How does Jagoe Homes, a mid-market builder in Owensboro, Ky., maintain its sales volume and profitability, and even flourish in a flat or declining market, while facing formidable competition from other builders? The company's solution is not a big secret. In fact, other builders can actually utilize the same software. Jagoe Homes created its own software platform, called Dynami Builder, to alter and track its workflow/process improvements and business automation, enabling it to achieve results far above "best practice" expectations and industry averages. How far above? For example, the company:

• Obtains mortgage applications from 87 percent of its model home visitors.
• Boasts sales closes from one in three qualified prospects (industry average is one in 10 or fewer).
• Has a 99 percent on-time closing ratio (the industry averages 50 percent to 60 percent).
• Shortened its cycle times by 25 percent, particularly in lead/contract and completion/ close cycles.
• Receives customer satisfaction ratings consistently above 98 percent.
• Showed a 75 percent increase in sustainable profits from 1995 to 2005.

Jagoe Homes Inc. is today one of the most successful mid-market homebuilders in America, producing more than 350 new homes per year, profitably, in the historically tough market of Western Kentucky and Southern Indiana. But it was not always that way.

Real SOBs

In 1985, Bill and Scott Jagoe had college behind them and returned to their hometown of Owensboro to start their homebuilding business. It wasn't the first time the brothers had seen sawdust. As Bill likes to say, they were "real SOBs" — "sons of a builder."

In Owensboro, a Jagoe house was already synonymous with "quality," according to the brothers, so Jagoe Homes was a natural evolution of the family legacy. In their first year, the Jagoe brothers built and closed 30 homes.

Through the 1980s and into the 1990s, the business grew on the strength of the family name, Bill and Scott say, and also by their remaining "hands-on" in all aspects of the business. By the end of 1995, their annual volume had shot up to 130 homes — an impressive number in their market. Nevertheless, a lack of systems and processes was taking its toll. Despite strong gross profit performance, an ever-increasing overhead made it more difficult to get to an acceptable bottom line. Worse, cycle time was increasing while quality was slipping. Superintendents found themselves working nights and weekends just to keep up, and customer satisfaction had fallen to all-time lows. Behind the scenes it was chaos. The business was managing the Jagoes, not the other way around.

This is the point in the growth curve where many growing builders throw in the towel, either going out of business altogether, or retreating back to a smaller "one-truck" operation. But the Jagoes say that never crossed their minds. "We're just not built that way," Scott says. "Bill and I learned from our dad that the best way to solve a problem is to go after its root cause."

Like most builders, Jagoe Homes was doing a good job getting its houses built. The breakthrough came when they realized it was the non-construction activities — prior to and after the actual building of the home — that was hindering their further success.

According to Bill, "There are only two kinds of activities in any business: Those that add value, either to the end-product or to the business, and those that don't." With the help of Fletcher Grove of the Services and Administrative Institute, Jagoe Homes began a multi-year examination of their business processes, concentrating on the non-construction activities. The study identified 273 "as-is" processes, which were each distinguished as being in one of three categories: customer value-adding, business value-adding or non-value-adding.

137 Non-Value-Adding Processes

To the surprise of the Jagoe brothers, nearly half (137) of their non-construction processes were identified as non-value-adding.

"As we grew, so did our staff, and along with more people came unnecessary reviews and hand-offs," Bill says of Jagoe's past management procedures. "Of course, inspections and approvals are a necessary part of homebuilding, but we found out we were reviewing and inspecting the same things over and over ... So we started over with the notion that ‘complete' meant lacking no parts and we started to re-build our workflow and processes to ensure that we were ‘lacking no parts' every step of the way."

The brothers found that in re-inventing their workflow/process to eliminate the "non-value adding" steps, they were often flying in the face of what they had been told by industry gurus. For example, Jagoe superintendents no longer attend pre-construction or purchasing review meetings (both are commonly taught "best practices").

How do they get away with that? "Our superintendents can trust that their start package is 100 percent complete without sitting in a review meeting because our new pre-construction processes guarantee that it always will be," Scott says.

As a result of this one change alone, Jagoe Homes saves as many as 10 hours of unproductive superintendent time on every house.

Results Speak For Themselves

Since undergoing their process improvement efforts, Jagoe Homes "can build 350 homes as easily as [it] used to build 50," Scott says. In almost any measurable way, today's Jagoe Homes far exceeds not only its own past performance, but also long-held industry "best practice" averages.

According to process improvement experts, it's not enough to streamline operations on paper, they have to be enforced in a consistent, repeatable way, with a reporting mechanism that will capture trends and improve processes over time.

"We probably could have done it with a set of paper process manuals and procedures," Scott says. "For us, taking full advantage of today's advanced database technology and the Internet made the most sense. When we came through and looked at it, we felt the Internet would give us a way to monitor improvements consistently, regardless of where our communities, sales operations or branch offices are located."

The only stumbling block: The Jagoes surveyed the entire builder software market and couldn't find what they were looking for. "We wanted to capture the essence of what we had done and the improvements that we made in a way that would allow us to easily monitor the performance of our entire operation, regardless of how large we decided to scale up to," Scott says. "We realized that since we couldn't buy it, we'd have to build it."

A team of nationally recognized building industry, process improvement and database development experts were assembled along with Jagoe Homes' senior management team, to create the requirements for the Web-based software that would represent the "Jagoe Operating System."

The development process of the Web-based software took months. It started out as something Jagoes would use internally, but by the fifth or sixth week of design meetings, the company and its consultants say they knew they were creating something that was different from anything else in the marketplace.

Leverage for Mid-Market Builders

By mid-2005, the Jagoe brothers realized that they were creating something with the potential not only to enforce their own best practices within their own operation, but also within the operations of mid-market builders and could change the way third-parties, such as mortgage lenders, manufacturers and insurance providers, might view those mid-market builders.

The Jagoes say they developed Dynami Solutions, www.dynamisolutions.com, to give mid-market builders a way of leveraging their power as a group. "For lack of a better way to put it, Dynami Builder is a virtual model of Jagoe Homes that can be used by any mid-market builder to make their own success easier," Bill explains.

The Dynami Builder application addresses all of the non-construction processes that Jagoe Homes re-engineered in its own operation, helping to manage and report on the sales traffic pipeline, starts, closings, warranty exposure and performance, as well as a comprehensive workflow engine that can be used to track the construction process.

According to Scott, many of the software applications available to this industry miss the boat in several key areas. "For example," he says, "the typical sales automation products we looked at did a good job of letting a salesperson specify a house and create a contract, but could not tell the management team which of those models or options is producing the best results for us, or which vendors are affecting cycle times, or which marketing strategies are producing the most qualified traffic in our model homes."

The software application also combines relational database technology with reporting/analytical tools called Online Analytical Processing (OLAP), Dynami Solutions president Kevin Ogle explains, "OLAP is the same kind of multi-dimensional analytical tool that other industries use to determine their inventory needs after a storm, or monitor cycle time on the factory floor, or gauge product profitability over time."

"OLAP allows a management team to quickly turn individual data points into clear trend lines they can use to stay on track," Ogle says. "Are we meeting our sales targets? If not, why not? Are we meeting our profit projections? If not, why not? Unlike ‘flat' reports, OLAP gives a builder's management team the tools to drill down to the root cause of an issue in time to do something about it. It's the closest thing to a crystal ball a builder can get."

According to Scott, "Because Dynami Builder has the tools to help a builder capture more qualified traffic, they'll be able to close more sales … Because they will have tighter control of their workflow, they'll slash days and dollars out of the cost of building the home, maximizing their profit on every home they sell — just like Jagoe Homes does." www.dynamisolutions.com

Joe Stoddard is a process and technology consultant to the building industry, based near Corning, N.Y. He can be reached at www.joestoddard.com.