Archive for March, 2008
Contractors want to know what customers care about, what’s important to them.
Service quality is a good guess. Price, and to a minor degree product quality, also count.
But for service contractors, customers care most about service quality. Check the research. Statistically valid research.
Of course, contractors can always ask customers. But lacking the money, time and skills, why not look to the leading research for that understanding?
That would be “Delivering Service Quality
“, by Valerie Zeithaml, A. Parasuraman and Leonard Berry.
Even though service quality research has progressed since 1990 when first published, this book is still the fountainhead. I referred to it in Gap 5 & Roswell, and I’m using it here again.
The 5 Dimensions Defined
After extensive research, Zeithaml, Parasuraman and Berry found five dimensions customers use when evaluating service quality. They named their survey instrument SERVQUAL.
In other words, if contractors get these dimensions right, customers will hand over the keys to their loyalty. Because they’ll have received service excellence. According to what’s important to them.
The five SERVQUAL dimensions are:
TANGIBLES
Appearance of physical facilities, equipment, personnel, and communication materials.
RELIABILITY
Ability to perform the promised service dependably and accurately.
RESPONSIVENESS
Willingness to help customers and provide prompt service.
ASSURANCE
Knowledge and courtesy of employees and their ability to convey trust and confidence.
EMPATHY
Caring, individualized attention the firm provides its customers
Not All Dimensions Are Equal
All dimensions are important to customers, but some more than others.
Contractors need to know which are which to avoid majoring in minors. At the same time they can’t focus on only one dimension and let the others suffer.
SERVQUAL research showed dimensions’ importance to each other by asking customers to assign 100 points across all five dimensions.
Here’s their importance to customers.
What’s this mean for facility service contractors?
#1 Just Do It
RELIABILITY: Do what you say you’re going to do when you said you were going to do it.
Customers want to count on their contractors. They value that reliability. Don’t contractors yearn to find out what customers value? This is it.
It’s three times more important to be reliable than have shiny new equipment or flashy uniforms.
Doesn’t mean you can have ragged uniforms and only be reliable. Contractors have to do both.
But contractors first and best efforts are better spent making service reliable.
Whether it’s periodics on schedule, on-site response within Service Level Agreements (SLAs), or Work Orders completed on time.
MARKETING THE RELIABILITY MESSAGE
Contractors have used RELIABILITY in marketing to new customers knowing its importance.
One that comes to mind was Allied Security (pre AlliedBarton days) . They produced a series of ads and mailers presenting officers reliability as a percentage of posts filled.
I don’t know how successful that campaign was, but it certainly hit on the right message.
#2 Do It Now
RESPONSIVENESS: Respond quickly, promptly, rapidly, immediately, instantly.
Waiting a day to return a call or email doesn’t make it.
Even if customers are chronically slow in getting back to contractors, responsiveness is more than 1/5th of their service quality assessment.
Contractors benefit by establishing internal SLAs for things like returning phone calls, emails and responding on-site.
Whether it’s 30 minutes, 4 hours, or 24 hours, it’s important customers feel contractors are responsive to their requests. Not just emergencies, but everyday responses too.
REPORTING RESPONSIVENESS
Call centers typically track caller wait times. Contractors can track response times. And their attainment of SLAs or other Key Performance Indicators (KPIs) of responsiveness.
This is great performance data to present to customers in Contract Performance Reviews.
#3 Know What Your Doing
ASSURANCE: Contractors are expected to be the experts of the service
they’re delivering. It’s a given.
SERVQUAL research showed it’s important to communicate that expertise to customers.
If a contractor is highly skilled, but customers don’t see that, their confidence in that contractor will be lower. And their assessment of that contractor’s service quality will be lower.
RAISE CUSTOMER AWARENESS OF YOUR COMPETENCIES
Contractors must communicate their expertise and competencies – before they do the work.
This can be done in many ways that are repeatedly seen by customers, such as:
- Display industry certifications on patches, badges or buttons worn by employees
- Include certification logos on emails, letters, reports, quotes & invoices
- Put certifications into ads, collateral & tradeshow booths
By communicating competencies, contractors can help manage customer expectations. And influence their service quality assessment in advance.
#4 Care about Customers as much as the Service
EMPATHY: Services can be performed completely to specifications. Yet customers may not feel contractor’s employees care about them during delivery. And this hurts customers’ assessments of contractors’ service quality.
For example, a day porter efficiently cleans up a spill in a lobby. However, during the clean up doesn’t smile, make eye contact, or ask the customer if there is anything else they could do for them.
In this hypothetical the contractor’s service was performed fully. But the customer didn’t feel the contractor’s employee cared.
And it’s not necessarily the employees fault. They may not know how they’re being judged. They may be overwhelmed, inadequately trained, or disinterested.
SERVICE DELIVERY MATTERS
Contractor’s service delivery can be as important as how it was done.
Contractor employees should be trained how to interact with customers and their end-users. Even a brief session during initial orientation helps. Anything to help them understand their impact on customers’ assessment of service quality.
#5 Look Sharp
TANGIBLES: Even though this is the least important dimension, appearance matters. Just not as much as the other dimensions.
Contractors will still want to make certain their employees appearance, uniforms, equipment, and work areas on-site (closets, contractor offices, etc.) look good.
The danger is for contractors to make everything look sharp, and then fall short on RELIABILITY or RESPONSIVENESS.
At the End of the Day
Customers’ assessments include expectations and perceptions across all five SERVQUAL dimensions.
Contractors need to work on all five, but emphasize them in order of importance. If sacrifices must be made, use these dimensions as a guide for which ones to rework.
Also, contractors can use SERVQUAL dimensions in determining specific customer and site needs. By salespeople asking questions around these dimensions, contractors can learn how they play out at a particular location/bid opportunity.
What dimensions are you in?
~~~~~~
Chris Arlen
President, Service Performance
Technorati: service quality, key performance indicators, KPIs, quality dimensions
March 27th, 2008
Continual budget reductions are a pain to customers and contractors alike. Here’s a scenario that’s probably too familiar.
A customer has hired a facility service contractor. A fair market price has been negotiated in a competitive bid process. The first year goes well. Service delivered, everyone’s happy.
>>> 2nd Year
Customer must reduce total spend by 5%. Even though the facility hasn’t decreased, it’s actually added square footage, employees, or both.
Contractor wants to retain the contract. So they squeeze out the 5% reduction. Customer may or may not be aware how it was done. Probably through some combination of:
- Higher productivity from contractor’s familiarity with site(s)
- Reduced benefits and/or wages
- Termination/transfer of higher wage contractor’s employees
- Bringing non-contract projects into lower contract pricing
- Skinnied down profit – if there was any cushion to begin with
>>> 3rd Year
Customer is given the same charter as the 2nd year, another 5% reduction. Again the facility’s service needs have increased in square footage, employees, or both.
But this reduction means the customer is seeking 10% lower spend this year than for the original contract 2 years earlier.
However, over these last 2 years both customer and contractor know:
- Contractor’s labor wages should’ve increased, if they haven’t
- Fuel costs rose significantly
- CPI (Consumer Price Index) compounded more than 6%
Some Industries are Strapped
Being in a hard-pressed industry isn’t an embarrassment – it’s unfortunate.
Telecoms, airlines, some areas of high-tech, retail, and now mortgage banking, know the on-going horror of year-on-year reductions.
Their reductions are to survive, to keep the doors open.
Even if a company isn’t in a volatile industry, it can end up puckered as a lemon pickle because a strategic choice goes wrong.
Things happen.
5 Traditional Reduction Paths
For the customer and contractor in a strapped industry the only answer is…reductions. The question, as always, is “how?”
There are combinations of these, but here are the five major paths:
- Contractors open a vein & retain the contract at a loss – not healthy if it happens
- Contractors reduce price and secretly reduce service – integrity quick sand
- Contractors reduce price by lowering wages, benefits & margins – a slow death
- Contractors are allowed to revise specifications for reductions
- Customers put the contract out to bid – hoping there’s a lower cost contractor out there
4 Reasons Reductions May Be Adversarial
If reducing spend is a fact of life, why is it commonly adversarial? Why can’t contractors reduce price every year?
Although these don’t happen all the time, if there is any unspoken contention between customer and contractor it’s probably due to one or more of the following:
#1 CUSTOMERS FOCUS ONLY ON DOLLARS
Contractors may feel adversarial when customers only look at their dollar spend. They’re missing the value boat by not focusing on what they’re receiving for that spend.
This leads to unrealistic, wishful thinking that contractors’ pricing can go down indefinitely – without a scope reduction.
Yes, innovations occur. But not on a scale of 5-10% annually, year after year.
If customers take only the lowest priced contractor they’ll end up with less than expected, or scoped.
You may have heard of customer horror stories in reverse auctions where the winning price was lower than the direct labor cost – where union states FTEs, hours, wages and benefits. How could a contractor deliver?
#2 LEAN CONTRACTOR MARGINS
Contractors can feel adversarial after a competitive bid process, when their margins are pretty lean.
The typical reductions customers seek, 5-10% per year, are likely not there. Unless contractors work for no profit. And that’s not why they’re in business. Just ask them.
#3 PERCEIVED FAT CONTRACTOR MARGINS
Customers may feel adversarial towards contractors if they believe contractors’ margins are full, fat, and obese.
And there may be contractors with net profits over 20%. But they’re the exception. They’ll soon have market price margins when rebids occur.
However, the majority of contractor margins and pricing are at “market price”, which is why it’s called “market price”.
#4 WE SAID – YOU SAID
Customers and contractors can both feel adversarial when they look at the same situation and see it differently
For instance, contractors may believe customers disregard their need to make a profit. They might think: “After all our hard work, going those extra miles. That’s gratitude for you. All customers want to do is cut my margins”.
Customers also suffer from the same disease.
Customers may believe there’s a whale’s layer of profit that can be reduced drastically. They might think: “Hey, we’re in a tough situation here. Our ship could sink. My contractors can help by emptying some of that profit bucket.”
A 6th Path to Reductions
This 6th path isn’t really new. Top tier customers and contractors already use it. Maybe it’s time for the rest to take a look.
Here it is: Customers work with contractors to reduce costs. Together.
No surprise. But to really do it is unorthodox. It does require courage and commitment. On both sides, customer and contractor.
Take a look at how.
4 Steps on the 6th Path
1st STEP – FULLY DISCLOSING PRICE
In this case, a contractor wishing to revise scope shares their pricing structure with their customer. All direct and indirect costs – full disclosure. Similar to a Cost Plus, or Time & Material format. Download our Pricing Survey form. You can use the format to present pricing information.
Yes, this allows customers to question the amounts, factors, and percentages used.
But contractors know what makes up those numbers. And to get to point #2 it’s a necessary step.
Be ready though. Some customers may challenge those numbers after they’ve been explained to them. Before sharing, contractors must identify the negotiable and non-negotiable numbers. Then diplomatically work through customers’ negotiations.
Again it’s a savvy contractor that explains truthfully, openly, and then takes a stand on non-negotiable numbers.
However, contractors fully disclosing their pricing demonstrates good faith. And most customers will respect the trust given.
You didn’t think there’d be a simple answer, did you?
2nd STEP – REDUCE SPECIFICATIONS
Contractors want to do this with customers. But unless pricing is fully disclosed, customers won’t get the full benefit of the specification change.
It’s a judgment call whether the contractor discloses their pricing first, or the customer commits to working with the contractor before seeing their pricing structure.
However it’s arrived at, customers and contractors must focus on reducing specifications. Together.
The obvious first place to look are specifications that deliver little, or no value. They’re easily axed or revised as needed.
Incumbent contractors will have the greatest insight for how things are and might be.
With specifications reduced, direct operating costs go down, and lower pricing follows.
In full disclosure pricing, customers see how revised specifications impact contractors’ total pricing.
3rd STEP – ALIGN MARGINS TO MARKET
This step will take considerable time and effort. Customers may not have that luxury, so if customers and contractors are OK without it, skip it.
With that said, some customers will be required, or feel obligated, to check their contractors’ margins in the market.
Use a Pricing Survey to accomplish this margin check. This is not a bid, but a survey. For a “how-to” process see “Dear Customer…about your RFP“.
But customers and contractors can’t stop here. They must continue to the next step. Or else bad things happen.
4th STEP – SCALE DOWN EXPECTATIONS
With any reductions in specifications, service will change. And customers’ end-users will notice. So tell ‘em first. Before the changes are implemented.
Together the customer and contractor can raise end-users’ awareness about the new service level. Market the reduction with a positive spin. Ways to announce include:
- Meet & greets with donuts in lobbies
- Posters, fliers or table tents in lunchrooms
- Group email notification, asking for feedback
Lastly, Key Performance Indicators (KPIs) and performance-based contracts need to match the new specifications.
No one would want end-users rating customer satisfaction poorly because the specifications changed, but they didn’t know. Avoid the firestorm. Publicize the change.
How do you thrive in the shrinking spend year-on-year?
~~~~~~
Chris Arlen
President, Service Performance
Technorati: performance based contracts, key performance indicators, KPIs, contract reductions
March 17th, 2008
Hewlett-Packard (HP) has enlisted retired HP employees to pitch its products in person.
In today’s NY Times, Going to the Company Elders for Help describes how HP asks long-term loyal employees, now retired, to volunteer. Their job? To promote HP products in retail outlets like Circuit City.
That’s right volunteer. No pay.
These retirees feel loyal to HP, very loyal. Rare in Silicon Valley anyway.
However, from a marketing standpoint, it’s not about the volunteerism. Although free always helps.
It’s about branding and word of mouth. Making a personal connection between buyers and seller.
This tactic adds the personal touch to HP sales, on top of its mega marketing. Asking retirees to act as good-will ambassadors and volunteer sales people.
We’re moving forward with an effort to capitalize on the fact we have these great brand stewards, said Michael Mendenhall, chief marketing office of Hewlett-Packard. When you look at the importance of great word of mouth and great third-party endorsement who better to do that than your own employees?
Who Says Great Things About You?
You have your reference list of golden customers you can count on. So does everyone.
But what about your current employees? You have more employees than customers, right?
That larger number represents a potential army of brand stewards.
And they’re motivated. They have every reason to want your company to succeed – because they’ll benefit from it.
3 Reasons Your Employees Aren’t Brand Stewards
#1 YOU HAVEN’T ASKED
You haven’t asked customers what they value, or asked your employees what you’re good at, or found out the unique place in the market you can own. You can’t make this up in a vacuum. You have to ask people other than your executive team.
#2 THEY CAN’T ACT ON IT
You haven’t defined your brand (customer experience) in actionable ways. Mission statements on marble plaques or jazzy logos are worthless for employees interacting with customers. They need guidance and training. Tools with the flexibility to enable them to act 1,000s of different ways and still be on brand.
#3 NOT LIVING YOUR BRAND WITH YOUR EMPLOYEES
If your company doesn’t serve your employees the way you want them to serve customers, why would employees deliver your brand to customers?
Don’t get confused; employees are the primary vehicle for delivering your brand.
And it should happen in all instances with employees, as it should with customers.
Your employees should experience your brand in all their company interactions. From all departmental functions, such as:
- Hiring
- Payroll
- Training
- Promotions
- Recognition
- Incentives
- Time-off policies
Avoid the hypocrisy of asking employees to provide exceptional service when their own needs and requests are ignored.
Everything in your company runs directly from your brand, through your employees, straight and true, to serve customers. For more about your employees and delivering your customer experience read The Leaning Tower – Parts I & II
What are you doing to make your employees brand stewards?
~~~~~~
Chris Arlen
President, Service Performance
Technorati: Branding, Marketing, Service Industries
March 10th, 2008
The potential for heartbreak exists in all relationships, contracts included. But the risk / reward calculation tips us into engaging.
Contract relationships start out rosy. Then, when familiarity settles in, expectations go unrealized, or some unknown internal timer goes off, changing contractors turns serious.
From out of nowhere the slippery slope appears.
If contractors and customers are lucky, they become aware before it’s too late, and do what they can to help the relationship survive. If it’s worth it.
Ending contracts is painful for customers and contractors alike. They both have:
- Sunk costs
- Bruised reputations
- Hurt feelings
The last thing both sides want to talk about (in the beginning) is breaking up.
However, as high school taught us, there’s no eliminating heartbreak. Contract heartbreak can be minimized through attention and effort. At the beginning and along the way. Some efforts may seem a little unorthodox.
In the Beginning
Lawyers handle contract legalese. But it’s customers and contractors’ expectations that carry the seeds of heartbreak. And these are rarely, if ever, defined and documented at the beginning of service. See Gap 5 & Roswell for more info on customer expectations.
DOCUMENT EXPECTATIONS FIRST
Expectations need to be explicitly stated in Service Level Agreements (SLAs), Key Performance Indicators (KPIs), and any other tool that can measure service delivery and/or fulfillment of expectations.
This is best done after contract award but before service start. It’s part of contractors’ transition plans, isn’t it?
REQUEST PERFORMANCE REVIEWS
One way to manage expectations are regular Performance Reviews (aka QBRs – Quarterly Business Reviews or other frequency).
By getting positive face time with customers, contractors can build up credits against inevitable service failures. Contractors need a good sized balance before customers will cut them slack for deficiencies. Reviews provide that accounting.
CUSTOMERS’ TRUST CAN HURT LATER
There’s a downside for superior contractor service. When customers trust their contractors, they tend to bail on the regular reviews. Customers figure they can spend that time on more pressing issues. And that’s the contractor’s slippery slope.
Without customers hearing contractors’ positives, they end up hearing only complaints. Not pleasant. And unfortunately too common.
Therefore, a key contractor goal should be to secure customers’ commitment to attend performance reviews. At the beginning of a relationship.
Here’s the unorthodox part. Have the contractors request for customers’ entered into the service agreement. That’s right, make it official. And visible. Great skin in the game if you can get it.
Alternatively, the customer signs an agreement to participate in on-going business reviews.
It makes sense. But when was the last time it was done?
During Service
Now that the contractor has successfully started, customers get busy with their core tasks.
But bumps in the road come.
The heartbreak question is how are they handled? Does the customer find out first hand? Through one of their customers? Or from the contractor?
Even with those contractors’ credits banked and ready for use, this is a tricky time.
Contractors (most if not all) will quickly fix the problem and communicate with the customer.
This is great for the quick fix. However, the critical need is to communicate corrective actions taken to prevent the problem from happening again.
To avoid contract heartbreak, effort and commitment must make the relationship better going forward.
Meaning, solve the root causes of problems in addition to putting out the fire. For more info on root causes, see “When is the Right Time to Improve?”
Lessons Learned
Customers and contractors have volumes of experience with contract heartbreak.
It takes courage to address in the beginning and bake it into documents. Once it’s written, it’s more real. At least it’s easier to reference later.
How do you protect against contract heartbreak?
~~~~~~
Chris Arlen
President, Service Performance
Technorati: Communication, Contracts, Performance
March 4th, 2008
That’s a leading question coming from a consultant. Is it self-serving? You bet.
Now that’s out of the way, let’s look at why this question is worth talking about.
At any time you, or your management are aware of some aspect of your company that should be improved.
If you’re aware of weaknesses or faults, why aren’t improvements going?
I’m not talking about replacing the Accounting Manager or cleaning up the billing mess he created.
It’s not about cleaning up the symptoms. It’s about solving the root cause. That’s the improvement opportunity you know you should be working on, but likely aren’t.
Those projects take effort, time and money (aka limited resources).
Which brings us back to the question “When is the Right Time to Improve?”
Most improvements start when symptoms happen one too many times, or they’re so painful they force you to fix it “once and for all.”
To avoid being stuck in reactive gear, here are some thoughts on the right time to make improvements.
#1 Best Time – Improve When You’re Very Successful
That’s a novel idea. Tackle root causes and improve core drivers when:
- You’re not fighting for survival
- You have the money
- Your staff is energized & motivated
- You can really demoralize your competition
- You can easily create more loyal customers
WHY DOESN’T THIS HAPPEN?
Because when you’re successful, you’re working flat out. Starting up new accounts. Serving existing customers. Who has time?
That’s the problem. Just when you’ll benefit most, just when you can leap ahead farthest – there aren’t enough hours in the day.
UNLESS…
…you recognize this opportunity that’s available only when the planets align and everything is going well.
…the strategic commitment is made to manage growth. Governing resources in a way that includes on-going, major improvement projects.
The Jack Welch/GE strategy of being 1st or 2nd in each business line meant they were always successful, or they weren’t in that industry. And they were constantly investing in improvements, i.e. Six Sigma.
The lesson, when ahead – step on the gas.
#2 Good Time – Improve When Running Evenly
You know this position. It’s when things aren’t going badly, but your business isn’t as successful as you want.
This is a great time and opportunity to implement company-wide improvements. Think about it:
- You’re not up against the wall
- You have money (not as much as you want)
- You have time
However, this opportunity has major requirements. You’ll have to:
- Define desired results in goals, KPIs, etc.
- Measure progress & performance to goals
- Know when you’re not getting the results you want
- Take action & avoid paralysis by analysis
Why might this not happen?
Because there’s not enough pain, yet. The status quo is comfortable. Why change if we don’t have to?
There’s a belief that current improvement efforts are enough. But if you’re not getting the results you want, current efforts are wasting time and resources.
Better act now. Before you reach the phase below.
#3 Worst but Necessary Time – Improve During Crisis
This is not the best time to work on root cause improvements because:
- You don’t have the money
- You don’t have time because you’re plugging leaks in the dam
- Your staff are distracted with impending gloom & doom
- Decisions are made to keep the doors open short-term
When things are falling apart there can be a caffeine rush of energy as everyone pulls together. It’s easy to motivate your troops with “Hey, we’re all going to lose our jobs, unless…”
If you’re smart and lucky you survive. For a while anyway. However, if all that was fixed was the symptom and not the root cause then watch out. Another crisis is around the corner.
And the gung-ho enthusiasm of the first time is lessened the second and third times. Just ask any union airline or auto industry worker.
The real crisis with this time is that you’re always forced to solve the symptom. For survival’s sake.
Turn-around management specialists make their living this way. Then they ride off to the next burning business. Lucky them.
If you’re in it, you’re in it. Keep the doors open, but with an eye to solving symptoms for the long-term.
When do you make improvements?
~~~~~~
Chris Arlen
President, Service Performance
Technorati: Change, Improvements
March 2nd, 2008
