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Develop a service mentality to produce short-term profitability and long-term value.
By Gregg M. Schoppman, FMI.
In an industry where bigger means better, service-oriented contractors are the often forgotten group of builders and constructors. For many firms, the service element of their business is the “little cousin,” accounting for a significantly smaller portion of the firm’s volume. However, as firms continue to explore the secrets to their success, this “little cousin” is often the more successful and financially stable family member, representing the lion’s share of the margin dollars. Higher margins and the annuity stream associated with service businesses are just two of the benefits that electrical, mechanical and general contractors realize as the result of having true, service-oriented components of their business.
Definitions abound when it comes to service businesses. Often, the volume is a combination of preventive maintenance, repairs and small construction projects. Expediency and customer contact are two attributes commonly found in most service contractors. When considering a service business, it is easy to apply a broad brush to the understanding of profitability.
However, the customer ultimately dictates what they will pay or, more importantly, who they will choose, regardless of what a contractor charges. If the service is present, the premium becomes worth it. It is this element of a service business that requires deep examination and continual refinement. Why do customers choose you, in particular, and why are they willing to pay a premium?
Firms can refine or glean many attributes from service groups in order to enhance other aspects of their business:
- The focus on structured processes
- The utilization of metrics and key performance indicators to identify trends and manage the business
- The symbiotic nature of service and construction and the cross proliferation amongst the business units
- Structured Processes
Consider the workflow within a service business. From the time the service technician is dispatched to the time the work order is invoiced, the entire series of events could be plotted on a value-stream map with ease. Whether it is the truncated nature of the work or the staccato flow of the events, service work appears to lend itself better to a flowchart than its construction counterparts. It is this structure that creates ownership of the various events within the work cycle, as well as the value drivers within the process as it relates to the customer.
Ironically enough, this same process mapping could be applied to any project, regardless of size, but the prevailing belief is that larger projects offer greater variability, thus creating an infinite number of possible outcomes. While false, service contractors can use the value process mapping concept to achieve several advantages.
Replicability—Customers hate variability, and so should contractors. There should be an established, replicable “Brand X Service” standard. With a defined process, it is also easy to make course corrections as feedback is received.
Trainability—As the industry continually wrestles with labor shortages, it is important to have a model that can easily be transferred to new associates and technicians. A defined and structured process also improves the ramp-up time associated with new technician orientation.
The key word is value. From the time the work order is placed to the time the technicians leave, have they established value in the eyes of the customer? The value stream mapping process examines the touch points, drives increased value and removes waste. Managers, superintendents and technicians have often said, “Well, that’s the way we have always done it.” Has this way cost the firm excessive time, overhead and customer relationships, though?
Metrics and Key Performance Indicators
With an established process, leaders also have the ability to measure more accurately. Once again, whether it is the brevity of this type of work or not, it is also easy to gather the important metrics of project performance. However, it is this same brevity that provides a litany of other problems. For instance, labor tracking becomes a challenge. A daylong job becomes arduous to track when labor summaries are only released at the end of the month. Consider many of the other elements of a service business that can be tracked with ease:
- Work order completion time
- Preventive maintenance tracking
- Customer service grades
- Work completion and adequate invoice-generation time
- Inventory tracking, needed replenishment time
Business owners lull themselves to sleep by measuring the critical few—profitability and safety. This is not to say these two items are unimportant. If constructions firms are to be successful in the future, becoming a data-driven business will be necessary.
Connection to the Core Business
It’s probably a safe bet that, in many construction and service organizations, there exists an uneasy peace. They may share the same uniforms, but that’s about as far as the commonalities go. More than likely, there is an uneasy alliance with the other group that shares the building, stemming from a simple lack of understanding about what the other group does every day. At the very heart of this situation is the core business and, in most cases, the same customers for both groups.
One could argue that customer service is important regardless of the type of work performed, but, in reality, it is easy to see how a distortion may come about. For instance, a project might be awarded through a low-bid plan and specification process, while the selection of a service group might be based on criteria completely devoid of price. This dichotomy can easily lead to internal cultural differences on client management.
Simply put, change-order management alone can create a myriad of challenges. One group may be hyperfocused to argue for every last cent, while another group might discount a change order for the sake of the relationship. Customer perception must also be considered, including how they see the processes, standards of service and policies of two groups under the same roof.
It is imperative to examine the internal processes that allow for leverage. For example, as a construction project winds down, how is the service group introduced?
Best-in-class firms have a detailed process to handle this transition in order to leverage existing relationships and grow the business organically. These firms actively pursue collaboration opportunities. The sales and business development entities of the two internal business units meet frequently to discuss everything from client proclivities and leveraged opportunities to long-term market conditions and how those conditions will affect the company.
Construction and service groups may look like Oscar Madison and Felix Ungar sharing little more than an office building. However, this odd couple should be considered the ultimate team in strong construction relationships. Short-term profitability and long-term value generation lies in a construction firm with a service mentality.
Gregg M. Schoppman is a consultant with FMI, management consultants and investment bankers for the construction industry. Schoppman specializes in the areas of productivity and project management.