Home Builders Need to Nurture Middle-Ring Relationships

by Clark Ellis, Senior Avid Advisor

In September, I was lucky enough to attend the Multifamily Executive Conference in Las Vegas. My big aha moment came during the keynote by Marc Dunkelman from Brown University, author of The Vanishing Neighbor: The Transformation of American Community.

Dunkelman made the disturbing observation that innovation in America is lagging and that the millennial generation is on track to be the least entrepreneurial in our history. This seemed counterintuitive at first, what with the Ubers, AirBnBs, WeWorks, and other cutting-edge companies springing up. But as he spoke it began to make sense, and I realized that the societal trends behind his observations are similar to those at work in the home building industry.

The Three-Ring Model

Innovation blossoms when people encounter new ideas that have worked in an unfamiliar context then apply or combine them to their own challenges. The iPhone blended components from telecom, software, touchscreen, and internet technologies.

However, changes to our routines and relationships in recent decades have insulated people from these new ideas. Dunkelman groups relationships into three concentric circles. The inner circle represents those closest to us, mostly family and friends. The outermost ring is the broader society. The middle band is local relationships that make up the “township” or “neighborhood”—people we don’t know intimately but see on a regular basis at the PTA, church, or the softball league.

Those middle-ring relationships are what fuel innovative thinking, but most people have fewer of them than ever.

There’s been a fundamental, technology-driven change in how much time we devote to each of these groups. Smartphones, for instance, put us in constant contact with our inner ring. We spend more time than ever communicating with spouses, children, and other family members because it’s so easy to send a text, an email, or a Facebook message.

We also spend more time with the outer ring because the internet makes it easy to virtually connect with like-minded individuals. Whether it’s a group of Philadelphia Eagles fans, death metal devotees, Holden Caulfield enthusiasts, left-wingers, right-wingers, Betty Boop fanatics … you can find it on the internet.

The net loser is the middle ring. Most people report not knowing their neighbors very well, and Rotary Clubs, Civitan clubs, bowling leagues, billiards leagues, and other community groups are all hurting for members. The dinner party, once a staple of American society, is on life support.

The problem is that those inner and outer rings seldom expose us to new ideas or new ways of thinking. Friends and family may offer an insight now and then, but they rarely challenge our mental models. And when it comes the outer ring, most of us associate exclusively with like-minded groups. (Imagine what would happen on the Philadelphia Eagles fan board if someone seriously suggested that “Hey, you know, those Dallas Cowboys really aren’t so bad.”)

That middle ring is where we meet people from different walks of life and different cultures, people with ideas that don’t match ours, who bring new perspectives on a variety of subjects. These relationships plant the seeds for innovation by broadening our perspective, making us more accepting of others and revealing new ways of solving problems.

What About Builders?

So what does this have to do with collaboration in the home building space? A lot.

Three of my prior articles laid out the case for collaboration. One of them—“How Collaborative is Your Company?”—provides a framework for you to evaluate your company’s place on the collaboration curve and to identify what you need to do to become more collaborative. Dunkelman’s three-ring model is a useful way to think about these efforts.

The home builder’s innermost ring includes the company owners, leaders, and staff. The outer ring is industry groups and gatherings where builders compare notes and reinforce each other’s notions of who’s who and what’s what.

The builder’s middle ring consists of trade contractors, suppliers, municipalities, developers, code officials, and customers. Here, home builders are actually ahead of the societal trend in that most have never taken full advantage of these relationships. That’s unfortunate: the few builders who do take advantage invariably find fertile ground for new ideas.

How do you view your architects, engineers, trades, and suppliers? For most builders these relationships are purely transactional: They provide needed goods and services, period. Some builders even see them as adversaries with whom they perpetually battle over fees. Does this describe you? Do yourself a favor and really think about how you manage these middle-ring relationships.

Partnership Pays

The most innovative home builders I know treat the residents of that middle ring as important business partners. They’re the people who challenge the builder’s preconceived notions and help them devise ways to build better homes, more profitably and for happier customers. These builders think of middle-ring companies as neighbors in the same town, working together to thrive as separate businesses while also improving the neighborhood.

What results might you get by changing your mindset as it relates to these organizations? How might your architects, engineers, trades, and suppliers alter their behavior toward you if you changed yours toward them? Might you enjoy more success reducing material waste? How would your value engineering improve if your architect, engineer, structural, and MEP trades collaborated to make the home easier to build and more structurally efficient?

If you don’t have a group of second-ring relationships engaged in making your processes more efficient and effective and if your trades and suppliers aren’t offering innovative ideas that solve problems and bring more value to your company and to your customers, then maybe you should ask yourself why.

Let’s identify the usual culprits, the most common barriers to collaboration and innovation.

  1. Time. You and your team are busy running the business. Your second-ring relationships are also immersed in their daily grinds. But if you make it a priority to find time to collaborate and innovate, you will figure out ways to shift away from those “urgent” things that dominate most days and will end up investing more time on the important things.
  2. Price mentality. A lot of builders can’t see past the contract price. The smart few have built collaborative relationships with suppliers and trade partners. And they work with those suppliers and trades on ideas to improve the business, including ways to work more efficiently and to close the same number of homes without extra labor. Everyone wins.
  3. Contracts. Most contracts define a transaction, not a relationship, giving trades no incentive to suggest process improvements. The result is tremendous cost and time wastage. On the other hand, strategic relationships make it possible to find ways to reduce and eliminate this waste.
  4. Split incentives. This is where one party invests in a solution while another reaps the benefits. It’s the builder who pays more for wall panels but whose framer won’t discount its labor price, even though the shell goes up in less time. Innovations like this are more successful when each party shares in the rewards.
  5. Cultural inertia. Production home building’s adversarial culture is a big roadblock to innovation. Builders who seek collaborative relationships with their trades—whether in a trade council setting or one-to-one—can quickly get past this barrier.

It’s possible—though not likely—that you can create better relationships with that middle ring without assessing and methodically attacking these five barriers. But when combined with the framework I outlined in “Solving Construction Workflow Pain Points” and “Emotions can Make or Break Collaboration”, removing these barriers will transform your company. It will make almost anything possible.

But it all starts with you. And what you believe.

Clark Ellis is a Senior Avid Advisor for Avid Ratings, a leading provider of customer loyalty research and consulting to the homebuilding industry. Through the Avid system, industry-leading clients improve referrals, reduce warranty costs, and strengthen their brand. He can be reached at clark.ellis@avidratings.com.

*This article was originally published on BuilderOnline in October, 2018. Click here to read the original article.

Emotions Can Make or Break Collaboration

by Clark Ellis, Senior Avid Advisor

“Collaboration is the essence of life. The wind, bees, and flowers work together, to spread the pollen.” Amit Ray

The above quote succinctly captures the complexity of nature’s work: The collaboration of organisms and forces that we experience as the beauty of a flower, the buzz of a bee or a gentle breeze. The quote also reminds me of the forces that have to align for a successful human collaboration.

My first article in this three-part series on collaboration for home builders outlines the structural elements needed for a successful collaboration: clear goals, a process for reaching those goals and a framework in which that process can unfold, and the right people.

The second article describes the traditional culture of the home building industry and suggests ways to determine how collaborative your company is.

The structural elements outlined in those articles are the hardware needed for a successful collaboration. But you still need “software.” In the case of collaboration, software consists of emotional issues you might prefer to overlook, but they have the ability to sabotage the collaborative effort if not taken seriously.

Emotional issues fall into three categories: Permission, incentives, and trust. Your people must feel like they have permission to collaborate, incentives must be in place that support collaboration, and they need to trust their leaders and co-workers.

Let’s take these one at a time.

Permission

There’s more to permission than meets the eye, and simply telling people to collaborate isn’t enough. Permission granting is an active process that includes identifying the inherent barriers to collaboration, and working to neutralize those barriers.

For example, one of my clients wanted superintendents to collaborate more effectively with key trades. They required supers to attend a monthly trade council meeting and then take follow-up action to drive the improvements agreed on in those meetings.

Sounds reasonable, right? Unfortunately, the builder wasn’t getting enough supers to attend the meetings let alone take ownership on follow-ups, despite the requirement. Why was participation so low?

After talking with the superintendents and conducting a brief workshop with several of them, we identified three issues:

  1. The notion of “collaborating” with trades made many supers skeptical. Their careers had played out in the industry’s traditional adversarial culture, and they didn’t understand what the builder expected.
  2. They sensed a threat to their position as sole jobsite authority. They worried about losing control of jobs if trades saw the council or the company executives as alternate authorities.
  3. They didn’t have time! Supers already have to address the needs of customers, suppliers, and trades. Constant schedule updates, phone calls, texts, emails and other demands made it difficult to take a bathroom break, let alone attend monthly meetings and drive improvements.

The super is just one example of how organizations rarely make sure their key people are able to say “yes” when given “permission” to work collaboratively. Company executives must address these concerns if they expect their people to embrace the collaboration effort.

Incentives

Incentives can work for or against collaboration. The most powerful incentives affect how an individual is compensated and/or evaluated by the company.

If you compensate salespeople only for the sale, it’s in their interest to let buyers choose custom design options. The architects will need to figure out how to draw those designs, the purchasing managers will need to get the right materials and labor in place, and the project managers and job supervisors will have to figure out how to build it. The salesperson gets extra commission, while everyone else gets extra work.

Say also that you have goals for the company such as reducing cycle time, which require collaboration among all parties. Failure to rein in the sales force and eliminate custom options will make it difficult for the collaborators to achieve that goal.

Leaders need to have realistic conversations with one another and with staff about how their incentives drive behavior, and to re-think incentives that run counter to the collaboration process.

Trust

A Google search I did on “trust and collaboration” returned more than 56 million results. No surprise there—anyone who has had a relationship with another human being knows that trusting relationships are more successful, and that those without trust can devolve into costly failures.

Trust is like the pollen spread by those bees mentioned in the quote. Without it, nothing will grow.

Trust is built relatively slowly as the members of a relationship prove themselves trustworthy. As a good friend of mine once said: “You can’t think your way into good acting. You have to act your way into good thinking.”

You can also lose trust in the blink of an eye. And when lost, it’s very difficult to recover.

In our industry, establishing trust is complicated business. That’s because collaboration usually involves several parties including trades, suppliers, technology partners, marketing partners, and others. A breach of trust—even the perception of a breach—can affect all of these parties.

So what’s the solution to the risky proposition of trust? The answer is to trust. As Nike says, “Just Do It.”

Do it blindly? No, of course not. Do it forever, no matter what? No. But do it. Vet your collaborators, set up your collaboration structure, make sure your people know they have permission, and do what you can to align incentives. Then make sure your company’s leaders model the trust they expect from their collaboration partners and that communication between leaders and collaborators is clear and continual.

One of my builder clients had productivity issues coming out of the downturn. Trust with suppliers and trades was at an all-time low. In an effort to survive the worst housing market in memory, the builder had taken an aggressive approach to selecting and managing trades. When the market began returning to health, something had to change, and fast.

We helped the builder stage a turnaround. The CEO called a meeting where he gave a heartfelt and genuine presentation that included taking responsibility for the past policies, acknowledging that those policies had not been good for suppliers and trade partners, and making it clear that he wanted things to change. We then conducted a workshop with trade partners and suppliers to determine the most critical issues, and we brought the builder and key trades together to begin addressing what needed to be fixed and how to do it.

We didn’t talk too much about trust at first, but instead focused on the collaboration structure, permission, and incentives. As the months went by, the builder began earning trust back by following through on the suggested improvements, including better scheduling to reduce dry-runs by trades and drastically reducing material shortages by making purchase orders more accurate. When the trades saw their ideas being implemented, their relationships with the builder improved.

One of this builder’s division presidents recently told us that the collaboration had paid off by shortening cycle time and reducing variances. And he understood how important a role trust had played throughout the process.

During my 20 years consulting with home builders, I have found that a structure that includes clear goals, a process for reaching those goals, a framework in which that process can unfold, and the right people will help a collaboration get organized and started. But unless the organization helps employees feel they have permission to collaborate, builds the right incentives, and creates a culture of trust, the collaboration won’t succeed.

Clark Ellis is a Senior Avid Advisor for Avid Ratings, a leading provider of customer loyalty research and consulting to the homebuilding industry. Through the Avid system, industry-leading clients improve referrals, reduce warranty costs, and strengthen their brand. He can be reached at clark.ellis@avidratings.com.

*This article was originally published on BuilderOnline in July, 2018. Click here to read the original article.

Putting Innovation to Work

by Clark Ellis, Senior Avid Advisor

Business innovation isn’t rocket science—it’s really just a creative new way of thinking about how to accomplish a goal. But truly innovative home builders are nearly as rare as people who have walked on the moon.

Builders who know how to innovate can reap big rewards. For instance after a Chapter 11 filing in the 1990’s, NVR, Inc. re-engineered its business processes, focused its business and adopted innovative practices like optioning rather than buying land, making it the most consistently profitable public builder in the time since, and preventing it from losing money during the Great Recession. Today, it’s the leader in several housing markets.

Although companies like this are often viewed as risk-takers, they actually spend a lot of time creating bulletproof systems that keep risk at a minimum. There’s nothing mysterious about these systems, and any successful builder can create them. The most important ones organize three critical areas: Collaboration, Customer Value and Focus.

Collaboration Benefits
Everyone knows that Thomas Edison invented the light bulb, but few realize that he also invented collaborative innovation. In the 1870’s Edison founded what’s considered the world’s first innovation lab in Menlo Park, NJ. It was staffed with research and development teams that are credited with more than 400 electrical patents during its 10 years of operation.

The point is that while we like to imagine geniuses like Edison, Marie Curie or George Washington Carver as creative loners, the truth is that they relied on teams of people that collaborated to bring their ideas to fruition.

Measurable benefits can flow from even the most basic type of collaboration, like the trade council. One builder I worked with was having trouble getting the trades to its sites on time, so we set up a trade council. During the first meeting it became clear that sites often weren’t ready when the builder called the trade contractors. The trades never knew when the builder was “crying wolf” and as a result they became less responsive. Once the builder and its trades put their heads together, the problem became clear to everyone and was quickly solved.

Collaboration is even more essential to a large innovation effort. Take the case of Building Information Modeling (BIM), a subject I have written about in this column.

For BIM to deliver its full value, management has to realize that it’s not an architecture initiative but a transformative business platform with the power to transform every part of the business including marketing, sales, selections, purchasing, estimating, structural engineering, construction, customer experience, warranty and even how the homeowner manages their home. But a collaborative company culture is a prerequisite to that transformation. Just one example: BIM’s automated material takeoffs can save costs by reducing waste and eliminating variance purchase orders, but those savings require collaboration between the purchasing and estimating departments.

Customer Value
A second key to a successful innovation effort is thinking it through from the customer’s perspective. Take the obvious example of how prospects experience your product online. Chances are you will get better foot traffic to your models if the online experience is highly visual and interactive, but to make that happen you need a systematic way of getting customer feedback on how well that online experience is working and how you can improve it.

You also need a system for encouraging people to leave positive reviews about their experience with your company. Like it or not, your prospective customers are going to Yelp, Facebook, Pinterest, Twitter and other applications to find out what your current and past customers are saying about your company. What they find will have a big impact on whether they ultimately decide to contact you.

You can encourage those current and past customers to sing your praises online by providing an outstanding customer experience. A good start would be a “customer concierge”: someone who is responsible for interacting with the customer and who is available whenever the customer has a question or concern. The “concierge” can also be trained to get customer feedback on your innovation ideas, feedback customers should be happy to give if they see you making a real effort to make their experience of building a home a great one.

If you don’t believe this is important just Google “Customer Experience Links to Profit.” You will see stories from Harvard Business Review, Forbes Magazine and dozens of other publishers, researchers and experts. All the research clearly bears out the link.

Even if an idea won’t have a direct impact on customers, in this hyper-competitive business the customer experience is an important lens that should be used to evaluate it.

Staying Focused
Although every successful innovation requires focused effort, that can be a huge challenge for some people. A Microsoft 2015 study on the attention span of smartphone and internet users (in other words, everyone) found an attention span among the average Canadian adult of eight seconds. A goldfish’s is nine seconds. Do I have your attention? Good.

Focus means staying committed to your innovation effort until it has been fully implemented, rather than dropping it halfway through and going on to something else. It also means going all in on that commitment.

This is where a lot companies hesitate. For instance one of my colleagues recently completed a consulting assignment. Although the CEO agreed with my colleague’s recommendations his response was something like this: “Let’s start a small team off to the side of the core business to implement the new policy and see how it goes. Then we’ll decide what to do after we see how it’s working.” My colleague’s brilliant response was “you dabble, you die.”

Of course we always test innovations with pilot projects, but once the pilot has proven the concept it’s time to either dive into the pool or walk away. After all, the criteria for something to be innovative is that it must actually be implemented and deliver results. And while the CEO’s response may sound reasoned and rational, my colleague knew from experience that results of merely putting a toe in the water would be nil. The company would never implement the changes he suggested, the problems they asked us to help them with would never be solved.

Collaborate, consider the customer, and focus on the effort until it has been implemented. This isn’t a complete list of how to innovate but these three elements will take you a long way in the right direction!

Clark Ellis is a Senior Avid Advisor for Avid Ratings, a leading provider of customer loyalty research and consulting to the homebuilding industry. Through the Avid system, industry-leading clients improve referrals, reduce warranty costs, and strengthen their brand. He can be reached at clark.ellis@avidratings.com.

*This article was originally published on BuilderOnline in August, 2017. Click here to read the original article.

Solving Construction Workflow Pain Points

by Clark Ellis, Senior Avid Advisor

Collaboration has become a buzzword in that lots of companies talk about it but few do it right. That’s unfortunate because knowing how to collaborate is critical for today’s builders, as a shrinking labor and management pool forces them to squeeze more productivity from fewer people. Those who do it well are rewarded with faster cycle times, higher profits and fewer problems with quality and cost management. Builders that fall short are penalized in each of those areas.

Much of our consulting work consists of helping builders create and manage collaborative efforts among and between employees, departments, technology companies, suppliers, subs and customers. As a result, I’ve learned what works and what doesn’t.

This is the first in a series of articles about how to build a culture of collaboration that will help you solve business problems and build higher-quality homes for more profit. Before getting into the details, however, I need to start the same way I do with anything: by offering a couple of examples to help you understand what collaboration is and isn’t.

Structured Goals

Most people have only a superficial understanding of collaboration, usually the dictionary definition of “working together.” But the fact that the people in your company are working toward the common goal of getting homes built doesn’t necessarily mean they’re collaborating.

A true collaboration is where key individuals work together to solve specific business problems. To be effective, the effort needs four structural elements:

  1. Clear goals
  2. A process for reaching those goals
  3. A framework in which that process can unfold
  4. The right people involved

Take the example of a builder whose homes are coming in late. Angry customers have been leaving bad reviews on social media channels and in whatever review system the builder uses. The builder may have to spend some money to try to keep the customer somewhat happy and is getting more warranty calls on homes where crews rush to finish last-minute tasks.

In a collaborative effort to solve this, the goal would of course be to get homes done on time. The framework would be a cross-functional team that includes land development, architecture, sales, development, and construction.

The process would start with each of them weighing in on what is having the most impact on problem. Once the group generates a list of possible causes, it might then be asked to vote on which one to should tackle first. I suggest giving everyone two votes and letting them vote twice on one thing if they think it’s important, as this almost always identifies the most pressing problem.

Say the group identifies the main problem as salespeople letting customers choose options after the deadlines the builder has set. The group leader will ask each member to weigh in on the problem from their perspective. This may be the first time a lot of them learn how their decisions affect other people in the company. For instance, the people in options sales may have no idea how a late choice affects purchasing and how the consequences cascade through the schedule.

As for implementation, the builder may decide to enforce deadlines or may decide to allow later changes but to create a system for making sure the customers understand and sign off on the new move-in date. Having the right people involved includes the expertise to understand the root cause of the problem and to develop a viable solution; and the decision-making authority to commit the builder to get the solution implemented.

The Trades

Another example of a collaborative effort is a properly run trade council.

The trade council is a great framework for solving problems. So then why does the typical council start out strong then fizzle out? The answer is that it’s not properly led. It has no clear goals and no process. It lacks the needed structure and processes that would make it last over time, and devolves into a bitch session where people complain about problems but don’t solve them. Trades eventually vote with their feet and stop showing up, thus removing many of the key people from the process.

By contrast, an effective trade council has a clear mission and strong leadership.

Take the example of a builder that decides to focus its trade council on reducing variance. The leader of the effort would by start interviewing the trades and asking two questions. 1) What is the builder doing that will help you accomplish this goal and 2) what is the builder doing that makes the goal harder to accomplish. Possible answers include:

  • Jobs that aren’t ready. The painter may complain that homes aren’t properly cleaned after drywall finishing. He is then forced to ask the painting crew to clean the house and charge the builder for an extra, or go ahead and paint anyway and raise the chance for a callback caused by drywall dust getting in the paint.
  • Inaccurate deliveries. The framer may report that material shipments are often incomplete or incorrect. The framer must have the builder order additional studs and submit a variance P.O. to cover the cost.
  • Insufficient detail. If plans are vague in key places, the trades will need to get clarification from job superintendent. If they don’t get an answer right away, they may need to make decisions that have to be corrected later.
  • Chaotic scheduling. If schedules tend to be crunched at the end of the job, and the builder tries to solve it by sending too many trades in at once, they end up tripping over one another and making mistakes that lead to callbacks later on.

The leader shares the list of issues with the builder then brings it to the meeting, where the participants work through a prioritization exercise like the one mentioned in the previous example. And like the prior example, the trade council will only work if the right people are involved from the trades and the builder. This means that they must understand the problems, have the expertise to create solutions and have the authority to commit the builder and trades to making the required changes.

Going Deeper

With an ongoing collaborative effort you may eventually want to break it up into functional groups. In the trade council one group might be focused on structural issues, another on mechanical, electrical and plumbing, and a third on the finish trades.

Again, the key to getting an effective collaboration is asking questions that help everyone uncover problems and look for solutions. The framers might say that short takeoffs mean they always seem to need more studs and more random-length 2×4’s. If it’s only happening on five or ten plans, you might then go back to your designer and estimator to determine how they’re drawing plans and calculating takeoffs.

In some cases it can be helpful to hold meetings at a jobsite. The trades are in their element here, and the visual cues all around them will make them more apt to give helpful feedback.

You might meet in a framed house with the foundation guy, the framer and the lumber supplier. You could even walk the house, count the sticks and compare the tally to what’s being sent. If there’s no disconnect, the problem may be how the lumber is being used. How is the framer managing the material? Is he moving lumber from job to job? This may be something the framer has never considered a problem.

While efforts like these don’t cost a lot of money, they do take a commitment from the builder. But if you get in the habit of collaborating this way the rewards go beyond tackling specific problems. You end up with a more efficient operation that makes fewer mistakes, and culture of teamwork that attracts the best employees and subs. If you chose not to collaborate this way, be ready to lose those employees, subs, suppliers and … customers, to builders that do.

Tune in next time as we break down the impact that culture can have on collaboration and how to tell if you need to work to change your culture.

Structural Elements of Collaboration

  1. A Clear and Measurable Goal – the goal must also be specific, so that there is no ambiguity about whether it is achieved or not
  2. Process for Achieving the Goal – analysis, prioritization, implementation, evaluation and adjustment as needed
  3. Framework for the Process to Operate – forum to resolve questions and make decisions, levels of hierarchy as needed
  4. Right People Involved in the Right Roles – balance of expertise and decision-making authority to carry solutions forward to implementation, but commitment to the collaboration is mandatory

Clark Ellis is a Senior Avid Advisor for Avid Ratings, a leading provider of customer loyalty research and consulting to the homebuilding industry. Through the Avid system, industry-leading clients improve referrals, reduce warranty costs, and strengthen their brand. He can be reached at clark.ellis@avidratings.com.

*This article was originally published in BuilderOnline Magazine in April 2018. Click here to read the original article.