Ellison Chair in International Floriculture
Ellison Chair in International FloricultureTeaching, Research, Extension and Service

Cut costs, not customer experience

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Here’s a quote from a recent blog entry by Jeffrey Pfeffer, a professor of organizational behavior at Stanford’s Graduate School of Business and is the author or co-author of 12 books including “What Were They Thinking? Unconventional Wisdom About Management.”

Not all cuts are the same. Management, which is invisible to the customer, seldom cuts itself, because no one thinks they’re redundant. … The companies that will do the best are those that recognize their own particular “moments of truth” — the small but crucial experiences that matter most to their clientele — and figure out ways to reduce costs that don’t adversely affect these small but psychologically important customer interactions.

From the BNET Report…click here for full post!

Everybody has an off day

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My recent trip to Colorado (that I alluded to in my earlier post) started off under rather unusual circumstances. A normally short, 5-minute check-in process in the College Station airport turned into a half-hour-plus study in human behavior.

One airline ticket counter employee was having a particularly difficult time checking in a lady and her happy-go-lucky, bouncing young puppy dog who obviously had no idea what it had in store over the next several hours. The other ticker counter employee was handing the rest of us by herself and was doing an admirable job, IMHO, given that numerous folks attempted to take extra bags on the plane for free, or tried to carry on dresser-sized bags that obviously contained their entire wardrobe, or argued about the “size of liquids” rules, or were simply rude about having to wait a little longer than normal.

But the most interesting part of the entire debacle was seeing the various reactions of the folks in line and then hearing their (rather loud) account of the episode on the plane afterward.

You see, I happen to know the ticket counter lady who was handling the bulk of the folks standing in line and not only is she an incredibly nice and funny lady, but she has won numerous awards from the airline for her record of outstanding customer service that often goes way beyond the call of duty.

But if you had heard these folks that were discussing her performance on the plane afterward, you would have thought she was a incompetent, bumbling, ignorant rookie (and I am cleaning up their language significantly).

So I said to myself….. Self, there must be something to learn from all of this. So I started a list on my ticket stub:

  1. No matter how good you are, someone will always think that you can do better.
  2. You can’t please all of the people all of the time, so 100% satisfaction is probably a fallacy.
  3. Some customers need firing. They simply are not worth the hassle of doing business with them.
  4. A smile and a calm tone really is effective at reducing the sting of irate customers.
  5. Taking the high road is always the best route.
  6. You can’t train personality, but training can sure compensate for the lack of it.
  7. And lastly, pets shouldn’t fly.

I’m sure you can probably add to this list yourself. Feel free to do so in a comment!

By the way, when I interjected to the folks on the plane that my friend, the ticket counter lady, was an award-winning employee recognized numerous times for her outstanding customer service, they found a new target and I found myself practicing number 4 above!

Man, was I ready for 12,000 feet!

ANLA Management Clinic Blog

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In order to stimulate interest in the 2009 ANLA Management Clinic, ANLA developed a one-day blog entitled Managing Through Tough Times. For one jam-packed day, industry leaders, including business owners, consultants, and editors, provided ideas for managing costs, driving sales, targeting new customers and motivating staff in the midst of strong economic concerns. Check out these thought-provoking (and action inducing) blog entries by clicking here.

Coping with a down economy

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As promised, here are a few strategies to consider for coping with a down economy. Some of these steps are radical, while others are a more milder form of defense. Implement them according to the conditions you experience in your market area.

  1. Conserve your cash. Don’t spend a dime on anything that isn’t absolutely necessary to your operation. Examine every personal expense you have to find alternatives to any spending patterns.
  2. Refinance anything and everything you can. Stretch out the payments because getting cash later on will be difficult as more people will apply for loans and banks will become very picky.
  3. Work out a worst-case scenario cash flow projection that projects your company having a decrease in sales. As part of this, determine what expenses will be unavoidable. Look through your cash disbursements. Pre-plan a less expensive alternative to any expense category that you can.
  4. Know your costs well because poor pricing can put you out of business faster. Assume that cost-side pressures caused by a recession will last about two years after a recession is over.
  5. Beef up your advertising/marketing. Everyone else is cutting back. Now is the time to gain “mind share.”
  6. Slowdowns mean layoffs. Therefore, new hires become available and are sometimes available at a lower rate of pay than your current rate. Take advantage of that fact.
  7. If part of your fleet is going to be idle for some time, try to store unused vehicles and get a reduced rate of insurance due to non-use.
  8. Selling off assets during a recession is difficult. Nevertheless, selling off unused equipment reduces insurance and registration costs and property taxes. Convert anything you don’t need into cash well ahead of any signals that your area will be hard hit.
  9. Apply for credit long before you need it. You may have to “borrow” your future, and banks will raise interest rates on high-risk loans as conditions worsen.
  10. Look deeper in your own markets. Can you offer your current customer base a more diversified line of products and/or services?
  11. Review your business insurance to make sure your premiums have been adjusted for the depreciated value of your vehicles and equipment.
  12. Take a look at your estimated tax payments made to the IRS. Decreased earnings call for decreased estimated tax payments.

Cash is “king” during economic slowdowns no matter how mild or severe. Expect your customers to also feel the effect, which means they will pay you at a much slower rate than during the good times. That’s precisely the reason that you’ll need additional working capital to finance your receivables if nothing else.

Run a cash flow working capital projection using 60 days, 90 days, 120 days and even up to six months to be paid from some of your customers. How much cash do you need to survive? Find the answer to that question. Prepare and save for that eventuality and you’ll be ready for a downturn.

How to Sell Services More Profitably

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In the May issue of Harvard Business review, an article by Reinartz et al. puts forth the notion that firms frequently believe that adding value in the form of services will provide a competitive advantage after their products start to become commodities. When the strategy works, the payoffs are impressive, and a company may even discover that its new service business makes more money than its products. But for every success story, anecdotal cautionary tales remind us that most companies will most likely struggle to turn a profit from their service businesses.

Companies unsuccessful at developing service profitability have tried to transform themselves too quickly. Successful firms begin slowly, identifying and charging for simple services they already perform and using those to build enthusiasm for adding more-complex ones.

They then standardize their delivery processes to be as efficient as possible. As their services become more complex, they ensure that their sales force capabilities keep pace.

Finally, management switches its focus from the company’s processes and structures to the nature of customers’ problems, the opportunities that customers’ processes afford for inserting new services, and the new capabilities needed to deliver those services. In other words, they take partnering to the next level (See the exhibit below –click for larger view)

The Home Depot "Index"

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Home Depot Inc. said Tuesday that fourth-quarter profit fell a sharper-than-expected 27% after the declining housing market hurt demand for its building and home goods supplies and the outlook for 2008 remains “challenging.”

Declining housing and credit markets have hurt consumers’ appetite for home supplies provided by Home Depot and rival Lowe’s, which said Monday that profit dropped 33%, with sales at stores open at least a year declining 7.6%.

To reduce costs, Home Depot said in January it would cut 10% of its headquarters staff, following moves to slow the pace of its stock buybacks and advertising-spending growth. The company, however, said it remains committed to $2.3 billion in capital spending this year. Home Depot has spent money on projects to make stores cleaner and brighter and improve customers’ experience after it lost market share to Lowe’s and other competitors.

What to make of this?

  • DIY retail sales will most likely continue to crawl. Of course, this is no surprise since lawn & landscape services have increased in recent years to offset declining DIY sales due to more DIFM (do-it-for-me) purchases.
  • Growers who sell to Home Depot and Lowe’s will still need to offer differentiated programs as usual — and pay particular attention to shrinkage and gross margin on a store-by-store basis.
  • Landscape service firms need to ratchet up the marketing efforts — especially emphasizing the return on investment from lawn & landscape improvements (see earlier posts).

One step closer to recession???

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Recession worries surged, slamming financial markets, amid signs that service businesses may be stumbling. A key barometer of the strength of the service sector dropped to its lowest level since October 2001 and suggested those businesses are now contracting. ISM’s Non-Manufacturing Business Activity Index registered 41.9% in January, indicating a significant contraction in business activity in January from the seasonally adjusted 54.4% registered in December. This is the first contraction in the non-manufacturing sector since March 2003, when the index registered 46.3%, and the lowest Business Activity Index since registering 40% in October 2001 (one month after 9/11). The next piece of major economic data comes in a week with the retail sales report for January. Reports from retailers already offer cause for concern. Capital Economics today offers another sign of caution, and it goes back to the surprise drop in the ISM’s nonmanufacturing index that shook markets yesterday. The firm tracks the ISM’s service-sector index against real consumer spending and finds they are correlated, meaning that next weeks retail sales report should prove interesting! Even so, most pundits still only put the chance of the U.S. entering recession at 42%. All for now…time to polish the crystal ball.

Economics of Bidding and Estimating

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Landscape service firms must do 2 things if they are to make money in today’s competitive Green Industry environment — (1) develop an accurate estimate of hourly field-labor costs and (2) develop a system to fully recover overhead expenses. Once this is accomplished, generating realistic (and profitable) bids and estimates becomes a much more straightforward task. Benchmarking the firm’s performance relative to similarly-sized businesses is also a mandatory managerial task for those who desire to see their business grow and prosper. More detailed information can be found in a presentation delivered at the recent education seminar held by the Southeast Texas Nursery Growers Association. Click here to view this presentation.