Flat-Out Entrepreneurial

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"Here at corporate, we’re in the service business. We’re trying to eliminate the hurdles that block the success of our division managers. That’s our goal, to control their risk, but allow them the freedom to build, sell and close houses and make money."

That’s Don Horton describing his theory of corporate organization. It’s simple, but examine it closely and you’ll see that Horton has definite ideas about where the danger lies when home building companies grow very large. He believes housing is a local business and that most national firms lose that focus and become bloated bureaucracies that stifle entrepreneurship at the local level, where it is needed most.

To avoid that pitfall, Horton carefully constructed a flat organization, where the clout is concentrated in the divisions, not the regional or national level. In fact, the five regions are a recent addition, forced by the burden of trying to lead 40 divisions from a single corporate office. Says Horton: "The region presidents provide the same services to the divisions that we do in Arlington [Texas]. They are extensions of corporate support, not control."

Of Horton’s 3,374 full-time employees, only 95 work in the corporate office in such support services as accounting, human resources and national purchasing. Similarly, most regions have only three employees apiece -- a manager, assistant and legal counsel -- and offices located in a local division. Yet the divisions range from 290 employees in the largest (Chicago) to 18 in the smallest (Pensacola, Fla.). Before Don Tomnitz and Rick Beckwitt were promoted to their present positions, Don Horton made sure each had spent time leading a division or a region, so they know from experience what drives local success.

However, Horton is also careful to keep a corporate finger, but not a fist, on land risk and cost control. He simply wants division managers to operate as if they were running their own companies, where the risk would be personal and money spent would lighten their own wallets.

"Horton has a view," says vice chairman Tomnitz. "Watch the pennies, and the dollars will take care of themselves. We have our division presidents question every item on their spreadsheets. They are bonused on hitting 20% gross margin on our houses, 10% SG&A expense, 15% return on inventory and 20% year-over-year growth in revenues. And Horton, Rick (Beckwitt) and I don’t fly around in a corporate plane. We don’t fly first-class."

Local Autonomy
Dick and Doug Brown led Cambridge Homes to the top of the Chicago market. After acquiring Lexington Homes to reach that pinnacle, the father-and-son team recently sold to Horton, even though neither man has any intention of retiring. It is now Horton’s largest division.

"Horton’s commitment to local autonomy was critical," says Doug Brown, 49. "Corporate supports local operations rather than throws up roadblocks.The national purchasing department is helpful. Horton also got a mortgage company as part of the Continental deal and rolled that out to us.Their input on land buys is helpful, not controlling.They understand our knowledge of the local market is critical and defer to us. They want to grow 20% a year, and they’re anxious to put capital where it will earn those kinds of returns."

Brown can also document that even Horton’s legendary cost-control edicts can be overruled by a local division manager who can prove his point on the bottom line. "Horton’s custom divisions are all run according to D.R.’s original model, which is very lean on model merchandising and marketing expenses," says Brown. "But they’ve been very receptive to how we operate, and we are known for high-powered model merchandising. We convinced them that what we do makes sense in Chicago."

Customer Continuity
Tim Westfall, 53, president of Horton’s southwest region, was general counsel of Continental Homes before the merger. His choice to abandon the legal profession for a line management job speaks volumes about the rewards managers garner.

"Rick Beckwitt wanted somebody to run this region who knew Continental inside out," says Westfall. "I had some reservations. But I enjoy the challenge of taking a more direct involvement in financial performance. I’ve been lucky to get a very strong region."

Westfall believes it is important that Continental’s customers see no difference between the company today and before the merger. "Horton is very wise in that regard," he says. "If it ain’t broke, don’t fix it. We’ve even kept the Continental and Horton divisions in Phoenix separate. They both make good margins, even though they are very different. Why force one into the other?"

What happens when Horton has to fill a division presidency from within rather than via acquisition?

"Mentoring is the primary management training method throughout the company," says northeast region president George Seagraves, 42. "To be promoted, every manager’s first responsibility is to train his or her own replacement.

"When Dwaine Rivers was promoted to southeast regional president, he had his sales manager at Torrey, Kathy Thomas, ready to take over as division president in Atlanta. When I left Minneapolis, I promoted my sales manager, Neil Hansen. Mark Ferguson, who started the Albuquerque division from scratch, was a sales manager for Terry Horton."

If it seems that most division presidents come from sales backgrounds, it’s true, and probably has something to do with Don Horton’s own career path. "D.R. is a great salesman," says Seagraves. "To us, it’s only logical because you won’t build many houses if you don’t sell any. About 70% of our division presidents came out of sales."

Rivers, 41, was president of Torrey Homes in Atlanta before acquisition. He now leads perhaps the most diverse region. "We operate under four different names in a dozen markets, and some of the markets have multiple divisions," he says. "I’ve spent my career mostly with small building companies, and I went through other acquisitions by national builders. They would typically say, ‘Here’s our rule book. Do it this way.’ Horton is not like that. They’re a lot more entrepreneurial. I like their spirit."

Also See:
D.R. Defines Strategic Vision

Tomnitz Is Mr. Manager

Beckwitt Is Horton's Acquiring Mind