Getting A Grip On HVAC's Future

December 19, 2006
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Futurist Bob Treadway helps MSCA contractors predict their own futures.
VANCOUVER, British Columbia - Business forecasting has a lot in common with hurricane forecasting. They both start with broad predictions that become more certain as you approach their actual impact, said futurist Bob Treadway of Treadway & Associates (www.trendtalk.com) at the Mechanical Service Contractors Association's (MSCA) annual meeting in Vancouver.

At a time when people are wondering about the security of the economy, Treadway's comments struck a chord during his presentation on "20/20 Foresight: Looking Into the Future of the Mechanical Service Industry."

"Like the meteorologists, your forecast and actions should account for the variables and adjust as time progresses," Treadway said to the contractors. "When the future moves closer, we can be more specific. Hurricane forecasters give a range and margin for error," which is appropriate for forecasting.

He said most people try to offer a best-guess scenario when they try to predict the future. The biggest mistakes in this method are:

  • Trying to be right as to what will happen and when. "You can't. Even a skilled futurist avoids predicting with absolute accuracy."

  • Confining foresight to their field of expertise or knowledge without widening exposure to the other factors. "In the next decade, factors that will affect your markets, organizations, companies, families, or lives most profoundly are largely outside of the specific realm of your industry or operational function," Treadway said.

    "Social change, trade and other government policy, consumer behavior, globalization, demographic shifts, and many other factors could have a greater effect than mechanical service issues."

  • Ignoring, minimizing, or failing to account for uncertainty.

  • Jumping to conclusions about the future and defending your conclusions through denial.

    "Could there be an economic reversal in North America right now? We've got to face the possibility."

    Do It Yourself

    If the contractors came to the meeting expecting to be handed HVAC service predictions on a platter, they were in for a surprise. Treadway taught the audience how to make their own predictions.

    First he asked for the contractors to call out their perceived business uncertainties. They offered the following:

  • Skilled labor pool.

  • Technology.

  • Weather.

  • Labor costs.

  • Manufacturers becoming competitors.

  • Cost of energy.

  • Health care costs.

  • Competition.

  • Costs of operation.

    "Each of the uncertainties has a finite, predictable range. Further, the uncertainties can be grouped into those in which you have control and those that are out of your control," he said.

    "The future is yours to shape but you must be flexibly prepared for events you cannot control. I believe action-ready leaders account for uncertainties, embrace them, and emphasize them in foresight and planning."

    Look at a range of relative certainty, he said. "I recommend looking at a range of what's ahead through a ‘cone of relative certainty.' The cone widens as we look forward in time, much the same as the weather forecaster's storm track.

    "A useful way to describe this view of the future is to break the cone into different stories of the future or scenarios. These scenarios act as testing grounds for your actions. You want to be able to plan and carry out actions that will succeed in as much of the cone as possible. The scenarios act as ‘wind tunnels to test action.' "

    The scenarios become manageable chunks that can be acted upon. Investments, talent, etc., can be predicted for a range of scenarios. "Execute the strategy that works in as many areas as possible, or that can shift."

    Treadway said that on Aug. 21, 2001, he attended a meeting of "a large, highly professional board," and told them, "I don't believe that you are prepared for a major catastrophic event in a major metropolitan area outside of your immediate area."

    They were able to make some changes that allowed their communications systems to function after the Sept. 11 attacks. Later on they asked Treadway, "How did you forecast that?"

    "I didn't," he said. "They did."

    "What I suggest is to take a similar approach to the storm trackers," he continued. "After contemplating the uncertainties and the complexities, create a forecast by taking the unpredictable into account.

    "The future cannot be predicted with absolute accuracy, but the range of what will happen is finite."

    Strategies For The Future

    The cone of relative certainty is made up of many elements, he said: trends, driving forces, issues, harbingers (early indicators), and triggers. "It's the combination of these elements that provide implications for action."

    Forecasting is valuable, he added, but it's not enough. "Forecasting is not the key function. Action is. In order to know what to do, however, we have to visualize the future environment." The Katrina scenario is "what you want to avoid."

    The most important components of a future view are the implications for action. Take oil prices over the next three years. Some MSCA audience members predicted they would go as high as $100/barrel or as low as $45/barrel. How would either scenario affect clients' demands, cost control, and implications for business strategies?

    He fleshed out a set of four scenarios applicable to the mechanical service field and commodity groups:

  • Edging wars, a competitive/differentiation scenario.

  • Bright horizon, the positive upside.

  • Staffing paradox, to confront the variety of issues affecting the supply of talent for the field in the future.

  • Innovation imperative, a look at one of the most important future hopes for the industry in the next decade.

    Edging wars determine how a contractor fares against competitors. "What are your edges?" According to Treadway, 68 percent of customers switch immediately if they don't get what they want.

    "How are customers different from what they were like before?" he asked. The audience replied that customers are smarter, they want it now, they have more access to information, and they are overworked. Treadway confirmed that this is part of a more general opinionated buyer trend:

  • 82 percent say they are strongly confident.

  • 81 percent say they trust only their own opinion.

  • 72 percent of buyers feel they are able to do things better than anyone else.

  • 60 percent of Americans believe they have above-average intelligence.

    The group predicted that future customers will demand customization, options, and choices. They will have less time for face-to-face meetings. And, they will expect flawless, immediate performance.

    The edging war is measured by two factors: price and perceived value. "When a new product or service is introduced, its perceived value is high," Treadway said.

    When competitors emerge, the first thing they do is start underpricing. The perception of the product's value is still high, but you can buy it anywhere. Some examples of this in today's market include PCs, airline tickets, and cell phones.

    Segmentation of the market occurs based on price and perceived value. Ultimately there is a price squeeze, a drive to "ultimate value" for the lowest possible cost.

    There are three ways to compete, Treadway said: price, value, and specialization. Differentiation is a point of difference based on customer needs. "Differentiation takes place in the mind of the customer," he said. Ways to achieve differentiation include:

  • Anticipating customer problems.

  • Delivering on customer needs.

  • Delivering unique advantages.

  • Customizing, bundling, or unbundling services.

  • Anticipating trends (e.g., providing multicultural staffing).

    Staffing Paradox

    It is generally noted that quality staff seems to be in shorter supply, "But will you actually need more?" Treadway asked. There may be a flux of available employees due to other types of jobs being sent offshore. "If you want a job that's not going to be offshored, become a plumber," he said.

    In the long-term view for construction trades, Treadway noted the following:

  • The United States has the sixth highest rate of population growth, chiefly due to immigration.

  • People are working longer in their lives, going into consulting careers/second careers. "There is a big source of expertise out there." In addition, "Hispanics represent a huge labor force."

    Solutions may include:

  • Talent-based mergers.

  • "Semi-work" (partial retirement).

  • Rehirement after retirement.

  • Robots and avatars (screens or voices the customers interface with).

  • Health care incentives for employees.

  • Client self-service.

  • Higher compensation.

  • H1-B visas (working visas).

  • Higher productivity (demand more and get it).

  • Engagement of employees (vs. "having a job").

    Bright Horizon?

    In The Wisdom of Crowds by James Surowiecki, chief executive officers of prominent companies projected their sales, capital spending, and employment for the next six months. Before hurricanes Katrina and Rita hit, these executives predicted increases in sales, capital spending, and employment.

    Their opinions are worth noting and tracking into the future, Treadway said. "These are your customers."

    Sidebar: Read A Book

    Futurist Bob Treadway, of Treadway & Associates (www.trendtalk.com), gave the following reading list to MSCA contractor-members:

  • Barnett, Thomas P.M.; The Pentagon's New Map, Putnam, 2004

  • Gladwell, Malcolm; The Tipping Point, Little, Brown, 2000

  • Gladwell, Malcolm; Blink, Little, Brown, 2005

  • Reid, T.R.; Confucius Lives Next Door, Vintage, 2000

  • Peterson, John; Out of the Blue: Wildcards and Other Big Future Surprises, Madison, 1998

  • Schwartz, Peter; Inevitable Surprises, Gotham, 2003

  • Surowiecki, James; The Wisdom of Crowds, Doubleday, 2004

  • The MacMillan Atlas of the Future, edited by Ian Peterson, 1998.

    Publication date: 12/19/2005

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