Archive for June, 2016

From time to time on Escape from Averageness®, we share high-level outcomes from selected consulting engagements, in order to provide insight into how a focused process of continuous improvement should really work.

Building Urgency Towards Results

This two-part series is a summary of the initiatives that emerged from a recent engagement with one of our clients, all based on an upfront assessment of the client’s current situation – on what we call a Current Reality Assessment®.  Part I is about assessing the existing (current) reality;  Part II is about determining the best way forward from that reality.  It is a summary of the process, itself.  It is also a picture of the candor and directness that must exist to make the process work.

From the UDEs and the IO Map, the team developed a Plan Forward, a roadmap to get them from where they were, to where they wanted to be.  As such, it represents a planned, purposeful commitment to a measurable outcome.  It is a series of initiatives with short durations, conducted in consecutive order, aimed at producing rapid, targeted, measurable improvements in areas of operational performance that drive improvements to a specific business outcome.

Fully-defined in terms of order, relationship, responsibility, completion dates, requirements, and outcomes, the Plan Forward is a focused course of action that addresses the cause-and-effect relationships between problems and symptoms of problems, tailor-made for use with an open-book, team-based approach to performance compensation.

All of the so-called P-initiatives in the Plan Forward flowed from the assessment of current reality, the UDEs, the IO Map.

There are eight of them:

P-1:  Strategic Direction:  Confirm the specific direction the company is committed to take, in terms of its value proposition, value discipline, target market, product type, architectural style and design, revenue and closings, and production size and capacity.

Purpose:  Provide strategic clarity.

Prerequisites:  None

Duration:  15 business days

 

P-2:  Team-Based Performance Compensation Plan:  Based on the strategic direction, design and implement a Gross Income Milestone Plan.

Purpose:  Become a company of business-people;  provide teammates a stake in the outcome.

Prerequisites:  P-1 complete

Duration:  5 business days

 

P-3:  Business Process Improvement:  Part I:  Document and analyze the current state of every critical business process.  Part II:  Redesign all of the critical business processes and document them as IDEF0 process models (a hierarchical series of graphic and text diagrams) specifying the workflow.

Purpose:  Implement elegant workflow solutions:  get horizontal;  clear the fog;  simplify workflow;  attack variation, waste, and non-value-adding work;  take the freed-up internal resource capacity and deliver higher value work.

Prerequisites:  P-1 complete

Duration:  35 business days

 

P-4:  “Pull” Mechanism for Releasing Starts:  Implement the Start Release process that is designed to sequence the rate of job starts to (1) the completion of jobs already in the production system, and (2) the number of previously-released jobs in front of the most constrained resource.

Purpose:  Increase velocity:  manage capacity, reduce/control work-in-process;  synchronize starts and closings.

Prerequisites:  P-1, P-3 complete

Duration:  9 business days

 

P-5:  Identify-Exploit-Elevate the constraint:  Identify the external resource that has a combination of the least capacity and/or the highest demand;  partner with that resource to optimize its capacity, insure that it is never idle, and then – as a final resort – arrange for more of it.

Purpose:  Increase velocity:  manage capacity, control work-in-process.

Prerequisites:  P-1, P-3, P-4 complete

Duration:  5 business days

 

P-6:  Job Schedules:  Reduce current calculated cycle time (see Little’s Law) from 206 days to under 150 days, by removing all of the task duration safety and adding a project buffer to protect the job completion date (see Critical Chain)

Purpose:  Increase velocity:  reduce cycle time by shortening the job schedule.

Prerequisites:  P-5 complete

Duration:  10 business days

 

P-7:  Plan Portfolio:  Expand and enhance the existing/current portfolio of floorplans and elevations, using the Plan Review process.

Purpose:  Increase margins:  increase the value delivered, by increasing the benefit and reducing the cost;  insure that the plan portfolio is a compelling differentiator in the company’s housing market;  floorplans/elevations that are desirable-yet-buildable, buildable-yet-desirable.

Prerequisites:  P-1, P-3, P-6 complete

Duration:  90 business days

 

P-8:  Job Budgets and Job Costs:  Apply the new Job Budgeting/Costing process to every floorplan and elevation in the expanded/enhanced plan portfolio to produce accurate and complete job budgets.

Purpose:  Increase margins:  produce accurate and complete job budgets;  use better specifications;  obtain better pricing.

Prerequisites:  P-3, P-7 complete

Duration:  41 business days

 

Eight projects, to be completed in nine months.  Focused.  Prioritized.  Manageable.  Measurable.  Results-driven.

Expected Results:  Strategic clarity.  Better processes.  Stake in the outcome.  Cycle Time reduced from 209 days to 150 days.  Inventory Turns increased from 1.7x to 2.4x.  Gross Margin increased from 17% to 22% (albeit on a useless absorption costing, NAHB-comparative basis).

I told our client it was a good start, but it is too modest.  I told them not to stop there.

Based on the UDEs and the IO Map (and we suspect the Current Reality Tree had it been developed), and in the midst of developing the Plan Forward, I warned them that there remained a lack of clarity, boldness, and urgency, and advised them to address the deficiencies.

I told them that they understand the current situation, and they have a plan, but that is all they have.  It is up to them.  I told them that the hard work lies ahead, and it has to start now.

If it was a different client, in a different situation, under different economic circumstances, it would have no doubt required a different plan.  But – whatever the situation – this is the type of urgency that continuous improvement needs to foster.

 

From time to time on Escape from Averageness®, we will share high-level outcomes from selected consulting engagements, in order to provide insight into how a focused process of continuous improvement should really work.

Building Urgency Towards Results

This is a two-part series summarizing the initiatives that emerged from an engagement earlier this year, all based on an upfront assessment of this client’s current situation – constituting what we call a Current Reality Assessment®.  Part I is about assessing the existing (current) reality;  Part II is about determining the best way forward from that reality.  It is a summary of the process, itself.  It is also a picture of the candor and directness that must exist to make the process work.

The objective of a Current Reality Assessment® is to build a sense of urgency towards targeted results.

And, it is a picture of the type of urgent, focused, rapid-results process of continuous improvement that is one of our two major requirements for working with clients – and being compensated – on the basis of the progress achieved toward a specific financial outcome (the other requirement is having a team-based performance compensation plan tied to the financial results of the improvement process, so that everyone – including us – has a financial stake in the outcome).

This client happened to be a $25 million, semi-production builder that strives for a 50/50 mix of inventory and presale homes, all in communities that it develops, and in which it is the exclusive builder.  The outcome of any Current Reality Assessment® is specific to the situation and the period, and reflective of the specific business model.  But – the principles of continuous improvement don’t change.

Current Reality Assessments® require significant advance planning, preparation, and data gathering, but the onsite portion of the assessment can be completed in a matter of days.  The client took an aggressive stance in this particular case, by agreeing to our recommendation that all three elements of this CRA® be completed in the course of a single day.

Those three elements were:  (1) the assessment of current reality;  (2) the plan forward from that current reality (a series of initiatives based on an Intermediate Objectives Map and Current Reality Tree, two of the so-called logical thinking processes in the Theory of Constraints practiced by Goldratt, Newbold, Kendall, and others);  and (3) the development of a team-based performance compensation plan (a progressive series of payouts of the reserve created from the milestone achievements related to a single business outcome targeted above an agreed baseline).

The one-day onsite schedule was intended to break complacency and force a sense of urgency.  We also knew that it might prove to be an impossible achievement – which it did.  So, we helped the team complete the unfinished elements of the CRA® remotely over the course of a week.

The assessment looked at 12 operational areas, with the functional team from each area establishing their current performance and identifying what they felt were the symptoms of root-based, core problems (Theory of Constraints refers to these symptoms as the visible, undesirable effects – the UDEs – of problems that, while not-yet identified, will nevertheless have to be addressed and solved;  treating the symptoms of the problem will not work).

UDEs emerged from every operational area, on a range of issues, including:  the rate and consistency of sales, the lack of clarity concerning strategic direction and purpose, the pattern of starts, the lack of synchronization between sales, starts, and closings, the excessive level of work-in-process, the excessive length of cycle time, lower-than-desired Gross Margins, vague branding, and the lack of documented workflow (prior to the CRA®, we had done a Pipeline workshop™ for this client, so they were well-aware of the production issues).

Mindful that UDEs only reflect the symptoms of the real problems, the team required a couple of iterations of the Intermediate Objectives (IO) Map to define the system and its goal, establish the Critical Success Factors (CSFs) for achieving that goal, and establish the Necessary Conditions (NCs) for achieving those CSFs.

Hearthside IO Map - 2016 CRA

From the UDEs and the IO Map, the team developed a Plan Forward, a roadmap to get them from where they were, to where they wanted to be.  As such, it represents a planned, purposeful commitment to a measurable outcome.  It is a series of initiatives with short durations, conducted in consecutive order, aimed at producing rapid, targeted, measurable improvements in areas of operational performance that drive improvements to a specific business outcome.

Fully-defined in terms of order, relationship, responsibility, completion dates, requirements, and outcomes, the Plan Forward is a focused course of action that addresses the cause-and-effect relationships between problems and symptoms of problems, tailor-made for use with an open-book, team-based approach to performance compensation.

All of the so-called P-initiatives in the Plan Forward flowed from the assessment of current reality, the UDEs, the IO Map.

Next:  Part II:  Developing the Plan Forward