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Disruption in the Homebuilding Industry
WILLIAM J. FERGUSON Chief Executive Officer, Ferguson Partners
TRAVIS KONONEN Managing Director, Ferguson Partners
DISRUPTION IN THE HOMEBUILDING INDUSTRY
2
Homebuilders may be enjoying the housing
recovery, but many are still beset by high costs
and productivity killers like inefficient supply
chains and slow technology adoption.
The McKinsey Global Institute report Reinventing
construction: A route to higher productivity,
estimates that simultaneously targeting
challenges such as “rethinking design and
engineering processes; improving procurement
and supply-chain management; improving onsite
execution [and] infusing digital technology” could
push productivity up by 50-60%.1
Disruptors are taking aim at these opportunities to
propel productivity. In the process, they’re changing
the way homebuilders do business – and the skill
sets executives and board members need.
Let’s take a look at two major disruptive influences
in the industry and what they mean for board and
executive recruiting.
Disruptor #1: The Pre-Fab Renaissance
Also known as modular or factory-built homes,
pre-fab structures are manufactured off-site
in standardized sections that are shipped to
the job site and assembled on-site.
The process is faster and less expensive
than stick building. The building sequence is
streamlined because site preparation can be
done while components are being made, and
1 https://www.mckinsey.com/industries/capital-proj-ects-and-infrastructure/our-insights/reinventing-construc-tion-through-a-productivity-revolution
multiple rooms can be placed and finished
simultaneously. Since crews assemble largely
complete units on-site, often in a few days or
less, there are fewer delays from weather or
materials delivery hold-ups. Fewer days on site
lowers security, utility and GC costs and fees.
Industry analysts are bullish on the pre-
fab market, which has global revenue of $8
billion and 5.2% annual growth, according
to IBISWorld research.2 Yet American
homebuilders are not yet capitalizing on this
market opportunity. When the Associated
General Contractors of America surveyed
members in 2016, a scant 13% were making
investments in modular.3 As a result, pre-
fab structures account for around 2% of new
single-family homes.4
These market fundamentals and data illustrate
a promising new product line for homebuilders
with vision and strong leadership.
The move to modular meets three key needs
for the industry:
1. Cost Efficiency. Early adopters
report that prefab structures cost
between 10% and 50% less than site-
built stick-built homes.5 Research
from the Terner Center for Housing
Innovation at the University of
2 https://www.ibisworld.com/industry-trends/market-re-search-reports/manufacturing/wood-product/prefabricat-ed-home-manufacturing.html
3 https://www.marketwatch.com/story/the-construction-industry-has-a-productivity-problem-and-heres-how-to-solve-it-2017-03-04
4 https://www.census.gov/construction/chars/pdf/con-method.pdf
5 https://www.cnn.com/style/article/prefab-homes-new-living-design/index.html
FERGUSON PARTNERS | 3
California, Berkeley, found that
savings are largely attributable to
lower labor time and expense.6
2. Materials Savings. Because
components are standardized,
builders can purchase several
modules directly from the
manufacturer for use within their
project portfolios, leveraging
economies of scale and reducing
costs of subcontractors.
3. BIM Benefits. Nearly three-fourths
(72%) of U.S. construction firms are
already using BIM to control costs.7
Deploying BIM in pre-fab building
supports more efficient prototyping,
workflow coordination and quality
assurance, all of which speed
planning and production, reduce
costly errors and produce less waste.
What the Modular Renaissance Means for Board and Executive Recruitment
A pivot to pre-fab likely means a dramatic
evolution of the standard business model and
organizational capabilities. Capitalizing on the
modular movement requires an executive team
and board with more diverse experiences, skills
and backgrounds than what’s currently found
at most homebuilding companies.
6 http://ternercenter.berkeley.edu/uploads/offsite_con-struction.pdf
7 https://www.geospatialworld.net/blogs/bim-adoption-around-the-world/
• New Verticals & Skills: Homebuilders
must recruit for experience outside
the traditional disciplines and skill sets.
Leaders must see and understand how
alternative housing options such as pre-
fab can drive sales and improve the
bottom line.
• Action Items: Seek out directors and
executives who have led turnarounds
and business transformations within and
outside the homebuilding and construction
industries. Look for direct experience in
modular construction in a single-family,
multi-family or commercial setting. Recruit
leaders who know how to build new
markets and launch new product lines.
Disruptor 2: The Digitization of the Homebuilding Industry
Homebuilders are in the midst of a fourth
industrial revolution as companies digitize the
supply chain and realize the promise of the
industrial internet of things (IIoT). According
to a PwC report, “Industry 4.0 focuses on the
end-to-end digitization of all physical assets
and integration into digital ecosystems with
value chain partners.”8
Most retail and manufacturing companies
(70%) have already started digitizing logistics
supply chains.9 Yet the construction industry
8 https://www.pwc.com/gx/en/industries/industries-4.0/landing-page/industry-4.0-building-your-digital-enter-prise-april-2016.pdf
9 http://www.gtnexus.com/newsroom/press-release/new-study-70-executives-have-started-digital-sup-ply-chain-transformation
DISRUPTION IN THE HOMEBUILDING INDUSTRY
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is one of the least digitized in the U.S. Only
agriculture is less technologically inclined.10
One early area of disruption is the supply
chain. These digital disruptors, and many
others like them, are changing the way
homebuilders procure and sell supplies,
systems and assets:
• IronDirect: This entrant into the
construction equipment e-marketplace
standardizes popular options and offers
fixed pricing, financing, maintenance and
even reselling via its online platform.
• Amazon: Recent survey data shows that
92% of wholesale distributors consider
Amazon a competitor. Though currently
selling primarily to individual consumers,
it’s only a matter of time before the
e-marketplace behemoth begins offering
raw building materials and building
supplies to the trade, making it faster
and easier to research, buy and reorder
supplies online.11
• Siemens Building Technologies: One of
the global leaders in intelligent building
automation technologies, Siemens
sells hardware and software to power
smarter, safer and more energy-efficient
buildings. This market is expected to
approach $100 billion by 2024, according
Grand View Research.12
10 https://www.mckinsey.com/industries/high-tech/our-in-sights/digital-america-a-tale-of-the-haves-and-have-mores
11 https://www.supplychaindive.com/news/wholesale-dis-tributor-amazon-competition-technology/447372/
12 https://www.grandviewresearch.com/industry-analysis/intelligent-building-automation-technologies-market
Another digital disruption driver is the
internet of things (IoT), which enables objects
to send and receive data via the internet and
empowers companies to gather, monitor and
analyze more data than ever in real-time.
Connected devices impact the homebuilding
industry in three major ways:
1. Equipment Costs. The time and
financial costs of equipment
monitoring, maintenance and repair
are reduced with continual status
reporting, automatic scheduled
maintenance and automated service
alerts. These smart machines know
when they need service sometimes
even before you do and produce
data to help you tweak performance
and optimize processes. These
capabilities reduce downtime and
unexpected repair expenses.
2. Forecasting & Inventory Management.
Sensors make estimating and
sourcing inventory faster and easier.
You can forecast more accurately,
make sure you have the materials
and supplies you need when you
need them, and analyze data to
understand seasonal and other
trends.
3. Vendor Performance. The IoT enables
homebuilders to easily collect and
analyze supplier and contractor data
such as on-time deliveries, quality
issues and returns or corrections.
An IBM study estimates that almost
two-thirds (65%) of your product and
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service value is related to the quality
of your suppliers.13
What Digitization Means for Board and Executive Recruitment
Undertaking a digital transformation requires
a leadership team and board with proven
capabilities in digital-first endeavors and
data management. Homebuilders must
recruit board members and executives with
expertise in these domains as well as less
risk-averse points of view.
• New Verticals & Skills: Using new supply
chains and technological advancements
means adapting to a new way of working
and assuming some near-term risk.
Putting IoT data to good use mandates
a new emphasis on data collection,
analysis and security.
• Action Items: Pursue directors and
executives who have overseen digital
transformations in similarly entrenched
13 https://www.ibm.com/blogs/watson-customer-engage-ment/2017/04/03/top-supply-chain-trends-2017/
verticals. Prioritize direct experience in
modern supply chains and marketplaces,
technological innovation, software and
building engineering, IoT, and digitized
manufacturing and construction. Identify
potential candidates with know-how in
data analysis and management as well
as cybersecurity. Recruit prospects with
a track record of responsible risk-taking
and direct experience operating in what
McKinsey calls “an opaque market.”14
Homebuilders who want to get ahead of
the competition must take advantage of
disruption and be willing to do business
differently, says John McManus of Hanley
Wood’s Residential Group in a recent essay
for BuilderOnline.com.
Rather than focusing on building new homes,
he writes, successful companies will train
their sights on “re-engineering their business
models, and taking proactive action on
removing costs and generating more value per
employee hour so that more people can be
priced-into the market than priced-out of it.”
14 https://www.mckinsey.com/industries/capital-proj-ects-and-infrastructure/our-insights/reinventing-construc-tion-through-a-productivity-revolution
Travis Kononen is a Managing Director at Ferguson Partners.
He specializes in the REIT, real estate private equity and
investment banking sectors, executing mandates in the US, UK,
and continental Europe. Mr. Kononen furthermore maintains
close links with INSEAD and the London Business Schools’ real
estate programs. Prior to opening the San Francisco office, he
spent six years in the firm’s London office, and three years in the
New York office.
Mr. Kononen has a degree from Oregon State University.Travis Kononen Manging Director
Ferguson Partners
+1 415-874-3160
WILLIAM J. FERGUSON Chief Executive Officer
Ferguson Partners
+1 312-893-2339
Mr. Ferguson serves as Chairman and Chief Executive Officer of Ferguson
Partners and as the Co-Chairman and Co-Chief Executive Officer of FPL
Advisory Group. Mr. Ferguson conducts senior management recruiting
assignments, with a specialization in president/chief executive officer
searches and recruiting assignments for Boards of Trustees/Directors.
He also facilitates public company Board assessments and senior
management assessments.
Before founding Ferguson Partners, Mr. Ferguson was a Managing
Director with one of the leading international executive recruiting
consultants. There, he co-managed the firm’s national real estate
practice. Prior to focusing on real estate, Mr. Ferguson worked for
General Mills, Inc. in Minneapolis in strategic marketing.
Mr. Ferguson holds a Bachelor’s degree from Harvard University,
where he was a member of Phi Beta Kappa, and an MBA in
marketing from the Wharton Graduate School of Business.
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DISRUPTION IN THE HOMEBUILDING INDUSTRY
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