Existing Model:
1. Cost + Margin Model: This means that the society bears the cost of service + a margin of anywhere between 15% to 25% for any service rendered. This margin is claimed by the existing manager as “Arranger/ Administrative Fee”.
Drawbacks of this system:
a. Lack of Incentive Alignment: The existing manager has an incentive to increase costs rather than work for the society and decrease costs. For e.g.: A particular service costing Rs. 10,000 will make more money for the existing manager than if the same service was made available to the society at Rs. 5000.
b.Over- Invoicing: Since the existing manager’s incentive is to increase the costs to society, the current model has led to the phenomenon of over-invoicing. This means that a service costing Rs. 10,000 will be invoiced at Rs. 15,000 to the society. The extra Rs. 5,000 is shared (in cash) between the vendor and the society manager.
c. Coterie of vendors: The current model has led to every existing manager having a fixed list of vendor (with under-table arrangements such as over-invoicing). These vendors over a period of time continue to reduce their quality of service while increasing the costs of such services due to the belief that the existing manager will continue to provide them with society’s business.
SOLUTION:
Fixed-cost Model: Under this model, certain basic necessities (such as tax, accounts, compliance etc.) are included in a fixed price model. For other services (such as events, security etc.), the society can either appoint a service provider to conduct them, appoint a service provider to manage/ oversee them or appoint independent 3rd party vendors. This model brings transparency into the system while keeping a tab on costs.
Benefits of this system:
a. Incentive Alignment: Since the costs are fixed and pre-determined, the service provider’s incentive is aligned to the society to continue to reduce the costs/ increase the quality of services provided (as against the existing model) in order to stay competitive and continue to garner business from the society.
b. Transparency: Since the pricing is pre-determined for necessary services and the society is free to determine the service provider’s role for add-on services, this brings in transparency into the model and does not promote corrupt practices such as over-invoicing.
c. Quality Promise: Since the service provider is not attached to any vendor (as against the existing model), quality (of service provided) is of paramount importance. In the event of failure to maintain a pre-determined quality metric (more on this later), the vendor gets replaced. This breeds competency in the system and assures you of the highest quality service at all times.
2. Capital-Intensive model (mostly applicable for large societies): The current model requires that the cost of equipment etc. be transferred to the society. This leads to increased burden on the society members. In addition due to redundancy built into the current model (viz. purchase of an extra set of equipment for cleaning for times when the existing equipment fails), this burden is further magnified. For example, a 500 member, three building society will need 2 industrial vacuum cleaners. After accounting for redundancy, the society will purchase 3 such vacuum cleaners.
SOLUTION:
Shared-Equipment model: Under this model, if there are 3 such societies, each requiring 3 such vacuum cleaners, we will need a total of 9 machines. However, through a simple analysis, you will realize that the societies can get the same work done with just 5 machines between them and working on a round-the-clock schedule. This model reduces the money out-of-pocket for the society members.
3. People-Intensive model: The current model requires that most service personnel be kept on site and paid for by the society, even for one-off services such as water-proofing person. This leads to increased burden on the society members. In addition due to redundancy built into the current model (viz. hiring of an extra person for a particular job for times when the existing person calls in sick), this burden is further magnified. For example, a 500 member, three building society will need 3 cleaning persons. After accounting for redundancy, the society will hire 4 such people.
SOLUTION:
Shared-Resource/ Pay-per-use model: Under this model, if there are 3 such societies, each requiring 4 such cleaning people, we will need a total of 12 such people. However, through a simple analysis, we will realize that the societies can get the same work done with just 8 people between them and working on a round-the-clock schedule. This model reduces the money out-of-pocket for the society members. In addition for one-off services, such as water-proofing, we adopt a pay-per-use model, which reduces costs and provides superior service, based on the Quality Promise.
4. People-controlled processes: The existing model is highly people dependent. For example, very basic issues such as registration of a new house maid pass through at least 4 white-collar society employees before being passed on to a an actual working officer. The process gets even more tedious with you making multiple trips to the society office for collecting and depositing necessary forms, physical verification, building-security clearance etc., involving a lot of time, frustration and inefficiency.
SOLUTION:
System-driven processes: Through a system-driven process all the services/ requirement related to the society would be made available 24/7 on multiple platforms (mobile, web, phone, and physical). For example, for registration a new maid, just send a small request on your mobile/ internet/ phone and the service provider will do the needful, including security-clearance, police registration etc., through an efficient paperless process. The forms and every update will be sent to you on the phone and in your inbox, for your record.
We believe that your time with your family is too important to be wasted on running around for such minion errands. The society should be a conduit to aid this and not act as a deterrent.
5. Non-Transparent model: In our experience, most society members are unaware of very basic info such as – who their vendors are, what are their engagement terms, how were they selected (terms of RFQ etc.), who their second level service managers are (for escalation of complains/ issues). In addition, most members are underserved in regards to very basic services such as status of their complaints/ issues, non-receipt of invoices etc.
This is because the existing models benefits from this ambiguity in the system, which creates inefficiency and allows exploitation of the system.
SOLUTION:
Transparent model: Through a system-driven process all the info related to the society could be made available on multiple platforms (mobile, web, phone, and physical). In addition, individual member related services such as status of Complain resolution, invoices etc. will be made available on each of the platforms, thus weeding out ambiguity and corruption from the system.
If you find the above post useful, please talk to us at www.zipgrid.com. You can also write to me at [email protected]
