Proprietary                                                                                          March 4, 2004

Re-engineering the Rocket Home Builder Corp. Internet Engine

Introduction

Below you will find an excerpt from a speech I wrote (http://www.dramatispersonae.org/Indo_Canada.htm) for the Indo Canada Chamber a few years ago (March 24, 2000). Now, for me, the Year 2000 seems like an age ago.

I told the audience that night on Parliament Hill (many of whose members are large residential homebuilders) that they needed to re-engineer the homebuilding business, which, frankly, is still largely a craft business and a pretty inefficient one at that and also one prone to making a lot of errors. I presented them with a description of a re-engineered home selling/home building model.

Heaven knows the business needs to be re-engineered. Talk to anyone who has bought a new home and they will tell you it is a process fraught with peril. Some of the pot holes they will have stepped into will have included:

1. They will have spent countless hours with the homebuilder’s sales team selecting their model, their lot, their upgrades and making a few design changes.
2. Most of their selections will be recorded on scraps of paper and they will come back to the sales centre countless times to change their changes. This will generate more scraps of paper.
3. After they have finally decided on what they actually want, the cost of all the changes will be calculated by someone at head office and passed to the sales team member who will pass it back to the client who will immediately say: “That’s too much.” And the process will be reversed—the customer will spend countless more hours with the sales team taking out things they have decided they now can’t afford.
4. Then the new set of decisions will get passed on to head office for another go-round with the quantity surveyor to see if they can now meet the client’s budget. This could iterate a third or even a fourth time.
5. Finally, they come in and sign another piece of paper—this one called an APS (Agreement of Purchase and Sale) only to find that a lot of their changes are not included because the other pieces of paper with their changes on it have been lost or simply forgotten.
6. When they finally get the APS right, everyone’s solicitor gets a copy and now the lawyer’s have their say.
7. The clients will go to the design centre to make selections (kitchen cabinets, light fixturing, flooring, etc.) and their choices will get recorded on still more bits of paper.
8. No one will know exactly when construction will begin and when it does, the clients will plague the construction site every day pestering the foreman, the sub trades and anyone they meet with endless questions about when this will be happening or why this isn’t the way they thought it would be, etc. Everyone will resent their presence on-site and eventually they will be told to butt out.
9. After that the sales team member who sold them their house will get the brunt of it.
10. A huge number of on-site mistakes will occur because all the myriad choices and changes the clients want will not be in any one location and busy trades won’t have time to run around and check that it is all there.
11. After sales service will be forced to pick up the slack—requiring numerous site visits to add, subtract and generally rectify the muck ups that occurred in the construction.
12. Clients will call more than 20 times to get the after sales service people back in to fix things according to what they thought they bought.
13. Finally, they will give up, live with their ‘choices’ and tell all their friends about the bad experience they had with the homebuilder.

I am sure that my speech fell on deaf ears although I must say the audience was polite, even gracious. But here we are in 2004 and nothing much has changed in the industry.

Some of their members have told me that you can’t automate the home buying process because there are too many variables involved. I find that kind of funny because these are just the type of problems that suit themselves very well to automation.

I mean computers were invented during WWII to solve problems with a lot of variables that could not easily be solved by having hundreds or even thousands of clerks in a room full of abacuses. This was called code breaking and for that, the Allies needed help in the form of computers invented and installed at Bletchley Park outside of London.

 

Bletchley Park Mansion/Early Stage Calculating Machine/Nazi Encoder (Enigma)

It didn’t do much other than win the war.

Today, with immensely more computing power in every run-of-the-mill desk top PC than Bletchley Park ever had and with clever Web Applications being developed all the time, someone is going to do it and that someone is going to have a huge competitive advantage over those homebuilders who don’t so it. More on that later

The Excerpt from My Speech

"The internet is all about automation.

Let me give you another example. We have a number of home builders in the audience today and I am proud to say that I live in a fine home built by one of those companies for my family and me in Kanata Lakes.

Today, with all due respect, the home building business is still a craft based endeavour which, if it were compared to the computer industry, would still produce five function calculators that look like primitive World War II vintage Turing machines (used for breaking Japanese and German codes)- big, clunky and expensive.

Ultimately, a home builder's web site will allow consumers to 'goggle' in to the site in three dimensions, to choose the model that they want, the lot that they want and then to load up their shopping carts with the features they desire. As they make changes to their design and add and subtract amenities, the calculator will tally and show them their costs.

Visa and MasterCard are moving upstream- their credit cards will be used for everything including buying a new car or buying a home. There is a small but fast growing market for power cards that carry credit limits in the hundreds of thousands of dollars.

 

But this home buying e-commerce transaction using a credit card is only the tip of the iceberg. In all probability, it is the e-business applications that will have the most dramatic impacts on home building. Pre-authorized suppliers and sub-trades will log on to the builder's web site to estimate the volume of work required and to bid on it. Scheduling, based on just-in-time delivery, will be net based. Payments will flow business to business via e-payments. Municipal inspectors will log on to see when they are required for inspections. Municipalities will recognize that home builders are their clients. The number of separate subcontractors and trades will fall from 25 or 30 today to just 6 or 7.

If former Russian President, Boris Yeltsin in his early days as a construction boss in Sverdlovsk (1,000 miles east of Moscow) could build five storey, wood frame apartment buildings in five days (albeit with a huge crew), surely we can learn to build houses in 30 days or less at higher levels of quality, with fewer defects, higher margins for the industry and lower prices for consumers.

The home builder will become a web site operator. Legal closings, land registry documentation, mortgage financings … all will be web enabled."

The Online Home Design Engine

It is terribly exciting that we now have the technology to “Co-Create Value” with our customers (see The Future of Competition: Co-Creating Unique Value with Customers, C.K. Prahalad and Venkat Ramaswamy, Harvard Business School Press, 2004) in a systematic, mass way that was never possible before. Not only can we co-create new designs with our customers we can reverse out a lot of the work to them too.

How does that work?

First, let’s look at how we can create an online home design engine—one that comes equipped with choices for:

a) Neighborhoods (sub-division choice);

b) home sites (lot choice);

c) home models;

d) upgrades;

e) design changes;

f) colour choices;

g) material selections.

We can create an online home design module that will allow potential customers to browse the options to their heart’s delight. And there is no doubt that some clients will be endlessly fascinated by their ability to design their dream home and re-skin it as much as they care to.

They can move walls (where this is permitted), they can select carpets, they can select colours, they can select upgrades, they can select exteriors and exterior finishes, and much more.

The online Home Design Engine can be linked to a shopping cart and potential buyers can see the impact of their decisions on the price of their home—they can add more if their budget allows and subtract if not.

All this traffic on the web site can be tracked and measured so that Rocket Home Builder Corp will know what clients want; which way the trends are moving and Rocket Home Builder Corp can react to these changes—understand what customers want and change Rocket Home Builder Corp offerings to reflect these trends.

To see how this system works graphically, see the object below:

Advantages

Why do this? Why go to the trouble of re-engineering the home buying/home selling process?

Well, some of the advantages are:

1. Reverse out the work to clients—let clients ‘play’ for hours with the Rocket Home Builder Corp Online Home Design Engine instead of tying up valuable time sales employees’ time;
2. Improve the accuracy of choices for clients—they will know exactly what they are getting in terms of design, site choice and cost, since they ‘built it themselves’—fewer client surprises and complaints;
3. Achieve much greater speeds—of model selection and ‘getting to yes’—i.e., executing an APS;
4. Even where clients do not wish to use the self-serve aspects of the Rocket Home Builder Corp Online Home Design Engine, it will be much faster for Rocket Home Builder Corp sales employees and much more accurate to take clients through the process sitting side-by-side with them to do it;
5. Capture electronically all design and design changes which will make costing and pricing more accurate plus construction errors will decrease significantly;
6. React to changes in the marketplace much faster because Rocket Home Builder Corp can track trends and changes in tastes and preferences even for people who don’t buy from Rocket Home Builder Corp but use its engine;
7. Reduce costs even further and increase productivity by using an e-APS, an online CPM and an e-closing—the online schedule (CPM) will be used not only by Rocket Home Builder Corp and its suppliers to organize its schedule but also by Rocket Home Builder Corp clients thereby reducing call volumes by significant amounts;
8. Get in front of the wave of technical and technological changes in the homebuilding industry before competitors do;
9. Improve margins and achieve higher sales with higher levels of client satisfaction;
10. Reduce after sales service calls because fewer mistakes are made in the process;
11. Get ready for the next phase of technological change—online bidding by suppliers for Rocket Home Builder Corp work and a full e-payments system.

Proposal

So how would you go about putting something like this in place? Well, I would hire a good web app developer like www.FuelIndustries.com (first a mea culpa here—Fuel is a client of mine) and then take a few small bites (i.e., do it in phases something like this):

Phase 1

1. Build the Rocket Home Builder Corp Online Model Home Design Module linking all Rocket Home Builder Corp models, site choices, upgrades and design choices;
2. Refresh the existing Rocket Home Builder Corp web site giving it a ‘Fuel’ look and feel;
3. Add a Rocket Home Builder Corp shopping cart cost calculator;
4. Use ‘Fuel Gauge’ to measure and track customer preferences;
5. Create an e-form for a Rocket Home Builder Corp e-APS;
6. Put in place a CPM (Critical Path Methodology) scheduler for use by Rocket Home Builder Corp, Rocket Home Builder Corp suppliers and clients;
7. Assist Rocket Home Builder Corp with a PR campaign to use ‘earned media’ to drive traffic to the Rocket Home Builder Corp Online Home Design Engine;
8. Create a library of ‘most popular changes and selections’ to prompt the selling of upgrades using the Amazon.com model of asking a question like this: “Would you like to see what others who selected this book are also reading?”
9. Six month review—six months after launch Fuel and Rocket Home Builder Corp will do a post project review to see what if any changes and improvements need to be made.

Phase 2

1. Add a Supplier bidding and e-payments module;
2. Add a Home Mortgage and Financing Module to provide Purchasers with a host of financing options.

Conclusion

Dan Brennan from www.GoTravelDirect.com told us in one of our Magic from a Hat lectures at Carleton University that they have gone from 0 to 40,000 clients in less than five years plus their related company, Zoom Airlines is now the proud owner of two Boeing 727s (or maybe they are 737s, I can’t remember). One might think that their success is due to their online ‘store’—combining both direct selling to the public with direct flights to their destinations.

But even though Ottawa is one of the most Internet connected cities on the planet, just 47% of GoTravelDirect.com clients peruse their web site and then book online without calling or dropping by and visiting the Company. Having said this, many of the other 53% call in to get further details or just reassurance of some kind and then hang up and book online themselves. This saves the Company 20 minutes per booking.

The rest are handheld by GoTravelDirect.com staff who themselves use the web application to book trips for these clients. So everyone gets captured by the same web app.

Savings for the homebuilding industry, productivity improvements, quality improvements and higher margins will, in all likelihood, dwarf the changes that GoTravelDirect.com has brought to the Travel Industry. Selecting a lot, choosing the upgrades and design changes, following a schedule, getting financing … buying a house is way more complicated than booking a trip to the DR.

Fuel has clients like General Motors, Pepsi, Nike and other household names. They know how to build a top end solution like this—they did it for high end GM customers who can go online to a private club area and build their own cars. They can do it for Rocket Home Builder Corp and give Rocket Home Builder Corp a huge competitive advantage in the process.

But whether it is Fuel who does it or someone else, it is going to happen—the homebuilding industry can’t go on this way. The error rate, the level of client unhappiness, the low productivity and the wretched results are too much to bear.

Dr. Bruce M. Firestone, Ottawa, Canada. March 2004. All rights reserved.

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Dr. Bruce M. Firestone
B. Eng. (Civil), M.Eng.-Sci., PhD.
Real Estate Sales Representative
Metro Suburban Realty Ltd.
613.723.2222 x 229 w
613.723.2345 fax
bfirestone@metro-sub.com