The New Gulf War
November 5, 2013 Comments Off on The New Gulf War
There’s an ever-widening gulf developing in the restoration industry and it’s beginning to show. A very small number of firms are pulling away from the rest when it comes to professional management. This positive development will eventually benefit everyone in the industry.
It wasn’t too long ago that the typical restoration firm derived its strategic decisions from the accumulated experience of its founder. This worked well enough in the Canadian restoration market in the days when all that was required was to react to the dictates of insurance companies. Forward thinking wasn’t very important.
Then, a few years ago, insurers made two decisions that have had unexpected results:
They started to favour national networks over regional operators. The thinking behind this was simple: vendor programs work best with fewer participants – a balance between not too few and certainly not too many. Retain just enough vendors to meet claim volumes and to keep everyone on their toes.
They decided to encourage owned networks. This was partly to create a single line of accountability (it’s easier to deal with one owner than many) and partly to overcome the perceived weaknesses of the franchise model (many owners; little consensus).
It didn’t take long to spawn some large restoration networks. Initially, their focus was on size and reach. Some are still at that stage; however, a very small number of firms realised that increased scale was producing new challenges. These new challenges couldn’t be fixed by applying old experiences.
Some of the challenges were to do with marketing, others with operations, and still others arose from finance and accounting issues. Whatever they were, many were new problems. A few firms set about finding fixes while others fretted and fumbled.
Over the past five years, four corporate-style Canadian networks have grown at a relatively extraordinary rate considering the threats of recession, low claims frequency, and eroding margins that have bogged down many restoration firms. These four networks have swum against the tide, have seen the benefit of scale and they have, for the most part, been rewarded for their pluck. A couple of franchise-type networks have taken a similar (but slower) route. This handful of firms has pulled ahead of the others.
Between them, they account for just under $1b a year in insurance jobs. That means about 40% of the total Canadian insurance restoration market is in the hands of just six aggressive, well-managed, focussed, and forward-thinking firms.
If that description sounds vaguely familiar, it is – it almost mirrors the breakdown of the insurance market in Canada. Yes, the major restoration firms share the characteristics of their most successful insurance partners. That’s adaptability at its best!
There are a couple of common threads amongst almost all of these restoration networks. First, all have extremely capable leaders at the very top: CEOs who soak up stress, demands on their time, and volatile business partnerships and still push forward.
There’s a second characteristic of this elite group, however, that has yielded greater returns: a few have hired seasoned managers from outside the restoration industry – and what a difference that has made! Fresh ideas, new solutions for old problems, clear thinking, and new intellectual networks have entered the restoration industry’s C-suite.
The results of such leadership changes are apparent: a very small number of major restoration firms are quickly expanding through acquisition. That means an ever-increasing number of restoration locations are coming under the umbrella of corporate excellence and that can only be a good thing for them, insurers, and above all, policyholders. It sounds like a gulf war with no losers.