When Jerry Batt was CIO at Sprint, he didn't worry about delivering the technology the company needed; Sprint used most of the network technology it developed. He worked collaboratively with the business units to provide them with the appropriate IT services.
Batt found himself in a unique position after he became CIO at Pulte Homes, the second largest residential homebuilder in the U.S.
The growth in home buying from the 1990s to 2006 caused Pulte to break into the Fortune 500 list with $15 billion in revenues. At the same time, homebuilding ranks at the bottom of industries that make investments in mechanization and automation. To this end, the business units at Pulte looked to Batt to spearhead the development of applications and technologies the company needed to ride the home-buyer boom. Pulte's investment in IT innovation helped it to pioneer several firsts in the homebuilding industry. Homebuilding is, however, is a cyclical industry. With the 2006 downturn in home buying, Batt had to shift his management style to keep up the momentum in IT innovation, and to maintain the IT staff morale.
Enterpriseleadership.org recently sat down with Batt to discuss how he has successfully directed IT through some dramatic changes in his company's marketplace. Here's what he had to say:
EL: Can you provide a little background information about what makes Pulte Homes unique?
JB: Pulte is in a national production homebuilder. This class of homebuilder emerged 10 year ago through industry consolidation. We cracked the Fortune 500 list in 2003, and our sales peaked in 2006. The company is immune to foreign competition, which has been both good and bad. It doesn't stimulate dramatic improvements or innovations as has happened in other industries.
We still build houses one stick at a time, regardless of the economic market segments. Last year, we built about 46,000 homes.
EL: With the current downturn in the marketplace, what is Pulte's direction?
JB: We want to build the highest quality product for a base price. Because of our national purchasing power, we can acquire those amenities a homebuyer might upgrade to after a few years. For example, we've upgraded our quality of our carpeting several levels, but we provide a smaller number of choices. The national program we have with our carpet supplier enables us to buy high quality carpeting for less money than we normally could. The bottom line is that we can offer a complete package, thus reducing the complexity of choice, the opportunity of mistakes, and the increased costs of maintaining all the inventory.
EL: Where was Pulte headed when it realized it really needed to innovate in IT?
JB: From 1999 to 2003, Pulte had been growing 30 percent a year and selling about 30,000 houses a year. All of the wheels seemed to propel our business's growth faster and faster. Our CEO was going around the country selling us on the idea of building 70,000 homes year.
After looking at the entire homebuilding business flow, we picked an innovation model that lent itself to an asset turnover business. We buy land and entitle that land to be subdivided into buildings lots, ranging from 100 homes to 1,000 homes. So, we build homes, sell them, and then move on to the next piece of property.
In 2003, we realized that we could no longer operate with a spreadsheet mentality. We'd put most of our product information on an Excel spreadsheet. That's how we forecasted sales and did our planning. We took the business workflows and started to automate them, one at time. Because we had no legacy systems, this process was straightforward, and we used a lot of Web-based technology. We had to hire people to build new applications and to modify existing applications. Homebuilding hadn't attracted a lot of third-party software vendors -- Microsoft and Oracle couldn't offer us much.
EL: What else did you automate, or are planning to automate?
JB: We added a scheduling application and a selection application to a basic ERP system. The selection application enables us to keep track of what colors and options -- such as carpeting or hardware floors – a customer wants in their home. We automated some parts of our supply chain, and a year later, we automated our sales-force tools based on Seibel. We were also the first in the homebuilding industry to automate our purchasing nationwide; we rolled out this application one city at a time. We're now looking to automate the tracking of our land. We also aim to create a more transaction-based Web site. E-commerce is not the norm for our industry.
EL: How did you get prepared psychologically to deal with the downturn in the home buying marketplace?
JB: I've lived through cycles like this four times in my career. You need different leadership skills for both the upside and the downside of things. Most of all, you need to know when to shift to those skills. When the market started to slow down in 2005, our IT activity also followed suit. We had to scale back on projects and on staff. That's when I knew it was time to shift gears.
Ironically, the homebuilding industry had weathered the recession of the early 2000s. During our 12-year growth spurt, our senior leaders had never seen any downturn. They'd filed away in the back of their minds the possibility that it could happen. Coming from the telecom industry, I was cynical about how long a company could hold on to a good market. I said, "What are going to do when things change?" They looked at me in disbelief. We weren't mentally prepared for a downturn.
EL: So what is your leadership style when things are going great?
JB: When you're growing, you're simply trying to add resources -- people, hardware, and software -- in a way that makes sense. It's hard to add scale without losing control of the integrity of all of your processes, including people processes. You need to discipline yourself so you won't adopt every new technology that comes along. You need to impose quality disciplines so you can maintain order in the way things get done.
EL: What is your management style through a downturn?
JB: The downturn is a different animal. It's affected by the company culture and by the prospects for it being only temporary, and not structural. I had to do massive cost reductions in places that didn't have an immediate hope of recovery.
It's a different mindset when you think you're going to be back in the game soon. When it comes to management techniques, I found that you need to earn the trust and the engagement of your people. Some will loose their jobs. I've made in a practice to tell people where the business stands. At our all hands monthly meetings, I try to make sense of the marketplace. Unfortunately, IT people have a tendency to not look up until its too late. These days, I've been describing the sub prime mortgage problems to them. This process helps them to understand why the IT project list has shrunk dramatically. I also tell them if we're going to do a layoff, they'll know well in advance. By being forthright, I realize that some people might bail out prematurely and our HR might get nervous. That's the risk I'm willing to take.
EL: How is your governance process different at Pulte than it was at Sprint?
JB: At Sprint, my job as CIO was to build consensus with the business units all of the time. In other words, we had to get everyone to agree on a compromised plan before we could move forward.
At Pulte, people look to me to provide the technology direction. They have far less knowledge, insight, and interest in participating in technology decisions, such as the software to be used and the vendor selection. They still, however, want to know the outcome or the results of a project. Because I'm still allocating resources to scale the business, my governance model is for me to understand the needs of the business. I talk to everyone. At the end of the day, I can recommend what projects will move forward and what won't. I work closely with the CFO to determine what we can afford to do, and I work with our COO to ensure that we meet our operating priorities. There is a lot of autonomy in this particular structure.
EL: Most CIOs would love to have more leeway in making recommendations -- what's the downside?
JB: If it doesn't work, you, and no one else, must take the blame. I was so used to collaborative relationships at Sprint, that I underestimated what it took to fly solo. While we were putting in an Oracle ebusiness platform in one of our light manufacturing sites, I mistakenly thought it was a joint project between IT and the manufacturing folks. I was one-third through the project when I realized that these folks expected me to drop this platform in without their help.
EL: What's the difference between IT alignment at Sprint versus Pulte?
JB: At Sprint, technology was an integral part of the business. I was responsible for the network and all the infrastructure that went into it. The IT components were highly integrated. That's not the case here. At Sprint, we had many people involved in aligning IT. Here's we have five senior executives and I driving it.
EL: How are you developing senior IT people?
JB: Because we're in the downturn, I'm mostly retaining them. Unlike their predecessors, the younger IT professionals focus a lot on self-fulfillment. The trick to holding on to them is to keep them motivated and energized according to what turns them on. For example, we did a press release for one IT professional who did an outstanding job on a project. He was excited about getting national attention and putting this recognition on this resume. I knew that we risked making him visible to a lot of search recruiters, but we gave him what he needed. Everything we said in the press release was genuine.
Now we're identifying the top 15 percent of our IT contributors and developing personal reach-put programs that will be based on what we need to do to make these contributors feel valued.
EL: What quality standards do you have in place at Pulte Homes?
JB: For about a year, I worked with a professor from Virginia Tech to develop a quality standard. One of the divisions at Sprint won a Baldridge quality award. So I decided to take a little Baldridge and a little CMMI. I'm thrilled with the outcome. Our quality standard is largely a continuous improvement one built on many of those same platforms. We're now teaching it to people.
Before I went in this direction, I assumed that everyone at Pulte had a basic understanding of things like customer-supplier model. I was wrong. Every time I asked this question during meetings, I got blank stares. I realized that we had to go back to fundamentals. Our quality standard includes the history of how software quality improvement has matured. We're designed the course around Steven Covey's Seven Habits of Highly Effective people, which serves as a cultural foundation for the standard.
