Archive for October, 2014

Deliverables: Competitive Assessment

Posted October 26, 2014 By Fletcher Groves

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:

  1. Measures of Success [Core Business Performance Measures]
  2. Supporting Business Performance Measures
  3. Operating Performance Measures
  4. 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)
  • Top-grading
  • 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:

 

CA BPR (capture)

CA SBPR (capture)

CA OPR (capture)

CA SHPR (capture)

Next:  Deliverables:  Business Process Improvement

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Deliverables: “What are you good at?”

Posted October 19, 2014 By Fletcher Groves

“What do you consult on?”

A natural, if somewhat ungrammatical question, which we hear frequently enough.  Consultants have lists and descriptions of their areas of expertise, what are termed deliverables; from the standpoint of informing clients about what their consulting work involves and how that work unfolds, those descriptions can be useful.

But, those descriptions shouldn’t be why consultants are engaged.

As consultants, we would better serve our clients if we defined our services by the results we deliver, not our results by the services we deliver; what we ought to be delivering are targeted, measurable, meaningful results defined by the improvements in operating performance and business outcomes a client realizes as a result of having engaged us.

Under our preferred approach to delivering consulting services – under what we call Results-Based Consulting® – our short answer is, “We do what it takes to get results.”

And, not just any results.

We resolve to do whatever is required to gain the insight and understanding into operating and business performance required to create a sustainable, focused capability and capacity for implementing the things that improve that performance; we search for a starting point to continuous improvement formed from clients’ current reality – formed from a cause-and-effect understanding of our clients’ core problems and constraints.

We are determined to improve our clients’ means for understanding and managing workflow and production, so that our clients deliver more value – deliver more benefit, more consistently, with less waste, less cost.

We are committed to building urgency towards results, and to instilling business logic in a savvy, accountable, and motivated homebuilding team that has a financial stake in the outcome; we foster a willingness and capacity for change, for innovation and learning, and a determination to make our clients less dependent on us for all of it.

Still, the question persists, regardless of the approach;  there is still that interest in “what kind of consulting” we do.

In other words, “What are you good at?”

Next: Deliverables:  Competitive Assessment®

 

Pipeline Workshops: Yellow Lines and Dead Armadillos

Posted October 5, 2014 By Fletcher Groves

(excerpt from The Pipeline, published on EFA in August, 2013;  RB Builders’ team discusses the problems associated with scheduling multiple construction jobs, using traditional CPM project management, an issue addressed in every Pipeline workshop)

 

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 variable costing, 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 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

(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)