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New Era of Customer ServiceManaging Client Relationships

October 17, 2016

Thomas C. Schleifer, Ph.D.

Why?• Keeping customers happy during construction is a

huge issue

• Because it affects the company’s ability to avoid disputes and sets the stage for argument-free, profitable change orders

• And generates recommendation for future work

It differentiates you from the competition

Customer Service• Is an HVAC SM contractor’s ability to satisfy its

customer

• Great Customer Service is Exceeding customer Expectations

• High-quality products and services is no longer enough

• Because most of our customers believe that quality is consistent among contractors. That we are all the same

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Customer Expectations• Varies by customer type

• From GCs, project owners, homeowners to service clients

• They all have different wants and needs

• That must be understood, appreciated and satisfied

HVAC - SM are TangibleAdvanced technology

Great engineering

Efficient installation

Professional Commissioning

Intangibles• Perspective customers can’t evaluate you in

advance

• Until it is delivered – They won’t even know if it works

• If they are not satisfied with the transaction and interaction with your people they won’t be back

• Clients don’t know what their getting--until they don’t get it.

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Commodity Mind-Set• Our client has to live with our team for the life of

job

• They suffer changes in design caused by their own designers

• They endure the job as it develops compared with what their expectations were

• They pay invoices they don’t understand or trust

Multiple Touch Points• If our customer does not have a positive experience

• They are going to believe we did a good Job (Best possible under the circumstances, but they don’t understand anyway)

• We are in an Experience Economy where our client expects a positive even exciting experience

• If we provide a poor experience we create a memorable, but unpleasant encounter for our customer

Case Study PrefaceWhat the players remember about the project:

• Contractor: On time, on budget, decent profit and happy owner

• Project Manager: The schedule was OK, the owner was a pain, but we got through it and made money (in spite of the GC)

• Foreman: Nothing arrived on time, I wasn't sent our best people, but I built it, it works and we beat estimated cost. (as always)

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Case Study• A Good Contractor who was a Great Salesman and

regularly spent quality time with his customers was not invited to propose on a new project so he visited the owner to try to find out why. When he finally got the owner to open up he was told that:

• Some of his employees had turned off his customers during construction of the last project

• Leaving the owner and GC with negative feeling about working with his company

Case Study continued• His most profitable PM was reported to be: Hard

to work with

• Rude to the GC’s people and abrupt with owner’s rep

• Accused of being unprofessional with subs and vendors

• And of disregarding the needs of neighbors and the public

Case Study continued• Noise and dust were excessive where specs

prohibited

• Workers parked in reserved spaces, on grass, landscaped areas

• Trash was blown over the client’s occupied property

• There were numerous complaints of foul language in customer occupied spaces

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The List Was Long and Embarrassing• Some of his people were just generally

uncooperative

• His foremen and tradesmen seemed to have little guidance

• Client and owner reps reported they minimized job visits

• Because they didn't feel welcome on their own project

Contractor asked Himself:• How do you change ingrained culture?

• Who really are our customers and what do they want?

• What are we delivering now and where are we falling short?

• Will improved Service make us money or cost us money?

• How can I improve Customer Service anyway?

The Starting Point• He asked his clients if they were satisfied—They weren't• Decided to change from just an efficient producer to a• Customer-Creating, Client-Satisfying organization• He wanted to push this view into every corner of his

organization• Determined to become a Co. that makes people what to use

us • Added emphasis to constantly improving service• Become a marketer rather than seller. (Sellers focus on their

own needs—Marketers focus on the buyer’s wants)• Make Customer Service a core ideology of his organization

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Leadership• The commitment begins with the Co. owner or CEO

• Who must initiate or at least buy-in to the importance of service

• And understand the key element in HVAC-SM client service

• Needs to communicate them to every member of the organization

• And require training of every employee in Customer Service mind-set and techniques

Contractor Said I Can’t Do It Alone• Employees need to be part of the change process

• If employees help design the program is will facilitate buy-in

• Everyone needs to understand that the industry is evolving

• And that success is going to rely on satisfied clients

Decided To Form A Committee• To define customer service within their

organization

• To outline better and more exacting standards

• To create resources and tools to support and promote customer service

• And to establish a customer service philosophy and values

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Forming The Committee• All areas of company had to be represented so he

included:

• His VP Finance, VP Marketing, Internal Engineer

• His hard-to-work-with PM, the Shop Foreman, a Field Foreman

• He wondered who else might be needed to make this work?

Committee Set Performance Goals• To consistently provide the highest level of

service that the company is capable of

• To be recognized for the best Customer Service Co. in the market

• To be identified as a leader in Customer Service in their industry

Objectives• To have clients acknowledge us as best in their

experience

• Measured by client evaluations of our service

• Achieve 10% annual improvements measured by the

• Number and severity of complaints recorded and responded to through a quality systems program

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Action Plan• Place a Customer Service program into culture and

fabric of the Co. within two years

• The Vice President of Sales will conduct before and after interviews with clients to establish expectations

• Committee will continuously consider how to meet expectations

• Develop CS formats/checklists to be used in pre-planning projects

Action Plan continued• Develop toolbox talks to address CS issues

and help spread them throughout the field and to institutionalize within the Co.

• Annual cost-benefit analysis to determine if the program is accomplishing stated goals objectives

• Design a reward process to celebrate individual and team CS successes to continually advance the program

Initial Steps• Develop and circulate a detailed Customer

Service plan

• Include CS Edu. in Co. training programs and retreats

• Create Customer Service Plan benchmarks

• Regularly evaluate actions, results and cost benefit objectives

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Initial Steps continued• Establish client interviews and learn from

results

• Monitor and evaluate celebrations of CS successes

• Write CS mission statement: (such as: We build for people not corporations, treat clients as we would like to be treated, clients welcome on jobs, and so on)

Advanced Concepts• Who is the Customer and What do They

Want

• The Difference Between “Wants” and “Needs”

• Customer Service Communication, Client Panel Discussions

• Pre and post Project Questionnaires

Advanced Concepts• Customer-Centered Culture

• Think Like the Customer

• Every Department’s role in Customer Service

• Customer Experience Success

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Whole New WorldYou can no longer just be in the SM

fabrication or HVAC installation business

To Be Successful

You also need to be in the Customer Creation and Customer Satisfaction business

Comments / Questions

Thomas C. Schleifer, Ph.D.tschleifer@q.com

Viewpoint Contractors in Economic Cycles By Thomas C. Schleifer

A Formula For SurvivalT he end of a recession is the perfect time for contractors to

rebuild their organizations using new and sustainable models because growth as a business model doesn’t work in a cycli-

cal market. The successful contractor of the future will be organized to go up and down in annual sales to cope with market conditions and avoid chasing inappropriate work just to maintain volume for its own sake. The secret to this strat-egy is a concept that I call flexible overhead.

Since World War II, there have been more growth years than de-clines, and many contractors have adopted growth as a business

model. With the paradigm of growth came the need to increase overhead to cope with the ever-increasing workload.

It was accepted and taken for granted that additional overhead costs

of personnel, equipment, office, shop space, etc., were permanent, because contractors seldom thought of incremental growth as temporary. Instead they considered it a necessary part of the new and larger organization being inten-tionally built.

Often, after a growth spurt, a company would scramble to cap-ture the new volume of sales that defined the new larger organiza-tion. This is the sequence of both planned and unplanned growth of most midsize and larger construc-tion organizations today. The pro-cess works fairly well in a growing, healthy market, but accounts for the immediate, industry-wide drop in margins in a declining market. Contractors refuse to give up hard-earned growth from better times.

If you have an idea for a column, please contact Viewpoint Editor Richard Korman at richard.korman@mhfi.com.

The successful contractor of the future will be profitable in good markets and bad, and the drive for size measured in sales will be re-placed with a drive for prosperity measured in profitability. I have often asked contractor audiences whether they would like to pick one project from the prior year and not have done it. The answer is an al-most universal yes. These construc-tion business people are saying, in effect, that they would opt for a smaller sales volume in order to make more profit—which, of course, is accomplished by avoiding money-losing jobs.

The Overhead ParadoxSome say the overhead paradox is that you can’t get half a person, half a truck or half a piece of equipment. But actually, you can. The flexible-overhead concept recommends that 15% to 25% of all overhead costs be engaged in such a way that the overhead costs can be turned off in a week or less and in some cases in a day. In other words, they are not taken on as permanent expenses but as rental, temporary personnel, in-terim office space, etc.

The 15%-to-25% range should accommodate the concern and skepticism of many who will sug-gest this concept is impractical and too expensive. They will claim tem-porary personnel are less qualified or costly, it is cheaper to own equip-

ment than to rent it, and so on. This is an error, because during each down market, many compa-nies give back in losses some (or all) of what they gained in profit during good years.

The measurements have been made and the reality tested. The “extra” costs are simply low-cost insurance against even larger losses resulting when excess overhead cannot be reduced and isn’t needed. The success of a construction busi-ness cannot be measured by the dif-ference between total sales and operating profit, but must include the measure of operating profit to overhead.

When you get control of over-head through the flexible-overhead concept, sales no longer drive the entire organization. Without a des-perate need for sales, organizations can go after only projects that are of a size, geographic area and type of construction they normally profit from and stop chasing any nontypical, higher-risk work just because they feel they have to maintain sales to cover fixed, per-manent expenses.

The contractor of the future will simply reduce overhead at will practically overnight. The concept includes doing only work that is normally profitable for the organi-zation and avoiding work that is out of the ordinary. The options are clear, especially when a contractor thinks about the contracts that never should have been taken.

Thomas C. Schleifer, Ph.D., is a management consultant, research professor at the Del E. Webb School of Construction at Arizona State Uni-versity and author of the new book, “Managing the Profitable Construc-tion Business.” He can be reached at tschleifer@q.com or 480-945-7680.

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Schleifer

Viewpoint A New Model for Contractors By Thomas C. Schleifer

Letting Go Of Overhead T oo many construction organizations become slaves to their over-

head, their general and administrative expenses. Increased overhead usually equates to increased capacity and is common and appropri-

ate during growth periods. Unfortunately, these expenses are much easier to put in place than to get rid of, and in a cyclical market they become a burden and create losses. This is especially true now that we have such a weak and slowly developing business upswing.

A common reaction in a declin-ing construction market is to search for work in unfamiliar markets—new geographic areas and types of projects—in order to hold the grad-

ually built organization together. This combination often cuts profits or leads to losses. A declining market obviously poses risk for a construction organization, but dealing in unfamiliar markets simply magnifies

the risk. And it’s dangerous to com-bat risk by taking on more risk.

Think about how missing just a few consecutive ideal projects, which can happen even in a growth market, plus delayed project starts, can weaken your finances. Contrac-tors are often tempted to look in other markets to maintain volume rather than cut overhead. Some have said they were forced into un-familiar territory, when the reality is they never considered reducing volume (and capacity) to adapt to market realities.

A far superior and much less risky strategy is to chase and pro-duce work within the organization’s proven track record. When that type and location of work declines for any reason, reduce overhead in order to maintain continuous prof-

If you have an idea for a column, please contact Viewpoint Editor Richard Korman at richard.korman@mhfi.com.

itability. In this way you can man-age your risk to achieve success rather than react to changes.

I fully realize this is a huge para-digm shift from the often-heard standards: “If you’re not growing you’re going backwards” or “I have got to keep my organization to-gether for when the market comes back.” My answer is, “At what cost?” This recent sustained, lengthy and painful down market has shed light on the reality that excess overhead costs have weak-ened numerous construction com-panies, which does little to prepare the company for when the market returns. The current weak recovery is just making it worse.

Flexible OverheadThe answer to this problem is a new strategy I call “flexible over-head.” Some companies already use it although not necessarily under that name. These are firms that are smaller (in some cases a lot smaller) than they were four or five years ago, but have remained profitable. They obviously do not earn as much money as when they were larger, but they do not give any back either. There is a much larger group of firms that have lost money.

What I am proposing is not nearly as painful as downsizing. Under my concept of flexible over-head, contractors should engage a percentage of all overhead costs in

such a manner that they can be turned off and the expense ceases in a week or less—in some cases, in a day. They are not taken on as per-manent expenses but as rentals, temporary personnel, interim office space, etc. The percentage range varies up to 25% because each or-ganization is different.

I have already heard complaints that this is impractical and too ex-pensive, that temporary personnel are less qualified and it is cheaper to own equipment than to rent, and so on.

To this criticism, I say that the market we deal in is cyclical. Con-tinuous growth in sales as a business model is impractical, high-risk and dangerous. A concentration on growth in profits rather than sales makes more sense. When maintain-ing size is the chief motivator, over-head tends to grow. When growth in profits is the primary focus, se-lection in projects shifts from a des-perate need for sales to what the organization does best. Team mem-bers still have job security because flexible overhead will preserve the company and its staff. A company that concentrates on profitability, not size, has a totally different un-derstanding of the market and its place in it. It still enters new mar-kets, but with careful attention to how much it attempts, what the risks are and whether it can afford the learning curve. A new definition of the successful contractor of the future has evolved.

Thomas C. Schleifer, Ph.D., is a management consultant, research professor at the Del E. Webb School of Construction at Arizona State Uni-versity and author of the new book, “Managing the Profitable Construc-tion Business.” He can be reached at tschleifer@q.com or 480-945-7680.

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Viewpoint Increased Threat of Contractor Default By Thomas C. Schleifer

The New Rules of RiskT he unprecedented market downturn from which we are emerging

has weakened some construction organizations to the extent that they may have difficulty financing the growth that will come with

even a slow market recovery. That, in turn, may increase the potential for defaults. But some of the common ways of dealing with the risks maybe self-defeating. Here’s what I mean: General contractors and sub-contractors have the same expo-sure—if either type of contractor fails, the entire project is disrupted, and all involved are exposed to dis-ruption and loss.

In my experience, many defaults are not a total surprise, with project

owners, CMs, designers, GCs or subs expressing some variation of “I had a bad feeling about this for months” or “All the signs were there, but I was hoping for the best.”

Some of the signs of trouble include complaints from suppliers or subs about unpaid invoices or partial or late payment; contractors asking for advance payment or help making payroll; unexplained cuts in crew size; declining work quality; overbilling of quantities or percentage of work completed; requests for payment of materials ordered or supposedly stored off-site.

Another sign is a change in foremen, supervisors or mid- managers. Long-term employees of an organization suffering financial difficulties often learn of, or sense trouble, early on and leave for other opportunities.

Protecting your organization against default is much easier said than done because many commonly recommended protections can

If you have an idea for a column, please contact Viewpoint Editor Richard Korman at richard.korman@mhfi.com.

cause as many problems as they are intended to prevent. For example, there is the adage “Don’t take a low-ball price.” Yet if a number in this market is on the street, some-one else is going to use it, and you might not get the job. Even after a contractor has the job, if a low-ball price comes in, there is pressure to consider and possibly accept it—even knowing the risk. In good times, this is obviously less of an issue because aggressive pricing is not as prevalent, and if you don’t get the job in question, there are others.

Surety Bonds, Costs and PricesBonding unfamiliar contractors is often the best advice, especially if their price is much lower than any of the others you have received. However, when a prime contractor tries to pass along the cost of a bond not required by specification, they risk outpricing themselves and not getting the job.

Prime contractors may also find that many low-ball offers are not bondable. I have experienced nu-merous cases when it was said “We tried to bond the contractor, but they could not get a bond” or “We were promised a bond, so we issued the contract,” and then, after the work started, the contractor could not get a bond, and it seemed too late to change horses. There is also an unsettling increase in contrac-

tors having financial difficulties between pricing and negotiation—but before the award of contract. In these uncertain times, even the ability of a contractor to be bonded may be a diminishing indicator of a contractor’s reliability.

Holding back payments is a common solution; however, it often compounds the contractor’s cash-flow issues and accelerates the potential for default. Joint checks have the same impact.

In the past, the cost of a contrac-tor default was primarily the payment of unpaid vendors and subcontractors. However, in these difficult times, that is changing with an increasing loss exposure from defective work. Organizations with serious quality-control processes and those that foster a culture of quality control may see earlier signs of contractor default that could assist in mitigating losses.

The common wisdom has been that contractors’ financing deterio-rates from poor management. The reality today is that the failure of one or more contractors on a proj-ect can have a significant impact on the financial condition of the other contractors on the job. Your con-tractor is, literally, only as good as their last job.

Even prequalification isn’t an absolute guarantee against default. If the trend continues, contractors may need to learn a whole new skill set: how to manage defaults to minimize exposure.

Author Thomas C. Schleifer, PhD, is a management consul-tant, author and lecturer. Further, Schleifer is a research professor at the Del E. Webb School of Construction at Arizona State University. He can be reached at tschleifer@q.com or 480-945-7680.

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SCHLEIFER

Thomas C. Schleifer, Ph.D. Tom Schleifer joined the construction industry at age 16 and brings more than 45 years of contracting and consulting experience to his presentation. He has Bachelor of Science and Masters of Science degrees in construction management from East Carolina University, and a Ph.D., also in construction management, from Heriot-Watt University, Edinburgh, Scotland. Dr. Schleifer’s experience includes serving as foreman, field superintendent, project manager, and vice president of a construction company which he owned with his brother. From 1976 to 1986 he was the Founder and President of the largest international consultancy firm serving the contract surety industry. During this period, he assisted in the resolution or salvage of hundreds of distressed or failed construction firms and projects. This combination of practical, hands-on experience as a contractor and assisting financially distressed companies has given Dr. Schleifer a unique perspective on the causes of business failure and how to avoid them. He wrote the book Construction Contractors’ Survival Guide which has been acclaimed by thousands of contractors and used as a text in numerous university graduate and undergraduate courses and for many years published Schleifer’s Construction Forecast newsletter. Dr. Schleifer, sometimes referred to as a “turn around” expert because of the number of companies that he has rescued from financial distress, advises contractors on organization, structure, and strategic planning while he also writes, lectures, and teaches. The importance of education in the construction industry is one of Tom Schleifer’s favorite themes. He is a former chairman of the continuing education committee of the Associated General Contractors of America and has lectured extensively at universities, professional and trade associations, and authored numerous articles and publications on construction and business management. Dr. Schleifer has been listed in “Who’s Who in Finance and Industry” , “Who’s Who in America and “Who’s Who in the World.” He was the first Eminent Scholar of the Del E. Webb School of Construction, Arizona State University in 1993 and currently serves part time as Visiting Eminent Scholar Books by Dr. Schleifer include: Managing the Profitable Construction Business, Construction Contractors’ Survival Guide, both published by John Wiley and Sons; Glossary of Suretyship and Related Terms, CMA Press; Schleifer’s Construction Profit Series, video and audio tapes; Schleifer’s Construction Forcast newsletter.