Taking the First Steps to Sustainability
Part 2: Personnel, Process, and Profit
At a recent energy convention in California, I spoke with a young home performance entrepreneur about his home performance and weatherization business. He had recently hired several more employees to handle his growth. After I asked him a few pointed questions, he had a little epiphany and said, "Blaine, from what we're talking about, it seems like the busier I get with this program work, the less money I'll make." Simply put, his profit margins aren't going to support his rising overhead.
At the same convention, I talked with a colleague who is a very senior building scientist who had resigned himself to the fact that he needed to stay on the research and science side of the industry instead of the business side. When I asked him why, he said, "I realized that I am a true believer in home performance to a fault. I would bid a job correctly, but then I would direct my crews to do more extensive work than the customer was willing to pay for. It didn't take long for me to have a very unprofitable business."
To me, these are cautionary tales of what can happen to a home performance contractor who does not establish and execute sound labor management strategies. In part 1 of this series, we focused on retail marketing strategy and how to get customers in the door (see "Taking the First Steps to Sustainability," HE, May/June '11, p. 58). In this article, we'll look at what it will take to ensure that those customers are profitable, in order for you to build and grow a sustainable home performance business.
In home performance contracting, many jobs that result from energy audits on homes end up using a little material but a lot of labor. In that case, contractors — who often do not charge enough for the amount of labor in the job — can lose money. Without the proper structure, retrofits can slip into unprofitability very quickly. And if that happens, every new job your sales team closes will simply make the problem worse, instead of making the company more profitable.
There are two components of labor management that will ensure success on your jobs: personnel and process. I'll break down what you need to consider for each component.
Personnel: the Right People in the Right Positions
Modern management isn't about hard-nosed, top-down management. It's not about micromanaging your installers until you get what you want from them. Management today is about finding the right people with the right attributes and empowering them to succeed.
Finding the Best Install Mechanics
When hiring install mechanics, you should be looking for installers who live to work. These are people who are genuinely happy and excited when the job board is filled and there's a big backlog. They are naturally hardworking and aren't intimidated by tough physical challenges or the extremes of hot and cold weather. As Greg Taylor, general manager of EnergyTight, one of the Southeast's most progressive energy efficiency companies, puts it, "The people I hire must have a strong work ethic and aren't afraid to get their hands dirty. And above all else, they must have a high degree of trustworthiness. At EnergyTight, we conduct a personality profile as part of the hiring process to ensure these qualities." Trustworthiness is one of the most important attributes any of your installers (any customer-facing employees, for that matter) should possess. Since the nature of home performance takes your install mechanics into every nook and cranny of customers' homes, crews will be working in the intimate spaces of the house. It's sacred space to most homeowners, and your crews must work with a high level of trustworthiness. This attribute goes beyond just customers. It's critical that your installers be trusted by their managers and by one another. Dan Kartzman, principal at Powersmith, a leading home performance contractor in New York, says, "The first thing I look for in a new hire is integrity — can I trust him or her? In addition, our people must show superior communication skills and a high degree of professionalism in their role. We ensure that this occurs by putting all of our crew leaders through the job first. We won't hire crew leaders from the outside. Every one of them will serve as an installer first. Not only does this give us a chance to see them in action before they are given more responsibility, but they are schooled in the Powersmith way and become a part of our culture, which puts so much stock in professionalism and trustworthiness." There are other important skills that you want your install mechanics to possess — like being creative problem solvers who can come up with innovative solutions on the fly, or being flexible enough to adapt to unforeseen challenges on the jobsite. But it's the core attributes — strong work ethic, professionalism, and trustworthiness — that every install mechanic must possess to be best in class.
Rewarding the Behaviors You Want
It's good business to align your workforce behind select key performance indicators. If the company is successful, then employees at every level canshare in that success. Here are three considerations for structuringan installer incentive program. Superior customer service. The quality of your customer service can be measured with a simple post-project survey. Or it can be measured by asking customers the Ultimate Question, which is, How likely are you to recommend us to your friends, relatives, or neighbors? Answers are ranked numerically on a scale of 1 to 10. A customer who ranks your service as a 9 or 10 is considered a promoter, and the install crew that consistently generates this score should be rewarded. High-quality workmanship. Two holes in the bucket of reputation and profitability are callbacks and warranty calls. An install crew that can consistently limit unplanned callbacks to less than 3% of jobs is performing exceptionally well, and should receive a bonus. Meeting or exceeding profitability targets. A crew that brings jobs in on time on a consistently profitable basis is a beautiful thing, because that crew is predictable and dependable, and you can be confident that it will bring you the highest gross margin dollars per man per day. This crew should be rewarded with a bonus.
Evaluating Your Existing Personnel
We've defined the attributes that your personnel must have if both they and your company are to be successful. And we've identified three key performance indicators. The logical next step is to evaluate your existingpersonnel and perform a gap analysis. This will tell you what steps you need to take to move your personnel from their current level of performance to the optimum level. The gap analysis will reveal the current attributes and skill levels of your personnel, as compared to the optimum attributes and skill levels. For example, you may have a mechanic who moves really fast and brings all of his jobs in under the labor estimate, but his workmanship is suspect and callbacks are high. If the gap between his current performance and optimum performance can't be filled through coaching and training, you may have to reassign this person to another role in the company, such as a delivery or support role, where he can still contribute in a meaningful way. If this isn't possible, you may be better off persuading him to work for your competitor.
Process: How to sharpen Yours
Once a representative of your company enters the home of a client, how that person relates to and communicates with the client can mean the difference between an awful experience all around and one in which you, your crew, and your customers are happy. a crew that brings jobs in on time on a consistently profitable basis is a beautiful thing, because that crew is predictable and dependable, and you can be confident that it will bring you the highest gross margin dollars per man per day.
Defining the Scope of Work
The initial site survey results and scope of work must be clearly defined. This is critical to both customer service excellence and installation excellence. Customers are much more likely to be satisfied when the scope of work has been defined, when you have clearly communicated your plan and schedule to the customer, and when the customer agrees with those expectations. For example, you should clearly specify the start and end times of the job, and the level of disruption the homeowner can expect. That way, there will be no surprises. Few things demoralize an install crew more than getting caught off guard by an unhappy customer while on a job. Your install crew will be much better positioned to do an excellent job and maintain a high level of morale if they and the customer both know exactly what to expect. Keep in mind that customers expect more when they are paying full boat on a project. They are typically less sensitive to the price relating to efficiency program — based work where they are not shelling out a lot of their own money. If they are laying out $10,000 or more of their own money, their expectations will be higher.
Setting the Right Expectations for Time and Material
There can be tension between the auditor/comfort consultant who sets the scope of work and the crew leaders over how much time it will take to complete the job. Faced with the competitive nature of selling home energy services, the comfort consultant can underestimate the number of man-hours required for a job, in order to sell it. The flip side is that crew leaders often ask for more hours than are competitive. The best way to solve this problem is to build rapport between the folks who sell the jobs and those who execute them. At EnergyTight, Greg Taylor has the auditor and crew leader conduct the site survey together. "This way, there is open communication about the project, and the crew leader stands a much better chance of delivering that job under the gross margin targets," Greg says. "We also set up a bonus pool for crews that bring in jobs under the project estimate. We've found that to get the optimum performance, we include the auditors in the do not necessarily reflect the official bonus pool, too. This minimizes any dissension betweenthe auditor and the crew because the auditor has a vested interest in properly estimating the job, and they work better together as a team."
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Conducting the Postaction Review
One of the most important, but often missing, aspects of superior management is the ability to get and give feedback in a constructive way. This skill is absolutely essential to the continuous improvement of your operations. It's important to establish a structure that allows for regularly scheduled job review meetings where there is open dialogue among management, support people, and the install crews. This is another area where it is imperative that both management and install crews be trustworthy. If there is mutual trust, the information will flow back and forth much more easily. While it can be challenging to hold to the schedule of job review meetings, the two-way conversation will really improve the performance of the install crew.
The purpose of the postaction review is twofold: to identify why a given job went well, so that you can apply what the crew learned to all jobs, and to identify what went wrong on a given job, so that it can be corrected in the future. You should be conducting postaction reviews on all jobs, if possible. If that's not feasible, conduct reviews on a random sampling of jobs, but don't just review the jobs that didn't go well.
Managing labor is the key to unlocking long-term profitability, because so much is riding on your ability to leverage the talent of your people. It is a noble endeavor to focus as much time on this as you do on building science, because, after all, you are (or should be) in this business to deliver energy efficiency and make a profit. In future articles, I'll be digging into this endeavor more deeply, and looking at other ways to help support your efforts.
This article is part of a series sponsored by Home Performance with Energy Star, jointly managed by the U.S. Department of Energy and Environmental Protection Agency. The opinions, views, and ideas expressed within this article are those of the author and do not necessarily reflect the official policy or position of any agency of the U.S. government.
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