Retooling Your Business

Qualified Remodeler recently asked remodelers about how they approach making changes to improve their companies — retooling them for the long term. And, in an undeniable sign of the growing level of professionalism in the remodeling industry, (as well as a sign of a slower remodeling market), almost three-quarters of the 500-plus respondents said that they are implementing organizational changes at their companies this year. Indeed, it is clear that change and continual improvement are simply part of what it takes to be successful in the professional remodeling industry.

Iris Harrell, of Harrell Remodeling Inc. in Mountain View, Calif., says her firm would qualify as one that seeks continual improvement.

The company has adopted the Japanese system of total quality management called Kaizen. This style of management has many permutations. But, simply put, Kaizen-driven organizations map all of their systems and processes with extensive documentation. That information is then fed back to management in an organized way, to identify potential trouble spots and to look for areas of improvement.

At Harrell Remodeling, which did $11 million in revenue in 2007, up from $8.5 million in 2006, the list of potential areas of improvement grows longer throughout the year. Then, at the end of the year, a handful of initiatives is identified, tackled and presented as goals for the year ahead.

Kaizen emphasizes small, incremental steps to change versus big and bold changes. For example, the changes embraced by Harrell for 2008 were limited to five and two of those were carried over from last year.

“You don’t want to change too many things at once,” notes Harrell. “That, in my experience, is the real kiss of death. If you undergo too many changes your people cannot process it all and productivity suffers.”

A Kickoff for Change

Toward the end of January, Harrell led her staff of 48 in a kickoff meeting for 2008. It was also a celebration of the company’s accomplishments during 2007.

At the meeting, the 2008 business plan was unveiled and the five change initiatives were announced. To make each more memorable, the initiatives were summarized by the acronym G.R.E.E.T.

  1. The company plans to “Grow” its employee stock ownership plan.
  2. They plan to exceed their “Revenue” target of $11 million for 2008, and start 2009 with a $1 million backlog.
  3. They plan to “Exceed” client expectations, which will be measured by beating their current levels of customer satisfaction ratings.
  4. Improve “Employee satisfaction” via a company-wide survey in June.
    “We want to know if they are given the authority and the support they need to do their jobs,” says Harrell.
  5. Lastly, the company plans to measure and improve its “Throughput.” Throughput is defined as the period of time it takes to move a job from contract signing for design to the time it takes to get it into construction.

The key to really implementing the changes, says Harrell, is to make the goals very clear and manageable to everyone in the company.

“Any good business plan helps everyone get aligned on the changes that need to take place,” Harrell says. “Every department head and employee knows that these are the things we are going to focus on this year.”

Measuring Throughput

According to Harrell, the throughput improvement helps put the company in a better position to grow. The thinking goes like this. By reducing the time it takes to move a job through the system, the company is then in a position to handle more jobs on its existing platform. This increases the company’s capacity. And capacity is the one thing that allows a company to grow.

In 2000, before the company stepped up and moved into its current, 6,000 sq. ft. space and added employees, the company was turning away jobs. And during that short period of time, says Harrell, the company became known for not being able to handle new jobs. This misunderstanding in the market persisted during a period of slow growth for the company while it stayed at the $8 million level.

“And anybody in this company now who says to a potential customer that we are too busy will be shot,” says Harrell. “We are not allowed to say that under any circumstance. We have been dismantling that myth for five years.”

Upgrading the Team

Christopher Landis, CR, president of Landis Construction Inc. in Washington, D.C., like Harrell, also sits at the helm of a large design-building remodeling company that is undergoing change. Landis, whose firm had an installed volume of about $9.2 million in 2007, says that about mid-year last year, the firm began move in the direction of change. This was short of the company’s igoal for the year of $10.5 million.

First, they wanted to improve their project timelines, which had been slipping. Second, they noticed that change orders were being done on-the-fly without being properly communicated or billed. Lastly, there was a certain amount lack of accountability regarding work hours and a series of smaller issues like incomplete punchlist items that were hurting their performance.

In response, Landis took a page from the playbook of former General Electric CEO, Jack Welch and assigned letter grades to each member of 45-strong Landis team. The A players and the B players were kept. The C players were let go. Landis Construction is composed of three divisions: plumbing, electrical and construction. At least two employees in each division were let go.

“The problem is that once you identify the problems and you take the necessary actions,” says Landis. “It takes another six months before things start to turnaround in margins and on the bottom line because you’ve got a lot of projects in the system where costs have already slipped a bit. The work is done and the cat is out of the bag. The analogy is that of a large ship that changes directions. It has to turn very slowly.”

In addition, to making upgrades to field staff, the company also changed its organization chart by promoting one of its supervisors to the newly created position of lead production manager, who would oversee all of the jobs and their supervisors. “We needed someone who could hold people’s feet to the fire.”

“In making these moves, another problem we are trying to solve,” says Landis, “is not knowing that a job is slipping until the very end, when the subcontractors submit their invoices. If there were add-ons to a job, those man-hours start to add up. You think you are doing well on a job until the very end and things start to go south.”

Shifting More to Subcontractors

Ronald Cowgill, owner of D/R Services Unlimited Inc., Glenview, Ill., says that his business — like Harrell’s did at one point — suffered from not being able to handle an influx of business when it came along. To remedy this problem, last year Cowgill decided to promote one of his longtime lead carpenters to an entirely new position within the organization. Instead of managing other company employees on projects, he was assigned to manage a group of jobs that had come along as a result of freak thunderstorm and flood that had caused widespread damage in his local market, the northern suburbs of Chicago. The experiment was that this newly promoted lead carpenter would run the jobs using all subs, which were in plentiful supply due, in part, to the slowdown in the new construction market.

The experiment paid off. Now Cowgill is planning to move forward with another staffer taking on the same role. That would give him two in-house construction teams and two project managers running jobs with outside crews. The result is that D/R can handle a lot of variability in business activity without the increased overhead of adding more headcount.

The second structural change initiated by Cowgill in ’07 was to develop a cohesive marketing plan and to fund it properly. All during the previous 10 years, says Cowgill, the company had grown its revenue at a steady clip without a marketing budget. The firm had peaked at $2 million at the end of 2006. This had been done largely on the basis of referrals and repeat business.

The two moves in tandem — changing his organizational structure to manage more jobs and creating a marketing plan to drive more leads — have worked out well for Cowgill. His lead flow is unexpectedly strong and he’s got the structure to handle any additional work.

These are the good stories. Change made too abruptly, without the proper forethought and planning can and does go awry. Many remodelers make changes too hastily, a common mistake among all entrepreneurs, says Iris Harrell.

“You have to ask yourself, why do we need to change this?” Harrell explains. “Entrepreneurs are famous for being bored and they like to create chaos. And a good manager does not want chaos. They want regularity. They want something they can count on. And they want consistency. So how do you be a good entrepreneur, growing your business, and at the same time be a good manager?”

These three companies are examples of the right way to do it: be measured, align your team around the goal, and stick with it.