The Builder’s Dilemma: Why Productivity Remains Elusive In 2019
More with less.
It’s a tantalizing notion. It takes the simple, deep, elegant soul of iconic architect Ludwig Mies van der Rohe’s “less is more” and shuffles the word deck–in a way that matters a lot. More with less–a business aphorism with a corner office mandate in its DNA–despite being a non sentence, means so much and applies so widely these days.
More with less could hardly enjoy a more timely moment of “something’s gotta give” urgency for home builders. Costs keep spiraling up, and customers keep making a dramatic show of the limits of their tolerance, capacity, and/or willingness to pay more. Household income trends and home building business cost trends have de-coupled.
2019 smacks of being a between-a-rock-and-a-hard-place year for home builders. Pace and profitability appear –in broad strokes–to be working at odds. You are free to choose order volume, or you can make money. One or the other. Not both.
Margins–one of the positives of an overall underachieving and challenge-plagued housing recovery over the past seven or eight years–are at risk. When that happens, builders tend to revert to dead-reckoning navigation they’ve used before. That is, unless they didn’t survive the instinct to do that last time around. And some won’t survive this time.
The words “more with less” fuse with the very meaning of economics, of profitability, and this term–productivity–that has been weaponized to characterize American home builders broadly as stuck somewhere in a prior century’s ways of doing what they do today.
Here is a picture–seen often–that graphs the construction industry’s productivity challenge. The inference, when productivity is weaponized, is that–especially in light of labor capacity challenges and the related cost unpredictability, as well as land cost inflation, and ups and downs in materials and product pricing–builders should produce homes “more, faster, cheaper.”
Not, curiously, more (greater volumes) and more (greater value, or better).
Productivity likely will continue to be elusive as an achievable business and operational goal in home building for two reasons. One reason has everything to do with people. The other has to do with people and machines. Since a most top-of-mind framework for discussion of productivity tends to be construction’s chronic and worsening labor capacity stress, many of us box ourselves in to a partial view of the job of construction productivity–which is to make each of the person-hours invested in doing it more valuable.
The mistake for most of us is that we fail to grasp is that home building’s productivity challenge actually splits into two separate discussions.
The one that gets most of the attention now is on automation, robotics, machine learning integration of design, specification, engineering, computer code, and cutting, joining, fastening, etc., and, taken in isolation, is only part of the necessary focus on productivity. The one that gets too little focus–especially in a home building business environment heavily preoccupied with transaction versus relationship–is on the role of culture and engagement in productivity.
Both “more with less” and productivity by definition have a binary nature. Quite understandably, because we’re human, we gravitate in our minds to one side of the equation rather than activating both sides of it. We experience “less” as smaller headcounts, no more perqs like fruit bowls in the office, or budget reductions, and we think that more with less applies exclusively to cutting cost.
But, both more with less and productivity, and ultimately, sustainable profitability, all have as much to do with expanding value as they concern themselves with shaving off costs.
One without the other is a fail. It’s important for commitment, investment, sustainable profitability, and meaningful progress purposes to understand which discussion you’re in. If you’re arguing for off-site factory automation without arguing for processes, purpose, and a fully-engaged team member value chain, you’re going to hit up against a financial wall. People conflate one with the other, and it makes for apples and oranges conversation, unhelpful debate, and the vicious circle of operational inertia.
At a moment when margins get more and more squeezed in the real-world operating environment, first costs–rather than total investment for total returns of value–loom larger and larger.
But you don’t, nor me, nor anyone I know doesn’t wake up in the morning with a desire or willingness to pay for “more experiences.” They awaken with a need, preference, and value of “better experiences.”
More with less doesn’t just mean spend less; it needs to mean generate greater value.
Generating greater value, leaders find out, doesn’t happen unless team members are engaged together in expanding that value, to customers, to stakeholders, to one another, and to the firm that employs them.
Author Joseph Michelli attests to this in “Driven To Delight: Delivering A World-Class Experience The Mercedes-Benz Way.” Michelli writes:
Research from Gallup shows that in the United States alone, productivity losses due to employee disengagement are estimated to be between $450 and $550 billion per annum.”
How do those “employee disengagement” losses impact your bottom line, your productivity measures, your ability to do “more with less?”
Builders have a choice as they look ahead at intensifying challenges at a period that almost certainly promises margin pressure.
They can treat “more with less” as a cost-cutting discipline, and try to reduce expenses fast enough to keep pace with self-inflicted revenue deterioration.
Or they can look at “more with less” as at least a binary deal that necessitates improvement in both the people and the tools they use in the processes that deliver homes to buyers and renters. More attention to the “more” side of the lever–and perhaps not so much fixation on the “less” side, would go far to improving residential construction’s productivity benchmarks.
Perhaps more importantly, it might save more than a few firms from going under as the challenges of thinner and thinner margins stress their capital structure model.