Situation: A service company has been debating internally about which metrics they should use to evaluate company performance. This is important because it ties both to strategy, marketing, and bonus compensation. The CEO seeks advice based on the experience of others. What are good metrics for a service company?
Advice from the CEOs:
For a service company the key goal is delivery of a consistent quality product/service to the customer – as a company rather than as individual performers.
Instituting regular activities or meetings to infuse the company’s “special sauce” to projects will help assure consistent quality of service delivery.
To generate support and consensus within the company, ask employees what they would do to develop metrics to assure delivery of quality.
Have a clear view in mind of what the metrics should achieve – the result rather than the fully detailed process – before initiating this exercise and articulate this result as the desired objective.
Remain open to ideas from the group.
Use the exercise to establish a shared vision and to generate the best possible set of metrics to support the desired result.
Once both the metrics and a methodology for delivering the result have been selected – for example, weekly performance review meetings if this is the answer – then institutionalize these. It may be best to start with a “trial process” to refine details of the process.
An efficient regular process review meeting may save the company more than the 3 hours that it takes (preparation + travel + meeting) for this process.
If there are many “islands” of employees working at different company locations, consider organizing meetings into geographically convenient archipelagos.
Establish, within the service review process a “patented” company process that focuses on quality delivery. Publicize the existence of this process (not the details) when speaking with existing or potential clients. This is a key part of the company’s essential differentiation and “value add”.
Establish a definition of quality for the company.
Develop this as the company’s vision.
Develop the methodologies to consistently deliver this quality.
Long-term, drive this to professional training systems to consistently produce this quality.
Situation: A company has developed a disrupting technology that allows OEM manufacturers to produce high-end machines at a fraction of their current cost. The challenge is that the company does not possess the capacity to reach producers of high-end machines. The CEO seeks advice on how to efficiently focus channel development. How do you build channel sales?
Advice from the CEOs:
The dilemma is having a major disrupting technology in a market with a strong division between OEMs servicing the low/medium-end market and those servicing the high-end market.
This technology collapses the division between the low/medium and the high-end markets.
This shift disrupts the current business models of either group of OEMs, as well as their technology development plans. This is the source of resistance.
Therefore, the most promising channel development partner is either:
A low/medium-end OEM who is also a disrupter and who has the capability to develop a high-end sales and marketing effort; or
A high-end OEM that knows the market but who’s current strategy is failing and needs an entirely different solution to revive their prospects.
The near-term task is to gain market capability – both manufacturing and marketing/sales – and to use this capability to gain early market acceptance.
If, over the next 12 months, the company can begin to impact the market shares of the high-end OEMs, this is the surest way to gain their attention. Once the company starts to gain share, a likely outcome is that one of the high-end OEMs will buy the company to lock up their IP.
Another company used a similar strategy several years ago.
They entered a new market by way of a business collaboration with a high-visibility partner.
In one year, they took 30% market share from the market leader through this collaboration.
As a result, the market leader bought them because “it was less expensive to buy you than to spend the marketing dollars that we would have had to spend to compete against you.”
Situation: A CEO faces challenges with clients. The first is vague customer specs because they don’t understand the product. Second is misunderstandings as to timelines. Third is insistence on strict timelines while simultaneously demanding revisions to previous work. How do you add more discipline to quotes and pricing?
Advice from the CEOs:
Is the company’s technology strategy aligned with its capabilities? Currently the company is trying to build advanced solutions in multiple international markets with a small staff. There does not seem to be the technology or development discipline to convert current capabilities into a sustainable market advantage.
For near term focus, because of commitments and milestone payments due from the key customers, focus resources on finishing the last piece of these projects. Once this is done, step back. Look at options and determine the company’s technology strategy moving forward.
The key challenge is to define ONE beachhead on which the company will focus and which they can dominate. The objective is to leverage existing engineering creativity to create a sustainable competitive advantage.
As this exercise is designed, start with a clean slate. Don’t burden the process with a lot of restrictive assumptions. Consider using an outside facilitator to help facilitate this process.
Until this exercise is completed does it really make sense to seek additional work or to commit the company to the next phases with current customers?
Once the company has selected and committed to a technology strategy, the decision process becomes different.
The objective is to develop laser-like focus on the technology. Minimize distracting the team with other opportunities.
It may be OK to lose money on development projects if this work will significantly impact or accelerate the development of the company’s core technology.
How does the company justify asking for payment for development for future projects?
First, determine and clearly state the company’s technology strategy. Evaluate all future development projects and decisions in terms of their alignment with this strategy.
Second, if a particular project is completely aligned with the technology strategy, the company may waive the requirement of payment for development. This, ideally, will be the only exception.
Ask for a limited time/scope project to jump start and define new projects. This provides proof of company capabilities and establishes its credibility.
If is it necessary to negotiate or bid, start high and bargain down to but not below the best estimate of the cost of development.
Remember that deciding what NOT to do or quote is often harder, but just as critical, as deciding what to quote.
Situation: A CEO’s company has experienced margin erosion due to designs that did not transfer well to manufacturing, and inefficiencies in the transfer process between design and manufacturing engineering. He wants to transform the culture without losing technical performance while meeting cost targets and delivery timelines. How do you improve internal processes and procedures?
Advice from the CEOs:
Reinventing the culture of a workforce is an organizational design challenge.
The heart of the challenge is understanding the motivations and desires of the individuals involved – particularly the natural leaders within the groups.
Learn this is by speaking with them one-on-one, either as the CEO, or through individuals with whom they will be open and trusting.
Once their emotional drivers are understood, design accountability and incentive solutions that will align their personal reliability and accountability drivers with their emotional drivers.
Tailor the language of communication with the organization so that it responds to the emotional triggers discovered during the 1-on-1s. For example, if there is a negative reaction to sales within the engineering teams, use a different term like client development.
Expose the designers to the “hot seat” that gets created when their designs produce manufacturing challenges. The objective is for the designer to see the manufacturing group as their “customer.”
Involve manufacturing engineering in design architecture meetings. Do this early in the process so that they can communicate the framework and constraints under which manufacturing occurs and suggest options that will ease manufacturability.
Shift from individual to team recognition on projects. Instead of recognizing the contributions of the design component or the manufacturing component, recognize the contributions of the team of design and manufacturing engineers that produced a project on time, on budget, with good early reliability.
To kick off the new process:
Identify some of the waste targets.
Involve individuals who are known to be early adopters.
Have them look at the problem, develop and implement a solution.
Deliver ample recognition/rewards to these individuals.
Next use these people to mentor the next level of 2nd
Situation: A CEO wants to fund future growth through better management of cash flow. Cash flow has been positive for several years, and the company uses a bank line to fund receivables. How to you manage cash flow to fund growth?
Advice from the CEOs:
Since the company is cash flow positive, go to the bank with the assistance of a connected Board member and ask for better terms on your line. This will reduce financing expense.
What are the company’s Days Sales Outstanding (DSO = accounts receivable (AR) divided by average daily revenue)? Reducing this will have an immediate positive impact on cash flow.
Normal up-front payment is 20%. With 35% gross margins and 20% up-front, the company is funding profits through the bank line. The adjusted gross margin (GM) is the company’s Operating GM less the cost of the bank line.
Solutions: Reduce DSO by offering a 1% discount for payment in 15 days and increase up front retainers from 20% to 50%. This takes time but is doable by working with customers.
Some customers have seen AR slip from 30 to 45 days. Offering a 1% discount for payment in 15 days is an inexpensive way to decrease AR and increase cash flow.
What is the most immediate need?
The company has positive cash flow, marquee accounts and proof of concept.
What is needed is additional referenceability. Can reference accounts come from exiting marquee accounts? What would this take? Can the Board help to identify and develop additional reference accounts?
The company is resource limited in sales. At this point people are needed. How can this be done without extending current resources?
Shift resources from other departments to sales to boost sales efforts. Another CEO did this very successfully and generated a substantial pick-up in revenue growth.
Increase the incentive for service people to come up with new revenue opportunities. Consider teaming them with the salespeople to generate opportunities.
Consider independent rep firms. Ask key customers who they respect among the independent rep firms.
Develop a joint venture or strategic partnership to feed sales – a situation where this is a strong win-win for both parties.
Leverage the Board to create opportunities. Another CEO has a Board objective of 3 new accounts per year. This comes from 10 leads/connections per year (2 per Board member). Board members who can’t produce leads are turned over.
Situation: A company founder was advised by her Board to help them hire a CEO with more experience to run the company. This new CEO is now in place. As the founder gains more experience, the Board has indicated its willing to consider her as CEO. How do you transition to a new CEO?
Advice from the CEOs:
Become the fire hose! Build a tight relationship with the new CEO and together build the future strategy that will enable you both to win.
Others will focus on past issues. Keep your approach and advice positive. Position yourself as a partner, not an adversary. Emphasize your supportive and collaborative capacities.
Become the new CEO’s go-to person: trustworthy, objective, knowledgeable, reliable. Nurture the development of chemistry with the new CEO.
When the new CEO asks what needs to be done, produce the plan. Leverage your knowledge and expertise to become his greatest resource.
Enlist the CEO’s support of one or more of the focused strategies that are already in play within the company. Build the support of the Board and focus on boosting company value to 2x sales. The Board won’t forget who produced the original initiatives.
You have more power than you imagine – both with the Board and the new CEO – due to your knowledge of the marketplace and the business. Use it wisely.
While there is a new CEO, the company has already been profitable and company operations are clean. The Board will remember this.
How do you boost the chances to eventually be named CEO by the Board?
Tie yourself very closely to the new CEO – be this person’s more important resource. Build and cement your position as his most important ally within the company. It will help you to gain his support for implementing your ideas.
Segue your relationship with the Board members to become the company’s next CEO.
At the same time, grow your successor within the company so that you will be ready to move up to CEO when the opportunity arises.
Situation: The CEO of a service company sees that 20% of their business is serving large corporate customers. These accounts have proven to be more profitable than smaller clients. Their objective is to increase the large corporate client base from 20% to 60% of their business. How do you expand your large client base?
Advice from the CEOs:
Emphasize the differences and unique talents of the firm in comparison with the competition. Trust in the company’s abilities and act like a big-league firm.
Top shelf prices for services are not an issue for large clients; in fact, they expect quality firms to have high prices. Find the “clinch” price – where the client says, “you’re expensive, but because of your special talents you’re the firm that we will choose.” Compliment this with the firm’s ability to utilize lower cost outsourced services to offer an appealing overall cost of services. Clients will pay a premium for top shelf when they need it but will like the fact that routine needs can be met within their budgets.
Use the lessons from Blue Ocean Strategy to create advantages for the company’s services that existing firms don’t or can’t offer because of their structures and cultures.
Highlight the company’s high-touch culture, with great personal service. This provides a welcomed relief from the typical client experience with service firms.
Create buzz around the company’s leadership. Focus on speaking opportunities. Enhance the references to the company’s leadership on the company web site, including a listing of upcoming speaking engagements that are open to potential clients or individuals interested in the company’s expertise.
During speaking engagements to local groups on topics of high interest, build an educational library of edited flash content that hits the high points of the talks – not the full talk, but the most important 2-3 minutes on a given topic.
Add a library of these short videos on the company website.
By charging premium prices for select services, while sourcing research and expertise from personnel in lower cost geographies, the company will generate additional profit. Allocate some of these profits to community outreach to further enhance the company’s reputation and buzz. Be the firm that gives back.
Situation: A CEO is concerned that the current management team is not mature enough to support planned growth. Sales skills are necessary to start an office, but there is a wide range of business acumen and people skills among the managers. How do you develop current managers to support growth?
Advice from the CEOs:
Company policy requires manager candidates to demonstrate competence in at least three of five areas: sales, technical skills, customer management, customer management, and business acumen. A coaching or mentoring process from senior management would be beneficial.
A minimum number of clients is required to start an office. There are important differences in the skills needed to grow and sustain an office. More evaluation of the managerial skills of manager candidates will help.
Another CEO shared story of a regional office with a manager who was technically competent but had poor business development skills. This created a growth issue. Clear, mutually agreed upon, written goals helped. Office growth requires good administrative performance as well as technical or sales skills.
Frequent group meetings with managers and a deliberate agenda help. There is merit in allowing the field people to contribute to the agenda, having a “round table” type of review, and peer dialogue. In addition to current individual weekly telephone conversations and quarterly operations reviews, there is an opportunity to modify the format.
Sometimes there is a double loss in taking a good individual contributor and making them a poor manager. For example, of a good salesperson may turn out to be a bad sales manager. The transition may not play to the person’s strength. A more rigorous selection process will help.
Another CEO shared a story of one of his plant managers who reached the limits of his competency and could not continue to grow the plant. He was moved to a support position and a new plant manager was hired. The former manager found new satisfaction in the support role and was successful sharing his knowledge and skill with the new manager and a broader audience within the company.
Situation: A CEO has had to shift half of the company’s employees to part-time due to reduced business. This has hampered new product development. The situation has been exacerbated by slow payments from customers. Where should you focus for the next year?
Advice from the CEOs:
The company has a lot going on. Validate the company’s market potential for products in development, and start gearing up the marketing program so that it will impact this and next year’s sales.
Get a feel for how many customers want the new products in development. Invest in some market research to validate this.
The bottom line is that product development only pays if the company can sell a lot more product! The team needs to know whether customers for the new products exist, in what numbers, where and who they are, and their most critical needs. Without this market intelligence, the company is in no position to tell whether there is a market, nor is the company prepared to address it.
Assume that there is a market, that it can be quantified. Once the company knows who and where the customers are and knows their most critical needs, the next step is to prepare to attack this market. This is not something that is done in 1-2 months, after the product is ready to sell. The company needs to be starting now if marketing is to be initiated in 6-8 months.
Past practice has been to split R&D costs with the customer. The company has the expertise, the customer the money – this is close enough to 50/50. There is no need to show them the numbers. R&D should not be funded through future sales but should be making money now.
One project has been taking so much attention that it is hobbling the company. The company is so focused on getting this “just right” for the customer that sales and market development have been neglected.
For the next 3 months, focus on completing this project, getting it out the door, and getting the company’s focus back on growth. A sense of urgency is needed!
Situation: A CEO wants to increase awareness of company products and services. They have a strong customer list and a long history of successful projects. How to they increase awareness among potential customer decision-makers? How do you boost awareness of your products and services?
Advice from the CEOs:
There are three stages to a good awareness strategy:
The company already has great products and services. Hire a quality PR Firm and have them highlight this for company trade shows, blogs, YouTube, etc.
The objective is not broad awareness but getting to specific decision-makers – what will get to them?
Generate broad awareness of company capabilities through entertaining videos to excite the team members of prospect companies who report to the decision makers.
This is a complex strategic sell. If recommenders think that the company’s stuff is cool they will pass the word – create a campaign to encourage this.
The priority is to close more business. Why not brand or co-brand and promote the company’s products? This may ease reaching the target decision makers.
The PR advice is good – but how will this play to the crowd that’s writing the check?
What makes current customers comfortable working with the company? Is it repeatability? Credibility? Creativity? Referenceability? Decide which it is and highlight it.
Everything that the company is doing on the “cool” side falls under the marketing strategy. Efforts in PR and sales must support this marketing strategy.
Consider a campaign on YouTube – How do the parts of “Sally” work? How did we design it? This attracts a smaller audience, but it may be the right audience.
Within company capabilities, there are two distinctions to clarify – both are important but require different emphasis: