Analysis Yields Better Management, Greater Profits
Even as volume increased and their staff worked harder and longer, Bill and Scott Jagoe of Jagoe Homes sensed that their company was not nearly as efficient as it could be. They studied the systems used to support the company’s sales, construction, customer service and other functions and realized that inefficiencies were affecting profit margins.
The Jagoes used the lessons learned about business process management to increase their company’s efficiency — and bottom line. And they shared those lessons with fellow builders in a business management education session at the recent International Builders' Show in Orlando, Fla.
The Jagoes' analysis found 297 non-construction processes in their company. They were able to eliminate more than half — 155 to be exact — that were not adding value to the customer.
The Jagoes noted five issues with cycle time, four construction-related problems, and trends in administrative inefficiencies that needed to be addressed.
- Small issues “derailed the train.”
- Coordination was difficult.
- Non-construction process time was increasing.
- Overhead increases were eating up cycle improvements.
- Volume was at capacity.
- Superintendents were burning out.
- Communications and relationships broke down.
- Quality issues were not caught until the end of construction.
- Sub-contractor management was chaotic.
- Increased fixed costs were disproportionate to others.
- The company was adding processes that didn’t add value.
- Back office staff was growing faster than could be effectively managed.
Do any of these issues look familiar to you? If so, you may be sacrificing customer satisfaction, volume, market response time and, most importantly, profits, the Jagoes contend.
In its first 10 years of operation, 1985-1995, Jagoe Homes had reduced cycle times, increased housing starts per superintendent, improved overall office efficiency and modestly boosted margins. But the Owensboro, Ky.-based single-family production builder and land developer was seeing a disproportionate rise in overhead that was squeezing its profits.
“We sold a lot of houses, but behind the scenes was chaos,” Bill Jagoe said. “We were starting a lot of houses but our processes were fragmented. The business was managing us.”
In 1995 the Jagoes decided that in order to overcome the chaos they needed to look beyond the company’s limitations and find a way to replicate good results, improve communication, create a customer-focused culture and deliver a better product and experience for customers.
With the help of industry consultants in sales, back office and product development, Jagoe Homes:
- Developed specific and repeatable processes and procedures.
- Established key measures and clear accountability.
- Evaluated staffing and ways to measure performance.
- Committed to achieving results.
Now, process improvement is an ongoing activity at Jagoe Homes, with communication and information management a centerpiece of the effort. The company digitized its paperwork, installed networked computer workstations in its model homes, and created an e-mai product suggestion boxl.
Meanwhile, the company brought its sales function in house and trained sales staff in the home building process, construction terminology and how to read plans, plats and easements.
Now, superintendents can spend their time in the field, rather than at preconstruction meetings. Cycle time has decreased, contributing to the bottom line and superintendents are more productive because they’re not burned out.
Customers are guaranteed a “sure close” date; margins continue to climb; and the company is selling more homes.
“We meet customer commitments 99% of the time,” Scott Jagoe said. And a 75% increase in profits from 1995 to 2005 has helped reduce the company’s reliance on external sources for operating capital while providing even more resources to invest in land development.
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NAHB Technology Solutions Directory Now Online
NAHB’s Technology Solutions Directory — an easy-to-use directory that enables builders, remodelers, contractors and other industry professionals to find information on software and IT solutions and services for their businesses — is now online. The directory is sponsored by the Business Management & Information Technology Committee.
Software and technology solutions providers interested in being listed can sign up for:
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For more information, e-mail Wil Heslop at NAHB.
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