July 14, 2008 Comments Off on Failure Demand
There’s a depressing fad in our industry: We publicly boast about how we go beyond the call of duty when a gaffe is uncovered, refunding money, fixing things free of charge and so on. Indeed, many advertise their plans to redress wrongs in advance. I don’t understand why we think the public will be better disposed towards us just because we freely acknowledge our industry’s imperfections. This is not Hollywood or politics. Serving people who have suffered a property loss is serious business. Shaky standards, focussing on fixes instead of flawless service, and Teflon-coated accountabilities aren’t going to endear anyone to their chosen markets.
Professional standards aside, there are other issues hidden in unreliable service. Here’s a look at a problem that eats into resource expenditure and professional reputation like no other. This is the demand on resources caused by an organisation’s own failures, or failure demand.
Contractors rely on customers to hire them for services. Typically, the contractor gets a call from an adjuster; someone records the details (location, contact numbers, and so on) of the damaged property and passes the information to someone to go out and inspect the property and assess the damage; an estimate is created. Once the estimate is approved, restoration work commences, often with sub-contractors involved, sometimes not; the job is completed, the paperwork is filed, the contractor is paid, subs and other suppliers are paid, and the file is closed.
Now suppose the location details are not recorded properly in the first instance or someone fails to show up at the agreed time. Suppose the estimate is incomplete or is challenged by the adjuster. Suppose the subs don’t show up on time. Suppose the materials’ order is inaccurate. Suppose there are defects in the work performed. Suppose the site isn’t cleaned up properly at the end of the job. Suppose the subs don’t send in accurate invoices. Suppose the contractor’s back office doesn’t send properly documented final invoices to the insurance company within an agreed time frame.
How often does one or more of the failures described above occur? My guess, based on years of observation, is 95% of claims contain one or more of these failures. An organisation may pride itself on correcting its mistakes every time they occur but they are eating up resources in managing failure demand. Consider this: How much time do you spend dealing with issues that arise solely because your processes are incomplete, inadequate, inappropriate, or poorly embedded in your organisation? Track calls made to you and record the percentage that relate to failure demand. Check the list for repetition. You will likely see the same issues appearing time after time.
A high level of failure demand is a major reason that adjusters avoid a contractor. It’s an incredibly wasteful way to run a business and when combined with a cheerful “we fix our faults” attitude, it’s a recipe for disaster. There is often a horrible attitude that poor standards are defensible as long as an organisation fesses up and fix their faults. Not so! Every occurrence of failure demand erodes profits directly (by consuming resources) or indirectly (by way of reduced confidence levels in the organisation). Let’s be clear: There is nothing wrong with placating an irate customer. One has to remedy their failures. However, please don’t be smug or nonchalant about it. There is no excuse for a professional to fail. They are paid to perform perfectly. Their covenant with the customer is to deliver every promise contained in their marketing material. Flawless customer service is not a privilege, it’s a right!
The true professional treats failure like poverty – there’s no disgrace in it but it’s best avoided and never trumpeted.
May 20, 2008 Comments Off on Shotgun or Rifle?
How often has a cold-caller approached you with, “I have a product that will wow you!”? How often has this verbal spamming tactic led to a sale? I expect that your answers are ‘often’ and ‘never’.
I can’t begin to count the number of times I have observed contractors marketing their firms when vying for a spot on a vendor program. They will enthuse about their business experience, their national reach, their certified experts, their incredible software, their ability to service the quirkiest customer, their loyal staff, their temperature-controlled storage facility, their fleet of well-equipped trucks, and their drying equipment. The barrage concludes with a reference to difficult claims where they saved the insurer thousands of dollars despite working with a gormless adjuster. The shtick ends when two copies of a plastic-covered spiral bound booklet containing a PowerPoint presentation full of fuzzy photos slide across your desk. This is your cue to do jubilant back flips straight into the contractor’s wallet.
Then there are the less pushy types that call at odd hours every two weeks and leave cryptic voicemails saying they have spare capacity and are willing to take on some more work and they have 35 years of experience in wrought iron railings.
Every marketing guru on the planet will tell you: Know your customer. Make sure the value you sell responds to customer needs that may change from customer to customer. Don’t assume your entire market has a set of needs that correspond exactly to what you want to sell. Be customer-specific. Don’t deliver the same message to everyone. Position yourself to provide specific, measurable value to each customer in ways distinct from your competition. Don’t use a shotgun where a rifle is needed.
Here’s a 10-step primer:
- Dissect the competition: What drives your most successful competitor? What ruined failed competitors?
- Know the value of your target markets: What do they spend in your main market? What will they spend in the future?
- Articulate your strengths: What do you bring to the table? If you can’t identify anything meaningful, take up another profession.
- Be flexible: Be prepared to work on aligning your key strengths with your target markets.
- Zero in on compatibility: Don’t sell on price to a service-driven insurer or vice versa.
- Get your business processes aligned with your value proposition: Make sure you can really support this compatibility. Develop a relevant common service platform. Don’t expect to get away with Hyundai processes for Cadillac services
- Be consistent: Once you’ve developed a common service platform, make sure it works 100% of the time.
- Market that consistency: If it works, flaunt it.
- Be real: Deliver on your promises from the top down. Every employee is accountable to provide flawless service to every customer every time. Make no exceptions.
- Measure the results: Don’t just say you’re good. Prove it. Be transparent with the results of your service.
Only by aiming your strengths at a customer’s needs will you succeed in delivering true value; research your market thoroughly; don’t try to be all things to all markets; blow away the competition.
May 9, 2008 Comments Off on The Price isn’t Right!
Many businesses harbour delusions of trouncing their bigger competitors on price. Let us get this said up-front: Competing on price alone is suicidal for smaller enterprises.
A major misconception is the notion that price alone drives business competition. Yet think about the last time you shopped for an SUV. Think about the last time you bought anything with a designer label. Those products exist even though they buck the low-price trend. In fact, those products flourish because they are expensive. Instead of lower prices, they offer lavish after-sale service, a superior shopping experience, personalised service, carry greater cachet, or have a reduced risk of defect.
If you think, “Those products have nothing in common with the crazy market I operate in – no adjusters, no manipulative insurers, no demanding policyholders, and no complicated software. Heck, my services have been marginalised to the status of a commodity,” you are wrong. They all have their own version of your competitive problems. No, the reason they flourish is that they have made a choice. They have chosen to lose on price leadership but to win on differentiation.
Consider the logic of this statement: There can be just one price leader in the market (it doesn’t matter whether this is a local or regional or national market). This leader is usually the biggest player – think Wal-Mart. The business principle behind the size advantage is simple – they can distribute fixed costs over more units than anyone else and thus charge a lower unit price.
Let’s take a look at those big guys – the cost leaders. They’re very similar to each other: large pyramids, rigid controls, big on status quo, heavy on reporting, not a heck of a lot of innovation going on.
Now think about those expensive brands I referred to earlier – the ones that chose the path of differentiation. Novelty and modernisation drives them. They don’t want the whole enchilada. They spend on finding new ways of servicing their chosen market segments. The secret is getting fewer customers to recognize a difference that is worth paying for.
“OK,” you say, “that’s all well and good when it comes to fancy goods but our customers don’t want to pay big bucks for Cadillac service. We live in the real world.” You might as well grab a live wire and dive into a pool.
Competing on price makes you a sitting duck. Every one of you has had a price-related headache with an adjuster along the lines of “You’ve overcharged. I’m going to knock 15% off your final invoice or else my supervisor will (insert violent action) my (insert body part).” All you can do is cry into your handkerchief and maybe charge the next job a bit higher to make up the “loss.”
Dry your eyes. There is a simple solution. All you need is a magnifying glass and a shot of sodium thiopental (that’s “truth serum” in case you’re not a Schwarzenegger or ‘Kill Bill’ fan). Here’s how it all comes together:
Use the magnifying glass to scrutinise your organisation’s capabilities and determine how you deploy these capabilities. Look deep. Here are a few cost-killers that force your prices up:
- Are you a mitigation expert moonlighting as a restoration contractor?
- Are you a residential loss virtuoso handling an abundance of commercial business?
- How long do you wait at your local building materials store for service? Queues are your retailer’s way of telling you they see their employees to be more valuable than yours. Can you do anything about this? Have you tried?
- How many times have you revised a job estimate because you and the adjuster never agreed a scope at the outset?
- How often do you go back to a job to tie up loose ends (sometimes something as silly as cleaning up cigarette butts and coffee cups)?
- How often are your invoices returned because the paperwork is incomplete?
- How often do matters escalate to you because someone down the line didn’t answer a customer’s calls?
Now the truth serum: Do you have strategies, systems, and a structure that supports the kind of losses you actually handle? Are you actively identifying and managing your business sources, your target market, your supply chain, and your available resources? Of course not! Life isn’t that simple. You take what you can get or you don’t make a living.
Take that magnifying glass out again. This time take a close look at your customer (identifying your true customer is the subject of a later posting – for now we’ll assume it’s your favourite insurance company).
Now shoot that serum again. Do you know which of your products, services, and processes that customer values the most? Have you actually sat down and discussed their needs? Do your customer surveys elicit only the good stuff (to put into brochures or on websites)? Do you dig deep enough?
Now take a look at the other end of the business chain – your suppliers. Do they know what services and products you value? Have they actually sat down with you and discussed your needs? Are they doing positive things to meet your needs?
You know the axiom ‘if you’re not measuring it, you can’t manage it.’
So, assemble all the information you can – but make sure it’s real, that it’s specific, that it’s current. Yank out the magnifying glass; take a close look at the data. Pump in the serum. Are you really serving your customer? Is your supply chain serving you?
Assuming you’re still on your feet, sit down and list all the value-creating opportunities you’ve identified. There may be just one or two. There may be dozens. Work out a way to attain these opportunities in every single action and statement you and your employees do and say. Then play ‘pass it forward’ and get your supply chain on the same wavelength.
You know the axiom ‘better to be a master of one trade than a jackass at many’. That one plays right across the entire supply chain. Think hard about this.
Destroy all thoughts of ‘nearly right’ and ‘good enough’. Excellence in everything is paramount. Get your processes aligned so that you breed value creation. Embed systems to monitor how value-driving processes work and reward the people who make them work.
As a business owner or business manager (same responsibilities), your #1 job is to create recognisable, proprietary value. That is, processes, services, or systems that your customers (not you!) acknowledge set you apart from your competitors.
Higher priced businesses who deliver better value will defeat lower priced competitors who don’t every time. You can bet your life on that.
April 23, 2008 Comments Off on Are Bottlenecks Choking You?
The setting: A major storm hits a major city bringing twelve hours of heavy rainfall.
The result: Contractors’ phones are ringing off the hook for the next 10 days.
The effect: Your project managers and estimators gallop in all directions for three months, your paperwork piles up; four months later, you have paid most of your subs and materials suppliers and your line of credit goes into overdrive. Five months later, you’re still sending out your invoices for jobs completed months earlier. Seven months later, you’re still chasing outstanding payments and your accountant makes crazy eyes every time he sees you.
You are the victim of a process bottleneck.
Simply put, a bottleneck in a process occurs when incoming demand exceeds output capacity. There are two types of bottlenecks:
- Short-term – triggered by temporary events like employees going on sick leave or vacation
- Long-term – caused by faulty processes – often most evident at month-end or other recurring cycle
Both varieties cost you in lost revenue, sub-standard service (see Failure Demand), dissatisfied customers, and stressed employees. You can’t do much to avoid short-term bottlenecks; however, you can moderate their effect with proper planning (staggered vacations, backup employees). Long-term bottlenecks require a more robust solution.
First, though, how do you identify a bottleneck? They’re sometimes difficult to spot in a business process. They’re often impossible to spot when you’re the cause. Think about something in your routine (daily, weekly, monthly) that consistently causes you stress. Some indicators that point to the presence of a bottleneck are
- Delays: For example, the gap between completing a job and sending out your invoice exceeds 5 days
- Backlog: Piles of paperwork related to work completed accumulating on desks (possibly yours)
- Friction: Stressful relationships within an organisation caused by questionable deadlines
A common cause of bottlenecks is superfluous levels of supervision. This occurs most often in organisations that have grown from one-man operations to something bigger. There is an inherent desire for the owner/manager to approve everything even though there’s no actual need for this. Giving up ‘control’ in such situations isn’t easy but is always beneficial. The manager gives up a pointless task and the employee gains confidence from the new accountability and trust.
There are several tools to help you analyse the situation. Process flowcharts are one of the easiest ways to identify bottlenecks. By breaking down tasks, you can easily spot where pileups are likely to occur. The key is to fully dissect every component and then work out which activities add value and which ones don’t. It often requires resolve to acknowledge and drop a long-standing but value-eroding task.
All analysis tools help bring your attention to the root cause of the issue. In a surprising number of cases, the solution requires a relatively simple correction to be made in your process. This highlights a major flaw with many processes – they can hide bottlenecks quite effectively because once in place, a process is seldom reviewed, even when outputs are clearly deteriorating. So, remember to review all your processes as your organization evolves or else you risk throttling your business’s full potential to prosper.
April 21, 2008 Comments Off on Rusting Supply Chains
A supply chain is a system of manufacturers, suppliers, distributors, retailers and customers. Within this system information flows both ways between any two participants. Supply chains tend to consist of autonomous parties with particular requirements. This range of needs creates dependencies and no single party has the capacity to optimise the supply chain. A supply chain that permits a single party’s needs to override the needs of other members will generally fail.
The insurance industry is still some distance from realising the ideals of supply chain principles in its insurer/contractor/policyholder relationships. This is because the market has not matured fully yet and insurers are still intent on bringing service direct from the insurer to the policyholder. This is a flaw in the service mechanism that few insurers have successfully overcome.
To properly look after the customer, an insurer has to have a multitude of systems embedded flawlessly in the work stream that services the end customer. This goes all the way from effective contact points at the time of coverage purchase to an efficient termination process should the policyholder decide to take their business elsewhere.
For many years, insurers have worked with various suppliers to perfect many of their systems. IT is a prime example. Office equipment, staffing, vehicle fleets, and banking are others. A common theme within all these relationships is a clear supplier/buyer dynamic. Matters are more complicated when it comes to the insurer/contractor relationship. Although in theory there is a supplier/customer relationship, the identity of the real customer is not always clear. Is it the insurance company or the claimant? Vendor programs directly connect the insurance company to the contractor; policy terms link the contractor to the claimant. As far as the policyholder is concerned, if a contractor works off a preferred supplier program, accountability lies with the insurance company. It is this gray area that distorts the working of true supply chain principles in property claim. Insurers are quick (and correct) in stating that the contractor works for the claimant yet they want the control and authority to direct the contractor. This approach removes to a great extent the give and take dependency of true supply chains. Instead, we get an entirely one-sided set of requirements that must be filled in order to sustain the commercial relationship.
This does not make the insurance industry unique. There are many successful supply chains in other markets that contain at least one very powerful and directive entity whose needs may override those of the other members. However, there are a few crucial differences: those other markets are mature, they have identified their capabilities, and they are run on established supply chain principles. Not one of these attributes is prevalent in any single entity in the property insurance industry.
Our industry has set up the semblance of a supply chain and then allowed the mechanism to corrode. The real loser is the claimant who is lulled into a sense of security with compelling marketing images of efficient service up front but hits reality with a thud when a claim has to be serviced.
Is the situation beyond recovery? It is definitely not. There are a number of insurers and contractors that have started the process of developing truly collaborative service programs. It’s still early days but progressive moves are underway and the end customer, the policyholder, will ultimately gain from this new direction our industry has finally taken.
April 19, 2008 Comments Off on Strategy & Tactics – they go deep
There’s a clear distinction between a strategy and a tactic in the business world. A strategy is the macro plan that covers the big picture; a tactic is one of the building blocks that help meet the goals of a strategy.
When one starts off on a new venture one usually has an overall plan. One identifies their target market (insurance companies; building managers/owners; the government; local municipalities; other contractors; direct customers, whatever) and creates a plan to win that market. No matter how small the organisation, a written strategic plan looking forward three to five years is an essential management tool. The strategic plan will have several components and should be reviewed periodically – at least every year.
If you’ve reached this far in this posting, you must be wondering what use this posting is to you because you already have a strategic plan. Your bank or partners or shareholders or common sense dictated you create one right at the outset. This posting isn’t intended to convince you of the benefits of strategising and creating a written record of the outcome. You already know the value of this.
As you know, a strategic plan puts your organisation in a context of positioning to bring it to the target market and will create a compelling case for your target market to support you. Above all, it will give you a consistent reference point to help you steer your organisation through the maelstrom of commerce.
As you have observed in your own experience, each of the strategies in your plan must be fully explored and all alternatives identified. This is one of the most important objectives of a strategic plan: it helps focus the minds of all the business stakeholders on all the risks and opportunities confronting the organisation. It thus leads the way to informed, premeditated decisions instead of emotional off-the-cuff judgements when things suddenly take a turn for the worse and the malodorous stuff hits the fan.
Tactics, of course, are essentially the activities specifically created and selected to reach specific and measurable objectives. Tactics are the actual systems or actions by which strategies are executed. Anything that brings one into contact with the target market with the goal of bringing that market to you is a tactic. This is where websites, conferences, and brochures reside.
Here’s a terrific example of winning tactics I hope you never use: “They pull a knife, you pull a gun. He sends one of yours to the hospital; you send one of his to the morgue” – Jim Malone.
Enough theorising. Do you know how deeply your suppliers have planned for all contingencies that may affect not just them but you, as well? Have they brought you into their strategic planning process? How closely have you been consulted by them in their planning process?
Most of you will say, “My suppliers are closely aligned with my business needs”. Indeed, this is a given in today’s competitive world. You equipment supplier, your labour supplier, your IT vendor, and all your subs have worked you into their strategies and have stated tactics to keep the cogs of commerce spinning no matter what.
So why are so many contractors and insurers bound only by the terms of a one-sided service contract? What happened to all the mutual consultation that you know makes sense? Is there anyone out there who has a completed and agreed written strategic plan supported by agreed tactics worked out with their main insurer?
April 6, 2008 Comments Off on Strategy vs. Insanity
Strat.e.gy [stráttәjee] – Encarta dictionary: a carefully devised plan of action to achieve a goal
The definition above is the most common understanding of a strategy. There’s another definition found in biology: in evolutionary theory, a behaviour, structure, or other adaptation that improves viability (Encarta dictionary).
The phrase “adaptation that improves viability” is significant. The concept here is that modifications lead to better capabilities. I prefer this definition because it implies that progressive change is the key – thereby giving us some direction.
All organizations share one core goal with you and me – survival. Some retain this as their sole strategy. Others have highly structured plans that govern their every action. The rest of us fit in somewhere between these two boundaries.
Most of us have heard the term ‘kaizen’. Kaizen means continuous improvement and came about through systems developed by Toyota and made famous by W. E Deming. Kaizen aims to eliminate waste by way of small, incremental steps. It’s all about bettering processes. We all know how important process is in our work. You can take the best employees, the best materials, the best equipment and work with the best intentions but you can’t make this combination produce a great piece of work without a process.
The problem is how to make that process work in a multitude of jobs from myriad insurance companies. They all want things done a bit differently. Then there are the claimant’s needs to adapt to. What’s the result? You create a mini-strategy for virtually every job. What an effort!
There is a simple solution: work with fewer insurers with similar requirements. If you do this, you’ve got a high-level strategy to achieve a goal. If you don’t do this you’re either a superstar or have tufts of hair missing.
What knocks this simple solution off its perch is the fact that many insurers think along the lines of the first definition of a strategy, i.e., a carefully devised plan of action to achieve a goal. The emphasis is on their plans and their goals. You’re the means.
How to get them thinking about that second way – adaptation that improves viability? Your obvious first step is to think about this yourself. Have you got consistent systems in place that allow improvement? How do you record and measure and implement these improvements? How do you create a common service program with the emphasis on ‘common’, i.e. shared? Are you marketing yourself at the wrong level? Are you scrambling to just keep the customer (claimant? adjuster?) happy? Have you ever considered yourself to be a primary agent of change – the party that drives new and better ways or do you wait for the insurer to tell you what to do? If you’re frustrated with waiting for change, what are you doing about it?
Doing the same thing over and over again and expecting different results is the definition of insanity. Albert Einstein said so.