New Trends

It’s that time of the year again: the twilight days between one year and the next; the easy commute to work while others are on holiday; the perfunctory shuffle of papers from desktop to filing cabinet or dustbin in preparation for a new year; the anticipation of a job bonus (likely spent in advance), and a sense of new things to come in the near future.

It is also a time to reflect on what was or could have been. It’s been an odd year in some ways. We have watched and listened to news about the financial state of our southern neighbour and waited for the inevitable to happen here. One hundred plus bank failures, plummeting house values, soaring unemployment, and a decimated auto industry in the US had to translate into something bad for Canadians. It didn’t for the most part. But it made us nervous and being on edge for the better part of a year is uncomfortable.

So, did you chew your nails and fret in 2009 or did you leverage the benefits of being in a well-regulated economy? Chances are you had a reasonably good year but did you do anything new or did you play safe? Here’s a roundup of some of the best developments of the year:

Marketing

Many contractors continue with old school marketing as a way to secure new business or hold on to existing clients. In some circles there’s still nothing wrong in showing up at a customer’s workplace with nothing but a hail-fellow-well-met attitude for a cursory look at a few service issues. So, if you’re in this camp, you have lots of company and there are still many people who will welcome you into their offices to while away an hour or two. Some of them are happy to continue the conversation through a round of golf, as well. Just keep an eye on the future. These people will eventually be replaced by very different professionals who value their time and who want specifics. You will very quickly find you’re seen as a nuisance.

Then there are the contractors who have realised that showing up with a smile and a box of donuts doesn’t translate into a secure customer base. They have taken steps to develop their value proposition from a customer’s perspective and have learned to focus on results, not actions. They’re ready for the small but growing number of insurers who take an active and intelligent interest in their supply chains.

Training

Training is always a hot topic. Most contractors have trained and certified their teams to a creditable extent and it’s paying off in better work standards. A certified technician also attracts a higher price-point on estimating software so the investment pays for itself.

A few contractors have taken a step further and turned their attention to helping their customers – the insurers – develop their adjusting standards. Although there’s still a high dependence on half-day lunch-and-learn type training, there are a few contractors who have geared up for something better and more valuable to insurers. There are some exceptionally innovative training programs out there that provide in-depth learning and true understanding of the scoping and estimating process. Their owners are a credit to the industry. Nothing breeds sustainable customer loyalty better than meaningful collaboration.

Smart Hiring

A small number of contractors, mostly the larger networks, have reached into the insurance industry and hired ex-insurance professionals to manage key relationships. This approach has worked the other way, too, as insurers have started to hire ex-contractors to help with job cost transparency. It’s early stages yet but this is definitely one of the best developments in the industry in years. The benefits of this strategy will start to be felt very soon.

Supply Chain Management

Contractors

A truly forward-thinking move made by a major contractor is to review their upstream and downstream suppliers (all the recruiters, building materials suppliers, equipment vendors, and sub-trades that the firm relies on) and to start applying rigorous supply chain principles to them. This will make a huge difference to their final costs and overall service standards. This is not about getting a good deal or best prices – many contractors have done that. It’s about identifying and developing an end-to-end value chain that achieves lowest total costs and highest customer service.

Insurers

A positive development in the insurance industry is the ever-widening professionalism being brought to bear on vendor programs. The task is often difficult because it always involves introducing change and overcoming resistance. However, identifying quality, insisting on measurable service standards, and containing costs will eventually bring value to the ultimate recipient of the combined services of insurers and contractors – the policyholder. That’s long overdue.

Yes, all the positive things mentioned above have been done before but never on the scale now occurring. We will report further on this as we make our way through 2010. Credit is due to the market leaders for taking bold steps in tough times. They have earned their success and all of us will benefit from their actions.

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When Business Partners ask for a Handout

What do you do when your major business partner asks you to reduce your profits because they’re not doing too well?

At first, you may find it difficult to believe them, especially if they’re about 100 times your size. However, if they’re showing signs of financial trauma – typically, this includes jettisoning employees in droves and showing up in merger & acquisition rumours – you have to accept their word that things aren’t going too well.

The next thought that may occur to you is why someone else’s poor management should have to cost you, especially if you’re intelligent enough to do well in a depressed market. After all, being a perceptive business owner shouldn’t carry a penalty.

Thoughts may then turn to bleaker outcomes such as what happens if the business partner ends up failing or decides to turn permanently to cheaper partners.

Ultimately, it’s your decision to assist or walk away. No points for guessing what 99.9% of business owners do. It’s better to have 95% of what you had than zero. In addition, if you don’t have shareholders to answer to, it’s an easy decision.

There’s nothing wrong in asking for help during tough times, especially when there’s a long-standing and mutually beneficial partnership involved. In fact, the partnership is likely to come out of the hard times stronger than before. The trouble is not in the act of asking but in the manner of asking. In fact, ‘asking’ for help doesn’t really come into play in most cases that are currently under discussion. Most contractors are summoned to a meeting, are given a set of demands, and sent off with a flea in their ear wondering what hit them. They go back to their office and grab their vendor contracts and realise there’s nothing there to protect them. They start talking to others in the same predicament and the resentment grows. Not because they have to give up 5% or 10% of earnings in the short-term but because they had been lulled into thinking that all major decisions would be discussed and agreed before being implemented. Surprise! Who thought the restoration industry would fall victim to a variant of the Bush Doctrine? Yet here we are, pre-empted, battered, and confused.

However, this is a pragmatic industry. So, the spirit of collaboration defers to expediency and one party ‘saves’ a few million dollars at the expense of their supply chain. Soon, however, there’s another surprise! The supply chain sees no decline in profits during the period of belt-tightening. How can this be? Well, it’s a pragmatic industry. Don’t expect people to give up bonuses too readily, especially in times when personal fortunes have shrivelled. Those line items in estimates have started to bloat in all sorts of funny ways.

Anyone will tell you that it’s utter folly to show up for a gunfight armed with a knife (unless you’re Britt of The Magnificent Seven). Yet that’s exactly what insurers choose to do when it comes to keeping estimates lean and clean. Face it, 95% of adjusters can’t stand up to a determined restoration contractor. Part of it is because of an imbalance in experience and knowledge and part of it is due to numbers. The contractor is motivated to make every dollar stick because their earnings are directly related to the overall job cost. The adjuster is motivated to keep their file-load under control – too many pending claims draw unwelcome attention – and gets not a dollar in bonus no matter what the outcome.

Now layer a coat of superciliousness on this situation, step back, and see what happens. Insurers will do themselves grievous injury slapping their backs in self-congratulatory pride over extracting a few dollars from a recalcitrant supply chain; contractors will hang their heads in apparent defeat and hand over their lunch money and not a cent will come off those estimates.

One painful lurch forward, engage reverse and hit the zoom pedal: Vendor relations as done by insurance companies. No wonder everyone wants to be a restoration contractor but no one wants to deal with insurers.

Preferred Supplier Programs

Everybody wants to pay less for goods and services but nobody wants a corresponding reduction in value. Imagine what would happen if negotiating a series of price reductions on a vehicle with a car dealer meant progressively losing the wheels, windshield, fenders, seats, heating system, and so on. Few buyers would negotiate because they would immediately see an erosion of tangible value.

It’s different with services. The value embedded in services is often less visible, less dissectible and, therefore, more eagerly negotiated. Some services deliver a physical product. Restoration work is an example. Contractors offer a service but provide a tangible product.

The old approach
Restoration contractors have always relied on enthusiastic marketing to connect with their chosen customers. However, the efficacy of their marketing strategies is questionable considering the peculiar position contractors have placed themselves in – insurers constantly negotiate the price of the service but never the value of the product. Thus, the contractor’s labour rates, job cycle times, profit, and overhead are all open to parley. On the other hand, value content such as delivering high customer satisfaction, exceeding agreed service standards, and providing free risk improvement advice are part of the standard service offer. Whittling costs is now standard operating procedure but withholding corresponding value is unthinkable. The profound folly of this arrangement is rarely questioned and then only in muttered asides. The ubiquitous “doughnut=job” equation (a crude sales technique at best, an acute contempt for insurers’ integrity at worst) has backfired. Contractors have themselves to blame. You just cannot profit from a relationship that relies on mutual back scratching because this is a very limited tactical approach. Eventually it will fail to satisfy one of the participants.

It takes robust strategies to modify the status quo when you have allowed crass commercialism instead of collaborative partnering to steer a relationship for a long time. Most contractors don’t have the time, resources, or appetite to take corrective action. Insurers, of course, won’t solve the problem unless they see some benefit for themselves. Or will they? It depends on the category of insurance company you’re dealing with. More on this later.

Historically, insurance companies’ core competencies didn’t include managing a contractor network. Contractors saw the policyholder as their customer and were left by insurers to handle these in their own way. Local relationships thrived. Everything operated at the tactical level with a heavy measure of differentiation in the delivery of service.

Time for a change
Over time, however, this practice began to be abused. The construction boom of the last decade resulted in new, unskilled, opportunistic entrants to the restoration market. Weather conditions produced new records in claims frequency every few years. Job quality started to become secondary to speed of work. Insurers started to notice a lack of a commitment to service. Rising claims costs added to their concerns. Insurers started to look around for solutions. The auto repair industry offered a convenient guide. There, centralised buying power drove the relationship and repair shops had started to view insurance companies as their customers. Two major components of the relationship were a continuous stream of work to the body shops and regular payment on time, every time.

It seemed an easy template to apply to restoration contractors. So far, however, it has been an arduous undertaking. Most insurers just haven’t invested enough in transforming their operating models or in acquiring professional resources to create and manage sustainable preferred supplier programs. The two major requirements of professionally run supplier programs – maintaining consistent streams of work and paying on time have proved to be notably difficult to implement effectively. Equally, most contractors have elected to bury their head in the sand and refuse to accept the inevitable: the glory days are over. The result so far is sporadically effective supplier programs across the country and many frustrated contractors hankering for the good old days.

Two types of insurance companies
There are two varieties of insurance companies when it comes to effective partnerships with suppliers. First, there are the traditional insurers who still pursue reduced prices as the best way to control costs. They have extensive regional vendor lists and their adjusters have close relationships with contractors. They operate on a ‘win:lose’ basis when it comes to job costing. Then there are the progressive insurers who choose the far more effective way of simply reducing the supply base in return for collaborative efficiencies that produce real financial (and intangible) benefits for all. Unfortunately, contractors don’t really understand the value-based needs of the latter and continue to operate as if price is all that matters, i.e., playing the win:lose game. They’re missing an opportunity to drive change.

The basic ingredients to create partnerships
As stated above, many insurers haven’t yet acquired strong supplier management skills. However, just a few basic ingredients make a good preferred supplier program
1. An open relationship with the supplier
2. Good communication, especially on job progress
3. Comprehensive baseline metrics
4. Collaborative measures to achieve and measure these metrics
5. Active management of these metrics and related service level agreements
6. A strong understanding of the restoration business’ drivers

Any supplier able to offer the above immediately distinguishes themselves as professional partners. The knowledgeable contractor knows this and cultivates their relationships with insurance companies along these lines. The goals are always

1. to make it easy for the insurer’s employees to work with pre-qualified suppliers
2. to make it possible for the supplier to reduce costs and improve service at the same time.

You can start building effective relationships by thinking about the steps below (the first three are vital):

1. The most important step that few really think about: Cover the high-level stuff (the strategy) thoroughly. The details (the tactics) will fall into place later
2. Be selective in defining strategy, not exhaustive. It’s better to collaborate on a few outstanding objectives than on a mass of mediocre things. The prime reason why partnerships fail is because the core strategies are overwhelmed by a morass of undeveloped intentions
3. Focus on results, not actions. For example, don’t attempt to agree on a step-by-step service procedure; instead, agree that service will meet an agreed standard. Many partnerships stumble because they rely only on achieving tasks, not results
4. Spell out your own purpose in forming a partnership. Say what you’re trying to achieve up front. It’s too late later and, in any case, this is a good way to ensure you think through everything at the outset
5. Pinpoint the stakeholders who can help or hinder the relationship and deal with them first
6. Encourage ideas from all stakeholders. Participation leads to commitment
7. Consult within your own organisation before approaching or agreeing to work with potential partners. You may be the boss but you will learn something new if you do this. If you’re not numero uno, this advice may save your job!
8. Make initial informal contact with possible partners to find out what drives them, their attitudes, and what their major interests are
9. Expect the partnership to develop over time before you can formalise it. This can take a long time but shouldn’t if you work diligently at it
10. Be candid and honest.

Conclusion
All this is easy enough to say but difficult to implement. Anyone who has created a successful supplier: buyer partnership will tell you that it requires some resolute evaluation and comprehensive planning. The biggest barrier usually is admitting that something needs fixing. That’s because dysfunctional relationships don’t require a lot of maintenance once they’re allowed to go out of whack. Just the occasional whining keeps them going indefinitely. An effective relationship, on the other hand, takes a real effort to establish and maintain. Liken it to a treadmill: It goes round forever, it can exhaust you if you try to sprint all the time, you’ll fall off if you lose your concentration or falter, you can injure yourself if you overdo it, and it’s a wasted expense if you don’t apply it. Your best results are achieved by working with a trainer and working to a plan.

Identifying Your Primary Customer

Definition of customers

Restoration contractors who work on preferred supplier programs always have a great interest in customer service. After all, without a robust customer service plan their business would quickly falter. As a result, customer service initiatives get a sizeable share of marketing resources.

However, determining who the primary customer is can be confusing. The standard definitions of a customer are

• the party that purchases your goods or services

and/or

• the ultimate beneficiary of your services

An embedded requirement within these two definitions is that the primary customer should provide repeat business as it is unrealistic to think you can effectively sustain a rate of 100% new business in this industry.

Current practice

Applying these definitions to the primary relationship in a preferred supplier program is an inconsistent practice in our industry. Here is a summary of the various views on who the primary customer is:

1. “the party that most influences the flow of incoming business”, otherwise known as The Adjuster. This strongly held view has directed many millions of dollars to pizza and doughnut vendors.
2. “the party that pays you”, i.e. the insurance company. This view holds that the ultimate buyer holds the key to success.
3. “the party you directly service” or the policyholder, because even though they do not pay you, they are the main beneficiary of your services.
4. Some point to less obvious parties such as brokers and shareholders.
5. Finally, a few make it far more personal and consider their immediate boss to be their ultimate customer.

Identifying the primary customer

The Adjuster: Many contractors focus intensely on adjusters but fail to ask themselves two qualifying questions: (a) Do adjusters pay you? (b) Are adjusters the ultimate beneficiary of your service?

Adjusters are definitely stakeholders in the overall scheme of things but cannot be your primary customer unless they actually control the flow and quality of incoming jobs. They used to do this but their influence is declining. Of course, they can affect the timing and amount of payment on every job you complete but it is generally in their interest to see files closed quickly.

The Insurance Company: There’s a strong case here. Insurers buy your services on behalf of their policyholders and pass on most of the benefit of your expertise to them. Insurers do derive some direct benefit from you. First, they obtain some financial benefit (that’s a big part of all preferred supplier programs) by way of streamlined processes and pre-agreed costs. Secondly, you help them attain certain customer service levels (if all goes well) with all the attendant benefits that this brings. Thirdly, they are the source of repeat business.

The Policyholder: Since your business runs on a steady inflow of job referrals, we can conclude that the individual claimant isn’t your most influential customer. After all, how many claims will you get from the same policyholder? Of course, how you serve them is important, as this will help establish the boundaries of your success with the insurance company.

Brokers and Shareholders: They can make things difficult if you don’t handle them properly. However, they are not your customers. They neither provide you with a sustainable source of revenue nor are they the beneficiaries of your service. They are, at best, stakeholders.

The Boss: This very narrow outlook will likely keep one’s employed status precarious and unpredictable.

Conclusion

Your primary customer is a mix of two parties: insurance companies and the adjusters who work for them. It is a common mistake to treat them as mutually exclusive. Your marketing plan has to cater to the micro (tactical) needs of adjusters and the macro (strategic) systems embodied by the insurance companies that employ the adjusters. Understand the relationship between these two and make sure you fully leverage the opportunities offered by them.

Resolutions

It’s time for our annual exercise in self-delusion: making New Year resolutions. Let’s get the personal ones out of the way first. There are three major groups:

1)    Getting healthier (includes joining a gym, quitting smoking and/or drinking)

2)    Becoming a better person (includes spending more time with family, getting organised, being more spiritual, being more charitable, going green)

3)    Managing money (includes getting out of debt, spending less, quitting gambling)

 The analytical reader will point out that some of these are mutually exclusive i.e. spending less and joining a gym? That’s the nature of resolutions – they start out as prodigious challenges but always contain a hidden ‘out’ which, when inevitably invoked, allows us a plausible and dignified surrender as in

“I didn’t like what I was becoming”

“Hey! Tobacco company workers need to make a living, too”

“You married a slob so I’ll stay that way for your sake”

“I fell off the wagon the night Petruzelli annihilated Kimbo Slice”

Corporate resolutions are somewhat different from personal resolutions. For starters, they flush more money down the drain. They may also confuse employees, tie up resources, bewilder customers, and waste time. Here are nine resolutions that shouldn’t appear on any business owner’s list and one resolution that must:

1. Engage employees more efficiently and its corollary, conduct regular meetings
2. Delegate more and its corollary, throw your brightest employees into the deep end
3. Invest in learning and its corollary, get everyone identically certified
4. Promote your company and its corollary, tell your customers about resolution #3
5. Give back to the community and its corollary, join a volunteer group
6. Keep an eye on costs and its corollary, make do with what you have
7. Plan thoroughly and its corollary, don’t implement until you’re 100% sure
8. Embed consensual decision making and its corollary, being the boss is everyone’s job
9. Offer the best prices and its corollary, beat the competition every time

Yes, all the above must be avoided. Resist their alluring messages of employee development, team spirit, rational goal setting, cost management, winning against the competition, and community participation. You will achieve diddly squat. Here’s why:

1. Regularly scheduled meetings (as in check-ins, follow-ups, keeping track, and updates) are very nearly useless. At best, they signify a weak-kneed inability to let others get the job done. At worst, they force people to make up stuff when there’s nothing new to report. Instead, agree reporting milestones in advance. Make sure these are about results, not actions (you want to know what was achieved, not what was done to get there).
2. Don’t delegate just to stress-check an employee. The result will tell you nothing. In fact, if you really understand your job, you won’t have to delegate anything because the only stuff on your desk will be the stuff only you can handle.
3. Learning for the sake of getting a few letters after your name is pointless. It’s worthless if the learning needs of everyone are expected to be exactly the same. It shows you are not focussing on individual capabilities and are building a team of clones.
4. Please don’t tell your customers that your employees are clones. You’ll scare them to death.
5. Do community work on your personal time. However, you will get some mileage out of getting a group of employees to do something together.
6. Don’t cut corners with worn out equipment or overworked employees. You’ll end up paying more in the long run.
7. If you wait until you’re 100% certain of everything, you’ll miss the right moment to act. Move when you’re 75% to 80% sure. How do you know you’re “80% sure” in terms of planning? It’s when your business smarts tell you that you have enough information to fire up. Trust your instincts. You’ll figure out the balance 20% along the way.
8. You’re the boss. Employees feel better when you assume a strong leadership position. It’s OK to listen to opinions but don’t get everyone around a table every time a decision has to be made. Consensus by committee leads to paralysis by analysis.
9. Your customers buy value. Don’t confuse them with pricing. Differentiation sells better than price. You’re in the business of confidently providing peace of mind. Cost is a secondary issue. Burnish your strategic value proposition, not your price-lists.

And the one corporate resolution you must make and keep: Revisit (or create) a comprehensive disaster recovery plan. You’re in the business of fixing disasters. Don’t let one take you down.

Best wishes for 2009!