ICS Magazine

Diversification Pitfalls

August 9, 2011


 

Let’s face it: most owners of restoration companies are great people, people you’d like to hang out with, great technicians who can sniff out every particle of soot and predict to the nearest second when a structure will dry.

Unfortunately, management just isn’t one of their priorities, that is, until their mistakes get them so deep in a financial hole that they can see no other way out. It’s then that they get serious about their diversification decisions.

O.K. At this point I’d be remiss if I didn’t mention at least a couple of pitfalls that are routinely encountered in operating a full-service, disaster diversification. The first is called the “see-saw effect.”

The see-saw effect occurs when company owners or managers fail to get one division of the company operating independently before opening another. What usually happens is that the division which they used as the foundation of the company’s success, and which was operating smoothly under their unique and creative supervision, is left to struggle on its own while managers attend to opening the new diversification; in this case, a disaster (fire) restoration diversification.

Because of their creative talents and aggressive ability, the new diversification, like the original one, begins to flourish, while the old one – say, the company’s original cleaning division (carpet, upholstery, flooring, rug cleaning) – takes a nose dive!

As soon as managers see what’s happening, they rush back into the old diversification (cleaning services) to build it back to a profitable level. Meanwhile, the new diversification (fire services), experiences a rapid fall-off from its dramatic start. From then on a manager, playing the see-saw game, runs back and forth, back and forth, without either of the diversifications maintaining a uniform level of productivity and growth.

Sound like you?



 

The solution to the problem, as previously mentioned, is to get the company’s original service (now a division) operating independently, productively, before opening a new one. Then, as soon as possible, business owners/managers should get the new diversification operating independently, so that they can return to their original jobs of providing pure management, allocating time to each division as required to ensure maximum productivity for the company overall.

The second, and probably the major mistake made in opening a fire restoration diversification is what’s referred to as the “cross-over catastrophe.” This begins when business managers obtain their first major claim to process. Since they’re overly concerned about non-productive personnel costs, they’ve yet to interview any part-time or supervisory personnel.

Upon obtaining this first major claim, they return to their facility and inform loyal staff members in the on-location cleaning division that they have their first major “restoration opportunity.”

Because of their loyalty and commitment to the company, on-location cleaning staff jumps on board restoration vehicles and everyone goes out, throwing full energy and enthusiasm into this first claim. For the next several days, everyone works diligently, accomplishing whatever tasks are required to bring the claim to a successful conclusion.

When the claim’s complete and all the soot has been successfully eliminated, the on-location cleaning personnel return to the company -- only to find that their division of the company has no business to process! Well, being faithful employees, they hitch up their belts and begin a super-human effort to get their division of the company back on track.

Now, just as progress is being made, a second major fire claim comes in; the company manager rushes in the front door and announces that it’s time for everyone to load up and go process this new claim. This situation repeats itself several times before the on-location cleaning division personnel begin to display signs of progressive disenchantment with the company’s operating procedures.

If not detected by sensitive managers, this disenchantment progresses to the point that resignations of key people appear on the manager’s desk



 

Usually, at this point, managers ask, “Where did I fail?” or “How could they be so disloyal?” or the ultimate cop-out, “You just can’t get good people anymore.”

Let me suggest that the problem isn’t with the employees, but rather with management, or perhaps, lack thereof. Good employees are always willing to lend a hand and provide extra effort when “the ox is in the ditch.” However, if the ox repeatedly keeps getting in the ditch - if there’s always a crisis situation demanding super-human effort - this results in feelings of frustration for experienced employees who can no longer perform the job they were hired to do.

If asked to work outside their job description for too long a period, especially when tasks required (scrubbing baseboards and toilets?) are considered less glamorous than their normal job (piloting a $75,000-plus super-squirt-and-suck rig around town all day), ultimately an attitude problem will arise. Count on it!

This is the essence of the “cross-over catastrophe.” It, along with the “see-saw effect,” may be avoided by simply following the guidelines presented in this chapter before diversifying into major fire restoration services, or by going back and analyzing your company’s present structure in light of this information.

Since many managers have a difficult time visualizing the basic organizational structure we’ve been discussing, the organizational chart that follows illustrates a suggested starting structure for a manager interested in organized diversification. It’s an extremely flexible chart in that it may be expanded first, by adding more supervisors, and ultimately, by adding as many disaster coordinators (estimators) as required. Proper staffing, and separation between company divisions, prevents the “see-saw effect” and the “cross-over catastrophe!”

Remember, initially we’re envisioning owners or managers serving as Disaster Coordinators (Project Managers) with only one other full-time person - the Disaster Supervisor. The Disaster Coordinator and the Disaster Supervisor then interview and establish a reliable group of part-time personnel, along with a separate group of subcontractors who are qualified to perform various specialty services.

The tremendous advantage of this organization format lies in the fact that it allows the disaster staff to expand as much as necessary to meet the demands of any claim, no matter how large. Equally important is the fact that, when there are no claims to process, the staff (along with related costs) can be reduced to practically nothing!

If yours is a small, underfinanced company - like most beginning restoration firms - this is quite reassuring. And even if you’ve been in business for 50 years, it’s still worth careful consideration.