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Lean Thinking: Banish Waste and Create Wealth in Your Corporation
CHAPTER 1: Value
A House or a Hassle-Free Experience?
Doyle Wilson of Austin, Texas, had been building homes for fifteen years before he got serious about quality. "In October of 1991 I just got disgusted. Such a large part of my business was waiting and rework, with expensive warranty claims and friction with customers, that I knew there must be a better way. Then I stumbled across the quality movement."
He read Carl Sewell's book on car dealing, Customers for Life, and decided to test his claims by buying a car at Sewell's Dallas dealership. ("I thought that if even a car dealer could make a customer feel good, it should be easy for a homebuilder!") His purchase was such a positive experience that he asked Sewell for advice on quality in home building and was told to read the works of W. Edwards Deming.
Doyle Wilson is the archetypical Texan and never does things halfway. By February of 1992 he had launched a wall-to-wall Total Quality Management campaign at Doyle Wilson Homebuilder. Over the next three years he personally taught his workforce the principles of TQM, began to collect and analyze enormous amounts of data on every aspect of his business, got rid of individual sales commissions ("which destroy quality consciousness"), eliminated the traditional "builder bonus" for his construction superintendents (who were qualifying for the "on-time completion" bonus by making side deals with customers on a "to-be-done-later" list), reduced his contractor corps by two thirds, and required the remaining contractors to attend (and pay for) his monthly quality seminars.
Customer surveys showed a steady rise in satisfaction with the homebuilding experience and sales grew steadily even in a fiat market as Wilson took sales from his competitors. In 1995, Doyle Wilson Homebuilder won the National Housing Quality Award (often called the Baldrige Award for quality of the construction industry), and Wilson set a goal of winning the Baldrige Award itself by 1998. Yet he was not satisfied.
"I knew I was making progress in competing with other builders for the new-home buyer, but a simple fact, once it lodged in my mind, wouldn't go away: 78 percent of the homes bought in central Texas each year are 'used' or older homes, l've been making progress in increasing my share of the 22 percent seeking a new home, but what about the 78 percent who bought older homes? Obviously, these buyers are the real market opportunity."
So instead of surveying people who were buying new homes, Wilson began to talk with people who were buying older homes. What he discovered was obvious in retrospect but has required a complete rethinking of his business. Specifically, he found that many buyers of older homes hated the "hassle factor" in negotiating for new construction, the long lead times to get the job done and move in, the inevitable "to-be-done" list after moving in, and the "phony choices" available from builders who promise custom homes but then load on as "standard equipment" many features of little interest to buyers.
Wilson soon realized that that was exactly what he had been asking his customers to go through. By contrast, older-home customers could clearly see what they were getting, buy only what they wanted, and, often, move in immediately. "No wonder I was losing 78 percent of my potential customers!"
To create a hassle-free experience to go with the house itself (these together constituting Wilson's "product"), it was necessary to rethink every step in the process. He has recently opened a one-stop sales center where the customer can see and decide on every option available in a house (for example, the forty different varieties of brick, the three thousand varieties of wallpaper, the four styles of built-in home office), customize a basic design with the help of an Auto-Cad computer system, select features beyond the standard level (for example, extra-thick carpet pads, additional outdoor lighting, and heavier-duty wiring), determine the exact price, work out the mortgage, arrange for insurance, and arrange for the title search. For customers truly in a hurry this can be done during one walk-through of the sales center.
To shrink the lead rime from contract signing to moving in from six months to a target of thirty days, he has reorganized his contract-writing and job-release process and is developing a system of pull scheduling for contractors who are assigned new jobs as downstream jobs are completed. He is also introducing standardized work statements, parts lists, and tool kits for every job. Eventually these steps will eliminate the "to-do" list because the new system does not allow the next task to start until the previous task is certified as complete with perfect quality.
Finally, Wilson has created a wide range of basic house designs with a minimum construction standard and asks the customer to specify all materials and systems upgrades (using the computer design system) to a selected base design so the customer only pays for exactly what she or he feels is really needed.
Doing all of this will not be easy, as we'll see when we return to this example in Chapter 3 on flow, but Doyle Wilson has already made the key leap. Instead of concentrating on conventional markets and what he and his contractors were accustomed to making in a conventional way, he has looked hard at value as defined by his customers and set off down a new path.
Start by Challenging Traditional Definitions of "Value"
Why is it so hard to start at the right place, to correctly define value? Partly because most producers want to make what they are already making and partly because many customers only know how to ask for some variant of what they are already getting. They simply start in the wrong place and end up at the wrong destination. Then, when providers or customers do decide to rethink value, they often fall back on simple formulas — lower cost, increased product variety through customization, instant delivery — rather than jointly analyzing value and challenging old definitions to see what's really needed.
Steve Maynard, vice president for engineering and product development at the Wiremold Company in West Hartford, Connecticut, was trying to deal with these very problems when he reorganized Wiremold's product development system in 1992. For many years previously, Wiremold had developed new products — consisting of wire guides for office and industrial users and surge protectors for PCs and other business electronics — through a conventional departmentalized process. It started with marketing, which commissioned surveys comparing Wiremold's products with the offerings of competitors. When an "opportunity" was identified, usually a gap in the market or a reported weakness in a competitor's offering, a design was developed by product engineering, then tested by the prototype group. If it worked according to specification, the design proceeded to the engineers designing the machines to make the products and eventually went into production.
This system produced designs which lacked imagination and which customers often ignored. (The designs also took too much rime and effort to develop and cost too much to make, but these are a different type of problem we'll discuss in Chapter 3.) Simply speeding up this process through simultaneous engineering and then broadening product variety would just have brought more bad designs to market faster. Pure muda.
Steve Maynard's solution was to forma team for each product to stick with that product during its entire production life. This team — consisting of a marketer, a product engineer, and a tooling/process engineer — proceeded to enter into a dialogue with leading customers (major contractors) in which all of the old products and solutions were ignored. Instead, the customer and the producer (Wiremold
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