Archive for August, 2013

Yellow Lines and Dead Armadillos

Posted August 25, 2013 By Fletcher Groves

(excerpted from The Pipeline, as RB Builders’ team discusses the problems associated with scheduling multiple construction jobs, using the methods dictated by traditional project management)

 

The intrepid, results-based consultant set the erasable marker in the tray.

“I see the look on your faces”, she said.  “No one is saying this is easy.  The easy way is to adopt ‘industry best practices’, to settle.  Our first instinct is to play it safe, to stay away from the edge, to take a middle-of-the-road approach.

“As my Texas clients are fond of saying:  ‘The only things in the middle of the road are yellow lines and dead armadillos’.  My instinct reflects that observation.  It is to be distinctive on the product side, and to be faster and more agile on the production side.

“There is no sanctuary in being average.

“I can just hear it now:  ‘Wow!  RB Builders’ practices are on par with the best homebuilders in the industry!’  As if the homebuilding industry had anything to write about, when it comes to adopting cutting-edge production practices.

“Everything we have been dealing with in these sessions – from the mental model of production as a pipeline, to making the connection between operating performance and business outcomes, to understanding how costs behave, to having a perspective and a discipline regarding the systems and processes that create the value we are trying to deliver to customers – all flies in the face of the accepted way of doing things in the homebuilding industry.”

“Nice rant”, said the CEO.

The intrepid, results-based consultant held on to the amused expression for a few moments, turned serious, and continued.

“Let me state this as clearly as I possibly can:  The gains in productivity and – by extension – the creation of a sustainable degree of competitive separation that is the result of fixing the scheduling problems inherent in traditional project management methodology dwarf the gains that would result from any other improvement effort.

 

(The Pipeline: A Picture of Homebuilding Production is available on the publisher website (virtualbookworm.com), through the author website (thepipelinebook.com), as well as amazon.com, barnesandnoble.com, and booksamillion.com)

 

“Towards Isla de Mujeres”

Posted August 21, 2013 By Fletcher Groves

(originally published on Escape from Averageness in July 2011, under the same title;  republished here, as part of our retrospective Above Average: The Best of Escape from Averageness, 2009-2012)

 

The intrepid, results-based consultant glanced at the compass in the binnacle.  Easing herself to the leeward rail, she crouched behind the slot, between the spinnaker and the mainsail.  Checking the Windex at the masthead, she put the small LED beam on both sails, and studied the trim.

EFA - Isla de Mujeres Race

Extinguishing the light and standing up, she traveled the main to leeward, eased the mainsheet, and then eased the backstay.

“The pole needs to come back”, she said, as she went through her trim progression.  “The main needs some work.  Give me some ’vang.  Ease on the downhaul a bit.

“Yes, the cunningham is a clever pig”, she mused to herself.

“That’s good.  Thank you.”

Slowly, the speed of the boat increased and its heel moved to a more optimal angle, as it came off the wind and settled into a power reach with the apparent wind slightly aft of beam.  She heard the familiar squeegee of her Topsider as her left foot slid to the port cockpit wall to brace her stance.  The balance of the boat, it seemed to her, was perfect;  whenever it was, it would just lock-in;  it could be steered – as big and powerful as it was – with just slight pressure on the wheel.

Like her dad, she loved offshore racing, the beauty of it, the danger of it, the moving chess match of strategy involving wind and current, the satisfaction of grinding infinitesimal increases in boat speed over time.  She loved closed-course, too;  the tactics, the geometry, the energy, the close-quarters, the mayhem of starts, the competency, speed, and decisiveness demanded by constant change.  She had raced all kinds of boats, from Olympic-class 470’s, to J-24’s, to the larger IOR-class boats like this one.

Racing or not, she loved sailing at night.  She loved sailing, period;  the equipment, the materials, the tinkering, the maintenance, the combination of aerodynamics and hydrodynamics, the immense-yet-silent power of sail, the idea that you could get something this size moving through the water this fast, with nothing more than wind and Kevlar.

But, more than anything else, she loved the environment of sailing – the sunrises, the sunsets, the salt spray, the remoteness, the vastness, the anchorages, the places only reachable by water, the sea life;  the unique moments she had experienced, like being becalmed and swimming in water more than a mile deep, so clear that, from underwater, the hull seemed suspended in air.

Checking the heading on the compass once more, she looked up and searched the dark sky just to weather of the masthead.  She found that constantly steering to a compass at night was too artificial, too consuming, and, frankly, too disorienting.  On a clear night, she preferred to steer to the stars, with only an occasional reference to the heading on the compass.

Finding what she wanted, she settled in for her shift on the helm.

The loom from Sarasota was still faintly visible behind them, the loom from Ft. Myers and Naples more distantly visible to the south.  She steered 210 degrees towards Cabo de San Antonio, still two-days-sail away.  She remembered her dad’s description of the navigation of this race a generation before, dead reckoning on NOAA charts, Loran tables.

Now, it was all GPS.  But, the basics were the same:  SPYC, under the Skyway, Southwest Channel past Egmont, then the long sail southerly to the western tip of Cuba, turn right, across the channel between Cuba and Mexico (at times flowing almost three knots out of the Yucatan Deep), to Isla de Mujeres.

Definitely a current race.

She looked back up into the dark sky.  It always amazed her how many stars were visible at night, away from land.

They were like eyes.

“For the eyes of the LORD run to and fro throughout the whole earth, to show Himself strong on behalf of those whose heart is perfect toward Him.”  (II Chronicles 16:9).

“The eyes of the Lord”, she thought to herself.

As she looked into the sky, and pondered the sheer majesty and indescribable beauty of this world, she reminded herself that the Lord of all creation . . . the Author of all that is good . . . the Lover of her soul . . . the One Who has pursued her through all space and time . . . was always looking right back at her.

 

Margin or Velocity?

Posted August 4, 2013 By Fletcher Groves

In the business of homebuilding, it is not enough to have revenues that exceed costs, or to have a positive cash flow;  a homebuilding enterprise must also generate an acceptable economic return from its homebuilding operation.

Because it has an operational (as opposed to investment) focus, the most appropriate measure of economic return is Return on Assets, expressed best by the DuPont identity, which separates economic return into two components:  margin and velocity.  Return on Assets = Return on Sales x Asset Turn.  Return on Sales (Net Income ÷ Revenue) is the margin side of ROA;  Asset Turn (Revenue ÷ Average Assets) is the velocity side of ROA.

For some unexplainable reason, homebuilding is not an industry that has ever given these two components of economic return the same standing.  There has always been an unequal attraction.  In good times or bad times, the emphasis – the priority – has been on improving margin;  the argument for any effort to increase velocity is brought – kicking and screaming – to the table.

That emphasis and priority is heightened coming out of a downturn.  Emerging from the most recent downturn, it was assured that builders would instinctively move first to repair margins.  And – if past recessions are any indication – it can be predicted that it will be another two to three years before most builders might start any effort to become more productive and do more with the production capacity they pay to have at their disposal.

Assured.  Predictable.  Dangerous.

Sustainable competitive separation is the result of doing what others will not do, what they cannot do.  Things that are too tough, that require too much rigor, too much discipline, too much resolve.  Perhaps margin is the correct initial focus coming out of a recession.  But – generating a higher Return on Sales is not the difficult part;  it is the more natural part, where builders’ inclination lies.

Margin is necessary, but it is not sufficient.

Sustainable competitive separation requires more;  it requires doing the difficult part, as well;  the part to which builders are less-inclined.  It requires continually and relentlessly finding ways to become more productive, finding ways to do more with less, finding ways to increase the rate completions/closings with a planned, finite, and controlled level of work-in-process.

Real, sustainable, competitive separation requires proficiency on the velocity side of Return on Assets as much as proficiency on the margin side of ROA.  Working to improve margin without also working to increase velocity is fighting the battle with one arm tied behind your back.

As one of our clients expressed it, in writing a review of The Pipeline: A Picture of Homebuilding Production:  “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.”

That understanding will be needed sooner than most builders think.

During the homebuilding collapse, constrained capacity wasn’t an issue;  the industry bled-off the capacity it was unable to utilize.  Now, it is an issue.  Even at a relatively low rate of new home sales, there is now insufficient production capacity to meet current demand.

What will the situation turn into, in the next several years, when – as Calculated Risk’s Bill McBride predicts – the level of annual new home sales rises 60% from current levels, to a modest level of 750,000 to 800,000?

Replacing lost capacity without any increase in productivity has two negative effects:  First – it is more difficult, because it requires finding even more of what there currently isn’t (more resources).

Second – it becomes just another more-for-more proposition, an offer of more capacity at a higher cost;  not higher productivity;  not additional throughput achieved with the same capacity.

Will higher direct labor cost result in the availability of additional capacity?  Can the additional direct labor cost associated with securing more capacity be automatically passed through in the form of higher sales prices?  Can higher overhead cost automatically be recovered?  Wouldn’t higher velocity – increased productivity – be a better approach to dealing with the situation than living with the effect higher costs would have on margin?

Why do we argue so forcefully for the drivers of higher velocity?  Why do we argue so relentlessly for better processes, for shorter cycle times, for faster inventory turns, for higher productivity, for a managerial accounting approach that provides visibility into operations, for better-managed production systems, for team-based performance compensation based improvement to a single business outcome that is impacted by every position in the enterprise and reflects both components of economic return?

Why do we advocate so strongly for adoption of an urgent, rapid-results process of continuous improvement that focuses on whatever currently constrains an enterprise’s ability to generate more of that single business outcome?

Why was a book like The Pipeline: A Picture of Homebuilding Production written?  Why are we launching into a series of sponsored, open workshops on the principles and disciplines of homebuilding production?

This is why.