Home Builder Adds a CIO to Help Keep Up With Boom

By Duff Mcdonald  |  Posted 10-15-2005

Two years ago, in the midst of the longest housing boom in U.S. history, and with its revenues having doubled in just four years, Toll Brothers Inc., a luxury home builder based in Horsham, Pa., decided it was time to act. So they hired George Nelson, the first CIO in the company's history.

Incredible as it may seem, this $3.9 billion business growing at breakneck speed appears to have gotten along okay without a CIO. Much of that has to do with the extraordinary growth of the housing market. Okay, almost all of it. But even in these frothy times, Toll Brothers has been growing much faster than the competition: The company's astounding revenue growth of 57 percent over the past year is nearly double that of its closest rival.

The truth is that building houses is a pretty simple business, and one that has traditionally used IT only as much as it needed to for survival. That's not to say that more IT wouldn't help; it's just that right now there's not much computer-aided analysis of markets or materials to speak of. Nor is there any fancy business intelligence software. At some point, however, when you're selling almost 9,000 homes a year, at prices ranging from $200,000 to $2 million, and must also manage the additional administrative burdens of being a public company—well, you've got to start thinking about putting in place an IT system that can hold it all together.

Historically for Toll Brothers, the path to success has been less about knowing how to build a computer network than about knowing what kind of windows or hallways would appeal to empty nesters, buyers trading up, and active adults looking for a nice view of the back nine on a golf course.

Alignment between business goals and IT strategy wasn't a priority—the company didn't need a spreadsheet to realize that the housing market was exploding.

But between the advent of Sarbanes-Oxley, and an expanding customer base, Toll Brothers realized in 2003 that it was finally time to call in an expert. All of which has left CIO Nelson struggling to catch his breath.

"I'd say my experience has been analogous to changing a tire on a race car without making a pit stop," he says. "It sounds grim, but that's what life has been like trying to move us from a small to a good-sized IT organization at the same time that the top line is growing at more than 50 percent annually. It's put a much larger sense of urgency into what we needed to do."

What, exactly, did he need to do? In short, Nelson was charged with tightening up IT controls for SOX compliance, and developing a customer-focused strategy for the IT department that would address both its internal customers as well as potential home buyers who might visit the company's Web site.

On the internal front, it was almost like starting from scratch: Nelson had to create an application strategy that would support growth, and that business people could understand. "The basic challenge from day one has been aligning the various resources and assets of IT to support the business and its growth. To keep people focused, we tie all our projects to something tangible—'If we do so-and-so, it helps sell more or build more homes'—so we need to know IT's impact."

When it comes to maintaining relationships with all their important constituents—both customers and employees—Toll Brothers shares some of the same information management goals as any other rapidly expanding entity. But when Nelson and his team considered the implementation of a customer relationship management system, they realized that their goals were not those of traditional CRM strategy, whereby a sales team attempts to up-sell or cross-sell product to a customer over time.

Most people don't buy houses all that frequently, so Toll Brothers needed a customer-care system that could keep track of all points of contact, from the first time a customer visits the Web site or sales agent, through to the delivery of a home.

At the same time, Toll Brothers wanted to aggregate prospects that come through the customer-facing Web application and the walk-in channel, as well as a uniform methodology for agreements of sale and other back-office functions, and it wanted to be able to keep all of that information in a central sales database. The dual objective: to be prepared for a downturn in the housing market, and to increase efficiency if sales keep spiraling upward as they have for the past several years.

Toll Brothers
CEO Robert Toll
CIO George Nelson
Revenues
$5.2 billion (trailing 12 months)
3-year revenue growth
20.5%
3-year net income growth
24.2%
IT Budget
Less than .5 percent of revenues
Discretionary IT spending
50 percent of IT spending
Total Company Employees 6,000
IT Staff 100
Growth Strategy Build more houses
The Bottom Line Toll Brothers hired their first CIO in 2003, so the company is clearly not blazing trails for others to follow. What’s more, the out-of-control housing market has resulted in the IT department being more reactive to the organizational challenges of growth, rather than acting as a catalyst for the business.

A pilot program launched this past September will attempt to harness the newfound analytical capabilities borne of keeping track of such customer data. Looking for a house in a golf-course community in a warm state? Your New Jersey contact should be able to point you to the right person in Arizona. Not ready to buy for six to 12 months? Toll Brothers has houses coming online on a rolling basis, and can likely accommodate most scheduling requirements. Come November, Nelson's team will take a look at the results of the pilot program and make any modifications they think will improve the system, all to the singular end of converting more leads into sales.

"This isn't a classical system where we're trying to speed up the transaction by days or weeks," Nelson says. "We're talking about an average purchase of more than $650,000, with a lead time that could be 12 to 15 months, depending on the location. We just need to be able to categorize prospects, segment them, and give them the various levels of attention needed to convert them into customers."

As with any salesforce automation software, a successful implementation will have two outcomes. First, it should simplify salespeople's lives. An easy-to-use portal to keep track of all relevant information that also prompts when a phone call or e-mail is due to a prospective customer should help in managing the sales process more effectively—a crucial tool in offering attentive sales support in an overheated housing market.

At the same time, it can help managers realize which salespeople are doing the appropriate follow-up. "Life as they know it will change," says Nelson. "But we're bringing sales managers into the process so they can offer their own input, and it's not just corporate being dictatorial." In the end, Nelson estimates that Toll Brothers will save about an hour per agreement of sale, a relatively small amount of time that can turn into large savings when you're selling almost 9,000 houses a year.

Another reason Toll Brothers desperately needed a CIO is the dreaded Sarbanes-Oxley Act. The advent of Sarbanes-Oxley requires top executives to certify their company's internal reporting with a personal signature—and the burden of ensuring that the internal reporting is accurate has fallen on the IT department. "Going through this has brought most IT organizations to a screeching halt," Nelson says. "And we wanted to make sure that didn't happen."

It has been a tough task: Small IT shops like the one Nelson took over tend to have few formalized controls or internal tracking and auditing functions—the essence of Sarbanes-Oxley compliance. By his count, Nelson's team had 122 issues to get a grasp of, everything from keeping track of who asked for and approved the movement of a router, to testing new accounting software for accuracy and what Nelson jokingly refers to as "skullduggery."

But it's no laughing matter: Top executives putting their John Hancocks on financial reports these days do so with the possibility of jail time if that which they've signed turns out to be rotten at the core. "Every single change has an audit trail," Nelson says. "All the way down to the source-code level." The company began work on Sarbanes-Oxley issues in February and was in total compliance by the end of July, proving that, even for this harried CIO, there are moments when one can savor a victory, however small.