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Business Plan

Energy Challenge Services

Contents

1. Company description

 

4

2. Business Model

5

2.1. Opportunity description

 

5

2.2. Business model

 

6

2.2.1. Value proposition

6

2.2.2. Customer segments

 

6

2.2.3. Channels

 

9

2.2.4. Customer relationship

 

11

2.2.5. Revenue streams

 

11

2.2.6. Key partners

12

2.2.7. Key activities

13

2.2.8. Key

resources

13

2.2.9. Cost Structure

 

14

3. Vision, Mission and Values

14

3.1. Vision

14

3.2. Mission

15

3.3. Values

15

4. External Environment Analysis

 

17

4.1. PESTEL analysis

 

17

4.2. Industry attractiveness

19

4.3. Competitive forces (Porter’s model)

20

4.3.1. Threat of entry: high

 

20

4.3.2. Industry rivals: strong

21

4.3.3. Bargaining

power

of

suppliers: weak

21

4.3.4. Bargaining power of buyers: strong

21

4.3.5. Treat of

substitutes: weak

 

21

4.4. Factors that drive industry change and impact

22

4.5. Industry rivals’ positioning

 

23

4.6. Likely strategic moves of the rivals

24

4.7. Key factors for future competitive success

24

5.

Internal Environment Analysis

25

5.1. Competitive resources and capabilities

26

5.2. SWOT analysis of the business

27

5.3. Assessment of competitiveness and appeal to the customers

28

5.4. Competitive positioning

30

6. Distinctive competencies

31

7. Growth and Generic Strategies

32

7.1. Selection

of

generic strategy

32

7.2. Selection

of

growth strategy

33

8. Marketing strategy

35

8.1.

Marketing

strategy

35

8.2.

Marketing mix

35

8.2.1. Products and services portfolio

35

8.2.2. Prices

 

37

8.2.3. Promotion

 

38

8.2.4. People

39

8.2.5. Place

 

39

8.2.6. Process

 

40

8.2.7. Physical evidence

41

8.3.

Marketing

&

Sales strategies

41

8.3.1. Phase 1

41

8.3.2. Phase 2: Future developments

43

8.4.

Positioning and client retention campaigns

43

9. Production / Operations

45

9.1.

Resources

45

9.1.1. People

 

45

9.1.2. Tools

 

46

9.1.3. Offices

 

47

9.2.

Processes

47

9.2.1. Processes design

47

9.2.2. Operational KPIs

49

9.2.3.

Continuous improvement

49

9.3.

IT application: Work Force Management (WFM)

49

10.

Human Resources

 

51

10.1. Organizational structure

51

10.2. Recruitment

 

53

10.3. Training

 

53

10.4. Motivation

 

54

11.

Risks

54

11.1. External risks

 

54

11.2. Internal risks

56

12.

Financial plan

58

12.1.

Summary financial projections

58

12.1.1. Income statement

 

58

12.1.2. Statement of financial position

59

12.2.

Key financial ratios

 

60

13.

Exit Strategies

61

References

 

63

Appendices

67

Appendix

1

ECS’s strategic objectives

67

Appendix

2

Processes description

70

Appendix 3 Key financial assumptions

73

Appendix

4

Key

financial

ratios

77

1. Company description

Energy Challenge Services(ECS), a limited liability company to be headquartered in Bucharest, Romania, will offer integrated utility services to households and small to medium businesses. ECS will offer a range of utility services to the clients, based on the core values of safety (for both customers and for our personnel) and flexibility (with a “one-stop-shop”, “get the job done” approach, i.e. specialization of the personnel allowing for multi-utility services).

The company will be owned by 4 shareholders, individuals, also holding the key management positions in the company.

2. Business Model

2.1. Opportunity description

Following market analysis, we have identified the potential on the Southern half of Romania for the supply of technical services, namely home

energy services, ranging from revisions and verifications of in-house gas

installations and periodical technical verification of heating devices to small repairs of gas and electricity in-house installations. The opportunity was identified based on several key elements (detailed further in the business plan):

- There are a number of services that are mandatory for all customers with a certain periodicity revisions and verifications of in-house gas installations and technical verification of heating devices and these services could represent the basis for further development;

- In addition, the market trend is for integrated home services, providing maximum comfort and minimum time spent for the client. There is high potential for multi-utility service providers on the market (Bain, 2014);

- The potential of market development, identified based on macroeconomic review (GDP growth, GDP/capita) is significantly higher in areas around Bucharest;

- The Southern market is fragmented, and therefore, while competition is stronger, there is also better growth potential. “The dynamism of the industry may make it harder to survive, but eventually the survivors tend to be rewarded with better growth prospects” (Davidsson et al, 2010).

2.2.

Business model

2.2.1. Value proposition

The value proposition is focused around safety and comfort for the customers, with a “getting-the-job-done” approach. Safety is paramount for utility services particularly in the gas business, on a yearly basis, in Romania, there are hundreds of deaths caused by intoxication with carbon monoxide. Therefore, ensuring the timely and accurate revision of in-house installations is critical for both households and businesses. Our business is focused on ensuring maximum safety for our clients, by employing only licensed / authorized workers and employing latest technologies in gas leakage detection. This will be expanded to the other services energy and non-energy as safety is key for all utility services. Comfort is the second key attribute of utility services: since these are perceived by the customers as a basic necessity, customers expect a “getting- the-job-done” approach, with very little (if any) time involvement from their side. Our focus is on maximizing the comfort by using agile processes and enhanced technological support, particularly in setting appointments.

2.2.2. Customer segments

Our initial target for market penetration is represented by customers falling under the requirement of performing revisions and verifications of in-house installations. As this is a regulatory obligation, the market for such services exists

and can be easily identified through their relationship with the gas distribution operation. Geographically, we have selected to address the Southern region. From our market study, we noted that the Southern market for revisions and verifications is fragmented. Historically, revisions and verifications of in-house gas installations are performed by the gas distributor or companies affiliated to the gas distributor.

There are only a few, very small, service suppliers, as X Company has managed to maintain the entire market under its control, through an aggressive low-price policy. On the Southern region, the operator of the distribution system has opted to reduce dramatically its market share, leaving room for other service providers the market being very fragmented. In terms of customer segmentation, our main target is represented by households (due to their large number and ease of access). For households, it is critical to have their gas installations verified timely as otherwise the DSO has the obligation to disconnect them. Households are price sensitive, since the service is perceived as non-value added, but merely a legal requirement, and, from our market study, there seems to be no supplier loyalty.

The Business Model Canvas

Key Partners Key Activities Value Proposition Customer Relationships Customer Segments Focus on getting things done
Key Partners
Key Activities
Value Proposition
Customer Relationships
Customer Segments
Focus on getting things done - minimum
Household market (HH)
-
Select and train employees(workers
We provide you with safety and comfort
- Gas DSO
involvement from the customer,
and sales force)
- Suppliers / manufacturers of central
ensuring that their needs are met with
-
Regulatory approvals / licensing
heating installations, heating devices,
no effort from their side
(company and employees)
thermostats, etc.
Business market (focus on small, up to
We are a reliable business partner,
- Acquire list of gas customers from DSO
-
Financial institutions (access to client
medium businesses)
focused on safety issues
- Set - up call center (outsourced) and
base; warranty and post - warranty
Long- term relationships - long- term
website
services; possibility for one- stop -shop,
contracts with complex (bundled)
-
Start from the traditional customer
Characteristics:
-
Marketing campaign - develop
including even financing of acquisition
services - adding services as needed,
base for revisions and verifications -
bundled services
of heating devices)
ensuring payment flexibility
acquire lists per targeted counties from
- Safety as paramount
gas distributor
- “Getting the job done” approach: all-
- Feedback from clients (gathered
-
Start from Bucharest and neighboring
i n - one solutions and speed of service
directly, through website or call center)
areas
(one visit and multiple solutions)
to be incorporated in additional /
- Scalability and ease of customization
different home energy services
for each clients’ needs
Key Resources
Channels
-
Use workers as direct sales force for list
- Tools and equipment
of HH with expiring revisions /
- WFM implementation (productivity
verifications and for identifying potential
increase)
additional services
-
Workers (multi- skill training and
motivation scheme)
-
Sales force (training and motivation
- Call center - dedicated, toll free
scheme)
number
-
Bank financing
-
Website (with possibility of setting
appointments) and mobile app
- In addition, BM will also be
approached through dedicated sales
force

Cost Structure

be approached through dedicated sales force Cost Structure - PEX- driven business (largest share of costs

- PEX- driven business (largest share of costs for workers and sales force)

- Customer list acquisition costs

- Outsourcing costs (call center, support services)

- Business mostly cost - driven

- The largest part of costs are fixed (PEX), however employees will be hired based on evolution of the

business, in order to minimize impact

Revenue Streams

the business, in order to minimize impact Revenue Streams - Revisions and verifications of in -

- Revisions and verifications of in - house installations

- Technical verifications for heating devices

- Shift from sale of single products to packages of services (full energy services for the house)

Exhibit 1: Business Model CANVAS for ECS Utility Services

In addition to the legally-required services, a second service offered from the start is the verification of the central heating installations. The target for these services will be identified from two sources: partnerships with producers / sellers and direct identification of the potential by our employees (when performing revision of the in-house gas installation). On the medium to long run, we aim to obtain customer loyalty through offering subscriptions for total utility services (including small repairs for gas and electricity installations, air conditioning cleaning, in-house water works, etc.) Business market represents an additional target, to be addressed however specifically, in a more customized manner, through specialized sales representatives. The services offered are the same on the short run, but, depending on the size of the customer, customized solutions may be offered from monthly subscriptions for service packages, up to installation of heating solutions (including financing possibilities) on the longer run.

2.2.3. Channels We will raise initial awareness about our services through:

- Direct contact of the customers with expiring revisions and verifications. We will acquire the list of such customers from the DSO and we will approach them in a centralized manner, i.e. by location. Generally, considering the expansion of the gas network, we would expect that most customers which are close geographically (i.e. same street, same neighbourhood) also fall in the same category of expiration of revisions and verifications, which would allow for planning the visits. Prior to the first visit, we would inform them (through written notifications) about the expiration of the revision/verification and that we would be available to perform the service on a certain date.

- Listing on National Energy Regulatory Authority website as soon as the company is set up, we will obtain all required regulatory licenses and

certifications. Thus, as the company is certified, it will be included on the official list of service providers on NERA’s website. The DSOs’ call centres are obliged to make reference to this list.

- Website we will set up a company website, with the possibility for the customers to set up appointments online, depending on their availability. In addition, a specialized mobile application will be developed and the customer will be able to see at any moment the stage of the request.

- Call centre a toll-free number will be created (mentioned on all notifications and invoices and on the website), for the customers to be able to contact us directly.

- Dedicated sales force will be used for business market only, in order to allow for a differentiated approach, and more flexibility in terms of services offered, payment terms, etc. In order to help the customers evaluate our value proposition, we will provide them with questionnaires during the revision and verification, and ask for their view on the services provided and on additional potential services. Based on the filled-in questionnaires, we will be able to focus better on what the customers want / need. Purchase of our services will be performed either directly (immediately when the operator performs the work, he/she will print an invoice and collect the cash; alternatively, sales representatives will conclude contracts directly), through the website or call-centre (if the customers contact us proactively to set appointments). Delivery of services will be performed on site, by the specialized workforce.

2.2.4.

Customer relationship

Since this is a start-up business, there is no established customer relationship. We will need to focus on establishing the initial contact and then securing the relation. The initial potential customers’ list will be acquired from DSO (distribution system operator), and getting the first job done for customers will be critical in order to ensure long-term relationship. For both households and business clients,

the aim will be on convincing them that we want to simplify things (provide them with comfort and safety), allow them to focus on the important things. We will have the approach of concluding longer-term contracts for the basic services (regulatory requirements), e.g. if the revision of the in-house installation is due every 24 months, we will propose 48 month contracts (in order to ensure that the next job will also be done by our company). In addition, we will be flexible to types of services requested by clients, and incorporate their feedback in defining packages.

2.2.5. Revenue streams

There are several revenue streams identified:

- Revisions and verifications of in-house gas installations (R&V) we consider this to be the “bread and butter” of our business (since these are regulated services). Clients are rather price-sensitive, therefore the initial pricing will be set considering the competitors’ prices (identified through the market study), and is considered to grow in line with forecasted inflation (stay flat in real terms).

- Technical verification of heating devices (TVH) while this is also a legal requirement, the potential market is smaller, and our aim is to grow through partnerships with suppliers / producers. We aim to have lower initial prices, in order to gain a share of the market, and, over the following

years, as we gain customer awareness, we will align with the market average.

- Service bundles we will propose to customers to move from price per burning point (the current model applied in the market) to price per apartment (including both types of services proposed, as well as, potentially, additional small repairs, installation of air conditioning, etc.). However, in the financial projections, we have not included revenues from additional services, but only from the first two business lines (short-term projections).

2.2.6. Key partners The success of our business model depends on several key partners:

Gas DSO: unique holder of the list of gas customers and dates of expiration of revisions and verifications. They have the legal obligation to provide such lists (for a fee/customer) to all authorized service providers.

Suppliers and manufacturers of central heating installations: technical verification of heating devices is the obligation of the supplier / manufacturer for the first two years, and may then be undertaken by any authorized company. While many suppliers have their own divisions / service companies, the market trend is to outsource such non-core services to smaller service providers. We aim to conclude partnerships that would allow us to take over services for their clients. Our target is to identify suppliers / manufacturers that still perform in-house such services and identify cooperation possibilities including potentially that they outsource the business to us. The preliminary market study shows that there are very good prospects in this direction.

On the longer run, partnerships with financial institutions may also be set- up. Depending mainly on business clientsrequirements, but also on the trend on the household market, if we identify there is a substantial need,

we intend to conclude partnerships with financial institutions in order to offer fully bundled services (i.e. including financial solutions for the acquisition of central heating solutions).

2.2.7. Key activities

Operations prerequisites include:

Recruitment and training of employees since we aim to apply agile processes and also use our employees as sales force, we intend to recruit skilled people and train them further (multi-skilled approach);

Detailed payment and incentive scheme for employees should be developed early in the process, as it is critical in the business plan financials;

Licenses for the company and employees would need to be obtained from NERA;

Acquiring list of customers from Gas DSO;

Set-up support services (including outsourced call centre) and website and launch the marketing campaign.

2.2.8. Key resources

The most important resource in our business is represented by the employees, both production and sales force, as they will be the main customer contact point. Employees must also have all necessary tools, equipment and

materials, in order to ensure a steady production flow. Further, by implementation of a Work Force Management tool, we aim to optimize routes and time per operation, and achieve an increase in productivity. In addition, financial resources are critical, as the business is financed through a mix of debt and equity.

2.2.9. Cost Structure The largest share of the costs is represented by personnel expenses (PEX), as this is the key resource of the business. These are fixed costs, but, in order to reduce them, the following strategies will be used:

Increase the number of employees in line with the business development;

Team leaders will act 80% of the time as field personnel, replacing / supporting operational employees;

In order to have flexibility over the periods when employees may not be sufficient (as business may grow), leasing personnel will be used. In addition to flexibility, the leasing of personnel also has the advantage of having lower costs than hiring. Other costs include: tools and materials (operational costs, variable), DSO customer list (fixed cost), costs with call centre and administrative services (fixed costs), car leasing, warehouse rental etc. In view of ensuring flexibility and scalability of operations, call centre and administrative services will be outsourced, locations will be rented and vehicles will be used under operational leasing.

3. Vision, Mission and Values

3.1.

Vision

We aim to become a trusted provider of energy services, offering protection and comfort to our customers, through a range of safe, efficient and high-quality services, at a competitive price. We will focus on the specific needs and requirements of each customer, by providing excellent customer service, cross-utility knowledge and experience, with the aid of latest technologies. Through a highly effective network of customers and suppliers, we will be able to maximize benefits across the value chain. Our people will be inspired to listen to the customers, answering effectively and efficiently to their needs, showing unparalleled support to ensure flexibility and ultimate home safety.

3.2.

Mission

Our mission is to help our customers relax by knowing that their home is safe and all their energy services needs are taken care of by our highly-skilled, trained and experienced personnel, at the highest quality standards, and at competitive prices. We are dedicated to listening to our customers, understanding their needs and helping them accomplish their goal of greater comfort and utmost safety in their home. And, because we value our customers’ time, we are simplifying our procedures for multi-utility services, offering a maximum degree of flexibility.

3.3. Values

We put Safety first

We are committed to a zero harm policy. We will take all necessary endeavours to ensure maximum safety of our customers’ home and business place, with no compromise towards the safety of our people or others. We will ensure our

employees are trained in the policy, procedures and regulatory requirements of health and safety so that they are empowered to achieve zero harm in the conduct of their work.

We invest in our People

We are dedicated to developing our employees throughout their career, making sure we become an employer of choice. Our employees are our ambassadors, and we believe they will achieve their full potential if they are motivated and supported by our internal policies.

We are Experts in our field

We are committed to a policy of training and development of our people, so that they become the best and brightest in our field. All our field employees are

NERA certified in both gas and electricity operations, so they can ensure the

best quality of multi-skilled work. Our experts can be trusted to perform home energy services to the highest standards, understanding the customers’ needs and proposing the most efficient solutions on spot.

We are Flexible to our customers’ needs

We value our customers’ time and we are dedicated to provide them with the most efficient and cost-effective solutions to their requests. We keep our promises and deliver on time, without any extra effort from our customers.

We are dedicated to achieve Customer Loyalty

Through flexibility, zero harm policy and professionalism, we are fully dedicated to our customers and aim to achieve their loyalty. We are a partner of choice for both households and business consumers in the field of energy services.

4.

External Environment Analysis

4.1. PESTEL analysis

The following chart depicts the most relevant factors: political, economic, social, technical, legal and environmental issues. The scales used are related with their certainty and relevance or importance to the market.

their certainty and relevance or importance to the market. Score Exhibit 2: PESTEL Analysis I: Importance.

Score

Exhibit 2: PESTEL Analysis

I: Importance. From very important (10) to irrelevant (0) C: Certainty. From very certain (10) to very uncertain (0)

 

PESTEL

Certainty

Importance

 

High political pressure to increase State budget

   

revenues (IMF requirements)

10

8

Subsidy program (Casa Verde) for renewable

   

heating for households

6

8

2016 - election year

10

7

PoliticalEconomicSocialTechnicalEnvironment

Uncertain fiscal regulations (fast changing Tax

   

Code with limited input from companies)

10

6

Weakening RON reduces purchase power of

   

indebted Romanian households

10

7

Decreasing gas consumption fuels growing gas

   

prices - support for sales of solid fuel and

9

10

condensing gas boilers

Removal of subsidies into district heating

   

delayed

6

8

 

Low demographic growth and ageing

   

population

9

7

Urbanization trend leading to shifts in

   

customers' expectations

9

8

 

Rising smart homes / smart technology for

   

households

9

7

Large stock of old gas boilers

8

7

Inefficient district heating systems in Romanian

   

cities

9

6

 

Increasing awareness regarding energy

9

7

efficiency

Trend towards increased usage of renewable

8

6

energy sources

 

Conversion from district heating to individual

   

Legal

heating systems (Exhibit 3)

8

8

Obligation of using condensing boilers starting

   
 

September 2015

10

6

Exhibit 3: Shift from centralized heating systems to individual heating systems 4.2. Industry attractiveness The
Exhibit 3: Shift from centralized heating systems to individual heating systems 4.2. Industry attractiveness The

Exhibit 3: Shift from centralized heating systems to individual heating systems

4.2. Industry attractiveness

The utility market has significant potential of development (Bain, 2014). Particularly for revisions and verifications services, based the market research findings, the market progresses into an expansion phase due to the constant demand triggered by the legal requirements and also in terms of service/auxiliary diversification. Having an increasing of demand - raised from legal obligations, some particular segments (i.e. revisions and verifications) from the market are considered “safe” and could be attractive for business. Each segment has its very own potential to expansion first through the entry of new players on the market and subsequently through the increasing the volume demand. According to the National Institute of Statistics, in Romania approx. 3.3 million households are connected to gas, with approx. 6.7 million gas burning points due for revision every 2 years. Therefore, the annual national market potential for R&V at national level stayed in 2013 at 1.67 million households thereof, approx. 0.78 million in Southern region. Considering average market prices, the value of the R&V market for the Southern region exceeded 68 mio. RON in 2013.

Out of the total households, about 2.35 million have central heating

systems. Applying the same computation principles, the value of the TVH market

for the Southern region exceeded 66 mio. RON in 2013.

4.3. Competitive forces (Porter’s model)

Competitive forces concept described model by Porter is an analysis tool

which assess the competitive strategy and profitability of the company. This tool

classifies and analyses the most important forces identified as follows:

Threat of entry

Industry rivals

Bargaining power of suppliers

Bargaining power of buyers

Treat of substitutes.

These forces are shaping the industry as well as the level of competition.

Porter M. (2008) noted that stronger competitive forces might result in less

profitable industry, also few buyers and suppliers but many substitute products

and competitors could be also very competitive but not attractive due to the

low profitability.

4.3.1. Threat of entry: high

Within the frame of the national regulations, this specific market of utility

services could be expanded due the increasing demand of these services and

diversity of possible suppliers.

Other potential new competitors’ entrance might be facilitated due to

the small scale operations level associated with low investment costs for start-

up/setup and easily accreditations performed by the competent authorities

(very low entry barriers). This situation creates the risk of losing potential market

share due to the rising number of competitors.

4.3.2.

Industry rivals: strong

NERA

authorized companies, thereof more than 50% acting on the Southern region).

ECS will develop its operations in Southern region where the existing market

incumbents is Y Company, the main competitor with a market share of 31%. In

addition, there are more than 60 authorized suppliers in Bucharest and Ilfov

county, with different levels of coverage and operational representations.

At the

national

level

the

competition

is

strong

(i.e. over

940

4.3.3. Bargaining power of suppliers: weak

Suppliers are in weak position on the market, because the key resource in

the industry is the human capital, and there is an abundance of workers in the

field.

4.3.4. Bargaining power of buyers: strong

The households have the possibility to choose the suppliers due to the high

competition and small prices. The services and products provided are not too

much differentiated and therefore the customers can always change the

service supplier easily as they do not bear the costs for changing the service

provider. The customers are sensitive to prices (small prices and limited service

occurrence), but R&V and TVH services are mandatory.

4.3.5. Treat of substitutes: weak

There are many alternative to produce a competitive pressure from the

suppliers with such similar services provide within the same price range. The

same types of services could be provided also by the potent entrants (i.e. major

gas market players from different value chain segments) interested to enter on

related market segments and to develop their service portfolio. However, R&V

and TVH cannot be substituted, merely packaged differently. Thompson et al

(2013) mentioned that the lower prices of the substitutes leads to higher quality

and performance and lower the customers’ switching cost increase the

competitive pressure of substitute products.

4.4.

Factors that drive industry change and impact

Commercial environment and the risk of losing potential market share due to the rising number of competitors could affect negatively the business development on the long term.

Political climate rather instable and unpredictable regulations could affect the industry. Having not too many legislative similarities within European countries - these legal requirements regarding revisions/ verifications might with withdrawn risking a market deregulation related with the services which could be no longer mandatory.

New European directive set to be in force in September 2015 states that European consumers have to replace/ phase out the older boilers in favour of the new condensing boilers - in order maximize the efficiency and eco-friendly usage. The implementation of this directive is mandatory and will affect especially the market dimension of the household customers and might not be affordable for many from existing customers.

The macroeconomic factor to the general income changes, the inflationary trends in economy, rising unemployment and fluctuations in the world economy.

Advance in technology could produce technological changes with significant impact on price/performance combination.

4.5.

Industry rivals’ positioning

At national level, the largest players are X Company and Y Company . Both X Company and Y Company offer technical services for gas in-house installations and heating systems. The differentiating factor for Y Company is given by the implementation of special system for security inspection diagnose for each component of the gas installation in order to spot the deficiencies. Also at every revision/ verification, Y Company signs a contract for a period of 4 years, as compared with 2.5 years by X Company. Moreover, Y Company entered in strategic partnerships with producers of heating devices, which provide to workforce a continuous professional development. The rest of the market is divided between a number of small competitors, thereof the most relevant are Z Company and W Company (with >5% market share at national level). An overview of evolution of prices per revision, verification and TVH is shown below:

of prices per revision, verification and TVH is shown below: Exhibit 4: Pricing evolution The prices

Exhibit 4: Pricing evolution

The prices for the North region (mainly X Company) are the lowest on the market, while the South region has prices slightly above the average in

Romanian market. While Y Company focuses of high profitable customers practising high level prices in detriment of market share, X Company offers low prices targeting a dominant market share.

The pricing structure varies between players, the most common are:

- Pricing per apartment up to a certain number of burning points (up to 3); with additional fee for exceeding burning points;

- Pricing per burning point;

- Yearly subscription contract.

4.6. Likely strategic moves of the rivals

While currently there is no diversification in terms of products offered, both X Company and Y Company are slowly making moves towards introducing new bundled products, on their own geographical areas. No other competitor has similar capabilities. In addition, companies like Q Company have recently shown interest in introducing additional services (e.g. car towing, insurance).

4.7. Key factors for future competitive success

The energy services market is a relatively stable market in term of demand, driven by the customer’s high sensitivity to low prices, non-branded loyalty and a diverse network of suppliers. In order to differentiate the company from competitors, the key successful factors should be considered as follows:

timely delivery (on time/on spot) of exceptional quality of services provided;

flexibility to the customers’ needs – one-stop-shop as key success factor, as no other competitor offers currently the entire range;

innovation through use of technology;

pricing strategy centred on affordability;

maximum safety (a paramount objective for the company);

cost-efficient management of value chain activities.

5.

Internal Environment Analysis

Our business competitive approach is concentrating on entering a geographic market with significant potential for growth through improved

product offering, higher quality, wider selection and competitive prices. The market of home energy services is considered to be a market in expansion in terms of demand and diversity of supply. The success of the sustainable business strategy depends on several strategic directions:

Operational efficiency: we believe that every activity, especially field services can be more efficient using modern technologies and applications and smart management

Reasonable lower cost : maintaining the prices at a reasonable level, attracting customers by offering innovative services at the best quality- price ratio in order to gain market share

Portfolio diversification: we see the opportunity to conquer new market segments with the current services offer and further more to expand the products and services portfolio towards integrated packages.

Marketing and communication innovative approach: the key message of our entire communication is based on safety and comfort, care for their life and on efficiency.

Human resources: we aim to increase the value of each employee’s work, to motivate them in order to reach performance and convince them at the same time to be real ambassadors of the company. We

propose to introduce a motivational scheme based on KPIs and a standard Work Force Management Application.

5.1. Competitive resources and capabilities

The most important resource in our business is represented by the employees, both production and sales force, as they will be the main customer contact point. Employees must also have all necessary tools, equipment and materials, in order to ensure a steady production flow. We aim to achieve an increase in productivity by implementation of a Work Force Management tool, with the scope to optimize routes and time per operation. As our business is “people oriented”, we invest in developing and motivating our staff, through multi-skill trainings and incentive systems. The organizational resources are equally important, such as IT and communications systems. We promote an entrepreneurial culture based on knowledge and flexibility with customer needs. Cappelli, P, and Crocker-Hefter, A (1996) concluded that the "flexibility" dimension is associated with "prospectors"companies that seek first-mover advantages in attacking new markets or quick responses to changing customer preferences. The organizational capabilities are knowledge based, residing in people with extensive experience and organisational processes and IT systems. Granstrand, O. et al (1997) stated the challenge for management is to give more attention to the distribution of corporate technological competencies beyond the core, the enhancement and integration of new competencies, and the potential for related new product markets. Main differentiation factors of our business are:

- Innovation:

Every activity of the company, from training and shaping specialists, field services in energy to designing and executing complex projects are made in an innovative manner.

We focus on finding new and innovative solutions oriented to meet our client’s needs.

- Human Resources motivational scheme:

We focus on increasing the employees’ performance.

For a company to be successful, it is required a sound performance management system thus we proposed the implementation of Balanced Scorecard.

- IT application: Work Force Managament (WFM)

Created for processes optimization

• We focused on increasing the efficiency of work performed We believe that the mix of WFM features and the HR motivational scheme, results in an increase in efficiency of the work performed leading to competitive advantage.

5.2. SWOT analysis of the business

In order to evaluate the company overall situation we have conducted a SWOT analysis.

SWOT analysis of the business In order to evaluate the company overall situation we have conducted

Exhibit 5: SWOT analysis of the company

The company’s strengths lies in the high expertise of our people and its

potential to grow on the market based on several distinctive competencies

related to low prices policy, work force management, high quality and

innovation (one-stop-shop as key success factor). The company market

opportunities reveal the customer’s trend to switch from centralized to individual

heating. We expect this market to grow proportionally to the progressive

connection of clients to the gas network, a trend that is linked to both

demographics, urbanization but also to the progressive disconnection of

households from the central heating services (due to abrupt cost increases in

the last 3-4 years).

We also see room for future business opportunities via expansion to

bundled services and strategic alliances.

It can be concluded that the company is able to overcome threats and

weaknesses by constantly improving its business strategy to respond to new

market challenges and through a flexible approach.

5.3. Assessment of competitiveness and appeal to the customers

The comparative market analysis indicates there are prospects for growth

in the Southern part of the country where the main competitor Distrigaz COnfort

targets the business segment mostly in Bucharest area, leaving room to market

entry in the residential segment. Our business aims to enter the adjacent markets

with a product of high quality at competitive prices. Our market strategy is to

start from area closer to Bucharest where there is less competition and setting a

price which is close to the average at the country level.

In order to identify how effectively our business delivers value to the customers a value chain analysis was used to show the activities creating value to the customers.

Exhibit 6: Value chain analysis Our business model envisages outsourcing of certain primary activities such
Exhibit 6: Value chain analysis Our business model envisages outsourcing of certain primary activities such
Exhibit 6: Value chain analysis Our business model envisages outsourcing of certain primary activities such
Exhibit 6: Value chain analysis Our business model envisages outsourcing of certain primary activities such
Exhibit 6: Value chain analysis Our business model envisages outsourcing of certain primary activities such

Exhibit 6: Value chain analysis

Our business model envisages outsourcing of certain primary activities such as supply chain management (transport, receiving and storing of parts and components) and all support functions, focusing only on the core business. In terms of costs, personnel expenses represent our largest cost component, therefore our costing strategy is based on flexibility find an optimal ratio between hired and leased personnel in order to minimize costs and answer market development. We expect certain cost reductions arising from a cost-efficient management of value chain activities by outsourcing non-core activities, employing leased personnel, implementing WFM and using Leagile), but within normal business course, easily copied by competitors thus insufficient to achieve cost leadership. Our business model entails a significant component of differentiation from the competition, through maximum flexibility to customers’ needs and launching of diversified products, using multi-skilled employees and support of technology. These differentiation factors support the business to gain a competitive advantage based on improvement in quality, features and performance.

5.4.

Competitive positioning

Our business is open to win market share from small competitors and offer a very good price/quality ratio. Reasonable prices give us the possibility to use the new company clients’ database and company’s image to expand the products and services portfolio, to increase the overall market share of the company and to diminish potential risks. The business can market its services both individually and bundled in subscriptions. Compared with significant market players a competitive strength assessment indicates strong capabilities to innovate, focus on customer service and high quality. Financial resources is critical, there is the risk that financing cannot be obtained from financial institutions. The weighted score (Exhibit 9) indicates a slightly competitive advantage of key rivals over ECS. If ECS wants to go offensive it aims directly at winning customers away from Elsaco Brunata or other minor competitors (not even listed here), with lower overall strength scores. In terms of quality and customer service experience we are better positioned. These are distinctive capabilities based on which the strategic objectives will be defined.

we are better positioned. These are distinctive capabilities based on which the strategic objectives will be

Exhibit 7: Weighted competitive strengths assessment

Lewis, M, Andriopoulos, C, & Smith, W (2014) raise attention about the strategic agility in conducting business which brings in contradictions, such as stability-flexibility, commitment-change, and established routines/novel approaches.

6. Distinctive competencies

Hitt and Ireland (1986) stated that competencies may be developed through: (1) differential resource allocations to various activities; (2) assignment of key personnel to manage key activities; (3) delegation of additional organizational power to those managing key activities; and (4) inclusion of key personnel in the dominant coalition. Cappelli, and Crocker-Hefter (1996) concluded that each organization has its own training programs, rewards systems, and work organization, and these systems develop skills and behaviours that help an organization create distinctive competencies for attacking markets. They also concluded that two practices are especially noteworthy in the management of sales representatives. The first is intensive training and the second applicants with experience in customers contact. Our distinctive competency is to deliver exceptional value to customers in a form of a superior service (with the unique one-stop-shop approach), offering

efficient and high-quality services, at a competitive price. Through high quality and reliability of services, combined with operational efficiency and highly trained employees, we will be able to differentiate from competitors, by offering integrated solutions to our customers’ needs.

7.

Growth and Generic Strategies

7.1. Selection of generic strategy

There seems to be an agreement in the literature as to the fact that following a well-defined strategy gives better results on the long-run, and, moreover, for small companies, a combined strategy (mix of cost and differentiation) seems to have the best results (Leitner and Güldenberg, 2010; Davidsson et al, 2010; Miller, 1992). Following the findings of our internal and external analysis, we have analysed the applicability of low-cost vs. differentiation competitive strategies (Thompson et al, 2013, p.144-172) to the general business model (Casadesus- Masanell and Ricart, 2010). As we found that generally the energy services market is currently defined by low customer loyalty and high price-sensitivity, a low-cost provider strategy would seem to be a powerful competitive approach. However, in practice, achieving the lowest costs may counter our core objective of maximum safety. We expect, however, certain cost reductions arising from a cost-efficient management of value chain activities (outsourcing non-core activities, employing leased personnel, implementing WFM and using Leagile), but within normal business course, easily copied by competitors thus insufficient to achieve cost leadership. On the other hand, our business model entails a significant component of differentiation from the competition, through the unique one-stop-shop approach, with flexibility to customers’ needs, multi-skilled employees and use of technology. Moreover, coordination with partners in strategic alliances (boiler producers / resellers, financial institutions) is also envisaged as strategy leading to differentiation through better answering to the customers’ needs. Business development is envisaged through answering to the needs of two customer groups households and small and medium enterprises.

Considering the above, we have selected a focused differentiation strategy, i.e. we would keep in our focus only a limited part of the total potential market (we will not address large groups / companies, as we consider we do not have the geographical coverage) and aim to achieve maximum flexibility to their needs.

7.2. Selection of growth strategy

In order to define the growth strategy, we have considered a part of the existing literature in the area of strategy for small firms’ growth. For example, Storey (1994) found that there is significant impact on company growth deriving from strategic options in relation to technological sophistication, market positioning and new product introduction. The correlation between strategy and growth was further analysed in several studies (Bamford et al, 1997; O'Gorman, 1997; Wiklund and Shepherd, 2005), with positive results. Going further, Freel and Robson (2004) analysed the relationship between innovation (in both products and processes) and SME growth. Their findings, indicating a direct relation between innovation and growth, also pinpoint importantly that, for service companies, incremental process innovation seems to be more successful in increasing sales and productivity. Raffa et al (1996) found in their study that small firms, which are initially based on technical entrepreneurial know-how, may expand their market

abilities and achieve growth through collaboration with larger firms, collaboration with professionals and consultants, use of external (technical and market) competencies, or acquisition of new market competencies through diversification of the activities or through hiring market-oriented employees. In light of the above, our growth plan entails the following steps:

- The first stage is market penetration as we are competing on a highly competitive market. A Bain analysis (2014) also suggested that there is

significant development room in the field of energy services, as technology evolves and customers become more sophisticated. However, traditionally, energy services are offered by utility company, as an addition to their commodity offer. Still, noting Distrigaz Confort’s strategy to focus its area of activity, we consider significant potential exists

for a new market entrant. Our penetration strategy is based on low prices

and strategic alliances.

- Product expansion in line with literature findings, we have also adopted

a strategy of product expansion for growth, taking into account

particularly customer feedback, but also market trends. Our objective is to develop full in-house service packages for customers, under longer-term contracts, ensuring a certain level of loyalty, and with an innovative thinking.

- Strategic alliances on the medium run (years 3+), growth will be supported through strategic partnerships with boiler producers / resellers and financial institutions. This will allow access to additional customers / higher market share, and will also support differentiation (through bundled products) and brand awareness.

- Acquisition expansion through acquisition will not be actively pursued, but will be considered as an opportunistic option. Currently we are envisaging two potential situations in which an acquisition could prove attractive:

o Local expansion through acquisition of very small competitors in case we need to expand in a certain area (depending on customers’ presence / requests), a solution could be acquisition of very small energy services companies (with up to 10 employees, acting on limited geographic areas); o Expansion through acquisition of service business lines from producers / resellers of boilers. If, following discussions with potential

strategic partners, it is identified that they are interested in outsourcing a service line, a partnership may be defined through which we would take over the business line and the customer base.

8. Marketing strategy

8.1. Marketing strategy

ECS SRL is a new company focused on customers’ needs, which aims to

become a preferred service vendor for home heating services. The company wants to develop the business from base services (R&V and THV) to complex one-stop-shop solutions. The expansion in different market sectors (e.g. energy efficiency solutions) will be also explored through partnerships with major players from energy market. Products provided and services will be clustered according to the customers’ needs (i.e. having different prices range, customized based on customers types, or the most up-to-date products in order to increase efficiency).

A customer oriented approach, according to their segment (i.e.

household/ business) and demographics, needs to be strategically tailored by

the marketing and sales functions. The key marketing message will be centred on safety and comfort for our customers.

8.2. Marketing mix

8.2.1. Products and services portfolio

As defined by Kotler, P. (2010 p. 43) the product is anything which might

be used to capture the consumer's need under the form of services, objects, ideas, events or a mix of these. According with the strategy plan for the first stage of the business the core

company’s product planned are:

revision and verification of in-house gas installations (R&V);

technical verification of heating systems (TVH).

Additional in-house services (e.g. air conditioning, house repairs) will be clustered into an integrated packages deliverable on spot by the specialized and certified technicians. For the further business development the product strategy will be expanded with mix of strategies in order to achieve a consistent portfolio diversification correlated with business development. However for this market - the differentiator factor for products and services is delivered through specialized marketing campaigns with the key message that the products and services provided will ensure the safety of the families and comfort of their homes. The products /services packages and related instructions will be branded and will carry the company logo.

8.2.2.

Prices

Berkowitz et al, (2000 p.350-353) noted that price is that amount of the money or other valuable goods given in exchange to a service and offer a valuable indicator about the perception of the quality. The same authors concluded that price has a determinant role within the marketing mix model, having a critical importance on companies' profits and affects directly the sales. The company sets the price strategy for mass products with lower prices which will ensure the company cash-flows, while the revenues from additional services will grow at a slower rate, after market penetration. For R&V, where the market is mature and the service is regulated, we will approach customers directly and offer prices aligned to the market. Since the service is regulated, studies show that the client perceives little value-added and simply wants “to get the job done” with the first provider. Reaching customers and gaining market share could be done by acquiring customer lists in advance. For TVH, where the market is in an earlier development stage, strategic alliances with producers / sellers seem critical in order to gain significant customer reach. While we plan to conclude such alliance(s) in the first 3 years, meanwhile, we will also offer the service to customers, using lower market penetration prices, which will be aligned to the market level over the first two years.

By maintaining the prices at the low levels and offering a good price/quality ratio, the company will strive to put the focus on quality and not on the price. The affordable price range gives the possibility to increase the overall market share of the company, gain brand awareness and diminish potential risks.

8.2.3.

Promotion

The company aims to become successful, trustful and reliable for the customers as well as for employees. An open environment for communication and transparency within the organization will contribute and enhance an organizational culture where the safety is the paramount objective. Knilans G. (2009 p12-13) mentioned that promotion is equivalent with communication and finally determines the buying decision. The company’s business objective is to deliver excellence and performance, offering safety and comfort to the customers, through a range of efficient and high-quality services at reasonable price. The company’s communication objectives are structured on two categories of messages:

Emotional: closer to customer, confidence in the company products and services provided, safety provider.

Reasoned: costs reduction on each possible level. Press, online, TV and direct e/mailings will be used a main channels for direct promotional activities. For the initial phase of the business, promotional campaigns will be centred on maintenance services related to the traded products/ services based on a subscription or fees. After a free of charge (trial) period, the service will be chargeable (test for free our maintenance services). This strategy will assure a rapid market penetration, with a reasonable price and facilitated by an aggressive promotion through media/ radio channels. A mailing notification campaign to the customers will be performed on regular basis especially in the areas where the validity of the revisions is close to expiry date. In the launching year of the business, the company’s communication could be done within the market positioning communication campaigns.

8.2.4.

People

The most valuable asset of the company is represented by the employees. They are company’s image (i.e. marketer and ambassador) and their behaviour, attitude, confidence and expertise have to support the values promoted by the organization. The employees' attitude about the work they perform and the messages conveyed by the employing company must be flawless. The company’s employee’s interactions with the customers could determine the success of the organization, they must be an example of social involvement for the consumers and their duty is to provide them with safety. The company will have highly trained and multi skilled certified field workforce in order to deliver the maximum quality of the services to the customers. Regular trainings in company’s procedures and processes will be provided, as well as the induction trainings in company’s values, vision and mission for internal and external employees. The company will also use the leased technicians (external) with the same level of skills as the company’s internal employees. In this way, the company will be able to assure a standardized quality services to the customers.

8.2.5. Place

Knilans G. (2009 p12-13) explained that the new available technology changed the traditional meaning of place in the new models of 7P marketing mix and highlighted the importance of two additional elements online buying space and servicing. Online space hosts the most attractive/challenging environment for service promotion and selling through targeted specialized marketing campaigns. Informational platforms web portals are important tools for the companies and facilitate the information flow directly to the customers. The company will develop an interactive web portal with information about the company: vision, mission, values, organizational chart, services offered, etc. Also the website will be provided with personal operator able to

offer real time answers to the customers. The company will create the possibility for registered customers to have accounts with relevant historical data (past revisions/ verifications), to schedule the next appointments for the upcoming verifications - within the timeline required by law and to track the payments subscriptions accordingly. The company web portal will provide dates of revision and verification and can be configured to release an alert system to the household owners and the company’s service providers - alerting them about the due date for payments/subscriptions and timelines for the periodic revisions

8.2.6.

Process

The entire company will follow/ undergo specific processes and procedures in order to assure the agility of the organization with focus on the specific needs and requirements of each customer, providing excellent services, expertise and cross-utility knowledge. Procedures for multi-utility services will be simplified in order to achieve a maximum degree of flexibility and comfort for customers. Clear roles and responsibilities (the RACI matrix for management team and trackable KPIs) will enhance the performance of the company, creating a professional working environment for achieving the business objectives, based on BSC implementation. Continuous improvements and compliance with quality regulations, norms and standards would the basis for a sustainable business. The business’ activities flow will be included in the training/learning process of employees and also certain timelines for services delivery which will be set in order to achieve the customers’ satisfaction. Agile processes of the company as well the usage of WFM and highly skilled work force will be determinant for success of the organization. In this respect company will recruit skilled people and will invest in their continuous learning processes for further developments (multi-skilled approach).

8.2.7.

Physical evidence

The brand of the company will be easy to recognize and accept mainly

due to transmit a strong message related with the safety of its customers and

quality of the services performed.

Company will be launched and positioned as a company which will add

value to the services provided, aimed at ensuring customers’ comfort and

safety in their own homes. The company can be registered as an authorized

data operator in order to use the data for both sales and marketing functions,

following the corresponding laws and regulations.

8.3. Marketing & Sales strategies

ECS’s focused marketing strategy consists in gaining market share in each

market sector entered through reasonable price levels in order to retain clients

and subsequently approaching them with new products and services. Our

diversification strategy of products and services portfolio has 2 phases:

o

Phase 1 (2015 2020): organic growth (both vertically and

horizontally), i.e. expansion on gas market products and services

o

Phase 2 (not estimated in time): future developments under the

umbrella of energy efficiency concept and distributed energy

generation related services.

8.3.1. Phase 1

I. Expansion of customers’ portfolio

Key message: the central message of the current promotion services is that

these are compulsory, however will be presented under a safety for consumers’

life umbrella.

Marketing and communication: emotional, conveying also details on the legal

obligation.

Actions:

Send individual letters to customers announcing the next monthly

revisions. In order to be cost efficient, this channel will be used as a dedicated customer support for other campaigns. SMS alert before the invoice due date. Partnership with municipalities in order to obtain approval for communication messages displays/ posters relating to the services offer.

The sales teams will target the companies to offer the services (i.e. customized packages for employees that purchase services from our company).

II. Expansion of product portfolio

Additional products and services offered (under “one-stop-shop” concept):

Small repairs (gas, power, water)

Installations & Maintenance

Small gas installation projects

Plumbing services Targeted customers

Households

SoHo / SME

Promoting strategy:

Offer integrated packages – “one-stop-shop” approach;

Make deals/ service agreements with developers/ building associations.

Participate in public auctions held by municipalities and state institutions. Campaigns:

Cross-selling campaigns in South Romania for Small repairs.

The teams performing R&V perform a free of charge assessment of the installation and provides support in scheduling a team for the repairs or makes the small repairs on the spot;

Service will be promoted on the spot to the existing customers.

Campaign for cross-selling domestic and industrial customers.

8.3.2. Phase 2: Future developments

Future developments under the umbrella of energy efficiency concept and distributed energy generation related services targets the conscious customers:

Analyse the energy flow (i.e. home energy hub) within a building/ household (i.e. electricity, gas, water);

Informational platform in order to increase awareness;

Mini-meters and sensors installation (for each plug in order to meter the individual consumption);

Fully customization for each household in order to deliver info on energy efficiency (e.g. average temperature, air conditioning consumption, leaks and financial impact);

Provides detailed reports and correlations on historic data and forecasts;.

Provides the customer with a clear view on the consumption and its impact on financials;

Automation platform: increase efficiency and savings;

Fully customization of the way energy can be used, according to the sensors and programs set;

Access from internet/ iPad and other devices. Such services would include: home safety solutions, energy efficiency solutions, energy audits, energy consultancy, etc.

8.4. Positioning and client retention campaigns

1) Strategy: Customers could advise a person to buy/take a decision on a

product/ service, or simply to make referrals, and afterwards the company will develop a customer incentive program. Marketing and communication:

customers will receive briefings on the campaigns.

online campaign.

one-to-one communication made by operational teams.

Actions and tactics:

Create a call centre connected to a data base with the existing consumers (which will be updated on regular basis).

The existing consumers can obtain a loyalty card (with accumulating points if you recommend the company to at least three other people who order different services). These 3 people need to contact the call centre and say the name of the person who recommended us. We will note the contact details in the database, and schedule the service. Depending on the number of new customers brought in by an existing customer, he/she obtains loyalty points. Based on the respective points the customer can receive certain services free of charge.

Flyers delivery with customer notification (i.e. approx. 60,000 per month) & other communication materials located in high traffic hubs

2) Strategy: follow up on market price campaign in order to develop the customer database and set direct communication with consumers. Key message: We want to prove that we are a professional company with a professional team, however we do not have the highest price on the market comparing with competitors which are offering similar services, but instead we provide you with additional value and care for your safety.

9.

Production / Operations

Operational efficiency: we believe that every activity, especially field

services can be more efficient using modern technologies and applications and

smart management. Work force efficiency is maximized by applying lean

principles in order to eliminate waste, by defining the products through the eyes

of the customer, identifying the value stream, optimizing the flow in order to

eliminate any interruptions by using a workforce management system,

empowering the workforce and close co-operation with suppliers (Robertson

and Jones, 1999). However, our services being solutions to the customer

problems, covering with one team all the issues identified in the customer’s

home, the entrepreneurial culture and the knowledge-based organization imply

an agile approach (Robertson and Jones, 1999).

In lean production, the customer buys specific products, as opposed to

the customer reserving capacity that may additionally need to be made

available at very short notice in agile production. (Mason-Jones, Naylor & Towill,

2000). A mix of these principles is applied in designing the leagile operations of

the company. “Leagile is the combination of the lean and agile paradigms

within a total supply chain strategy by positioning the decoupling point so as to

best suit the need for responding to a volatile demand downstream yet

providing level scheduling upstream from the marketplace.” (Naylor et al. 1997)

9.1.

Resources

9.1.1. People

Bucharest and Ilfov with 10 employees,

extending to the neighbouring counties and reaching an estimated of 98 field

service technicians in five years. All technicians will be centrally managed by a

department head, and locally by an operational team leader at county level. In

order to cover the activity peaks, the company will also use “leased”

technicians. Personnel leasing is similar to temporary employment but doesn’t

The

operations

will

start

in

involve a direct contractual relationship with the employee and is limited to a

maximum of 2 years. On average, a “leasing employee” has a cost of ~70% of

the directly employed technicians. Nevertheless, the leased technicians will

acquire the same skills as the company employees, in order to deliver the same

service level to our customers.

The field technicians will be highly trained, multi skilled, in order to achieve

maximum efficiency and quality in providing the services to our customers.

Besides their technical expertise, some legal certifications are mandatory for

their activity:

For revision and verification the technicians are required to have a

III-D NERA authorization, which needs to be renewed every 3 years;

For TVH the sub-/ engineers need to be ISCIR authorized;

For electrical small repairs, the technicians are required to have a

category II-B NERA authorization valid for 5 years.

9.1.2. Tools

Hand tools: mini snoopers, gas detectors; hand-pumps, valves, common

plumbing equipment, technical clothing, multi meter, electrician toolbox,

voltage pencil, mobile terminal for workforce management (rugged

smartphone), mobile printer.

Cars will be leased. Car maintenance will be outsourced to a fleet

management company.

IT Systems: Workforce Management System

Materials are stored in rented warehouses. Minimal mobile stock will be

maintained by each technician in order to cover onsite repairs.

9.1.3.

Offices

Office space will be rented at county level. It will be dimensioned to

accommodate the office personnel exclusively. Due to the implementation of

the work force management system that automates process steps and provides

continuous communication and electronic exchange of information and

documents between the central operations support systems and the

technicians, there will be no need for providing office space for the field service

technicians.

9.2.

Processes

9.2.1.

Processes design

The business process is designed in order to: ensure the agility of the

organization, provide top-down guidance, ensure consistency in how critical

activities are performed and create a work climate to facilitate a good strategy

execution. The main purpose in process design is to provide the organization

members a sense of direction and create the boundaries of their actions while

empowering them to act within these boundaries in order to achieve the

company’s business objectives.

The R&V customer appointments will be performed on customer request

via phone call or self-care web portal, or through mass notification campaigns

when the revision and verification validity is close to expire. In order to achieve

efficiency, the visits are planned in such a way to bundle customers in a

geographic proximity (same street, neighbourhood or small towns and villages).

Exhibit 8: Process workflow Together with the notification the customer receives a copy of the

Exhibit 8: Process workflow

Together with the notification the customer receives a copy of the service contract, which is signed at the time of the visit. The contract is valid for 48 months so as to ensure customer retention. From a technical point of view we differentiate between the process of Verification (performed by one technician in ~30 minutes) and a more complex Revision (performed by two technicians in ~40 minutes). Other activities that can be performed are: periodic technical verifications for heating devices, installations and warranty services for heating devices, small electric/gas repairs (operations detailed in Appendix 2). When confirming the compliance of the in-house installation the customer and the technician sign a standardized document that will be returned to the distribution company in order to attest that the revision or verification has been performed. In the absence of this document, the distribution company may be entitled to request a shut off of the customer meter.

9.2.2.

Operational KPIs

The critical success factors for the business are: customer satisfaction

driven by high quality and reliability and operational efficiency in order to

improve agility and reduce cost. Based on these critical success factors, we

defined the key performance indicators (KPIs) that will measure the operational

process performance (80%) and sales performance (20%).

Operational KPIs:

- First Appointment Met in order to avoid re-appointments

- First Time Right - to measure the quality of the services performed.

- Inquiry Solving Time to measure the speed of the repairs counted from

the customer inquiry.

- Repeated Rate to measure the quality of the services performed.

- Customer Satisfaction measured through customer surveys or follow-up

calls in order to quantify the level of satisfaction with provided services.

Sales KPIs:

- Sales Volume measured versus the target.

9.2.3. Continuous improvement

We strongly believe that in order to achieve the highest level of efficiency

and the highest level of customer satisfaction, continuous improvement must be

pursued. The first step is to constantly implement industry best practices that

have been proven to deliver superior results. Also, by defining the process,

constant process measures, analysis of defective results, improvement measures

and post implementation control based on Six Sigma DMAIC principles will

ensure incremental improvement of the process.

9.3. IT application: Work Force Management (WFM)

According to a Gartner (2014) report, the four main objectives of a Work

Force Management system are:

manage orders,

schedule and assign a service technician,

help that technician to perform end-to-end service tasks, including the ability to look up inventory status in real time or cached on a wireless device

field service functionality that supports a variety of field service models, such as reactive, preventive, predictive or reliability-centred maintenance In our vision, the WFM system will insure activity efficiency by the following features:

reduced number of printed documents required to be filled;

optimization of route paths;

optimal allocation of orders according to the routes;

real-time activities monitoring and updated info on task performed and workload;

provides operational reports;

inventories management;

eliminates human and data operating errors;

improved communication;

processes automation. Although the benefits of a Work Force Management system are vital for efficient operations, the low initial investment budget forces us to approach a local software company in order to develop a customized system to efficiently address our needs. The initial investment is EUR 100,000 Euro, with an estimated

payback

efficiency boost as

opposed to not implementing the system is 10%. The system will be tailored to our operational process. The orders are introduced in the systems either manually, by operators, or through northbound interface from the customer portal based on customer appointments. The

system

based on order

complexity, availability, skills and distance to the customer’s address. Work order

time

of

2

years.

The

expected

operational

will

automatically

assign

one

or

two

technicians

assignments can be also overruled by the team leader. Also, the team leader has the possibility to assign manual work orders. The technician will get the list of work orders on his mobile terminal and will be able to receive, review and validate the order, perform the assigned tasks and transmit to the central server the order status, access or record in the

Right People Right Right Cost Skills Work Force Management Right Right Plan Time Exhibit 12:
Right
People
Right
Right
Cost
Skills
Work Force
Management
Right
Right
Plan
Time
Exhibit 12: WFM implementation

central data base several information (i.e. inventories management), print invoices once the work order is completed thus enabling on the spot cash collection. The final result will be the assignment of the right people, with the right skills, at the right time to carry the right plan at the right cost.

10.Human Resources We aim to increase the value of each employee’s work, to motivate them in order to reach performance and convince them at the same time to be real ambassadors of the company.

10.1. Organizational structure

In order to cultivate and maintain agility, the organization is structured on four main verticals: Operations including field operations and IT under the direct coordination of CEO, Commercial including marketing, PR, sales and the coordination of the outsourced call centre, Strategy and Business development, as well as Managed Services. Each main vertical is managed by an executive director reporting to the CEO: chief commercial officer, chief strategy officer and managed services officer.

The field operations department is composed by county level field technician teams, each supervised by a team leader. The number of teams is expected to grow with the geographical extension of the business and therefore, at a later stage, are expected to be grouped into regional structures in order to be effectively managed. All field operations and IT will be managed by an Operations manager.

operations and IT will be managed by an Operations manager. Exhibit 13: Organizational chart In terms

Exhibit 13: Organizational chart

In terms of organization dynamics, we expect an increase in the number of technicians over the next five years from 10 in 2016 to 98 in 2020, driven by the geographic business expansion. However, considering that the field technicians have also sales objectives, we do not expect the same growth rate in the sales agents. Also, in order to compensate for the high cost of internal labour and to cover for peaks in activity, the company will “lease” technicians. Personnel leasing is similar to temporary employment but does not involve a direct contractual relationship with the employee and is limited to a maximum of 2 years.

Evolution of Personnel 120 Team Leaders 10 100 23 80 7 Field Technicians (leasing) 22
Evolution of Personnel
120
Team Leaders
10
100
23
80
7
Field Technicians
(leasing)
22
60
6
8
Field Technicians
40
75
(internal)
3
53
45
20
1
24
11
Sales force
7 9
10
5
3
0
2016
2017
2018
2019
2020

Exhibit 14: Personnel development

10.2. Recruitment

As building a new player on a highly competitive market, the quality of

the human resource plays a key role in the success of the business. Therefore we

will rely on our experienced management team to enrol highly skilled

technicians operating in the market. We expect our competitors to be the main

suppliers of highly skilled manpower. The main principles for recruitment are:

technical skills including ANRE certifications, field experience, customer focus

and adherence to the company’s values. The same principles apply for both

internal and “leased” employees.

10.3. Training

Acquiring good quality workforce is not enough. It needs to be improved

constantly by updating with new regulations and technologies. The main focus

areas are:

Periodic NERA and ISCIR certifications for gas and electricity

Internal certifications (basic and advanced) for installing and repairing

new technologies like heating devices.

Vendor trainings for installing and repairing new technologies

Trainings on processes and procedures

Training on workforce management system and new features

Customer interaction trainings

Sales abilities trainings

10.4.

Motivation

In order to improve technicians’ motivation, a performance management

system will be implemented based on operational KPIs and Sales KPIs, cascaded

from the Balanced Scorecard. The main advantages of the performance

management system, based on SMARTER objectives (Yemm, 2013) are:

Allows the assessment of the techniciansperformance.

Provide an effective framework where people can reach their full

potential and are rewarded accordingly with the result of their work and

make sure that high performers are motivated to pursue in the company’s

direction.

Ultimately, will sustain the achievements of the company’s strategic

objectives.

A competitive remuneration package will be created for the technicians,

consisting of three parts (fix, variable and performance bonus granted

according to the degree of achievement of the performance indicators).

11.Risks

The business is exposed to both external

summarized hereinafter.

11.1. External risks

and internal

business risks,

External risks arising from events outside the company and beyond its

influence or control (Kaplan and Mikes, 2012):

Business environment: risk of new competitors

developing, coupled with potential loss of market

share due to price competition. As the

competition for the R&V business consists in a great

Business environment
Business environment

Likelyhood

5

4

3

2

1

5 4 3 2 1

X

5 4 3 2 1 X Consequencies

Consequencies

1

2

3

4

54 5

number of very small companies, there is a significant risk of market development, particularly considering price sensitivity of customers for a regulated service. In order to mitigate this risk, a diversification of products is planned. In addition, the business plan already foresees the potential loss of market share generated by business turnaround, counteracting with a pricing increase in order to align with competition

Regulatory risk: currently R&V and TVH services are

Regulatory Risk
Regulatory Risk

Likelyhood

5

4

3

2

X

1

 
1 2 3 4 5

1

2

3

4

5

Consequencies

regulated by NERA/ISCIR (i.e. revisions are performed every 8 years, verifications every 2 years, according to regulatory requirements and TVH every 2 years). There is a risk of market deregulation (i.e. services no longer compulsory),

which would lead to a general market fall. This, however, is a risk affecting the entire R&V market, so it cannot be seen as having very high relevance for one company in particular. While such risk could not be mitigated, it can nevertheless be decreased through diversification, i.e. expanding in related lines of business not subject to regulatory requirements, such as maintenance, repairs and warranty services for heating equipment, sale of energy efficiency and safety products, other small repairs.

Macroeconomic risk: factors generating such risk relate to general changes in income, inflationary tendency in the economy, rising unemployment as well as the fluctuations in world economy. These risks are generally less predictable because they do not appear at regular intervals and may not

Macroeconomic Risk
Macroeconomic Risk

Likelyhood

5

4

3

X

2

1

 
1 2 3 4 5

1

2

3

4

5

Consequencies

necessarily result in losses to the firm. In general, the recent global liquidity crisis has resulted in, among other things, a lower level of capital market funding, and lower liquidity levels across the banking sector and higher

scrutiny on companies requiring funding. The volatility of the RON exchange rate and of the main currencies used in international trade is very high.

Political instability has an important influence on the functioning of a business, both in the long and short term. The general political climate in Romania has been instable in the recent years, characterized by sudden changes (usually through Government Emergency Ordinances), and it can

Political Instability Risk
Political Instability Risk

Likelyhood

5

4

3

X

2

1

 
1 2 3 4 5

1

2

3

4

5

Consequencies

be said that, in combination with the Regulatory, this could have a very significant impact on the business. Both of these last two risks are general, affecting the entire economy, so little, if any, mitigation action can be taken.

11.2. Internal risks

Internal

(preventable)

risks, arising

from

within

the

organization,

are

controllable and have to be eliminated or avoided (Kaplan & Mikes, 2012):

Credit risk: the R&V business model is based on a

very high number of clients with very small individual tariffs. Most clients are households, the service is regulated, and therefore, as a general rule, the related credit risk is rather high. In order to mitigate such risk, the invoices or subscription

Credit Risk
Credit Risk

Likelyhood

5

4

3

X

2

1

 
1 2 3 4 5

1

2

3

4

5

Consequencies

contracts will be issued in advance to clients, workers will cashing in the services on the spot, etc., the transactions being monitored via WFM.

Financial risk: financing is required for investment in the IT tool, and there is a risk that such financing may not be obtained from the financial institutions, if needed. In such situation, the shareholders have

Financial Risk
Financial Risk

Likelyhood

5

4

3

X

2

1

 
1 2 3 4 5

1

2

3

4

5

Consequencies

the option to grant loans to the company themselves, under arm’s length conditions.

12.Financial plan

12.1.

Summary financial projections

12.1.1.

Income statement

 

P&L Position

2016

2017

2018

2019

2020

(RON)

(RON)
(RON)
(RON)
(RON)
(RON)
 

Revenues

949,510

949,510

3,044,130

3,044,130

6,255,717

6,255,717

9,133,911

9,133,911

12,163,086

1

Revision and

464,454

1,435,441

2,957,583

4,062,536

5,231,531

Verifications

2

Heating

485,056

1,608,689

3,298,133

5,071,375

6,931,555

devices

verification

Personnel costs

(864,733)

(864,733)

(1,933,482)

(1,933,482)

(3,583,314)

(3,583,314)

(5,222,609)

(5,222,609)

(7,046,866)

1

Personnel Costs

(552,000)

(844,560)

(1,722,902)

(3,163,249)

(4,541,019)

(internal FTE)

2

Personnel Costs

-

(591,192)

(964,825)

(902,112)

(920,154)

(leasing FTE)

3

Personnel Costs

(140,173)

(277,498)

(446,314)

(622,614)

(806,655)

(sales)

4

Personnel Costs

(172,560)

(220,231)

(449,272)

(534,634)

(779,038)

(team leaders)

Other expenses

(499,714)

(499,714)

(942,994)

(942,994)

(2,121,604)

(2,121,604)

(2,963,251)

(2,963,251)

(3,686,847)

1

Other direct

(250,714)

(696,394)

(1,350,004)

(1,663,051)

(2,240,847)

costs

2

Indirect costs

(48,600)

(145,800)

(291,600)

(340,200)

(486,000)

3

Management

(50,400)

(100,800)

(480,000)

(960,000)

(960,000)

costs

4

Start-up costs

(150,000)

EBITDA

(414,937)

(414,937)

167,654

167,654

550,799

550,799

948,051

948,051

1,429,373

Amortization/

-

(45,000)

(90,000)

(90,000)

(90,000)

Depreciation

Depreciation
Depreciation
Depreciation
Depreciation

1

Amortization

(45,000)

(90,000)

(90,000)

(90,000)

2

Depreciation

-

-

-

-

EBIT

(414,937)

(414,937)

122,654

122,654

460,799

460,799

858,051

858,051

1,339,373

1

Interest

(81,000)

(81,000)

(64,800)

(48,600)

(32,400)

2

Income tax @

-

-

9,325

(129,512)

(209,116)

16%

Net income

(495,937)

41,654

405,324

679,939

1,097,858

12.1.2.

Statement of financial position

 
01.01.

01.01.

31.12.

  01.01. 31.12. 31.12. 31.12. 31.12. 31.12.

31.12.

  01.01. 31.12. 31.12. 31.12. 31.12. 31.12.

31.12.

  01.01. 31.12. 31.12. 31.12. 31.12. 31.12.

31.12.

  01.01. 31.12. 31.12. 31.12. 31.12. 31.12.

31.12.

2016

2016

2016

2016 2016 2017 2018 2019 2020

2017

2016 2016 2017 2018 2019 2020

2018

2016 2016 2017 2018 2019 2020

2019

2016 2016 2017 2018 2019 2020

2020

Fixed assets

 

-

Intangible assets

-

225,000

405,000

315,000

225,000

135,000

Current assets

 

-

Inventory

-

20,893

58,033

112,500

138,588

186,737

-

Receivables

-

158,252

507,355

521,310

761,159

1,013,591

-

Cash

500,000

500,000

601,123

- Cash 500,000 601,123 35,036 517,642 1,048,389 1,367,986

35,036

- Cash 500,000 601,123 35,036 517,642 1,048,389 1,367,986

517,642

- Cash 500,000 601,123 35,036 517,642 1,048,389 1,367,986

1,048,389

- Cash 500,000 601,123 35,036 517,642 1,048,389 1,367,986

1,367,986

 

Total assets

500,000

500,000

1,005,267

  Total assets 500,000 1,005,267 1,005,424 1,466,452 2,173,136 2,703,314

1,005,424

  Total assets 500,000 1,005,267 1,005,424 1,466,452 2,173,136 2,703,314

1,466,452

  Total assets 500,000 1,005,267 1,005,424 1,466,452 2,173,136 2,703,314

2,173,136

  Total assets 500,000 1,005,267 1,005,424 1,466,452 2,173,136 2,703,314

2,703,314

Share capital

500,000

500,000

500,000

500,000

500,000

500,000

Current year profit

(495,937)

41,654

405,324

679,939

1,097,858

/ (loss)

 

Retained earnings

 

(495,937)

(454,282)

(48,958)

30,981

Long-term

-

720,000

540,000

360,000

180,000

-

liabilities

 

Short-term

liabilities

- Bank loan

-

180,000

180,000

180,000

180,000

180,000

- Trade and other

29,143

78,583

176,800

246,938

307,237

payables

 

-

Personnel

72,061

161,123

298,609

435,217

587,239

liabilities

liabilities
liabilities
liabilities
liabilities
liabilities

Total equity and

500,000

1,005,267

1,005,424

1,466,452

2,173,136

2,703,314

liabilities

liabilities
liabilities
liabilities
liabilities
liabilities

12.2.

Key financial ratios

The key summary financial ratios are included in Appendix 4. Both turnover and EBITDA are expected to grow systematically over the 5-year period, with EBITDA

to grow systematically over the 5-year period, with EBITDA margin going from -44% in the first

margin going from -44% in the first year to 12% by 2020. The growth is mainly due to the expected market share increase in both key business lines, combined with an improved productivity of operations and combined

Exhibit 15: Turnover and EBITDA evolution

use of leased and own personnel (with the Operating expenses ratio decreasing from 128% to 88% by 2020). Worth mentioning is that the business will be self-sustainable operationally from year 2, with the operating self-sufficiency ratio (defined as total revenue / total operating expenses) exceeding 1 from year 2. In other words, the need of cash is temporary and driven mainly by the investment in intangible assets (WFMS) for operations, additional capital being necessary only for the first year of operations.

The current ratio supports this point, staying at an average above 2:1 throughout the period.

ratio supports this point, staying at an average above 2:1 throughout the period. Exhibit 16: Current

Exhibit 16: Current ratio evolution

Net profit margin is also expected to become positive (but merely above breakeven) in the second year of operations, going up to 9% by 2020. This is particularly achievable through the use of a mix of own and leased employees, which allow for optimization of costs early in the set-up of the business. Overall, from the perspective of financial institutions and investors / shareholders, the expected evolution of the business is attractive, with ROCE reaching a whopping 75% by 2020 (and with an average of 24% over the entire 5-year period). As bank funds are used mainly for the IT investment, the largest part of the return is attributable to the shareholders, but after paying principal and interest to the bank. Interest coverage remains high throughout the entire period, exceeding 2:1 from year 2 of operations (2017).

13.Exit Strategies According to DeTienne (2010), entrepreneurial exit is defined as the process by which the founders of privately held firms leave the firm they helped to create; thereby removing themselves, in varying degree, from the primary ownership and decision-making structure of the firm”. The entrepreneur’s desire to leave the business at some point in time is defined as exit intention and is related most likely to the entrepreneur’s motivation at start-up (De Tienne et al, 2012). According to Boeker (1989) and DeTienne (2010), the exit intentions are developed early in the lifetime of the business and will therefore influence the decisions and behaviours. A high correlation between intentions and exits is indicated in a study by DeTienne and Cardon (2012) which concluded that 70 percent of exits were performed in the intended path. In our case, the high investment in the human resource as well as in process optimizations by implementing state-of-the-art IT systems to support efficient operations, imply long-term commitment of the investors to sustain the growth of the company.

However, the good financial results and the innovation implemented in managing operations, will make the business attractive for acquisition by another player in the market. According to DeTienne (2010), a buy-out is attractive to strategic buyers who look for cost saving advantages and/or operational synergies with their own business operations. Several options will be taken into consideration for the acquisition exit path:

- Acquisition by a competitor acting in a different geographical area such as Company X which is operating in the Northern part of the country, in order to expand the operations coverage and increase the customer base.

- Acquisition by a competitor in the same geographic area in order to benefit on the efficiency achieved through our operational model

- Acquisition by the gas distribution company in order to re-consolidate R&V and TVH activities already optimized

- Acquisition by an investment fund. Current shareholders will maintain management positions only and act based on strategic KPI’s.

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Appendices

Appendix 1 ECS’s strategic objectives

Perspective

Objective

 

Targets

 
 

Maximize financial performance

 

- Achieve stable EBITDA margin above 10% in 5 years

Financial

- Achieve 10% market share in R&V market in 5 years

Gain 12% market share in TPV market in 5 years - Improve productivity by 10% in 5 years

-

 

Improve

customer

-

Improve customer satisfaction index by 20% in 5 years

Customer

experience

 
 

Optimize relations with business partners (suppliers / producers of central

heating devices, financial institutions, etc.)

-

Conclude

at

least

one

-

representation contract with a producer/retailer for each county in the Southern region in 5 years

Achieve 25% of total revenues from TPV market from representation contracts in 5 years

Processes

Improve

quality

of

client

-

Decrease average answering time in call centre by 10% per year in 5 years

interaction

 
 

-

Answer to 100% of the online requests in the same day in 3 years

-