Case Study D.R. Horton
Table of Contents
This paper examines the competitive capacity of D.R. Horton Company, its problems and ways of solving them based on a SWOT analysis.
D.R. Horton is an established company that is facing a lot of competition from similar businesses, for example KB homes. D.R. Horton had its headquarters in Texas and was founded in 1978. It operates in the construction industry and it is the biggest home builder in the US. It operates in 26 US states and it enjoys the services of 3000 qualified builders. Apart from the heavy competition, the company is also facing some challenges related to the state of the home building industry. These challenges necessitate an analysis of D.R. Horton’s competitive position as well as an assessment of how much is the company able to face its competitors.
The analysis relies on a SWOT analysis of the company in order to identify the key strengths of the company as well as the opportunities that the company can explore so as to retain its competitive edge.
The company enjoys a very strong position in the industry in terms of market share. The company has been able to effectively utilize economies of scales in almost all areas of its operations. For example, it has been able to achieve high levels of economies of scale with its suppliers and even in the marketing department. Due to this, the company incurs a lower average cost (D.R. Horton, Inc. SWOT Analysis). It has access to financial resources at a lower interest rate and it can also acquire materials at a cheaper cost than most of its competitors. Another key strength of the company is that it is a listed company on the NYSE (Jacobs, 2012). Therefore, the company has an opportunity of drawing a lot of capital resources at relatively low cost. Additional strength of the company is that it is very large and thus has a high number of qualified personnel. Many people prefer the company because of its ability to provide a wide range of designs and furnishing themes. These factors have helped the company to obtain a large number of loyal clients.
Despite the strengths of the company, it also has a number of serious weaknesses. First of all, the recent history has been a bad time for the construction industry overall. The construction industry is on the decline. Economic crisis of 2007-2009 has significantly affected the construction industry (Gibson, 2013). The construction industry is still struggling to recover from its effects. On the other hand, the construction industry is facing an upward trend in terms of new entrants to the market. There are new competitors who are emerging every day and some have already gained a solid ground in the market (Gibson, 2013). The overall trend is not very good for D.R Horton. It would indicate that in the coming years the profits of the company might see a significant decline. Another weakness of the company is that the company does not invest heavily in research and development.
Research and development is very important for such a company because it would help the company seize the key opportunities as well combat the main threats that arise due to the changing trends in the market (D.R. Horton, Inc. SWOT Analysis). On the other hand, the interest rates on loans are also rising and at some point, the company may not have access to cheap financial resources anymore.
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The company can explore a lot of opportunities in the real estate industry. One of the key opportunities that the company can explore is the interior design industry (Gibson, 2013). The company specialises in construction and, therefore, it is easy for the company to broaden its focus to include interior design. It can be very easy for the company to penetrate the market of interior design since it already has an established reputation with its clients. The opportunity can be an excellent way of diversifying the company operations and it would be an excellent way of increasing the revenue of the company (D.R. Horton, Inc. SWOT Analysis).
Moreover, the company also has another opportunity of exploring new markets. The company has not yet exhausted the market of all the US states. It should aim at exploring the domestic market as a way of increasing its scope of operations. It should strive for establishing a presence in all of the US states before contemplating about exploring opportunities outside of the US (Gibson, 2013).
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The demand for housing has been seeing an upward trend every year as of recently (Jacobs, 2012). The company can take the advantage of the rising demand for housing and come up with a strategy of providing affordable housing solutions so that they can attract a large number of new clients. Increasing urban population presents an excellent opportunity for the company to explore (Jacobs, 2012). D.R Horton should target these people and offer them housing solutions. Additionally, there is an ongoing process of transformation of the lower class to the middle class. It has been accelerated by increasing salaries and incomes. The company should take this trend as an advantage. They should develop packages that target middle class and not only the high class.
The company faces numerous threats and they are very likely to affect the company’s future profitability. One of the key threats that the company is facing is the high cost of labour. The construction business is quite labour intensive and most of the processes cannot be automated. Cost savings in labour are minimal (Plunkett, 2008). On the other hand, the other sectors are raising the wages for their workers and, therefore, the company will have to follow suit. The former would mean that the cost of labour will increase significantly. The increase in the labour costs might significantly hurt the company’s profitability.
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D.R Horton’s other threat is the rising cost of raw materials. The cost of materials is rather volatile, but it has been rising steadily as of late due to increased demand and inflation. The company does not control these prices and thus, the cost of raw materials poses a significant threat to the company’s operations (Plunkett, 2008).
Another eminent factor that might threaten the company is its competition. There are some serious competitors on the market such as K B Homes and Lennar Corporation who have emerged over the years. These competitors are a threat to the company since they seek to claim a market share that was originally owned by D.R Horton (Plunkett, 2008).
The lack of steady cash flows is another important threat to the company. The company does not have enough cash flow on its own and therefore it will have to depend on borrowing resources from banks and other financial institutions (Pederson, 2012). The credit market is facing a lot of hurdles they present as a threat to the company since D.R. Horton will not access the resources as easily. Lack of capital resources would obviously hinder the completion of projects and this would mean that the company will lose its business operations.
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From the above analysis, we might conclude that there are various factors that make up the competitive advantage of D.R. Horton Company. Some of the factors that contribute to its competitive advantage are that the company has been in existence for a long time and it has been able to effectively utilize economies of scale in its supplies and other departments. It is a characteristic that places the company ahead of its competitors (Jacobs, 2012). The strength of the company is that the company covers a very large area and thus it has a higher market share than its competitors. There are numerous opportunities in the industry that the company can explore. For example, the company can focus on developing new markets in the USA. It would help the company to expand its operations and grow. The fact that there has been a significant increase in the demand for housing is a stimulating factor (Plunkett, 2008). Thus it is a greater opportunity for the company to explore. Nevertheless, the company also faces some serious threats. It is affected by the rising prices of materials (Plunkett, 2008). The cost of supplies is rising and this means that the company’s profitability will be on the decline. The lack of a steady and high cash flow and the increasing cost of wages is another serious threat for D.R Horton. Finally, the company is operating in a very risky environment and its future is unpredictable if these threats continue to prevail.
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D.R. Horton needs to explore additional markets and establish a strong presence in other US states. D.R Horton has already established itself in 26 states. However, the company needs to explore other markets so that it can increase its scope and profitability.
Secondly, the company should also focus on diversifying its operations. For example, it should focus on expanding to interior design market. Such a move would be in line in what the D.R Horton already operates in and thus the new business would significantly increase the company’s profitability. It will also be easy to establish a market share for such a business since the company already has clients who may be potential customers for such services.
The company should also take advantage of the growing demand for housing. They should come up with affordable housing packages that would attract more customers. The same will also help the company in increasing is profitability and subsequently, the cash flows of the company will increase.