Archive for August, 2010

One Homebuilder’s Stress Test: Why We Map Processes

Posted August 7, 2010 By Fletcher Groves

It was clear, at least to some. There was trouble if they did not address these issues. With current reality staring them in the face, they did nothing. That was in 2006. In 2008, they filed for Chapter 11 protection.

We know what we are talking about, because we are the homebuilding industry’s leading expert, when it comes to the documentation, analysis, measurement, design and redesign, improvement, and management of operating and business processes. It is our tour de force. SAI Consulting has done more work with processes – and done it longer – than anyone in the homebuilding industry.

Every consulting engagement we have ever accepted has dealt – in some way – with a client’s need to structure itself around its critical business processes, and that is because homebuilding operates under a basic proposition:

The only way a homebuilding company stays in business is by creating value that its customers are willing to pay for, the only way that it creates that value is through the work that it performs, and the only way that it performs this work is through processes (and through a project portfolio, because homebuilding is both process management and project management).

But, that does not do justice to process mapping.

In our view, it is far more than documenting, analyzing, measuring, redesigning, and improving workflow. Process mapping connects work to operating performance, and operating performance to business outcomes. In that sense, this type of engagement is the type of stress test that would benefit any homebuilding company.

Consider a small sampling of the forensics in this case:

In 2006, we were engaged by a well-known homebuilding company to help them map their processes. This was a company that had previously won a National Housing Quality award. Just to apply for a NHQ award, let alone win it, this company’s processes had been vetted and judged as part of the examination.

During the engagement:

We pointed out the obvious discrepancies between stated operating performance and stated economic returns. We backed our assertions with indisputable production physics, and questioned whether this performance could have possibly occurred. We pointed out the steady decline of the trends in operating performance and business outcomes, to which they were apparently oblivious.

From a process standpoint – just one example – we observed that this company had “a very iterative (product) design process exposed to an impulsive/compulsive design mentality”, that this was a process with 132 discrete process activities – involving a minimum of 33 handoffs, 19 reviews, eight approvals, 14 sections of activities where the work of one person or department was subsequently revised or subjected to rework. Furthermore, that none of these 132 activities, by their own admission, could be classified as value-adding, but almost 30% of them were self-classified as completely non-value-added. It was a process that took 12 months to produce a new plan.

We observed – and proved – to this company that they had a cycle time of 279 days in their Start-to-Closing process, and that the resulting asset turn could not possibly be the 5.2 times the company was claiming.

We stressed the need to establish a set of operating and business measures as the performance requirements for the new process designs. Yet, in the end, this company was never able to address the question of performance requirements as a comprehensive, connected set of operating and business outcomes. The only performance requirements that were accepted were the cycle time guidelines imposed by the executive group for certain processes. The need for (or importance of) performance requirements did not strike a chord with either the executive group or the process teams. Given the existing level of operating and business performance, we told them that we found “the level of disinterest – the lack of resolve – disturbing”.

After all, this was a homebuilding company that had produced a Return on (homebuilding) Assets of only 4.7% in 2005; the targeted economic return should have been eight times that rate. Moreover, this was a homebuilding company that six weeks previous had been forced to take the gut-wrenching action of releasing 40 teammates. We pointed out that the real situation was probably worse, that, in all likelihood, an economic return of 4.7% overstated the company’s true performance, since cycle times of 250+ days could not possibly result in an asset turn of 5.2. For that matter, it did not seem that the company could have produced an asset turn of 5.2 with a productivity (revenue/employee) measure of only $700,000.

We told this homebuilding company that we had traveled this country, working with homebuilding companies of all shapes, sizes, rationales, and arguments, companies just like theirs, and that processes like theirs were not just badly-designed processes; they were the outcome of flawed thinking on how to best understand and satisfy the requirements and expectations of their chosen market segment, on how to craft a solution that satisfies the requirements of all of their stakeholders – company owners and teammates, as well as homebuyers.

We told this company that velocity was a lot of what this type of project was all about. It was about finding ways to design/implement better, more productive processes, in order to increase productivity and reduce cycle time. We told them that processes were simply the logical starting point, the first step in the quest toward a “more-for-less” mentality – more output, more revenue, for the same investment in WIP and production capacity.

We told them that, in their case, perhaps it also needed to be about something else. Perhaps – just perhaps – it also needed to be about finding more ways to create and deliver the value their customers were willing to pay for, were willing to pay a premium for, while still finding ways to become faster and more productive.

At the conclusion, we told this company “there is a long road ahead”. We reminded them, that when they “embarked on this journey, (they) knew that this project was more the beginning than the end, that it would be the start of an effort that never really ends; the process of continuous improvement means just that – a continuous process of improvement”.

We asked them the same questions we had begun asking every homebuilding company: “Does the world really need one more average homebuilding company? Will “average” performance – operating, business, or otherwise – be sufficient to sustain a homebuilding company in the future?”

We said that it was an urgent question, and we thought the answer was “No”. We questioned why there were any average homebuilding companies. We said that we suspected the answer was that there were a lot of builders who did not care, a great many who were still living in the “95-05” mindset and for whom the business of homebuilding had been too easy, but that did not explain the large number who wanted to be extraordinary, exceptional homebuilding companies, yet struggled with mediocre customer satisfaction and average operating and business performance.

We told this homebuilding company that they were not an average homebuilding company in intent or reputation, but they were average – at best – in terms of performance. We told them that this project was a start. Whether it was a good start, whether it would be sustained, whether it ultimately would produce the results it was intended to produce, was up to them.

That was 2006. In 2008, they filed for Chapter 11 protection.