Achieving 'Customer Focus' in Private Housebuilding: Current Practice and Lessons from Other Industries

Housing Studies, Vol. 18, No. 1, 87–101, 2003

Achieving ‘Customer Focus’ in Private Housebuilding:Current Practice and Lessons from Other Industries

JAMES BARLOW & RITSUKO OZAKI

Imperial College London, Business School, London, UK

[Paper first received 13 February 2002; in final form 1 August 2002]

ABSTRACT Driven by government ambitions to improve the quality and cost of newhousing, British private sector housebuilders are searching for ways to become more‘customer focused’. However, concepts developed in other manufacturing and servicesectors are being transferred into the housebuilding industry without fully understand-ing their implications. The paper explores the concept of ‘customer focus’, the ways it isbeing adopted in UK housebuilding and identifies structural barriers which haveimpeded its introduction. Conclusions are presented on the business strategies that needto be in place if the aspirations for a more customer-focused housebuilding industry areto be met.

KEY WORDS: housebuilding industry, customer focus, customisation, brand loy-alty

Introduction

In a recent survey of 10 015 purchasers of new homes in the UK, only 18 per centsaid they would recommend their housebuilder without being asked, and thisproportion had declined from the previous year’s survey (Housing Forum,2002). Moreover, only slightly more than half wanted to buy another new home.The UK’s housebuilding industry has long had an image problem, but itsdifficulties in satisfying its customers are now being exposed to greater publicscrutiny than at any other time. The Housing Forum, the government sponsoredbody charged with stimulating performance improvement in housebuilding, isnow publishing the results of its annual customer survey, with satisfactionratings for individual housebuilders. This, together with pressure from moredemanding purchasers, is driving the industry to make strenuous efforts tomodernise itself. Improving the ‘customer focus’ of the industry has becomesomething of a holy grail for housebuilders (Roy & Cochrane, 1999).

This paper presents some findings from a three-year research programme onthe UK housebuilding industry. The research team worked with a major UKprivate housing developer and a housing association, along with their supplychains, to research and introduce innovations designed to introduce product andprocess innovations into their businesses. Appendix 1 describes the researchmethod. This paper covers one element of the research, how approaches to

0267-3037 Print/1466-1810 On-line/03/010087–15 2003 Taylor & Francis Ltd

DOI: 10.1080/0267303032000076858

88 James Barlow & Ritsuko Ozaki

customer focus, developed in other industrial sectors, can be applied to thehousebuilding industry. Our focus is on the speculative housebuilding sector,where firms build homes for the private owner occupier market, because thisfaces considerable challenges in meeting government aspirations for perform-ance improvement, as well as emerging market pressures. In doing this, thisstudy aims to introduce research on the delivery of customer focus in otherindustries into an area where it has hitherto been neglected—housebuilding.While there is a tradition of survey-based research on people’s housing prefer-ences, and in social rented housing tenant participation is enshrined in legis-lation, many other industries have developed far more sophisticated approachesto the delivery of customer focus than housebuilding and lessons from these arepotentially of use to housing researchers.

The next section outlines the policy and market drivers behind the growingconcern to ensure that private housebuilding satisfies its customers. This isfollowed by a description of the key concepts which underpin notions ofcustomer focus and their application to the supply of new housing. Partlyusing case study material, the reasons why some of these concepts may beharder to apply in housebuilding than in other industries are then discussed.Finally, conclusions are drawn on the business strategies that need to be in placeif the aspirations for a more customer-focused housebuilding industry are to bemet.

Moving Towards a Customer Focused Housebuilding Industry: The ChangingPolicy and Market Environment

British housebuilders are being challenged by an increasingly strong regulatoryenvironment. The environmental performance of new housing has been thesubject of tighter regulations, the location of new development is more strictlycontrolled and new mechanisms for securing planning gain from housebuildershave been introduced. Government has now turned its attention to designquality, with new initiatives and instruments to raise what are perceived asunacceptably low standards (CABE, 2001; EP, 2000; ODPM, 1997, 2000; UrbanTaskforce, 1999). Housebuilding is also facing a concerted effort to improve itseconomic performance. This stems from the concern of government and majorconstruction clients in the mid-1990s to overcome the poor performance of theconstruction industry. Official reports (Egan, 1998; Latham, 1994) promoted newapproaches to construction, drawing on lessons from other industries wheregreater collaboration across supply chains and the adoption of new technologieshas proved invaluable in their modernisation.

Housebuilders did not escape this spotlight. The Egan Report made specificrecommendations for housebuilding, recognising the need for initiatives toovercome barriers to innovation specific to this sector. The Housing Forum wastherefore established to promote change within housebuilding via taskforcereports on specific problems, a major programme of demonstration projects andan annual survey of housebuilders’ customers. So far, much of the HousingForum’s impact has been on social housing providers. These have been directlyincentivised to change the way they procure new housing because publicfunding will be linked to the achievement of certain performance targets from2003 (CBPP, 1998). These include customer satisfaction indicators, both productand service, and indicators relating to defects. Private housebuilders clearly do not

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have the same direct incentives. However, the poor response of customers tohousebuilders’ performance is being increasingly aired publicly through theHousing Forum’s large-scale customer satisfaction surveys. Firms are also beingencouraged to pool best practice information via initiatives such as the Construc-tion Productivity Network or Construction Best Practice Programme.

This official pressure to change has been reinforced by a concern amongstsome private sector housebuilders that new competitive strategies will beneeded to overcome rising housebuilding costs and constraints on the avail-ability of trained building labour (Barlow, 1999; Housing Forum, 2002). Thechanging context therefore poses important challenges for the housebuildingindustry. It needs to meet evolving consumer requirements and lower thenon-land costs over which it has control, while at the same time deliveringhigher quality. In the past, housebuilders have been able to rely on a degree ofmonopolistic power because of their need for land—development sites, whenpurchased, are denied to others. This will clearly remain a critical businessstrategy for the housebuilding industry, but given the tighter planning systemand problems in securing an adequate flow of sites, firms are now turning theirattention to another potential source of competitive advantage. Managing theinterface with their customers more effectively is now seen as critical (Pitcher,2001). This is not simply a question of better marketing, but improving thequality of the customer’s overall experience and integrating market intelligencewith design and product development more effectively—in short, raising thelevel of ‘customer focus’.

As currently used by the housebuilding industry ‘customer focus’ is, however,an ill-defined term, embracing a wide-ranging assortment of concepts. Theseinclude notions of ‘good service’, ‘customer satisfaction’, ‘customer loyalty’ and‘customer empowerment’. The term is frequently used as a simplistic referenceto the importance of more effectively responding to ‘the market’. As onecommentator put it, “The pursuit of excellence in customer satisfaction is still arelatively new phenomenon … Few builders have been active in this area formore than five years, many just for two or three years” (Pitcher, 2002, p. 11).

The degree to which UK housebuilding has embraced notions of customerfocus needs to be contrasted with other manufacturing and service industries.These have undergone radical changes to the delivery of products and services,underpinned by new organisational processes and cultures. Whether the lessonsfrom these industries are directly transferable to housebuilding, with its ratherspecific market and supply chain characteristics, is the subject of the next section.

Towards ‘Customer Focus’ in Housebuilding

‘Customer focus’ is generally seen in terms of an organisation’s ability to deliverhigh levels of customer satisfaction, itself an outcome of its skill in meetingcustomer needs as closely as possible and achieving high levels of customerservice. Brand loyalty, which can embrace both repeat purchasing of a productor service and the development of a positive reputation and ensuing word-of-mouth sales, is an outcome of the process of achieving customer satisfaction(Brown & Swartz, 1989; Gronroos, 1990; Jones & Sasser, 1995; Oliver, 1981;Parasuraman et al., 1985, 1988; Patterson & Johnson, 1993; Reichheld & Sasser,1990).

It is accepted wisdom within housebuilding that its product, new homes, is

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‘different’ from other consumer products and directly transferring lessons oncustomer focus from other industries is not possible. There are clearly featuresof housing markets that render the use of standard consumer theory problem-atic. These relate to the context within which decisions about residential mobilityare taken. It has often been observed that individuals only make infrequenthousing market transactions and therefore possess imperfect information aboutthe state of the market. There are also problems in conducting a search forhousing because the complexity of housing as a product and the variability inconsumers’ housing requirements exacerbates their problems in evaluatingpossible purchase options. Moreover, the spatially dispersed nature of housingvacancies makes the search and evaluation process difficult. Finally, the fixity ofthe second-hand stock, its slow rate of turnover and the limited amount of newsupply, means that demand and supply in particular housing submarkets aregenerally not in equilibrium (Maclennan, 1982). As will be shown, some of thesecharacteristics, especially the infrequency of transactions and complexity ofpurchaser requirements, do make a difference to housebuilders. However, in theUK these differences have also been used as an excuse for complacency and alack of innovation.

The next section will now discuss how the various dimensions of customerfocus, such as meeting customers’ product needs, improving customer serviceand developing brand loyalty, have been adopted by major housebuilders, usingcase study material from the research and material from interviews with threeadditional housebuilders.

Meeting Customer Product Needs

The classic approach to meeting customer needs segments potential customersinto homogeneous groups and develops products to meet the needs of eachtarget group (Gronroos, 1990; Schneider & Bowen, 1993). Since the early 1990s,however, calls for the introduction of ‘mass customisation’, the supply ofcustomised products at costs comparable with mass production, have grown inmany mature manufacturing industries (e.g. Goldman et al., 1994). The argumentis that customers seek certain basic standards, but also hope for “some individ-ual recognition and custom treatment” (Lovelock, 1988). Responsiveness tocustomers’ individual needs is therefore becoming increasingly important as amarket winner. By understanding the context of a customer’s purchase and theirchoice criteria, value can be added to products and services (Brochner, 1997;Goldman et al., 1994).

Building products to meet customers’ individualised orders rather than forstock was not possible under mass production approaches to manufacturing.However, in some industries, especially motor vehicles and personal computers,build-to-order techniques have advanced considerably in recent years, even ifthe goal of full mass customisation may be some years distant (Agrawal et al.,2001). Many manufacturing industries have now begun to move towards greaterlevels of customisation by making use of ‘economies of scope’ (Lampel &Mintzberg, 1996). This involves the use of new production and supply chainmanagement techniques which allow differentiated final products to be pro-duced from largely standardised production processes and sets of componentparts. Menu-driven approaches, where customers select features and productsare tailored from a standardised core of parts, are now increasingly common.

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Mass customisation may be more costly for suppliers than mass production, butvalue can be added to the product or service and longer-term customer relation-ships can be built, helping to enhance brand loyalty.

Until the late-1990s, the housebuilding industry was content to follow the‘classic’ approach to meeting customer needs, as described above. Housebuilderstried to pre-empt the need for customisation by ensuring they offered as widea range of standardised house types as possible. Nicol & Hooper (1999) showthat housebuilders increased the size of their portfolios of house types in the1990s. This approach has its limits though. Increasing the number of house typescan be managed, providing supply chains are effectively organised. However,this has not been the case in the UK where housebuilders have often allowedregional offices to make minor amendments to ‘standard’ designs, with theresult that some housebuilders have had to manage several hundred variants.Moves to rationalise supply chains is therefore a prerequisite for modernisingthe products they offer, including more customised homes based on standard-ised floor plans or components.

Customisation involves the supply of products that are in some way tailoredto individual needs. The home, as a bundle of attributes fulfilling diversehousing-related needs, offers housebuilders several opportunities for customisa-tion. These range from customising the design and decorative features of thehome to the inclusion of housing-related services, such as insurance and mainte-nance, in the overall sales package. Apart from one firm, there has been littleinterest in the latter by housebuilders. So far, customisation in most marketsegments has amounted to limited choice over selected features of the internalfit-out, unlike some other countries, notably Japan (Barlow & Ozaki, 2001).Research, however, suggests there is a demand for more customised housing.An unpublished survey of 1000 people, carried out in 1998 for 2000 Homes (theforerunner of the Housing Forum), found that 81 per cent of house buyerswanted greater choice over the initial design of their homes. Almost 80 per centwanted their homes to be more adaptable to accommodate changes in layouts atsome future stage. The rapid growth of self-build housing in the UK after 1980,from 2 to 10 per cent of private sector completions, also suggests there is latentdemand for more personalised housing, especially as there has been a shift fromthose who are self-building to secure affordable housing toward those who aredissatisfied with the existing supply of houses and want a more individualproperty (Barlow et al., 2001).

Introducing greater product customisation in the new homes market does,however, pose significant challenges for housebuilders. These relate to thedifficulty in capturing user requirements, the acceptability of customisationunder the current regulatory and funding framework, and the need for robustsupply chains that can cope with the flexibility inherent in mass customisedapproaches.

Housing is a multi-purpose, complex product in which there is an infinitepossible range of variations in size and shape, space and layout, amenities andfinishes. Identifying user requirements and adding value to increase ‘satisfac-tion’ pre-supposes that people know what they want and that their needs can becaptured and translated into realisable products. This will require far moresophisticated approaches than are currently used. Furthermore, the immediatecustomer is not always an individual actor. This is most evident in socialhousing, where the landlord, as the customer of a housebuilder, may well have

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different priorities from the user of the dwelling, the tenant. In the private sectorthere is anecdotal evidence that a growing proportion of new homes in somelocal housing markets are sold to individuals for investment rental purposes,rather than immediate occupation by the purchaser.

The acceptability of mass customised housing under the UK’s regulatory andfunding framework also needs to be addressed. Indeed, local authority planningand design guidelines, which impose rigid perceptions of local architecturalvernaculars, are widely seen within the industry as the fundamental barrier togreater diversity in housing types. In addition, mortgage lenders are generallyhighly conservative with regard to innovative designs which they believe maynot appeal in the future, to the detriment of marketability.

Thus, while the rest of the construction industry has moved towards the useof standardised, pre-assembled components which can be configured in manydifferent ways to offer wider choices in final products, housebuilders usuallybuild to stock, largely designing homes before customers are found. Even if UKhousebuilders wished to increase the level of customisation within their prod-ucts, the typical housebuilding supply chain is simply not robust enough to copewith variabilities in customer demands (Naim & Barlow, 2003).

There are, however, additional reasons why the housebuilding industry hasbeen slow to adopt new approaches to meeting customers’ needs. Those wishingto buy a new home face a persistent under-supply and a long-term sellers’market. One report has suggested that in England alone 225 000 new homeswould need to be completed annually to meet the need for additional homesover the near-term, compared to current annual completions of under 140 000(Barlow et al., 2002). Housebuilding can therefore be described as an industrywith ‘false loyalty’, to use Jones & Sasser’s (1995) phrase, whereby dissatisfiedcustomers cannot switch to another provider because of a lack of alternatives.

Another reason for the housebuilding industry’s lack of product (and process)innovation results from its dominant competitive strategy, which revolvesaround its ability to maximise the returns arising from land development. Underthis model, housing sales prices are derived from what the market will bear,based on the cost of production and land, together with expected profits. Incontrast, producers in other highly competitive consumer goods industries areforced to innovate to reduce production costs below sales prices in order toachieve profitability and develop new products to differentiate themselves in themarket.

Enhancing Service Provision

Customer satisfaction levels are determined not only by the degree to which acustomer’s product needs are met, but also by the quality of service before andafter the transaction. It is frequently held that customers judge service in relationto the gap between their expectations and perceptions, although there is noconsensus on the precise relationship between service quality and customersatisfaction (Cronin & Taylor, 1992; Teas, 1993). One of the most frequently usedmodels to determine service quality is the SERVQUAL model (Parasuraman etal., 1985, 1988). This measures customer responses to service by means of fivedimensions (‘empathy’, ‘reliability’, ‘tangibles’, ‘responsiveness’ and ‘assur-ance’), with the discrepancy between customers’ perceptions and their expecta-tions representing the quality of service (Parasuraman et al., 1991; Zeithaml et al.,

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1990). An alternative measure of customer satisfaction uses ‘importanceweights’, asking how important a particular aspect of service is, instead ofpeople’s expectations of performance. Some believe that this can better copewith customers’ evolving expectations and provide a more valid measure ofservice quality (Cronin & Taylor, 1992).

Two critical elements in service performance underpin high levels of customersatisfaction. First, customers evaluate tangible service performance at the pre-purchase stage through their experience of the willingness to provide infor-mation, attentiveness and degree to which staff are perceived to understandtheir needs (Cronin & Taylor, 1992; Hartline & Jones, 1996; Woodside et al.,1989). This requires good internal communication systems and a high level ofemployee satisfaction (Gronroos, 1990; Heskett et al., 1997; Hoffman & Ingram,1992; Rees Lewis, 1994). Second, it has long been understood that greatercustomer satisfaction results from a more effective understanding and resolutionof complaints. Satisfactory problem resolution leads to significantly highersatisfaction levels (TARP, 1982; Zeithaml et al., 1996). In this way, good customercare can allow firms to differentiate themselves in the market (Mitchell, 1993).

Housebuilders are, of course, no different from other firms in their perceptionthat there is a need to achieve high levels of customer service. As in otherindustries, research has reported a close link in housebuilding between customersatisfaction and levels of personal recommendation. For example, US house-builders have found that over 60 per cent of their sales are the result ofword-of-mouth referrals (Reichheld & Sasser, 1990). Another US study showsthat 92 per cent of very satisfied customers and 47 per cent of satisfied ones arewilling to recommend the company to others (J.D. Power & Associates, 2000). Inthe UK, surveys have painted a rather less rosy picture of consumers’ satisfac-tion with the housebuilding industry. Consistently, slightly fewer than half of allpurchasers of new housing are willing to recommend their housebuilder to otherprospective buyers (Housing Forum, 2000, 2001; NHBC, 1997; Pitcher, 1999,2001).

Successive customer surveys have revealed that many of the problems facedby UK housebuilders result from poor service, rather than construction qualityor design. The NHBC (1997) survey found that 99 per cent of new homepurchasers cited poor after-sales service as a major reason for their unwilling-ness to recommend their housebuilder. Mulholland Research Associates (1999)found that customers believe strongly that housebuilders should “act on theirpromises” and deal with problems immediately, illustrating the importance ofafter-sales service.

More recently, the Housing Forum’s National Customer Satisfaction Surveys(Housing Forum, 2001, 2002) have reinforced this conclusion. In the 2001 survey,87 per cent of purchasers were satisfied overall with the quality of the home,measured by (in rank order of importance) quality of construction and finish,size of rooms, value for money, external appearance and design, parking space,security measures, soundproofing and storage space. However, only 70 per centwere satisfied with the service provided by their housebuilders. After-salesservice was a particular cause for concern, with a third of purchasers dis-satisfied. The key attributes of ‘good service’, in order of importance, were foundto be the resolution of defects (which was shown to be the least satisfactory areafor purchasers), the condition of the home of moving-in day, ability to meetdeadlines, reliability and accuracy of communication, and helpfulness and

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efficiency of staff. The 1997 J.D. Power & Associates survey in the US alsoidentified the resolution of defects as a key problem, with 24 per cent ofproblems never resolved.

Until recently, the UK housebuilding industry has generally viewed customerservice almost exclusively in terms of rectifying defects (Craig and Roy, 1999).This reflects the relatively high levels of dissatisfaction with construction qualityand finish, 14 per cent were dissatisfied in the 2001 Housing Forum survey, andproblems in responding adequately. Traditionally, construction or technicaldirectors were responsible for customer service and the customer service budgetincluded both the cost of providing the service and rectifying defects. Thisled housebuilders to focus on reducing the cost of defects rectification,rather than improving overall service quality. The emphasis on defectsrectification is perhaps understandable given the costs. One estimate suggestedthat in the late 1990s every new house had an average of 11 defects, eachrequiring two hours’ work to rectify, costing the industry £115.5 million a year(Pitcher, 1999).

Improving customer service both before and after the sale is now seen as amajor challenge by the housebuilding industry and considerable effort is beingmade to achieve this. In some cases, housebuilders have appointed customercare specialists from outside the housing industries. All the housebuildersinvestigated in this research had introduced new customer service procedures tomeet the needs of what they perceived as more discerning and more demandingcustomers. The strategies adopted by these housebuilders can be grouped into:

• The establishment of stronger customer relations departments and customerservice procedures. This included 24 hour, 7 days a week response andintroduction of named individuals to deal with an individual customer’srequests.

• The introduction of ‘culture change’ programmes within the companies as awhole. These sought to create new company cultures based around notions of‘exceeding customer expectations and putting customers first’. The pro-grammes involved increased training and resources for management and staff,and the introduction of incentive systems to improve staff motivation.

• Guarantees to customers and improved provision of information. All house-builders investigated in the research gave customers fixed advance notice ofa guaranteed move-in date, with daily compensation if the home was notready. All had introduced a joint inspection and demonstration of the featuresof the home on moving-in and a logbook setting out the complete buildhistory and inspection certification.

• Improvements to after-care through the establishment of dedicated teams. Inone case this was responsible for organising all maintenance work for twoyears after moving-in. Each housebuilder carried out several post-sales visits.The first would be made by the site manager or sales adviser within a fewdays of moving in. The customer service manager would then make afollow-up visit and a further inspection would be carried out by invitation sixmonths or a year later.

• Many of the quality problems in new housing are the result of inadequatetraining and a lack of skilled labour. To deal with this, firms had developed‘partnering’ relationships with preferred subcontractors and suppliers, with

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procedures to monitor performance and the introduction of manuals withstandards in physical components and construction procedures.

Underpinning these initiatives was the introduction of centralised informationsystems to enable them to collect customer information more effectively. Datacollection took two forms. Monthly reports on defects and complaints, andregular project reviews, enabled benchmarks to be established for internalperformance improvement, and persistent problems to be analysed andaddressed. Second, all the housebuilders had invested in large-scale independentsurveys of actual and prospective customers, as well as ‘escaped’ customers whohad purchased a rival’s product. In one case, the firm used information from4000 purchasers to develop a model of a ‘customer journey’ to reveal whatfactors determine customer satisfaction before the reservation, between reser-vation and moving in, and after moving in.

Brand Loyalty

Research shows that a failure to satisfy customers can have widespread effects,since dissatisfied customers spread the message via word-of-mouth (TARP,1982). Conversely, there is considerable evidence that customer satisfaction leadsto superior profitability because of its effects on customer loyalty (Cronin &Taylor, 1992; Jones & Sasser, 1995; Parasuraman et al., 1994; Reichheld & Sasser,1990; Rust & Zahorik, 1993) and the positive reputation of the organisation(Hartline & Jones, 1996; Parasuraman et al., 1991; Reichheld & Sandifer-Smallwood, 1990). The impact of positive word-of-mouth referrals can besignificant in the acquisition of new customers. Moreover, building longer-termrelationships with customers is increasingly seen as critical for ensuring sustain-able competitiveness (Christopher et al., 1991; McKenna, 1991). Studies haveshown there is a direct relationship between customer retention levels andprofitability (Reichheld & Sasser, 1990). Ensuring brand loyalty helps to reducethe cost of sales because marketing can be targeted more effectively, fees forretailers or intermediaries are lower, and there is less emphasis on price-basedcompetition. It is thus possible to assign a ‘lifetime value’ to a retained customer(Ross, 1994; TARP, 1988).

Brand loyalty therefore embraces both the ability to retain customers forfuture sales and the impact of customer satisfaction on an organisation’s repu-tation. Securing brand loyalty in housebuilding is, however, inherently difficult.Owner occupiers generally buy more than one dwelling in their lifetime and themajority of households relocate within a short distance of their current home.However, it is generally hard for housebuilders to offer a full range of housetypes in any given housing market area because of problems in securing land.This forces potential customers to buy from alternative housebuilders or thesecond-hand market, or to compromise their needs. Although there is noavailable data, it is likely that few customers make multiple purchases fromsingle housebuilders, except on very large development sites. Even if they could,both in the UK and the US, low levels of customer satisfaction suggest thathousebuilders face problems in persuading them to do so. According to a surveyof over 48 000 purchasers of new homes in southern California, Phoenix andDenver (J.D. Power & Associates, 2000), only 58 per cent of very satisfiedcustomers and 19 per cent of satisfied ones were prepared to buy a house from

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the same builder again. As has already been noted, in the UK fewer than 1 in5 purchasers are prepared to recommend their housebuilder (Housing Forum,2002). This level of customer satisfaction cannot result in strong customerloyalty.

Securing brand loyalty is therefore complicated by the considerable length oftime between customer-housebuilder interactions, the immobility of housing asa product and the nature of the housing land market. Together with the lowrecommendation rates, these make it inappropriate to use customer retentionrates, a key performance measure in many industries, as a measure of brandloyalty in housebuilding. This has driven housebuilders to seek ways of improv-ing customer satisfaction, as described above, as the principal strategy forenhancing the quality of their brand and securing word-of-mouth sales. Comple-mentary strategies could be adopted to improve brand loyalty. These involvewidening the housebuilder’s brand by selling additional housing-related ser-vices and/or introducing more customised products. However, as has beenargued, this has not generally been part of the housebuilding industry’s agenda.

Case Study

Despite these challenges, housebuilders have moved towards increased cus-tomer choice over fixtures and fittings and some have experimented withoffering more choice over aspects of the internal layout. The project’s privatesector housebuilding research partner had established a separate brand tointroduce choice over the layout and fittings of apartments on an urbanredevelopment scheme in a medium-size town about 100 km from London. Acommunity trust had been set up to manage the site and offer a range ofadditional services, including maintenance. To deliver increased choice, thefirm’s supply chain had been reorganised and a ‘shell and fit out’ approach toconstruction had been adopted, whereby the structure, the shell, was designedto support an adaptable interior. Purchasers were able to either select a finishedflat, with no choice of configuration and a delivery lead time of between one and12 weeks, or a customised flat, with a lead time of six months. For the latter,three choices of room configuration were available, along with two kitchen typesand other variations to the fittings. There was a higher level of interaction withcustomers than is normally the case in the sale of speculative housing, with staffgathering information on customer requirements in a show centre in the town orin a show flat on-site. A short questionnaire survey of all the initial purchasers(n � 32) indicates that all were satisfied not only with the level of choice but alsowith the sales process. Sales personnel were also interviewed and said they were‘proud’ of their new products.

To deliver the scheme successfully, the housebuilder had introduced a highlevel of standardisation for the kitchens and bathroom, with manufacturersdelivering a supply-and-fit service to reduce the problems of on-site co-ordination. Co-ordination was also improved by simplifying the communicationlines with key sub-contractors. Finally, the housebuilder’s own materials supplycompany was fully integrated with the contractor to allow the ordering anddelivery of fit-out ‘packs’ as soon as they were needed.

Offering the option of non-customised homes and limiting the range ofcustomisation choices allowed the housebuilder to avoid the difficulties inherentin capturing customer requirements. Moreover, the fact that customisation was

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restricted to internal layout and fit-out features meant that planning issues hadnot arisen. However, at the time of research a number of problems remained.The majority related to the inability of the supply chain to cope with therequired flexibility. It proved extremely hard to synchronise the constructionprogramme with the sales process. Purchasers were initially quoted fixedhand-over dates, but these could not be kept and therefore only tentative dateswere offered to later purchasers. This was a result of the housebuilder’s ownmaterials supplier finding it hard to adhere to delivery schedules. The projecttherefore became led by the construction programme, rather than customers’timetables. Other difficulties arose from the contextual factors, such as labourshortages, and problems common throughout the construction industry, such asimprecise roles and responsibilities and the lack of involvement of all construc-tion participants during the project planning stages.

It is too early to draw conclusions on the impact of the new approach onbrand loyalty, but the opportunity to create a strong brand was certainly a partof the housebuilder’s business strategy. Because the research was being carriedout during the initial phase of the scheme, it is not yet possible to analyse theimpact of customisation on construction costs and sales prices. Constructioncosts on the initial units were said to be greater than equivalent non-customisedflats, but higher sales prices were obtained. This suggests that customers wereprepared to pay a premium for customisation. However, more detailed analysisis required to disaggregate this premium from the effects of location andshortages of this type of accommodation on the one hand, and the influences onconstruction costs of higher design and technical specifications, local labourshortages and higher inventory costs arising from inefficiencies in the supplychain on the other hand.

Conclusions

This study has argued that there are two aspects to ‘customer focus’. First,research on manufacturing industries suggests that customer satisfaction levelsare determined not only by a combination of product quality and price, but alsoby the quality of customer service. High levels of customer satisfaction areunderpinned by good communications structures, employee satisfaction and anability to elicit and resolve complaints effectively. Research also shows howimportant customer loyalty is in ensuring continuing profitability. Second, it hasbeen argued that customisation of products or services, the ability to givecustomers what they want when they want it, is another significant aspect ofcustomer focus because it enables firms to deliver high satisfaction and buildlong-term relationships. In some manufacturing industries, this is becomingpossible using new approaches to supply chain management and manufactur-ing.

The paper has explored the applicability of these lessons for the UK’s privatesector housebuilding industry. Despite the under-supply of new housing, manyin the industry feel that customers are becoming better informed, more demand-ing and less tolerant of poor service and construction defects. Furthermore, thegovernment and the industry both regard improvements to the quality ofcustomer service as paramount if the currently low customer satisfaction levelsare to be addressed. It is in this context that the housebuilding industry’sconcern over customer focus has emerged.

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To overcome some of the basic quality problems in the new housing sector,housebuilders are improving their construction processes by introducing moreoff-site prefabrication and managing their supply chains more effectively. Moreattention is also being paid to the customer interface, partly via the HousingForum’s National Customer Satisfaction Survey. Most of the effort has been onimproving techniques for monitoring and responding to complaints, althoughattention is now turning to customer service before and after the sale.

However, these initiatives are unlikely to realise their full potential without aradically new relationship between housebuilders and their customers. It will benecessary for the industry to adopt a broader view of customer focus, whichintegrates customers into the product supply chain more closely. In someleading industries, such a view has also embraced the concept of mass customi-sation. So far, product customisation has barely impacted on UK housebuilding.As the case study illustrates, the industry is far from ready to introduce masscustomisation. In this example, existing problems caused by labour shortageswere exacerbated by a lack of clear systems and procedures for co-ordinating thesupply chain when only limited customisation was introduced.

Re-orienting the housebuilding industry’s competitive strategies will requireits members to resolve tensions between their traditional focus on driving downconstruction costs and emphasising the value of their products to customers.Moving towards a more customised supply model will require firms to adoptbusiness processes which integrate production and sales functions more closely.This in turn may require the resolution of conflicting priorities, such as thosebetween volume building and an emphasis on the achievement of premiumprices by adding value through greater product choice. Until the industryaddresses these challenges, aspirations of government policies for its modernis-ation will not be met.

Acknowledgements

This paper is partly based on research supported by the Engineering andPhysical Science Research Council and Department for the Environment, Trans-port and the Regions under the LINK-MCNS Programme. We would like tothank the project research partners and other housebuilders in the USA andJapan who were interviewed in 1999 and 2000. Special thanks also go to MohNaim, Severine Hong-Minh, Paul Childerhouse and David Gann. An earlierversion of this paper was presented to the European Network for HousingResearch Conference, Gavle, Sweden, June 2000.

Correspondence

James Barlow, Imperial College London, Business School, 53 Princes Gate,London SW7 2PJ. Email: [email protected]

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Appendix 1. Research Method

The research programme brought together nine industrial partners representing different sectors ofthe housebuilding supply chain. They included a major plumbing manufacturer, a heating andventilation systems provider, a major roofing system provider, the UK’s largest architecture practicespecialising in housing, a regional housing association, the largest social housing contractor and atop 10 speculative housebuilder.

The programme involved a number of sub-projects focusing on specific problems. These includedthe application of mass customisation in a housebuilding context, the development of tools forexploring user preferences, an investigation into the transferability of customer focus tools andtechniques to housebuilding, and an assessment of the construction technologies that can delivergreater choice.

Several research methods were used in the programme. These included questionnaire surveys ofpurchasers and tenants in both the speculative and social housing developers, task-groups compris-ing representatives from the partner companies focusing on key issues (e.g. building technologies,user-needs capture) and ‘terrain scanning’, an adaptation of a methodology developed in theautomotive sector designed to obtain and analyse information regarding key internal businessprocesses (Lewis et al., 1998; Berry et al., 1998).

The scheme described in the case study was researched through interviews with the house-builder’s supply chain members and key internal staff including the sales, construction, site andmarketing managers. The purpose of the interviews was to document how the supply chain operatesin this context and identify any problems. Interviews with sales staff took place at five different salessites in 1999, focusing on four issues: collecting information from customers, handling complaints,marketing strategies, and employee satisfaction. A postal survey of n � 208 purchasers wasconducted in 1999, and a follow-up telephone interview (n � 24) was also carried out in 2000. A briefquestionnaire survey of all the initial purchasers on the scheme described in the case study was alsoconducted. Because there were only a small number of purchasers (n � 32) at the time of the research,this could only provide anecdotal perspectives on the scheme.

In addition to the in-depth research with the partner companies, the project carried out back-ground interviews with customer service managers in another top 10 private housebuilding firm andan analysis of customer service manuals for four other housebuilders.