improvement," he says. "You can always be a bit better."

McGee traces that philosophy to his days attending the University of Southern California, known as USC -- the "University of Second Choice," McGee laughs. "I could have done a bit better." In the early 1980s, he took a series of extension (adult education) classes in real estate development and management at UC-Irvine, developed by the Home Builders' Council, which got him interested in residential real estate. "The real estate market was in the tank, but I liked the professor and liked the classes." He was 25 years old, and "in search of something better, to improve myself." And the real estate market improved, to put it mildly.

Photo: Robert Houser

Mike McGee and Hal Struck

Fast forward to the late 1990s. McGee, then vice president at Pardee, was having lunch with his GE appliance representative. "[The representative] described how GE was adopting a methodology and a set of tools to improve not only their products, but their services," he says. It sounded interesting, but neither McGee nor Pardee could pursue it. "I could advocate for it, but not make it happen," McGee recalls. "Everyone at that time had TQM." The "Total Quality Management" philosophy that was popular then was called QVS at Pardee -- quality, value, and service. Every department manager formulated a QVS goal, deciding what resources to apply and how to meet the goal. But there were no specific tools or methodologies suggested, McGee says. "It was more of a philosophy than a system," and it was difficult to measure success.

McGee had a different perspective in 2000, after being named Pardee's president and CEO. He recalls attending an industry conference in Los Angeles. One of the speakers talked about process mapping, flow-charting, and applying Six Sigma tools to improvement initiatives. "I remember writing in the conference notebook, 'This is what we need,' " says McGee.

Most people at Pardee, McGee acknowledges, were either unaware of Six Sigma or skeptical that the complex home building processes could be implemented in one ideal process -- in so many different environments -- by employees who might or might not speak English.

"I'm very much a consensus builder, and we had to get everyone on a common footing before going into this," he insists.

McGee brought in Ron Theilacker and Jack ReVelle, who had home building and Six Sigma experience to lead an intensive one-day seminar for about 20 high-level and mid-level executives on what Six Sigma is and what it could do for Pardee.

A bit of the appeal of Six Sigma is its exotic, martial arts jargon. "Green Belt," "Black Belt," "Council of Champions," "Process Improvement Team (PIT) Leaders." Executive vice president Hal Struck says that the jargon, aside from being a respite from builder jargon, makes the program seem more substantive than TQM and other business improvement philosophies. "It's just exotic enough to be interesting to people," says Struck. "It's saying, 'We take you seriously, so we're going to give you a serious tool to improve.' "

But the emphasis on data can also put a lot of people off. "Six Sigma is more mathematical, more labor-intensive, and frankly more intimidating than TQM," says Struck. "It's intimidating, that is, until you understand that the computer does a lot of work for you."

Starting Small

Ron Theilacker was hired as Pardee's full time Six Sigma czar, or quality assurance manager, in April of 2001. As a certified Six Sigma Black Belt, or expert, he works on implementing Six Sigma projects full time.

Though there was strong support for Six Sigma from upper management, there is always resistance on the ground at first, Theilacker acknowledges. "People think, 'Man, I have a lot of work to do, and now I have to gather data, too?' " Small projects that can make people's jobs easier should be tackled first. "It is important to demonstrate Six Sigma success very early," says Theilacker. "One of the things that can cause resistance is when you don't achieve results quickly. Take small bites, demonstrate achievement, and make people's jobs easier."

One of the first projects involved transactional processes -- beginning with the time cards construction workers filled out daily. Typically, they were filed late and with inaccuracies, complicating people's lives in payroll who handled the cards and were responsible for calculating the amount owed each worker.

Even for such a small project, Theilacker explains, a Six Sigma team must go through the five steps of the Six Sigma process. The incremental steps are called DMAIC, (pronounced duh-may-ick), which stands for Define; Measure; Analyze; Improve; Control.

The steps begin by defining the goal: to reduce the errors on the time cards. Then measuring the problem -- that establishes a baseline for improvement. The problems are analyzed to identify where the most "pain" is located. Ways to improve the situation are sought and tested in a small area. Finally, controls are implemented to prevent the problem from recurring.

The goal of Six Sigma is to reduce the error rate to the point where a process can be done virtually error free every time. (As Motorola's engineers defined it, that meant a "successful" defect rate would be 3.4 errors per million processes.)

But the real change that Six Sigma brings is when the measurement is taken. Six Sigma concentrates on measuring customer requirements and performance during the manufacturing process rather than after the product is delivered. If errors are caught and corrected before the customer even sees the finished product, customer satisfaction should skyrocket.

When it came to attacking the time card problems, a team at Pardee began by making the card more user-friendly. Information was pre-printed on the card: the names, dates, days, department names, and cost codes. "We couldn't print the hours people worked," says Theilacker. "People are out sick or leave early. So they have to fill out the hours they are there. But everything else was pre-printed on the time card, and there were fewer opportunities to make mistakes." The fewer mistakes, the fewer people had to review the time cards after they were filed. This small initial project saved $10,000 to $15,000 per year, says Theilacker.

All data, of course, is not equal. Six Sigma emphasizes investing in improvements that can make the largest difference. Joyce Mason, Pardee's vice president of marketing, is in charge of the many surveys that measure performance and the home buyer experience, among other duties. "I was interested in using the survey scores to improve customer satisfaction," says Mason.

She found that the two areas that matter most to the buyer are home readiness and communication about what to expect during the home purchase process. "We're continuing to analyze the data in every region," says Mason. "We'll probably find similarities, but we'll also begin to identify what areas in which regions need the most work. One region might rank very high in the home readiness area, with the vast majority of homes being delivered on time, so we'll concentrate on another area."

More Information
Six Sigma in Marketing

Mason is beginning to turn the Six Sigma process loose on the more complicated art of managing options (see "Six Sigma in Marketing"). Advanced Placement

Pardee's initial Six Sigma team tackled an array of "Green Belt" projects involving window installation, leak testing, customer service, and warranty response times. Members were applied a variety of the analytic tools to specific projects, which when completed earned them their first level of Six Sigma mastery. In the process, the teams also helped improve specific problems in the field (see warranty response time charts).

But the most complicated projects involve multiple departments. "I hate to describe the customer walk-through as a process," says McGee, but Six Sigma requires everything to be charted and quantified. Minimizing the time between the customer walk-through and the closing is a goal that requires coordinating many different activities.

The act of engaging the customer in the walk-through begins days before closing; is dependent on loan approval and funding; and is dependent on the customer being ready to close and move in.

"Some of the low-hanging fruit involved issues of communication," says McGee, between the customer and the bank, or subcontractors, or other institutions over which Pardee had little control. After the processes were charted, there was considerable variation among regions, notes McGee. "We always had the goal of a three-day close from the time the customer walked through the home to the close. We were not meeting it, though some areas did better than others."

The greatest number of Six Sigma projects -- 19 -- are being led by Randy Myers at the construction level. "As a whole, our company was not set up to collect data and see where we're having pain," Myers notes. Much time is needed to decide where to set up projects and to develop good data collection techniques. As Theilacker notes, support from higher management is crucial to see the projects through the early stages.

Two people at Pardee have trained as Black Belts in construction. Myers can direct them to work on more complicated construction-related projects, from window installation to analysis of construction cycle time. "There are lots of opportunities for Six Sigma," says Myers. Early successes lead to bigger successes as people realize their work has measurably improved. "The program is kind of self-marketing," says Struck.

Out of the approximately 500 employees at Pardee, there are now nine Black Belts and 103 Green Belts. Randy Myers, who was first trained as a Green Belt a year ago, is happy to have two Black Belts working for him in construction but couldn't go to the first Black Belt class himself.

He just recently became certified as a Green Belt. "You have to be on a team that completes a project and then pass an eight-hour statistics-filled test," Myers explains. "There's certainly a sense of accomplishment." The accomplishment helps market the methodology. "It was difficult, but I actually learned something," he said. Then he went back to thinking of more ways to improve.

People from many departments within Pardee are selected for both Green Belt and Black Belt training. "They are not just selected out of a hat," says McGee. "These are the people with the most aptitude and competence. They're the future leaders of the company. They meet their commitments and always deliver on promises." It will take several years to train even a significant fraction of Pardee's 500-some employees.

Randy Myers' construction department currently has the highest number of Black Belts under his direction, a fact that makes Myers, a Green Belt, both proud and relieved. "I can put them in charge of complicated projects in all areas of construction," he says. Myers worked his way up from a customer serviceman in Las Vegas, to superintendent, to area construction manager. His current position, as senior vice president, is his favorite, he says, and the most rewarding. His satisfaction with Six Sigma causes him to think beyond Pardee to improving the bane of builders' existence: the maze-like municipal permit and approval process that spans many departments. Imagine, he says, "if someone at the top of government chose to champion Six Sigma, and stuck with it. We know we're not doing it right. Here's a tool that will help." He ponders that for a moment. Then he heads back to his construction, thinking of ways to improve.

Learn more about markets featured in this article: Los Angeles, CA.