Computer-Based Customization Drives Wilshire Home's Growth
CEO Ed Horne discusses how his “have it your way” homebuilding and speedy estimating system propel Wilshire Homes in its Texas markets
He's not the Burger King, but he'll let you have it your way. Squeezed by competing with the public giants, this Austin, Texas-based production builder developed a new approach to mass-customization that now works on many different levels, including the bottom line.
A decade ago, Wilshire Homes CEO Ed Horne recognized that mass-customizing production homes would not work in any way unless the whole operation was computerized — from virtually instant electronic pricing of custom changes right in the sales office to all the design, specifying and purchasing functions. "Unless those work processes are computerized," Horne says, "mass customizing production homes gets really confusing, and people make mistakes that alienate customers and bleed away margin."
Horne and his team jumped into the search for the Magic Grail of 3-D design and specification software because they really couldn't find a viable alternative to compete with the many public giants moving into the Austin market in the late 1990s. At the time, Wilshire was building 300 homes a year for $60 million in revenue. But Horne could see no future in competing with the publics on price.
Wilshire was then still part of The Fortress Group, a public company created in 1997 by rolling up 13 local production builders around the country.
Horne bought Wilshire out of Fortress in 2002, but in 1999, he was still managing the western region of that ill-fated experiment and looking for a way to pull the disparate parts together into one company with a unified corporate culture. That led to a year-long strategic planning process aimed, he says now, at "finding out what we want to be when we grow up."
Horne brought together a cross-section of his employees — not just managers — to develop a strategic vision, mission and values for the company. "It was a series of meetings, over the course of a full year," he says now, "and we tried to develop a strategy within the context of all the trends we could see influencing society, not just nationally but internationally."
They found three big ones:
- In consumer marketplaces around the world, people want it "their way." "They aren't willing to pay a premium price for anything unless they can put their own mark on it," Horne says. "You can see this in the way Dell sells computers and the growing percentage of the automakers' production that people 'design' for themselves online. The only way to beat the need to customize is to be the price leader. If you don't offer choice, your product had better be really cheap."
- When people want a product, they want it now. "Speed matters," says Horne. "They are not willing to wait. In housing, if you take six months to figure out how the house is going to look and another year to build it, by that time people may decide they want something else."
- The buying experience matters more than anything. "People are willing to pay more if they can get what they want now, and the relationships they have with people all through the process are pleasant and fun," Horne says. "You can see the power of this in the success of Southwest Airlines. They even make flying fun."
His strategic planners decided mass-customization should be the centerpiece of their strategy, and to increase the speed of delivery, the firm should find a way to go from contract to construction start in 45 days, regardless of how many changes customers made. The final piece to the puzzle — a world-class customer experience — is the hardest of all the goals they set, Horne says, "because it involves everyone in the company — from sales to administration to construction to warranty service — and everything that happens to a customer from the first visit to the model homes to five years after closing."
So the computerized business processes Wilshire developed had to be built on a thorough understanding of what makes its move-up customers tick. One of the benefits of customization is that it gives Wilshire insight into consumer thought processes. Wilshire learned to think like a custom builder, even in a production building environment. "We learned that families with young kids want different things than people with teenagers," Horne says. "We learned that Mom wants a command center kitchen, and that it's good for each member of a family to have a de-stressing space to chill out. There's just no end to what we learn about people from the customizing choices they make."
One thing the company learned about developing close, personal relations with customers is that those relationships don't happen in a big home building company organized into functional departments. "We decided to get rid of those silos by breaking the company down into smaller business units, each with a leader having full profit-and-loss responsibility," Horne says. He reasons that builders with under $25 million in annual revenue are small enough to have multi-disciplined teams that get close to the customer. So Wilshire is now a collection of business units with those same characteristics.
"We centralize finance, design, estimating and purchasing," he says. "We have a home creation team that designs a customized house plan for every customer from the red-lined plan that comes in from the sales office."
The salespeople are "new home consultants" trained to help customers find the custom solutions that fit the home to their lifestyle. Land acquisition is not centralized. That's handled by the business units, just as if each one is a small building firm. Initially, warranty service was centralized, but now that function has moved out into the business units as well. "But we still have a
headquarters group of warranty specialists to handle issues that get past a timeline that we regard as normal," Horne says. "If a warranty issue is a year old, it needs more attention." 'Built Around You'
The computerized design, estimating and purchasing system is Wilshire's claim to fame. If this isn't the Holy Grail, it's very close. It took Wilshire three years to merge a three-dimensional CAD system that spits out quantities of materials and products with custom-programmed estimating software called Expert Estimating System that performs the calculations to fill the gaps the CAD system doesn't reach. The resulting system — Built Around You — is what Wilshire's new home consultants use to create and price customized plans right in the sales office. The firm's advertising hammers it home: "Everything we do is built around you!"
Wilshire buys everything, including the labor of its trades in units of measure —by the installed piece, square foot, cubic foot, etc. This unit pricing is critical to electronic pricing of custom changes. "As the plan is marked and changed, those quantities are picked up, if not by the CAD system, then by EES," Horne explains. "It will translate the number of square feet on a wall into how many studs, sheets of plywood and bricks we need to buy — right down to the insulation and drywall. On the vast majority of houses, we can price the home, with all the custom changes, within an hour. It never takes more than 24 hours. And because it's all computerized, we're now much better at purchasing only what we sell in the sales office.
"We can go from CAD drawing to purchase orders within six hours," Horne says. "We still do a few things manually, but most of our quantities are generated electronically."
When the company started the process, the contract-to-construction start process ran between 90 and 120 days. With the new systems up and running, the company now averages 54 days — close to its goal of 45. Horne attributes that to an on-your-lot program.
"That throws some real curves at us," he says. "On houses with minimal changes, we're now getting start packs to supers in 30 days."
When Horne tallies the benefits of BAY, he starts with the hard numbers. "Our hard cost variances used to run over 2 percent consistently," he says. "Last year in Austin, where BAY is most mature, we averaged .89 percent variance between our computer-generated estimates and actual costs in the field. And we have some supers operating at variances of less than .01 percent."
Horne says since BAY became operational, Wilshire has added 300 basis points to its profit margin. "That's including 2007," he says. "We've been able to hold our margins because people will pay a premium to have it their way."
In fact, Horne says Wilshire is getting a pricing premium of $10,000 to $15,000 over competitors for the same size house because of BAY's customization capability. "It's something that differentiates us from competitors — especially the public builders. It delivers a disproportionate value to customers that they're willing to pay extra to get," he says.
In less than 10 years, Wilshire has grown from a single market and $60 million in annual sales to a company with operations in Houston and San Antonio as well as Austin, and housing revenues of $197.9 million on 634 closings in 2007. "We're now building bigger houses," he says. "Our average sale price continues to climb, and we build exclusively in the move-up market. That's where BAY gives us a real edge, even competing head-on with the public builders, as we do in most of our neighborhoods."
However, Horne is even prouder of the numbers Wilshire is putting up that measure the quality of customer experiences. "The customer is the critical stakeholder in this process," he says. "Before Built Around You, our customer satisfaction rating on the would-recommend metric was 75 percent. Today, we're running steadily in excess of 92 percent, and in some quarters, we've hit 100 percent."
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