Establishing a Strategic Plan

If you're like most remodelers, you've been so busy in 2006 you've hardly had time to plan for next year let alone the next three years. The remodeling industry flourished in 2006, and the next three years will bring more growth for the industry, says Gopal Ahluwalia, staff vice president for research at the NAHB.

September 30, 2006

Brothers (left to right) Steve, Alan and Neal R. Hendy of Neal's Design-Remodel discuss their long-term strategy at their annual planning lunch while their father, founder Neal P. (rear) looks on.   Photo by O'Neil Arnold

If you're like most remodelers, you've been so busy in 2006 you've hardly had time to plan for next year let alone the next three years. The remodeling industry flourished in 2006, and the next three years will bring more growth for the industry, says Gopal Ahluwalia, staff vice president for research at the NAHB.

Spending in residential remodeling will register $238 billion or more by the end of this year — a 10 percent gain over 2005 — he says, zoom up another 9 percent in 2007 and increase 5 or 6 percent a year for several years after that. "The remodeling market will stay strong and get larger" for some time to come, he says.

Even if the work is pouring through your company's door, it's important to set goals and chart a course to achieve them. Why? When business is hot, company growth potential is high — and strategic planning helps you make the most of that opportunity. Boom times also raise the threat of increased competition, as well as the likelihood that weaknesses in your operating system will slide by uncorrected, only to come back and hurt profits later. Planning can protect you from these risks. Nobody said strategic planning is easy.


A new way of thinking

Steve Hendy, who runs Neal's Design-Remodel, a $6 million company in Cincinnati, with his father and two brothers, admits looking beyond a year had always been a challenge. A few years ago they took the first step toward easing the process by initiating an annual planning lunch. One day in late fall, the three brothers sit down to talk about plans and goals for the next five years. There's no heavy duty number-crunching involved, but the discussion puts ideas and issues on the table. "It gives us things to think about" and pinpoints objectives he can factor in when he budgets for the next year, says Hendy.

The informal planning technique worked so well for the Hendys that, in 2003, they enrolled in the Cincinnati Chamber of Commerce Roadmap to Excellence program, which has helped guide them through the process of establishing a formal strategic plan for Neal's Design-Remodel to grow 8 to 10 percent a year over three to five years. The company's volume was already 40 percent above 2005 year to date in the third quarter of this year.

Residential remodeling company F. H. Perry Builder in Hopkinton, Mass., also has developed a strategic plan. "We're poised to generate more work," explains sales and marketing vice president Allison Perry Iantosca. The company's management team is determined to seize the opportunity without sacrificing quality. Combining ambitious ideas with a "focus on sharpening what we're doing," Iantosca generated a plan designed to propel the company from an annual volume from $5.5 million in 2006 to $12 million in three years.

Strategic planning has enabled both companies to pinpoint their strengths and weaknesses and plan what they need to do to reach ambitious goals. As Hendy says, multiyear planning has made Neal's "look at who we are, where we want to be and how to get there."

Generations of remodeling

Underlying any corporate strategic plan is market analysis. Identifying the emerging remodeling client base and speaking the "language" of those homeowners in sales and marketing is essential for success in a remodeling business that will go forward.

Finley Perry (left to right), president of F. H. Perry Builder, with his planning team: daughter Allison Perry Iantosca, vice president of sales and marketing; Bill Cosman, vice president of project development; and Brad Gardner, vice president of production.
Photo by Dave Bradley

The Baby Boom generation, born between 1946 and 1964, "still accounts for over half of remodeling spending," says Kermit Baker, director of the Remodeling Futures Program at Harvard's Joint Center for Housing Studies. These Americans — some 77 million strong — have the home equity and the wealth to bring luxury into their homes. And with the first wave of baby boomers turning 60, they represent an enormous emerging market for modifications to make their homes comfortable, adaptable and accessible as they age.

The other big wave washing through remodeling is the Generation X population born between 1965 and 1977. It's no mistake Gen Xers are turning to a high-end remodeling company like F. H. Perry. Ahluwalia says that, in terms of financial success, this savvy group is "doing as well or better" than boomers. In terms of remodeling spending, Baker says they are investing more in their homes than baby boomers did at their age. With demanding careers, little time or interest in do-it-yourself projects, and a desire for high-quality home makeovers with all the technological bells and whistles, Generation X is becoming an increasingly important component of the remodeling market.

Through strategic planning, Neal's and Perry are positioning themselves to meet the expectations of the industry's two strongest market segments.

Defining Neal's

Another goal of the strategic plan: to solidify Neal's as a great place to work - a place where good job performance is rewarded.

Since Neal P. Hendy founded Neal's 35 years ago, the design-build remodeling company has developed successful practices for delivering excellent customer service, design and construction. One top goal of the company's strategic plan is to polish and systematize those practices so Neal's will continue to achieve high customer satisfaction ratings even as volume grows. Another major goal is to get out the word to both repeat and newly targeted clients, making sure that everything about the company reflects the company identity and hits the market's hot buttons.

Succession and transition planning also shaped the company's strategic thinking. As the family prepares for Neal P. Hendy's sons to take full control of the company and eventually for the third generation to come on board, the plan needed to lay the groundwork for sustained, long-term company growth.

Many employees have been with Neal's as much as 10, 20 and even 35 years, so it's a family company in more ways than one. Another goal of the strategic plan: to solidify Neal's as a great place to work — a place where good job performance is rewarded.

The F. H. Perry brand

Finley Perry's company has been remodeling homes in the Boston area since 1975, building a reputation for A-l customer care and craftsman-quality construction. Articulating and preserving that reputation, that "brand," is a key component of Iantosca's plan to grow the company in the competitive Boston market.

Perry's chief client base has been baby boomers, particularly empty-nesters moving from the suburbs to Beacon Hill, the Back Bay and other desirable areas of the city. "We're starting to hit a younger market," says Iantosca. Positioning the company to attract and serve that new market niche — prosperous 40-something Gen Xers — is a top goal of the company's three-year strategic plan.

Like the Hendy plan, the Perry plan moves the company toward a smooth succession, so that Finley Perry can eventually become less integral to sales and the day-to-day operation and focus more on being primarily a "big picture" company president. Also like Neal's, F. H. Perry has highly skilled crews, most of them logging seven to 15 years with the company. A goal of the Perry plan is to assure that the company will remain an attractive place for top-quality personnel to stay and make a career.

Re-evaluating the plan

Iantosca says, "I'm the personality type to create a three-year plan and follow through with it." She drafted a plan for F. H. Perry, "it made sense to dad [Finley Perry], and we made a presentation to the company in March 2006. Staff members said, "Wow, Allison, that's ambitious, but it's exciting." Iantosca was pleased. "A three-year plan needs to be ambitious," she says, presenting "a realistic stretch. If they had not said ambitious, I'd have been disappointed." With a plan in place, she says, "now there's accountability" and everyone in the company is united behind goals to strive for.

Once they enrolled in the Roadmap to Excellence program, the Hendys wrote a mission statement — "smooth remodeling experience with least disruption for the client" — and embarked on the process of creating goals and objectives for every area of the company. An eight-member continuous improvement team, which includes the three Hendy brothers and representatives from sales, design, production and office administration, mapped out the multi-year corporate strategy. Blitz teams are formed as needed to tackle specific problems and objectives. Other employees are invited to attend planning meetings, too, so that everyone feels invested and involved.

Strategies for success: 2007–2009

As part of the planning process, Neal's and F. H. Perry performed corporate self-exams to determine what's working, what needs improvement and what needs to be reinvented or changed for their goals to be met. Here's the result:

Target market: F. H. Perry's niche is the high-end, customer-service-oriented market. Iontasca is satisfied that "the right people are calling us." But over the next three years, she wants to increase the company's volume in that market. That means remaining active in the baby boomer segment and energetically targeting the affluent Gen X population. Perry's client base used to be 80 percent baby boomers; now it's closer to 50 percent boomers and 50 percent Gen Xers. To grow both markets means landing a few more $1 million-plus jobs or more smaller jobs. It means maintaining a strong presence in Boston and the three or four suburbs where the company has an established name, plus expanding into "a few northern and western suburbs that would be good for us."

Until now Perry has focused strictly on remodeling, but "were talking about taking a custom home project," says Iantosca. If the right one comes along —"a sweet custom home" calling for high-octane customer service and fine custom craftsmanship — it "would work well for us. It would help to show that we're going toward [new home construction] but sticking to our niche."

Hendy says his company has "chosen not to diversify and to focus instead on becoming the best design-build firm we can be." Neal's targets a market that straddles the line between baby boomers and Gen Xers — two-income households age 40 and older. It's a population that includes active empty nesters who want to expand their homes for entertaining and people who want the latest home technology trends, from refrigerator drawers to home theaters. Neal's wants to gain market share throughout the Cincinnati area, particularly in the rapidly growing Northeast side.

Company identity: "Our identity didn't reflect who we are and our level of service," says Hendy. The longtime company name, Neal's Remodeling, didn't fully explain what the company does. So as "a first bold step we reinvented our brand," says Hendy. The team changed the company name to Neal's Design-Remodel and introduced a sophisticated, design-oriented new logo. Like a silk top hat on the head of a well-dressed gentleman, the new name and logo set the standard for every other aspect of the company.

Company owners hope this card - a new brochure written from the client's perspective - demonstrates exceptional service, creativity, and craftsmanship at F. H. Perry Builder in Hopkinton, Mass.

As a Gen Xer herself, Iantosca was sensitive to the potential disconnect between what Perry does and the image it portrayed to this up and coming market. "Our message used to be too F. H. Perry Builder-centric — all about traditional craft. Now we are focusing on the experience of working with us from the client's point of view: 'Your experience will be ... 'You will feel this way when you are in the presence of our brand,'" says Iantosca. "We are painting a clearer picture of who we are," she adds, to show that clients who want "superb craftsmanship, an outstanding construction process and a focus on the priorities of clients" have come to the right place. The new picture, expressed through every aspect of the operation, is that of "a custom contractor" as creative as it is service and quality oriented.

Marketing: This fall Perry is introducing a radically new marketing brochure to convey what the company is all about. Current clients, architectural and interior design firms with whom Perry likes to work, and selected prospects will receive a box that contains punch-out cards to assemble into a house, along with a pencil and a pad labeled, "create." Information cards about the company will be mixed, matched and inserted, too. The idea is to employ "a powerful but softer marketing pitch, with more pictures and fewer words. The fun of the brochure gives a sense of the fun, creative process of working with us. We hope people will 'get' us before they've even met us," says Iantosca. Perry will update the company Web site and print ads to coordinate with this new approach, she adds.

Neal's developed an impressive new marketing piece to demonstrate the company's high standards of quality and design. The portfolio contains a foldout brochure on the company's design-build process, coordinated mix-and-match inserts about the company, and a multimedia "gem book" listing 40 customer service details that the company always takes care of. Because "women are the drivers in the decision-making process" in Neal's target market, the gem book emphasizes issues of most concern to women, such as keeping an eye on the family pets and providing a kit of plates, utensils and restaurant certificates for kitchen remodeling clients.

The company will offer cooking classes in the design center, send the Neal's magazine to clients, present seminars at the local home show and promote its image and its design center in other ways.

Also on the Neal's marketing agenda: direct mail campaigns in target market areas and the posting of customer "mini-sites" — digital photo albums of their remodeling projects — at Neals.com. Proud clients showing pictures to friends will be marketing for Neal's, says Hendy.

Location: Relocating is the next big step, Hendy says. For 35 years the company has occupied a 2,000-square-foot office inconveniently located 45 minutes from most of the neighborhoods where Neal's works. Next spring the company will move into the 5,500-square-foot building it designed and is constructing in the northeast Cincinnati target market. The building will feature a cutting-edge showroom with digital design portfolio and design center to display the latest trends and streamline the design and product selection process.

"Our plans for 2007–2009 are to get firmly established in the new location," says Hendy. "We know 2007 will be a challenge due to this disruption." The marketing budget will be increased in 2007 for more direct mail and events.

The new location should help some sales in particular. "The new design center will be very kitchen-focused. We are expecting kitchen sales — now 32 percent of our business — to increase by 15 to 20 percent."

Sales: The firm has shored up staffing in sales and design by hiring one additional designer and two more salespeople, says Hendy. One reason is succession planning: "Dad does sales, and he's getting older." The other reason is that the company's aggressive growth strategy calls for more sales and project management power.

Within the next year, F. H. Perry is looking to hire "a savvy salesperson who understands the differences" between baby boomer and Gen X buyers and has the skills to sell the right way to each of them, says Iantosca. For Gen Xers the right approach is relationship selling versus project selling. These busy, technologically connected people, Iantosca says, have a 20-minute attention span for the company to present its message. That message needs to be delivered "efficiently, quickly and in a way that [establishes] a connection between us."

Producing the job: Of course a company's identity has to be more than skin deep. Both Perry and Neal's have put systems in place to make sure the company standards are met on every project. "We meet biweekly as a company," says Iantosca, to share information, discuss issues and engage every member of the company. To erase the "us versus them" communications gap between field and office, Perry organized the staff into "continuity groups" that carry projects from sales through administration and production.

As part of the planning process, Neal's and F. H. Perry performed corporate self-exams to determine what's working...

As part of the three-year plan, the company is creating a book of standards and forms to ensure tight control of project management and flow. "Now a work group is creating a project debriefing template," says Iantosca, to evaluate the successes and challenges at each stage of a job.

Because Neal's relies heavily on subcontractors, Hendy is comfortable that the company has the available skilled manpower to handle two to three years of production at the 8-10 percent annual growth rate he expects. Rather than add production managers, the company is having others take on more responsibility. The firm added a project coordinator who makes sure everything is completed — selections, materials ordering, plans, permit, etc. — when it is handed off to production, responsiblities the salesperson previously handled. The lead men also participate in scheduling, materials ordering and customer communication. Employee development: Iantosca credits strong people in each position in the company; making optimal use of that talent is integral to Perry's growth. "Part of the three-year plan is to create growth opportunities for everyone in the company. The whole reason we want to grow is not so much for the money as much as it is to keep giving these highly skilled individuals opportunity. The employees will help us determine the structure of this effort."

To reward and motivate Neal's workers, the company has started giving out "wows." If an employee or subcontractor, does something especially well or comes through with the solution to a knotty problem, he or she might get wowed with a $30 gift certificate or another prize. There's new excitement in the air, and it's become common to hear someone around the office say, "I wowed Joe today," or "I got wowed." Every wow is listed in a company log.

Monitoring the plan: The three-year plan hinges on successful sales, says Iantosca, but "it's all cyclical. When we produce what we're selling — an exceptional process [of customer service and quality construction] — we generate more sales." She revisits the F. H. Perry three-year plan every month to monitor sales and market conditions. The planning team — which includes Perry, Iantosca, the production vice president, and the head of pre-construction services — meets at least annually to assess progress. To benefit from an expert outside perspective on the market, the company wants to establish an advisory board composed of Boston area professionals and business leaders. Board members may be drawn from F. H. Perry's client roster.

If the plan needs to be tweaked, it will be; the nature of the plans is that they are flexible, Iantosca says. Hendy agrees, but warns, "Don't change your vision." To stay on course toward achieving company goals, the continuous improvement team at Neal's meets twice a month, focusing on areas that need attention. Hendy keeps a close watch on the financial side, reviewing overhead costs quarterly and work-in-progress job costs every month "while there's time to react." The company continually monitors customer satisfaction, considering it a problem when any response to the question, "Would you refer us?" is "No." Hendy says, "We strive for 100 percent. We are averaging the year to date at 97 percent."

What if the remodeling industry starts to really feel the economic cool-down? This advance work should pay off. "It's our responsibility to be successful no matter where the remodeling is going. We need to move within the fluctuations of the market," Iantosca says.

Neal's Design-Remodel 2006 Strategic Objectives
Base Base 1 2 3 4 5
Year 2004 Actual 2005 Actual 2006 Plan 2007 Plan 2008 Plan 2009 Plan 2010 Plan
Sales ($M)
Closings
Gross Profit
Net Sales/Employees
Total # Employees (Office/Field)
Production (monthly WIP avg)
# of Jobs sold
Average Job Sales
Major Expenses
Others:
Carry over to next year
GP%
Overhead
Bonuses
Assumptions:
The Hendy brothers used this chart at their annual planning lunch for Neal's Design-Remodel in Cincinnati, says Steve, "to get us all on the same page for five-year planning - growth, projections, concerns, budgeting, staffing, etc."


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