Archive for October, 2016

Part I: “Get Busy Living Or Get Busy Dying.”

Posted October 30, 2016 By Fletcher Groves

(this post appeared on EFA® in April 2010;  reposted here, with the same title, as a three-part series.  It is about creating competitive separation;  written well-before the book was published or the workshop was created, this is what The Pipeline: A Picture of Homebuilding Production© Second Edition is all about, what Pipeline workshops™ are all about)

“I guess it comes down to a simple choice.  Get busy living.  Or, get busy dying.”  (The Shawshank Redemption, Castle Rock Entertainment, 1994)

efa-shawshank-8

If his only object was to exist or survive, I imagine that Andy Dufresne would have become like everyone else in Shawshank, and settled for whatever business-as-usual constitutes in that setting.  It took him twenty years to dig out of prison for a crime he did not commit, but Andy Dufresne did not choose to merely exist.

Get busy living, or get busy dying.

[2010] is the fourth year of this housing recession, one that has surprised even us veterans with its depth, duration, and complexity born of excessive intervention into markets and monetary/fiscal policy.  Maybe it will be the last year.

Maybe not.

Either way, as distracting and difficult a time as right now is, it is time for builders to consider how they will choose to make the world of homebuilding when this is finally over.

If you think this recession has been a test of survival, wait until you see the recovery.

 

Ten years ago [2000], I wrote an article for Professional Builder, titled “The Road That Lies Ahead”.  It was one of a series of articles on the findings of Reference Point™, our periodic survey of senior executives regarding management practices in the homebuilding industry.

In part, I said this:

“LIFE ON THE SERENGHETI:  It seems obvious to us that the demand for housing in the next five to seven years cannot support the aggregate level of anticipated growth if three-fourths of these builders aim to significantly increase the size of their current operations, even if we factor in a continuation of the current level of acquisition and merger activity and reason that our group of builders might be a particularly aggressive strain.

“On the other hand, we do not see any reason to doubt their intent.  A couple of scenarios come to mind.  One possibility is that some of the demand is transferred by acquisition or merger, but, beyond that, everyone settles for less growth than they would like – too many lions, not enough zebras, everyone still hungry, but no one starving.

“The other possibility is that some of these builders might actually develop (or acquire) the capabilities that will allow them to redefine operating and financial performance as we know it.  In that case, the current level of industry consolidation begins to pale – and we will be looking at a group of bigger, stronger, faster lions, capable of eating zebras to their hearts’ content . . . “

“. . . There is a clear and simple message in all of this:  The road ahead is difficult and uncertain, but there is opportunity along with the danger.  Do not be complacent.  Do not follow the crowd.  Do not waste your time and effort on things that do not create value.”

 

I remember, my dad once remarked, “Son, you see life the way you wish it was”.  I replied, “No, you taught me to see life the way I choose to make it”.  Fast-forward, from 2000 to 2010.  How will you choose to make your world?  How will you create a sustainable way forward in this industry?

Builders have choices about how they move forward from this debacle, but not all of the choices available to them meet the criteria of being sustainable.  From the standpoint of what constitutes sustainable competitiveness, I do not think business-as-usual is going to cut it any longer.  I do not think settling for being different-but-no-better-no-better-but-no-worse than the competition is going to cut it any longer.  I do not think that attempting to insulate yourself and achieve a competitive advantage within a secondary market, by settling for the adoption of “industry best practices”, is going to cut it any longer, either.

I do not think there is much comfort in not being among the slowest zebras on the Serengeti.

There is such a thing as the tyranny of averageness.  At the end of the day, average is still just that.  Average.  No matter how you cut it, even if it is occurring on a higher plain.  The question is this:  Does the world really need any more average homebuilding companies?

Get busy living, or get busy dying.

“Towards Isla de Mujeres”

Posted October 23, 2016 By Fletcher Groves

(published on Escape from Averageness® in July 2011 and August 2013, under the same title)

EFA - Isla de Mujeres Race

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.

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 degree, 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, and whenever it was, it would just lock-in and 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.

In the course of doing it, 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 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 San Antonio, Cuba, still two-days-sail away.  She remembered her dad’s description of the navigation of this race a generation before, the dead reckoning on NOAA charts, the 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 in the behalf of them 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.

 

Pipeline Workshops™: Compressing the Learning Curve

Posted October 15, 2016 By Fletcher Groves

The intrepid, results-based consultant clicked the embedded video in her PowerPoint presentation.  “I want you to watch this short video clip some of my colleagues masterfully produced”, she said, smiling.

“I advised them not to quit their day jobs.”

As the video trailer played, she opened the portfolio, removed a set of game boards, leaned them against the conference room wall, and then opened her notebook carryall, removed the zippered pouches containing the poker chips and sets of six-sided dice and placed them on conference room table.

When the video was done, she handed the game boards to a member of each team, and said, “I need you to clear space on your tables for these boards.”

As those tasks were being completed, she explained what was about to happen.

“Change is a necessary condition to any continuous improvement effort.  You can’t expect to get different results by doing the same things the same way.  However, change is difficult, disruptive, time-consuming, and costly;  moreover, the effort can fail to produce the intended result.

“We need to be able to figure-out production management, without the cost, disruption, and risk of failure associated with doing it in real life.

“We need to compress the learning curve.

“The new approach that you will use to manage production – and thereby improve operating and financial performance – becomes intuitive and simple in practice, but initially there is a lot to understand.

“It is an approach that is counter to what most of you have been taught”, she said.  “You will need to fight your natural tendencies, challenge your paradigms, begin to think systemically.  It can be hard to initially grasp.

“It must be learned.

“That kind of learning is a harsh teacher when it occurs at the cost of real operating performance and actual business outcomes.

“So – we are going to simulate the environment in which production decisions must be made, and we are going to measure the outcome of those decisions, in terms of both operating performance and economic return.  It’s going to be competitive, the pace is going to be fast, the situation will change rapidly.

“There will be uncertainty, risk, and variation;  you will have to learn how to reduce it, and then, how to manage it.

“The purpose is to create learning based on what you experience and do, not simply what you hear and read.  The objective is to compress the learning curve.  The production situations you are going to encounter in these simulations reflect the circumstances you encounter in the real world of homebuilding.

“We will modify them and run them until we learn to see, until we understand how to apply the principles.”

Addressing no one in particular, but having a particular person in mind, the intrepid, results-based consultant added, “You need to shut-up, and quit acting like you already know everything.  Entiendes?”

Satisfied, she continued.

“Here, we have a homebuilding production system,” she explained, gesturing to the game board.  “The board represents the resources and tasks necessary to complete each job, which are your houses.  As you know, a production system manages a portfolio of jobs, not a single job;  the chips represent the system’s work-in-process – the jobs/houses at various stages of completion, as they flow through the system.

“Variation is reflected by the probability in the dice rolls.  The tasks in each resource phase take the same amount of effort on every job, so there isn’t any variation in the amount of work, only in the length of time required to complete it.  We find comfort in the false security of achieving an ‘average duration’, and this game reflects that tendency.

“Each game represents a full year of operations and results;  each round represents a one-month time period in that year.  Before the game ever starts, you have to make some decisions about resources and work-in-process, which will, in turn, enable you to project operating performance – completions, work-in-process, capacity, etc. – and to budget financial performance – Revenue, Cost of Sales, Gross Margin, Operating Expense, Net Income, Return on Assets.

“All that stuff goes on the scorecard, before the game starts.

“As the game progresses, the scorecards also accept all of the data for each round – resource work rate, work-in-process, and completions;  at the end of the game, you have to calculate the actual operating performance – cycle time, productivity, inventory turn;  then you have to calculate the actual business outcome – Return on Invested Assets, and Net Income.”

“Put the money in the bank”, said one of the superintendents, looking toward the Vice President of Sales.  “Start making it rain, Chief.”

The intrepid, results-based consultant smiled.

She had heard it all before.

 

(modified excerpts from ‘The Game’ chapter of The Pipeline©)

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

The next Pipeline workshop™ will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on October 26-27, 2016.  Cost is $850.00.

Sponsored by BUILDER and Constellation Homebuilder Systems.

For more details:  www.buildervelocity.com

 

Pipeline Workshops™: Come. Participate. Learn.

Posted October 9, 2016 By Fletcher Groves

In the weeks leading up to a Pipeline workshop™, we explain to builders what is about to happen, we describe the tools that they will have to learn to use, the facts of the business case they will confront, the knowledge they will take away from it, what they should expect to see.

We describe the challenging, disruptive, competitive nature of the learning – the degree of interaction, the level of intensity – they will experience.

EFA - HBB or BHB (capture)

At a Pipeline workshop™, it is learn-by-doing, applying production principles and disciplines to production simulation, and measuring the resulting operating performance and economic return.  We communicate our expectation that builders come prepared to learn that way, that there is no place to hide.  Nevertheless, attendees frequently tell us afterward they should have studied more, should have prepared harder, in advance of the workshop.

Brandon Hart, Clark Ellis, and I make no apologies for the extraordinarily demanding nature of a Pipeline workshop™.  It is intended to not just inform your thinking, but also to reform your thinking – to challenge it, to change it.  It is intended to test your understanding of how production systems work and how daily operating decisions drive business outcomes.

As we like to remind builders, there is a difference between being in the home building business, and being in the business of building homes.

So – you have to come to a Pipeline workshop™ prepared for what is going to be thrown at you.

In particular, exploiting the RB Builders: Lessons from the Pipeline© business case study used at every Pipeline workshop™ requires that you have a working knowledge of the following tools:

  • Variable Costing; Contribution Income Statement;  Cost-Volume-Profit Analysis
  • Breakeven, on both a price and unit basis
  • DuPont identity for Return on Assets
  • Little’s Law* (for calculating cycle time, work-in-process, and throughput, both periodic and rate)
  • Cost of Variation
  • Theory of Constraints
  • Lean Production
  • Six Sigma

You can read the book.  The Pipeline: A Picture of Homebuilding Production, Second Edition© is usually carried, in stock, on all of the main bookseller websites;  it is also available directly from the publisher (www.virtualbookworm.com).

If you want it all handed to you, don’t bother to attend.  If all you want is binder material you can underline and highlight, and put on your bookshelf, don’t come.  If you aren’t willing to own what you take away from it, a Pipeline workshop™ is not for you.  If you believe improving the margin side of Return on Assets is the only game in town, a Pipeline workshop™ is about a different game.

But, if you are determined to create sustainable competitive separation, by thriving on the velocity side of Return on Assets®, by excelling at a discipline other builders find too difficult, too rigorous, too daunting, then a Pipeline workshop™ is precisely the right place for you to be.

Come.  Participate.  Learn.

The next Pipeline workshop™ will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on October 26-27, 2016.  Cost is $850.00.  Early registration, open through July 31, 2016, is $725.00.

Sponsored by BUILDER and Constellation HomeBuilder Systems.

For more details:  www.builderevelocity.com

*We will help you out a bit on Little’s Law.  Consider this scenario:  C/T=120 days;  WIP=80;  Closings=240.  Little’s Law says:  CT = (WIP ÷ C) x 360;  WIP = (CT x C) ÷ 360;  C = (WIP ÷ CT) x 360.  Therefore:  CT = (80 ÷ 240) x 360 = 120 days;  WIP = (120 x 240) ÷ 360 = 80 units;  C = (80 ÷ 120) x 360 = 240 closings.

Pipeline workshops™ are size-limited, intense, interactive, comprehensive immersions into the principles and disciplines of homebuilding production.

In recent workshops, we have added the RB Builders: Lessons from the Pipeline© business case study and a robust set of problem-solving exercises built around the velocity accelerators, but most attendees and observers would still agree that the most compelling part of the Pipeline workshop™ is the Pipeline game™:  teams of geographically-diverse builders that are required to go through a progression of scenarios that is both a simulation of home building production and a business game.

pipeline-game-staged-logo-4

It is the same Pipeline game™ we have use at Housing Leadership Summits, at CertainTeed Builder Advisory Groups, and Builder Technology Summits.

The objective of the Pipeline game™ is to reinforce the production principles taught in the Pipeline 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 never lie.

Look at the results from a 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.

You have to play the Pipeline game™, see the measures, and calculate the results for yourself, in order to fully understand what the axis values mean;  instead, focus on the performance trends (y-axis), as the games in this workshop progressed (x-axis).

This was Revenue . . .

Pipeline Revenue (capture)

This was inventory turn . . .

Pipeline Inventory Turn (capture)

This was cycle time, expressed in days . . .

Pipeline Cycle Time (capture)

This was Net Income Margin . . .

Pipeline Net Income (capture)

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

Pipeline ROA (capture)

After the initial shock of shattered instincts, every metric was in precisely the direction you would would want, the exact direction you would expect, if the production principles are true and if real progress is being made.

Clearly, the builders attending this Pipeline workshop™ learned from their participation.  They learned the principles and disciplines of homebuilding production.

Pipeline games™ teach builders to “see” production;  they simulate the fast-paced, rapidly-changing, uncertain, risk-laden, variation-filled environment in which homebuilding production decisions must be made.  It is learning based on experience and action, not words.  They 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, Second Edition©), this is how they were described:

“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.”

Come.  Participate.  Learn.

 

The next Pipeline workshop™ is at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on October 26-27, 2016.  Cost is $850.00.

Sponsored by BUILDER and Constellation HomeBuilder Systems.

Details:  www.buildervelocity.com