Archive for April, 2013

The Pipeline: What Others Are Saying.

Posted April 21, 2013 By Fletcher Groves

(Reviews and Recommendations on The Pipeline:  A Picture of Homebuilding Production, now available on amazon.com, barnesandnoble.com, the publisher website (virtualbookworm.com), and the author website (thepipelinebook.com).

 

“Other industries have been executing on improving business productivity, predictability, and profitability for years, with little of that learning making it to the homebuilding industry.  When I was introduced to Fletcher Groves over a decade ago, he was one of the few who could introduce us to this thinking, and what he shared with us has become part of our culture, part of who we are.

“With The Pipeline, Fletcher has made it even easier to understand these ideas, taking a great body of knowledge and transforming it into a story directly applicable to homebuilding.  You quickly get the perspective you need to secure a strong and defendable future for your business.

“If you want do more than survive in this business, read this book.”

Robert Bowman, President, Charter Homes & Neighborhoods;  Charter Homes & Neighborhoods earned the 2013 GOLD National Housing Quality Award

 

“We would recommend The Pipeline:  A Picture of Homebuilding Production to anyone just entering the homebuilding industry, or industry veterans that have been building homes for decades.  The story of RB Builders breaks down the important drivers of profitability and return on investment into simple-to-understand components that can be influenced everyday by team members.

“Over the past decade, incorporating the concepts that Fletcher depicted in the narrative of RB Builders, Jagoe Homes has not only been able to survive the recession, but to strengthen our position in the marketplace and increase our profitability and return on investment.

“The Pipeline:  A Picture of Homebuilding Production will provide its readers with the same tools and concepts that Fletcher helped us with at Jagoe Homes to improve our business results.”

Scott and Brad Jagoe, Jagoe Homes Inc., Owensboro, KY;  Jagoe Homes was named 2010 Builder of The Year by Professional Builder

 

The Pipeline is a great way for me to have all the concepts you have taught me over the last 20 years.  The book is the next best thing to having you in our shop coaching. I have read about every book that claims to cover Homebuilding, and none have had the impact that your book will.  It is a reference that I will look to time after time.

“The mindset you provoke needs to be adopted by our country’s leaders!”

Robert H. (Bud) Ohly, President, Eagle Construction of Virginia, LLC, Richmond, VA

 

“Homebuilding books are often dry and uneventful. This one (thank goodness) reads more like a story, yet is still full of valuable information.  Groves knows his stuff.  I REALLY enjoyed it, and now my head is filled with ideas on how to attack some of our processes better… Time to go to work – worth the purchase!”

Leslie M. Day, President, Inland Homebuilding Group, Inc., Tampa, FL

 

“All homebuilders focus on margin.  It’s what we think about.  It’s what we benchmark about with other builders:  ‘What did you sell that house for?  How much did you pay for that lot?  What were your construction costs per sq. ft.?’  What we need is the ability to more-fully understand the relationship between margin and velocity, as the co-determinants of economic return.

“In The Pipeline:  A Picture of Homebuilding Production, Fletcher clearly explains how business outcomes are maximized, not simply by controlling and extracting maximum value from its direct variable costs – by increasing margin – but, also by leveraging the indirect, non-variable costs that represent the internal resources associated with its overhead, exploiting the external resources associated with its suppliers and subcontractors, and limiting the amount of work-in-process.

“Together, it is those last three efforts, together with managing production as a system, that determine the utilization of production capacity.

“That is what increases velocity.“

Ben Walters, Chief Operating Officer, Tennessee, Dock Street Communities, Inc.

 

“First, congratulations on producing a powerful and engaging book that can have significant impact on the homebuilding industry.  Second, the book holds the keys to systematic and continuous improvement within any industry.  And, your shaping of the environment for the production homebuilder makes the discovery even more relevant.  Third, you have captured what you set out to do.

“And, the conclusion of The Pipeline is beautiful in its simplicity:  Discipline, Context, Perspective.  Improving business performance boils down to getting the job done – viewing the issue, sustaining the effort, and getting the results – in three critical dimensions.”

Hoyt G. Lowder, HGB & Associates, LLC, Tampa, FL (former Director at FMI Corporation)

 

“In writing The Pipeline, Fletcher has integrated what he has learned as a banker, homebuilder, process engineer and consultant in a variety of fields to create a practical (but interesting and amusing) handbook for homebuilders.  Moreover, the approach and lessons drawn from a variety of relevant process and quality sources make this book a meaningful resource for any business that has a variety of processes, moving parts and dependencies crying for definition and management.

The Pipeline should also become a textbook for any building construction student and a resource for others engaged in the struggle for the definition of quality in business.  Again, my congratulations on a brilliant work.”

Kent Steen, Vice President – Marketing/Sales, Bitrage NOVIS Corporation

 

“Although I am not from the homebuilding profession, I found The Pipeline to be instructional, informative, easy to read, and thoroughly entertaining.  The dialog was believable, crisp, and to-the-point.  I’m impressed with Fletcher’s facility with words and the style he employed – like The Goal and The Challenge, two of my favorite books.  Fletcher is a natural writer.  The Pipeline was easier for me to read (than The Goal and The Challenge) because Fletcher used job titles rather that a person’s given name.  I did not have to stop and think what function the individual performed.  Fletcher cleverly summarized the key concepts of each preceding chapter before introducing the new.

“I liked the erasable board and flipchart use of the intrepid, results-based consultant, as she documented key concepts and then referred back to them when necessary.  I think using the CEO character to introduce, support, confirm, and explain – as necessary – company policy and direction, was a stroke of genius.  We all benefit greatly when we can understand how the big boss thinks.  That understanding provides immeasurable guidance to subordinate day-to-day choices.

“For me, a logistics professional and a practitioner in continuous process improvement, Chapter V: Production Processes was spot on.  The discussions regarding systems, processes, variation, waste, Theory of Constraints, bottlenecks, buffers, pull v. push, balanced capacity v. unbalanced capacity, and etc. were important, striking, and remarkable.  True genius, in my humble opinion!

“For those of you in the homebuilding profession, The Pipeline is a must read.  For those of us in other professions, The Pipeline is an informative, thought-provoking, and fascinating work that helps us understand how a successful homebuilding company can improve to be best-in-class.  There are many lessons that the reader can borrow from RB Builders and apply to his/her situation.”

Joe Kinsey, President, Operating Results, Inc., Orange Park, FL

 

The Pipeline:  A Picture of Homebuilding Production 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 team members, senior management, and RB Builders’ trusted, results-based advisor/partner.

The result is a deep understanding of a production system with an enduring visual image, the elements of which are crafted to the specific conditions, requirements, and parameters of the homebuilding industry, and a realization that improving performance on the velocity side of the ROA equation is the best path a homebuilder has to achieving sustainable competitive separation.

The Pipeline is about the specific application of underlying principles and disciplines of production that are universal – physics rooted in the laws that govern all production systems.  The book is about using the tools that work for homebuilding production, without regard to the consulting religion from which they come.  The Pipeline makes the connection between operating performance and business outcomes.

 

“The absence of business logic is simply astounding.”

Posted April 14, 2013 By Fletcher Groves

(originally published on EFA on February 9, 2010 under the same title;  updated and republished here, as part of our retrospective Above Average: The Best of Escape from Averageness, 2009-2012)

The intrepid, results-based consultant shook her head, partly in amusement, partly in disbelief.  It was another sobering reminder that RB Builders, early in this process, was capable of coming to bewildering conclusions, the latest of which centered around the company’s team-based performance compensation plan.

The Gross Income Participation Pool, or GIPP, was a prerequisite – une condition nécessaire – to her firm agreeing to become involved in a client-consultant partnering arrangement with RB Builders in the first place;  it was, in fact, one of a set of three stipulations, which included a requirement that the company’s internal financial statements reflect a variable costing approach, and a requirement that any existing improvement initiatives be subordinated to the company’s new constraint-focused, rapid-results process of continuous improvement.

The GIPP was new.  It was supposed to replace the company’s longstanding practice of paying individual bonuses based on multiple measures, and consisted of a team-based approach focused on performance related to a single business outcome, specifically, increases generated in Gross Income above a specific baseline.

Under the GIPP, the baseline performance was referred to as the Gross Income Baseline, while the budgeted performance was dubbed the Gross Income Target.  The difference between the GI Baseline and the GI Target was referred to as the Gross Income Reserve.  The GI Reserve was scheduled to be paid out progressively, based on the achievement of a predetermined number of “bonus buckets”, called Gross Income Milestones.  The aggregate teammate share of the GI Reserve represented one-third of the GI Reserve, while the remaining two-thirds was allocated evenly between distributions to owners and retained earnings.

Now, however, the GIPP was getting push-back from one of RB Builders’ recently-hired Regional Vice Presidents.  In fact, he was advocating that the plan be canceled.

“The market has improved, but we still have credit facilities that we have to restructure, repay, and replace, and now we need land and building lots;  bottom-line, we need the cash”, he explained.

In the intrepid, results-based consultant view, the Gross Income Participation Pool was a well-established prerequisite;  it was too late in the planning schedule to consider changing it, let alone cancelling and replacing it.

The intrepid, results-based consultant was having none of it.

“Where did you get this idea?”, she asked.

“It is the best approach to a situation that remains very challenging and uncertain”, he replied.  “We cannot justify bonuses in this economy, in this housing market.  We are fortunate to have our jobs.  We have nothing against bonuses in better times, just not now.”

“So, you just want to cancel the GIPP?  YOU CANNOT BE SERIOUS!”

“McEnroe”, said the CEO.  “Nice impersonation.”

The intrepid, results-based consultant turned towards the CEO, her impassive facial expression nevertheless communicating her thought:  “Where did you find this guy?”

She turned her attention back to the Regional VP.

“Let me get this straight.  You are concerned that your division will be unable to meet its debt service obligations, or find land, if it rewards performance above its baseline?”, she asked, rhetorically.  “Really?  Where is the money supposed to come from?

“The GIPP will not have paid out anything unless there is a reserve created by performance that exceeds the baseline.  You do realize that the GIPP is completely self-funding, that it does not cost the division or RB Builders’ owners one-red-cent?

“You do understand that, right?

“For the most part, all of the land and building lots acquired are kept off-balance sheet.  With in-place limitations on work-in-process and management controls on non-variable expenses”, she continued, “is there any likely scenario under which additional Gross Income will result in less cash flow?  On baseline alone, RB Builders is profitable, operating above breakeven, correct?  So – is there any likely scenario under which every cent of that additional Gross Income will not drop straight to the division bottom-line?  Where it can be utilized for – oh, I don’t know, say – debt restructuring, or distributed to teammates and owners before it became retained earnings?

“I can understand being careful with important decisions in uncertain times.  I can understand increased diligence in determining a baseline that reflects current reality.  I can understand having a more progressive structure to the payouts, so that each successive milestone is worth more.  I can understand adjusting the distribution of the reserve between teammates, owners, and retained earnings, to 25-25-50, or 30-30-40, instead of equal shares, in order to provide more money to meet extraordinary debt service requirements.  I can, perhaps, even understand the fear that would drive your flight to a supposedly-safer outcome, like Net Income.

“But, to deny yourselves – you, your teammates, your owners – the opportunity and motivation to do better?  To preserve your shared livelihoods?  To secure your collective futures?  That, I do not understand.

“The absence of business logic is simply astounding.”

 

Making Performance Compensation Live Up to Its Name

Posted April 7, 2013 By Fletcher Groves

(originally published on EFA on February 16, 2009 under the same title, republished here, part of our retrospective Above Average: The Best of Escape from Averageness, 2009-2012)

Reference Point is our periodic survey of management practices conducted with homebuilding companies listed on Professional Builder’s Survey of Housing Giants.  In 1999, we asked the senior management of these companies to respond to a series of statements intended to measure the context of business logic they attempted to infuse into their operations.

On a scale of one to ten, they scored a four.

Our conclusion was then, and is now, thirteen years later, that the efforts of a homebuilding company to improve operating performance and business outcomes will largely fail, if it does not somehow succeed first in creating a homebuilding team that works toward commonly-held and commonly understood business goals, versus merely being a collection of so-called teammates working toward individual goals.  What would be missing, is an underlying business logic that forms the necessary context for understanding everything else.

To become the kind of savvy, accountable, and motivated homebuilding team required in order to compete effectively in the business world, everyone on the team has to learn the “business” of homebuilding, they have to understand their individual responsibilities as part of the overall team, and they have to understand what is at stake, individually and collectively.

Moreover, it is not enough that teammates merely understand the business outcome that is at stake, they must have a stake in that business outcome.  That is the role of performance compensation.

What attributes should a good performance compensation plan have?

It should be simple.  It should be visible and transparent.  It should be compelling.  It should bonus on a single business outcome, not an operating outcome;  it should be a single business outcome impacted by the actions of every single teammate.  It should pay bonuses fast and frequently.  It should be self-funding, meaning that the bonuses must pay for themselves out of the additional income that the company produces over and above the baseline plan (the one where everyone justifies their salaries and gets to keep their job).  It should represent a very significant portion of the compensation of every teammate.

It should include every single employee in the company.  It should provide only for the possibility of winners or losers, not winners and losers.  It should give managers the right to lead and to demand results.

Who has the P&L responsibility in your company?

The answer better be “everyone”.