Builder of the Year report: Toll Brothers - new guard, new era, more success
Arguably better than any of the Giant builders, Toll Brothers built a business that was ready to absorb and pivot from the historic downturn to a new market.
A Taste of the Toll Brothers Culture
Monday, November 5, 2012, was a big night in Philadelphia. The hometown Eagles were set to take on the New Orleans Saints in a primetime Monday Night Football matchup in Louisiana. It was one of those crucial games that could determine the fate of either team’s season.
Building with Components: Toll’s Key to Quality and Speed
For more than 25 years, Toll Brothers has relied on component manufacturing to ensure their homes are built right every time — and on time. Bob and Bruce Toll learned early on that as their operations ramped up, they could gain efficiencies, reduce waste, realize cost savings, and assemble a better product by constructing a significant portion of their homes in a factory environment.
In the mid-80s, they partnered with local component manufacturers to produce wall panels and roof trusses for their projects in the Northeast. In 1988, they decided to bring the operations in house with the launch of a facility in Morrisville, Pa.
Today, the company’s component manufacturing division, Toll Integrated Systems, includes three plants — the original location, as well as factories in Emporia, Va., and Knox, Ind. — that combined serve about 50 percent of Toll’s home-building business with roof trusses, wall panels, exterior trim, exterior doors, interior millwork, select windows and window screens, hardware, and other components. Together, the factory-assembled components make up on average 25 percent of the hard cost of a given home, according to Rob Parahus, regional president running home-building operations in New York, New Jersey, Connecticut, and Massachusetts, and head of Toll Integrated Systems.
Parahus says there are a number of tangible benefits to running an in-house component manufacturing facility, including faster construction, less waste, higher quality, and better control of the supply chain.
“For instance, as a builder, we’re able to identify our needs from a resource standpoint early on and we can secure the lumber and products to ensure that we meet the needs of the communities,” says Parahus. “With third-party manufacturers, if their lead time goes from three weeks to seven weeks, we’re at their mercy. By doing this in house, we have the ability to staff up and maintain a more reasonable lead time during peak selling times.”
In addition, by using components versus stick-built, Parahus says Toll’s trade partners can frame a project (from foundation to under roof) in anywhere from five to 10 days — roughly half the time it would take a typical stick builder. And the end product meets Toll’s high-quality standards.
“We literally have guys that are looking at the studs in the factory and crowning the studs so that when they go in the walls everything looks nice and straight when crown molding or chair rail is installed on the jobsite,” says Parahus. “We have full control of the product going out the door.”
At the Toll Brothers headquarters, 17 miles north of the city, the office was abuzz with energy. But the big game was the last thing on the minds of the 100 or so Toll employees in the company cafeteria around 6:30 p.m. Same goes for the dozens of executives and key staff members seen huddled in meeting rooms, working in their offices, or walking the halls of the building. If we didn’t know any better, we would have thought it was noon, not early evening.
“Yes, every Monday night is like this,” said Yearley, as we ate dinner in Toll’s fully stocked cafeteria. Yearley, a 22-year Toll employee, reminisced about the early days of the company’s legendary Monday night meetings, when Bob and Bruce would send out for pizzas or, on special occasions, Boston Market, to feed the then-small staff as they worked into the night discussing the previous week’s sales numbers, land deals in the works, community issues, and other key company business. Of course, the company is much larger these days — 2,396 full-time employees, as of late October — but the Monday night meetings have remained a mainstay at every level of the company. And yes, the Tolls still pop for dinner.
Perhaps no other Toll Brothers business practice exemplifies the company’s corporate culture — where employees are taught the business from the executives who built the business through continual mentorship and shared learning — more than the Monday night meetings. It’s when the entire company comes together to assess the business, work through issues, make tough decisions, and learn from each other.
“I like to think of it as Toll University,” says Ed Weber, a regional president who also oversees Toll Architecture, the company’s 127-person, in-house design firm, as well as the Golf and Country Club Division and the Florida home-building operations. “Our Monday night meetings are where we do all the lessons. It’s experienced-based, teaching all the pitfalls that we’ve learned throughout the years.”
Toll employees talk about the Monday night meeting with a sense of pride and company spirit. It’s a rite of passage of sorts. Yearley can even recall the number of Monday nights — roughly 800 — he participated in before he was deemed ready to take the helm as CEO.
“I remember nights waiting outside Bob’s office at 10:30 to catch a few minutes with him,” says Yearley.
This culture of mentorship, learning the business from the ground up, and coming together for a free exchange of ideas, has created an extremely rewarding work atmosphere at all levels of the company. This is evidenced by the unusually long tenure of Toll employees, especially at the management level. The average length of service for division presidents is 12 years, group presidents 17 years, and regional presidents an astonishing 25 years.
“It’s what keeps me coming back. I want to be challenged and always growing,” says Kira Sterling, Toll’s chief marketing officer, talking about the spirit of continual learning, shared knowledge, and entrepreneurship that exudes throughout the company. They are qualities derived from the company’s founders.
“I think Bob had this reputation from way back as being this hard-driving, short-tempered person with no tolerance,” says Yearley. “In my 22 years here, I have never seen it. He always wants opinions, and he is happy to be overruled.”
Vertically Integrated Operations
Toll operates using a vertically integrated business approach, where centralized departments (home finance, marketing, architecture, engineering, component manufacturing, lumber, insurance, title, mortgage, landscaping, home security, legal, IT, etc.) service the divisional home-building businesses. By operating these services in house, the company can better control costs and schedule while also maintaining a high level of quality and customer service.
To ensure that all vertical support businesses remain focused on the customer — Toll’s home-building operations — the company puts its operations heads in charge of the vertical units. While the tactic may seem a bit off base at first — for example, Toll’s IT department is headed by a career home builder with degrees in mechanical engineering and finance, Barry Depew — this “boss as the customer” approach has paid dividends for the company. “We want them to be accountable to the people they support,” says Yearley.
Each home-building division is operated as an autonomous unit, with its own profit and loss responsibilities, save for three critical areas: price setting in new communities; price changes of significance in existing communities; and land acquisition. As stated earlier, Bob Toll has remained steadfast on centralized control of these facets of the business; he, along with Yearley and Hartman, review all land-deal proposals and home-price decisions and have the ultimate say.
Bob Toll’s attention to detail goes even deeper. It’s not uncommon to see him walking communities, picking up pieces of trash along the way. It’s a leadership quality that is infectious. “I used to have a buddy that said all the time, ‘The big things, they’ll take care of themselves; it’s the small things that will kill you.’ This business is all about the details,” says Toll.
Case in point: Every Sunday night at about 9 p.m. Eastern, Bob Toll (along with all senior executives) reviews a detailed sales report that breaks down the prior week’s activity at each Toll Brothers community across the country. It’s a practice that dates back to the earliest days of the company, when he would call his sales managers individually and jot down key sales metrics — deposits, agreements, number of lots for sale, cancellations, traffic, etc. — and get the story behind each customer from that week.
“This report is absolutely critical for us,” says Toll. “Our people make arrangements for their week ahead based on the information that comes in on Sunday night. Let’s say a community only has four lots for sale. We’ll get on the phone and find out why. Invariably, it’s the same answer — they wanted to force people to finish off a section of the community before they went across the street to the better lots. Well, that’s not the way we do it. So we’ll suggest to price the lots across the street $20,000 more and let the public decide.”
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