The Garrison Report #2007-5

How to Differentiate Your Company from the Competition

Listen to the audio version of this report here

One of the questions I'm most asked is, "How can we differentiate our company from the competition?" First, you must focus on the client, but equally important, you must measure your performance in delivering on the client's needs.

How to differentiate itself is probably the most important strategic question a company can ask itself because the answer to this question dictates what the company should be doing. Unfortunately, most companies don't focus on what they should be doing; instead they focus only on how to do things. The problem with this approach is if you are working on the wrong things, it doesn't matter how well you do them. In fact, it's better to do a fair job on what you should be doing than nailing something that doesn't need to be done. Besides, the only way you will ever get really good at what needs to be done is by doing it.

The definition of client that I prefer is "someone under the protection of." This definition changes the entire paradigm. This forces contractors to change the way they think. Instead of thinking, "How do I protect myself from the client," they need to ask, "How do I protect the client?" This isn't about contractors becoming martyrs; it's about doing your job. Of course, everyone knows that some owners are out to take advantage of the contractor every way they can. My question is why does any contractor want that owner as a customer?

Fortunately, owners like that are in the minority, and they should be avoided like the plague. The result is those owners will get what they deserve. The bigger challenge is the owners who build barriers to protect themselves from contractors because they fear the contractor's change orders, claims, litigation or other problems. While these barriers may seem threatening to the contractor, if the contractor wants to see change, he must reach out. You can't convince the owner to change by talking to him; you must prove it through your actions.

Yet too many contractors attempt to prove they are different by pounding on their chests when they meet with prospects. When I've challenged some contractors about this approach, many of them have become defensive. They respond, "We need to explain our capabilities." Having represented owners, I can tell you that attitude is insulting. Why? As an owner, we did our homework. We had already determined the contractor was capable of constructing our building, or we wouldn't be wasting our time talking to him. What we wanted to learn was how the contractor could help us to make our current project a success. In essence, we were worried about our issues, not theirs.

My advice is that one of the first questions a contractor should ask a prospect is, "What are your concerns about this project?" Why? Because this question focuses on the prospect instead of the contractor. In fact, one subscriber to this report told me that he did exactly that. He had made the short list, and when he walked in to the interview, he asked that question first. The prospect took off and discussed his issues for the entire interview. Not once did the prospect talk about the contractor, its bid or its price. Instead a dialogue existed about what was important to the prospect. It may not surprise anyone that this contractor was awarded the bid, but what may surprise some is that he was the high bidder.

The key is collaboration. Contractors must learn how to work with prospects and clients, and the only way to do that is through dialogue. The problem is that too many construction people - both on the owner's side and on the contractor's side - focus only on the bricks and mortar of the project. In essence, they focus on the technical aspects. This is a mistake. First, most owners aren't qualified to tell the contractor what to do, and when they do, they take on risk. Relying on engineers and architects to provide direction for the contractor is also a mistake. This isn't a criticism because no architect or engineer can be expected to know everything about every area of construction. Instead, the person best qualified is the specialty contractor who is actually going to perform the work; after all, that's his area of expertise. Instead, owners need to learn how to evaluate contractors based on nontechnical information that allows them to select the best-valued contractor for the desired work.

To understand the nontechnical requirements, the contractor needs to have quality communication with the prospect or client. However, to differentiate itself from its competitors, the contractor needs to measure its performance.

Measurement Is Essential for Differentiation

If delivering value to the client is the strategy for differentiation, then measurement is the tactic to execute that differentiation. First, what gets measured improves. Therefore, unless the contractor measures what's important to the client, the contractor will rarely improve its performance. Contractors need to measure not only their company performance, but also the performance of their key people in these areas. In other words, contractors need to differentiate their own people if they are going to truly differentiate their company's performance.

Arizona State University's Dean Kashiwagi, the director of the Performance Based Studies Research Group (PBSRG), has found that there are eight generic issues that are most important to clients. When the contractor measures its performance on these eight issues, then the contractor can differentiate itself from its competitors. These eight items are:

  1. Ability to manage the project cost (minimize change orders)
  2. Ability to maintain project schedule (complete on time or early)
  3. Quality of workmanship
  4. Professionalism and ability to manage (including responses and prompt payment to suppliers and subcontractors)
  5. Close out process (no punch list upon turnover, warranties, as-builts, operating manuals, tax clearance, etc. submitted properly)
  6. Communication explanation of risk and documentation (construction interface completed on time)
  7. Ability to follow the user's rules, regulations, and requirements (housekeeping, safety, etc.)
  8. Overall customer satisfaction and hiring again based on performance (comfort level in hiring contractor again)

While rating the above eight areas from one to 10 with a 10 being excellent represents a picture of past performance similar to a financial profit and loss statement, it is more important that the ratings are a measurement of how well the contractor understood its project and how well it assigned key people to that project. When the contractor performs well, it minimizes the risk for itself as well as its client. In other words, it's a measurement of how well the contractor protected its clients. The good news is that when owners understand this and select their contractors based on performance instead of just on price, they experience outstanding results. The results from 13 years of research by Kashiwagi at PBSRG, on hundreds of millions of dollars' worth of construction reveal 98 percent of the PBSRG-monitored projects finished on time and with no contractor-initiated change orders. A little more than 1 percent finished late because the contractor didn't want to sacrifice quality to finish on time. The less than 1 percent balance had problems because the owner elected not to use the best-valued contractor. In other words, the few nonconforming projects could have been avoided.

I think everyone would agree that the contractor should be selected based on performance. The question is this: What is performance? Many believe that the low price at bid time represents best performance. That's like saying the team that scores first wins the game. The New Orleans Saints took their initial franchise kickoff and ran it back for a touchdown. Unfortunately, after the kickoff return, things went downhill for the Saints as they lost the game; it took 25 years for them to have a winning season. This is just like many low bidders, once they get the bid, things go downhill. Just as we value a team based on who wins the game, we need to value contractors based on the final results of the project. This doesn't mean that price doesn't matter; after all, the final result does include a cost figure.

Instead it means that contractors must measure their performance and work with clients who understand performance. The reason is because this approach is the only meaningful way to differentiate yourself from your competitors -- namely differentiated based on performance.

The only way to know how well you are performing is to measure that performance. And even if some prospects don't evaluate performance properly, this process will make you more efficient and effective and, therefore, more competitive. In conclusion, by measuring your performance, you will be a better contractor and better able to differentiate your company from your competitors.

In the end it's about whether you protected the client. This is the equivalent of winning the game. It's not about statistics, but statistics can be a useful tool in improving performance.

 

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