Lakshya 2011

SM

...Orchestrating Corporate Excellence

Presents

Lakshwiz
Bazaar

Marketing Case study

Customer Engagement and Growth of a Professional Service Firm:

A Case on Aquatherm Power engineering Consulting firm
N.Chandrasekaran, Vice President Corporate Affairs, take Solutions Ltd & Director, Centre for Logistics and SCM, LIBA, Chennai -----------------------------------------------------------------------------------------------------------------------Author acknowledges the support of Mr.Kamban and Mr.Ganesh in writing this article. Also thanks Prof.P.S.Anathanaryanan and Oxford University Press of India which has published a book on Strategic Management authored by Prof.P.S.Anathanarayanan and N.Chandrasekaran in 2011 wherein another case on the same company is written about. The views expressed here are of individual capacity and to be used strictly for academic discussions only. The facts, figures and financials are not necessarily taking a position on the company and neither the author nor the company is responsible for any commercial decision based on this case material. -----------------------------------------------------------------------------------------------------------------------Aquatherm Engineering Consultants (AEC) is based out of Chennai promoted by Mr.Kamban and Mr.Ganeshwith two other friends in the area of power project engineering. The company has completed 15 years of existence as of September 2011. Annexure 1 gives back ground of the two promoters. While they started the business, they hardly had any exposure to sales and marketing efforts required. They were passionate about serving a customer need with respect to power project engineering mainly in small and medium sized projects. They had understood to satisfy a customer through their excellent delivery mechanism and many times engage a customer on an advisory role with respect to project requirement, vendor selection and representing to financial institutions on technical clarity for project funding. When they started the business in late 1990s, they thought that if they could engage well with customers in a large consulting services market, marketing and sales need not be a specialized support function. They teamed up with few freelancers to present before prospective clients to prop up capability. All of them were hard core engineers and did not have any commercial capability. They had engaged independent sales consultants and remuneration was based on success of receiving an order. They rented a flat and were operating from that building. They could hardly draw any salary for the first eighteen months. First order: For any aspiring professional services firm, the first order and initial phase of growth are defining moments of success. AEC had to work hard for its first order. After few

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months presenting to various contacts with whom they had worked, it was one of the promoters friends who gave a challenging engagement. They wanted to import second hand equipment of coal based power plant equipment for a power project at Chennai from South Africa. AEC was appointed as the consultant who would coordinate dismantling of the plant, ensure logistics and coordinate erection and commissioning of the plant representing the promoter interest. AECs services were or ensuring advisory on plant selection, erection and commissioning. AEC gained a lot of credibility on successful execution of this work order. Sales experience was more a referral engagement and AEC felt good on technical deliverable capability but was not confident of its marketing strategy. Early orders: AEC promoters had considerable experience in working for power system in a sugar plant. Sugar plant typically engages in co-generation of power using back pressure and steam is used in the process sections. There was an attempt to deploy high pressure boilers in place of low pressure boilers and generate more power and export the same to the grid. This was in late 1990s when sugar industry was active. The sugar industry was cyclic and a better recovery through use of bagasse for generating power improved manufacturing of sugar in India as energy savings and surplus power generation impacted both revenue and costs favourably. Profits increased phenomenally. AEC was well positioned to support this as they have worked on small boilers and turbines for power generation. They have specifically worked in sugar industry and familiar with process efficiency and improvements that can be done. Kamban who was responsible for business development had been approaching sugar factories for boiler and turbine maintenance related work and facilitate annual certification process and upkeep for sugar plant during off season to be effective during crushing. The approach was to be in the industry and ensure regular assignment to meet cash flow requirements of the firm. Many a times these contracts are based on time and effort and barely helped subsistence. AEC has grown into 25 plus member time to serve these customers. Towards the end of 90s, a Hyderabad based group which had successfully established sugar operations in one of the East Asian countries wanted to grow big domestically. The sugar industry is well matured and best of locations were already in production by large private firm or in cooperative sector. Inorganic route was seemingly way ahead for this group. It acquired interest in two plants namely one green field licence of a project in Nellore, Andhra Pradesh and another then operating 2000 tonnes of cane crushed (tcd) capacity plant at Karnataka. Since the group was keen to build the business in a quick time frame, they simultaneously triggered action on both the projects. The group decided to seek feasibility of converting Karnataka plant into 5000 tcd plant with appropriate co-generation capacity. They also looked at similar configuration at Nellore green field plant but not the same. The challenge in later was the cane development cycle and hence the group was looking at multi fuel

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capability and sizing appropriately. Since the project funding depended on feasibility of individual plants, they were divided to be managed independently and the group decided to appoint consultants to do feasibility separately. The challenge before the group was to appoint a single consulting firm for both or prioritize between two and go for two different consultants. They opted for the latter choice as the first consultant also expressed desire to work for the Karnataka plant as the scope for success was higher. This led to the group scouting for a consulting services firm for the AP plant. AEC became the contender as their freelance sales agent who was also representing a power plant equipment firm from Japan in India had contacts with decision making hierarchy of the group. Without much of sales effort, AEC had the challenging task of submitting a prefeasibility report in a short notice. The scope included assessment on power requirement, power generator equipment and process efficiency to optimise resources. AEC was given two weeks to complete the study. Since AEC needed a break, they agreed to do in a record time and the fee structure was not attractive, AEC was looking for a break through as they can engage the customer later in detailed project report preparation, representing to financial institution, vendor selection and supporting erection as it progresses in every stage. It looked like that an initial break through can give a customer for ever as there are stages in the project cycle and then into support mode. Typically, a customer revenue potential will follow a cycle of low earnings to high fees and then after completion into maintenance support. This is typical to any service including software solutions and service firm. On track to build services brand:On successful completion of this assignment, AEC was engaged by the management for preparing detailed project report for the co-generation plant.They had a lot of challenges as cane development cycle in a green field plant could take about a decade. Power plant sizing cannot be easily staggered. Hence AEC was challenged with designing an appropriate size of plant and use of multi fuel usage in the boilers. This also needs scope for tie up plans for fuel and export of power to the grid. At this location, the latter was also an issue which was to be addressed by AEC which was a tall order task. AEC did a study of using non-conventional energy sources and coal whereby imported coal could be used for generating 32 MW. On tying up with project funding, the project procurement and erection contract had to be finalised. Since power was key component of the project, AEC had a major role in procurement and erection. A number of meetings were to be held with power distribution agency with the state government to ensure support. AEC could do well all at its level with the support of the promoter group. This gave AEC necessary window to impress on many vendors and sugar industry promoters on their capability. Though the compensation structure was highly competitive, this gave AEC enough scope for building its brand value as professional services team. Especially the promoters gained a lot of visibility as independent service providers. The business was growing through referrals and AEC was clearly focusing on building capability and to deliver

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service quality. The processes were well defined and operating efficiency was good. It achieved quality certification which helped to improve customer acceptance. Marketing was seen as business development wherein one of the promoters was to focus on connecting with project promoters and industrialists who operated small and medium size boilers and power plants. He had to spend lot of time and effort on project conceptualization and convincing with the promoters which may result in an assignment. When an assignment is triggered, the other promoters used to engage for delivery of service and handle commercials. The marketing was clearly divided between identifying a customer, mapping his need and then converting into a deliverable and bill with appropriate delivery. It is to be noted here that business development to the next stage depends upon successful delivery as promised in the previous stage and managing customer expectations. It is very likely that customer may scale up the expectations as the delivery process is on and not revising the scope or the pecuniary benefits matching the time and effort. The delivery team typically lacked the skillsets to handle client relationship as they were driven by technical expertise and challenge to deliver the best without recognising the clients compulsions. At this point, Marketing Director and other Directors had to rework relationship with the customer who had further potential business to improve their satisfaction level. Marketing Director felt it is always easy to grow with an existing client rather than scouting for new prospects. The delivery team was insensitive as they cared for excellence in the domain capability and were more idealistic. AEC was growing but there were rough patches! Customer end changes strike like a lethal weapon and AEC response: When everything looked like going well and order book of AEC was good to engage their 40 member team in three years, the Hyderabad based group after close to two years of efforts landed on trouble in their sugar business. The sugar cycle hit low and realisations were not good. The inorganic route started giving trouble and funding became an issue. A lot of efforts were required to convince multiple agencies to generating funds for both the projects.The project promoter decided to divest from sugar business in India and sold off the plant. AEC by this time had put in a lot of efforts towards procuring boiler and turbine using institutional funding. In fact, the equipment had reached Indian shore. Unfortunately, the new owners prioritised on conventional model of sugar manufacture and desired to pull the plug off. They were not convinced of co-generation of plant with multi fuel and challenges of sourcing coal. They decided to strip off the project. This required selling off the project equipment to square off the loan. It took an unreasonable dent in AECs image as few would have had a window to understand the dynamics of decision environment. AEC put a brave front and advised new owners in asset repositioning. The power plant equipments were bought by a leading aggressive new generation sugar business promoter at Karnataka which again helped AEC to regain its professional image. This complexity in setting up the business at early stages for a professional services group led to serious impact

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on their team. Marketing Director had to spend a lot of time in resurrecting the project and work with many for ensuring that their services were recognised and paid to for the portion at which abandoned by the earlier promoter. There was crisis and business development hit a new low. Concerns that AEC carried: By this time when five years of existence had gone by, AEC could not scale up the team. The team size was around 40 and many assignment based consultants. Ability to bid for projects became tough and company could not be built on a strategic plan. Second, key concern was promoters as Executive Directors had to spend lot of time personally both on execution and relationship building on a critical project to ensure sustained client engagement. This formed the basis of marketing strategy. Marketing Director was of the view that in services marketing customer satisfaction, up scaling and long term partnership are vital for growth which is possible only through excellence in delivery and capability to manage resources (capacity build and deployment). This did not permit them to build scope for large number of new engagements with new customers as the first strike time is always long. Three, holding on to key resources became a challenge as power sector was growing and employees were able to quickly find jobs based on their experience at AEC. Thus, AEC became a breeding ground for skill development in power engineering consulting especially in chosen industries. Four, cash flow limitations constrained remuneration, investments and futuristic endeavours. There are certain compulsive investments like on licenses of software and so on which they had to commit. Since both the promoters are value driven professionals, they did not deviate from ethics and values. Employees who appreciated such culture and put it ahead of personal compensation are only those who could build career in AEC. Path to stability: In 2005, the promoters worked on a path to stability and launched a programme called Project on Rail. Marketing Director took responsibility for business development with new vigour. He realised that project promoters wanted to meet up with him and drive the feasibility. Once the project was through feasibility stage, he could involve the rest of the operating team to work on next stages of customer engagement. He found that feasibility projects did not give 10% of his revenue which took 80% of his time. The analysis of their work engagement towards revenue is as follows:

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S No 1. 2. 3.

Revenue classification

Feasibility study Site selection Detailed project report

4. 5.

Detailed engineering Procurement engineering

6.

Inspection and expediting

7. 8.

Construction supervision Commissioning supervision

9.

Support activities for ongoing projects

Total

% to % of Remarks total conversion to LOI 10 100 Time consuming from first contact 2 50 This becomes critical in case of multi fuel projects 25 40 Good scope for engaging resources as further assignments are possible. 25 25 Need to show case excellent engineering capability 10 40 Customers request top management support. Not a preferred activity as there could be conflict of interest and stretching engagement to project promoter interests 3 50 This may be required where responsibility is there for commissioning 2 40 Only on request 3 50 Selective cases of new designs and initiatives and promoters request 20 80 Bread and butter for regular cash flow streams and to have continued customer engagement 100

Though engagements from 1 to 8 can go sequentially, many a times new customers can also be brought in especially for detailed project report and engineering. The above activities have been detailed in the Annexure 1. The Operations Director was of the opinion that more focus must be given for detailed engineering and support activities and brand building would be through delivery excellence. Marketing Director felt that though it is of paramount importance, if AEC has to grow bigger there must be a focused marketing approach. There must look scope for bringing new customers at various categories. Also, he felt support activities must increase from current 20% share to 40% share of revenue with good amount of overseas revenue coming from Middle East and Africa. This required investing on marketing

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resources. Also, he opined that there must a structured way of strategizing growth and link functions like operations, marketing, finance, human resources and services to take it to higher level of growth. According to Marketing Director, AEC revenue model must have the following: 1. Based on time and effort: Clients can be charged only on a time and effort basis. AEC could use case studies and past record to justify the fees. This works well for feasibility studies and support activities. According to him, feasibility study marketing may not contribute to revenue but builds the brand as the promoters realise the potential and engage for support services. More importantly, many of referral marketing originate from here. This more akin to investor relations - whether you seek capital or otherwise, you need to hobnob with fund providers! Similarly, whether project promoters engage with you or otherwise you need to engage with them to know who is investing where in your relevant area. 2. Based on results delivered only: Usually customers have specific needs which have to be served through excellent domain capability. Past track record is critical for this. Knowledge management and resource management are also important. Operations focused area and marketing will have upward spiralling effect. This can be handled by Operations Director and his team. Promoters agreed that 30% of their revenue must come from here. 3. Combination of both: Many of the larger clients seek combination of both. This is a very critical area where the fee is based on delivered results and brand worthiness. There is a usually the variable component. But such assignments are important for long term sustained growth and building larger capacity. They agreed that 20% of revenue must come from here. There could be a split up of revenue happening in the first two as large clients would have multiple business groups and operations may handle consulting needs directly. So marketing must be sensitive to that as well. AEC as of 2010 and dilemma: As of 2010, AEC is of 137 members team with strong brand image and repeat customers. AEC has engineered power plants based on various fuels including:
a. b. c. d.

Coal HFO / HSD Natural gas Biomass fuels like bagasse, rice husk, Julia flora, casurina

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AEC has handled approximately 450 projects and the value of these projects is about Rs. 7000 crores. The earnings for AEC are based on scope of the work in any particular project and vary from time and effort model to a small percentage on the value of the projects. Interestingly, AEC has done more than 10 percent of its projects outside India and has a high proportion in terms of earnings from abroad. According to Marketing Director, one will have to see how engineering services are evolving in India and relate to AEC. The AEC business is growing with his approach to network and develop relationships and conclude deals on serving the need basis. There have been no aggressive promotions. Operations Director is the chief architect of execution and managing projects. Commercials are still weak as they have had no time to fix the gap. Marketing Director is of the view that the future growth depends upon making the entity as a professional company rather than being a professional services group which run on individual capabilities. According to him, though the current business and revenues are good for them individually, he was wondering how to build a marketing department and become aggressive. Organisation structure of AEC is given in Annexure 3. It may be observed from Table on Organisation structure of AEC that AEC is structured based on department of engineering and functions like mechanical, electrical and instrumentation, civil and structural engineering, project management, piping, processes and special projects and support services like HR, finance and secretarial. Promoters felt that the following issues to be addressed and engage a management consultant to address these issues:

1. Define customer needs, group and map them to revenue focus. 2. Should current promoter led marketing strategy of engaging a prospect and service delivery led brand association for customer delight supporting revenue be model of growth? 3. What services operations strategy AEC should look at for customer segment group? 4. What are the key marketing orientation at early stages of growth and phases of trouble? 5. How to build a marketing and sales department and promoters to involve

themselves in organisation building for next level of growth?

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ANNEXURE 1

Background of promoers

Kamban S: Kamban is in mid 50s and has worked in large public sector Power Company in early years of his career. Later, he moved to one of the then leading engineering consulting firm in Chennai as Head of Instrumentation & Electrical engineering. When this consulting firm was acquired by a German company, there was an exodus and brilliant engineers became entrepreneurs in power engineering consulting. Kamban joined along with four others formed a company named ABC power engineering consulting firm. Unfortunately, after three years, the four promoters fell apart with Kamban and Kamban had to have an exit. Kamban found that the market for power engineering consulting has been growing after liberalisation in India. The partial decontrol of sugar industry and picking up of cogeneration of power gave immense opportunity to set up own professional service firm. Kamban has aspirations for building a large professional power engineering consulting firm. Mr.K.A.Ganesh has a brilliant academic record in mechanical engineering from a premier institute. He has worked in consulting companies in early stages starting as a Graduate Engineer trainee. He has had also moved with Kamban to the German based engineering consulting firm and then to ABC power consulting firm. Ganesh (who is in early 40s) partnered with Kamban in the new initiative. Ganesh has eye for details and excellence in delivery and process adherence are his key strengths.

1.0 1.1 1.2 1.3

Annexure 2.List of activities FEASIBILITY REPORT

Collection of information required for sizing the power plant. Discussions with the technical officials to finalize the steam and power balance. Techno economic comparison of various thermal cycle parameters and selection of the optimum parameters.

1.4 1.5 1.6

Techno economic comparison of various power evacuation voltages. Study of power distribution system for interplant and for connection to the grid. Preparation of brief specifications for boiler, turbo generator, and balance of plant equipment.

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1.7

Financial analysis.

2.0 2.1 2.2

DETAILED PROJECT REPORT

Finalisation of the optimum thermal cycle for the power plant. Preparation of technical specification for boiler, turbo alternator and other balance of plant equipment.

2.3 2.4 2.5 2.6

Getting budgetary quotation from the suppliers for the equipment. Preparation of plant layout drawings. Methodology for the power evacuation system and interplant distribution system. Selection of voltages, size and capacity of the transformers and switchgears required for switchyard area.

2.7 2.8 2.9 2.10 2.11 2.12 2.13 3.0 3.1 3.2 3.3 3.4 3.5

Preparation of single line diagram for electrical distribution. Finalisation of the utilities like water, process steam etc, for the power plant. Project cost estimate. Financial analysis. Sensitivity analysis. Preparation of organisation chart for O&M. Project implementation schedule.

DETAILED ENGINEERING SERVICES

Collection of information required for sizing the power plant. Finalising the thermal cycle and power evacuation system for the site condition. Finalisation of utilities like water, compressed air etc., for the proposed power projects. Detailing of power evacuating system for connection to the grid. Preparation of detailed technical specifications for boiler, turbo generator, switch yard equipments, water treatment plant, compressor plant, fire fighting system, cooling water system etc., for floating of tenders.

3.6

Preparation of plant layout and utilities.

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3.7

Detailing of fuel storage and suitable handling system for uninterrupted supply of fuel to the boiler.

3.8 3.9

Estimation of water quantity required for cooling, fire fighting and make- up water system. Preparation of a technical specification of instrumentation and control system required for boiler, turbo-generator and for synchronization with the state grid.

3.10

Selection of voltages, size and capacity of the generator, distribution transformers and switchgears required for the switchyard area.

3.11 3.12

Switch yard layout preparation, protection system required for paralleling with the grid. Technical specification of equipments to prevent air and water pollution as per the norms prescribed by the respective State Pollution Control Board (SPCB).

3.13 3.14 3.15 4.0 4.1

Technical specifications for ash handling system. Preparation of single line diagram for electrical distribution network. Civil and Structural design of the Plant.

PROCUREMENT ENGINEERING
Floating of enquiries with reference to the technical specification of various items / equipments.

4.2 4.3 5.0 5.1 5.2 5.3

Evaluation of the technical bids received from various vendors. Short listing of vendors and recommendation.

PROJECT MANAGEMENT SERVICES

Preparation of project schedule. Approval of Vendor drawings. Review of manufacturing activities of the vendors for critical components like boiler, turbo generator etc.,

5.4 5.5 5.6

Conducting review meeting and progress monitoring at site. Inspection of critical components at vendors works. Supervision of erection and commissioning at site.

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Annexure 3 Organisation structure of AEC

BOARD OF DIRECTORS
ELECTRICAL & INSTRUMENTATION ENGINEERING PRINCIPAL ENGINEER S.Kamban

MECHANICAL ENGINEERING

PROJECT MANAGEMENT, PROCUREMENT & SITE SERVICES

CIVIL & STRUCTURAL ENGINEERING

PROCESS, PIPING & SPECIAL PROJECTS

HR & ADMIN (3)

PRINCIPAL ENGINEER K.A.Ganessh

SR. CONSULTANTS 1. FUEL FIRING SYSTEM 2. BALANCE OF PLANT 3.PROCESS (2) 4. PROJECT MANAGEMENT (3)

Senior Consultants 7

PRINCIPAL ENGINEER L. Prakash

FINANCE & ACCOUNTS (1)

SR. CONSULTANTS 1.GENERATOR & MOTOR 2.I&C 3.ELECTRICAL SYSTEM & instrumentation - 4

SR. CONSULTANTS 1.THERMAL PLANT COMMISSIONING (3) 2.STG (2) 4.BOILER (3) 5.ROTATING EQUIPMENT (2)

ENGINEERS - 11 ENGINEERS - 11

SECRETARIAL STAFF (4)

Draughts person - 18

Draughts person - 14

OFFICE ASSISTANTS (4)

ENGINEERS - 8

ENGINEERS - 18

Draughts person -5

Draughts person - 6

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Rules and Guidelines

It is mandatory for all the teams to perform registration process on (http://lakshwiz.nitie.in).

LakshWizwebsite

The team size should be of maximum 2 people from the same institute. A participant cannot be a part of more than one team participating for the same case. However one can participate in more than one Case. The participants are allowed to form different teams for different modules. The solution should not exceed 2000 words inclusive of all exhibits and appendices. As mentioned earlier, clearly indicate assumptions and support them with suitable reasons under separate heading. Solution format: Font Size 12, Font Type Times New Roman, 1.5 line spacing The file should be a Microsoft Word Document/PDF. The front page should carry only Name of your Institute Team Name Details of the team members (Name, Email IDs, Phone Numbers) The details of the participants SHOULD NOT appear anywhere else in the case solution.4 Please attach your excel sheets/calculations to the mail if any. Send your entries to lakshwiz@gmail.com with the document name as Bazaar_InstituteName_Team Name and subject of mail as Bazaar_InstituteName_Team Name. The entries must reach us positively by Friday, September 23rd, 2011 23:59:59 hrs. Shortlisted candidates of Round I will be informed via e-mail. The results of Round I will also be available on official website of LakshWizon or before Sunday, 2ndOctober 2011. The details of Round II will be published later. The decision of the organizers of the contest and the panel of judges will be final and binding on all contestants. Please write to us in case of any queries at lakshwiz@gmail.com

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