One Homebuilder’s Stress Test: Why We Map Processes

Business Process Improvement – the documentation, analysis, measurement, design and redesign, improvement, and management of operating/business processes – is the area for which SAI Consulting is most recognized.  We have done more pure work with processes – and done it longer – than anyone connected with the homebuilding industry.

There is a good reason why so many of our consulting engagements have involved structuring an enterprise around its critical business processes:  The only way an enterprise makes money is by creating value;  the only way it creates value is through the work that it performs;  and it performs much of that work in processes.

As valuable as that proposition is, it does not do it justice.  Process mapping is far more than documenting, analyzing, measuring, understanding, then redesigning and improving workflow;  mapping processes serves to connect work to operating performance, and operating performance to business outcomes.

In that sense, process mapping administers something of a stress test;  some pass it, others do not.

In 2006, at the height of the Age of Homebuilder Entitlement®, we were engaged by a previous winner of the National Housing Quality Award to map its business processes;  understand, in order to be awarded this distinction, the company’s processes had to have been previously vetted and judged as part of the NHQ examination.

There were troubling indicators, right from the start.

As the work unfolded, we pointed out discrepancies between supposed operating performance and supposed economic returns.  We explained the associated production physics, and questioned whether the stated performance could have possibly occurred.  We highlighted the declines in operating performance and business outcomes, to which they seemed completely oblivious.

From a process standpoint, we observed that this company had “a very iterative product design process exposed to an impulsive/compulsive design mentality”, that this was a process with 132 discrete process activities – involving 33 handoffs, 19 reviews, eight approvals, 14 sections of activities where the work of one person or department was subsequently revised.  The project team was unwilling to self-classify a single one of these 132 activities as value-adding;  it classified almost 30% of them as completely non-value-added.  This was a process that took upwards of 12 months to design a new plan.

New Plan Design was the poster-child for poor process design, but it was not a sclerotic aortal mess.  That would be their Start-to-Closing process, where we calculated cycle time at 279 days, and demonstrated that this process could not possibly be achieving the 5.2x asset turn that was being asserted.

We stressed the need to establish a set of operating and business measures as the performance requirements for the new process designs, yet the team failed to produce a comprehensive, connected set of operating and business outcomes.  The need for (or importance of) performance requirements did not strike a chord with either the executive group or the process teams.  Given the existing level of operating and business performance, we told them that we found “the level of disinterest – the lack of resolve – disturbing”.

This was a builder that had produced a Return on Assets of only 4.7% in 2005;  in that era, economic return should have been eight-times that level.  Moreover, this was an enterprise that six weeks earlier had been forced to take the gut-wrenching action of laying-off 40 teammates.  We made our point very clear that the real situation on economic return was certainly much worse than they were saying, that the measly 4.7% ROA they were asserting overstated the company’s true performance, because a Net Income Margin of less than one-percent (that is correct, .9%) was being masked by the impossible-to-achieve 5.2x asset turn.

We told this client that we had worked with many other builders, of all shapes, sizes, rationales, and arguments, and that their processes were not just badly-designed;  they were also the outcome of flawed thinking on how to best understand and satisfy the requirements and expectations of their chosen market segment, and craft a solution that satisfies the requirements of all of their stakeholders.

We told this team that velocity was a lot of what this effort was about.  It was about finding ways to design better, more productive processes, in order to increase productivity and reduce cycle time.  We told them that processes were the logical starting point, the first step in the quest toward a “more-without-more” mentality – more output, more revenue, for the same investment in WIP and production capacity.  We told them that – given their distressed condition – this project likely needed to be about what happens with both components of Return on Assets;  it likely needed to be about achieving both higher margin and higher velocity.

We said to them, “There is a long road ahead . . . the start of an effort that never really ends.  The process of continuous improvement means just that:  a continuous process of improvement”.  We asked them the same questions we ask every other builder with whom we work:  Does the world really need one more average homebuilding company?  Will “average” performance – operating, business, or otherwise – be sufficient to sustain a homebuilding company in the future?

We told them that they were not an average homebuilding company in intent or reputation, but they were significantly below-average, in terms of performance.  We told them, as John Kotter says, that their situation required a sense of urgency.  We warned them of the consequences of failing to brutally confront reality.

We completed the documentation, analysis, and redesign of their processes.  We told them this was only a start.  Whether it was a good start – whether it would be sustained, whether it would produce the results it was intended to produce – was up to them.

That was in 2006;  in 2008, they filed Chapter 11.

 

(originally published on EFA® in August 2010 under the same title;  re-edged and republished in June 2013, as part of our initial retrospective “Above Average: The Best of Escape from Averageness®, 2009-2012”;  updated and re-posted in April 2020, as a reflection on two other builders’ more recent, self-inflicted struggles with their business processes;  updated and re-posted here, as part of our second retrospective, “Still Above Average: The Best from Escape from Averageness®, 2009-2021”)

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