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Division Presidents Under Fire
Few CEOs in the homebuilding industry would disagree that their Division Presidents are
the backbone of their operations. More than any other position in the company, these are the
individuals who can make or break company performance.
In fact, these Division Presidents may run some of the last true P&L operations left in the country, in any industry.
They are entrusted to oversee every function from finance to operations to land development and more. These
positions are fully integrated general managers and demand an equally broad leadership skill set.
These miniature P&L divisions that dot the country, within the larger builders, are themselves a reflection of a
company's culture, philosophy, approach to homebuilding, and critical links to the all important home buyer.
Limited Years of Time in Position
Yet, the housing boom has propelled many of them into these positions with little general management experience.
Even more alarming, many have little exposures in running a business in an industry, which finds itself in one of
the toughest times in history.
It is only through these Division Presidents that homebuilders can hope to contain costs and improve profits as the
downturn continues, while maintaining morale and sufficient muscle to bounce back when the market returns.
A well known and widely read trade publication listed earlier this year the top 200 Division Presidents followed by
short backgrounds of each. It was a follow up to its 2006 listing, and revealed in many cases the actual time in
position of these field generals.
The inescapable conclusion one comes to after reading through this list is somewhat alarming.
It appears that almost 40% of those who made the list have two years or less tenure in their present position. An
even larger 60% have only four years or less time in the position they presently hold.
These are troubling percentages for even the most optimistic CEO, predicting how well their company can dig itself
out of the current downturn, with such a new group of general managers.
To be sure, many of these executives made their way into these positions due to the explosive growth of the
industry in the last five years. As the market soared, so did the desire for companies to expand into new regions.
These expansions no doubt created a huge need for Division Presidents. The expansion created a historical number
of opportunities for many.
It may also have led to promoting or hiring Division Presidents with less than the desired level of experience or
leadership skills. This promotional trend is on hold for now, but will no doubt be back when the market rebounds.
The NAHB predicts the need for 18 million new homes in the next ten years. U.S. demographics underscore not
only the need for more homes, but the unmistakable transition of the types of homes baby boomers will demand.
The future market for new homes screams the need for sophisticated Division Presidents, who can create good
value propositions for future home buyers at all ranges. They must come equipped to handle the financials as well
as the people.
Consolidating Division Presidents might provide some temporary relief to those companies strapped with
inexperienced general managers. The downside to this is the obvious negative impact on the truly high performing
executive, who will see limited opportunities for upward mobility in the future.
Consolidating too much, may even lead to movement of some of the better executives to different industries in
search of more lucrative careers.
Managing for the Future
Some Division Presidents have already been terminated or put in less demanding roles. Many others no doubt feel
the pressure of managing an operation that at best will break even this year.
So what can home builders do to insure that performance is maintained at the highest possible level until the
building cycle begins its inevitable turnaround? Here are a few suggestions.
First, it is widely recognized that people know when they are under water before anyone else recognizes it. Having
frank discussions about this possibility with all Division Presidents, while seeking ways to shore up their possible
needs, is time well spent.
Next, lowering expectations to a reasonable level is tough to do, especially when it is significant. Yet meeting lower
expectations is better than causing the entire Division to unravel, due to the anxiety and stress created in trying to
meet unattainable performance goals.
"Those companies that have best managed their talent under the gun will no doubt have a competitive advantage
when the market returns"
Surprises that consistently occur over time in the same Division are red flags suggesting that future performance
may also be questionable. It is time to meet face to face with these Division Presidents, and determine exactly how
accurate future forecasts really are.
One's own behavior will be closely watched and most likely followed by others. Ask yourself if you are setting the
standard that you are asking others to follow. Are you modeling the behavior you are asking people under you to
demonstrate?
Be wary of public criticism of an executive in front of others. It will only result in a loss of the Division President's
standing, and tarnish your own reputation.
Where appropriate obtain required technical support that the Division executive needs. Bringing in a respected
corporate or field functional expert to brainstorm problems in a Division often leads to innovative thinking and
possible solutions.
When a person is obviously over their head and publicly struggling, it is best to take them out of the position and
provide a temporary head until a solution is found. All employees expect senior management to acknowledge when
a problem exists, and expect someone to do something about it.
Tough times call for different approaches depending on the problem to properly manage and lead this critical group
of P&L executives. The CEO and other senior executives need to set the right tone, which is not an easy task in face
of impatient Wall Street analysts.
Those companies that have best managed their talent while under the gun, will no doubt have a competitive edge
when the market returns. History suggests that companies who overreact in a down market, are also the same
companies that struggle to get back their momentum when good times return.
How one is handling these challenges today will impact the performance of tomorrow. It is not an easy task to
mange Division Presidents who were selected because of their entrepreneurial abilities and strong personalities.
Using this downturn to eliminate the poorer or more average performers is wise, and positions a company in the
industry for strong future performance. How a company actually does this however is critical.
Even if not affected, people observe how others are treated and draw conclusion as to whether they want to remain
with the company longer term. Younger high potential Division Presidents, that are proven performers, have many
options in today's market both inside and outside the home building industry.
Your approach to them may well dictate how competitive you remain in this market downturn, as well your ability
to snap back when the market begins to turn.
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