A significant portion of the SAI’s consulting work over two decades has involved structuring an enterprise around its critical business processes–the documentation, analysis, measurement, design and redesign, improvement, and management of workflow.
There is a reason: The only way a home building enterprise makes money is by creating value on behalf of home buyers; the only way it creates value is through the work it performs; and the way it performs this work is in processes.
That does not do it justice. Process mapping is far more than that proposition; it connects work to operating performance, and operating performance to business outcomes.
In that sense, process mapping administers a stress test; some pass, others don’t.
In 2006, we were engaged by a previous winner of the National Housing Quality award to map its business processes; these processes had supposedly been vetted and judged as part of the NHQ examination.
There were troubling indicators from the start.
We pointed out discrepancies between stated operating performance and stated economic returns. We explained the production physics, questioned whether the stated performance could have even occurred. We highlighted the declines in operating performance and business outcomes, to which they seemed 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 work previously performed was later revised. The team was unwilling to self-classify even one of these 132 activities as value-adding, but it classified almost 30 percent of them as completely non-value-added. It took this builder 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 reported 5.2 x inventory turn.
We stressed the need to establish a set of operating and business measures as the performance requirements for the new process designs, yet they failed to produce a comprehensive, connected set of operating and business outcomes. Neither the need nor the importance of performance requirements struck a chord with the executives 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 an ROA of 4.7 percent in 2005; in the Era of Home Builder Entitlement, economic return should have been eight-times higher. This was an enterprise that weeks earlier had taken the gut-wrenching action of terminating 40 teammates. We pointed out that the real situation was much worse; the indicated ROA of 4.7 percent overstated the company’s economic performance, because a .9 percent Net Income Margin was masked by the impossible-to-achieve 5.2 x inventory turn.
We told this builder that processes like theirs were not just poorly-designed; they were 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 satisfied the requirements of all stakeholders.
We told this builder that this project was about designing better, more productive processes, in order to increase productivity and reduce cycle time. We told them this was the first step in the quest toward a “more-for-less” mentality–more output, more revenue, for the same investment in work-in-process and production capacity.
We told them “there is a long road ahead . . . a process of continuous improvement means a continuous process of improvement.”. We asked them the same questions we ask every builder client: “Does the world really need one more average home building company? Will ‘average’ performance be sufficient to sustain a home building company?”
We told them that they were not average in intent or reputation, but they were significantly below-average, in terms of performance. We told them their situation required a sense of urgency. We warned them of the consequences of failing to confront it.
That was 2006. In 2008, they filed Chapter 11.