The beginning of 2011 finds me a little more ornery than normal. May be old age, or an unusually cold winter. Either way here’s a touchy topic and an ornery response.

Suppliers hiring employees as 1099s

I’ve heard an increasing number of service suppliers complain about the black hats in their industry who hire workers as independent contractors (1099s) when they’re really employees. As 1099s, the supplier avoids lots of costs, such as insurances, payroll taxes, overtime pay, and other costs that true 1099s are responsible for on their own. That is if the workers were truly 1099s. That’s the swap black hat suppliers make; employees for 1099s.

As a result, black hat pricing can be significantly lower than suppliers with employees – providing the dark side unfair pricing advantages for new business.

The improper (read illegal) use of 1099 workers instead of employees has likely increased during the Great Recession. Black hats may have become more opportunistic seeing more price sensitive customers out there. Customers may have become more blind towards suppliers’ practices now their survival is on the line.

Most of the instances I’ve heard of suppliers illegally using 1099s are in the janitorial industry. The practice gets even cloudier when a contractor subcontracts a portion of their work and their subcontractor has switched their employees to 1099s. How much responsibility does a prime contractor have for checking on their subcontractors’ hiring practices?

Mistaking employees for 1099s?

IMHO (In My Honest Opinion) there’s no reason to confuse the proper employment status of an employee for a 1099.

The IRS doesn’t think so either. Check out their  Employee vs. Independent Contractor – Seven Tips for Business Owners. If you want them to check for you who’s an employee and who’s an independent contractor they will, you betcha.

Who suffers anyway?

More than many of us might believe. Try: the industry’s reputation, market pricing, white hat suppliers, workers and customers.

Poor industry reputation lowers service to commodity level

When a black hat explodes the fallout taints that service industry, sometimes even harming outsourcing in general. Remember Walmart and the undocumented worker scandal (Feds: Wal-Mart Knew About Illegals)?

Bad PR for an industry has the effect of lowering it in the eyes of customers and their buyers. And when buyers have a lower opinion of an industry, it’s easier for them to commoditize it. Once that’s done, squeezing costs out of a commodity is easier than gaining the best value from a strategic service.

Market pricing

Black hat pricing is artificially low. It deludes customers into thinking they’re paying the appropriate price – and that incorrect price now becomes established as the low water mark for service.

Hard to correctly price service relative to that lowball. Legitimate suppliers’ pricing can now appear inordinately high. Customers may wrongly think “what’s going on here, are these suppliers trying to gouge me?”

White hat suppliers

When a customer has their service disrupted because a black hat supplier is caught, the word goes out among that customer’s peers. That broad brush catches all suppliers and makes them look less than trustworthy, regardless of their innocence.

Workers

Service workers work hard. If you’ve cleaned thousands of square feet per hour, night after night, month after month, for years you’ll know. When hired as 1099s, workers don’t get overtime, are responsible for their own insurances and paying taxes (and other business tasks as well). They’re locked out of the protections we take for granted as employees.

Customers

Bad PR also splashes onto the customer who hired the black hat suppliers (again, the Walmart experience).

What can the good guys do about the black hats?

As promised, here’s the ornery response. If you’re one of the good guys (worker or supplier or customer) tell the IRS about the black hats.

Yup, point the finger. The IRS finger that is.

You can do it anonymously, using IRS form 3949A. You don’t need to identify yourself. The exact language on the IRS form says:

“6. Enter your name, street address, city, state, zip code and a telephone number where you can be contacted. Indicate time of day you may be contacted if appropriate. This Information is not Required to Process Your Report.”

The IRS form highlights that last sentence in bold and in a larger font. They really want you to know they’d rather hear from you, than not.

In the end

I don’t think there are large numbers of black hat suppliers, but there are a few. The lawful consequences may help (may) level the playing field for the good guy suppliers, and in turn better protect workers, customers, and the reputation of outsourced facility services.

Good luck in selling and serving with a clear concience.

~~~~~~~~~~~~~~~~~~
Chris Arlen
President
Revenue-IQ

Try this brief exercise. Think about the most important lessons you’ve learned in life, the truly important ones. –> Now pick the most important one. Your most valuable lesson learned. Got it?

Think back to that time when you were learning that lesson; the time, the place, the circumstances (you can close your eyes if it helps). You there?

Now describe the feelings you felt at that time. Just list ‘em out, without thought, the feelings you felt at the time. –> If you’re like most people, those feelings may include:

• scared
• anxious
• angry
• frustrated
• confused
• frightened

Here’s the payoff:  It seems our most valuable lessons come out of struggles and challenges.  The things we learned to really value aren’t easy, they take us out of our comfort zone.

That’s true in customer-supplier relationships – the school of hard knocks bats a thousand. Here are some realities that are probably the basis of many lessons learned. If you are, or have been a supplier you’ll likely recognize them.

#1 Commodities, Adversaries or Partners?

Suppliers hope their customers seem them as partners.

Customers call their suppliers partners to their face, commodities to procurement, and adversaries to their boss when the supplier has repeatedly failed.

Partnership is the ideal customer-supplier relationship, but it’s not equal. Customers and suppliers may be partners, but the customer is the senior partner and suppliers are the junior partners. Who calls the shots?

#2 Tricky RFP Contract Exceptions

As an incumbent supplier, before providing contract exceptions in a rebid RFP, consider what your business would be like if you were eliminated because of an exception you’ve taken.

Incumbent’s may believe they’ll get a chance to negotiate contract terms once they’ve been resigned.

However, rebids are run by procurement. When procurement determines too many contract exceptions have been taken they can eliminate the incumbent.

This elimination can occur before the incumbent’s proposal is even reviewed by decision makers. Oh, the horror!

There’s always legal justifications for suppliers making contract exceptions when requested in an RFP, but it’s difficult to have those negotiations when you’ve been eliminated.

#3 Never Say Never to Cost Reductions

Customers can ask for cost reductions, and do year after year.

Exasperated incumbents, after years of reduction exercises, may want to blurt out there’s no more savings to be had, “can’t go no lower”.

Once that cat is out of the bag it can’t go back, and it’s an easy tipping point for the customer to bid out the contract.

In reality, cost reductions are scope reductions. This is true after profits have been compressed and other pockets of fat have been squeezed out of suppliers’ pricing.

Suppliers, by not succumbing to that truth-serum temptation, can remain in the game, buying time and looking for other savings to the total cost of service.

In those budget negotiations, suppliers can push the burden of scope reductions back onto customers. By sharing the supplier’s budget with customers, customers are disabused of the belief that there are obscene amounts of profit available for blood letting.

#4 Customer Jobs over Service Complaints

Some customers can, and do, trade off a lower, unbelievable price today, for an increased number of service complaints in the future. Buying that low price today may help keep their jobs. They believe they’ll learn how to deal with upset end-users tomorrow.

That’s a gut check to suppliers about how aggressively they want to compete on price.

#5 Syndicating the Risk of Supplier Selection

The Great Recession has placed almost every spend on customers’ radar screens. And those customer contacts making spend decisions are equally conscious of the fact their decision is under scrutiny.

As a result, customers syndicate the risk of supplier selection by asking for their peers to sign off. This means suppliers are selling to more than just their contact, but must also persuade people they’ll never meet that they’re the best supplier choice.

~~~~~~~~~~~
Chris Arlen
President, Revenue-IQ

Our Facility Service Value  survey went live on 4/1. This is an opportunity to better understand value in the minds of those who buy facility services, and compare that with those who provide them.

If you haven’t taken it, go on, it’s only 10 questions, you’ll be done in 5 minutes.

Ideally, input from both sides (customers & contractors) will make the value picture clearer.

Currently we’re receiving more contractors’ views than customers. Let’s change that.

CONTRACTORS CALL TO ACTION

If you’re a contractor, I’m sure you’re interested in learning what your customers, prospects and Procurement think about value in your services.

Ask for their input:

1)  Create an email for your customers, prospects and any Procurement folks you know.

2) Copy & paste this link into your email:

http://survey.constantcontact.com/survey/a07e2hwl9ehft0a87zk/start

3) Ask for their input, 10 questions, 5 minutes. Tell them you’ll share the findings if they participate. And let them know the survey will close 4/15.

4) Hit the send button.

Shortly after 4/15 I’ll publish the findings. And you’ll be able to share that information with your customers, prospects and Procurement. Just as you promised. Now, won’t you look smart.

FACILITY MANAGEMENT / PROPERTY MANAGEMENT / PROCUREMENT / SOURCING

If you’re involved with the buying or oversight of contracted facility services, take the survey  and we’ll share the results with you.

Take the Survey: Don’t you want to know more about value?

Image by: Bidgee

~~~~~~
Chris Arlen
President, Service Performance

Technorati: facility services, service value, procurement

The airline industry is a great model for looking at big pain compressed into a short history.

It provides insights into cost cutting strategies, and how they play out over time.

Using our model from the Continents of the Contract Service World it’s easy to see how United’s new strategy can win in the struggling airline industry.

Before we look at what United is doing, let’s revisit our model’s four interconnected relationships:

EXPECTATION

EXPECTATION’s most important relationship is with the CUSTOMER EXPERIENCE as it shapes customers’ perception of delivered service – they’ll see in large part what they expect to see.

PROMISE

PROMISE’s most important relationship is with  EXPECTATION as it tells customers what to expect – customers may not believe it all, it provides context and tells customers what to look for.

ENGAGEMENT

ENGAGEMENT’s most important relationship is with the CUSTOMER EXPERIENCE as it shapes service’s moment of truth.

CUSTOMER EXPERIENCE

Where customers experience and assess service.

Airline Industry Past to Present

When the airline industry’s operating costs got out of whack years ago, airlines:

–> went into major cost cutting mode

–> eliminated free in-flight meals

–> passengers’ CUSTOMER EXPERIENCE changed, no free food

–> passengers started bringing their own food on board

–> airlines didn’t have money to increase cleaning budgets

–> planes got dirtier, which changed passengers’ CUSTOMER EXPERIENCE

–> eventually flying in dirty planes became the norm

–> passengers’ EXPECTATION changed to “flying must be tolerated – not enjoyed”

United sees Opportunity

Once flying in dirty planes became the norm, United saw the opportunity to differentiate itself from the competition.

Its new strategy? Cleanliness. United is providing a more enjoyable CUSTOMER EXPERIENCE, saying “fly with us on a clean plane, who wants to fly in a dirty one?”

They’ve invested in deep cleaning every two weeks, steam cleaning and floor to ceiling wipe downs. And they’ve created a new position, General Manager of Cabin Appearance, to oversee the implementation of their clean plane strategy.

So far United is relying on Word of Mouth (WOM) to spread their new PROMISE, which is to fly on a clean plane, it’s enjoyable.

Don’t be surprised if they start marketing that new PROMISE in ads and media.

What does United’s strategy mean for facility services?

United saw EXPECTATION was lowered, and they could gain new business by raising their CUSTOMER EXPERIENCE relative to the alternatives (competition).

Facility services, in-house and out-sourced, are seeing their customers in severe cost cutting mode. This means facility services are skinnying way down too.

Whether its cleanliness, confidence in security, or reliability of mail – there comes a service level that’s so low the CUSTOMER EXPERIENCE is only tolerated, and not enjoyed.

What happens then?

Flight to Quality

It’s called the flight to quality. And it’s not just for airlines.

It happens to customers who have a choice to buy service somewhere else.

It also happens to end-users who have a poor CUSTOMER EXPERIENCE in the facility where they have to work. End-users will seek to work in other areas, sites, at home, or even leave for other companies if that’s available. And those that stay are less productive.

It’s like working on a plane with gum on the floor, someone else’s leftover sandwich in the seat pocket, and sticky all over the fold-down tray. Yes, you can work, but its not enjoyable, and you’re not as productive. Honestly, admit it.

How are you differentiating your CUSTOMER EXPERIENCE?

Image by: Steven Damron

~~~~~~

Chris Arlen
President, Service Performance

Technorati: Customer Experience, facility service, United Airlines

Footnote #1:

Received interesting feedback from the recent Revenue-IQ article, Zero-Based Servicing, here’s one that got me thinking:

A contractor brought up the issue of how well customers understand the relationship between service quality and service level (as defined by specifications).

Meaning, if service levels have been re-engineered severely downward, will end-users see that as “poor quality”? In other words, does low service levels = low quality?

I don’t believe so. Specifications for low service levels can be performed well, which is high quality, or poorly, which would be low quality. But the service level has been specified independently of  its performance, and it’s performance that determines quality.

This was the rationale behind Zero-Based Servicing where desperate companies gain cost reductions by re-engineering service levels down to the absolute lowest levels. Even at those bare bones levels, service still can and should be high quality.

If end-users mistakenly think low service levels = low quality, it points to a disconnect in their EXPECTATIONs, not service quality.

This becomes easier to understand in our new model for the contract service world.

Think about it. The end-users’ CUSTOMER EXPERIENCE has changed now that they’re receiving the lower service levels.

Their EXPECTATIONs though are still set on the higher service levels of the good old days. Why should they change their EXPECTATIONs unless they’ve been told service has changed (revising the PROMISE)?

EXPECTATIONs  need realignment to reality when service levels have been decreased.

Otherwise, low service levels can only be seen as low quality, when in reality it’s not the case.

Footnote #2:

Sanity has prevailed, at least temporarily…and Revenue-IQ helped (maybe just a little).

A friend notified me that US Airways is reversing their policy about charging for water. Specifically, they’re returning their beverage service.

Although I don’t hold out much hope for US Airway’s understanding their CUSTOMER EXPERIENCE.

CEO Doug Parker said they were reinstating the service because other airlines didn’t follow US Airways. Sounded like Doug thought it still was a good idea, just that US Airways was so far ahead of the rest of the industry it was left hanging out to dry like laundry on the line.

Wow. I’ll bet there are still more surprises to come from US Airways’ a la carte business model. Can’t wait, but then again, I’ll have to read it online or hear it from someone else, I’m an ex-customer.

So, what’s happening in your world?

Image by: Joy Coffman

~~~~~~
Chris Arlen
President, Service Performance

Technorati: The Contract Service World, service expectations, service quality, layoffs, US Airways

It used to be more important to select a company to work for, rather than choosing the industry it was in.

The belief was that a great company could outperform the industry as a whole. And wouldn’t you rather be at that dynamic place than somewhere else?

Well, today’s economy shows that making strategic decisions about healthy industries may be as important as choosing a specific company to work for, or with.

This is true if you’re managing an in-house service department, or providing an out-sourced service.

The company you keep isn’t what it used to be. The future of the industry is where it’s at.

What happened?

Strategy Caught up with Tactics

Strategy focuses on the larger, macro forces that overwhelm individual company efforts.

Look at automotive suppliers hurting as much as their customers. Doesn’t matter how brilliantly those suppliers performed their business, the bigger picture (automotive industry in this case) swallowed them up.

Conversely, a rising tide raises all boats. If you were in the right industry at the right time you couldn’t help but win, as in the early dot com years.

What’s this mean for an in-house service department?

The health of the industry your company is in will impact your service tremendously.

And that comes (might already have) in the form of drastically reduced budgets, headcount reduction, and deferred equipment purchases and/or maintenance.

Is this an over reaction by some companies to 2009′s fear-based economy?

Maybe, but here’s an example to think about: Microsoft made $4.17 billion in profit last quarter.

That’s worth repeating. Old softie made $4.17 billion in profit from October through December of 2008.

Then they immediately laid off 1,800 employees, to be followed by another 3,600 within 18 months.

With all that profit Microsoft looked at the industries it was selling to and saw bad times. So snickersnack went the RIF blade and headcount fell.

In all likelihood the layoffs were for investors, to show them Microsoft was proactive, not just sitting around waiting for bad things to happen.

But still, if your company is in a stressed industry, like automotive, banking, or many manufacturing sectors, how drastic a cut to your in-house services will you need to make?

Is 10% reduction enough? 25%? 50%?

Can you wait until the current contract expires?

Or does your company need drastic cost reductions now?

What’s this mean for an out-sourced service contractor?

If your customers are in stressed industries, you’d better go beyond the usual cost reduction drills.

It’s probable you’re not going to make those drastic reductions of 40% and more by skipping a trash can or two.

It’s time to explicitly define how your service contributes to your customers’ bottom line.  Do you know how you contribute? Does your customer contact agree?

Once you’ve done that, then cut your scope to its absolutely, positively necessary rock bottom to reduce their spend.

You’ll also have to deal with end-users left over expectations  They may expect a level of service that’s not in line with the new, gutted scope and spend.

As your past experience has told you, your customer contacts aren’t always the best at telling their end-users they’re paying for less service. You’ll have this realignment of expectations to accomplish on top of all the other operational stuff.

However, there’s one thing the economic crisis has done, its empowered change.

End-users may be more willing to accept the change of gutted service if it means keeping their company’s doors open longer, and their paychecks.

The Business World may be a Scary Place for Now

Business survival will likely be white knuckled for the next several years. But you can make it scary like roller coaster scary – not Texas Chainsaw Massacre scary.

Your choice. Things are what they are. And will be that way for a while.

New Strategy Anyone?

In the upcoming monthly Revenue-IQ article (what you’re reading now is the weekly blog) I’m planning to present a new service strategy for our current economy. In particular for companies in stressed industries.

It’s based on a line from the recent movie The International, which says “When there’s no way out of the current situation, look for a way further in.”  Interested?

MORE ABOUT: US Airways shooting themselves in the head

They’ve started charging for pillows and blankets. $7 to keep your head cushioned and your legs warm. And you get to take that snazzy US Airways logoed pillow with you onto other airlines’ flights. Yup, good thinking marketing department. And how did they avoid the layoffs?

~~~~~~

Chris Arlen

President, Service Performance

Technorati: economy, Microsoft, layoffs, US Airways

Return on Investment (ROI) is the holy grail for facility services.

For managers of in-house departments or contract facility services, showing an ROI would help justify your spend upstairs. Getting budget approval would then be gravity fed. Include the expected ROI with your budget and its all downhill. What senior exec would not invest some to make even more?

For facility service salespeople, ROI would be the frosting on your pitch and presentation. In addition to all the non-financial benefits and fuzzy soft cost savings, an ROI would be a quantifiable differentiator.  The contractor with the greatest ROI would more often win the bid, rather than the lowest price alone.

However, ROI for facility services, like the holy grail, may not exist.

It may just be semantics defining ROI as quantitative, financial return on investment, but producing it is not a straightforward case. Here are several considerations.

Operating Expenses – Not True Investments

Facility services are not intended to produce a financial return. They’re operating expenses.

The purpose of facility services are to enable customers, visitors, employees, even other contractors to perform their business function within company facilities. As a result, company facilities serve the business purpose. This is seen in:

• A clean mall encouraging shoppers to buy more
• A secure distribution center minimizing shrinkage
• A well maintained production line producing higher yields & throughput

Investments in facility services keep businesses operating, but they don’t generate revenue, they don’t drive a company’s success. Facility services have the same limited impact as other support services, as other operating expenses.

An Ounce of Prevention

A major benefit of facility services is their prevention or mitigation of a costly event from occurring. For example:

• Security services protecting life safety against injury or death
• HVAC services maintaining equipment to minimize breakdowns & extend its lifecycle
• Janitorial cleaning for health that helps reduce the spread of virulent diseases

Redefining ROI

For facility services it might be more helpful to redefine ROI differently from the financial definition. In this alternative facility service ROI terms and their product are repurposed.

While the term “investment” remains the spend on facility services, “return” might include additional value received above compliance to contract specifications.

A facility service ROI may include:

• Cost savings from reducing budgeted expenses
• Cost avoidance of un-budgeted expenses
• Soft cost savings from non-productive customer time spent on service
• Non-financial benefits:

• Customer satisfaction
• Customer loyalty as measured by net promoter score
• Customer freedom from distractions, free to focus on self-selected priorities
• Minimal time needed for oversight/governance
• Customer confidence in service delivery & quality

Facility Service ROI Where Are You?

The search for a practical and usable facility service ROI continues. If anyone knows its whereabouts, please let me know. There are a few other, hard to find valuables I’d like you to look into.

How are you calculating facility service ROI?

~~~~~~

Chris Arlen
President, Service Performance

Technorati: ROI, customer satisfaction, customer loyalty, net promoter score

Rodney Dangerfield‘s “I don’t get no respect” setup his punchlines.

The service role can say the same thing that it doesn’t get respect either, but it’s not funny.

Janitors, security guards, landscapers, drivers, food servers, care givers, carry America’s service economy on their backs.

Someone has to do this work. Imagine the chaos of daily life if its not done. Remember the inconvenience and disruption when services are done carelessly, haphazardly, or incompletely.

It’s clear the service role is not respected for its importance.

Why is Respect to the Service Role Important?

If you manage or contract a service you’re continually looking for great service people. These individuals help make or, in their absence, break your service.

And the best people have a strong sense of self-respect, which leads to…

• Taking pride in one’s work, which leads to…
• Better performance & job satisfaction, which leads to…
• Increased loyalty & tenure, which leads to…
• Happier customers receiving greater value.

This self-propagating wheel of good fortune secures the respect of others.

However, the reverse of the above is also true. If the service role isn’t respected by the department, business, or those performing the service, bad things occur, such as:

• High employee turnover
• Poor quality & inconsistent service
• Little value received from the service investment

Funny, the Service is Respected, but not the Role

Service departments and business enterprises get some degree of respect. They’re fulfilling a business or support function. They’re employing people, and/or making profits, and/or paying taxes.

Yes, some services are more respected than others (high-tech is sexier than long-term nursing), but all in all, the service itself is respected for its contributions to businesses, the economy, and society.

So if the service itself gets some degree of respect, why not the service role?

In today’s world, the individual role of the person providing service is looked down upon.

There are exceptions. They’re the highly paid business professionals, such as lawyers, doctors, programmers, architects, etc.

But there are far fewer professionals compared to the millions of people in lower paid service roles.

So why the lack of respect? Is it because some service roles aren’t valued, therefore low paid?

Valued vs. Respected

Valued and respected aren’t the same.

When a service role is valued, it’s paid very well. But respect isn’t guaranteed by high pay alone. Think about professional athletes behaving badly off the field.

Someone Who Serves is Not a Servant

The reason the service role isn’t respected is a result of a limiting mindset, a false belief that “someone who serves” is a “servant”.

In the egalitarian-minded U.S. today “servant” is a pejorative term, not a respected professional role.

Changing Direction from the Inside Out

Obviously there’s a business rationale for raising the respect of the service role in both the minds of the individuals providing service and society at large.

Some sage said that “to change the world you must first start by changing yourself”. And so it is with respect for the service role.

There appear two routes towards increasing that respect, though I’m certain there are many more.

1) Implement business practices that help employees build self-respect

2) Hire self-respecting employees

1) Implement business practices that help employees build self-respect

Here’s a great example of a motto created for hotel workers by the former Ritz-Cartlon President, Horst Schulze.

“Ladies and Gentlemen serving Ladies and Gentlemen”

From this motto training programs, practices and procedures were crafted to support the motto. Yet this simple statement communicates the worthiness of the service role.

It makes the server equal to those being served. As a result, it enables the server to retain their self-respect while serving others. It’s incredibly powerful for employees who may not have started out with a lot of inherent self-respect.

And this worthiness is in direct contrast with the mindset of a “servant” that implies being lesser than those served.

2) Hire self-respecting employees

Hiring practices typically look for skills, experience and a few desirable personality traits, such as honesty, reliability, etc.

By adding self-respect to the hiring profile, service departments and contractors will be further along to realizing the business benefits from those who respect their service role.

How are you raising the respect for your service role?

~~~~~~

Chris Arlen

President, Service Performance

Technorati: service role, employee productivity, service performance, customer loyalty

The world, our world, evolved a while ago into one world.

It’d been happening for decades, helped by technology that enabled information to pass instantly from one side of the planet to the other.

Businesses are interconnected with customers, customers to markets, markets to investors, investors to governments, governments to employers, employers to employees.

And as we’re all seeing at the moment, employees are customers too. Jobs are local. Economies are global. The world is one.

It wasn’t this evolution that’s so remarkable, it was our inability to see it coming.

Not the specific failures of Lehman Brothers, WaMu, etc. But the surprise to realize  that we’re already interconnected. That Lehman’s and others’ failures led to constipated credit markets, which zeroed out consumer and business loans, which strangled sales, which led to employee layoffs, who then couldn’t pay mortgages. Vicious, but interconnected

But we don’t see interconnectedness in other areas that effect us just as much as the current front page stories.

Our blindness prevents:

• Environmental responsibility from being the norm
• Holistic medicine accepted as mainstream
• Businesses from looking at the interconnectedness of problems

And in business, if we miss the lesson of the moment, we’re doomed to repeat its failures.

In the Contract Service World

The contract service world is interconnected:

• Employers to managers
• Managers to service staff (in-house & outsourced)
• Service staff to customers (internal and/or external)
• Customers to employers

In “Continents of the Contract Service World” I proposed 4 major areas to understand and improve:

• Customer Experience
• Expectations
• Promise
• Engagement

These are non-traditional areas for service businesses to consider. But then again so was the $700 billion taxpayer bailout of the banking industry.

If businesses can look at their problems as part of a larger interconnected whole, they’ll plan better and implement more successful solutions.

Reality check here.

The auto supplier may have been doing everything perfect, but their business is now in jeopardy. And the Ukrainian steel worker didn’t cause his plant’s closure, but he lost his job, and his family’s income.

There are no guarantees.

But the clearer we view our world, the more options we can create to survive and prosper.

How are you seeing the interconnectedness of your business?

~~~~~~

Chris Arlen
President, Service Performance

Image courtesy of Todd Hryckowian

Technorati: contract engagement, contract services, customer experience, expectations, service promises

If you’re buying, or managing, a contract service, this is the big question.

Yet it feels more like a riddle than a question.

And like a riddle, the answer is simple and complex at the same time.

The Simple/Complex Answer

“The right price for service is paying for what you’ll get.”

I know, it’s a very disappointing answer. Overly simple. But complex too.

Let’s break it down into smaller parts to wrestle with its simple complexity. Here goes:

#1 Price is a Beginning Number
#2 Selecting the Right Price Before Service Delivery
#3 Value is What You Get

#1 Price is a Beginning Number

Price, agreed to at contract award, doesn’t include the additional costs of ownership. The invisible ones that always show up over time.

If you asked a time and motion consultant, they’d quantify the time you and your staff invest, and then translate that into dollars.

These hard-to-see costs are from the time you’ll spend on:

• Contract compliance
• Performance management
• Vendor communication & coordination
• Accounts Payable
• Correcting service deficiencies and/or disruptions
• Mitigating impacts of sub-par service on end-users

These soft costs are added to the price to become the Total Cost of Ownership.

ACTION ITEM when determining the right price for a service

The first step is to quantify the soft costs that increase the Total Cost of Ownership. Identify those soft costs that would be constant for whichever contractor you’d choose. Then determine how that baseline may vary for each contractor. And they can vary significantly from one service contractor to another.

#2 Selecting the Right Price Before Service Delivery

When buying a service you’re making the purchase decision before you know what you’ll receive. Service is delivered over the life of the contract.

But you have to choose how much you’re going to spend before service starts.

You’re buying on good faith. You’re selecting a contractor in the belief they’ll:

• Comply with contract requirements
• Meet your service specifications
• Deliver as promised

ACTION ITEM when determining the right price for a service

The next step is to assess the contractor’s mechanisms for delivering, ensuring, improving and reporting service.

In particular, how contractors would do that for your specific site(s). Not a general explanation, but a specific proposed solution.

#3 Value is What You Get

Hopefully the value received from service will be equal to, or more than, your investment, which is your Total Cost of Ownership.

This is “getting what you paid for”.

But it’s difficult to nail down the value received from a service.

We’re not talking about completing specifications or contract requirements. This is about “how did this service contribute to your company’s business success”?

Sometimes you can’t even tell if a service had been performed, much less if you’ve benefited from it.

And making the connection between a support service and its contribution to your company’s success is not easy. It’s not a 1-to-1 cause and effect.

Intuitively we know service contributes to a firm’s success. But there are always other factors, other contributions.

For example, one can’t state absolutely that exceptional janitorial service directly increased the customer company’s revenue or expanded the customer’s market share.

ACTION ITEM when determining the right price for a service

Challenge contractors to articulate how their service will have a positive impact on your business results. Get explicit descriptions of value.

Not just how well the service is performing as seen in Key Performance Indicators (KPIs). But ask them to make the connection to your firm’s success. Then create KPIs to track those as well as the service KPIs.

How do you determine the right price for the service you’re buying?

Technorati: total cost of ownership, contract services, KPIs, service pricing

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