Building Urgency Towards Results

(initially published on EFA on August 14, 2011, under the same title;  republished here, as part of Above Average: The Best of Escape from Averageness, 2009-2012®)

This is a summary of the initial projects and schedule we recommended on an engagement with one of our clients.  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).

These recommendations flowed from an upfront assessment of the client’s current situation – from this client’s “current reality”, as we like to term it.  This happened to be about a $60 million, semi-production builder that starts a large percentage of inventory/spec homes, and has significant lot positions across a large number of communities in which it is the only builder.  Recommendations of this sort are always specific to the situation and the period, and reflective of the business model.

However, the principles and insights don’t change.

In this particular situation, there was very little time with which to work;  inside of 60 days, from the time the company’s current reality was pegged, until the team-based performance compensation plan was intended to kick-off, and most of these projects needed to be completed in time to coincide with the start of that compensation arrangement.

Here they are:

P-1:  Produce a Contribution Income Statement and conduct a breakeven analysis on every community, shelve the communities that are unviable in the current situation, shelve the less-viable communities that would only rob other more-viable communities of needed resources (be it financial resources or human resources), focus the available resources, and set aggressive new sales targets fueled by lower sales prices.  Moreover, make it do-or-die, and drop the sales prices in advance of any demonstrated improvements in margin or velocity.

Timeframe:  14 days.

P-2:  Refine the product (plan) portfolio.  Cull the product portfolio for the remaining active communities to remove the plans that do not sell.  Fix the budget errors in the remaining plans, and start extracting more value (value = revenue – cost of sales).  Find a way to generate higher Gross Income (on prices that have already been set lower).

Prerequisite:  P-1 complete.

Timeframe:  42 days.

P-3:  Begin to drive significantly higher levels of traffic, conversion, and sales, by any means necessary, except by spending more money.  Find a way to get it done.

Prerequisite:  P-1 complete.

Timeframe:  49 days.

P-4:  Revamp the front-end of the value delivery process – the Contract-to-Start process – in order to increase its capacity and reduce its duration.

Prerequisite:  P-2 complete.

Timeframe:  7 days.

P-5:  Attack velocity in the Start-to-Completion process, by setting much more aggressive targets – shorter job task durations with no hidden safety, a project (job) portfolio with all resource contention resolved, thereby producing shorter cycle times that will, in turn, result in an increased rate of periodic closings, generated with a planned, finite, and controlled amount of work-in-process and production capacity.

Prerequisite:  P-2 complete.

Timeframe:  92 days.

Five projects.  Four and one-half months.

At stake?  The difference between the baseline and the target budgets formed a Gross Income Reserve of almost $2.3 million, to be paid-out over the next year, upon the achievement of progressive Gross Income milestones, equally divided between distributions to owners, an increase in retained earnings, and performance compensation to all teammates.

When we initially discussed the requirements with the client, this is exactly what I told them:

“If I were you, I would come up with a series of short, targeted projects, prioritized and sequenced according to whatever is the biggest constraint to wherever you have chosen to go, and I will tell you right now, it needs to be expressed as – and focused on achieving – a specific business outcome.  Give it top-down leadership, but tap into broad, bottom-up involvement.  Create a strong sense of mutual accountability, responsibility, and rewards.  Focus on achieving rapid results.  Learn by doing.  Build long-term capability.”

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.