CBT publisher Tom Stewart continues his conversation with Jim Alampi. In this installment, Jim examines how infrastructure and systems relate to emerging technology.
Hopefully, you’ve already seen the first two installments of Cleaning Business Today’s four-part series on barriers to growth. In the first article, we identified and discussed the natural and predictable barriers that every company encounters as it grows. The second article focused on how to overcome barriers to growth in the area of leadership. In today’s conversation, we’ll explore core principles and strategies for overcoming infrastructure and systems barriers.
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To help explore these strategies, I sat down with business expert and thought leader Jim Alampi. As founder and Managing Director of Alampi & Associates LLC, Jim has devoted more than thirteen years to coaching CEOs, executive teams and Boards of Directors in the areas of strategy, leadership, execution and business improvement. He has provided advisory services to or spoken before almost 10,000 CEOs and senior executives regarding the lessons he learned as a senior executive at three publicly held companies and as the founder of three start-up companies. He is also the author of the recently released book, Great to Excellent.
TOM: You talk about a progression. In other words, most residential cleaning companies start out with very basic office systems – perhaps a computer, some processing and spreadsheet software, and a phone. But if a company is growing, more can be required quickly. Could you about technology systems and explain how they can contribute to either business growth or failure?
JIM: As companies grow, they’re going to potentially need more office space or storage space or whatever. What bites most entrepreneurs the hardest is technology systems. It’s typical of a small business that at some point their CPA comes in and chastises everyone about all the hand written Post It notes, Excel spreadsheets and boxes of receipts they’ve got instead of a chart of accounts and an accounting package. For many entrepreneurs, the first system they install is some sort of simplified Peachtree or QuickBooks to do their accounting. Then, as they get larger, they start adding other technology systems like a purchasing system for replenishing supplies. They might add a CRM system for keeping track of their customers and prospects. There ends up being this proliferation of parallel systems, all from different vendors and none of which talk to each other. One day, the entrepreneur finds they have ten different systems, each doing something important but pretty narrowly. They find that they have the same data in multiple systems, yet there’s no easy way to get a real-time picture of the whole company without cutting and pasting and pulling things in from all these different systems. That’s totally normal. We see this all the time. What usually happens next is your friendly IT salesman walks in and says he has a solution for you. He tells you that you need a system from one vendor to manage your entire company from A to Z – one of those ERP or Enterprise Resource Planning systems. When I’m speaking, one of the questions I always ask the audience is, “How many of you actually have hit that phase where you needed to install an ERP system?” A whole bunch of hands will go up. The second question I ask is, “How many of you finished ahead of schedule and under budget?” Nobody in thirteen years has ever raised a hand. So how does a company do something that is potentially very high cost and high risk without somebody on board who has done this multiple times before? The average residential cleaning company could not afford to have onboard an experienced CIO who has done multiple system integrations. That’s a real barrier. You can get through the first couple of stages of growth without these types of integrated systems, but at some point you’re going to hit that wall where it is going to be difficult to grow to that next level without a system that runs across your whole business.
TOM: Historically, the marketplace is littered with companies that tried to install these types of systems and failed. I guess the flip side of this is that you see the cost of computing power going down. Technology is evolving to the cloud. Do you see anything on the horizon that might make these integrated systems more accessible to smaller companies?
JIM: I think that’s an accurate description of what is happening. There are some good mid-range systems like Microsoft’s that a number of our clients have installed and had pretty good success with. Some of the big guys, the Oracles and the SAPs, which provided the only solutions years ago, are being challenged by some better and more affordable solutions today. The thing that most entrepreneurs never really think about is that it’s not the system that’s going to be the killer. Rather, it’s going to be the change in how people are going to take care of clients, interface with each other, track things, etc. That’s what really ends up being the high-cost, high-risk impact of undertaking these types of technology projects. And, again, it comes back to the entrepreneurial problem of where to find the expertise necessary to help with this transition if there isn’t someone on their team who has done this multiple times and knows how to mitigate the risk and control the costs.
TOM: Residential cleaning is a fragmented industry. Most of the companies are small and limited in what they can invest in terms of technology. There are some franchise brands out there that are doing some pretty cool things with centralized call centers, for example, where a customer can pick up a phone and get a quote for service 24/7. More folks are out there developing web-based tools to allow prospects to go online and actually purchase cleaning services. The landscape is changing quickly. The traditional model – brick-and-mortar, automobiles and employees showing up at a location to get their cleaning assignments and then coming back at the end of the day to drop stuff off – is changing. Is it realistic to think that these integrated systems will go beyond how the company works internally and evolve to a point that brings clients and prospects into the same system as a company’s field labor – in other words, create one giant, integrated system?
JIM: Absolutely, the whole scheme of mobile and remote computing and keeping in touch with clients is absolutely going to be the way of the future. I was speaking to a group of CEOs and someone in the audience said that he had a chain of pizza parlors. I think he had about twelve of them in the city where I was speaking. He explained that he has a central call center that takes all of the calls for takeout and delivery. They funnel all these calls to the appropriate store to make the pizza and delivery. What’s interesting is that it might not be the store that’s closest geographically to the location of the order. Instead, it might be the pizza parlor that has slack time that gets the order. This way, they’re able to optimize everybody’s use of ovens and manpower. That’s a pretty novel concept.
TOM: I guess one could figure that what you’re describing is a competitive advantage that would allow them to gain market share and be more profitable than the other pizza establishments in that market.
JIM: Yes. Think about the interruptions from employees having to take their gloves off while they’re making pizzas just to answer the phone to take an order. Maybe the people at one location are in the middle of making a bunch of pizzas while the people at another location have free capacity. It gets down to real-time capacity planning and operations. It makes all the sense in the world. It’s just that not a lot of people have done it yet in the B2C world of retail.
TOM: You give some examples from the Jim Collins’ book about companies – the Eckerd Drug versus Walgreens comparison. Walgreens did a better job of leveraging technology and picking up and improving upon some of the basic ideas that Eckerd had developed. Basically, it ended up that Eckerd couldn’t survive in that type of competitive marketplace.
JIM: Exactly. The Walgreens people were really astute in a couple of ways. Number one, they put themselves in the customer’s shoes and asked themselves, “If I were a customer coming into Walgreens, what are some of the other services and products that align with selling pharmaceuticals and the other items in our store?” They were striving to become a one-stop shop. So now you get flu shots, blood pressure readings and other services at Walgreens. Do you know last year Walgreens and CVS administered more flu shots than all the independent physicians in the United States?
TOM: No, I did not. That’s quite a shift in consumer behavior.
JIM: Isn’t that amazing? Think of what type of volume that is. And they weren’t even in that business five years ago. That, in addition to the way Walgreens leveraged its business, definitely paid off. Walgreens is really good at something Jim Collins calls the hedgehog concept – those things that you’re really good at you should do more of and those things that you not so good at you should always say no to. For instance, most companies in the retail business measure revenue-per-store or revenue-per- square foot. Walgreens measures profit-per-customer-visit. Every customer that comes through the door buys a bunch of products. Walgreens tracks how much profit all of those products generate for the store. They actually have planographed every store in cubic-foot segments. They can tell you what every shelf contributes to that profit-per-customer-visit. If a product up near the front of the store, where the highest traffic is, isn’t generating enough profit, it goes to the back of the store or gets moved to a different position. They really leverage the use of technology and analytics to try to better understand the business in a way that very few retailers have ever done.
TOM: In time, it makes one wonder if you saw similar technologies applied to home service providers, like residential cleaning services, what would happen. You don’t see that currently. GPS tracking and mobile devices are starting to become more pervasive, but there’s still a whole lot of uncharted territory out there. Would it be reasonable to think that as those technologies start to evolve, we’d start to see larger, more scalable companies in the cleaning industry?
JIM: You would think. I assume most residential cleaning call-schedules are based on a regular repetition. This probably leaves some holes. How many companies in residential cleaning allow clients to come in and self-schedule based on a master chart that shows the cleaning teams available within a geographic range that are sitting idle?
TOM: That’s a good concept. I’m not aware of any residential cleaning companies deploying this type of strategy. I know companies that put out a special on Facebook or Twitter to generate interest on light days, but there’s much more opportunity there.
JIM: Yes. It won’t be whether this happens, but how it happens. How are companies going to deploy all the new technology that’s evolving to create a competitive advantage? Somebody will. Somebody will take a leap and do it.
TOM: When we look at the distribution of residential cleaning companies, exact numbers are hard to come by. However, the popular thinking is that the average company size is small, probably a quarter of a million a year in revenue. As technology evolves and as some of the players figure out how to use it, they could build to scale. Is it plausible that you could see revenue numbers shift in an upward direction?
JIM: Yes, I would think so. And, as you say, some of the cloud-based technologies are bringing down prices. Combine this with the creation of systems for smaller, entrepreneurial companies, and it is finally going to become cost-effective for companies to adopt these technologies.
TOM: How does technology help with communication channels? You use a model in which you talk about the geometric growth of complexity as a company takes on more employees, locations, customers and vendors. Residential cleaning is labor intensive and companies deal with a whole lot of clients as well. Your typical residential client will have their home cleaned every other week, so you’ve got a lot of stakeholders and a lot of information flying in a lot of different directions. Does the IT evolution fit into running this part of the business as well?
JIM: The question is “how do I capture that information and institutionalize it so that I’ve got a business intelligence function and can analyze everything that’s going on?”. BI, business intelligence, is probably one of the hottest areas in the technology world these days. What BI really means is companies gathering lots of disparate data, putting it in some type of repository and then mining it or being able to go in and slice and dice it. For instance, in residential cleaning, you might have a hundred homes that are cleaned. Each one has some peculiarities in the type of services they are seeking. It’s really difficult to analyze or draw any intelligence from it, unless you’ve got a way to capture it in a data warehouse and then do some slicing and dicing. If you could do this, it might turn out that you learn, say, that forty percent of your residential customers don’t ever buy a particular service from you. Then, when you survey them, you learn that they didn’t even know you offered that service. That’s what we’re really talking about – using data as a source of gaining business growth and competitive advantage. Going back to your point about employees and size, I think every business has a critical threshold before it gets in over its head with regard to complexity. I ran a couple of wholesale distribution businesses. We found, over time, that in a typical warehouse environment the maximum number of people we would want to have in a single location was about 150. Once it got past 150 people in a single warehouse, it got too big. People didn’t know each other. They never felt aligned around common goals or programs or incentives. 150 was our magic number. We had a couple of regional distribution centers that had about 500 warehouse workers. What we did there was build smaller warehouses within warehouses. This allowed us to keep the business units smaller and not exceed the 150-person mark. This led to better productivity and goal alignment. The people in these smaller groups knew each other. They felt more like a team. I think there’s a magic number like that in every business. I don’t pretend to know what it is in residential cleaning, but I’m sure the question is something like how many crews is too many crews? Or how many people on a single crew are too many? You probably have all that data you need, and people in your industry know what these numbers are. There is a threshold for every industry that comes into play before the complexity starts to overcome the ability to run the business.
TOM: You could do this by opening a second branch office that’s contiguous to your first one. Or, your warehouse example provides a logical structure in which you could build a wall in the middle of your office and have your red team and your blue team. You could treat each team as a separate business unit.
JIM: Exactly right. On the other hand, let’s remember that adding locations causes an exponential increase in the complexity of a business. People always say, “I’ve got two locations today, so adding one more is only a fifty percent increase.” No, it’s a whole lot more than that. Every time a company adds people, locations or databases, there is an exponential increase in the complexity of the business.
TOM: How does information technology help with the people side of a business? You talk about how important it is to get the right people. Are there opportunities to get technology to help us with that important work?
JIM: There are some pretty good assessment tools to help. I’m a strong believer that you interview for core values first. If somebody doesn’t get past that part of the interview, it’s over. An employee can’t bring enough experience and skills to overcome a lack of the right core values. Of course, just because somebody shares your company’s values doesn’t mean they can do a good job cleaning. At least you have a shot at training them, though. If that person doesn’t share your company’s core values from day one, however, they’re not going to share your values twenty years from now. People’s personal values rarely change and company’s values rarely change. That’s why I think it is so important to interview for values. It’s what Jim Collins calls the “the who first, and the what second.” If I can find the right whos, that is the people with the right core values, I can do just about anything I want with my business. As business conditions change, I can modify and go in lots of different directions. However, if I only hire people who know how to do one thing, this might not be the case. When business conditions change these people might not be flexible or agile enough to move in a different direction. Using good assessment tools that can help a leader dive in and discover what a potential employee’s personal values are and see if they are aligned with the company’s values can be very useful. Good tools, combined with good interview skills, are the two key things to help a company find the right people.
Join us here at cleaningbusinesstoday.com next Tuesday, September 24, for the final installment of our series. I’ll talk with Jim Alampi about market dynamics and the “smart metrics” your business needs to watch and analyze in order to see growth opportunities and stay ahead of the curve.
Tom Stewart and his wife, Janice Stewart, are co-owners of Castle-Keepers, the 1st company to achieve CIMS certification. Tom is a nationally-recognized leader & innovator in the house cleaning industry. He is co-founder and publisher of Cleaning Business Today.
