Bridging the Gap to Potential | Part II
As part of my job, every year I review hundreds of income statements and analyze operational costs for the purpose of improving profitability. On three separate occasions in just the past year, I discovered that struggling contractors were not realizing their full profit potential because their gross profit targets were too low. Consequently, we changed the targets and the numbers improved. No staff cuts. No price increases. No process reengineering. We just moved the target.
Is realizing untapped potential in business always this simple? Of course not. So, let’s examine the situation to gain greater understanding of the steps necessary to bridge the gap. First, we must understand where the business is and how it views success. This is perspective. Next, we must consider where the business is going and what it will look like when it gets there. This is vision. Last, we must study the resources it employs to deliver its products and services. These resources, coupled with the company’s internal environment, make up the culture of the organization.
Bridging the gap between where a business is currently and its potential for success starts with gaining a firm understanding of how it perceives the gap itself. To illustrate, let’s go back to the geological barrier referred to in part one of this article—The Delaware Water Gap. At river level, this barrier can oftentimes appear unsurpassable. With fast moving water, steep hills, dense forests, and no clear view of what’s on the other side, one might question if crossing it is worth the effort. Contrast that with the view from an elevated location where all terrain is visible and a land worthy of pursuit can be seen, along with a clear path to get there.
Gaining the right perspective in business is not always easy. Actually, it can be downright uncomfortable. It requires owners and managers to be brutally honest with themselves and ask tough questions, knowing full well they may not like the answers. Take the situation with our gross profit targets, for example. Most restorers I have met take great pride in the quality of their work and their ability to manage projects. This pride often creates self-imposed limitations on critical areas of performance like cost control and scheduling because doing it a different way would mean admitting that it CAN be done differently. So, instead of accepting that a process can be improved, we fabricate a litany of reasons why it can’t in order to save our own egos.
At the project level, this manifests as project managers giving jobs to subcontractors for amounts that far exceed budget or issuing open-ended work orders to the production staff with no time or cost expectations. The result is almost always disappointing. Instead of taking a critical position and asking what can be done to improve the processes that produced the results, we hear excuses like the estimating software doesn’t give enough money for those trades or the repair program won’t allow the charges necessary to get the price where it needs to be.
The constraints of a restoration project are many and very dynamic in nature. There will always be limitations to the time, money, and quality of these projects. The key to realizing the potential that exists involves embracing these constraints and viewing them as opportunities to jump ahead of the competition. After all, the competitors are not immune to these variables either. They are playing with the same conditions.
If we are so convinced there are not better ways of delivering products and services with higher levels of efficiency and lower costs, then we are blind to the opportunities that exist and the potential that can be realized. Get comfortable with being uncomfortable.
Gain the right perspective by looking at things from a higher vantage point. Not only will the pathways to success become clearer, but the ultimate goals will look much more attractive.
Clear vision cannot be obtained without first having the right perspective. One could certainly make the case that everything should start with a vision. However, most service companies, especially those of the trades, were not started with a vision. They were started with an owner who saw potential in his/her ability to deliver that service at a level people were willing to pay for and to a degree which would support a lifestyle that owner wished to enjoy. In other words, the business was started because the owner needed a job and couldn’t, or didn’t want to, work for anyone else.
Unless the owner desires a lofty lifestyle, this sets the bar at a fairly modest level and limits the potential of the company. In either case, if the vision is not in alignment with the potential that exists for the business there is opportunity for stall or failure. And rarely is it quick and painless. It’s more like the “boiling of the frog,” at first it is warm and cozy but ultimately becomes deadly.
I would venture to say that most entrepreneurs can’t grasp the vision of their organizations until some degree of success has been achieved. This is because a certain degree of capability needs to be established before potential can be understood. Henry Ford did not start with a vision of becoming the world’s largest automobile manufacturer. He started with the idea of making automobiles affordable by streamlining the manufacturing processes. Little did he know his assembly line concept would be a revolutionary one with the potential to change the world.
We can look back on accomplishments like Ford’s from today’s prospective and easily see the potential. Hindsight is always 20/20. As the perspective changes, so does the vision, and consequently, so does the potential. The reason Ford Motor Company still exists today and remains one of the leading manufacturers in the automotive industry is because they managed to maintain perspective. They took the vision of making affordable cars and translated it into solid goals for 114 years. While affordability has been redefined during this time, so have the goals and the resulting potential that can be achieved.
Restoration contractors can accomplish the same by making sure their company’s goals are in alignment with its vision. Gaining the right perspective makes the vision clear. A clear vision makes goals easier to identify and the pathways to potential easier to navigate with the right resources.
Culture is one of the most studied and documented topics in business today. Whether you are a fan of Lencioni, Blanchard, Johnson, Pink or the hundreds of other authors who have written about the topic, you will find varied opinions about what culture is, how it is cultivated, and what a healthy one looks like. The one thing they all have in common, however, is the degree of impact (both good and bad) that it has on an organization.
Personally, I believe culture is a product of the environment and resources a company has. What I am referring to is the amount of useful and valuable people, tools, and information available to produce goods and services that are in alignment with the company’s goals. You see, people are most often a product of their environment. The more valuable the resources, the richer the environment becomes. This, in turn, attracts more valuable people, and the cycle continues because the culture is one that demands it. This makes culture a product of the environment as well.
This tangled web of intangibles is generally where operations guys like myself get lost. It’s hard to measure, the logic is not linear, and there is no equation or mathematical formula to produce a right or wrong answer. This leaves us speaking in tongues about topics like employee engagement and fulfillment, while watching our hair turn gray or fall out.
While this “soft side” of business might turn most operations folks off, we cannot ignore it. The bottom line is that, without an environment that is engaging and fulfilling to the employees, there is no chance of having a positive culture. Service industries are already faced with many challenges when it comes to recruiting and retaining top talent, and the situation is only going to get worse. Tradesman and management professionals who are good at their jobs have a choice in employers.
The restoration industry is evolving rapidly before our eyes. The years ahead will be filled with consolidation, price stabilization, and margin deterioration. Amidst this, there will be profound opportunity for contractors to carve out significant market share by making internal advancements in the areas of total quality management and process improvement; initiatives which must be driven by human resources. This will require companies to bridge the gap between the safety and stability of the way business has always been done and reaching their potential, which may not have been identified yet. The only way to get there is to gain the necessary perspective, clarify the vision, and support it with incremental goals while pouring a ton of effort into creating and maintaining an environment conducive to supporting a culture that attracts and retains top performers.