Although demand for new homes is returning in most markets, qualified workers remain scarce. Builders who want to capitalize on this demand and grow their businesses have to do more with the labor resources they have. They have to become more efficient, effective and productive by optimizing their business processes.
How do you get started on an optimization effort? The following questions and answers should shed light on that.
Q: What does optimization include?
A: Optimization requires that you take a hard look at your business processes. It has two main parts: analysis and improvement.
Q: How are processes analyzed?
A: The analysis should document how the company does its day-to-day work. For instance the construction cycle has hundreds of steps; before you can identify which ones are contributing to delays, you need to think through them and write them down.
You can get this information by interviewing key individuals and work groups, then holding a workshop that includes everyone you interviewed. Ask about workflows, decision points, decision timing and information flows. Map these out for each process from the beginning of the land acquisition stage all the way to the closing out of the warranty period.
Q: How should processes be documented?
The best way to understand a process is to visually map it. While there are various ways to create a process map, Continuum Advisory Group prefers the Swim Lane method, a flowchart that organizes the steps in a process by who is responsible for completing each one. Figure 1 is a Swim Lane flowchart for the Sale to Start process.
Q: What parts of each process should be analyzed?
A: We have devised a simple four-part framework (see Figure 2) covering the most important parts of any good business process. They are:
1. Sequences of Actions and Information Flows. This is how most people think about processes. It’s the boxes and other shapes that represent work and information flows among the different functions, departments and roles of the company. Documenting this provides a good overall view of the process.
2. Handoffs of Tasks and Information. In many companies, handoffs are not well defined so it's not clear who needs to do what and when. It's critical to clarify this information.
3. Decision Making Responsibility, Timing and Clarity–As I mentioned in last month's article, Roadblocks to Growth, most builders make decisions inefficiently, which causes cycle time inflation. The process map should clarify who makes what decisions at each step of each process.
4. Feedback Loops. What mechanisms are in place to provide management with feedback on how each business process is working? Unfortunately, most builders lack good feedback mechanisms: they only measure a few processes—sale-to-start cycle time, construction cycle time and quality assurance—and only look at them on high level, rather than delving into specifics.
Q: How do we start optimizing our processes?
A: Start by assembling an initial team of key performers from each of your company's major functions, and appointing a strong team leader or facilitator. The team should look at workflows and handoffs from a high level with an eye to identifying major bottlenecks. This initial step should only take 2 or 3 days.
Q: What comes next?
A: The next step is to form teams to address the highest priority problems. Each team should include representatives from all the affected departments: for example if you identified selections as a bottleneck, the team should include representatives from the design center, sales, purchasing, construction and warranty. The goal should be to recommend solutions, which in the case of selections might be to eliminate rarely-sold options that raise construction time, or those that cause ongoing warranty issues.
Q: How long will this take?
A: It depends. Variables include staff skill levels, the company's IT systems and the current workload. However as a general rule, a builder operating in two or more markets and closing more than 1000 units per year will need 12-18 months to address and optimize all of its processes. Identifying the problems isn't difficult—we can usually do it in a week using our Homebuilder Health Check system. Correcting them is what takes time.
Q: What is most likely to go wrong?
A: There are six pitfalls than can derail the optimization process:
1. An unrealistic plan of attack. You need be honest about the team members' capacity to shoulder the extra burden of process improvement. You also have to accurately assess their skills; if you have inexperienced managers, the initial process improvement might be training.
2. Perfectionism. Don't let the perfect be the enemy of the better. I've seen more than one builder try and doo too much too soon, such as trying to fully automate a manual payment process all at once. When the effort (inevitably) failed, they were hesitant to try any further optimization. Incremental improvements are more likely to bring ultimate success.
3. Avoiding difficult issues. The analysis can uncover problems you would rather ignore. For instance you may have loyal but underperforming employees, or long-time trade partners who lack the ability to scale up as you add units. Or it may find that the design center isn't the profit generator you assumed is was, but rather is generating excessive costs managing excessive choices. The optimization effort will only succeed if you deal with issues like these head-on.
4. Trying to change too much at once. This usually results in frustration, failure and a continuation of the status quo. Your goal may be a range of 70 plans across all divisions but if you're only at 30 then you may need to step up gradually. Start with just 10 plans, then add a few more at a time.
5. Not involving enough people. It’s important to engage as much of the organization as possible when it comes to implementing new processes and procedures. This lightens the load on everyone and fast tracks buy-in throughout the company.
6. Poor communications. Internal communications can make or break an optimization effort, but this is where a lot of builders fall short. They get off to a strong start—the CEO gives a rousing company-wide presentation and key managers say all the right things to fire up the troops—but lack the communication infrastructure needed to carry the process to completion, whether it's preparing managers to answer staff questions or building employee feedback mechanisms.
Q: What if I'm not ready for a full optimization?
A: The good news is that you can still get some value from the general approach outlined here. Ask yourself where your organization needs the most improvement, then spend time over the next few weeks having one-on-one dialogues with key managers and staffers about their day-to-day work. You can ask construction managers about issues the see that are slowing down the framing, or you can ask trade partners how your company can help their businesses.
Dipping your toe in the water like this may yield small improvements, and could create momentum for a more comprehensive effort.