Bazaar - Marketing Case Study

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Marketing Case study

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Customer Engagement and Growth of aProfessional 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. Alsothanks Prof.P.S.Anathanaryanan and Oxford University Press of India which has published abook on Strategic Management authored by Prof.P.S.Anathanarayanan andN.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 academicdiscussions only. The facts, figures and financials are not necessarily taking a position on thecompany and neither the author nor the company is responsible for any commercialdecision based on this case material.------------------------------------------------------------------------------------------------------------------------Aquatherm Engineering Consultants (AEC) is based out of Chennai promoted by Mr.Kambanand Mr.Ganeshwith two other friends in the area of power project engineering. Thecompany has completed 15 years of existence as of September 2011. Annexure 1 gives background of the two promoters. While they started the business, they hardly had anyexposure to sales and marketing efforts required. They were passionate about serving acustomer need with respect to power project engineering mainly in small and medium sizedprojects. They had understood to satisfy a customer through their excellent deliverymechanism and many times engage a customer on an advisory role with respect to projectrequirement, vendor selection and representing to financial institutions on technical clarityfor project funding.

When they started the business in late 1990s, they thought that if they could engage wellwith customers in a large consulting services market, marketing and sales need not be aspecialized support function. They teamed up with few freelancers to present beforeprospective clients to prop up capability. All of them were hard core engineers and did nothave any commercial capability. They had engaged independent sales consultants andremuneration was based on success of receiving an order. They rented a flat and wereoperating from that building. They could hardly draw any salary for the first eighteenmonths.

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 thepromoters friends who gave a challenging engagement. They wanted to import secondhand equipment of coal based power plant equipment for a power project at Chennai fromSouth Africa. AEC was appointed as the consultant who would coordinate dismantling of the

plant, ensure logistics and coordinate erection and commissioning of the plant representingthe promoter interest. AECs services were or ensuring advisory on plant selection, erectionand commissioning. AEC gained a lot of credibility on successful execution of this workorder. Sales experience was more a referral engagement and AEC felt good on technicaldeliverable capability but was not confident of its marketing strategy.

Early orders: AEC promoters had considerable experience in working for power system in asugar plant. Sugar plant typically engages in co-generation of power using back pressure andsteam 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 abetter recovery through use of bagasse for generating power improved manufacturing of sugar in India as energy savings and surplus power generation impacted both revenue andcosts favourably. Profits increased phenomenally.

AEC was well positioned to support this as they have worked on small boilers and turbinesfor power generation. They have specifically worked in sugar industry and familiar withprocess efficiency and improvements that can be done. Kamban who was responsible for

business development had been approaching sugar factories for boiler and turbinemaintenance related work and facilitate annual certification process and upkeep for sugarplant during off season to be effective during crushing. The approach was to be in theindustry and ensure regular assignment to meet cash flow requirements of the firm. Many atimes these contracts are based on time and effort and barely helped subsistence. AEC hasgrown into 25 plus member time to serve these customers.

Towards the end of 90s, a Hyderabad based group which had successfully established sugaroperations in one of the East Asian countries wanted to grow big domestically. The sugarindustry is well matured and best of locations were already in production by large privatefirm or in cooperative sector. Inorganic route was seemingly way ahead for this group. Itacquired interest in two plants namely one green field licence of a project in Nellore, AndhraPradesh and another then operating 2000 tonnes of cane crushed (tcd) capacity plant atKarnataka.

Since the group was keen to build the business in a quick time frame, they simultaneouslytriggered action on both the projects. The group decided to seek feasibility of convertingKarnataka plant into 5000 tcd plant with appropriate co-generation capacity. They alsolooked at similar configuration at Nellore green field plant but not the same. The challengein 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 toappoint consultants to do feasibility separately. The challenge before the group was toappoint 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 towork 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 becamethe contender as their freelance sales agent who was also representing a power plantequipment firm from Japan in India had contacts with decision making hierarchy of thegroup. Without much of sales effort, AEC had the challenging task of submitting a pre-feasibility 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 recordtime and the fee structure was not attractive, AEC was looking for a break through as theycan engage the customer later in detailed project report preparation, representing tofinancial institution, vendor selection and supporting erection as it progresses in everystage. It looked like that an initial break through can give a customer for ever as there arestages in the project cycle and then into support mode. Typically, a customer revenuepotential will follow a cycle of low earnings to high fees and then after completion intomaintenance support. This is typical to any service including software solutions and servicefirm.

On track to build services brand: On successful completion of this assignment, AEC wasengaged by the management for preparing detailed project report for the co-generationplant.They had a lot of challenges as cane development cycle in a green field plant couldtake about a decade. Power plant sizing cannot be easily staggered. Hence AEC waschallenged with designing an appropriate size of plant and use of multi fuel usage in theboilers. This also needs scope for tie up plans for fuel and export of power to the grid. Atthis location, the latter was also an issue which was to be addressed by AEC which was a tallorder 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, theproject procurement and erection contract had to be finalised. Since power was keycomponent 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 toensure 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 promoterson their capability. Though the compensation structure was highly competitive, this gaveAEC 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 wasgrowing 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. Itachieved 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 mediumsize boilers and power plants. He had to spend lot of time and effort on projectconceptualization 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 serviceand 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 successfuldelivery as promised in the previous stage and managing customer expectations. It is verylikely 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 teamtypically lacked the skillsets to handle client relationship as they were driven by technicalexpertise and challenge to deliver the best without recognising the clients compulsions. Atthis point, Marketing Director and other Directors had to rework relationship with thecustomer who had further potential business to improve their satisfaction level. MarketingDirector felt it is always easy to grow with an existing client rather than scouting for newprospects. The delivery team was insensitive as they cared for excellence in the domaincapability and were more idealistic. AEC was growing but there were rough patches!

Customer end changes strike like a lethal weapon and AEC response : When everythinglooked like going well and order book of AEC was good to engage their 40 member team inthree years, the Hyderabad based group after close to two years of efforts landed ontrouble in their sugar business. The sugar cycle hit low and realisations were not good. Theinorganic route started giving trouble and funding became an issue. A lot of efforts wererequired to convince multiple agencies to generating funds for both the projects.The projectpromoter 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 usinginstitutional funding. In fact, the equipment had reached Indian shore. Unfortunately, thenew owners prioritised on conventional model of sugar manufacture and desired to pull theplug off. They were not convinced of co-generation of plant with multi fuel and challengesof sourcing coal. They decided to strip off the project. This required selling off the projectequipment to square off the loan. It took an unreasonable dent in AECs image as few wouldhave had a window to understand the dynamics of decision environment.

AEC put a brave front and advised new owners in asset repositioning. The power plantequipments were bought by a leading aggressive new generation sugar business promoterat Karnataka which again helped AEC to regain its professional image. This complexity insetting 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 andwork with many for ensuring that their services were recognised and paid to for the portionat which abandoned by the earlier promoter. There was crisis and business development hita new low.

Concerns that AEC carried : By this time when five years of existence had gone by, AEC couldnot scale up the team. The team size was around 40 and many assignment basedconsultants. Ability to bid for projects became tough and company could not be built on astrategic plan. Second, key concern was promoters as Executive Directors had to spend lotof time personally both on execution and relationship building on a critical project to ensuresustained client engagement. This formed the basis of marketing strategy. MarketingDirector was of the view that in services marketing customer satisfaction, up scaling andlong 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 notpermit them to build scope for large number of new engagements with new customers asthe first strike time is always long. Three, holding on to key resources became a challenge aspower sector was growing and employees were able to quickly find jobs based on theirexperience at AEC. Thus, AEC became a breeding ground for skill development in powerengineering consulting especially in chosen industries. Four, cash flow limitationsconstrained remuneration, investments and futuristic endeavours. There are certaincompulsive 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 personalcompensation are only those who could build career in AEC.

Path to stability : In 2005, the promoters worked on a path to stability and launched aprogramme called Project on Rail. Marketing Director took responsibility for businessdevelopment with new vigour. He realised that project promoters wanted to meet upwith him and drive the feasibility. Once the project was through feasibility stage, he couldinvolve 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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SNo

Revenue classification % tototal

% of conversionto LOI

Remarks

1. Feasibility study 10 100 Time consuming from firstcontact

2. Site selection 2 50 This becomes critical in case of multi fuel projects

3. Detailed project report 25 40 Good scope for engagingresources as furtherassignments are possible.

4. Detailed engineering 25 25 Need to show case excellentengineering capability

5. Procurement engineering 10 40 Customers request topmanagement support. Not apreferred activity as therecould be conflict of interest andstretching engagement toproject promoter interests

6. Inspection and expediting 3 50 This may be required whereresponsibility is there forcommissioning

7. Construction supervision 2 40 Only on request8. Commissioning supervision 3 50 Selective cases of new designs

and initiatives and promotersrequest

9. Support activities for on-going projects

20 80 Bread and butter for regularcash flow streams and to havecontinued customerengagement

Total 100

Though engagements from 1 to 8 can go sequentially, many a times new customers can alsobe 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 detailedengineering and support activities and brand building would be through deliveryexcellence. Marketing Director felt that though it is of paramount importance, if AEC hasto grow bigger there must be a focused marketing approach. There must look scope forbringing 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 overseasrevenue 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 andlink functions like operations, marketing, finance, human resources and services to take itto 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 orotherwise 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 brandimage and repeat customers. AEC has engineered power plants based on various fuelsincluding:

a. Coal

b. HFO / HSD

c. Natural gas

d. 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 projectand 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 supportservices 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 inearly years of his career. Later, he moved to one of the then leading engineering consultingfirm in Chennai as Head of Instrumentation & Electrical engineering. When this consultingfirm was acquired by a German company, there was an exodus and brilliant engineersbecame entrepreneurs in power engineering consulting. Kamban joined along with fourothers 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 anexit.

Kamban found that the market for power engineering consulting has been growing afterliberalisation in India. The partial decontrol of sugar industry and picking up of co-generation 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 premierinstitute. He has worked in consulting companies in early stages starting as a GraduateEngineer trainee. He has had also moved with Kamban to the German based engineeringconsulting 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 indelivery and process adherence are his key strengths.

Annexure 2.List of activities1.0 FEASIBILITY REPORT

1.1 Collection of information required for sizing the power plant.

1.2 Discussions with the technical officials to finalize the steam and power balance.

1.3 Techno economic comparison of various thermal cycle parameters and selection of theoptimum parameters.

1.4 Techno economic comparison of various power evacuation voltages.

1.5 Study of power distribution system for interplant and for connection to the grid.

1.6 Preparation of brief specifications for boiler, turbo generator, and balance of plant equipment.


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1.7 Financial analysis.

2.0 DETAILED PROJECT REPORT

2.1 Finalisation of the optimum thermal cycle for the power plant.

2.2 Preparation of technical specification for boiler, turbo alternator and other balance of plantequipment.

2.3 Getting budgetary quotation from the suppliers for the equipment.

2.4 Preparation of plant layout drawings.

2.5 Methodology for the power evacuation system and interplant distribution system.2.6 Selection of voltages, size and capacity of the transformers and switchgears required for

switchyard area.

2.7 Preparation of single line diagram for electrical distribution.

2.8 Finalisation of the utilities like water, process steam etc, for the power plant.

2.9 Project cost estimate.

2.10 Financial analysis.

2.11 Sensitivity analysis.

2.12 Preparation of organisation chart for O&M.

2.13 Project implementation schedule.

3.0 DETAILED ENGINEERING SERVICES

3.1 Collection of information required for sizing the power plant.

3.2 Finalising the thermal cycle and power evacuation system for the site condition.

3.3 Finalisation of utilities like water, compressed air etc., for the proposed power projects.

3.4 Detailing of power evacuating system for connection to the grid.

3.5 Preparation of detailed technical specifications for boiler, turbo generator, switch yardequipments, water treatment plant, compressor plant, fire fighting system, cooling watersystem 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 theboiler.

3.8 Estimation of water quantity required for cooling, fire fighting and make- up water system.

3.9 Preparation of a technical specification of instrumentation and control system required forboiler, turbo-generator and for synchronization with the state grid.

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

3.11 Switch yard layout preparation, protection system required for paralleling with the grid.

3.12 Technical specification of equipments to prevent air and water pollution as per the normsprescribed by the respective State Pollution Control Board (SPCB).

3.13 Technical specifications for ash handling system.

3.14 Preparation of single line diagram for electrical distribution network.

3.15 Civil and Structural design of the Plant.

4.0 PROCUREMENT ENGINEERING

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

4.2 Evaluation of the technical bids received from various vendors.

4.3 Short listing of vendors and recommendation.

5.0 PROJECT MANAGEMENT SERVICES

5.1 Preparation of project schedule.

5.2 Approval of Vendor drawings.

5.3 Review of manufacturing activities of the vendors for critical components like boiler, turbogenerator etc.,

5.4 Conducting review meeting and progress monitoring at site.

5.5 Inspection of critical components at vendors works.

5.6 Supervision of erection and commissioning at site.


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Annexure 3 Organisation structure of AEC

BOARD OF DIRECTORS

MECHANICALENGINEERING

ELECTRICAL &INSTRUMENTATION

ENGINEERING

PROJECT MANAGEMENT,PROCUREMENT & SITE

SERVICES

CIVIL &STRUCTURALENGINEERING

PROCESS, PIPING &SPECIAL PROJECTS

HR & ADMIN(3)

PRINCIPALENGINEER -K.A.Ganessh

PRINCIPALENGINEER -S.Kamban

SeniorConsultants 7

PRINCIPALENGINEER -

L. Prakash

FINANCE &ACCOUNTS (1)

SR. CONSULTANTS1. FUEL FIRING

SYSTEM2. BALANCE OF

PLANT3.PROCESS (2)4. PROJECTMANAGEMENT (3)

SR. CONSULTANTS1.GENERATOR &MOTOR2.I&C3.ELECTRICAL SYSTEM &instrumentation - 4

SR. CONSULTANTS1.THERMAL PLANTCOMMISSIONING (3)

2.STG (2)4.BOILER (3)5.ROTATINGEQUIPMENT (2)

ENGINEERS - 11 SECRETARIALSTAFF (4)

Draughts person - 14OFFICE

ASSISTANTS (4)

ENGINEERS - 8

Draughts person - 6

ENGINEERS - 18

Draughts person- 5

ENGINEERS - 11

Draughts person- 18


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Rules and Guidelines It is mandatory for all the teams to perform registration process on LakshWiz website

(http://lakshwiz.nitie.in ).

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 suitablereasons under separate heading.

Solution format: Font Size 12,Font Type Times New Roman,1.5 line spacingThe file should be a Microsoft Word Document/PDF.

The front page should carry onlyName of your InstituteTeam NameDetails of the team members (Name, Email IDs, Phone Numbers)

The details of the participants SHOULD NOT appear anywhere else in the casesolution.4

Please attach your excel sheets/calculations to the mail if any.

Send your e ntries to [email protected] with the document name asBazaar_InstituteName_Team Name and subject of mail asBazaar_InstituteName_Team Name .

The entries must reach us positively by Friday, September 23 rd , 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 LakshWiz on or beforeSunday, 2 nd October 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 andbinding on all contestants.

Please write to us in case of any queries at [email protected]


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Bazaar - Marketing Case Study