Many frequent business travelers can recite the Federal Aviation Administration's prescribed safety speech from memory. While it is intuitively clear why we must put on our seatbelts, raise our tray tables, and return our seats to their full upright position as the airplane prepares to land, the admonition to turn off all electronic devices prior to landing is more opaque. Plenty of business travelers have ignored the warning, concealed their Palm Pilot or laptop as much as possible, and kept working, hoping to eke out a few more minutes of productivity before arrival. If more travelers knew the reason for the rule, compliance with the request would certainly be far more rapid and comprehensive.
You see, an incredibly complex real-time system kicks in as planes approach for landingand since this system could save the lives of everyone aboard, the FAA has determined that even the slightest risk of interference is unacceptable. The system, known as the instrument landing system (ILS), is a ground-based radio operating system that broadcasts the aircraft's position, course, altitude, and other critical flight data to corresponding receivers located on the aircraft to help pilots navigate regardless of visibility conditions.1 Obviously this system is most critical in low-visibility situations when pilots often engage "autoland" computers to use the information being transmitted from the ground to land the airplane without pilot intervention.2 In these situations, the ILS broadcasts are monitored, captured, and analyzed by the autoland computers aboard the aircraft that can respond by completely controlling all flight and navigation functions. Thus, in dangerous low-visibility situations, a potential suspected event regularly becomes a surmounted event when the plane lands successfully, all without the knowledge of the passengers who are wondering why they cannot listen to their CD players. In the wake of the terrorist attacks on September 11, 2001, these real-time autoland systems may be enhanced even further to allow aircraft to be flown and landed by remote control.3
Surprises are a way of life in the construction industry. |
In many ways, it is difficult to understand why real-time surveillance, like that aboard airplanes, of critical day-to-day business events is not more readily incorporated into the daily regimen of employees, managers, executives, and even board directors. After all, the notion of monitoring, capturing, analyzing, reporting, and responding to critical information is not an alien concept in our day-to-day activities.
- We depend on real-time information about the time of day to make it to meetings on time.
- We rely on thermostats in our homes and office buildings to respond instantly with more heat or air conditioning when the temperature rises or drops beyond a certain point.
- We expect the gauges in our cars to reflect real-time information on our speed (especially when we see a semi-concealed police car) and fuel status.
- We watch the meter at the self-service gas pump to make certain we stop the flow of gas when we reach the desired amount.
- We use smoke and fire detectors to warn us immediately of danger, especially while we are asleep.
- We even use temperature-sensitive pop-up buttons to tell us when to take a Thanksgiving turkey out of the oven.
We are surrounded by examples of real-time monitoring, capturing, analyzing, reporting, and responding to events. Despite the damage caused by business surprises attributable to an absence of real-time information and the prevalence of real-time information in our personal lives, little is being done to change the business culture and processes that tolerate surprises and to begin using real-time opportunity detection. However, as Alan Greenspan, chairman of the Federal Reserve, noted in a speech in August 2002, the use of real-time information is slowly but surely beginning to have an impact: "Economic imbalances in recent years apparently have been addressed more expeditiously and effectively than in the past, aided importantly by the more wide-spread availability and intensive use of real-time information."4
In certain companies all across the economy, managers are predicting the present, detecting opportunities in real time, and what were once surprise events or suspected events are becoming surmounted events.
Amberwood Homes
Surprises are a way of life in the construction industry. While not as complex as assembling commercial aircraft, a precise sequence of events must be followed. Electrical work has to be done before insulation is installed; both require inspection before drywall can be put up; roofs must be watertight before any of these steps can be completed. Any unanticipated deviations in the specific schedule can add weeks and months to a project as one subcontractor arrives at a job, encounters a surprise event and determines that nothing can be done because some prior step has not yet been completed as anticipated and moves on to other jobs. As anyone who's been involved in building a new house or remodeling an existing one can tell you, the biggest surprise is when the project is actually completed on time. While schedule problems are a major irritant to a homeowner, they are even more costly to the builders. Subcontractors charge a fee to show up at a job site regardless of whether they can complete their task or not. A builder also incurs fees for schedule overruns because the length of time a project must be financed increases.
Amberwood Homes, a large custom-home builder in Arizona, one of the nation's hottest (literally and figuratively) construction markets, has made some significant changes to processes and culture to eliminate scheduling surprises. Over the years, each construction superintendent at Amberwood had developed his or her own process for tracking progress on a house and setting subcontractor schedules. In fact, according to Dan Johnson, construction manager at Amberwood, many of the subcontractors did not maintain schedules at all.5 Johnson saw the opportunity to significantly improve operations by centralizing progress reports and making real-time adjustments to schedules. Today, each of Amberwood's superintendents and more than fifty subcontractors use a new real-time scheduling system to ensure that no unnecessary trips are made and everyone on a job knows what the current status is at each house under constructiontypically twenty to twenty-five at any given time. Superintendents use wireless devices to update progress on a job site as each step of the process is completed. A new schedule is generated as adjustments are made. Each morning subcontractors check the schedule to ensure that they are going to the right houses at the right time.
The impetus for putting the new process in place was the critical nature of controlling expenses in the construction industry, where net margins average around 5 percent. Mike Farrar, vice president of marketing, says that at Amberwood, "cost management is king." Johnson estimates that the new focus on real-time schedules has cut the time to complete a house from six months to five months. Cutting time to completion by thirty days saves $3,000 to $4,000 per project in finance charges. The savings from finance charges alone may amount to a 20 percent boost in margin.6 The savings also dramatically affect the availability of working capital to invest in new houses, which enables Amberwood to grow faster than it has in the past. Another benefit to Amberwood has been the reduction in administrative costs related to feesboth fees the subcontractors charge Amberwood when they arrive at a job site to find that they cannot work because a prior task hasn't been completed and fees Amberwood charges subcontractors when they do not show up on schedule. In the past, foreman and managers had to spend time sorting out and debating the validity of these charges, which kept foremen out of the field where they are most valuable. The new system eliminates all Amberwood's charges (for scheduling a crew that was not needed) and makes any penalties assessed on the subcontractors easy to verify. In fact, Johnson says that the data have allowed Amberwood to more effectively make decisions on hiring or firing subcontractor firms. Without the real-time system, assessment of a particular subcontractor would be based on the "gut feel" of foremen about performance. The real-time scheduling system allows Amberwood to evaluate subcontractors against each other and over time.
Amberwood perceives additional "soft" improvements to its business from the real-time schedule. As the company's ability to deliver houses to customers without any surprises in the schedule has grown, there has been a noticeable up-tick in customer satisfaction rates. Amberwood considers this response crucial because roughly 40 percent of the business comes from referrals from past customers. Recently Amberwood has also made the real-time schedule updates directly available to its customers via Amberwood's Web site. Mike Farrar says that the company immediately noticed an improvement in its competitive position for customers who are relocating to Phoenix: "These customers are moving to Arizona from all over the country, and they account for 30 to 35 percent of our customers. They can check on the progress of their new home from wherever they are and it helps them plan their relocation schedule and avoid having to find temporary housing like others have had to in the past when a project was delayed without their knowledge and they arrived in Phoenix to find their house wouldn't be ready for another month. They consider the real-time schedule a big plus in choosing to build with us."
The real-time scheduling systems allows Amberwood to evaluate subcontractors against each other and over time. |
The Amberwood experience points to a particularly important point in developing real-time processes. While technology is a significant enabler ("The wireless updates to a central database take a lot of errors and often hours of phone calls out of the process," says Johnson), the real challenge for Johnson was getting everyone involved to change their way of thinking. "Most of our subcontractors have been doing these jobs for years and they have always done things the same way. Any change takes time. Getting them to adopt this new real-time way of scheduling and managing projects was similar to a framer adjusting from wood framing to steel framing. It takes time and effort."
Johnson noted that there are still some subcontractors who have not adjusted to the new system: "They still think they can just call a foreman in the morning and tell him that they're not coming." The majority adapted after just a few months, however. "Everyone began to see the benefits," says Johnson. "It's not just Amberwood that saves money, but the subs save money too because they can see a schedule months ahead of time, which allows them to better plan inventory purchasing and staff more efficiently. In fact, when we began sending the subcontractor companies weekly and monthly reports on their performance, many of the owners called to tell us that our reports gave them more insight into their business than they had ever had before." Amberwood's adoption of real-time opportunity detection allows all the involved parties to increase productivity and save time and money (see table 5-1).
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Amberwood's Models
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Notes:
1. Karen L. Burcham and Alexander E. Smith, "Precision Landing Systems" (paper presented at the Air Traffic Control Association Proceedings, Arlington, VA, 30 September3 October 1991), 3, <http://www.rannoch.com/PDF/precision.pdf> (accessed 10 January 2003).
2. Alan Staats, "Thwarting Skyjackings from the Ground," FACSNET, <http://wwwfacsnet.org/issues/specials/terrorism/aviation.php3> (accessed 10 January 2003).
3. "We will invest in new technology for aircraft security, with grants to develop transponders that cannot be switched off from the cockpit; video monitors in the cockpit to alert pilots to trouble in the cabinand we will look at all kinds of technologies to make sure that our airlines are safeand for example, including technology to enable controllers to take over distressed aircraft and land it by remote control." George W. Bush, "At O'Hare, President Says `Get On Board'" (remarks by the President to airline employees, O'Hare International Airport, Chicago, 27 September 2001), <http://www.whitehouse. gov/news/releases/2001/09/20010927-1.html> (accessed 11 January 2003).
4. Alan Greenspan, "Economic Volatility," speech at symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, 30 August 2002, http://www.federalreserve.gov/ boarddocs/speeches/2002/20020830/default.htm
5. Mike Farrar and Dan Johnson, telephone interview by author, 24 February 2003. Farrar was vice president of marketing and Johnson was vice president of construction for Amberwood Homes. Subsequent quotations of Farrar and Johnson are from this interview.
6. Amberwood Homes is a privately held company and does not discuss financial results.