Achieving High Performance Homes Through Quality Management
A glut of foreclosed homes on the market and high unemployment; downward pressure on new-home prices and builders’ operational costs; and home buyers’ rising expectations. . . . If you’re a home builder, those might not seem like an obvious foundation for instituting a sweeping program of quality management, realigning your business, and overhauling your product line to meet higher performance standards. Many builders struggling with the spiraling housing market of the last few years have opted to hunker down and try to get through the next fiscal year in one piece.
But to President Mike Nimon and the team of Wathen-Castanos Hybrid Homes, Incorporated (WCHH), based in Fresno, California, these dire conditions were both a warning and an opportunity—prompting them to ask some hard questions. (For more on WCHH, see “Wathen-Castanos Hybrid Homes, Incorporated, Company Profile.”)
All around, they saw builders cutting prices, downspeccing their product lines, going smaller. They knew Wathen-Castanos could opt to join what Nimon calls “the race to the bottom.”
But the team believed it was time to take stock, study the market, and reevaluate the company’s processes and product offerings.
“We figured the way forward was to build greener and more energy-efficient homes, and use quality management processes to drive efficiencies in our business,” says Nimon. “Our goal has been to focus on cost-effective, high design without compromise, using energy efficiency as a key value proposition. We want buyers to reach the conclusion that anything but a Wathen-Castanos Hybrid Home is obsolete.”
In some ways, making that difficult decision was the easy part. Nimon knew that Wathen-Castanos would not only have to rethink its company identity, processes, and products, but also have to do so very quickly and with few resources. It hoped to gain an edge in the crushingly competitive real estate market of California’s Central Valley, which has one of highest foreclosure rates in the country.
Between 2006 and 2008, WCHH worked together with its home energy rater, trade partners, architects, and utility partners to refine a whole-house, systems-based approach to energy efficiency and green building practices. In early 2009, Nimon connected with IBACOS at DOE’s Building America booth at the International Builders Show. Nimon was looking to verify that WCHH was on the right track from a building science standpoint, and he wanted some help rethinking WCHH's energy efficiency strategy to remain eligible for incentives under the California Advanced Home program in light of the upgrades being implemented to Title 24 (the state energy code). At the same time, WCHH had downsized considerably, and Nimon recognized the need to strengthen the company’s quality management, to maintain production with fewer staff.
In 2008, IBACOS began research within the Building America program on the operational processes associated with profitably delivering high-performance homes. WCHH’s commitment to operational excellence and energy efficiency made for a perfect fit with its research, and from mid-2009 to the end of 2010, IBACOS worked with Nimon and his team to analyze, make recommendations, and support the implementation of quality management processes associated with high-performance home-building techniques.
From past research, IBACOS knew that successful companies building high-performance homes have eight key attributes, above and beyond basic best practices for operational excellence (such as the Baldrige Performance Excellence program or the National Housing Quality Award, or NHQA, criteria). These attributes are
- cultural and corporate alignment;
- clear intent for quality and performance;
- whole-house integrated design and specification;
- measurement and verification of building performance;
- better communication practices and systems;
- increased collaboration across internal and external teams;
- disciplined approach to quality control; and
- continuous feedback and improvement.
The work IBACOS undertook with WCHH supported improvement in all eight areas, focusing on achieving higher levels of energy efficiency through a combination of company management strategies, operational processes, and technical solutions. IBACOS sees building companies as being comprised of interdependent operational systems. These systems must be harmonized to deliver houses that meet or exceed the customer’s expectations, in much the same way as a house is made up of interrelated technical systems.
Wathen-Castanos Hybrid Homes, Incorporated, Company Profile
Wathen-Castanos was founded in 1983 as Heritage, Incorporated. It became Wathen-Castanos in 1994, and Wathen Castanos Hybrid Homes, Incorporated (WCHH), in 2010. Since 1983, It has built more than 4,000 homes in the Fresno/Clovis, California, metropolitan area. The company builds high-performance, single-family homes in a price range of $139,900–299,900; target markets are first-time buyers (young professionals), move-up buyers (growing families), and move-down buyers (empty nesters). By 2009, WCHH had 28 employees and was on track to build 194 homes, competing against 54 other builders, including some major national builders, and with four top local competitors building 70 to 110 homes a year. In 2010, WCHH generated 194 closings, with approximately $37 million in sales. In the first quarter of 2010, the company had the highest number of permits issued in the central San Joaquin Valley. In 2011, WCHH was ranked at 152 in Professional Builder magazine’s Housing Giants. The team currently consists of 34 full-time employees and is led by WCHH President Mike Nimon.
First Things First
In May 2009, IBACOS undertook a two-day quality checkup at WCHH’s Fresno jobsites to rate the overall quality of the built product, and to familiarize itself with the company’s standard construction practices. It found that in general, WCHH was building a very robust house. In July, it facilitated a two-day strategic mapping and gap analysis exercise with the Wathen-Castanos management team to create a shared baseline understanding of current company processes and opportunities for improvement. This session included documenting the company’s history; taking a look at where it might be in two to three years, including possible barriers; and evaluating current activities and gaps related to energy efficiency in planning, design and purchasing, sales and marketing, home construction, and customer care.
The review helped the Wathen-Castanos management team to document best practices that the company already had in place and operational processes made obsolete by staffing reductions. It also helped them to identify a total of 34 opportunities for improvement. Some of these opportunities were gaps in current practices that made them less effective then they could be. Others were projects that had been recently identified and that teams were already working on, such as a branding strategy, sales training, and home buyer education.
To support key operational directives, such as continually improving customer satisfaction and driving operational efficiency, Nimon and the management team selected seven high-priority improvement projects in the fall of 2009 to focus on during 2010. Some of the projects included clarifying scopes of work, improving architectural details, improving feedback between customer service and construction, and improving the processing of buyer-selected options. Cross-functional work improvement groups (WIGs) were created to solve problems in these seven areas. In addition, Nimon and the management team began looking for ways to achieve 30% energy savings (compared to the 2008 California Title 24) by January 1, 2010.
At a corporate strategic level, the management team and IBACOS also decided to focus on
- developing team members to become champions of quality;
- linking quality to strategy and green-building processes;
- using effective and time-tested quality models and methods;
- getting employees and trade partners involved in quality management; and
- benchmarking with the best builders.
In late 2009, the WCHH team paid visits to National Housing Quality Award (NHQA) and EnergyValue Housing Award (EVHA) winners to benchmark their work and collect best practices. The NHQA is modeled after the Malcolm Baldrige National Quality Award and is supported by Professional Builder magazine, a group of volunteer judges, and the National Association of Home Builders (NAHB) Research Center. The EVHA is coordinated by the NAHB Research Center in partnership with NAHB, DOE’s Building America program, and the National Renewable Energy Laboratory (NREL). WCHH also became an active participant in the Best Practices Research Alliance, a collaborative community of leading home builders and suppliers founded by IBACOS to promote innovation, create tomorrow’s best practices, and expand on technical and business management research.
In early 2010, IBACOS provided training to the entire WCHH staff—including the management team and trade partners—on building science, quality management, and specific tools for quality improvement. These tools included DMAIC (Define, Measure, Analyze, Improve, Control) methodology, brainstorming, and various other methods of quality management and analysis used in the Six Sigma business management strategy. Created in 1986 by Motorola, Incorporated, Six Sigma was designed as a set of tools for manufacturers seeking to improve the quality of their products by identifying and removing the causes of defects, and by minimizing variability in the manufacturing and business processes. Six Sigma is now used widely across many industries for quality improvement. Through 2010, IBACOS helped the WIGs to apply DMAIC as they created new processes to streamline their work and reduce defects.
Wathen-Castanos Hybrid Homes’ Quality Journey
WCHH is still striving to develop each of the eight key attributes listed above. Its goals are to enhance its business, to consistently deliver higher-performance houses, and to improve customer satisfaction. Some of WCHH’s best practices are described below, to give readers a “peek under the hood” of its operation.
Cultural and Corporate Alignment
Wathen-Castanos has a strong reputation in its market as a respected builder and community leader. The market downturn forced the leadership of Wathen-Castanos to make a key strategic decision. Instead of following other builders in the market in the race to the bottom to provide lowest first-cost housing to buyers, WCHH created an alternative-value proposition for its customers through energy efficiency and green construction practices. This decision was implemented throughout the company. A specific energy standard was selected, the construction department attended training, and the company engaged consultants and trade partners to develop technical solutions to achieve this new level of performance. The design process was altered to include evaluation of energy performance during the creation of the new product. Marketing embraced the strategy and successfully branded the new product the “Hybrid Home.” Eventually the rebranding extended to the company’s name, which became Wathen-Castanos Hybrid Homes.
In short, once the strategic decision was made to build higher-performance homes, all departments of the company were aligned behind that decision. The decision was integrated into other key corporate goals and into the culture of the company, highlighting the value proposition to the customer and the opportunity to differentiate WCHH houses from the competition and the resale market. Energy efficiency was not left as a feature for one department to integrate; it became a core aspect of what the company builds and how it operates.
Clear Intent for Quality and Performance
Once WCHH decided to aggressively pursue energy efficiency and green construction practices, it worked with its energy rater to learn what programs, certifications, and cost offsets (tax credits, utility rebates, and so on) were available. While WCHH had been building Energy Star-certified homes since 2001, the company decided that, starting in 2010, it would meet or exceed the 30% energy savings target above Title 24, as described above. This would give it access to incentives for energy-saving residential homes offered by the California Advanced Home program, a program comprised of California’s investor-owned utility companies. It would meet or exceed the criteria required to qualify for federal energy-efficient new-home construction tax credits. And it would qualify all WCHH homes to be GreenPoint rated under the Build It Green program.
All members of the company, trade partners, architects, and the home energy rater understand these tangible and practical energy efficiency and green-building targets. All parties know what is expected. Solutions are developed to meet these criteria and are documented in construction drawings and scopes of work.
Because programs change over time, WCHH continually reevaluates the value of participating in a given program, and the requirements for doing so. In 2009, WCHH decided to continue participation in the California Advanced Home program under the new version of Title 24. This required it to upgrade its technical solutions, since Title 24 was increasing the code level of efficiency, and it had to upgrade to maintain 30% savings over code. After analyzing different approaches and costs, WCHH has concluded that it can build all of its homes with a HERS index of 48–53.
Whole-House Integrated Design and Specification
One strategy that WCHH uses to achieve its energy efficiency goals is to make use of an integrated design process. Nimon says that the company surveys its customers to find out what they are willing to forgo in favor of energy efficiency—such as floor area—and what they want to keep—such as granite countertops, plenty of windows, and high-end design features.
Then the company goes through a process that starts with the following questions:
- From a building science perspective, is the performance value of a proposed improvement or upgrade worth its cost to the home buyer?
- Can it be effectively marketed to home buyers? Is there a demand for these improvements in performance in the market?
If a match can be found, then the company proceeds to negotiate with its trade partners, suppliers, and manufacturers to find solutions that offer the best combination of performance and value. “We constantly seek to find the right place where performance, cost, and value come together,” says Nimon.
Initially, WCHH focused more heavily on the green attributes of energy-efficient construction practices. Through interaction with, and surveys of, its customers, it found that energy performance was what really clicked with them. “Because of the climate, there’s a lot of demand in our area for energy-efficient cooling systems,” says Nimon. “We’ve found that our customers respond to what that home could save them, in dollars and cents, as opposed to simply positioning a green home. Dollars saved is the ‘green’ for our buyers.”
Using this process, the design team developed the Ivy Gate and Foxton Chase series of homes, each with several models. Trade partners are actively engaged during the development of new plan designs. When generating a new design, WCHH establishes a budget broken down by trade, based on the anticipated size and complexity of the house. Early in the schematic design stage, the trades provide pricing based on their typical scope of work. Trades provide feedback on how the design might be modified to meet the budget, and if a satisfactory balance can be struck between design and hard cost, the project proceeds through the final design and construction drawings.
Similarly, when WCHH sets a new energy performance target, the trades are well integrated into the process. The HERS rater provides energy modeling support, and trades bring their best ideas to a brainstorming session to determine how the energy performance target can be met. Costs for the different technologies, systems, and strategies are provided by the trade partners, and are evaluated against the projected energy improvement and customer value. Using this process, WCHH dropped its HERS index from the mid-60s down to the 40s and 50s between 2009 and 2010, while retaining the high-end amenities customers wanted.
Measurement and Verification of Building Performance
The WCHH team uses measurement and verification of building performance in a number of ways. All field staff and trade partners use checklists to verify that the work has been done and any problems corrected, and the building performance features are integrated into these checklists. A third-party inspector conducts structural and water intrusion inspections, and a HERS rating company certifies energy performance through visual inspections and performance tests. The HVAC trade partner also conducts duct tightness tests on every home.
This measurement and verification provides useful information for the marketing team. The home’s HERS index is shown in the models and on the web site, as a way for the sales agents to communicate the energy performance of the houses to prospective buyers (see Figure 1).
Better Communication Practices and Systems
One WIG focused on updating the company scopes of work, including clear documentation of the energy and building performance aspects of construction. WCHH is evaluating a next step in this process by working with IBACOS and trade partners to create visual documentation of, and step-by-step instructions for, accomplishing the work. Trade partners receive a monthly letter that provides information on sales, starts, and upcoming issues and offers encouragement and recognition. The director of construction (DOC) has annual one-on-one meetings with the trades and quarterly meetings with small groups of trade partners whose work overlaps, to discuss areas of improvement. The DOC also hosts a trade appreciation event biannually. In 2010, a trade council was developed to further enhance quality, performance, and continued improvements.
WCHH also actively communicates the performance benefits of its houses to buyers. One ad campaign includes a chart that lists the advantages of a Hybrid Home quantified with retail value and provides columns for home buyers to enter information on other builders’ offerings (see Figure 2). Recently, the company has focused on branding its Hybrid Home product against the resale market and competitors. Key parts of this branding have been to label other options as obsolete next to an innovative Hybrid Home, and to point out that the Hybrid features are built in, not added as part of a remodel. Third-party testimony shows specific dollar amounts of energy savings—which can range from $100 to $200 during the hot months.
Increased Collaboration Across Internal and External Teams
The creation of the WIGs and the quality management training reinforced the collaborative culture that already existed within WCHH. Cross-functional WIGs addressing the eight key areas listed above ensured that all stakeholders were represented, and these WIGs engaged their external stakeholders as appropriate. As mentioned previously, WCHH actively engages its external team when evaluating energy and building performance improvements.
Disciplined Approach to Quality Control
WCHH uses a series of checklists to keep the construction process on track and consistent, and to monitor any risks. It uses both a House Readiness Incident report and a Corrective Action form to call attention to areas that need improvement. The customer takes part in the quality review process at three stages: a frame walk-through at the framing stage, a walk-through at the final building stage, and a move-in sign-off appointment at the close of escrow. Performance testing and visual inspections are conducted to ensure that the energy efficiency measures are installed and are performing properly.
Continuous Feedback and Improvement
Nimon and his team are constantly developing new feedback tools. Results from performance testing with the HERS rater are used to identify areas that need improvement with respect to air sealing the building enclosure. The team reviews HERS scores periodically, looking for opportunities to further improve the energy efficiency of the houses. WCHH also works with IBACOS constructing prototype houses that explore the next level of energy efficiency, in an effort to define the next generation of Hybrid Home. WCHH is currently working with DOE and IBACOS on an advanced research home that will feature testing of air source heat pumps and radically simplified air distribution systems in highly insulated thermal enclosures as part of an effort to find cost-effective ways to get the air handlers and duct systems inside conditioned space.
Based on the work that they did in 2009 and early 2010, the WCHH team decided to apply for the NHQA in 2010. The application itself served as a valuable, in-depth self-assessment tool for the WCHH team, as well as a key resource they could use for strategic planning in the future. Their entry resulted in a two-day site visit from an NHQA team of industry and quality expert judges, who conducted the evaluation for the award and later provided a detailed report identifying additional areas of improvement for the company. In 2010 the company earned an NHQA Bronze Award, took the feedback, continued to focus on key improvement areas, and earned an NHQA Silver Award in 2011.
The company improved in every category measured by the NHQA. This includes improvements in customer and trade relationships. In 2010, 94% of the company’s trade partners rated it good or excellent at establishing a mutually beneficial relationship. Customers gave WCHH a 94.2% customer satisfaction rating in 2010 and boosted the referral rate to 33%, citing how low their utility bills had become since they bought a WCHH home.
For additional quality management resources, visit the Publications section of the IBACOS web site at www.ibacos.com/our-work/publication.
To access the joint presentation given by WCHH President Mike Nimon and IBACOS Research Manager Duncan Prahl at the 2011 EEBA conference on “Getting Your Business Aligned: An Integrated Approach to Delivering High-Performance Homes,” visit the Best Practice Research Alliance web site at www.theresearchalliance.org/091411-eeba-excellence-in-building-conference.aspx
Improvements have been made in construction practices and in sales as well. Pre-walk defects have been reduced by 50%. The HERS index of WCHH homes went from 100 in 2008 to 50 in 2010. The number of homes built increased from 188 in 2009 to 194 in 2010, and WCHH predicts that number will reach 200 in 2011. Sales in 2010 were 40% higher than projected. The Foxton Chase product line sold out in 12 months, half the time estimated, and the Ivy Gate line is close behind. (Satisfied customers bring in more customers—see Figure 3.)
Just as important are the awards the company earned. In addition to the NHQAs, the team received Eliant’s National Customer Satisfaction Award and the Energy Star Leadership in Housing Award, both in 2010. Eliant is a national consumer research firm for home builders, and Energy Star awards are given by EPA. In 2011, WCHH won the EnergyValue Housing Award for Builder of the Year.
WCHH brought its Hybrid Home product to market before competitors. Now it’s the builder to beat in the area when it comes to energy-efficient homes. “We know that continuous improvement is necessary in a changing market,” says Nimon. “And so far, change has been a huge catalyst for success here at Wathen-Castanos.”
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