Weathering the downturn requires up-to-date information on every aspect of a builder’s business operations to make the tough decisions on everything from inventory, land, cash and staffing to even whether or not to stay in business.
In these difficult times, builders should seek out builder- and business-oriented technology that will enable them to gather and analyze information about their business operations, the market and prospective customers and their profitability so they can have a clear, comprehensive knowledge-base on which to base their decisions.
But in order for builders to take the actions necessary to survive and position their business for the market’s eventual return, they have to first rethink the way they use the technology.
The old ways of focusing on using it to improve business operations won't give builders the information they need to survive the downturn. Today, builders need cash in order to operate and stay in business, so that's where they should focus their technology.
Closings and profits are two primary sources of cash. Builders can use their business-oriented technology to enhance both sources. To head in this direction, the first thing builders must do is rethink how they use technology.
- Put the ‘Back Office-First Approach’ on the Back Burner. Up until the downturn, most businesses ― builders included ― achieved their major efficiencies by first streamlining back office operations. That plan of attack is no longer as valid.
The back office-first approach must now play second fiddle to streamlining operational controls in the sales office and on the job site because those are the areas where the efficiencies that are gained can generate cash flow and reduce costs ― and right now, cash-in-hand is of utmost importance.
- Take a Proactive Approach With the Data. Accounting information by its nature is historical. Business owners review the data and take action on expenses and revenues ― and then determine if the jobs have exceeded budgets.
Under normal circumstances they review overhead and project management costs per unit to determine how much has gone into each job. But these aren’t normal circumstances and builders, and business owners in general, should not take a proactive approach with the data to see what they ought to do over the upcoming months in order to get on track.
- Invest in Systems and Technology That Can Spur Change and Agility. At a time when builders have little change to spare, it is more important than ever to invest in systems and technology that will provide the speed and agility to take proactive action.
This perspective on business- and builder-technology has never been more necessary.
Operational Controls — Digging Out Starts Here
Digging out of the downturn begins with properly managed marketing and sales operations.
Surveys of prospects, customer follow-up, market research, marketing and advertising are as valuable now as they are in boom times. Branding, marketing and advertising are still the best tools to convince buyers to purchase a home ― and the best way to learn what prospective buyers want.
The Internet and Web-based technology are effective tools that can help builders’ determine prospective buyers’ interests. Buyers visting a builder's Web site can explore homes and options at their leisure while the builder can use the Web site to help build a bridge ― and closer ties ― to the prospect.
Web-based technology also can help builders determine, in depth, the effectiveness of marketing. Software can help builders determine if their advertising and incentives are creating the right type of traffic; what marketing and advertising programs are generating traffic; what marketing and sales programs are turning traffic into buyers; and, of course, what traffic-to-buyer ratio is needed to survive the downturn.
Technology will provide answers to these important questions, but don’t overlook the human element. Follow-up is as essential as ever.
To view some applicable Internet solutions, visit NAHB’s Technology Solutions Directory at www.nahb.org/tsd.
Technology on the Job Site
Technology-based operational controls are just as important on the job site as they are in the sales office. In the field, technology can streamline processes and make them more accurate, saving builders time and money and making customers happier.
When construction supervisors have computerized perpetual-reporting systems that can accurately track schedules and variances, they can improve the efficiency of their construction schedule and operations. Once subs see and reap the value of more efficient scheduling and organization, they may be willing to lower their costs for a better return on investment.
Likewise, if materials and payments are accurate and predictable because of better technology ― such as electronic purchase orders ― everybody in the field wins.
Finally, job site-based technology can help builders respond quickly to customer queries and needs — and help build loyalty and referrals.
Survival vs. Profitability
Accurate, agile technology can mean the difference between working just to survive and profitability. Builders should not lose sight of the future, but they have to balance that vision with present conditions.
To begin, builders should budget for what they will need to remain in business and put it in a timeline. The next step is to look at every variance and re-adjust their plan as needed.
For example, if a builders must sell 10 homes a month at $20,000 profit per home to stay in business but misses his forecast by three homes a month for two months during the year, spreadsheet software will enable the builder to determine how much of a shortfall needs to be made up and how.
If, for instance, the builder offers a $5,000 closing incentive to make up for the shortfall, dynamic technology tools will allow him to track the effectiveness of the incentives ― as well as how many additional closings a month will be needed to compensate for lost additional revenue.
The bottom line is that technology can help everyone involved in the builder’s construction processes operate efficiently and effectively.
Through the added accuracy achieved by technology tools, builders can re-negotiate bids and scopes of work that will enable everyone ― vendors and subs ― to stay in business.
The wild card, of course, is funding.
Technology won’t cure the credit crunch builders are facing, but automated processes that keep lenders in the business loop and help demonstrate that the builder “has his act together” could go a long way to convincing lenders that an investment was worthy.
Bill Allen is president of W.A. Allen Consulting and a member of NAHB’s Business Management & Information Technology Committee. His company, headquartered in Redmond, Wash., provides information technology consulting services and process management assistance to the home building industry.
For more information, e-mail Allen, call him at 425-885-4489 or visit the W.A. Allen Consulting Web site at http://waallenconsulting.com.
The current economic climate and housing market conditions have changed the way builders do business now and the way they will do business in the future. Keeping a business up and running is paramount, but doing so at a time when trusted credit providers are cutting back is making even the simplest business transactions rough going.
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