The Transformation to Professional Management at Pardee Homes
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International Journal of Entrepreneurship Education 3(2): 185-204. © 2005, Senate Hall Academic Publishing. The Transformation to Professional Management at Pardee Homes Michael McGee President & CEO, Pardee Homes Eric Flamholtz Anderson School of Management UCLA and President Management Systems Consulting Corporation Kathryn Schreiner Consultant, Management Systems Consulting Corporation Abstract. This article presents a case study of the transition of Pardee Homes from an entrepreneurship to a professionally managed firm. It examines changes in leadership, planning processes, and organizational structure involved in the completion of a transformation from a family owned business to a professionally managed firm. It focuses in particular upon the changes in organizational structure over a period of more than a decade. These changes were a key component of the overall transformation process. The case demonstrates the practical difficulties involved in the application of the theoretical constructs of organizational structure in the real world. Keywords: transformation, professional management, organizational structure, organizational success, management systems. 1. Purpose This article examines the transformation to professional management at Pardee Homes. Its particular emphasis is upon the transition from one type of organizational structure (functional) to another (matrix) as part of the overall transformation to professional management. The focus upon structure is of particular significance because the experience of Pardee Homes highlights the critical but often neglected role of structure as a key variable in determining organizational growth and success. Typically, the academic literature on organizational structure treats it in a descriptive way rather 1 than as a driver or limitation of organizational success. A licence has been granted to the authors to make printed copies of the paper for personal use only. Apart from this licenced copy, none of the material protected by the copyright notice can be reproduced or used in any form either electronic or mechanical, including photocopying, recording or by any other information recording or retrieval system, without prior written permission from the owner(s) of the copyright. © 2005, Senate Hall Academic Publishing. 186 The Transformation to Professional Management at Pardee Homes 2. Company Description and History Pardee Homes is a multi-regional real estate development company with a focus on developing master-planned communities and building single family and multi- family homes. It is headquartered in Los Angeles, and has regional offices in Southern California (Corona, Irvine, San Diego and Valencia), Northern California (Pleasanton and Sacramento), and Nevada (Las Vegas). In 2005 Pardee Homes forecasts $1.7 Billion in revenues and the construction and sale of 3,000 units by over 700 employees. The company was founded in 1921 by George Pardee, Sr. as a builder of custom homes. In 1969, the company was acquired by Weyerhaeuser Company, a global leader in the forest products industry and became the largest subsidiary of Weyerhaeuser Real Estate Company (WRECO). In 2003, Pardee Homes celebrated 50 years of homebuilding in Nevada, and in 2004 celebrated 50 years of building in San Diego. The company is ranked among the top five builders by volume in most of its markets. Pardee was named “America’s Best Builder 2003” by BUILDER magazine, and has received numerous awards for its master-planned communities and innovative home designs. A recognized leader in “green” building practices, Pardee Homes was the nation’s first builder to make a commitment to build 100% of its homes with the energy-saving features that meet the U.S. Department of Energy’s criteria of the EnergyStar® program. 3. Development of Professional Management Systems In 1992, when the organizational transformation process began at Pardee, the company was led by David Landon, President, and Vance Meyer, Executive Vice President.2 Previously, Pardee had been a family business, and reportedly it had been operated based on the requirement that all three brothers, who were owners, had to reach consensus before significant business decisions were made. Landon and Meyer were committed to preserving the values and strategic approaches that had made Pardee such a successful company. In 1992, David Landon, President of Pardee Homes, attended a seminar delivered by Dr. Eric Flamholtz at UCLA. The seminar topic was “Growing Pains.” Landon recognized that Pardee was experiencing “growing pains” and 1. For example, see one of the classic treatises on structure: Jay. R. Galbraith, Designing Organizations (Jossey-Bass, 1995), pp. 12-13. Galbraith states: “Strategy is the company’s formula for winning… The Structure of the organization determines the placement of power and authority in the organization.” 2. Previously, the company had gone through various management changes and had been family- managed by three brothers—George, Jr., Hoyt and Doug Pardee. International Journal of Entrepreneurship Education 3(2) 187 asked for Flamholtz’ help in developing more professional management systems for Pardee. 4. Organizational Assessment The first step was a preliminary organizational assessment. It should be noted that Pardee under Landon and Meyer was a very successful, profitable and admired organization. The organizational assessment was intended to strengthen a company that was already one of the leaders in its field. The initial assessment of the organization revealed: • Although Pardee did a great deal of long range planning for its land acquisition and projects, there was a lack of formal planning for some organizational issues. • The current functional organization structure was approaching its limits as an effective structure. • Landon and his COO, Vance Meyer, were functioning as “super project managers,” responsible for coordinating the work of the entire organization. • The structure was fostering a “relay race” approach to building homes rather than a “basketball team” approach: a sequential handoff rather than “continuous interaction” process that lacked accountability and follow-through. • There was no system for developing new Project Managers other than “sink or swim”. 4.1. Proposed Organizational Changes Based upon the initial assessment, Flamholtz recommended: 1) Enhancing the management team: • Creating an Executive Committee. • Offering a management development program to grow managers. 188 The Transformation to Professional Management at Pardee Homes 2) Developing a formal, longer range planning/organizational development process. 3) Transitioning from a functional structure to a divisional structure. After conducting a preliminary assessment of the organization, Flamholtz pointed out that most of the company’s operational and strategic decisions were being made by Landon and Meyer – following the tradition of the Pardee brothers. However, Pardee’s business had expanded and the decision-making load had increased. Both Landon and Meyer were close to becoming bottlenecks. In addition, they were personally under a great deal of stress from the amount of responsibility. It appeared that Pardee was reaching a point where the capacity to grow would be limited unless the company transitioned to a different structure. Flamholtz recommended a three part approach: (1) enhancing the management team by creating an Executive Committee and by offering a management development program; (2) developing a longer range planning and organizational development process, and (3) developing decentralized regions to oversee the day-to-day planning and operations in key geographic areas. The Executive Committee. Flamholtz recommended the creation of an Executive Committee that would serve several purposes: • Give Landon and Meyer a forum for involving a select group of senior leaders in strategic planning and leadership. • Begin to prepare the next generation of leadership by giving functional leaders (department heads) an opportunity to consider issues from a broader corporate perspective and by sharing unwritten strategies and guidelines for decision-making that Landon and Meyer had learned from the Pardee brothers as well as from their own experiences. Planning and Organizational Development. He also recommended that Pardee begin a longer range planning process focused not just upon strategic planning per se but overall organizational development of Pardee to help it transition from entrepreneurship to professional management. Pardee had always done planning on a project basis, as well as planning for land acquisitions, but not for overall organizational development including the development of organizational infrastructure. Decentralizing Organizational Structure. Flamholtz further recommended that the ‘bottlenecks” and pressure created by the current system of organization would be overcome by transitioning from Pardee’s functional structure to a more decentralized divisional structure. International Journal of Entrepreneurship Education 3(2) 189 4.2. Pardee’s Response to Recommendations Landon agreed with the first two recommendations, but felt the timing was premature for the proposed structural change. It was his belief that a divisional structure would put Pardee at risk. It was his experience that all organizations which had tried this approach had experienced excessive difficulties, and even failed during periods of extended building cycle retrenchments. In additon, there were other factors that made this change premature,