Pulte Homes and Its Innovations for the Homebuilding Industry

Executive Summary

This paper delved into SWOT Analysis on Pulte Homes Inc. and the five forces that shape competition which are: the risk of entry of potential competitors, the intensity of rivalry, bargaining power of buyers and suppliers, and the threat of substitution.

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Pulte Homes may have dealt with these forces but changes and ambiguity in organizations, especially as a result of the economic crisis and globalization, continue to challenge management and the organization as a whole.

Pulte penetrated the “baby boomer market” and the demand for family housing, and the Generation X households. Now, baby boomers are reaching retirement years and need hospitals and healthcare centers. The company extended operations to high-priced single-family homes and subdivision of medium-priced homes, and for retirees.

Expansion, merging, and acquisitions, and innovative strategic management allowed Pulte to grow. Today, Pulte is the most geographically diverse of the big homebuilders.

One of the outstanding innovations Pulte has made over the years is the pre-fabrication of its houses and buildings. Pulte Homes has introduced pre-fabricated houses for the upper-middle-class. Along the line of the Japanese concept, Pulte reduced the number of floor plans from 2,200 to 600.

Pulte also introduced the training program, which was for entry-level construction personnel and the managerial class. The concept of quality leadership was also introduced along this line.

SWOT Analysis

This is to examine the internal and external factors to take a closer look at Pulte Homes Inc. one of the largest homebuilders in the United States. This looks at areas of particular strength in the organization.

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Looking at the macro-environment can lead us to the marketplace of the industry, on how it has fared in the economy.

Conducting a SWOT on Pulte Homes Inc. will guide the organization to channel its focus into those areas that present the greatest opportunities and those competencies in which it is strongest. Pulte will have to look into ways to mitigate its weaknesses and develop plans and strategies to overcome and threats that present themselves (Pinson 33).

Business-Level Strategy

These are the ways and innovations in which Pulte Homes has instituted on its operations, inside and outside, to be competitive and be a leader in the homebuilding industry.

Recommendations

Stakeholders, employees, and customers should help in implementing the many innovations the company has initiated over the years. The results of these innovations are good for the company and the general public.

SWOT Analysis

This section discusses the macro-environmental trends employed by Pulte Homes Inc. that have made the company competitive and remained strong as a leading homebuilder. This includes demographic, social, technological, and economic trends.

“The central purpose is to identify the strategies that will create a company-specific business model that will best align, fit, or match a company’s resources and capabilities to the demands of the environment in which it operates” (Hill and Jones 7).

Demographic Trends

One of the demographic trends that Pulte Homes Inc. has penetrated, and which has become one of its strengths, is the “baby boomer market” and the demand for family housing.

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At the start, the young Bill Pulte founded the company by building a house, and then soon a subdivision, until he became so popular and in-demand that he decided to incorporate it under the name William J. Pulte Inc. By 1959 the firm had begun its first full subdivision, Concord Green in Bloomfield Township, Michigan. Pulte then expanded into the Washington D.C., Chicago, and Atlanta markets, then merged with American Builders, Inc. of Colorado Springs, Colorado. It was known as Pulte Home Corporation, publicly owned, allowing Pulte to extend its operations from high-priced single-family homes and subdivision of medium-priced homes to include the low-cost Federal Home Administration and Veterans Administration housing markets. (Knox 71)

Pulte was then able to tap the “active adult” communities or employees who have retired and have remained active members of the community. But Pulte was innovative and creative in building homes and in being a businessman. He tapped other demographics and diversified into student apartments, multifamily housing, and what was then termed as the “Quadrominium,” a fourteen-foot wide townhouse designed to appeal to the baby-boomer market.

When General Motors contracted Pulte Homes to build 6,000 homes for its employees in Chihuahua and Juarez, Mexico, Pulte knew they had tapped the Hispanic demographic. It was now known that Pulte could meet the demands of building homes for the Hispanic culture. He could then penetrate not only Mexicans but Hispanics inside the United States.

Early on, Pulte built family homes for ordinary Americans. In 1950, at the start of the postwar housing boom, more than half of all households had children, and the average household included 3.4 persons; single-person households accounted for slightly more than 10 percent of all households. Pulte answered to the demands of affluent singles, divorcees, retirees, and empty-nesters. The company built luxury condominiums, townhouses, and more. Marketing consultants caught up with this demographic minority and Pulte was in no hurry to do it, but it just got to. Pulte was able to pay the interest on large parcels of developed land, its strategy was to maximize profits by building at high densities or by catering to the high-profit luxury end of the market (Knox 74-75).

The baby-boom generation was and is an opportunity for Pulte Homes. This demographic has dominated housing markets since the 1980s and subsequently joined by Generation X households, or those born between 1965 and 1979, which now comprise just over half of the market for newly constructed homes. Gen-Xers carry 70 percent more debt than the baby boomers did at a comparable point in their lives, mostly because of the cost of housing and partly because of credit card debt.

Now, baby boomers are reaching retirement years, only 10 percent of the additional twenty-eight million households that will be formed in the United States between 2000 and 2025 will consist of households with children. By 2025 only about a quarter of all households will have children and nearly 30 percent will include only a single person (Knox 75).

The aging baby-boomer population now requires hospitals and health-care centers, one area that Pulte has to make focus on. This is an opportunity for Pulte to penetrate for this is where contracts and profits are.

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Pulte has also ventured into the new demographic who are technology-savvy. For example, closed-circuit television, sophisticated security alarms, and wireless backup, or what they call the “intelligent building”. The “room feature” in the movie Panic Room, starring Jodie Foster, where rooms can be accessed through secret doors with added high-technology features, can now be one of these rooms in the new homes.

The creative management of Pulte introduced the National Construction Council whose aim was to meet the requirements and develop processes in building a house. The Council identified four different buyer profiles or the target consumer groups for which it designed homes. These formed the profiles that included the traditional family, single individuals, those living alone, and “the extended family”.

This was an effective process in developing homes that meet customers’ demands and also allowed Pulte to target the right needs and wants of the customers. Pulte also developed homes that eliminated the traditional requirements of a dining hall or living rooms. Instead, the kitchens and fireplaces are enlarged and widened to accommodate family rooms and more demands of the new trends in family living.

Social / Technological Trends

Since its inception in 1950, Pulte has built more than a half-million homes. Today, Pulte is the most geographically diverse of the big homebuilders, with projects in approximately 700 communities across twenty-seven states. In 2006 Pulte employed more than 12,400 people and earned revenues of $14.3 billion. The average price of the homes it sold in 2006 was slightly over $337,000. Just under half its sales were for first-time or first trade-up home buyers; another 19 percent were for second-trade-up buyers, and the rest were buyers in “active adult” communities. (Knox 72)

Pulte now caters to the new economy which is associated with shifting lifestyle preferences. Most younger people have come to expect not to remain in any job longer than three to five years. The new generation is always active and has grown tired of the maintenance that comes with big yards, and others taking advantage of flexible work practices and information technology, and more people are working from home.

Pulte Homes also uses technology and the internet to answer customer demands, queries, and requests for information about their products. Their website is one of a kind, a state of the art that answers easily anyone’s questions or problems about homebuilding including the many services they offer. Pulte Homes is an innovator in information systems, logistics, and human resource practices. These innovations allowed Pulte to earn high and save costs but charging low prices on its customers.

Despite the economic crisis, Pulte still retained most of its customers. Loyalty and customer satisfaction are some of its prized values. Loyalty and word-of-mouth advertising are two ways that high customer satisfaction companies grow sales and market share. But income statements do not live by unit volume alone. The bottom line depends on both the number of units they sell and the price they charge for each sale. Customer satisfaction plays an important role.

Pulte Homes provides an excellent example of building sales through customer satisfaction. Pulte is a customer satisfaction leader in every sense of the word, earning this designation the hard way – home by home across fifty-four different markets in which they operate. Pulte’s customer satisfaction is so high that no matter where they are surveyed new-home buyer satisfaction, Pulte either came out on top or was right there among the leaders (Denove and Power 30).

In 1999, about the time that Pulte began organizing itself around customer needs, 20 percent of its sales were influenced by the positive recommendation of another customer. It has grown by about 45 percent and continues to grow every year. (Denove and Power 30)

Economic Trends

The construction business has a big role in the nation’s economy. They build houses, malls, airports, park-like boulevards, and skyscrapers. We desire them so much. But we are now living in an era of what they call American consumerism (or has it ended?) where power has shifted from suppliers to consumers. Choices as to where a consumer can obtain products have multiplied – the internet and information technology, faster means of communication. The consumer has a lot of choices. This is one of the many opportunities that homebuilders, which are increasing in number every day, should be able to muster.

Pulte introduced measures of increased efficiency and cost savings through economies of scale, streamlining, and centralization.

They create jobs and opportunities, although these job creations sometimes depend on the workers themselves because of unionism. But as a whole, the construction industry is large. It is labor-intensive and creates other sub-industries. Supplies for construction come in various forms. If you try to build a home, you cannot just count what things you need – they are countless.

As LePatner says, “Buildings do not happen, they do not come into existence the same way cars or computers do. This is because they are not built by big companies but by thousands of little firms. Ask a contractor and he will tell you that each building represents a “job” that is unique and handmade, which once finished will never be replicated the same way again” (12).

Even though Pulte manufactured homes from the factory setting, each home built by Pulte is custom-built, meaning the home is made specifically according to customers’ specifications.

Pulte introduced measures of increased efficiency and cost savings through economies of scale, streamlining, and centralization.

The threat of competition poses on Pulte Homes from other major players in the industry like Toll Brothers, one of America’s most successful homebuilders, and others like KB Home, MDC Holdings, Lennar Corporation, Ryland Group, Hovnanian Enterprises, Engle Homes, and Beazer Homes USA, who acquire lands and are also most competitive and advance in their operations (Yamarone 171). These homebuilders do not hesitate to provide innovations in their businesses, and they also employ top-notch managers and employees. They won’t hesitate to apply high technology tools, equipment, and information technology in their operational strategies.

Toll Brothers for example designs and builds large-scale developments comprised of what they refer to as “the Estate Home” or “McMansions”. Toll Brothers was founded by two brothers in 1967 and has now a capitalization of $4.9. To date, it has built over 13.5 million single-family homes since the mid-1990s.

Toll Brothers and other companies purchase land throughout the United States, another threat of entry and competition for Pulte Homes. Since 1986, Toll Brothers has purchased land that could support nearly 80,000 homes, while other major players are doing so for future construction. K. Hovnanian has landed for more than 80,000 homes, Pulte has 350,000 sites while others also control hundreds of thousands more (LePatner 166).

In 1999, Pulte Homes became a Fortune 500 company, making a lead in the homebuilding industry with strategies surpassing other competitors. One of the strategies Pulte implemented involved taking advantage of mergers and acquisitions and making alliances to stay on top.

In 1996, Pulte built 6,000 homes for General Motors employees in Chihuahua and Juarez, Mexico. And in 1998, Pulte acquired Radnor Homes and Divosta and signed an exclusive agreement with GE Appliances to supply all Pulte homes with home appliances.

In 2001 the company completed a merger with the Del Webb Corporation, a high-profile specialist in master-planned developments for retirement and “active adult” communities (Knox 71). The acquisition of Del Webb could be a weakness on the part of Pulte because the corporation was debt-laden and dying.

For homebuilders, the years since the early 1990s have been some of the most demanding and frenzied. Pulte Homes and Toll Brothers were there to take a bite of the American economy, transforming America into a corporate product (LePatner 8).

The boom times are over, the bubble has burst. With the economic downturn and recession the United States has been experiencing these past few years, Pulte Homes has to shift focus. According to Mike Rabourn, employees have been dropped from the payrolls of residential construction firms. Statistics from the Bureau of Labor Statistics revealed that median wages for residential construction workers continued to fall from 2005 to 2006 (Rabourn 9).

The economic downturn is a big blow to large firms like Pulte Homes. But unions are also targeting large firms which have a large workforce. Many construction workers especially in the northeast, are unionized. They spend most of the day standing around hardly working. An Arizona-based campaign targeted Pulte Homes. The AFL-CIO along with Painters Union and Sheet Metal Workers conducted a large-scale campaign to organize meetings, pickets, and protest jobs, and mobilize community groups to protest against Pulte. This is a weakness that Pulte has to counter with strong management and concern for the welfare of its employees.

The present economic crisis may soon come to an end, or may not shortly, but come what may, school districts will still have to expand, health centers and hospitals will be needed for the baby boomers, and entertainment complexes will abound for Pulte to be able to stay on top.

Pulte Homes remains a major competitor despite the economic crisis; indeed the homebuilding industry is one of those severely affected by the recession, but everybody is. In 2002, Pulte registered sales of 7,470.617 (in millions) and began a significant rise to 14,269.844 in the year 2006. This is true with Pulte’s ROIC which began with 9.513 in 2002; it then rose to 15.360 in 2005 but began to fall to negative in 2007 and 2008 because of the economic crisis.

Pulte and other large contractors like Holiday Builders and Adams Homes have penetrated so-called hot zones like Florida’s Ocala region. In 2001, the management acquired Arizona-based Del Webb for $1.7 billion, and by late 2004, Pulte built a 1,300- home community (Lepatner 79).

By the mid-1990s, Pulte had become the largest homebuilder in the United States, with sales reaching the $2 billion mark and a portfolio that included master-planned communities and retirement communities. Its first big master-planned community, in Tampa, Florida, included 1,550 homes, a five-acre park, golf course, daycare center, and a luxury swimming pool.

Business-Level Strategy

Strategically for Pulte, it recruited senior management from other sectors including a chief executive officer who has marketed at Exxon and a logistics manager at PepsiCo, ahead of customer relations from Sandcastle Resorts and Holes, and ahead of logistics from Wal-Mart. Pulte asked these professional and expert managers to put together their expertise to implement and develop their strategies.

Pulte introduced concepts borrowed from other businesses, even from car manufacturers. It introduced the Toyota concept of reducing product variation to save costs and remove complexity. The Japanese concept of production introduced in Toyota became a model for Pulte production.

Toyota, in its early beginning in Japan, was a small automaker competing with giants in the industry. Its success as a small business venture can be attributed to innovative measures introduced by its early founders and managers. It introduced the “Toyota Production System” which was a means of achieving mass production efficiencies with small production volumes. This was a method of applying continual improvement in their production (Lynch (2008, p. 772). The method is also known as simplification while improving continuously along the way.

Pulte Homes used the concept in making homes that are now manufactured/ produced in the factory. They pre-fabricate homes like the way car manufacturers make cars.

Pulte used continuous improvement in the workplace so that their products have become competitive and attractive to customers. Employee resistance is not a problem for as long as management continues to value employees. But in the Japanese concept, employees are a part of the team; their opinions and decisions matter a lot.

Pulte also borrowed the notion or method of production from other auto manufacturers in making luxury features in cars, for example putting on expensive carpets and top-notch appliances, and making it standard in each home they built. Buyers and customers rushed in for purchases creating economies of scale for Pulte.

One of the outstanding innovations Pulte has made over the years is the pre-fabrication of its houses and buildings. Pulte Homes has introduced pre-fabricated houses for the upper-middle-class. Whether therefore is no problem for Pulte when it works or operates because everything is built, even the foundation, in the factory setting in northern Virginia. But the customer can make choices on size and layout.

Along the line of the Japanese concept, Pulte reduced the number of floor plans from 2,200 to 600, retaining only those that have been proven effective and popular to the customers and choosing a common set of fixtures to use nationally (Knox 71).

The advantage of making houses in the factory allows the company to control production from start to finish, and innovation has taken away from the traditional way of building homes.

Moreover, the now huge homebuilder Pulte did not hesitate to use Wal-Mart’s legendary supply-chain discipline model to build a more efficient supply chain. It now buys materials and fixtures in bulk from manufacturers and uses regional distribution centers to deliver materials for a house just when they are needed, reducing the costs of maintaining a big inventory, as well as reducing at-site storage costs, damage to materials, and losses from theft (Knox 72).

Pulte instituted measures to control construction costs: first was constructing houses in the factory setting, and then it also implemented a computerized system to help homebuyers. This was the Intercontinental Mortgage Company, which was later renamed ICM Mortgage Corporation.

Pulte also introduced trends in the financial services to allow customers easy payment, and one of these is issuing Pulte homebuyers affordable insurance coverage to protect the customers and their purchased homes.

Another trend introduced by Pulte was the training program, also known as the “Pulte University”, which was for entry-level construction personnel. The firm aimed for the managerial class, along with the new concept of the Pulte Quality Leadership (PQL) scheme. This training aimed to instill quality leadership in the employees and prospective leaders and to meet the requirements of the scheme Customer Satisfaction Measurement System which management developed for building homes. This concept was a first in the industry and it helped the employees and the organization as a whole.

These initiatives allowed the company to reexamine the entire construction process in search of a competitive advantage. In some areas, Pulte made some innovations by constructing some fixtures like garage slabs, driveways, or stairs way before the actual construction of the home so that agents or realtors can easily make their presentation to their prospective customers. In other constructions processes, Pulte’s engineers would introduce innovations and some changes to meet customer requirements and to counter common problems that they encountered.

The company also made innovations in acquiring lands for development. They based their purchase of lands on their target consumer groups’ demands, such as where they want to live and pay their future premium, or if the customer wanted to live near a forest or a body of water.

More recently, the company has focused on brand identity and recognition, changing the company name to Pulte Homes, Inc., redesigning the logo, giving away a Pulte home in national sweepstakes, and giving away some corporate responsibility.

A macro-environmental trend that Pulte Homes has come to address is the so-called greening of the environment. Pulte answers to the demands of climate change and global warming. Pulte Homes have a healthy indoor environment. Their buildings are secure and are energy efficient. In the construction process, particular attention is not to be left behind on drainage, materials like sticks and bricks, and they use fluorescent lighting.

Their building maximizes energy savings, with many environmental concerns like conserving water and minimizing impact to the environment through an efficient construction process. Pulte Homes are built with careful planning and development that preserve the natural landscapes and explore ways to conserve water and maintain areas in their natural way. (Pulte Homes – Environmental Responsibility)

Energy Star Director Sam Rashkin comments:

“Pulte Homes is one of these leading builders that stands out for their outstanding efforts constructing ENERGY STAR Qualified Homes” (Pulte Homes website).

Recommendations

Pulte Homes’ entry into the home building industry was rather phenomenal. First, it started as a single-house builder until it grew into a subdivision developer and builder of millions of homes for the ordinary American and other demographics. It tapped the “active adult” communities and the retirees. Pulte built homes for the baby boomers and Generation X. The baby boomers are now retired and need care centers and hospitals.

The innovations the company introduced into the organization and operational strategies were quite commendable. Pulte hired the best in the industry but also those who were not from the industry but are the best in the managerial work.

Pulte also employed technology in its operations. It has a website that has features for easy browsing by the customers and stakeholders. Information technology is also one of the many innovations Pulte has applied in the organization.

The creation of the National Construction Council is a commendable move because it is a first in the industry and it allows for the development of performance requirements for the different processes involved in building a house. The creation of a profile for the target consumer groups is a big help for the industry – the other players don’t need much time in forming their strategies anymore as Pulte has done it for them. They can build homes based on Pulte’s study and research as recommended by the National Construction Council. Many of Pulte’s competitors must be glad knowing that if it was good for Pulte, it must be good for them. An example is Pulte’s new home designs that decreased formal areas like dining and living rooms for a wider space for kitchens and fireplaces.

Pulte has tapped the different levels and lifestyles of the demographic, for example, the new generation of Americans who are associated with shifting lifestyle preferences, the younger ones who do not stay long in their jobs, and those who are active and have grown tired of having homes with big yards. The new generation is always mobile, and sometimes would just want to rent a hotel room or apartment, a threat of substitution for Pulte.

­ Pulte’s innovations are mostly commendable and need support from stakeholders and customers. It just needs a little streamlining and should minimize mergers and acquisitions for the time being. There are bad repercussions in this merger and acquisition mania because it strongly affects the normal operations of the company.

Works Cited

Bureau of Labor Statistics. May 2004 National Industry-specific Occupational Employment and Wage Estimates: Residential Construction. Washington, DC: Bureau of Labor Statistics, 2004. Web.

Hill, Charles W. L. and Jones, Gareth R. Essentials of Strategic Management (Second Edition. United States of America: Cengage Learning, 2009.

Denove, Chris and Power, James D. Satisfaction: How Every Great Company Listens to the Voice of the Customer. New York: Penguin Group, 2006. Print.

Knox, Paul. Metroburbia, USA. New Jersey: Rutgers University Press, 2008. Print.

LePatner, Barry B. Broken Buildings, Busted Budgets: How to Fix America’s Trillion-Dollar Construction Industry. Chicago: The University of Chicago Press, Ltd., 2007. Print.

Lynch, Richard. Strategic Management. United States of America: Financial Times/ Prentice Hall, 2008. Print.

Pinson, Linda. Anatomy of a Business Plan: The Step-by-Step Guide to Building a Business and Securing Your Company’s Future. California: Out of Your Mind … And Into the Market Place (Publisher), 2008. Print.

Pulte Homes. Environmental Responsibility, 2009. Web.

Rabourn, Mike. Organized Labor in Residential Construction. Labor Studies Journal 2008, 33 (1), 9-26. DOI: 10.1177/0160449X07312076. Web.

Yamarone, Richard. The Trader’s Guide to Key Economic Indicators. Princeton, NJ: Bloomberg Press, 2004. Print.

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