Description of Assignment:
This team assessment will be based on a consulting challenge that I will set at that start of
the course. In your teams, you will be expected to read the consulting notes and the
address the questions raised by the client.
Kaston-Trenton Service (KTS)
Kaston-Trenton Service (KTS) was a domestic heating boiler maintenance company, based
in the Eastern part of the UK. Founded in the 1960s by plumber Christopher Trenton, it had
grown substantially and was now run jointly by Christopher’s two children, Ros, who looked
after all marketing, sales and finance, and Mark, who looked after operations and supply
issues. The company initially offered maintenance and repair services to domestic
(household) customers with gas or oil burning boilers and had expanded into offering
similar services to business customers. Within the last two years KTS had also moved
beyond simply servicing systems, to designing and installing HVAC (Heating, Ventilating,
and Air Conditioning) systems for business customers.
‘Expanding into the design and installation business was something of a gamble’ according
to Ros. ‘At the time, the B2B [business to business] part of our work was clearly showing
more growth potential than our traditional domestic business and servicing business
customers was also more profitable. So far the installation venture has had mixed success.
The jobs that we have done have been successful and our new customers very satisfied, but
so far we have lost money on them. Partly, this is because we have had to invest in extra
workshop space at our headquarters and employ a system designer, who is relatively
expensive (but good) and only partly utilised at the moment. Hopefully, profitability will
improve as the volume of installation jobs increases.’
Table 1.1 shows the number of contracts and the revenue from domestic servicing, business
servicing and the design and installation businesses, both for the previous year and the
forecast for the current year of operation (all figures as of end Qtr. 3). The profitability of the
three offerings was difficult to determine exactly, but Ros and Mark were satisfied with the
contribution of domestic boiler servicing, and especially of the business boiler servicing
activities.
Table 1.1 The number of contracts and the revenue from the three activities
Activity Previous year Current year (forecast)
Number of
contracts
Revenue
(£’000)
Number of
contracts
Revenue
(£’000)
Domestic boiler
servicing
7331 1408 9700 1930
Business boiler
servicing
972 699 1354 1116
Design and
installation
3 231 6 509
Total 2338 3555
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KTS services
Domestic boiler servicing was seen by Ros and Mark as a ‘cash cow’, generating revenues
at a fairly steady rate. There were many different makes of boiler installed, but KTS only
contracted to service the most common that accounted for about 60% of the installed base.
Less common boilers were often serviced by the manufacturers that supplied them.
Domestic servicing accounted for by far the most individual contracts for KTS, with
customers spread over most of the East of England. Around 95% of customers renewed
their contracts each year, which was seen as a testament both to their quality of service and
the company’s keen pricing. ‘It’s a price sensitive market’, said Ros. ‘We have to be
competitive, but that’s not all that counts. Most visits by our technician are routine yearly
services, but about 20% of visits are ‘call-outs’ with varying degrees of urgency. If a home
boiler stops working on a winter weekend, the householder obviously expects us to
respond quickly, and we try our best to get a technician to them within 4 or 5 hours. If it’s
simply a non-urgent controller fault in summer, we would probably agree a mutually
convenient time to visit within a couple of days. Actually, the idea of a ‘mutually convenient
time’ is important in this market. Householders often have to make special arrangements to
be in, so we have to be flexible in arranging appointments and absolutely reliable in being
there on time. Although call-outs are only 20% of visits, they cause the majority of problems
because both their timing and duration are unpredictable. Also, customers are sensitised to
boiler performance following an emergency call-out. What we call the ‘robustness of the
repair’ has to be high. Once its fixed, it should stay fixed, at least for a reasonable length of
time.’
Business boiler servicing was different. Most customers’ systems had been, to some extent,
customised, so the variety of technical faults that the technicians had to cope with was
higher. Also, a somewhat higher proportion of visits were call-outs (between 25% and 30%)
so demand was slightly less predictable. The real difference between domestic and
business customers’, according to Mark, was the nature of the contact between KTS
technicians and customers. ‘Business customer want to be involved in knowing the best way
to use their systems. They want advice, and they want to know what you are doing. So, for
example, if you install an update to the system control software, they usually want to be
informed. They also, either keep a servicing log themselves, or ask us to report on
measures such as boiler efficiency, time between repairs, downtime due to failure or
servicing (particularly important), and so on. Call-out response time is particularly important
for them, but because there is usually someone always on their premises, it is easier to
arrange a time to call for regular servicing.’
Both Ros and Mark were disappointed that the design and installation business had been
slow to take off. The one system designer that they had hired was proving an asset, and
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two of their technicians from the business servicing side of the operation, had been moved
over to installation work and were proving successful. ‘It’s a tight team of three at the
moment’, said Mark, ‘and that should give us enough capacity for the remainder of the
year. But we will eventually need to recruit more technicians as business (hopefully) builds
up’. The extra workshop space that the firm had rented (on the same site) and some new
equipment had allowed the design and installation team to adapt and customise boiler and
control systems to suit individual customers’ requirements. ‘Many installers are owned by
boiler manufacturers and can be guilty of pushing a standard solution on customers. With
us, every system is customised to each customers’ needs.’ (Mark Trenton)
KTS organisation
A small administrative office of 4 people reported directly to Ros and Mark and helped
manage accounting, HR, invoicing, contract maintenance and purchasing activities. The
office was adjacent to a workshop space shared by the domestic boiler and the business
boiler technicians. KTS employed 42 technicians in total. Nominally 26 of these worked on
domestic boiler servicing and repair, and 16 on business boiler servicing and repair, yet
there was some flexibility between the two groups. ‘We are lucky that our technicians are
usually reasonable about helping each other out’, said Mark. ‘It is generally easier for the
technicians used to serving business customers to serve domestic ones. They are not always
as efficient as those used to domestic customers, but their customer-facing skills are usually
better. Domestic boiler technicians do not always appreciate that business customers want
more reassurance and information generally. Also it is important for business customers to
receive a full technical report within a couple of days of a visit. Domestic technicians are not
used to doing that.’
Improving service efficiency
Although both Ros and Mark were broadly happy with the way the business was
developing, Mark in particular felt that they could be more efficient in how they organised
themselves. ‘Our costs have been increasing more or less in line with revenue growth, but
we should really be starting to get some economies of scale. We need to improve our
productivity, and I think we can achieve this by reducing waste. For example, we have
found that our technicians can waste up to 30 percent of their time on non-value-adding
activities, such as form-filling, or retrieving technical information’.
Mark’s solution was to tackle waste in a number of ways.
• Establish key performance measures (KPIs) and simple metrics – Performance
measures must be clearly explained so that technicians understand the objectives
that underlie their targets in terms of availability, utilization, and efficiency.
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• Better forecasting – Demand was forecast only in the simplest terms. Historical data
to account for seasonality had not been used, nor had obvious factors, such as
weather been monitored.
• Slicker processes – Administrative and other processes had been developed
‘organically’ with little consideration of efficiency.
• Better dispatching – Dispatching (the allocation of jobs to individual technicians) was
usually done on a simple ‘first come, first served’ basis without taking the efficient
use of technicians time into account. It was believed that both travel time and ‘time
to uptime’ could be improved by better allocation of jobs.
• Better training – In the previous two years three technicians had retired, one had
been dismissed, and two left for other jobs. Mark had experience difficulty in
replacing them with experience people. It had become clear that it would become
more important to hire inexperience people and train them. In Mark’s words, to get
smart people with the right attitude and problem-solving skills, who don’t mind get
their hands dirty, and give them the technical skills.
In addition to thinking about how best to improve efficiency, future market growth was also
a concern. Two developments were occupying Ros and Mark’s thoughts, one in the short to
medium-term, the other in the longer-term.
Future growth – short to medium-term
Demand had been growing steadily, largely by KTS willing business from smaller
competitors. But Mark wondered whether the nature of what customers would want was
changing. An opportunity had been suggested by one of KTS’s oldest business customers.
They had been approached by another HVAC company who had asked if they would be
interested in a ‘total’ service where the company would both supply and operate a new
heating system. In effect they were asking if KTS’s customer would totally outsource their
heating to them. It was an idea that Mark was intrigues by. ‘I have heard about this type of
deal before, but mainly for large businesses and offered by facilities management
companies. It can involve companies like ours actually buying the heating system, installing
it and taking responsibility for managing, not just the system itself, but actually how much
energy is used. Exactly how it might work will, I guess, depend on the terms of the contract.
Does the customer pay an amount per unit of energy used (perhaps linked to the wholesale
price of energy)? Or does the customer simply pay a fixed amount for agreed operating
characteristics, such as maintaining a particular temperature range? We would have to think
carefully about the implications for us before offering such a service. The customer who told
us about the approach does not want to desert us, but who knows what they might do in
the future.’
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The future – longer-term
According to the Committee on Climate Change (CCC), an independent advisory body
which assisted the UK government in reaching required carbon levels, meeting the UK’s
target to reduce emissions would require reducing domestic emissions by at least 3% per
year – a challenging target. This would mean that within a few years it could become illegal
to install gas boilers in new build homes. One possible future that was discussed in the
industry was a general move towards a hydrogen network (burning hydrogen produces no
emissions and creates only water vapour and heat). However, a more likely future would
probably involve combining different renewable technologies to provide low-carbon heat.
The lowest cost, long term solution could be to replace gas and oil boilers with hydrogen
alternatives alongside electric heating generated from renewable sources such as air source
or ground source heat pumps which use small amounts of electricity to draw natural heat
from either the air or ground. But, to make heat pumps effective all existing and new build
homes would need to be made energy efficient by using far better levels of insulation.
Ros thought that these developments could prove far more challenging for KTS. ‘Both Mark
and I had assumed that we would be in this business for at least another 20 to 30 years. We
both have families, so the long-term future of the business is obviously important to us.
New heating technologies and fuels pose both opportunities and threats (yes, I’ve done an
MBA) for us. Reducing fossil fuel consumption will definitely mean that we have to change
what we do. And some aspects of demand may reduce. For example ground source
systems require little maintenance. But if there is going to be an upswing in the installation
market we need to be on top of it.’
Questions
1. What aspects of performance are important for KTS to win more servicing business
in the future?
2. How would you evaluate the potential of offering a ‘total’ service like the KTS
customer had been offered?
3. What should KTS be doing operationally to prepare for possible longer-term
changes in their industry?
