How do you handle routine seasonal variability, peak demand, and one-time opportunities?
By Joel Harris
Most integrators I work with have a hired, permanent staff—whether business is up or down. With the seasonal nature of the business, this means you’re carrying the weight of fixed costs through periods of variable revenue.
But you don’t have to make a permanent hire every time you have an incremental unit of work that needs to be done to satisfy customer demand.
HB Communications Mini Case Study:
In my first year at HB, I convinced our general managers that we would not be making permanent hires to meet our summer demand. Instead, we were going to use a mix of subcontractors and temp workers.
We brought in 10 to 12 temp workers—interns from colleges or people who had just graduated from local tech schools—with the agreement that we would let them go at the end of the summer when revenues began to decline. There is a benefit to not having to fire a temp employee. When you establish the agreement upfront, there’s no surprise when they’re let go.
We put a plan in place and said, “This is how we’re going to hire them. This is how we’re going to train them. This is the signal to know when it’s time to let them go.” Of course, by the end of the summer, we had experienced some natural attrition and those positions needed to be filled. We already had a pool of 10 to 12 candidates to select from for our next set of employees.
There are two sets of actions that need to be completed before successfully outsourcing labor.
The first category, which is the most difficult and time consuming, is building your internal competency to leverage outsourced labor.
- Implement this approach as a key, company-wide strategic initiative (it will not be successful if it’s viewed as just an “operations tool”)
- Know and define your standards of performance (set expectations)
- Train your operations managers and project managers on how to manage subcontractors or temps to the standards of performance (manage to and deliver on expectations)
- Add project manager hours to manage subcontractors (compared to internal labor)
- As much as possible, transfer risk to the subcontractor by gaining fixed quotes with negotiated contractual terms for the performance of the work (if you are unable to write a scope of work that can be quoted as a fixed price, you are not prepared to use a subcontractor to increase your profitability)
- Develop internal control process for subcontractors (for example, no verbal POs, invoices must have supporting detail, responsible party must authorize payment of PO and be accountable for spend, etc.)
- Acknowledge the resistance you will face with this approach and deal with it through effective leadership (in your company’s own cultural style)
- Never blame your subcontractors for the project performance when talking to your customers (your customers didn’t hire them … you did!)
The second category is building an outsource partner network that meets your business objectives.
- Know which labor disciplines you can supplement with subcontractors or temps (it’s never your core value proposition or differentiation from the competition)
- Build a process to qualify subcontractors (and their processes and people)
- Leverage your subcontractors for small wins before committing to them for large projects.
- Develop long-term relationships so you get their best employees for your projects, not the leftovers
- Never be afraid to terminate a subcontractor for poor performance; they earn the right to the next job based on their performance on the previous one
- Always treat your subcontractors the way you want your customers to treat you: If you see subs as a resource to be squeezed and nickeled-and-dimed to death, left holding the bag for your mistakes, then you will never build the type of long-term relationships that make a subcontractor network successful as a long-term strategic approach to enhancing profitability
You must intentionally set yourself up for success by investing the time and resources to implement this strategy.
Using truly variable costs as a replacement for fixed costs requires commitment from the entire organization to succeed. I recommend implementing this approach over time as incremental improvement rather than an all-or-nothing approach.
And, finally, remember the end objective: to increase profitability. Commit to that principle when making decisions to use or not use permanent hires (fixed cost labor) vs. subcontractors or temps (variable cost labor).
Joel Harris is COO of North Haven, CT-based integration company HB Communications.
This article originally appeared in the Q4 2020 edition of Integrate, NSCA’s trade journal.