Quadrant Homes

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Karen A. Brown
Thomas G. Schmitt
Richard J. Schonberger
Quadrant Homes: Adapting a Lean Operating

Model to New Market Realities
In early 2013, Quadrant Homes President Ken Krivanec and COO Mark Gray1 reflected on the Seattle-area
company’s future, and explored ideas for modifying the lean operating model that had served the company
profitably and fueled growth for over 10 years. Quadrant’s focus on operational excellence had suited first-time
homebuyers who connected with the company’s “More House, Less Money” value proposition. Things changed
when the Great Recession arrived in the Puget Sound region in 2007.2 Its effects on the housing market, and on
Quadrant, were monumental. As house values declined and unemployment rose, people lost confidence in their
ability to own homes. Those who did venture into the market found good value in foreclosed and distressed
properties, which increasingly competed head-to-head with Quadrant’s houses. According to the Federal Reserve,
U.S. foreclosure starts had risen from around 500,000 in the year 2000 to 700,000 in 2006, and then soared to
about 1,900,000 in 2010. 3
The Quadrant Homes Operating System

Quadrant Homes, a subsidiary of Fortune 500 Weyerhaeuser Company’s Real Estate Division, had gained
renown for its lean-oriented business model. Starting with a major overhaul in 1996, Quadrant built a formi-
dable operating system that effectively served the needs of first-time home-buyers in the Puget Sound region of
Washington State. The overhaul involved a fundamental shift from building houses based on speculation about
demand (referred to as spec houses) to a make-to-order model grounded in the lean concept of customer pull,
and built on extensive market research. During the five-year period preceding the 1996 lean transformation,
Quadrant’s weak revenue and profit performance had caused its parent company to question the homebuilder’s
continued viability as a subsidiary. This corporate-level scrutiny was a powerful motivating force for change.
From 168 houses in 1996, Quadrant grew its annual gross sales to over 1,800 houses in 2007, and expanded its
market share4 from 1% to 14% during the same period. Net margin per house grew from -4% in 1996 to 7% by
2007. Additionally, independent market research showed that customer willingness to refer friends to Quadrant
had climbed from 73% in 1996 to 93% in 2007. Concurrently, Quadrant’s industry-leading workplace safety
record had improved every year, and gained the company national recognition.5
At the heart of Quadrant’s success was its laser-like focus on operational excellence as a value discipline.
(See Appendix A for more on value disciplines.) The company designed its entire operating system to meet the
needs of its target market—first-time buyers seeking houses in the $180,000 to $400,0006 price range. Quad-
1
Krivanec had been with the company over 10 years; Gray over 15.
2
There are debates about when the recession began, 2006 or 2007 (http://spectator.org/blog/2011/06/09/when-did-this-
recession-begin), but it is generally viewed as hitting the Seattle area one year later than other U.S.metro areas.
3
http://www.federalreserve.gov/pubs/feds/2011/201132/.
4
Calculated as # of Quadrant sales/Total number of building permits in the areas served.
5
Quadrant was the first residential construction company in the U.S. to receive OSHA’s Voluntary Protection Program
award (http://www.osha.gov/dcsp/vpp/index.html).
6
In 2005 U.S. dollars. House prices in the Seattle area tended to be higher than those in many other U.S. metro areas.
Copyright © 2012 Thunderbird School of Global Management. All rights reserved. This case was prepared by Professor Karen A.
Brown, Thomas G. Schmitt, and Richard J. Schonberger, for the purpose of classroom discussion only, and not to indicate either
effective or ineffective management.
This document is authorized for use only in Pablo Sosa: 's MBA 2022 - MB6150 - Operaciones at Universidad de San Andres (UDESA) from Oct 2022 to Apr 2023.
rant’s value proposition, “More House, Less Money” (MHLM), appealed to these customers, and they willingly
accepted the standardization and regimentation that allowed them to get the space they wanted.
Quadrant’s integrated system, including customer-facing activities, was built around even flow and predict-
ability. So, for example, when the number of construction starts was four per day, Quadrant scheduled showroom
appointments, in-house loan processing,7 and closings also at a four-per day pace. This kept the entire system
predictable. An overview of Quadrant’s process, beginning with a customer’s first visit to a community, and end-
ing with receipt of payment, is displayed in Exhibit 1.
Exhibit 1. Quadrant’s Standard Process, 1996-2010
As indicated in Exhibit 1, every Quadrant Exhibit 2. Stringline Schedule Example

house, regardless of its size or configuration,
was built in 54 days after the foundation was
poured.8 This compared to the local industry
average of about 90 days for houses in the same
market category. Sequencing was the same for
every house—on any of the 54 days a Quad-
rant employee could say exactly what would be
happening to each house in process. Exhibit 2
shows a partial stringline schedule as an example
of how the plan would look in a one-start-per
day scenario.
Quadrant’s production schedule for a several-week period was displayed in the corporate headquarters
conference room and updated on a daily basis. In this stringline schedule (so named for a pencil hanging from
a string), the string with pencil was moved to the right each day to show current-date tasks and highlight delays
in red. Quadrant followed a disciplined process for using overtime to catch up where needed. As COO Mark
Gray explained it, “We didn’t eliminate the common types of delays in our industry. We just had a better way of
7
Quadrant formed a joint-venture partnership with Wells Fargo Bank in 2002 to bring the lending process in-house as a
way of controlling this aspect of the customer-facing process.
8
Quadrant’s houses were built on level lots and had no basements. Foundations typically were poured after contracts were
signed. Because some jurisdictions did not allow excavation work during the Puget Sound rainy season, Quadrant did pre-
pour some spec foundations. But, as Quadrant proved it could maintain mud control and limit runoff from excavation,
these public sector agencies let go of their restrictions on when Quadrant could pour foundations, eliminating the need to
pour on spec.
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responding than our competitors. Instead of considering how to recover from delays locally on each job, we looked
at everything on the stringline and made system-wide adaptations that worked from a big-picture perspective.”
One factor that made the 54-day schedule possible was that Quadrant purchased building parcels of 100-
300 lots within each development community it served. This meant that houses could be built in proximity,
allowing suppliers and contractors to minimize transportation time as they paced from one house to the next.
Another factor was the way Quadrant brought regularity and predictability to the timing of inspections within the
54-day schedule. By consistently meeting its promises to have work completed as scheduled, Quadrant was able
to develop cooperative relationships with city, county, and state inspecting agencies, and could generally count
on inspectors to complete their work during the time window designated in the stringline. According to Gray,
the reliable incorporation of inspections into the even-flow schedule was a major differentiator for Quadrant.
Over the years, numerous residential construction companies benchmarked Quadrant’s renowned string-
line schedule, and Quadrant willingly revealed its details. However, none is known to have been able to make
it work on a sustaining basis.
Design Options Supporting the Lean Operating System

Following the principles of Design for Manufacture and Assembly (DFMA), all of Quadrant’s designs had standard
elements that aided suppliers in developing and sustaining reliable, safe work routines. Quadrant employed the
DFMA concept of part commonality across designs to take advantage of volume discounts for windows, doors,
and other features. This did not rule out customization entirely. For example, customers were given only three
window-size options, but they could customize them cosmetically and configure them in side-by-side groupings
to create more fenestration.9 Suppliers and contractors, treated as Quadrant partners, were an important source
of suggestions in support of the company’s DFMA initiative. Ideas from their continuous stream of suggestions
resulted in design modifications that made the houses easier and less costly to build. An example of one of Quad-
rant’s 2004 designs, along with images of limited modifications available, is shown in Appendix B.
Even with its adherence to standardization, Quadrant offered over 5,000 choices in areas that did not in-
terfere with its lean operating model. This included options for cosmetic exterior looks, floor coverings, cabinets,
room options (e.g., extra garage versus family room), and fixtures. All feasible option combinations were costed
out in Quadrant’s IT-based configurator, so pricing on a home order was instantaneous as soon as a customer
completed all choices. This eliminated the time and cost most builders allocated to prototyping, and reduced
the information delays that can frustrate customers and discourage them from completing the ordering process.
Supplier Relationships
Quadrant, whose employee numbers neared 300 by 2007 but dropped to under 100 in early 2013, outsourced
the construction portion of its work to a carefully managed, limited group of supply chain partners. For most of
its first-tier supply network, Quadrant relied on single sources, the majority of which were local, family-owned
businesses. These companies appreciated the regularity in Quadrant’s schedule, in contrast with the feast-or-famine
demands of most other builders. They also appreciated Quadrant’s respect for their cash-flow needs and knew
they could expect to be paid every week, right on time, and without delay, for the work they had completed.
An example of one of Quadrant’s best suppliers was Woodinville Lumber (WL). WL continuously sought
new ways to reduce process variance through assembly-line based prefabrication of wall panels, roof trusses, stair
modules, and other components. Cutting and assembly took place in a controlled indoor environment, elimi-
nating uncertainties inherent in the Seattle area’s notoriously wet weather, and reducing waste by allowing for
optimal use of building materials. As Quadrant expanded construction starts per day, WL expanded as well. Given
the lumber industry’s requirements for large runs, and the volatility of pricing in the industry, WL designed its
purchasing strategy to take advantage of commodity pricing cycles. With full access to Quadrant’s backlog data,
WL could anticipate its needs, weigh commodity options, and purchase large lumber lots months in advance.
9
A term referring to the number of window openings on a building’s surface.
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Rules and Policies for Customers
Quadrant made clear to customers that there were limitations they would have to accept if they truly wanted more
house for less money. Not all customers were willing to comply with the restrictions, and Quadrant employees
were trained to feel comfortable politely saying “no” to those who were clearly looking for something other than
what Quadrant offered. By saying “no” to customers outside the chosen segment, Quadrant was better able to
economically serve the needs of customers who were suited to MHLM. Examples of customer-facing rules and
policies included:
• A customer could order only the options (flooring, cabinets, and fixtures) available in the showroom.
• Design option choices were frozen at the time a contract was signed, and no changes were permitted
later.
• Every customer was very strongly encouraged to visit the new home showroom five times during the
strictly specified 45-day time window leading up to initial contract signing.
• A customer was not authorized to enter the construction area without permission, but was expected to
visit the site on prespecified orientation days within the 54-day window.
Changes in Production and Demand Rates

From a low of 168 spec homes sold in 1996 before the full introduction of the new make-to-order business
model, Quadrant grew its gross sales to a peak of 1,845 houses in 2004, and held on to similar sales volume
through 2007. However, as the housing market declined, the company could not sustain the demand pattern
that had fueled its growth. Exhibit 3 shows gross sales history.
Exhibit 3. Quadrant Gross Sales (Houses Sold), 2003-2012
Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
1,336 1,845 1,525 1,394 1,703 931 791 383 444 563
Between 1997 and 2007, Quadrant expanded its construction starts per day from one to seven, all while
maintaining its 54-day construction schedule. In 2008, the company experienced a sharp drop in sales. By 2012,
housing market conditions and new home sales had begun to turn around,10 and were reflected in increased de-
mand for Quadrant’s houses. Quadrant’s history of daily construction starts is captured graphically in Exhibit 4.11
Exhibit 4. Quadrant’s Maximum Daily Construction Start

Rates, 1996-2012
Quadrant was able to establish its daily construction-start rate for at least a year in advance, a crucial sup-
porting element for its even-flow process. Maintaining a backlog of house orders awaiting start of construction
insulated the level production schedule from demand variations and allowed for the selection of an efficient mix
of houses to start each day. As Operations VP Chris Pallemaerts commented, “Our mantra was, ‘backlog cures
10
Whelan, R. 2012. “Sales of New Homes Climb Sharply,” The Wall Street Journal, August 24, A2.
11
It is important to note that Exhibit 4 shows the maximum number of construction starts, by year. In contrast, Exhibit 5
shows start-of-year data for accumulated orders not yet built, rather than new orders. Consequently, the two figures represent
slightly different forms of data.
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everything.’” Exhibit 5 shows Quadrant’s backlog at the start of each year, from 1998 to 2011. The 2006 expan-
sion to seven starts per day required Quadrant to dip into its backlog more than it had historically.
Exhibit 5. Quadrant’s Backlog of Home Orders Awaiting the Start

of Construction at the Start of Each Year, 1998-2011
The declining backlog was not Quadrant’s only challenge. In 2007, 95 customers cancelled their contracts
because of looming economic uncertainties. To sustain long-term goodwill, Quadrant refunded their deposits
and did not hold them to any obligations.
Shifting Market Characteristics

By 2009, the first-time home-buyer market had diminished to a point where it could not offer Quadrant suf-
ficient volume to sustain its operating system and meet revenue targets. Quadrant shifted its ever-present focus
on formal market research into much higher gear, and also began paying closer attention, anecdotally, to the
options its current customers were ordering and requesting. A few of Quadrant’s insights, gathered through
2012, were as follows:
• The remaining number of people in the “More House, Less Money” segment was no longer sufficient
to sustain Quadrant’s operating model.
• Living-space volume had lost its appeal as a primary requirement.
• Quadrant’s basic house plans and packages, which included very minimal feature levels, were no longer
attractive to customers.
• Buyers had begun to object to the rules and restrictions (described above) that had supported
standardization and lean delivery. They expected more flexibility.
• People wanted to live in houses that looked distinctly different from others in their communities. See
Appendix C for a photo of a cluster of Quadrant’s MHLM houses.
• The growing segment of customers in the Generation Y demographic12 found urban locations more
attractive than Quadrant’s traditional suburban locations.13
Evolving buyer preferences led Quadrant to upgrade its base feature levels by adding $5 to $15 per square
foot in features that previously would have been considered upgrade options. Easy-to-install vinyl siding was
out, and fiber cement siding was in. Recessed interior lighting replaced surface-mount lighting. Vinyl floors were
replaced with hardwood, and laminate countertops were dropped in favor of tile. Ductless heat pumps replaced
ducted heating systems. And, in response to customer demand for differentiation, Quadrant began offering
dressed-up house-fronts, more options in roof lines, greater variety in cabinets, a wider range of paints and wall
finishes, and increased fenestration.
12
Generally viewed as being born in the 1980s or 1990s. Kwoh, L. 2012. “Firms Bow to Generation Y’s Demands,” The
Wall Street Journal, August 22, B6.
13
This was in keeping with general trends in the U.S. See Dougherty, C. and Whelan, R. 2012. “Cities Outpace Suburbs
in Growth,” The Wall Street Journal, June 28, A2.
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Growth of Inventory
As Quadrant’s backlog dropped, it became increasingly difficult to fill production schedules. So, to maintain
even-flow schedule stability, the company began inserting make-to-stock houses into the stringline schedule.
Between 2007 and 2012, houses built on speculation ranged from 25% in 2007 to a high of 50% in 2011. By
2012, Quadrant had brought the spec percentage down to 30% and hoped to drive it lower.
On the raw material side, the company had accumulated a large inventory of building sites geared toward
MHLM. As the backlog of customer orders declined, acquisitions continued. By 2006, Quadrant owned 1,000
lots and had invested in options for another 2,000. A significant number of these building sites did not suit the
evolving preferences of customers. For example, communities of 100-300 Quadrant building sites did not offer
a sense of uniqueness now demanded by customers.
House plans, another process input, also grew in number during the period when backlogs were diminish-
ing. By 2008, the number of plans had peaked at over 400. In-house architects had created new designs to stay
abreast of changing market preferences, while also maintaining older designs. As the blueprint catalog grew, so
did the need for additional management, planning, clerical, and IT support. It was an ongoing challenge to keep
every design up-to-date with the code requirements of multiple municipalities and counties.
The Fallout
In 2008, Quadrant executives realized the growth that had fueled their success would not continue. That
year, plans for southward expansion into Portland, Oregon, were halted and assets there were sold. A satellite
showroom in Southwest Washington State’s Olympia area was closed, and plans to open a showroom in Skagit
County, north of Seattle, were dropped. In 2011, Quadrant sold a portion of its nonstrategic inventory of large-
community building sites while simultaneously purchasing smaller clusters of lots in locations more suited to
emerging customer preferences.
The fallout extended to Quadrant’s suppliers, as well. Woodinville Lumber, having invested heavily in ex-
pansion to accommodate Quadrant’s growth, was unable to stay in business when demand plunged, and closed
its doors in 2011. This left Quadrant operating without a source for the production of critical prefabricated
components, such as wall panels, and forced a return to fabrication at building sites. WL was not the only sup-
plier to experience collateral damage—several others central to Quadrant’s lean operating system also went out
of business.
Exploration and Experimentation, 2011-2012

As the MHLM market pool shrank and customers increasingly pushed back against Quadrant’s lean-oriented
restrictions, boxy designs, and sameness, Quadrant initiated a deliberate rebranding effort that removed MHLM
logos from advertisements and the company website in August of 2011. These were replaced, without fanfare,
by “Built Your Way” (BYW) in October 2011. Additionally, the showroom was renamed the Design Studio in
late 2011.
In 2011, salespeople in the newly renamed design studio were instructed to begin saying “yes” to requests
that previously would have been rejected by policy. It was now acceptable to respond favorably to customer
requests to move load-bearing walls, order options outside limited showroom offerings, or allow customers to
visit their construction sites. The entire range of new options had not been prepriced, so design studio personnel
were given the green light to use their own judgment in these situations and make pricing commitments that
Quadrant would honor. This circumvented the more common but lengthy practice of waiting for a full bidding
process from suppliers, and required educated guesses about actual cost. Krivanec and Gray knew this somewhat
ad hoc approach presented profit risks, and also could present challenges in meeting buyer expectations when
unfamiliar configurations were created for the first time. They accepted the idea that a period of managed chaos
could generate information needed for radical improvements.
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Exploration and experimentation led to the following developments:
• Newer designs supporting BYW were configured for greater flexibility, allowing the company to reduce
its catalog of plans from over 400 down to about 50.
• Some employees, steeped in the MHLM routine, were unable to change mindsets toward customer
intimacy. Quadrant found it necessary to eliminate all customer interface and order placement positions
and create new job descriptions. Subsequent employee interviews resulted in the retention of two people,
the loss of two, and the hiring of two others.
• House designs that tended to require high levels of customization were eliminated and replaced with
designs that offered more universal appeal.
• Quadrant scrapped its nearly self-guided software for product configuration, costing, and billing in
favor of much more flexible but labor-intensive procedures. The new configurations would ultimately
be codified, but this would require time and experience.
• In early 2012, the stringline was rebalanced and extended to 57 days to accommodate the higher feature
level, loss of WL as an off-site integrator, and the broader range of options available. To contain the
schedule within 57 days, Quadrant created setup routines that allowed as much off-line prefabrication
and staging work as possible, and made the best use of construction time. The company also carefully
assessed plan variations, and avoided those likely to extend construction time beyond 57 days. This
required some experimentation and learning.
• Subcontractors, accustomed to the routines associated with Quadrant designs, had come to count on
being able to operate on autopilot once they saw a familiar plan number. Now, they sometimes missed
the modifications that had been inserted into more customized orders.
• To expand market appeal, the “Quadrant Assurance Program” was instituted with money-back guarantees
for any customer not completely satisfied, as were other policies and assistance programs intended to
increase consumer confidence in house-purchase decisions.
Quadrant’s New Demographic Profiles

From a rather fragmented market, Quadrant identified three demographic groups as offering potential unmet
demand in the post-MHLM era. Houses for each demographic would have their own unique features and locations.
• Built Your Way (BYW). Intended to replace MHLM, BYW incorporated more customization in
option selection and design, higher-quality features, and added curb appeal in exterior appearance. The
target market was the 29-54 age group with family incomes of $75,000 to $150,000, ranging from
first-time home-buyers with young children to middle-aged buyers with high-school-age children. Prices
ranged from $200,000 to $450,000, and square footage ranged from 1,600 to 3,500 (149-325 square
meters). Quadrant anticipated building about 400 BYW houses annually in the suburban Puget Sound
communities east of Lake Washington.
• Evoke. These houses were designed for the 34-65 age range, with incomes of $100,000 to $200,000—
typically, professionals purchasing primary residences for the first, second, or third time. Quadrant
had enlisted the help of a German industrial design firm, frog design, to create a look and feel that was
completely different from anything on the market. The designs emphasized edgier, post-modern features
that included sloped metal roofs, wood finishes on the interior and exterior, and uniquely arranged
outdoor courtyards with detached structures. Prices ranged from $500,000 to $1,000,000, and square
footage ranged from 2,400 to 3,300 (223-307 square meters). Quadrant anticipated building 50 to 100
Evoke houses annually in the upper-scale suburban Puget Sound communities east of Lake Washington.
• Urban Innovations. Urban Innovations (UI) was targeted for the 23-35 Generation Y age group, with
family incomes of $75,000 to $115,000, and typically without children, or with one or two children
under the age of five years. These residences were smaller, attached, three-floor townhouses in clusters of
four to six multi-unit buildings, with up to 16 residential units in a development. The compact structures
would be built on undeveloped urban sites close to transit and within walking distance of services. To
meet this market segment’s needs, the dwellings would feature open-architecture living spaces to allow
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for lifestyle flexibility, numerous built-ins to make the best use of limited space, and considerable storage
room for outdoor toys such as bicycles and skis. On the exterior, they would offer a sense of community
through the use of front porches facing the sidewalk and street, as well as outdoor common areas. Prices
would range from $275,000 to $400,000, and square footage would be under 1,500 (under 139 square
meters). Quadrant anticipated building 75-100 Urban Innovations houses annually within densely
populated urban neighborhoods of Seattle.
For a detailed breakdown of the three new market categories, in contrast to MHLM, see Appendix D.
Images of the exterior looks of houses in each of the market categories are shown in Appendix E.
Quadrant officials recognized that significant differences in construction, beyond those already adopted
for BYW, would be required for the upscale Evoke and eclectic UI market segments. Construction time for an
Evoke house, given the high degree of customization, customer input, and options for change during the pro-
cess, was anticipated to be about 100 days. The UI market posed other challenges: it would be difficult to work
in tight urban spaces with limited access, and construction phasing for multiple-unit dwellings would likely be
different from phasing for single-family houses. For all three of the new markets, the efficiencies of working in
large communities would be lost when building-site clusters were reduced from the previous high of 300 down
to fewer than 16.
Changing the Option-Selection Process

A big issue for Quadrant in serving the needs of the three target markets was how to manage the option-selection
process. Under the MHLM model, the showroom at Quadrant’s headquarters building had been the center of
activity for customers. It was the location where everything from relationship building, to contracts, to design
options, to financing was handled. In adherence to the old MHLM value proposition, Quadrant had kept the
showroom rather sparse. For every feature, there were just a few options from which a customer could choose.
This had enabled Quadrant to maintain standardization and limit the number of suppliers in its network. Photos
of Quadrant’s MHLM-era showroom are displayed in Appendix F.
Quadrant planned to upgrade the look of the showroom for customers in the BYW category, but it ap-
peared that the upgraded showroom and the experience it created still would not be enough to fulfill the unique
expectations of customers in the Evoke or Urban Innovations categories. Quadrant executives believed these
two markets would be best served at model homes or other locations near construction sites, where designers
would meet at appointed times with customers. Instead of selecting from physical displays of toilets, sinks, and
flooring options, customers would choose their options from catalogs or computer monitors in one-on-one col-
laboration with a designer.
Shifting the Culture Toward Customer Intimacy

Lean processes and the operational excellence value discipline were deeply embedded in Quadrant’s culture.
According to Krivanec, every employee lived, breathed, and believed in the way the system worked. They had
seen the positive results, enjoyed having satisfied customers, and liked the relatively low-stress, non-chaotic work
environment it created. They had grown very comfortable saying “no” to customer requests that fell outside the
bounds of the operating system. With the new demographics and customer preferences, Krivanec and Gray rec-
ognized they had to rotate the employee culture toward customer intimacy as the top priority, with operational
excellence as the supporting discipline.
In 2011, Quadrant began a systematic process to change its mission, vision, values, and culture. To en-
gage employees in the value discipline shift, CEO Krivanec met with every Quadrant employee once and every
person in a leadership position twice over a six-month period. He permitted everyone to mourn the death of
MHLM, and acknowledge the value the lean operating system had brought to the company and its customers.
For longtime employees, the shift was difficult because they were heavily invested in operational excellence. On
the other hand, new employees who embraced customer intimacy were unfamiliar with the foundational ele-
ments of operational excellence that would be needed to ensure profitability.
8 TB0315
Looking Back and Looking Forward
Quadrant officials acknowledged in early 2013 that comfort with the success of the lean operating model
might have delayed their capacity to react to extreme changes in the housing market and customer preferences.
As COO Mark Gray remarked, “We had contingency plans in place for 25%, even 50% drops in demand. A
75% drop in demand was completely off our radar screen.” In 2012, Krivanec, Gray, and other leaders reflected
on the lessons they had learned from recent experiences, and prepared to put systems into place that would allow
them to be more agile in the future. The changes Quadrant had implemented so far appeared to have resurrected
demand levels, and, as of late 2012, independent market surveys indicated that Quadrant customers’ willingness
to refer friends had grown to 99%.
Looking ahead, Quadrant executives had to consider the risks they would face in reinventing their operating
system to accommodate the needs of three different market segments, as well as evolving future market segments.
They pondered questions about how the production processes might be adapted, and, specifically, whether they
could run all construction through a single stringline schedule. Additionally, with the differences in customer
demographics, preferences, and expectations among the three new market segments, Quadrant would need to
develop its customer-facing processes and information systems to facilitate greater flexibility, while simultane-
ously holding onto lean principles wherever possible.
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Appendix A. Brief Overview of Value Discipline Concepts
Treacy and Wiersema, in a classic Harvard Business Review article published in 1993,1 offer a framework for integrating
target-market choices with marketing, sales, and operations to deliver goods and services in a manner that builds revenue,
profits, and growth. Based on their experience with a wide range of enterprises, they describe three possible value disciplines,
emphasizing that each organization must choose one as its primary driver and align all subsystems toward that end. They
make the case that the other two disciplines must not fall off the radar screen, but one must be preeminent. The three
disciplines, along with a brief description of each one, are as follows:
Value How it Affects Operating System

Discipline Design and Management
What it Delivers to Customers
Operational Products and services produced at a reliable quality level Operating systems are standardized
Excellence and priced affordably. In services, minimal customer hassle. and run with careful attention to
Customers accept standardization, but expect reasonable detail. Resource utilization is high.
prices.
Examples:
Retail: Wal-Mart
Healthcare: Retail medical clinics offering limited services
Home construction: High-volume production home builders
producing on speculation
Product Organizations in this category continuously add new Structured to run with a front-
Leadership products and services and prune out old ones. Customers are end project management mindset.
willing to pay extra to be at the leading edge. Continuing change in product lines
Examples: and unpredictable demand patterns
Consumer-products: Nike, Apple dictate the need for excess capacity.
Healthcare: Research hospitals It is more difficult to standardize
Home construction: Builders of leading-edge concept homes. processes, and specifications must
change often.
Customer Clients for customer-intimate firms value these organizations Operations must be flexible,
Intimacy as one-stop shops for meeting a variety of needs within a adaptable to changing customer
particular context. Lifetime relationships are not uncommon. needs. Supply chain is broad.
Examples: Standardization is possible only
Management consulting: Bain, McKenzie, Boston where it does not touch the
Consulting Group customer. Excess capacity is often
Healthcare: Traditional family doctor required to allow for responsiveness.
Home construction: High-end custom home builders
1
Treacy, M., and Wiersema, F. 1993. Customer Intimacy and Other Value Disciplines, Harvard Business Review, January-
February, pp. 84-93.
10 TB0315
Appendix B. Example of Design Options for One of Quadrant’s House Plans
During the “More House, Less Money” Era
Appendix C. Quadrant MHLM Houses
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Appendix D. Quadrant’s Old and New Target Markets
More House,
Less Money Built Your Way Evoke Urban Innovations
Brand Largest square More customization Premium services to Hip, urban style in
Attributes footage for the price. and personalization completely customize eclectic settings, close
Standard floor plans than MHLM, with the buying experience. to transit, and within
with limited choices improved curb appeal More contemporary walking distance of
of communities, and flexibility of plans. designs than MHLM services. High value
footprints, lifestyle Emphasis on ease of or BYW, with an placed on technology
options. High buying experience. Some emphasis on an in the home. Smaller
product uniformity constraints on variety. indoor/outdoor spaces, adaptable
and conformance to integrated suburban to entertaining and
specifications. lifestyle. relationships with
friends and family.
Value Operational Customer Intimacy, with Customer Intimacy, Customer Intimacy,
Discipline Excellence elements of Operational with some elements of with elements
Excellence Product Leadership of Operational
Excellence
Demographics • Age: 25-54 • Age: 29-54 • Age 34-65 • Age: 23-35
• Income: • Income: $75K-$150K • Income: • Income:
$75K-$100K • Most have children $100K-$200K $75K-$115K
• First-home buyers • Mix of first- • College-educated • Single or married,
• Families home buyers and professionals, some some with toddlers
• Willing to accept experienced buyers with children, some • Prefer walking
standard features • Accept some in multigenerational proximity to
and options to standardization to households services or transit
get the space they get the best value for • First-, second-, or • Residence will be
want their money, but want third-home buying a stepping stone to
differentiation on the experience future investments
outside of the house, • Prefer upscale • Attached housing
and more features brands and superior in townhouse
inside. consumer products clusters is attractive
• Value one-of-a-kind
feel
Locations Suburban: larger Suburban: smaller Suburban: small Urban: mixed-use
developments developments developments and residential
neighborhoods
Lots per 100-300 lots per 30-100 lots per 7-16 lots per From 16-20 units
Community community community community in 2-4 buildings on
a site
House Size 1,000 to 4,100 1,600-3,500 square feet 2,400-3,300 square Under 1,500 square
square feet (149-325 square meters) feet (223-307 square feet (under 139
(93-381 square meters) square meters)
meters)
Price Range $180,000-$400,000 $200,000-$450,0001 $500,000-$1,000,000 $275,000-$400,000
Annual 1,845 (high point 400 50-100 75-100
volume for MHLM)
Option Showroom Design Studio On site, either in a On site, either in
Selection model home or a small a model home or a
office small office
1
House prices in the Seattle area of Washington State averaged 51% higher than the U.S. average. Source: http://www.
payscale.com/cost-of-living-calculator/Washington-Seattle/. Accessed 29 July 2012.
12 TB0315
Appendix E. Exterior Views of House Designs for Built
Your Way, Evoke, Urban Innovations, 2012
Built Your Way
Evoke
Urban Innovations
TB0315 13
Appendix F. Images from Quadrant’s Showroom
Exteriors: Siding, Columns, Lighting
Bathroom Fixture Options
Kitchen Options
14 TB0315

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TB0315

Quadrant Homes: Adapting a Lean Operating

The Quadrant Homes Operating System

Exhibit 1. Quadrant’s Standard Process, 1996-2010

As indicated in Exhibit 1, every Quadrant Exhibit 2. Stringline Schedule Example

Design Options Supporting the Lean Operating System

Changes in Production and Demand Rates

Exhibit 4. Quadrant’s Maximum Daily Construction Start

Exhibit 5. Quadrant’s Backlog of Home Orders Awaiting the Start

Shifting Market Characteristics

Exploration and Experimentation, 2011-2012

Quadrant’s New Demographic Profiles

Changing the Option-Selection Process

Shifting the Culture Toward Customer Intimacy

Value How it Affects Operating System

Appendix C. Quadrant MHLM Houses

Exteriors: Siding, Columns, Lighting

Bathroom Fixture Options

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