Value-Add or Valueless?

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

  1. That these actions are what the customer wants
  2. That one undertakes them in a consistent manner
  3. That these actions produce a worthwhile benefit for the customer
  4. 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:

  1. 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.
  2. 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?
  3. 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.
  4. 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?

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