August 17, 2011 Comments Off on Value-Add or Valueless?
There was much discussion about value on a LinkedIn Group recently – specifically, how restoration contractors who participate in PSPs (Preferred Supplier Programs) prove the thing to their insurance partners. The primary issue is that PSP networks consist of very similar contractors – they employ identical trades and tools, acquire the same certification, use the same estimating software, and so on. The argument is that verifying value (as opposed to merely declaring it in a marketing brochure) is a critical component of demonstrating differentiation in a saturated market. The reward for proving value is achieving a leadership position in the eyes of the customer who, to avoid burdening this article with too many themes, is the insurance company operating the PSP.
The ‘value’ factor is not necessarily the monetary value of the service – it is also the perceived value. There’s a big difference. An extreme example of monetary value vs. perceived value is this: The monetary value of the human body is under $5 whereas the perceived value of a life is priceless to most people.
There is often a muddling of things that are done to show value with things that must be undertaken to prove value. Demonstrations of value are often taken to mean showing up promptly on job sites, recording all sorts of data, employing qualified staff attired in suitable garb and projecting an appropriate demeanour, fulfilling needs of all sorts for various stakeholders, helping adjusters to ‘look good’, saving time, and the oft-stated chestnut: making everyone happy.
Just to be clear, there’s an obvious difference between undertaking all the commendable actions listed above and actually proving
- That these actions are what the customer wants
- That one undertakes them in a consistent manner
- That these actions produce a worthwhile benefit for the customer
- That the benefit to the customer leads to a benefit for the contractor (thereby assigning a purpose to the whole exercise).
Let’s investigate each of the four conditions listed above:
- Actions that the customer wants can only be ascertained through discussion with the customer. Furthermore, the actions have to be prioritised to match the customer’s needs. Thus, for example, harping on services and equipment lists and accreditations is nice but non-critical to a cost conscious insurer. On the other hand, when dealing with a service-oriented insurer, dwelling on the cost benefits of, say, extensive in-house job capability is less important than the resultant service controls. It is important to work out the customer’s priorities and then make sure you focus on the key ones.
- Having decided what to focus on, the next step is to maintain and analyse related data regularly and feed information to the customer that proves one is doing the right things in the right manner. Typically, data will deal with time periods (such as cycle times), geographic areas (for multi-location operations), and job category (such as water, fire, emergency, structural, CAT) and each of these categories has to be tracked and reported consistently. There is little doubt many contractors have this data available to them but how many make meaningful use of it?
- There has to be a strong connection between the data and what the customer sees as a benefit. Otherwise it is a pointless exercise. The benefit does not always have to directly relate to cost. For example, it is a given that low cycle times save dollars therefore the contractor focuses on proving cycle times and leaves the dollar conversion to the insurer. Also, a major contributor to a positive perception of value is ease of doing business. This quality is not always quantifiable and sometimes relies on word of mouth but is very often a significant reason for repeat business. It’s important to note that ‘ease of doing business’ is usually related to a ‘less is more’ approach – the service provider’s customers don’t have to jump through hoops to get what they want because the provider has intuitively created (translation: thoroughly researched) processes that ease the way for the customer.
- The circle is completed when the ultimate result is an increase in profitable business for the contractor. This is important. This is also the point where most contractors will state, “The insurance company does not care if I make a profit; in fact, they actively discourage this happy outcome!” This usually means there has been no discussion in advance about what the contractor will gain through consistent and successful performance.
By this point a majority of contractors will have thrown their hands up in despair. “The real world does not operate like this!” they exclaim. In reality, insurers suspend vendors for no reason, ‘Head Office’ (where Dr. Evil resides) demands discounts for sheer sport, scorecards are calibrated to prove only failure, and shadowy relationships pollute the program.
One answer to the ‘realities’ described above is that each of these is explained by either poor communication at the onset of the program, inadequate data, a lack of understanding of what drives vendor programs, and sheer misunderstanding. Insurers and contractors share the blame. A lack of respect and deeply embedded distrust are no way to operate a relationship. One party or the other has to make a move to fix things.
Another response is, “So what?” This is a better retort. It’s ridiculous to wish for level playing fields, cooperative customers, easy paths to success, and rosy relationships. Don’t live the insanity of hoping for change while repeating the same mistakes (Einstein said it better). Entrepreneurs are risk takers, market shapers, mould breakers, success makers. Are you?
August 1, 2011 Comments Off on Eru gögnin þín rétt
Data are considered deadly boring so we tried to be clever with the title of this piece. It’s Icelandic for “Are your data accurate?” We hope our choice of language makes the subject sound cool.
Insurers love data with a passion. Some of the stuff is accurate, most is open to varying degrees of interpretation. However, per Clifford Stoll, “Data is not information, information is not knowledge, knowledge is not understanding, understanding is not wisdom.” In other words, you can own terabytes of statistics, figures, numbers, and records and still remain utterly uninformed. It’s similar to a gym membership in a way. Just having access to all that exercise equipment isn’t going to make you fit; nor is just using it occasionally. You have to set goals, be consistent, and work to a plan.
The trouble is, coming up with a plan to utilise data is quite difficult when the goal is vague. For example, insurers have a very difficult time choosing between cost savings and customer service (contractors have done a first-class job of asserting that these are mutually exclusive aspirations). So they jink. Adjusters push on cost, vendor departments pull on customer service. Loosely related “data” fly like popcorn in a vending machine. Contractors go crazy.
This lack of consistency is a direct outcome of poor data coupled with feeble purpose. Contrary to popular belief (strongly held by vendors), insurers cannot flick a switch and instantly see which vendor is being nice and which is being naughty. In a nutshell, insurers have no readily available statistical information on contractors. It’s there but getting it is like digging out fossils. That’s because the claims department in most property insurance companies relies on outdated enterprise software that offers nothing to the modern-day procurement manager seeking succinct data on individual vendors. Incredibly, most insurers cannot even readily state what they pay individual contractors over a period of time and, therefore, have no factual idea of who their largest contractor partners are in terms of revenue. In fact, most insurance companies will struggle to come up with anything more than very rough estimates of their entire annual spend on restoration work performed by restoration contractors. It’s mixed up with all sorts of outlays including the cost of contents replacement, additional living expenses, engineer and environmental fees, and even claims adjustment fees. Really. As a result, many insurers cannot accurately state what their average water damage claim, restoration job, or rebuild cost actually is let alone identify their most effective restoration partners. Some actually believe that the answer lies in their estimating software database even though it is riddled with duplicate entries, unclosed files, and multiple bids.
It’s a lot worse when one considers the situation from a restoration contractor’s perspective. That’s because most haven’t seriously started managing their supply chains yet let alone proving their value to their customers. Therefore, current practice is mostly about achieving adequate margins and this is not something to share with others. Of course, contractors do have access to very interesting, significant, and relevant data – all sorts of statistics about costs, resource-utilisation, and timelines but this is buried deep and is rarely mined with a view to collaborate more effectively with their partners.
We believe that one of the most astonishing wake-up moments in the industry will occur when an insurance company assembles what they think are their average water-damage, restoration, and rebuild claim data and asks each of their vendors to provide the same. Worlds will collide … unless both parties mine their estimating software data for the information; in that case the status quo will prevail and the moment will pass peacefully.
It’s little surprise, therefore, that virtually every restoration contractor has chosen to rely on services as a means of differentiation instead of sharply-focussed analytics. This in an industry where every single contractor employs exactly the same trades and tools, acquires the same accreditations and licences, operates the same estimating software and works off roughly similar margins. Little effort is made to prove how they excel at operating effectively, to demonstrate how they outclass their competitors at managing their time or verify how efficiently they plan their jobs. There’s a big difference between knowing the numbers that you need to run your business properly and understanding the statistics that prove this to stakeholders. That’s the difference between having data and using it wisely. In fact, there’s every reason to believe that most contractors run their businesses to their entire satisfaction. That would be fine and dandy if contractors and insurers had identical goals but that’s not the case.
Relevant analysis of accurate data is the only route to successful collaboration in a complex environment. Will you take it?