If you are attending the 2018 International Builders Show in January, Scott Jagoe, Trent Cragun, Doug French and Fletcher Groves III hope you will make the time in your schedules to attend this IBS education session, and learn why improved workflow is so vital to a homebuilding enterprise.

 

Wednesday, January 10 | 10:30 – 11:30 AM

Location: OCCC – West Concourse, Level 3, Room W 304 A

Format: Building Knowledge Session  Level of Content: Advanced

Who Should Attend: Single Family – All, 55+ Housing Builders & Developers

Track: Business Management & Operations

Speaker(s): Trent Cragun, Lifestyle Homes, Logan, Utah | Doug French, Stylecraft Builders, College Station, Texas | Scott Jagoe, Jagoe Homes, Inc, Owensboro, Kentucky | Fletcher Groves, SAI Consulting, Inc., Ponte Vedra Beach, Florida

 

What The Session Is About:

It is the most fundamental proposition in all of business:  As a builder, you make money by delivering value to stakeholders, principally to your buyers;  that value is created by the work you perform through some means of workflow;  the workflow in homebuilding is essentially project portfolio management enabled by embedded, surrounding, and supporting processes.

In order to deliver more value, you have to improve the workflow;  you improve the workflow by removing the non-value adding steps and making the remaining value-adding steps flow more smoothly and effectively.

In order to improve the workflow, you have to know how to redesign it, document it, implement it, and manage it.  You have to know how to put workflow in the proper strategic and operational perspective, so that it creates sustainable competitive separation.  You have to be able to disseminate the knowledge.

That is what this session does.

 

What You Will Learn:

  1. Learn to incorporate the design and role of processes into your company’s overall strategic design and operating model.
  1. Learn to document the existing state, and then the redesigned and improved state, of every process in your building operation in navigable, teachable process models.
  1. From a panel of three established builders who have been through BPI, learn what attributes, characteristics, and design elements make good processes.
  1. See a demonstration of one of the most capable and usable process flowcharting and process modeling apps.

This presentation has two segments:

  1. An explanation of Business Process Improvement, in terms of how understanding and improving workflow fits into the larger picture of a builder’s strategic value proposition/discipline and its operating model (structure, systems, culture, teammates); further, an explanation of how BPI moves from workflow performed by typically undefined means in a little known current state, to a highly-developed state of faster, more productive, more effective, more value-generating processes; finally, how those processes support everything a builder does.  The presentation provides a demonstration of the iGrafx Origins app that is used to create the cross-functional flowcharts and process models documenting workflow.
  1. A panel of three very successful builders that have been through Business Process Improvement, and can share their insights into their experiences with BPI, and the benefits they derived.

 

Why You Should Attend:

Do you understand the cost of tolerating the current state of process workflow?

Most of the workflow in a builder’s Start-to-Completion (STC) process is project portfolio management performed by external resources (trade partners), included in Cost of Sales.  STC, however, has workflow performed in embedded processes by internal resources (teammates) included in Operating Expense, and there is all the internal workflow performed in surrounding and supporting processes.

The results, from dozens of SAI BPI engagements over two decades, show there is one problem identified for every two process steps, there is one non-value-adding characteristic for every four to ten process steps, and 25% of the all the work performed adds no value whatsoever.

This means that 25% of a builder’s overhead is being wasted;  even a builder with a very manageable 12% overhead is losing 3% to his bottom-line every year, $30,000 in lost Net Income per $1.0 million in Revenue.

That is exactly why we map processes.

 

More:  https://www.buildersshow.com/Search/EducationSession.aspx?id=554799

      

“Plain Vanilla a No-Go.”

Posted November 4, 2017 By Fletcher Groves

An article by John McManus in builderonline.com in 2015, updated and reproduced here.

2014 Housing Leadership Summit (Hanley Wood Media)

“Fletcher Groves is a North Florida-based business advisor some of you know.  He’s worked with home builders–mostly private companies–for decades, enough time to see lots of firms come and go.

“Fletcher uses a lot of the same words everybody else does when it comes to talking about operations, work in process, starts, completions, cycle time, even-flow, and, importantly, margins.  When you listen to him, though, you realize that he doesn’t use those terms in the same sense—broadly and roughly—that we hear in the field as a rule.

“Precision, obsessive attention to meanings and intentions, and rigorous discovery are how Fletcher’s sentences and questions tend to flow.  With regard to whom he’s speaking, his train of thought and language form a dynamic double-helix model of critically chained project timelines with economic principals.  Descriptive terms such as good, effective, fast, accurate, skilled, fair, dependable, bold or any other quality take on meaning only insofar as they add to or subtract from a business’s principal purpose, to make money sustainably.

“Listen to Groves, and what happens when you do is that the way you think of tasks that get done and the costs of doing them—in duration and forward-motion and outcome, in resources and in cash, each with an appropriately assigned and measurable taxonomy of value—changes.  By pulling apart, and closely looking at the interplay of complexly orchestrated manufacturing processes and economics, Groves disrupts hardwired biases that tilt us into the habit of instinct, intuition, and guesswork that bedevil the continuous improvement effort of every level of home building operations.

“His challenges all sound at first like trick questions.  The answer is either too easy, or would take all day to calculate, or is so arcane as to cause an apathetic shrug in response.  Unless your thinking changes.

“Groves is known, too, for a question line that sticks with you, and one that ties all of this together.  It seems to mean more now than it ever has before:  ‘Does the world really need one more average home builder right now?’  And the world, for what that term is worth as a measure of sustaining business viability, has its own unique way of making home builders it doesn’t need know it in excruciatingly clear and collaterally painful ways.  And it will do that now.

“If you want to ensure that you’re doing everything you can to be exceptional in discipline, perspective, context, and focus, you ought to consider checking out Fletcher, live and in the flesh at the upcoming Housing Leadership Summit”

“Here, at the near mid-point of another year, one mystery is, will the full year 2015 act like another in a series of first-half vs. back-half studies in contrast—one six-month period feeding the optimists, and the other serving to validate those who’re sure the bottom is about to fall out of the-little-recovery-that-couldn’t?  Or, instead, will countless arrhythmic, geographically scattered, choppy, and tentative improvements at sub-market level and zip-plus-six cohere into a story of slowly evolving momentum for the year?

“We don’t know.

“We do know many home building company leaders are preoccupied with the question of whether the gains in volume achieved 2014—the power of attraction among 200 home building organizations to sell and deliver $80 billion worth of new homes in the 12 months from January to December—will translate into well-deserved opportunity or equally possible risk.  Will new neighborhood openings absorb overhead costs at the just-right level, with each home unit above break-even, or will those volume gains leave profits ‘in the ground’.

“Margins are the ‘keep-me-awake-at-night’ issue of many home building company strategist, as materials, labor, and land costs take turns sending up red flag warning.  Now that ‘the machine’ has kicked into gear, it needs constant feeding and ongoing recalibration.  Many of the land deals that brought lots online through and into the past 12 months had favorable, early recovery price-tags on them, and the next round is going to be where ‘deep market knowledge’ will either pay off big or run people quickly into trouble.  Liquidity and lending is moving into ‘risk on’ mode.  Risk on means what it says.  The next gear in volume, and the next tier down in pricing is where gains pile up fast, or losses can iterate you into a big hole.

“This is no time for average.  Ordinary won’t make it.  Plain vanilla will be a death knell.  The kind of tide that’s rising now is not one that will lift all ships;  rather, it will swamp a good many, even as it provides swift, helping winds, and steady currents for a few.

“Commonly, builders sense that they’re better than the rest.  That’s what you’re going to have to be.”

 

The next Pipeline workshop™ is February 28 – March 1, 2018, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  Registration will open later this month:

www.buildervelocity.com

 

      

The Modern Builder Welfare State

Posted November 3, 2017 By Fletcher Groves

This post was originally published on Escape from Averageness in August 2011, under the same title.  Updated and republished here, as part of our retrospective Above Average:  The Best of Escape from Averageness, 2009-2012.

It seems appropriate to re-post it, because it is as true now as it was then.

Hanley Wood Media

In early 2009, the very first entry to SAI’s Escape from Averageness weblog asked this question:  “Does the world really need one more average homebuilding company?”  Prior to 2006, during the roughly ten-year, halcyon period that I describe as The Age of Homebuilder Entitlement, the answer may not have been a resounding “yes”, but there was acquiescence to that fact.  There was a sense of entitlement to volumes and margins that were too easy to achieve;  builders did not have to be good, they just had to be there.

At the time [August 2011], John Caulfield’s well-written, well-researched feature in Builder (“Debt-Ridden Nation Takes a More Skeptical Look at Its Investment in Promoting Homeownership”) had clarified the positions we had witnessed this industry taking, aptly described by the term “entitlement”.

It is a sense of entitlement now characterized by an obsession with maintaining government support of homeownership, and – by extension – the homebuilding industry.  The industry’s position on everything is filtered through the obsession.

Somehow, the federal government, directly or indirectly, was supposed to assure, insure, provide, or otherwise be responsible for any number laws, regulations, and policies, including a continuation of an affordable 30 year fixed rate residential mortgage instrument, a QRM standard with few requirements, a viable secondary market for mortgage securities, higher conforming loan limits, a continuation of the current system of public housing finance, five-year loss carrybacks, mortgage restructuring assistance, homebuyer tax credits, continuation of the mortgage interest deduction, foreclosure mitigation.

And, it all worked so well for us, didn’t it?  With yet more to come.  It remains, at its core, an unreliable dependency – a dependency that takes the form of feudalism;  we are vassals dependent on our lords, except that our lords are ineffective, incompetent, misguided, and overreaching, with nothing ever at risk.

As an industry, do we not think we can do better than this?

Here’s a different approach:  The homebuilding industry collectively tells its trade organization, its lobbyists, its members of Congress, and the White House that we don’t want the modern builder welfare state.  Any of it.  Get rid of it.

In its place, give us:  significant, permanent reductions in marginal personal income tax rates, and an elimination of most of the deductions;  a simple personal federal income tax structure that requires every wage earner to pay some income tax;  lower tax rates on capital gains;  elimination of the corporate income tax;  dramatically lower levels of government spending, including meaningful, effective, and fair entitlement reform;  minimal government involvement in housing finance;  a wholesale reduction in business regulation.

There is a natural, sustainable demand for what we do – developing new communities, selling and building new homes – if there is a viable, growing economy in which to do it.  Our government needs to get out of the way.  It needs to give us an economy that will grow and be globally competitive.  It needs to give us back market forces – in prices, in interest rates, in risk, in mortgage terms, in securitization.  It needs to let the secondary mortgage market correct, heal, and restore itself.

It needs to give us a simple, elegant, non-conflicting set of rules.

We will figure the rest out on our own.

There will be yet more pain.  The landscape of residential mortgage lending will change.  We will wish we had done it sooner.  But, if we don’t do it, we continue to be at risk of losing far more than our entitled existence.

The comfort of entitlement is an illusion.

      

Pipeline Workshops™: Improvements to the Game™

Posted October 1, 2017 By Fletcher Groves

“Pipeline games™ were a brilliant way to demonstrate and drive home the significance of cycle time improvements and improving trade partner efficiencies on ROA and Net Income.”  (Keith Porterfield, COO, Goodall Homes, Gallatin, TN)

“Pipeline games™ are a very innovative way to demonstrate the critical nature and relationship between cycle time, inventory turn, margin, and return on assets.”  (Vishaal Gupta, President, Park Square Homes, Orlando, FL)

“The Pipeline Game™ was a great visual tool that emphasized the importance that velocity plays in home building.  It has allowed me to begin thinking creatively about the ways I can improve my department to ultimately improve our companies velocity overall.”  (Alexa Drees, Design Consultant, Drees Homes)

Simulating production principles is a huge part of a Pipeline workshop™.  We hear repeatedly that the opportunity to simulate production in a progressive series of scenarios is what enables builders to “see” production so much more clearly.  Because it is both a production simulator and a business game, the Pipeline game™ is what makes Pipeline workshops™ so intense, so interactive, so competitive, so worthwhile.

The Pipeline game™ has always been a tremendous tool for teaching both production and business principles, but we constantly improve it, introducing changes that make it even better.

For example, some time ago, we shortened the game, so that we could run more production scenarios in the same amount of time.  Shortening the duration of the game made each operating decision more consequential, and also made the results more realistic, more intuitive, easier to comprehend.

We also made the game more realistic, by making it depict the outsourced nature of homebuilding production.  In previous versions of the game, the resources that did the work reflected both capacity and the cost of that capacity.  That is an arrangement that reflects a manufacturing operation or project management organization;  a more realistic depiction of a homebuilding production system is to separate capacity from cost.

And, that’s because, 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;  Operating Expense – the indirect, non-variable cost of internal resources associated with overhead – is what determines capacity cost.

In the original version of the Pipeline game™, using the resources to reflect capacity and cost required us to essentially disregard Revenue and Cost of Sales, and focus on Throughput, which is more closely related to Gross Margin.

In the improved version of the Pipeline game™, we restore Revenue and Cost of Sales to the picture;  in effect, we now account for the margin side of Return on Assets.  The external resources in a Pipeline game™ now define the production system’s capacity, and the cost of those resources is reflected in Cost of Sales, stipulated as a percentage of Revenue;  they are a direct, variable cost associated with the product.  This represents a significant stride in reconciling Revenue, Cost of Sales, Throughput, and Gross Income, making operating decisions easier to connect to financial outcomes.

Operating Expense is now an imposed value, reflecting the budgeted cost of the internal capacity required to manage work-in-process;  that makes Operating Expense an indirect, non-variable cost, as it relates to Revenue – and the completions and closings that produce it.

The outcome is a production simulator and business game that is vastly more reflective of a homebuilding operation, with lessons that are now much easier for builders to understand.

The improved version of the Pipeline game™ was played at three of the last four Housing Leadership Summits (2014-16);  it was explained at the 2014 BuilderMT-Sales Simplicity Client Conference and played at the 2016 Builder Technology Summit;  it has been used in Builder 20 Club meetings;  it has been used at the CertainTeed Gypsum Builder Advisory Council;  it was played at the 2016 Builder Technology Summit;  and, it has been used at every private client Pipeline workshop™ and at all but the first open sponsored Pipeline workshop™.

 

Come.  Participate.  Learn.

The next Pipeline workshop™ will be held October 18-19, 2017, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  Cost is $875.00;  for team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting and Continuum Advisory Group.  Sponsored by BUILDER and BuilderMT.

Details:  www.buildervelocity.com

 

      

There is an underlying context – an underlying business logic – to everything we teach in a Pipeline workshop™.  However, since the focus has been on the principles and disciplines of homebuilding production, we have not given that context – that business logic – the attention it deserves;  the “what” and the ‘how-to” receive more attention than the “why” and the “want-to”.

So – the newest Velocity Accelerator® is a deeper-dive into context and business logic, into two crucial disciplines that work together, that are inseparable:  Open-Book Management and Team-Based Performance Compensation.

The efforts of a homebuilding company to improve operating performance and business outcomes will largely fail to achieve what is possible, if it does not succeed first in creating a homebuilding team that works toward commonly-held and commonly understood business goals, versus being a collection of so-called teammates working toward individual goals.

What would be missing, is an underlying business logic that forms the necessary context for understanding everything else.  That is the role of Open-Book Management.

To become the kind of savvy, motivated, mutually-accountable homebuilding team required to compete effectively in the business world, everyone on the team has to learn the “business” of homebuilding, they have to understand their individual responsibilities as part of the overall team, and they have to understand what is at stake, individually and collectively.

And – not just understand the business outcome that is at stake;  teammates must each have a personal stake in that business outcome.  That is the role of Team-Based Performance Compensation.

Open Book Management flows from the work Jack Stack did in the 1980’s as CEO at Springfield Remanufacturing Corporation to rescue this former International Harvester (Navistar) division from almost certain bankruptcy.  Following a 99% leveraged employee buyout, Stack opened the company’s books and made it everyone’s business to improve performance.

Stack recounted that effort in two books (The Great Game of Business and A Stake in the Outcome);  John Case reported on open-book thinking in other industries and companies, in two other books (Open Book Management and The Open Book Experience).

Then, in Open Book Management, Case described how Steve Wilson developed the basics of OBM-inspired Team-Based Performance Compensation at Mid-States Technical Staffing Services (now Modis);  Wilson subsequently described this work in The Bucket Bonus Plan.

We take a specific approach in our application of the principles of Open Book Management and Team-Based Performance Compensation.

We advise our clients to be transparent (open) and to demonstrate candor (the courage to tell and hear the truth) in the constant internal disclosure of operating and financial data, whether in meetings, or through dashboards and heads-up displays.  We advise our clients to impart business literacy (understanding) to teammates, so that they understand the business of homebuilding, not just the homebuilding business;  we do it through the teaching of business and production principles.

Then – we advise our clients to adopt a team-based approach to performance compensation, by way of a progressively-weighted milestone plan based on achieving targeted performance above a baseline in a specific business outcome that is impacted by the actions of every single teammate.  An approach that is simple, easy to understand;  visible, transparent;  compelling;  fast, frequent;  self-funding, paid from income the company would not have otherwise generated;  based on achieving a target above a baseline.

In terms of compensation – significant, meaningful.  In terms of participation – all-inclusive.

Team-Based Performance Compensation should provide only for the possibility of winners or losers, not winners and losers.  It should give the right to lead and demand results;  it should give the desire to be lead and deliver results.

Savvy.  Motivated.  Mutually-Accountable.  Team.

 

Come.  Participate.  Learn.

Open-Book Management and Team-Based Performance Compensation is one of the five Velocity Accelerators® highlighted (together with Critical Chain Project Management, Epic Partnering™, Building Information Modeling, and Business Process Improvement) at the next Pipeline workshop™, October 18-19, 2017, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

Cost is $875.00;  for team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting and Continuum Advisory Group.  Sponsored by BUILDER and BuilderMT.

Details:  www.buildervelocity.com