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Ted’s Blog: Discussing critical industry issuesThe Garrison Report #2004-9
Techniques to Increase Your Profit Margins: Part 4
May’s issue of The Garrison Report (#2004-5) discussed how to increase your profit margins. Subsequent issues have provided specific strategies to accomplish that goal. This month’s topic is empowering the client through knowledge.
Knowledge represents power only when it is used properly. Therefore, at the very least you must train your people to listen to uncover the client’s needs. However, the best companies exceed that requirement. They listen not only to their clients but also to their client’s clients. This is best accomplished through open dialogue. To reach the full potential of this exercise, the listeners must explore two important areas of interest for the client: their needs and their values.
The needs should be obvious. We all realize we must understand and meet the client’s physical requirements for the building, but the client’s values are often overlooked. Values are important because they explain the client’s priorities, and focusing on their values builds relationships. During the design of the Pennsylvania Convention Center, the program manager and the design team met with user groups. The information derived from those open discussions provided several design suggestions that improved the center’s operations. This delivered greater value to the user, thus making the facility more successful for the client.
Your employees will not listen better by wishful thinking; it takes a dedicated effort. The process starts with proper training. It seems most companies invest in technical training, yet directors of training and executive directors of construction associations indicate there is resistance to investing in other kinds of training. While technical training is critical to effective operations, it is not the only training contractors need. The problem is that too many industry executives consider training an expense rather than an investment. Motorola, even though not a contractor, illustrates the value of training. It estimates that for every dollar invested on training, it gets back $30. That’s a 3,000 percent return on investment. However, FMI, a construction industry consultant, estimates the ROI on a contractor’s training is 15 percent. My question is, “How many contractors are making 15 percent ROI?” Some contractors should go into the training business ; they would make more money! Obviously it doesn’t work that way, but it’s an interesting thought.
Most contractors don’t hesitate to purchase a new pickup truck, which is an expense. In contrast, the value of training grows over time as the worker becomes more and more knowledgeable and skilled. Training has never been more important. It takes highly trained individuals to deliver greater value to clients, which is essential to increasing profit margins.
The challenge is to invest in the right types of learning. Contractors have realized that investing in safety training results in fewer injuries and, therefore, reduced insurance costs. This is important because high worker compensation rates can knock contractors right out of the box in highly competitive markets. Most contractors understand the importance of craft training and improved project management skills. These skills are important, but they represent only the starting point. For example, everyone who deals with the customer should attend programs on customer service and sales. Why? Because the person in contact with the client is the most important person in your company at that moment. In fact, that person builds the customer relationship one action at a time. Unless your frontline people understand they are the company’s rainmakers, your company is missing a huge opportunity to grow the business. But even this is not enough!
To differentiate your company from the competition by the value you deliver, you need to understand your client’s business. The architectural firm Thompson, Ventulet, Stanback & Associates from Atlanta is usually at the top of the list of firms designing convention centers. Why? Simply because they know more about how conventions operate than their clients. They offer a building that not only looks good (what their competition is focusing on) but also works better. In other words, they design buildings that are efficient and user friendly. They acquired this knowledge by meeting with user groups, visiting other convention centers and designing conventions centers. So the more convention centers they design, the greater the distance between them and their competition.
While this example is kind of on-the-job training, I would advocate attending seminars on how to operate convention centers. In my seminars I often ask if there are any contractors who specialize in certain types of properties, such as hospitals. Usually several people raise their hands. If they specialize in hospitals, I will ask if they send their people to programs on how to operate hospitals. That gets some funny looks, but how you can you be an expert on hospital construction if you don’t know how it is supposed to operate? This knowledge can help you differentiate your company from your competition by delivering greater value. When you deliver greater value, profit margins increase.
The last level of knowledge is to focus on the individual client. Everyone must accept the idea that customers demand things be done their way, not your way. Therefore, the people in contact with the client must spend time learning the special needs of the client and provide a variety of responses tailored to the client’s wishes. There is a shoe company in Connecticut that scans your feet and requests a picture of what kind of shoe you want. They then make the shoe to your exact specifications. These shoes don’t cost more than standard high-quality shoes. The point is if a shoe company can customize a $125 item for each customer, how can the construction industry not customize their projects to the customer’s exact needs, especially when you consider the dollar value of construction projects?
Knowledge is power when used properly, but it starts with a conscious effort to increase our knowledge base.
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