Among remodelers there exist a number of misperceptions about Total Quality Management. To the uninitiated, the management system frequently embraced by some of the world’s largest and most respected companies: Toyota, Ford, Bank One etc. may seem to be more about the overall quality of the finished product or service than anything else. To others, it is a system that only large companies and corporations can properly implement.
There is also a group among whom the reputation of TQM suffers from a cafeteria-effect. These remodelers will sidle up to the TQM buffet of best practices, picking one or two they think will help them solve a single problem, only to be turned off to TQM altogether because, in the absence of a larger supporting quality system, a single best practice failed to deliver as they had hoped. That is why those who delve beneath the surface of TQM and Quality Assurance are often surprised to find a tested slate of customer-centric management principles that can be tailored to any size organization, large or small.
Sixteen years ago, Ken Klein, CGR, and his colleagues at the Tulsa, Okla.-based design-build firm Kleinco Inc. decided to digest a complete system of quality — one that was uniquely fitted to the aspirations of their residential remodeling and new construction firm. Only six years later, Kleinco had succeeded in its TQM implementation to the extent that it was honored by the NAHB Research Center with a National Remodeling Quality Award.
Revisiting the firm nearly 10 years later, Kleinco’s commitment to the basic program it originally adopted in 1989 has only grown deeper.
Prior to ’89 Kleinco dabbled in customer-oriented management practices. Ken Klein, a former IBM employee, had been exposed to the many of the concepts as espoused by W. Edwards Deming. (See “A Brief History and Overview of TQM on pg. 32.) But until that time he was somewhat reluctant to fully incorporate the concepts because they were at odds with the prevailing structure of the construction industry. Most firms were operationally oriented toward a strict top-down, strong production manager type of system.
In embracing TQM, Klein made a break with this traditional system and decentralized his operations. Under the new system, he transferred control of all aspects of the construction process — budgeting, scheduling and jobsite management — to project leaders who accept full responsibility for the overall success of individual projects. “Our project leader is a very empowered individual,” says Klein. “We place a lot of responsibility at the jobsite.”
Once this change was made, Klein says he discovered many important virtues of this shift toward project leaders. Decisions were not bottlenecked on the desk of an over-stressed production manager. And because each team succeeds or fails as a unit, the entire focus of the group is on the work that needs to get done in its drive to move to the next phase of a project. “Even project managers are expected to jump in and dig ditches,” says Klein. “It may not be very cost-effective, but at that time it may need to be done. And if he or she does not want to do it, they will get fired. Hopefully we don’t hire people like that.”
If you ask Klein about the key difference between his company 10 years ago when his firm was honored by the NAHB Research Center for its quality management practices and today, he will tell you that, at its core, the company has retained the same commitment to quality but it is wiser. The team, now up to 20, has more confidence in its ability to handle all kinds of jobs from major whole-house renovations, room additions and kitchens and baths all the way up to multi-year custom home construction. The team now knows that Kleinco operates within system that allows the company to successfully scaleup or scaledown to best optimize finite human resources. And this has made a big difference. Operating in a smaller sized market area, it has been important that Kleinco be able to seize the really big, multiyear opportunities that come along.
As an example, three years ago, a repeat customer came to Kleinco with a request to build two custom, 25,000 sq. ft. homes 70 miles outside of Tulsa. Most companies Klein’s size would have walked away from that opportunity for any number of reasons: distance to the jobsite, size of the job based on existing staff levels, or the 18 month time commitment required would take the firm away from its core type of jobs for too long. Kleinco took the jobs, providing extra support to individual team leaders. In the process, the company’s revenues spiked for awhile, as did the firm’s profitability.
“Because the project leader or project manager in our system is the ‘go-to’ person,” says Klein, “we can succeed with large and small jobs. We don’t build jobs from the office. We build at the jobsite.”
In a Total Quality Management environment, there are certain required elements. The first step requires the firm to generate a written vision as well as statements about the company mission and mission goals. These are key elements that form the basis of the “leadership” module in the TQM environment. If TQM is not for everyone, it is typically at this stage that entrepreneurs get side-tracked. The goal is profit, so why go further?
Those who employ TQM find value in knowing why profit matters to the company. The theory goes that if a company is focused narrowly on profit, the well-being of its employees, its customers and its part in a larger community tend get second billing. Yes, those things can remain objectives to non-TQM firms, but it may take longer to get around to it.
Kleinco’s vision involves its employees and customers: “To create a unique delivery system for design and construction services that achieves extraordinary results by utilizing diverse talents of career-oriented people.” Its mission further spells out its goals: “Kleinco exists to profitably serve the design and construction needs of its customers, the well-being of its employees, and the needs of its community.”
From there, specific goals and strategies — notably the first two as written in Kleinco’s 1996 NAHB Research Center award application — began to spell out a TQM company’s direction. “1. To flatten the organization by utilizing project teams that focus on work to be done, not jobs. 2. To build tailored support systems for each project leader and customer which increases the value that Kleinco adds to each project.” In the case of Kleinco, its shows how enduring written goals and strategies can be, and how meaningful they can be as a guide to company leaders as well as employees. Both of these strategies remain key to the firm’s direction today.
Kleinco begins its planning process by setting gross profit targets for each of its project managers. This year the company has said that it expects each project manager to generate $150,000 in gross profit. As leads for jobs come in, they get slotted to project managers and work teams, and a clearer picture of the year takes shape. Because Klein’s team has been together for many years, there is a good understanding of time frames required to complete certain jobs. The quicker the time frame, the more flexibility the company has in marking up the price for the project. This sliding markup is an important factor in the firm’s ability to adjust to competitive situations, win business and remain profitable on each job. This flexibility also allows Klein and his leadership team, to seize opportunities to take on additional profitable work during the year to surpass gross profit expectations.
From the customer’s perspective Kleinco’s system instills confidence and removes much of the uncertainty surrounding a major construction project, lowering the customer’s natural anxiety level during such work. The company employs a three-phase design-build process that ratchets up the level of commitment.
Phase 1: the Preliminary Phase involves early budgeting figures and a sketch of the plans as part of a design agreement. During this phase designs are kept lean to reduce the dollar spent on plans until there is a meeting of the minds on design and budget.
Phase 2: the Final Planning Phase is the time when plans are completed along with a detailed description of the work. Importantly for the customer and a big selling point for Kleinco is the completion of a fixed-price agreement that includes: start and completion dates, a construction schedule, and a written warranty. At this point the building plans become suitable for permitting.
Phase 3: the Construction Phase is where the project manager and his team take over. After permits are obtained, the emphasis is on keepng the schedule and budget moving forward according to plan while keeping the customer happy and informed. Some of Kleinco’s best practices are embedded in this phase. There is a preconstruction meeting that includes all of the subcontractors and suppliers for the job. There are weekly meetings between the customer and the project leader. And knowing that completing a job on time is critically important to overall customer satisfaction, Kleinco offers bonus money to the team for early completion. This is a date that is usually a week or so ahead of the completion date given to the customer.
A final best practice in the construction phase is somewhat all-encompassing. The responsibilities of customers, suppliers and trade contractors are clearly spelled out and aligned with the success parameters of the project. Customers are asked to make timely selections, to communicate as often as possible with the project leader, to work through Kleinco not its trade contractors and to make timely decisions on change orders. Suppliers and trade contractors must keep within the guidelines of a Kleinco tailored master subcontractor agreement. They must keep insurance in force, keep commitments to the schedule, provide lien waivers, honor written warranties, and adhere to a set of Kleinco stipulated quality standards.
Cash flow is always an issue in the residential remodeling business. With that in mind Kleinco creates its payment schedules based on a guideline that it collect 90 percent of the fixed price by the time 75 percent of the project is completed. Within this guideline there is flexibility based on variables like the amount of materials that need to be special ordered, etc.
Kleinco works with an independent survey company to keep tabs and to measure its levels of customer satisfaction. Bonus money for the team leader is based on the results of these surveys. Using a 1 to 10 scale with 10 being superlative, customers are asked to rate the company on various attributes and overall satisfaction: willingness to refer, reliability, timeliness, etc. Scores of 8.5 or greater are “bonusable.”
Continual improvement is another hallmark of a Total Quality Management program, and these customer surveys are used as the basis for a team discussion on the areas where improvements can be made. These post-mortem meetings are particularly relevant in rare cases when the customer satisfaction levels were not bonusable. The leeway that project leaders are given involve wide discretion to keep customers happy when the going gets tough on the job. Project leaders have the authority to send them out to dinner on the company or to a hotel when floors are being refinished.
“We encourage outrageous customer service,” says Klein.
Like many of the most successful remodeling companies, Kleinco is very committed to its local community and to the satisfaction of its 20 employees. And like successful TQM companies, it is a written mission of the firm to serve the needs of these groups. To that end, annual reviews with employees are designed to measure satisfaction and suggestions are fed back into a pipeline for improvements. They can see that their ideas are acted on in some fashion.
Kleinco’s achievements on behalf of the community are numerous. One notable highlight includes building the local Ronald McDonald House and donating $50,000 to that cause. In building the house, Kleinco set a model for future Ronald McDonald House fund raisers in other parts of the country. It established that gifts-in-kind are recognized in the same manner as cash donations. The result was that building material suppliers and subcontractors were recognized alongside community leaders for their contributions.
In the end, all parts of the Kleinco process link back to its leadership goals, which is why, 16 years after implementing TQM, the company sees no end in sight to its embrace of these management concepts.