Part I: Push-Back

Posted April 21, 2018 By Fletcher Groves

(excerpted from The Pipeline: A Picture of Homebuilding Production, Second Edition©, initially posted on EFA® in January, 2011)

 

“May I say something?”

The question came from RB Builders’ most experienced, capable, and respected superintendent, someone not known for his excess commentary.  The conference room grew respectfully silent, expectantly silent.

“Sure”, replied the CEO.  “Speak your mind.”

“Nice speech.

“When I first heard about this arrangement”, he said, “it made me want to throw up.  What was it?  Oh, I remember:  Partnering and learning, participating in the financial outcome with a consulting firm on a series of projects with short timeframes and targeted, focused results, in pursuit of an overall company goal.

“Really?

“This stuff is intriguing, even the idea of some type of team-based performance compensation.  However – that is as far as I would ever let it go.  In terms of expectations regarding the outcome, I have always been skeptical, bordering on cynical.

“I still am.

“This sounds just like every other program the company has embarked on in recent years.  None of them have worked, either, not the way they were supposed to.  Over-promised?  Badly-executed?  Focused on the wrong thing?  Not for me to say, but I doubt that this program will be any different.  Like the rest, it will just take up a lot of our time, sitting in meetings like this, that ultimately lead nowhere.

“What was it that was said? ‘ Think globally, act locally’?  I like the second half of that statement.

“My response to this stuff has been to put my head down and do my job.  I have become good at doing that.  As far as I have been concerned, this company consists of my job, nothing more.  I have relationships, but that is not about my work.  That is about friends and associates.  I have argued in favor of individual performance compensation, not because I disliked team-based performance compensation, rather, because I knew I could achieve the performance that triggered the individual bonus, without having to depend on anyone or anything else.

“Give me a cycle time to achieve, and I will achieve it.  Give me a quality standard to meet, and I will meet it.  It does not matter what others do, it does not matter what RB Builders does.  I get my job done, and I get myself paid.  I am not willing to sacrifice what I know I can do personally, for what I do not believe we can do as a team.

“As for my job, I know what it takes to do it.  You can have the rest of it. I do not need it.  I could care less about production systems.

“I am the production system.

“My problem is not that I think this new stuff is the wrong approach.  To the contrary, it makes compelling sense to me.  It is the way we should be doing it.  My problem is that this approach is bound to fight a losing battle against what I consider to be a pervasive attitude of complacency, entitlement, laziness, and resignation.  All of you so-called leaders – those of you taking down the six-figure salaries and failing to produce results?  Well – it leaves me a little cold.

“RB Builders is a pretty good company, actually one of the better homebuilding companies to work for.  But – its management has historically lacked the willingness, capacity, and capability to change.  Management says it has vision.  It does not know what it sees.  All we ever wind up doing is tying ourselves into knots, all the while declaring the latest change we need to make.

“In the end, my skepticism wins out.  I am simply not going to be stupid enough to risk my own performance compensation on something in which I have no confidence.”

The superintendent looked directly at the CEO.  “In the past, it did not matter.  But – like you – I do not think average performance defined by so-called industry best practices is going to cut it any longer.

“I commend you, and her”, he said, pointing to the intrepid, results-based consultant, “for putting it out there.  There is a lot that this new approach gets right.  Regardless of what we choose to call it – an analogy, a concept, a visual reference, whatever – I do think our production system is a pipeline.

“I do think we need to understand the connection between the decisions we make every day and the business outcomes that protect our livelihood.  I do think we should focus on optimizing the performance of the overall system, instead of the performance of its individual parts.  I agree that there is a distinction between processes and projects, between process management and project management, and that we need to understand both.

“And – I hate to admit it – there is a part of me that wants to be part of something that is bigger and more important than me.  We have talked about the need for a savvy, accountable, and motivated homebuilding team, comprised of savvy, accountable, and motivated teammates.

“I want to base my work on the ‘want-to’ attitude that it takes to own and run a homebuilding business, not just the ‘how-to’ mechanics of selling, starting, and building houses.  I want to share accountability and responsibility for the decisions and the results.

“And – yes – I want to have a serious financial stake in the outcome.  I want to be in the business of homebuilding, not just work in a homebuilding business.

“Wishful thinking about RB Builders does not erase the past.  It does not dissuade my concern that this company lacks the willingness and capability to enact these changes.

“I am the one who is saying it, but plenty of us are thinking it.  This approach has merit, but it does not mean that it will work here, not the way this company has operated in the past.  So, I want you to tell me how this is going to be different. I want you to tell me how this is going to work, now, in this company.”

 

The Pipeline: A Picture of Homebuilding Production©, Second Edition is available through the publisher’s bookstore, and from any of the main booksellers (amazon.com, barnesandnoble.com, or booksamillion.com).

virtualbookworm.com/the-pipeline-a-picture-of-homebuilding-production

It is always carried in-stock on amazon.com:  http://amzn.com/1621378047

 

Be the first to comment
      

In the broadest sense, we want BuilderVelocity™ to become an industry movement.

We want this movement to be members of the homebuilding supply chain – the concerned, connected members of the new home construction value stream – coming together to unravel traditional industry best practices and challenge conventional industry thinking, in order to create sustainable competitive separation for their homebuilding enterprises.

In embracing BuilderVelocity™, they would be acknowledging that sustainable competitive separation is likely a position reached only by doing what their competition will not do, what their competition cannot do:  things that are too tough, that require too much rigor, too much discipline, too much resolve.  They would be in agreement that it as a competitive position reached by doing the hard work to achieve operational excellence on the velocity side of Return on Assets, on the productivity side of economic return.

What is BuilderVelocity™?  Why is it relevant?  Why is it essential?

First of all, BuilderVelocity™ is a system for managing production.  It expresses the principles and disciplines of production management in terms that reflect the unique characteristics – and the particular requirements and context – of residential construction.  It is an industry-specific application of underlying universal principles and disciplines of production – physics rooted in the laws that govern all production systems.  It is about using the tools that work for homebuilding production, without regard to the consulting religion from which they come.

It creates a visual image of homebuilding production;  it connects operating performance to business outcomes;  BuilderVelocity™ enables builders to “see” production from a different perspective, it enables builders to see production from a “more-for-less” mental model:  more revenue, more closings, in less time, with less work-in-process, and less overhead.

It treats the workflow associated with homebuilding for what it truly is:  project portfolio management – multi-project management – with embedded and supporting processes.

BuilderVelocity™ addresses production management as a system, and it aims to increase the productivity of that system, by maximizing the closings and Revenue it generates with a planned, finite, and controlled level of work-in-process and capacity, with less waste and less variation;  it establishes velocity accelerators – a set of actions that increase productivity.

 

BuilderVelocity™ flows from a book.  The Pipeline: A Picture of Homebuilding Production, Second Edition© tells the story of how RB Builders learned the principles of homebuilding production in the turbulent years following the end of the period known as the Age of Homebuilder Entitlement®.  It is a story told in the exchanges of dialog between RB Builders’ team members, senior management, and its trusted, results-based advisor/partner.

 

BuilderVelocity™ is also the namesake of the event management website (www.buildervelocity.com) for Pipeline workshops™, the series of open, sponsored (and other channeled) two-day workshops and one-day seminars on production management developed by SAI Consulting, Inc., in cooperation with BUILDER, BuilderMT, Specitup, and other sponsors.

Pipeline workshops™ are designed to transfer in-depth knowledge and create an intuitive, instinctive understanding of production principles and disciplines, focused specifically on homebuilding production management.  They are not a lecture series.  They make extensive use of a proprietary business case and management exercises.  The material is comprehensive, the learning is intense, the format is interactive and competitive.

Pipeline workshops™ use a progressive series of production scenarios, known as Pipeline games™, that simulate homebuilding production in the real business world, in an environment of variation and uncertainty, where operating decisions produce economic results – sometimes good, oft-times bad, sometimes meeting or exceeding the budgeted performance, oft-times not.

Pipeline games™ are both a production simulation and a business game;  they are completely unique in the approach they use.

 

And, finally, BuilderVelocity™ is a LinkedIn forum.  It is a group for those charged with the responsibility of managing – or managing the interaction with – production as a system at some level of a homebuilding enterprise and driving results.  It is a group that asks builders to participate, to share knowledge, to challenge ideas, to ask questions, to use their voice.

Join the movement.  Join us at a Pipeline workshop™.  Read the book (it is always carried in-stock on amazon.com, and is usually available from the other bookseller sites).  Join the BuilderVelocity™ group on LinkedIn;  contribute to the discussion.

Come.  Participate.  Learn.

 

Request to join the group:  https://www.linkedin.com/groups/6571634

Register for a workshop (when registration is open):  http://buildervelocity.com/

Purchase the book:  http://a.co/bclXi3b

 

Be the first to comment
      

(the second post ever made on Escape from Averageness®, on January 27, 2009;  updated and reposted here, to once again raise a stark question)

“As RB Builders did its planning and budgeting for the then-upcoming year, 2008 looked to have market and economic conditions very similar to those in 2007.  In 2007, RB Builders produced Gross Margins of 22%, earning Gross Income of $11 million, down significantly from the 30%+ margins it enjoyed during the final, halcyon years known as The Age of Homebuilder Entitlement.

“In many ways, RB Builders was a product of that age, another average homebuilding company, satisfied with occasionally trying to adopt the best practices of other builders, content to be good enough, no-better-but-no-worse than the other builders with whom it competed.  It was a homebuilding company with a middle-of-the-road approach to delivering the value homebuyers demanded.

“RB Builders’ owners knew what severe housing cycles were like, but its management did not.  Terms like TEFRA and RTC were faint acronyms from a different era.  For the past 10 years, life had been good . . . and it had also been easy.  Now, there was a growing sense that this approach was dangerous.  As they reminded themselves with ever-more frequency, ‘the only thing in the middle of the road are yellow lines and dead armadillos’.

“They were in homebuilding no-man’s land.

“Locked into an operating model – into organizational structures, management systems, processes, cultures, and employees – that could not deliver extraordinary levels of distinctive value, the company found itself dumped into a teeming mass of homebuilders that looked-alike and sounded-alike.

“Indistinguishable from other builders, unable to create any type of sustainable competitive separation, RB Builders was now trapped and sinking, like a modern-day dinosaur, into the tar pits of average-ness.”

That was an excerpt from the opening of The Saga of RB Builders©.  RB Builders is a mythical homebuilding company whose story we use at every Pipeline workshop™, during consulting engagements, in IBS education sessions, at Housing Leadership Summit and other conferences – really, at every opportunity that presents itself – in order to get our points across more effectively.

The question we always ask: “Does the world really need any more average homebuilding companies?”

Think about it.

 

 

Be the first to comment
      

“Risen”

Posted April 1, 2018 By Fletcher Groves

(updated and reposted on Escape from Averageness® every year, on Easter morning)

The intrepid, results-based consultant reclined into the natural seat, at the back edge of one of the dry-eddy pools, where the beach resumed its slope more steeply upward, toward the higher dunes.

 

Easter 2018 Ponte Vedra Beach, Florida

She dug her bare feet into still-wet sand, and felt the remnant of the past night’s high tide through her jeans and shirt.  Even with weather like today, it always felt good.  Resting her arms on her knees, she gazed eastward into the monochrome shades of gray comprising sea and sky.  The morning sun, which should have now been just above the horizon, was nowhere to be seen, hidden behind walls of fog, on what was a cool, damp, shrouded early-April morning in northeast Florida.

She was in her element.  A seventh-generation Floridian, she loved the waters and land of her native state.  She wished she could have seen for herself the Florida her dad liked to tell her about – the mid-twentieth century Florida of his youth, as he would describe it:  Florida before air conditioning, interstate highways, and theme parks.

This was her routine, every year, on Easter morning.

She closed her eyes and reflected on the words of John Eldredge and Brent Curtis, words used to describe the silence, solitude, meditation, and simplicity of what they called “desert communion”:  “We have come to the shores of Heaven together, to the border of the region where our Christianity begins to move from a focus on doing, to one of communion with Christ.”

Eventually, she reached over and removed her 35mm digital SLR camera from its backpack, switched it to manual mode, adjusted her aperture and exposure settings, and studied the image in her viewfinder.  Satisfied with her composition and settings, she released the shutter.

“ . . . take the photographs and still-frames of your mind . . . even if they look like they were black and white”, she mused, as she reviewed her work.

She set the camera aside.  Her thoughts turned to the pre-dawn darkness of the first Easter morning, as she tried to imagine what the disillusioned friends and followers of the one they called Jesus of Nazareth must have been thinking, what they must have been feeling.

Prophecies notwithstanding, when they went to the gravesite, what did they really expect to find?  By every rational explanation and every shred of evidence, this man of so much promise, in whom they had placed so much hope, was dead.

They had been eyewitnesses to that unquestionable death, and the effects of the torture that preceded it;  she recalled that the term excruciating came from the Latin ex crucis, literally, “out of the cross”;  Roman crucifixions left nothing to the imagination. They had been witnesses to his burial, as well, and the particularly intense security of his tomb.

For His friends and followers, this was certainly more than the physical death of one man;  for them, it was the death of all faith and hope.

Her thoughts then moved to a different time, one not far removed from the darkness of the days following the death of Jesus.  Although it had taken them time to realize what they had seen, Peter and others now asserted, for everyone to hear, that not only had they been witnesses to His death, they had also been witnesses to His resurrection and His ascension.

“God’s Kingdom had come, not at the end of time, but within time – and that had changed the texture of both time and history.  History continued, but those shaped by the Easter Effect became the people who knew how history was going to turn out. Because of that, they could live differently.  The Easter Effect impelled them to bring a new standard of equality into the world and to embrace death as martyrs if necessary – because they knew, now, that death did not have the final word in the human story.”  (“The Easter Effect and How It Changed the World”, The Wall Street Journal, March 31, 2018)

Rather than abandoning their faith and succumbing to hopelessness, they said they were willing to live their lives – to give their lives – for the lives of others, and for the faith and the hope that His crucifixion, death and resurrection gave all of them.

In the words of Paul, subsequently penned to the churches of Galatia, they were all saying, in essence, “I have been crucified with Christ.  It is no longer I who live, but Christ who lives in me.”

So it has been, that decision, she thought, for every Christian, ever since.  So it was for her.

She smiled, and whispered.

“Risen”.

 

      

Part V: Groves and Shinn: The Debate Over Costing

Posted March 18, 2018 By Fletcher Groves

(published on EFA® every year since 2012, previously titled “The Debate Over Costing”;  incorporated and republished every year, here as the last in a five-part series) 

Several years ago, on the BUILDER discussion group on LinkedIn, I had this exchange with Shinn Consulting’s Emma Shinn, on whether costs on the NAHB Chart of Accounts Income Statement should be allocated according to the rules of absorption costing or the rules of variable costing.

The discussion remains entirely relevant.

The matter of how the NAHB Income Statement Income Statement allocates costs was the subject of an April 2009 post on Escape from Averageness®.  It was also the subject of a series of posts in January 2012, summarizing the results of a CFO survey we conducted on the NAHB Income Statement, preceding the 2012 International Builders Show (IBS).

Here is the exchange, in its entirety:

Emma:  “I do respectfully disagree with your assessment of the NAHB Chart of Accounts – the purpose of the [Chart of Accounts] is to provide a structure for collecting financial information in an organized and meaningful way.  It provides builders the capabilities to produce reports that are meaningful and that will guide them in their decision-making process.

“In no way does it deter or hinder the contribution margin analysis you talk about.  In fact, it facilitates such analysis as it provides the classification of cost and expenses in a way that facilitates the identification of the variable and fixed components.

“The contribution margin analysis does not deter from the analysis of the traditional income statement and the valuable information it provides to the builders.  The contribution margin analysis does provide an expanded view and I agree with you in that builders can benefit from also looking at the income statement from this point of view as it refines further the behavior of fixed vs. variable cost and expenses.

“However, your assessment of the NAHB Chart of Account is unfounded and could not be farther away from the reality of what the purpose of the [Chart of Accounts] is set up to be.”

Fletcher:  “Emma, you don’t have to take my word for it. As part of the survey, we asked CFOs for their insight related to the structure of the NAHB Income Statement (i.e., line item accounts in series 300-900), as it relates to cost allocation (variable v. absorption) and management tools (breakeven, CVP, etc.).

“This an excerpt from one CFO:

“’I am intimately familiar with both the strengths and weaknesses of the NAHB Chart of Accounts.  It was a great tool for benchmarking our performance with other builders and to industry standards.  It was interesting to benchmark our company, but the statements produced utilizing the NAHB Chart of Accounts were of no use when it came to making pricing decisions.’

“The thoughtful examination of any managerial accounting or cost accounting textbook validates this CFO’s statements.”

Emma:  “Once again, I respectfully disagree with that assessment.  There is nothing in the chart of accounts that prevents a company from preparing a statement utilizing other analytical tools.  The income statement you call the ‘NAHB Income Statement’ is the standard income statement presented in any accounting principles class.

“If you want to do further analysis for specific managerial considerations, that is always highly encouraged.  However, I again say the NAHB Chart of Accounts vs. the charts of accounts I normally encounter in my reviews of builders’ operations facilitates further analysis;  it does not preclude the analysis.

“Accounting, in my view, is primarily a management tool and we continue to encourage builders to view it as a very powerful means to help direct their management decisions.  That is not to take away the role accounting also plays in reporting results to third parties, such as lenders and investors.”

Fletcher:  “Emma, the NAHB COA Income Statement has a lot of attributes.  However, there is a difference between what something ‘does not deter or hinder’ or ‘does not preclude’, on the one hand, and what it positively, proactively enables, on the other.

“That may be all our differing views are about.  However, here are two of the specific points made on the matter, posted on SAI’s Escape from Averageness® weblog in April 2009:

“’The NAHB COA Income Statement treats Indirect Construction Cost as one of the costs that is deducted from Revenue to determine Gross Profit (the only difference between Gross Margin and Gross Profit is the inclusion of Indirect Construction Cost).  But – do Indirect Construction Costs vary according to Revenue?  Probably not.  For the most part, they are non-variable costs that will most likely be incurred regardless of the Revenue produced.

‘The NAHB COA Income Statement treats Selling Expenses (including Real Estate Commissions) as an Operating Expense, as a part of overhead.  Anything allocated to Selling Expense, therefore, should be a non-variable cost.  Is that the case?  No.  The bulk of Selling Expense is a variable cost.’

“Emma – some of the CFOs in the survey were very out-spoken on this issue, and the shortcomings of absorption costing are well-documented.”

 

(variable costing and the Contribution Income Statement format are addressed at every Pipeline workshop™;  learn more here:  http://buildervelocity.com or http://saiconsulting.com/buildervelocity-pipeline-workshops/)