•  What band of the value spectrum – what combination of price, product attribute, and personal attention – do your buyers really want, and do they want it bad enough to pay for it?

•  Can you deliver that value – extraordinarily and distinctively – with your current operating model – your processes, organizational structure, management systems, even the type of employees you have and the culture you promote.

We started by asking these executives to classify their building operations on the basis of a simple question:

“We understand that customers base their buying decision on a combination
of factors.  If we were to ask your customers which one of the following attributes
most influenced their buying decision, which one would they select?”

There were only three response alternatives:  1) We had the best comparable price;  2) We had the best location, best design, or best quality, regardless of price;  or 3) We were willing and able to meet individual customer requirements better than any other builder.

We termed these responses Best Price, Best Product, and Best Solution.  These builders distributed themselves fairly evenly among these alternatives (Figure 1).  We found it interesting that more of these executives believed their customers bought on the basis of Best Product (39%) or Best Solution (36%) than on the basis of Best Price (26%).  There were differences between builder sub-groups – for example, 37% of the production builders believed the decision was based on price, compared with only 12% of custom and semi-custom builders, and only 14% of semi-production builders.

This question was followed by a series of 15 statements describing different practices related to these builders’ processes, organizational structures, management systems, employee types, and corporate culture.  These executives were asked to indicate how well each statement described that aspect of their company’s operating model.

The responses were weighted into an index designed to measure how effectively a homebuilding company’s operating model matched the value it was supposed to deliver to its buyers.  We anticipated that these managers would readily describe their own company’s operating model along lines that matched their buyers’ requirements.

We were wrong.  Most of these managers see their companies from two perspectives, neither of which enable them to provide extraordinary levels of distinctive value to their buyers:  1) they tend to see their companies as “all things to all people” – capable of meeting these different bands of the value spectrum equally well;  2) they tend to see the capabilities of their operating model as being not much better than average.

These perspectives held true regardless of the type of value buyers were demanding (Figure 2).  For example, builders that said their buyers valued Best Price also said, that while the statements describing their operating model were more aligned with price, they were almost equally supportive of Best Product and Best Solution (11.3 = 37.4%, 9.3 = 30.8%, and 9.6 = 30.5%, respectively).

In our Index of Agreement, a builder would have needed a minimum aggregate score of 12.5 (out of a possible 15) in order to hold the view that the statements described their operating model “very well”.  In no group did the highest rated operating model receive a score that high;  typically, builders would say that one operating model – usually, but not always, the correct one – was “somewhat” descriptive and the remaining operating models were a “little” descriptive.

Here’s the problem:  Most builders are middle-of-the-road in terms of delivering the value their buyers demand and – as the saying goes – “the only thing in the middle of the road are yellow lines and dead armadillos”.  This is no-man’s land, and builders that are locked into processes, organizational structures, management systems, cultures, and employee profiles that cannot deliver extraordinary levels of distinctive value – the kind of value their customers demand – find themselves dumped into a teeming mass of builders that look-alike and sound-alike, indistinguishable from one another, unable to create any type of competitive advantage in the home-buying market.  They are trapped in the tar pits of average-ness.

There is an opportunity in all of this:  Individual buying decisions are almost always a blend of Best Price, Best Product, and Best Solution, and builders need to exceed the performance threshold a targeted buyer holds for each one.  But . . . if any homebuilding company – if your company –  makes the hard choice to narrow its focus to a specific band of the value spectrum, and builds an operating model that delivers that value at a higher level than anyone else, you will have all the business you can handle.

More importantly, your companies will be more productive and more profitable, because you will be able to focus the design of your processes, structures, and systems – simply and effectively – around the specific requirements of your buyers.
 

Fletcher Groves is a Vice President with Service and Administrative Institute in Ponte Vedra Beach, Florida.  He can be reached at (904) 273-9840.  Randy Warner is Director of Florida Markets for Houston, Texas-based American Metro/Study Corporation.  He can be reached at (813) 273-6200.