Archive for September, 2014

Pipeline Workshops: Three Dimensions of Continuous Improvement

Posted September 28, 2014 By Fletcher Groves

(published on Escape from Averageness in February 2009 as “The Antidote to Averageness”, emphasizing three critical dimensions in which builders must continuously get the job done; now discussed at every Pipeline workshop)

 

In the Lean World, the term “sensei” connotes the idea of wise counsel; a similar term in the TOC (Theory of Constraints) World is a “Jonah”.  My buddies Pascal Dennis and Scott Sedam would no doubt have a more authentic and appropriate definition for sensei;  all of us would agree that serving the homebuilding industry can feel less like either, and more like a voice in the wilderness.

What the three descriptions share is the wisdom of time.

Over the years, I have learned to reduce matters – solving problems, managing constraints, meeting challenges, prioritizing opportunities – to their essence. The term for this approach is elegance:  solutions that are simple, suitable, appropriate, effective, to the point.

It was not always so.

Almost two decades ago, as SAI Consulting was beginning its work of helping homebuilding companies understand and improve their business processes, I characterized the effort to achieve and sustain improvements in business performance as having “a certain chemistry – a complexity and a comprehensiveness”, noting, therefore, that “improving performance tends to be hard, involved work.”

I went on to say that, “It is hard work because performance can’t be improved without doing things differently, and change is threatening to most people;  it is involved work because improving performance requires more than a simple, one-dimensional approach – it requires a continuous effort on more than one front.”

In retrospect, I do think there is a chemistry, and I do think it is hard, involved work; but not because it is complex.  Even at the time I was noting its complexity, I was also saying that “business performance improvement really boils down to getting the job done – viewing the issue, sustaining the effort, and getting the results – in three critical dimensions.”

Now, I would substitute “focused” for “complex”, and I would say that you have to do what works, that you have to know how and when to use the tools in the toolbox, without regard to the consulting religion or denomination from which they come, but I would also say that those three dimensions are as true and relevant today as they were 17 years ago.

For a homebuilding company, improving operating performance and business outcomes still requires an operating discipline, a business context, and a perspective about how value is created and delivered.

DISCIPLINE: Narrow the strategic focus.  Design the components of your operating model – your processes, your systems, your business structure, your business culture – to deliver exceptional levels of the specific and distinctive value demanded by a narrowly-defined and purposely-chosen segment of homebuyers.

CONTEXT: Become a company of business-people.  Develop a savvy, accountable, motivated homebuilding team comprised of savvy, accountable, motivated teammates, and instill in them a business logic:  teach them the real numbers of the business, give them the authority and responsibility to act upon that knowledge, and, then provide them – as a team, not as individuals – a collective stake in the financial outcome, a collective stake in their livelihoods, a collective stake in their futures.

PERSPECTIVE: Get horizontal.  Organize and focus your efforts around the manner in which you perform work and create value.  It is the most basic and fundamental proposition of your business enterprise – of any business enterprise:  the reason you exist – the way you make money – is through the value you deliver to your customers and other stakeholders;  the only way that value is created is through the work that you do;  the only way that work is performed is through some manner of workflow;  work flows horizontally, not vertically.

Absent a disciplined operating model, an underlying business logic, and a horizontal perspective of how value is created and delivered, an understanding of production principles would be knowledge without purpose. Pipeline workshops provide the parameters in which production principles operate.

Pipeline workshops are a call to action; they provide a way forward.

 

The next Pipeline workshop is at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on October 15-16, 2014. Cost is $795.00.

Delivered by SAI Consulting. Sponsored by BuilderMT and Big Builder (Hanley Wood).

Registration/Reservations: www.buildervelocity.com

 

Pipeline Workshops: “More Cowbell”

Posted September 21, 2014 By Fletcher Groves

(first posted on Escape from Averageness in February 2014, under the shorter title; refreshed and re-posted here, as an encouragement for builders to “explore the space”, by attending the next Pipeline workshop, October 15-16, 2014, in Ponte Vedra Beach, Florida)

 

There is a perception – a mental model – about the advantage that rests with the size of balance sheets, particularly with cash and inventory, with the capacity to borrow and the cost to borrow; it is a perception that also extends to the overhead expense on income statements.

Size enables, but size also fosters a “more-with-more” mentality; large homebuilding companies rely on the perception, smaller builders covet or make excuses about what large builders have.  As a result, few builders exploit the advantages of becoming more productive, of embracing a “more-with-less” mental model.

The weapon of choice for large building companies (and smaller wanabes) becomes more of what they have already (or covet): more geography;  more communities, more inventory, more cash, more debt;  more resources, and more of the overhead that goes with it.

“More cowbell.”

I’m pretty sure that Bruce Dickenson – yes, the Bruce Dickenson – would encourage us to “explore the space.”

The clearest image we have of homebuilding production – the best visual reference – is that of a pipeline, one in which size is defined by the amount of work-in-process the pipeline is designed to carry, in which cost is determined by what the production effort consumes, in which length is calculated as the pipeline’s cycle time, and in which capacity is defined as the rate of throughput a pipeline of that size can produce, with planned, finite, and controlled levels of overhead resources and work-in-process.

The amount of work-in-process a building company has to carry in order to generate its revenue is the more meaningful, more useful measure of its true size; the relationship between revenue and operating expense is the classic measure of its productivity.  Using either work-in-process or operating expense as the truer indicator of size would discourage builders from aiming to be bigger companies.

It would convince them that they need to become faster, more productive, more profitable building companies; it would enable them to better confront the current market and economic reality of having to “do marginally more with significantly less”.

This is part of what you learn in a Pipeline workshop.

 

The next Pipeline workshop will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on October 15-16, 2014. Cost is $795.00.

Delivered by SAI Consulting. Sponsored by BuilderMT and Big Builder (Hanley Wood).

Details: www.buildervelocity.com

 

Pipeline Workshops: Improvements to the Game

Posted September 14, 2014 By Fletcher Groves

Enabling builders to test the principles and lessons learned is a significant part of the takeaway we offer in a Pipeline workshop. We have repeatedly received feedback from attendees saying that the opportunity to simulate production in a progressive series of scenarios enables them to “see” production in a way that they have not previously experienced.

There is nothing comparable to a Pipeline game, anywhere. It is both a production simulator and a business game;  in large measure, the Pipeline game is what makes Pipeline workshops so intense, so interactive, so competitive, so worthwhile.

 

 

Although the game is already a tremendous tool for teaching both production and business principles, we, nevertheless, take seriously the opportunity to make it better.

And, we do listen. Partly as a result of feedback, we recently made two significant changes to the game.

The first change was to shorten the duration of the game, without diminishing its effectiveness, so that we can run more scenarios in the same amount of time; basically, we halved the number of rounds. Unexpected benefits of shortening the game: (1) it makes every operating decision more consequential; (2) it makes the results more realistic, easier to comprehend, therefore, more intuitive.

The second change was to more realistically reflect the outsourced nature of homebuilding production. Previous versions of the game used the resources to reflect both the capacity of the system, and the cost of that capacity. That arrangement is appropriate for a manufacturing operation or even a project management organization, but a more accurate reflection of homebuilding production is to separate capacity and cost.

In homebuilding, the external resources that determine production capacity are a part of Cost of Sales (which makes them a direct, variable cost); Cost of Sales is a measure of product cost, not capacity cost; rather, it is Operating Expense – the indirect, non-variable cost of internal resources associated with overhead – that determines capacity cost.

In previous versions of the Pipeline game, using the resources to reflect capacity and cost meant that we disregarded Cost of Sales, and focused on Throughput, which is more closely related to residual Gross Margin. In the new version of the game, we bring Revenue and Cost of Sales back into the picture;  in effect, we now account for the margin side of Return on Assets. The external resources in a game now only define the production system’s capacity, and their cost is reflected in Cost of Sales, as a percentage of Revenue; they are now the true, variable costs associated with production.

Throughput is now Revenue, less Cost of Sales, which is still Gross Margin. This represents a huge stride in reconciling these terms, and making operating decisions easier to connect to financial outcomes.  Operating Expense is now an imposed (budgeted) value, reflecting the cost of the internal capacity required to manage work-in-process; it is a non-variable cost, and it is now only indirectly related to expected project completions.

The overall effect is now a board game much more reflective of a homebuilding operation; the lessons are now much easier for builders to understand, with a production simulator that exponentially increases learning over that which occurred before.

The new version of the game was rolled-out for play this past May at the Housing Leadership Summit; it was explained at the BuilderMT-Sales Simplicity Client Conference earlier this month; and it will be part of the upcoming Pipeline workshop in October.

Don’t miss it.

 

The next Pipeline workshop will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on October 15-16, 2014. Cost is $795.00.

Delivered by SAI Consulting. Sponsored by BuilderMT and Big Builder (Hanley Wood).

Details: www.buildervelocity.com

 

“I told her we were gonna kill ’em all.”

Posted September 8, 2014 By Fletcher Groves

(previously posted with the title “I remember where I was . . . I remember who I was with”;  an updated version of this entry is posted on Escape from Averageness every year nearing the anniversary of the 9/11 attacks)

 

On Tuesday morning, September 11, 2001, I was in the offices of Fidelity Homes, in Venice, Florida, just starting a process mapping engagement that would give this start-up builder a state-of-the-art set of business processes.  SAI’s involvement was part of a large pro bono effort, sponsored by Professional Builder, that included a number of top consultants then serving the homebuilding industry.

I was the Process Architect for Fidelity Homes.

Sitting across the table were David Hunihan and Todd Menke, two young builders, eager to take their experience in homebuilding and pursue a National Housing Quality award.  We had barely started, when David was pulled away by a telephone call.  It was his wife, Lauren, asking if he was aware of what was going on in New York City.

As the events continued to unfold, in New York City, in Washington DC, in western Pennsylvania, we eventually found that it was impossible to focus on mapping workflow, and whatever we were doing did not seem all that important, anyway.  We cancelled everything for the rest of the day, and, in our own ways, watched and tried to process what was happening.

Bill Lurz, then a senior editor at Professional Builder, joined us the following day.  We finished the project two days later, and I drove back to my family in Ponte Vedra Beach through a tropical storm.  The hugs, understandably, had more conviction than usual.

The article was written and published in Professional Builder.

I still consider the events of 9/11 to be a matter of unfinished business for this country.  Time has only increased my feelings about it.  We were attacked, thirteen years ago, because of who we were, and because of who we unapologetically remain.  Evil remains the enemy of good, and that evil now has the more radical face of a successive generation.

In the face of that evil, we have failed to clearly state what war is;  we have dismissed the understanding of war as the utter and complete destruction of an enemy.

Whatever we think of issues like American Exceptionalism, the tradeoff between national security and the constitutional rights to privacy of US citizens, the still-unaddressed murder of US diplomats and security personnel in Benghazi, the ramifications of decisions not to intervene in Iran and Syria, or – now – the emergence of a so-called Islamic caliphate in Syria and Iraq, the discussion on those matters misses the point.

The discussion misses the point, because it doesn’t address the root cause of the problem.  The core problem is not the threat of future terrorist attacks, or the presence of Weapons of Mass Terror;  the problem is the terrorists, the problem is ISIS.

And, the solution is not attrition, or containment, or control, or minimization, or dismantlement of the threat, or mounting an international coalition against terror, or providing more humanitarian aid, or creating deeper understanding, or negotiating peace, or peace, itself.

“Fleury.  Tell me what you whispered to Janet, in the briefing, to get her to stop crying about Fran, you know, before all this, before we even got airborne.  What’d you say to her?  You remember?”

“I told her we were gonna kill ’em all.”

(The Kingdom, Universal Pictures, 2007)

 

Pipeline workshops are open events sponsored by BuilderMT and Hanley Wood (Builder/Big Builder).  They are size-limited, intense, interactive, comprehensive immersions into the principles and disciplines required to manage homebuilding production.

Attendees and observers alike agree that the most compelling part of the workshop involves the Pipeline simulations:  multiple teams of five geographically-diverse builders (and the occasional industry expert) that go through a progression of scenarios that are simulations of home building production management.

The objective of this series of simulations is to reinforce the production principles taught in the workshop, including:  (1) the effect of variation on a production system, (2) pull scheduling according to the capacity of a constrained resource, and (3) the importance of connecting decisions made on operating matters (like flow, capacity, duration, and work-in-process) to the critical business outcomes of profitability and return on assets.

With multiple teams playing every game with exactly the same rules and understanding, the results don’t tend to lie.  Look at the results from the most recent workshop.  In every category – from throughput (closings), to work-in-process levels, to inventory turns, to cycle time, to net income, to return on assets – the teams made remarkable progress, often exceeding expectations.

Until you have played the game and seen the measures, you won’t understand the metrics;  rather, focus on the performance trends (y-axis) as the games in this workshop progressed (x-axis).

This is Revenue . . .

This is inventory turn . . .

This is cycle time, expressed in days . . .

This is Net Income Margin . . .

This is Return on Assets, a reflection of its co-equal components:  Net Income Margin (margin) and inventory turn (velocity) . . .

After the initial shock of shattered instincts, every metric is in precisely the direction you would expect, if the production principles are true and if progress is being made.  Clearly, builders attending the first Pipeline workshop learned from their participation.

They learned the principles and disciplines of homebuilding production.

Pipeline simulations are board games that teach builders to “see” production;  they simulate the fast-paced, rapidly-changing, uncertain, risk-laden, variation-filled environment in which home building production decisions must be made.  It is learning based on experience and action, not words;  Pipeline games compress the learning curve, presenting production situations that are simple, fast, easy to see and understand, that can be modified and rerun, until the principles are understood.

In a Pipeline workshop, the progression of the games mirrors the progression of the learning.  In the book that gave rise to the workshops (The Pipeline: A Picture of Homebuilding Production), the games were described as follows:

“Change is a necessary condition to any improvement effort, but change is difficult, disruptive, time-consuming, and costly;  the effort can fail to produce the result.  Learning needs to occur without so much cost, disruption, and risk.  Managing production and improving operating and financial performance becomes intuitive and simple, but there is much to understand.  It is counter to what is taught, therefore, difficult to grasp;  it must be learned, and that is harsh when it occurs at the cost of real operating performance and actual business outcomes.”

 

The next Pipeline workshop will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on October 15-16, 2014.  Cost is $795.00.

Delivered by SAI Consulting.  Sponsored by BuilderMT and Big Builder (Hanley Wood).

Details:  www.buildervelocity.com