One of the hallmarks of SAI’s consulting work over the past dozen or so years has been the Competitive Assessment®. Somewhat like a balanced scorecard, this in-depth report provides an objective analysis of the capabilities and performance a builder has exhibited during its previous fiscal year, based on a predetermined set of measures the builder agrees are its key performance indicators; it provides a standard comparative platform for performance measurement.
It is about results produced against expectations.
As a management tool, a Competitive Assessment® has a lot of central uses.
As an analysis of previous performance, it can be designed to relate to the predictive, real-time performance measures in a heads-up display and dashboard, and collectively constitute a builder’s performance measurement system; it can be used to support a team-based performance compensation arrangement, one tied to enterprise performance achieved above a baseline regarding a single business outcome; it can provide the forensics for a focused, targeted, measurable process of continuous improvement.
What a Competitive Assessment® delivers to a builder is broad, objective, unfiltered input into how well it is satisfying stakeholder requirements, while continuously improving operational capabilities and business performance. It enables a builder to improve performance, shape its budget and operating plan, and make decisions about how it will manage the enterprise.
To give you a sense of how a Competitive Assessment® has worked in actual situations, take a look at the structure of a report we did for one of our clients over a multi-year period (2002-04), a few years before the end of the Age of Homebuilder Entitlement.
For this client, we provided a numeric rating of its capabilities and performance on a total of 25 key performance measures, classified into four sections:
- Measures of Success [Core Business Performance Measures]
- Supporting Business Performance Measures
- Operating Performance Measures
- Risk and Control Index
This builder’s actual performance was graded against its expected performance. The numeric ratings ranged from 1.0 (lowest) to 4.0 (highest). The rating for each measure was analogous to the grade received on a particular test, the rating for each section to the grade for a class, the overall rating to the overall grade point average.
The section indexes were a composite reading of their component measures; there were several composite indexes within sections.
The first section (Measures of Success) was derived from the client’s foundational belief that the enterprise’s success was dependent upon meeting three basic requirements: (1) earned loyalty from its stakeholders (including its buyers, its trade partners, and its teammates); (2) sufficient cash generated from operations; and, (3) a maximized return on invested capital.
Those requirements were considered the ultimate expressions – the ultimate measures – of success in their system, and this is how they appeared on the Competitive Assessment Scorecard®:
- Measures of Success (‘Success Index’)
- Cash Generation
- Return on Invested Assets
- Net Income
- Invested Asset Turnover
- Stakeholder Loyalty
- Customer Satisfaction
- Warranty Satisfaction
- Teammate Satisfaction
- Building Partner Satisfaction
- Market Partner Satisfaction
The second section (Supporting Business Performance Measures) wrapped up the “outcomes” portion of the Competitive Assessment®, and included the following two measures on the scorecard:
- Gross Margin
- Operating Expense
The third section (Operating Performance Measures) contained operational measures that were considered “drivers” of business performance. A more lengthy section, the scorecard included the following measures:
- Forward Land Position
- Unsold Late-Stage (Stage 8-10) Inventory
- Sales (sufficiency)
- Start Buffer
- Starts (sufficiency)
- Closings (sufficiency)
- Work-in-Process (necessary v. actual)
- Cycle Time
- Job Budget (Variance Purchase Orders)
- Job Budget (slippage)
- Warranty ServiceThe fourth section was a Risk and Control Index.
Unlike the earlier sections of the assessment, responsibility for this index belonged to the business partners (owners and investors), who were required to adopt and maintain a conservative and disciplined approach to investment and financial management, to make business and operating decisions within the controls established to manage risk, and to productively utilize a planned, finite, and controlled amount of capital resources.
- Cash Balance
- Debt-to-Equity Ratio
We advised this client not to regard the components of the assessment as a set of equally-important-but-independent, related-but-isolated measures, and not to conclude that the best way to improve the overall outcome was to spend an equal amount of time and effort improving the outcome of each and every measure.
Our point: these 25 measures did not reflect a loose collection of independent and unrelated parts – a set of processes, departments, systems, resources, policies, and other isolated pieces of a whole.
It reflected a system.
The description of what goes into every measure is too involved to explain in this space, but here is the scorecard showing three years of assessment on one of their operating companies, with points of concern highlighted in red:
Next: Deliverables: Business Process Improvement
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