There has always been an underlying context – an underlying business logic – to everything we expound in a Pipeline workshop™.  Understandably, the focus is on the principles and disciplines of homebuilding production, but we also give that context – that underlying business logic – the attention it critically deserves.

Pipeline workshops™ do not stop at the “what” and the ‘how-to”;  they also include the “why” and the “want-to”.

So – one of the Velocity Accelerators® we do at a Pipeline workshop™ is a deeper-dive into that context and business logic, into two crucial, inseparable disciplines that must work together:  Open-Book Management and Team-Based Performance Compensation.

The efforts of a homebuilding company to improve operating performance and business outcomes will fail, if it does not succeed first in creating a homebuilding team that works toward commonly-held and commonly understood business goals.  This type of team stands in sharp contrast to what is merely a collection of so-called teammates working toward individual goals.

What you would likely find missing is the business logic that forms the necessary context for understanding everything else.

That is the role of Open-Book Management.

In order to become the savvy, motivated, mutually-accountable homebuilding team required to effectively compete 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.

But – not just understand the business outcome that is at stake;  they also must each have a personal stake in that business outcome;  they must own the outcome.  they must have a stake, in what is at stake.

That is the role of Team-Based Performance Compensation.

Open Book Management flows from the work Jack Stack did in the 1980s as CEO at Springfield Remanufacturing Corporation to rescue that former International Harvester (Navistar) division from almost certain bankruptcy.  Following a 99% leveraged employee buyout, he 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);  Inc. Magazine’s John Case reported on open-book thinking in other industries and companies, in two other books (Open Book Management and The Open Book Experience).

And, 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 part of Modis);  Wilson subsequently described this work in a publication, titled The Bucket Bonus Plan.

We take a very 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).  We urge them 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 (knowledge and understanding) to teammates, so that those teammates don’t just understand the homebuilding business, they also understand the business of homebuilding, through the teaching of business and production principles.

We advise our clients to adopt a teambased approach to performance compensation, by way of a progressively-weighted milestone plan, centered on achieving targeted performance above a baseline in a specific business outcome, impacted by the actions of every single teammate.

We urge an approach that is simple, easy to understand;  that is visible, transparent, compelling;  that rewards success rapidly and frequently;  that is selffunding, that is paid from income the company would never have otherwise generated.

In terms of compensation – we urge our clients to make it significant, make it meaningful.  In terms of participation, we urge them to make it allinclusive.

We tell them that their Team-Based Performance Compensation Plan should provide only for winners or losers, not winners at the expense of losers.  It should give the right to lead and to demand results;  it should give the desire to be lead, not just managed.

Savvy.  Motivated.  Mutually-Accountable.  Team.

 

Come.  Participate.  Learn.

Open-Book Management and Team-Based Performance Compensation is one of the three Velocity Accelerators® highlighted (together with Critical Chain Project Management and Business Process Improvement) at the next Pipeline workshop™, March 25-26, 2020, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

Cost is $895.00;  for team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting.

Sponsored by Specitup and Simpson Strong-Tie.

Details:  www.buildervelocity.com

 

      

“The absence of business logic is simply astounding.”

Posted February 29, 2020 By Fletcher Groves

(originally published on EFA® in February 2010 under the same title;  republished in April 2013, as part of our retrospective Above Average: The Best of Escape from Averageness®, 2009-2012;  updated and republished in advance of each Pipeline workshop™)

McKinsey and Company

It is mid-2012.  The intrepid, results-based consultant smiled and shook her head, in a combination of amusement, incongruence, and disbelief.  It was yet another sobering reminder that RB Builders, early in this process, was capable of coming to bewildering conclusions, the latest of which centered around the company’s intentions for its team-based performance compensation plan.

The Gross Income Participation Pool – the GIPP – had been a prerequisite to her consulting firm agreeing to become involved in a client-consultant partnering arrangement with RB Builders in the first place, one of three stipulations, along with internal financial statements that reflected a variable costing approach, and the subordination of every existing initiative to the company’s new constraint-focused, rapid-results continuous improvement process.

The GIPP was new.  It was purposely designed to replace RB Builders’ longstanding-but-inconsistent practice of paying individual bonuses based on multiple job-related measures.  It consisted of a team-based approach performance compensation focused on achievement related to a single business outcome, specifically, Gross Income achieved above a specific baseline.

Under the GIPP, the baseline performance was referred to as the Gross Income Baseline, while the stretch-budgeted performance was dubbed the Gross Income Target.  The difference between the GI Baseline and the GI Target was referred to as the Gross Income Reserve.

The GI Reserve was to be paid out progressively, based on the achievement of a predetermined number of “buckets”, called Gross Income Milestones.  The aggregate teammate share of the GI Reserve was one-third of the GI Reserve, with the remaining two-thirds allocated evenly between distributions to owners and retained earnings.

Now, however, the GIPP was getting push-back from a recently-hired Regional Vice President, who was saying the plan should be scrapped.

“We have better uses for those funds”, he said.

The intrepid, results-based consultant’s thought to herself, “The Gross Income Participation Pool is an established prerequisite.  This guy’s assertion doesn’t have any merit, but even if it did, it is too late in the planning cycle to consider changing it, let alone canceling and replacing it.”

She was having none of it.

“Where did you get this stupid idea?”, she asked.

“People get paid salaries to do their jobs, and we bonus certain positions”, he replied.  “I need more people, not higher-paid people.”

The intrepid, results-based consultant stared at the CEO, her impassive expression clearly communicating her thought:  “Where did you find this guy?”

She turned her attention back to the Regional VP.

“Let me get this straight.  You are concerned that your division will, what?  Be unable to meet its debt service obligations, or find land, or hire more people, if it rewards performance above its baseline?”, she asked, rhetorically.  “Really?  Where is the money supposed to come from?

“The GIPP will not have paid out anything, unless there is a reserve created by performance that exceeds the baseline.  You do realize that the GIPP is completely self-funding, that it does not cost the division or RB Builders’ owners one-red-cent?

“You do understand that, right?

“For one thing, all of the land and building lots acquired are kept off-balance sheet, so that is not a concern of yours”, she continued.  “And – given that RB Builders places strict limitations and controls on the level of work-in-process, and on any increase in non-variable expenses – is there any imaginable scenario under which additional Gross Income will result in less cash flow?

She stared down the Regional Vice President.  “I didn’t think so.”

“On baseline alone, RB Builders is profitable, operating above breakeven, correct?”, she asked, without waiting for the answer.  “So – is there any imaginable scenario under which every penny of that additional Gross Income will not drop straight to the division bottom-line?  Where it can be utilized for – oh, I don’t know, let’s say – distributed to teammates and owners before it became retained earnings?

“I can understand being prudent with important decisions;  at some point, there will be an economic downturn, and we have to be prepared for it.

“I can understand increased diligence in determining a baseline that reflects current reality.  I can understand having a more progressive structure to the payouts, so that each successive milestone is worth more.  I can understand adjusting the distribution of the reserve between teammates, owners, and retained earnings, in order to provide more money for other uses.

“I can understand – but not agree with – the choice of a supposedly-safer outcome, like Net Income.

“But, to deny yourselves – you, your teammates, your owners – the opportunity and motivation to do better?  The opportunity to preserve your shared livelihoods?  To secure your collective futures?  That, I do not understand.  That, I will not accept.

“The absence of business logic is simply astounding.”

 

Come.  Participate.  Learn.

Open-Book Management and Team-Based Performance Compensation is one of the three Velocity Accelerators® highlighted (together with Critical Chain Project Management and Business Process Improvement) at the next Pipeline workshop™, March 25-26, 2020, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

Cost is $895.00;  for team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting.

Sponsored by Specitup and Simpson Strong-Tie.

Details:  www.buildervelocity.com

 

      

Velocity Accelerators®: Critical Chain Project Management

Posted February 22, 2020 By Fletcher Groves

One of the areas we always single-out for deeper discussion in a Pipeline workshop™ – areas we call Velocity Accelerators® – deals with the unrealized, under-appreciated benefit that would come from replacing the current method of scheduling houses under construction.

The nature of the workflow in homebuilding production is project portfolio management;  it is about managing what can be large amounts of work-in-process, about managing what can be a large number of houses under construction.  Yes, there is workflow performed in processes, but those processes are a different type of workflow, and they are generally embedded in, or enabling and supporting of, the larger, more primary function of managing a project portfolio.

The process of building a home – what we call the Start-to-Completion process – is actually the management of multiple projects that share resources.  It is the structuring and the management of a portfolio of job schedules, with interdependencies and interactions of tasks and resources.

At its core, homebuilding is multi-project management.

The current method of project scheduling is a reference to its algorithm, known as the Critical Path Method (CPM), which evolved from the Program Evaluation and Review Technique (PERT) in the 1950s;  Critical Path has been in existence for almost 70 years;  it is the algorithm, thus, the method, used in every homebuilding ERP.

PERT and CPM were designed for one-off programs with large, complex structures (think, Polaris weapons system, the Manhattan Project), but the Critical Path Method has become the de facto standard for scheduling all types of projects:  aerospace/defense, software development, product development, research, and – yes – construction.

The problem with CPM is that it was not designed for managing a portfolio of projects, and it was not designed to function in environments where velocity is important, where faster cycle time and higher inventory turns are critical drivers of business outcomes.

Where it must contend with variation and uncertainty, Critical Path offers only a buffer of additional time – individual task durations lengthened to protect the completion date of each task, but not necessarily insuring the completion date of the project.

And – what is the cost of that added safety?  What is the cost of specifying highly-probable (95%) probabilities of completion over average (50%) probabilities of completion?

Statistically, it lengthens the job schedule by a factor of 1.64.  Which is how 90-day job schedules become 150-day job schedules.  Built-in safety that three well-known, yet typically un-checked, types of behavior then conspire to waste.

For the most part, builders are oblivious to the effects of variation on their production system.  Yet, the cost of that variation is apparent and simple to calculate;  it is the Gross Income lost from all of the closings that never occurred, from houses that were never built with the capacity that was available.

For an already profitable builder, it is Gross Income that would have clearly become Net Income, and ultimately, Net Profit.

It’s a lot of money.

Moreover, CPM considers task dependency (the predecessor-successor relationships of tasks) in its work breakdown structure, but it does nothing to resolve resource contention;  it does not consider situations in which tasks of different projects/jobs depend on the availability of resources that do not have sufficient capacity to meet the demand being placed upon them.

These two factors – dealing with variation and resolving resource conflict – should be anathema to homebuilders.

Critical Path was never designed to contend with the production environment homebuilding presents.  It is not the problem (the problem is variation and resource conflict), but CPM is benign to the solution.  ProChain Solutions’ Rob Newbold (Project Management in the Fast Lane) told me that he would go further, saying:  “CPM supports values that perpetuate the problems of homebuilders.”

Which brings us to Critical Chain Project Management.

Developed in 1997, Critical Chain addresses both task dependency and resource contention, and it replaces the padded durations intended to protect the completion date of every task with a smaller project buffer that is fully-capable of protecting the completion date of the project/job;  in the process, CCPM becomes much more aware of system capacity and constraints.

Understand what this different, changed approach means:  it means that Critical Chain substantially reduces the duration of projects – the cycle time of houses under construction – without impacting the reliability of their completion dates.

Consider this excerpt from one of the exercises in the RB Builders: Lessons from the Pipeline© business case being used in the upcoming Pipeline Workshop™:

“RB Builders’ newly-acquired division has a construction schedule of 120 calendar days, but its calculated cycle time is actually 180 calendar days.  It is widely agreed that the division should be able to build its homes in far-less than the 120 days called for by the schedule, because that duration reflects ‘highly certain’ task durations.

“Switching from CPM to CCPM would immediately reduce the schedule from 120 days to 97 days, cutting the schedule by almost 20% with no diminution of confidence;  it would reduce the actual 180 day cycle time by almost half (46%).”

Critical Chain Project Management does more than just reduce the length of construction schedules.  It also specifies a set of rules preventing behaviors that consume (and waste) the safety Critical Path builds into task durations.  It installs a release mechanism that “pulls” starts into the system and keeps work-in-process at the levels required to produce faster cycle times.

It implements simple, visual tools to manage production.

Builders can put a number of these practices into place without changing the scheduling algorithms from Critical Path to Critical Chain.  They can use add-on applications that convert existing CPM scheduling applications to CCPM.  They can implement standalone CCPM software applications.  However – Critical Chain will not be a complete, integrated solution for the homebuilding industry until its management technology providers wake up and address it.

It all starts with obtaining the knowledge necessary to insist on that change.

Come.  Participate.  Learn.

 

Critical Chain Project Management is one of three Velocity Accelerators® (along with Business Process Improvement, and Open-Book Management and Team-Based Performance Compensation) that will be explored in depth at the next Pipeline workshop™, March 25-26, 2020, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

Delivered by SAI Consulting.

Sponsored by Specitup and Simpson Strong-Tie (Specitup is currently in the process of writing its own CCPM app;  come hear what they have to say about it).

Cost is $895.00 per person;  for team pricing, inquire here (flgroves@saiconsulting.com).

Details:  www.buildervelocity.com

 

      

Velocity Accelerators®: Business Process Improvement

Posted February 15, 2020 By Fletcher Groves

A large share of SAI Consulting’s work, both in and out of homebuilding, has been about enabling clients to effectively structure themselves around their core-critical business processes;  Business Process Improvement is the area of our practice for which we are most recognized.

There is a very good and simple reason why SAI focuses so much effort on documenting, redesigning, reengineering, improving, and managing business processes:

The most basic, most fundamental premise in business is this:  business enterprises exist to make money;  the way enterprises make money is by delivering extraordinary levels of distinctive value to their customers and other stakeholders;  that value is delivered through the work that enterprises perform;  that work has to be performed in some manner of workflow;  the most common form of that workflow is work performed in processes.

Make money . . . by delivering value . . . through the work you perform . . . in processes.

From a business standpoint, processes are critically, centrally important;  processes exist – andit  matter – whether homebuilders are intentional about them or not.

We repeatedly make the point that Pipeline workshops™ are about thriving on the velocity side of Return on Assets®, but better process workflow pays off on both sides of economic return;  it drives both higher margins and higher velocity, drives higher Return on Sales and higher Asset Turns.

Consider:

Start-to-Completion (the sub-process within the Prospect-to-Closing process that is the aorta of workflow in a homebuilding enterprise) is not, at its core, process management;  the workflow in Start-to-Completion is multi-project management;  it is project portfolio management, with embedded, supporting, and surrounding processes;  it is workflow in which all of the non-supervisory work is performed by external resources (trades and suppliers).

Start-to-Completion is not managed like a process, so we don’t treat it as a process;  we don’t map it like a process;  we don’t document it as a process;  we exclude it from process management.

Here is the point:  even with the exclusion of Start-to-Completion workflow, the results from dozens of process mapping engagements, performed over decades, suggest that 25% of all the process work a homebuilding company does perform – the work that consumes a building company’s overhead – is completely non-value-adding.

Ponder that revelation for a moment.

Here is the bottom-line:

If your Operating Expense represents – meaning, it consumes – eight percent (8%) of Revenue, you are throwing away $20,000 of every $1,000,000 in Revenue you generate.

The most visible element of BPI (and BPM) is the mapping of process workflows;  however, process mapping involves far more than documenting – and confirming, accepting as-is – the current state of that workflow;  it includes redesigning those workflows in ways that improve them, an effort which invariably reveals other issues – the core, root causes of problems – that affect profitability and economic return.

Which makes understanding and improving workflow the means to a much more important end.

Business Process Improvement is the tip of the spear, the front-end of a continuous improvement methodology in which the activities and elements of workflow that add value are preserved, the activities and elements that add no value are eliminated, and the remaining activities and elements that enable value are refined to make the workflow more clear, more consistent, more streamlined, more connected, more succinct, more fit for its intended, defined purpose.

In the language of a Pipeline workshop™, we want a shorter, straighter pipe.

Because it is so foundational, it is impossible to overstate the importance of understanding and improving the way work is performed, before starting down the long road on other improvement initiatives, before the process of continuous improvement moves anywhere else.

In addition to being the means to a more important end – and the front-end of a process of continuous improvement – BPI ushers in a new perspective.

It shifts the organizational view away from the internal structure of work performed in functions, and towards the flow of work performed in value-adding processes;  BPI shifts the perspective from vertical to horizontal;  it turns a homebuilding enterprise 90 degrees from vertical, lays the enterprise on its side, and aligns its workflow with the value it seeks to create.

Business Process Improvement is about getting horizontal.

The relevance goes beyond the processes themselves.  Processes are the centric element of the business operating model that forms any strategic value discipline that serves to deliver exceptional levels of the specific, distinctive value demanded by a narrowly-defined segment of homebuyers.

Come.  Participate.  Learn.

 

Business Process Improvement is one of three Velocity Accelerators® (along with Critical Chain Project Management, and Open-Book Management and Team-Based Performance Compensation) that will be explored in depth at the next Pipeline workshop™, March 25-26, 2020, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

The cost is $895.00 per person;  for team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting.

Sponsored by Specitup and Simpson Strong-Tie.

Details:  www.buildervelocity.com

 

      

Pipeline Workshops™: Velocity Accelerators®

Posted February 8, 2020 By Fletcher Groves

If you had to choose one word to associate with a Pipeline Workshop™, it would be velocity – a vector measure defined as speed made good in a purposeful direction.

We want to elevate velocity to an equal standing with margin, because margin and velocity are the co-equal components of economic return, and the two conditions necessary for achieving sustainable competitive separation.  Which is why, at every Pipeline workshop™, we select specific areas of production management for a deeper dive – for more discussion, the use of pointed, challenging RB Builders: Lessons for the Pipeline© business case exercises, etc.

These areas are known as the Velocity Accelerators®.

Velocity Accelerators® tend to be important areas that never receive sufficient attention;  in fact, beyond a passing understanding, Velocity Accelerator® sessions are often the first meaningful exposure builders attending a Pipeline workshop™ have had to these areas.

For the upcoming workshop (Pipeline Workshop™ No. 13, March 25-26, 2020, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida), we are highlighting three areas:

Business Process Improvement (BPI):  The most basic, most fundamental proposition in the business of building homes is this:  the reason a builder exists is to make money;  the way a builder makes money is by delivering value – benefit in excess of cost – to its homebuyers and other stakeholders;  that value is mostly delivered through the work that the building enterprise performs;  value-delivering work has to be performed in some manner of workflow, which includes work performed in processes.

Make money . . . by delivering extraordinary value . . . through the work a builder performs . . . in processes.

BPI is the front-end of a process of continuous improvement, one that fundamentally changes the perspective of workflow, and becomes the driving component of the operating model that forms a builder’s strategic value discipline.

BPI improves both the margin and velocity sides of economic return.

Critical Chain Project Management (CCPM):  Developed more than sixty years old, the scheduling algorithm known as the Critical Path Method (CPM) was never intended to function in the environment of homebuilding production, which is essentially project portfolio management with surrounding, supporting, and embedded processes.

CPM was never designed to function in environments in which velocity is important, where faster cycle time and higher inventory turns are critical drivers of business outcomes.  Moreover, CPM is oblivious to the effect variation has on the scheduling of a production system.

Yet, Critical Path is the scheduling algorithm used in every ERP system designed for homebuilders.

CCPM is the leading edge – the future – of project scheduling for homebuilding;  it promises significant improvements in the management of homebuilding production – faster cycle times, faster inventory turns;  managing variation;  enabling homebuilders to generate more Revenue, more Gross Income, with a planned, finite, and controlled amount of work-in-process and production capacity.

Critical Chain is about improvement on the velocity side of Return on Assets.

One of our sponsors, Specitup, is coming out with their own CCPM app, and they will be sharing that information.

Open-Book Management and Team-Based Performance Compensation:  The efforts of a homebuilding company to improve operating performance and business outcomes will become far more difficult – it will likely fail – if it does not succeed first in creating a homebuilding team that works toward commonly-held and commonly understood business goals, as opposed to being a collective 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.

To become the kind of savvy, motivated, mutually-accountable homebuilding team required to compete effectively today 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.

That is the role of Open-Book Management.

But, it is not enough that teammates understand the business outcome that is at stake;  they must each have a personal stake in that business outcome.

That is the role of performance compensation.

Open-Book Management and Team-Based Performance Compensation affect both the margin and velocity sides of economic return.

 

The reason we are only highlighting these three Velocity Accelerators® at this workshop, instead of the five or so we have highlighted in previous workshops, is to give these three areas sufficient emphasis.  We still intend to touch briefly on two other Velocity Accelerators®:

Epic Partnering™:  Builders attending Pipeline workshops™ consistently emphasize the need for stronger trade-partnering, better coordination, more cohesiveness, a more unified approach to managing the trade side of production.

They acknowledge the obvious:  they do not have the internal resources necessary to perform “the set of all specific actions” required to bring houses through the start-to-completion process, and they are completely dependent and reliant on skilled construction resources that are in short supply;  they understand that they can no longer dictate the terms of engagement.

Developing the business relationships that unify a builder’s value stream is both a program and a process, consisting of milestones, rewards, education, features, and rewards.

Epic Partnering™ is transformative, and it has implications on both the margin and velocity sides of economic return.

Building Information Modeling (BIM):  Building Information Modeling (BIM) explores building design in a 3D model of the three spatial dimensions of width, height, and depth (some would also say time and cost), and links to multiple databases with information on costs, schedules, specifications, engineering data, and more.

BIM integrates, consolidates, and links information;  it makes data more accurate, useful, and manageable.

As with Epic Partnering™, Open-Book Management, and Business Process Improvement, BIM has implications for both sides of economic return, for both the margin side and the velocity side of Return on Assets:  better, more collaborative designs with fewer design errors, more accurate job cost books, job budgets, and purchase orders (margin);  plans that are easier to build, with more dependable job schedules, shorter cycle times, faster inventory turns (velocity).

By some estimates, BIM can make product 35% faster and 25% less costly to build, with a more satisfying homebuying experience and a higher quality product.

Yet, for all its promise to transform the homebuilding industry, BIM has historically had a shallow adoption curve, largely because implementing BIM requires a lot of money, huge amounts of determination and resolve, a different mental model, and a willingness to abandon past practices.

Which is where opportunity often lives.

One of our sponsors, Simpson Strong-Tie, will be sharing information on their BIM Pipeline and Quickstart Toolkit apps.

 

We like the balance between the three selected Velocity Accelerators®:  a blend of immediate and long-range initiatives that accelerate velocity, but also improve margins.

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be held March 25-26, 2020 at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  The cost is $895.00 per person;  for team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting.

Sponsored by Specitup and Simpson Strong-Tie.

Details:  www.buildervelocity.com