Benchmarking and Sharing Best Practices to Improve Performance

Benchmarking and sharing best practices is one of the most under-utilized tools in the builder arsenal. Many builders are highly decentralized and are not adept at sharing best practices even internally. Others builders shy away from benchmarking, fearing that they will give away "trade secrets."

Getting Out of Your Box

One area where sharing best practices and benchmarking may yield the greatest benefit is in technology. Some builders believe that an "idea" borrowed from another industry and applied to homebuilding can yield strategic advantage. While being first to exploit a new innovation borrowed from another industry may yield a short-term competitive advantage, it's not a source of strategic advantage.

With builder websites, most innovations are simply transparent. You just have to take the time to look at your competition. I agree with Dr. Tom Fomby, a professor of economics at SMU who said "The ability to imitate others is easy when it comes to the Internet…you have no patents on website design."

The argument favoring looking only internally does not hold up to even cursory analysis. First, it assumes that one builder, who likely controls less than 2% of the total market has a large share of the best ideas. While this may be a good way to stroke our ego, it's not reality. In short, you often must look externally for best practices.

Since homebuilding is highly fragmented, best practices and innovation can occur in many places and may be hard to identify. You have to be looking for them. The analogy might be free trade among nations. By trading good ideas, we are able to take advantage of profitable ideas that only a very small portion of our competitors may have considered.

Benchmarking Benefits

If we do not benchmark against competitors, we have no objective assessment of our performance. This need is most critical in growth markets. This could be the Internet or it could be a residential homebuilding market that gets heated. The most important reason for benchmarking has little to do with competitive advantage. It's so that we can validate our own innovations and success. Let me explain…

In period of strong market growth, measuring performance is more difficult. Just as a rising tide lifts all boats, growth markets can cloud our measures. We see that our website visitor traffic is up 40% and our leads are up 50%. Compared to our normal metrics, these look pretty good. Are these results good if we learn that our competitor grew their website visitor traffic by 80% and leads by more than 100%?

What to Do

If what you are after are Internet or technology best practices, you have to participate in initiatives that encourage builders to talk to each other. The BuilderHomesite Consortium is one example. This organization brings together more than 30 of the largest homebuilders in America. Fortunately, you don't have to be in the top 30 to join. There are builders that are well out of the top 100 who participate. By doing so, they not only are able to broaden their Internet distribution, they are able progress their innovation at a much faster rate.

According to Tim Costello, CEO of BuilderHomesite, "Benchmarking is critical to a builder's continuous improvement effort, but it has to be executed at two levels: outcome benchmarking to help you prioritize efforts and process benchmarking to facilitate re-engineering." Some builders are concerned about process benchmarking leading to leveling the playing field, to this; Costello said "You can work around this by partnering with those in other markets, products, or price ranges."

Not interested in taking the consortium step? You might consider letting your vendors help facilitate discussions. If you are addressing an issue such as implementing a lead management program, vendors such as American HomeGuides are often aware of other builders or other divisions within your own organization that may have already gone through the same process. According to Barry Lynn, CEO American HomeGuides, "I think it [benchmarking] is important because no builder will be able to reach his full potential without knowing how their performance compares. The interesting thing is that even the person explaining his best practice is likely to find, through the give and take of discussion, ways to further improve their performance."

Originally Published: November 5, 2005 - http://www.floorpop.com/Floorpop110503.html