Archive for May, 2018

Pipeline Workshop™ No. 10: Save the Date

Posted May 28, 2018 By Fletcher Groves

Pipeline Workshop™ No. 10 will be held September 26-27, 2018, at the Ponte Vedra Inn and Club in Ponte Vedra Beach, Florida.  The latest in the series of production management workshops in the open, sponsored Pipeline channel, it is sponsored by BUILDER, BuilderMT, and Specitup.

“The Pipeline workshop™ was really effective in showing how operational decisions affect business outcomes and how risky a ‘more for more’ approach to growing a home building company really is.  The Pipeline games™ were not only fun, but they were super-effective in showing how unbalancing the production system, managing the constraint resource, and managing the right amount of WIP, creates predictable operational results and maximizes financial outcomes.

“At the end of the day, running a successful business is about how much money you make on the amount of money you invest.  The Pipeline workshop™ helped me understand this better than any workshop or seminar I’ve ever attended.

“I highly recommend it.”  (Charles Roberts, VP – Operations, Providence Homes, Jacksonville, Florida)

Welcome to the most intense, demanding, interactive, and challenging homebuilding production management learning experience on the planet.

And – it just keeps getting better.

In recent workshops, we lengthened the schedule, enabling us to do more with the deeper-dive velocity accelerators;  for Pipeline Workshop™ No. 10, the five velocity accelerators are Business Process Improvement, Critical Chain Project Management,  Open Book Management and Team-Based Performance Compensation, Epic Partnering™, and Business Information Modeling – an effective mix of immediately available velocity acceleration, currently possible velocity acceleration, and the future of velocity acceleration.

We continue to refine the scenarios in the Pipeline game™, which is both a production simulator and a business game.  Over the course of all the Pipeline workshops™, we have:  (1) made the game shorter, faster, and easier and quicker to grasp;  (2) switched to an operating statement format that mirrors the attributes of homebuilding operations;  (3) found ways to transfer the learning faster;  and (4) started to examine the effects of a fully-integrated as well as a completely outsourced building model, in order to capture what we see as disruptive innovation in the homebuilding industry.

Pipeline workshops™ are unlike any other homebuilding conference.

The learning split is 70% simulation/business case, 30% lecture;  the format is intense, interactive and competitive;  the Pipeline game™ production simulations and the RB Builders: Lessons from the Pipeline© business case test attendees’ understanding of production management and challenge their ability to solve production problems.

Pipeline workshops™ build an intuitive, instinctive understanding of production principles and disciplines, and they draw the subtle-yet-crucial distinction between being in the homebuilding business, and not just being in the business of building homes.

And – we somehow make it all incredibly fun:  the Ponte Vedra Inn and Club is a terrific AAA Five Diamond oceanfront resort venue;  there is a great reception at the end of the first day;  recommendations on outstanding local dining;  plenty of opportunity for networking.

Creating a visual image of homebuilding production;  establishing the connection between operating decisions and business outcomes;  building a new way of thinking systemically towards solving core problems and managing constraints;  managing limited capacity and resources, doing more with less;  dealing with variation;  managing homebuilding production for what it is – workflow that is multi-project with surrounding, supporting, and embedded processes;  placing the emphasis on the actions that accelerate velocity.

The fundamental proposition of a Pipeline workshop™ is this:  thriving on the velocity side of economic return – thriving on the velocity side of Return on Assets – is the best way to create sustainable competitive separation.

Registration for Pipeline Workshop™ No. 10 opens June 1, 2018.

Come.  Participate.  Learn.

 

Here is the permanent link to the website:  www.buildervelocity.com  As soon as early registration opens, all of the information, including the agenda and schedule, will be updated, along with the event registration and hotel reservation links.

The site also provides information about the workshop, provides reviews from builders who have attended previous workshops, and provides a downloadable Adobe PDF file with detailed information about the venue, agenda, and schedule.

The cost is $895.00 per person;  the cost during early registration (opens June 1, 2018, runs through June 29, 2018) is $750.00;  for team pricing, inquire here (flgroves@saiconsulting.com).

Sponsored by BUILDER, BuilderMT, and Specitup.

 

The Road That Lies Ahead . . . and The Road Less Traveled

Posted May 20, 2018 By Fletcher Groves

(initially published on Escape from Averageness® in January 2011;  updated, revised, brought into the present here, to reflect the thinking that came out – the thinking that is still coming out – of the 2018 Housing Leadership Summit, held May 14-16, 2018, in Laguna Nigel, CA)

“Where is the homebuilding industry headed over the next five to ten years on the issues of growth, consolidation, and supply chain management?”

Despite what you are thinking, this is not a current battery of questions.  At the dawn of the current century, these and other questions were posed in a volume of Reference Point™, which was the study of management practices in the homebuilding industry we periodically conducted among the C-Levels of a select group of larger building companies.

Now, almost 20 years later, as we more clearly face what I then termed “the inevitable assertion of power that will herald the Era of Consolidation” – the point at which publicly-held homebuilding companies (and large privately-held building companies, and now investors, from both within and without the industry) got serious about consolidation – I thought it might be worthwhile to look back and summarize some of what builders told us then, and how we observed and commented on the findings at that time:

 

GROWTH STRATEGIES:

“ . . . almost three-fourths (71%) of these executives predicted that their own building operations would become ‘much larger’;  almost everyone else (27%) predicted that the size of their operations would remain about the same . . . these findings were very consistent with the findings from an earlier Reference Point™ study.

“We thought it would be interesting to see how all of this growth was going to materialize.  When we asked these executives what primary strategy they would use to meet their growth projections, 41% identified ‘geographic expansion into new markets’, 39% selected ‘higher market share in current markets and buyer segments’, and the remaining 21% identified ‘new market share in additional buyer segments’;  not a single executive we surveyed identified ‘vertical integration’ – a decision to supply more of the component parts themselves – as a primary strategy.”

 

CONSOLIDATION:

“At separate points in the study, we asked two questions designed to determine the extent to which industry consolidation – some combination of growth, merger, and acquisition – would reduce the number of active building companies in the years ahead.

“We asked them whether, over the long term (10+ years), they could foresee the type of widespread consolidation of operations and market share that has occurred in other industries.  Overall, more than 70% of these executives said they could foresee the circumstances for such a consolidation.

“We then asked these senior managers whether they thought the number of homebuilding operations in their markets would increase or decrease in the next five to seven years.  Overall, almost half (49%) thought there would be fewer building companies, while more than one-third (38%) thought the number of building companies would remain about the same;  about one-in-ten (13%) believed the number of builders would actually increase.

“Their responses differed in significant respects from those expressed in our previous studies . . . at that time, less than one-in-ten (9%) thought there would be a significant decline in the number of builders . . . for those who thought there would be an increase . . . the situation has been reversed.”

So – ponder the implication of this combination of facts:  seven out of ten executives surveyed thought their own companies would be “much larger”, but five out of ten also thought the overall number of homebuilding companies in their markets would increase or remain the same.

 

SUPPLY CHAIN MANAGEMENT:

“We asked two questions related to distribution channels and supply chain management.  We wanted to know whether builders viewed these two issues – closely related to change in many other industries – as something the homebuilding industry would need to address within the next 10 years.

“Asked whether they could foresee . . . changes that could include the circumvention of established delivery systems similar to what has occurred in other industries . . . a slight majority (54%) believed the industry would have to deal with this issue in the next ten years;  the rest did not see this as an important issue.

“On the matter of supply chain management, there was much stronger agreement.  Asked whether they could foresee homebuilding companies taking the lead in collaborating . . . to manage all of the activities in the process of creating the housing product . . . a Pareto-esque majority (80%) expected the industry to move in that direction.”

We then offered the following comments and observations:

 

THE ROAD LESS TRAVELED:

“Even if builders chose to reject the notion of widespread consolidation and outright circumvention of established delivery systems, and dismissed the level of growth projected by such a high percentage of builders as collective boardroom fantasy, the dependence of so many builders on growth strategies aimed at geographic expansion and higher market share in current buyer segments ought to raise a couple of red flags:

“First, assuming that a strategy based on expansion into new geographic markets represented real growth, and not just the transfer of demand through acquisition or merger, then it would have the effect of forcing more competition on the existing level of demand.  The first victims would be the builders that could not compete for the available lots.  But, then what?  How would the builders that survived assert themselves in the market?

“Second, a strategy based on capturing a higher share of the market in current buyer segments asked a more naked version of the same question:  how would builders acquire more business – in the same buyer segment, in the same geographic market?  Could those types of gains be sustained?

“Growth fueled by a strategy of geographic expansion and higher market share in current buyer segments is essentially a strip-mining operation – an attempt to create value out of something a mile wide and an inch deep.  But what choice would builders have?  As an industry, we have outsourced almost every value-added activity in the building process.

 “Moreover, we could talk all day about the need to increase productivity, but (1) that would be a difficult proposition when someone else is doing all the work, and, (2) there would be no real point in improving productivity unless a productive use could be found for the additional capacity.

“And, besides, just where would all that additional production capacity be invested?  In more expansion?  In higher market share?

“When we look at it in these terms, there has to be a better way.”

“. . . 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.”

 

Fast-forward to 2018.  In the time since this study, consolidation has clearly occurred in the homebuilding industry.  In 2003, the 100 largest builders (by closings) had a 34% market share;  today, the 100 largest builders have a 63% market share.

I concluded with this point, 18 years ago:

 

LIFE ON THE SERENGETI: 

“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 is 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 . . . “

 

Part III: “Failure is not an option.”

Posted May 5, 2018 By Fletcher Groves

(excerpted from The Pipeline: A Picture of Homebuilding Production, Second Edition©, initially posted on EFA® in January, 2011)

“I am going to make this clear, to all of you:  cynicism is pointless;  get over it.  This is the direction in which RB Builders is headed”, said the CEO, “and your choice to continue your cynicism has a life expectancy of about 30 more seconds.”

The intrepid, results-based consultant looked over at the senior superintendent, shrugged, and said, “Talk about a speech.”

“I do agree with your point”, she said, turning her attention back to the CEO.  “But, you know, it is possible to fail, without being the least bit cynical about its prospects.  I will say this:  Whether you are cynical or not, change is up to you.  Whether any of this works or not, is up to each of you individually, all of you collectively.

“If I did not believe RB Builders would make it work, I would not be here, my firm would not accept you as a client.  We would not waste our time.  After all, my firm and I have a bigger dog in this fight than anyone else.

“When we started out on this little adventure, I told you that my consulting firm would be compensated on the same performance basis as everyone else”, she reminded them.  “I told you that there was no limit to the time and effort my firm – and I personally – would expend to achieve the outcomes we targeted together.

“I told you that I would work hand-in-hand with you, and do whatever it takes to achieve those goals.

“I assured you that I would do whatever it took to foster a willingness and capacity for change, create a sustainable capability for implementing the things that would continuously improve operating performance and business outcomes, increase innovation and learning, and make you less dependent on all of your consultants.

“I told you, from the standpoint of how the credit was attributed, that I was content to remain in the background.

“Those were the assurances I gave you”, she said.  “In return, I sought and received assurances from you.

“You agreed that this was a true client-consultant partnership, and that – because my firm’s compensation was completely results-based, of finite duration, and self-funding – my firm was assuming the higher level of risk.  You agreed that this new, results-focused consulting arrangement we were jointly undertaking provided ample incentive to everyone for taking action, making changes, and improving operating performance and business outcomes.

“I told you that I was as serious as a heart attack about getting results.

“I made it clear that I had no intention of wasting my firm’s time and effort. I told you that you did not have to do everything I told you, but that you did have to come to terms with me, take action, make needed changes, and do whatever it took to achieve the targeted results.  Although I have grown rather fond of most of you, I made it clear that, if there was no action, no change, no results, then – out of principle alone – heads needed to roll.

“A couple of stories.

“My younger sister played NCAA Division II soccer in college.  As a junior and senior, she was one of her team’s captain;  her junior year, before the season began, a reporter for the local newspaper asked for her prediction about the season – specifically, what kind of W-L record she thought her team would have – as a measure of success.

“My sister replied: ‘I don’t plan to lose any games’.”

“When my dad was younger, he sailed a lot of offshore races.  According to him, it would get dangerous, sailing offshore at night, in rough seas.  He says that they all used to remind each other, only half-jokingly, I think, that – where they were – if their boat went down, no one was going to blame them if they drowned.

“But – they knew they would still be dead, if they just sat there.

“Trust me, no one outside of RB Builders cares whether you succeed or not.  No one cares whether you separate yourselves from your competition.  No one cares whether you keep your jobs. Nobody cares about your livelihood or your future.  Nothing new in that revelation.  Back in the ‘Age of Homebuilder Entitlement’, nobody cared, either.  It was just never an issue, because being good enough was good enough.

“Success is no longer such a foregone conclusion.  No one cares, but no one is going to blame you if you fail.  That does not change the outcome.

“I can just hear it now”, said the intrepid, results-based consultant.  “’Poor things.  What a great company RB Builders could have been.  It was all just too much for them to handle, housing’s version of The Apocalypse. But, it is not their fault’.

“Nope.  Nobody is going to blame you, if you go out of business.  But, that is just what you will be – out of business.

“Failure is not an option. Not for me. Not for any of you.”