SETT
E&I Service Provider Trinidad & Tobago
“Determining the Viability of a Motor Rewind and Repair Service in Trinidad”
University of Groningen Msc Business Administration Specialization Business Development
Supervisor: Dr. D.J. Kiewiet
Co-assessor: Prof. Dr. Ir. J.M.L. van Engelen
January 2008 Master’s Thesis of:
Nannet Boonstra 1333720
1. Introduction...3
1.1. Assignment description...3
1.2. Preliminary problem analysis...3
1.2.1. Research background...4
1.2.2. Preliminary Research Findings ...5
1.3. Research Objective ...6
2. Theory...7
2.1 Conceptual Model...7
2.2. Theoretical Concepts ...7
2.2.1. Environmental forces ...8
2.2.2. Resources Management...9
2.2.3. Functional Aspects...10
2.2.4 Moderators ...11
3. Research Methods ...12
3.1. Research Design ...12
3.2. From theoretical concepts to rough variables ...13
3.2.1. Environmental Forces...13
3.2.2. Resources Management...14
3.2.3. Functional Aspects...15
3.3. Data Collection...15
3.4. Data Analysis ...16
4. Results...18
4.1. Analysis Environmental Forces...18
4.1.1. General Market Information ...18
4.1.2. Degree of buyer power...19
4.1.3. Degree of rivalry among competitors ...19
4.1.4. Degree of threat of new entrants ...19
4.1.5. Degree of threat of substitutes...20
4.1.6. Degree of supplier power ...20
4.1.7. Relative power of other stakeholders...20
4.2. Analysis Resources Management...21
4.2.1 Situation financial resources...21
4.2.2. Situation human resources ...21
4.3. Analysis Functional Aspects ...22
4.3.1. Situation marketing management ...22
4.3.2. Situation R&D management...23
5. Service Design...24
5.1. Theory...24
5.2. Objectives Tree...25
5.3. House of Quality...26
5.4. The service process map ...28
5.5. Service Quality ...29
6. Conclusion and Recommendations ...30
6.1. Discussion ...31
References...32 Appendices...Error! Bookmark not defined.
1. Introduction
SETT provides specialized services in Electrical and Instrumentation (E & I) for construction activities, manpower supply, maintenance management and project management. It was established in 2002 as a service provider for Trinidad & Tobago industrial market.
SETT is a full subsidiary of SETT Aruba NV, established in Aruba since 1965, and it is supported both technically and financially by SETT NV, one of the larger based European companies. SETT NV has over 100 years of experience and has been established in the Netherlands since 1890. SETT’s mission is to lead the area of E&I services, focusing on long term relations with their customers. And SETT’s vision is to aim for a leading position in offering customized services in their area of operation.
1.1. Assignment description
SETT wants to introduce to the Trinidad & Tobago industrial sector a state-of-the-art motor rewind and repair facility. SETT intends to conduct a feasibility study regarding this venture and based on this study the viability of the new service can be determined. A feasibility study (Thompson, 2005: 185) can be defined as a controlled process for identifying problems and opportunities, determining objectives, describing situations, defining successful outcomes and assessing the range of costs and benefits associated with several alternatives for solving a problem.
Innovation is not only concerned with new and growing markets, it can also be a powerful route to a competitive advantage in mature markets (Brown, 1991: 197).
Current market leaders often keep pursuing the technique that gave them the competitive advantage even when newer technologies have much higher performance possibilities.
This pattern is also recognizable with the current service providers in the Trinidad and Tobago market. Currently there are three providers which operate in an old fashioned way; low cost but also low quality. This gives way for SETT to enter the market with a modern facility.
The industrial facilities in Trinidad use many motors. Average oil and gas production facilities use up to 1200 motors while, the largest plant uses 2300 motors. These motors are used to drive the transformation processes. The motors often fail due to numerous problems e.g. damaged bearings, burnt windings, bent shafts, damage to rotors etc. These motors would then have to be repaired or replaced quickly to limit production losses.
Some plants have spare motors in place so the whole process doesn’t have to be shut down and the defective motors are taken to the repair shop. The motors will be repaired or rewinded in a set period of time, and then be tested before they are transported back to the plants. SETT aims to become the primary supplier of these services.
1.2. Preliminary problem analysis
The goal of this problem analysis is to define the research objective. To be able to define the objective a distinction should be made between ‘goal problem’, ‘reality problem’ and
‘perception problem’. Only when the stated problem is a reality problem, further research
should be conducted. Reality problems are problems where the solutions have to be sought in changing the reality (De Leeuw, 2000: 284). These are operating problems for the problem owners. To answer this question the research background has to be analyzed.
The research methods used here are; desk research in the form of exploring the Caribbean business plan and conducting two interviews with the general manager and the accountant of SETT.
1.2.1. Research background
Trinidad and Tobago (T&T) is now a huge producer of oil, asphalt, natural gas, ammonia/ urea fertilizers, methanol, iron, and steel. Thanks to the huge base of natural gas, petrochemicals are the center of the industrial strategy envisioned for Trinidad and Tobago.
All these transformation processes use motors to keep it running. At this point in time SETT believes out of experience of the general manager, there is not much customer satisfaction about the repair and rewind of these motors. Broken motors that are repaired frequently break down again after few weeks due to poor servicing. Also these service providers offer limited time guarantees or none at all.
The strategy plan of SETT Caribbean shows the following matrix of competitive position vs. industry attractiveness (Figure 1). Trinidad scores low on competitive position while industry attractiveness is higher than the other two subsidiaries Aruba and Curacao. This is why expansion of SETT, Trinidad in figure 1, and thereby improving their competitive position is one of the strategic goals for the next three years.
Figure 1: Competitive position vs. Industry Attractiveness
A SWOT analysis presented in the Caribbean business plan also shows the strengths of SETT Caribbean, namely; regional experience, SETT’s brand name, clear value proposition to customers and having a hub position to the emerging market. All these show the strong position of SETT for introducing new businesses.
The BCG matrix (see figure 2) presented in the Caribbean business plan shows that the E&I sector is in the question mark section. By introducing a new E&I service, market share can be increased and the sector will transform into a rising star. It will also improve the portfolio balance. As Cooper et al. have investigated; companies that use portfolio management in the right way excel in portfolio balance and having the right number of
projects for the resources available (2001: 374). SETT, Trinidad in figure 2, is specialized in offering E&I services and therefore is the best candidate to expand its business in this area.
Figure 2: Market growth vs. Market share
1.2.2. Preliminary Research Findings
As seen in figure 1 and figure 2 Trinidad has a market that can be very profitable for a company like SETT. To define the commitment of SETT to this service and the motives for introducing this motor repair and rewind service I conducted two open interviews held separately with the general manager and the accountant of SETT. The interview scheme of these interviews can be found in appendix I.
From these interviews it was evident that SETT Americas are vigorously concerned with identifying new opportunities for SETT. The general manager states: ‘Trinidad is a new region for SETT Americas that is ready for future development. Trinidad has humongous benefits so SETT Americas should take the opportunity to acquire a first mover advantage.’ SETT Americas highlighted three possible business development opportunities which are HV testing, brown field engineering and the motor repair/ rewind service. Out of these three, the motor repair and rewind service was selected to be pursued first.
The following list shows the reasons why this service is selected. According to both interviewees the motor repair and rewind service:
- has a higher potential market compared to the other suggested opportunities;
- better aligns with the portfolio of SETT because it is an E&I service;
- has relatively low risk compared to the possible revenues;
- is supported by the board of SETT Americas. They are optimistic about the introduction of this new service and trust the expertise and experience of their colleagues in Trinidad and Tobago.
Furthermore, the General Manager believes SETT has the capability to outperform competitors and fulfill customer needs. This belief is based on years of experience in the field of motor repairs and rewinds.
The information received from both interviews substantiates that the motor repair and rewind service should be the first project to be pursued. The organization’s motivation and commitment for the introduction of the new service came forward in this preliminary research. Furthermore the interview answers are congruent with the strategic plan of SETT Americas. Based on this problem analysis I conclude that viability determination for the motor repair and rewind service is a ‘reality problem’. Further viability research should be conducted for this problem.
1.3. Research Objective
This research has the objective of determining the viability of the new proposed service by SETT, the repair and rewind of motors in a modern facility based in Trinidad.
Relevant themes concerning the viability of this service will be included to give a complete and objective diagnosis. This diagnosis will be the basis for recommendations of future action.
2. Theory
2.1 Conceptual Model
A conceptual model is an abstract model of a concrete system (De Leeuw 2000: 137). In other words this means a simplification of a complicated situation. By drawing a conceptual model it is easier to understand the scope of the research. Or as it is often said
‘a picture means more than a thousand words’. The conceptual model (figure 3) shows the relevant concepts during the research and the relations between these concepts (Braster 2000: 50). This conceptual model further displays two moderators. A moderator is a variable that has a different value for every concept that it is related to. The theoretical concepts will be explained in the next paragraph.
Figure3: Conceptual Model
2.2. Theoretical Concepts
The central concept of this model is the ‘viability’ of the motor repair and rewind service to be introduced by SETT in the Trinidad and Tobago market. Viability can be defined as
‘capacity for survival and success’ or more specifically ‘the ability of the project to cover External aspect
Internal aspects Viability Environmental forces Degree of buyer power (-)
Degree of rivalry among competitors (-) Degree of threat of new entrants (-) Degree of threat of substitutes (-) Degree of supplier power (-)
Relative power of other stakeholders (+/-)
Functional Aspects
Marketing management (+) R&D management (+)
Kind of innovation -service
-product Risk degree
-radical -incremental
Resources Management Financial resources (+) Human Resources (+)
costs’. There are two fundamental universal constants that determine profitability of new business projects (Porter 2001: 66):
- industry structure which determines the profitability of the average competitor (used for external aspect)
- sustainable competitive advantage which allows a company to out-perform the average competitor (used for internal aspects)
In relation to SETT, these two fundamental constants are translated to the conceptual model as the external and internal factors. In the first constant Porter speaks about profitability which in this research is accepted as synonym for viability, simply meaning, the capacity for success and thus profit (external aspect). Because industry structure consists of several environmental forces (Porter, 1980) these variables are used in this research to determine viability and hence, the profitability of SETT. The second constant concerns a sustainable competitive advantage which can be achieved by successfully managing the functional aspects (marketing management and R&D management) and the resources management (financial and human resources) of SETT, resulting in two internal aspects.
Industry attractiveness, ultimately the viability of the motor repair and rewind service is thus influenced by one external and two internal aspects. The organization controls the internal aspects and influence can be exerted consciously. However, external aspects are dependent on factors outside the control of the organization and therefore are hard to influence. Nevertheless, these aspects are indeed present and one must be prepared to successfully deal with them for the project to become viable.
2.2.1. Environmental forces
First environmental forces which are the external factor will be discussed. Panne et al.
addressed lack of adequate market analysis as the main factor of failure of innovations (2003: 323). Therefore, this research market analysis is grounded by Porter’s theory (1980) of structural analysis of industries. Porter (1980) defined five environmental forces – buyer power, rivalry among existing competitors, threat of new entrants, threat of substitutes and supplier power. These environmental forces jointly determine the intensity of industry competition and profitability, and the strongest force(s) are governing and become crucial from the point of view of strategy formulation (Porter, 1980: 6). These forces determine industry structure, thus not all industries have equal potential (Porter, 1980: 30).
Each environmental force has a number of important economic and technical industry characteristics that are critical to the strength of each force. The degree of buyer power depends on a number of characteristics of its market situation and on the degree of the buyers’ interaction with the industry. If the buyers have more power than the providers it will have a negative effect on the viability of the industry. The second factor is rivalry among competitors. Rivalry occurs because one or more competitors either feels the pressure or sees opportunity to improve position. When these competitive moves have noticeable effects on its competitors it can cause a pattern of action and reaction (Porter, 1980: 17). To determine the competitiveness in this industry variables as price sensitivity
and competitor diversity are analyzed. The third factor, threat of new entrants depends on the entry barriers that exist in the industry, like switching costs. The higher the threat of new entrants, the lower the viability of the service will be. About the fourth factor – threat of substitutes – can be said that all firms in an industry are competing with industries producing substitute products (Porter, 1980: 23). Attractive substitutes can limit the profitability and viability of the industry. The fifth factor is the degree of supplier power. Suppliers can exert power over buyers in an industry by threatening to raise prices or reduce the quality (Porter, 1980: 27). In this research the supplier power is analyzed by variables as supplier concentration in the market and the mark-up rate. The complete list of rough variables used per environmental force in this industry analysis can be found in chapter 3 methods.
Nowadays some strategists add a sixth factor; the relative power of other stakeholders. In the new economy managers need to deal with the growing power of individual stakeholder groups (Scholes and Clutterbuck, 1998: 227) like governments, employees and public organizations. This increase of power leads to a growing influence of stakeholder groups on industry attractiveness. Many stakeholders are external groups where direction depends on types and kind of power bases that are not available to the internal organization (Bourne and Walker, 2005: 652). Nevertheless, stakeholders’
influences need to be identified and mapped to better understand these influences. If this is done then appropriate strategies can be formulated to maximize stakeholders’ positive influences and minimize stakeholders’ negative influences (Bourne and Walker, 2005:
651).
2.2.2. Resources Management
Porter (1980) claimed a sustainable competitive advantage is necessary to let new business projects be profitable. Resources within the resource-based view are defined as
‘anything which could be thought of as strength or weakness within a given firm whose tangible assets are tied semi-permanently to the firm’ (Wernerfelt, 1984: 172). This research analyzes the suitability of SETT’s financial and human resources management to achieve a sustainable competitive advantage as new service provider in the motor repair and rewind industry.
Human resources include things as the experience, judgment and intelligence of managers and workers in the firm (Wright et al, 1994: 303). Management of these resources is organizational activities that are directed at fulfilling the organizational goal.
The knowledges, skills and abilities (KSAs) of needed human capital for the new service have to be analyzed and on this outcome recruitment should be based. It is very likely that not all the necessary KSAs are readily available. In this situation options for training should be explored. Further, motivated employees produce more and better results than unmotivated employees, so the organization has to make sure to extrinsically motivate employees. If essential and enough human resources can be recruited for the service this will have a positive influence on viability and possibly can lead to a sustainable competitive advantage. The complete list of variables that will be analyzed can be found in chapter 3.
As philosopher Michael Schumpeter (1939) noted ‘finance is a component of innovation, which in turn, is the heart of economic evolution’. Generally accepted is that the development process consists of approximately 5 phases, where the second phase defines the viability and the third phase, the finance stage, must secure financial resources (Craig Justice, 1988: 357). In this third phase financial commitments are made and after this it is hard to turn back the decision without substantial financial losses. Therefore, financial resources are one of the main issues to be analyzed in this viability research. The sources from which financing can be derived include: internal sources (liquidation), external sources (borrowing) or a combination of both (Craig Justice, 1988: 357). This research analyzes whether SETT has enough financial resources to pursue with the introduction of this service and thereby limits the risks involved with financial investment.
2.2.3. Functional Aspects
The other internal aspect concerns two functional areas of the organization. The big question here is: ‘Are these functional areas conscious of and suited for introducing this new service?’ The two respective areas are marketing management and R&D management.
Even though there is universal agreement on the importance of marketing, many industrial companies aren’t satisfied with the results of their efforts to date (Ames, 1970).
Nowadays we are even a step further; a market orientation should be present throughout the whole organization and should be the motive in every action the organization makes.
When carried out well and consistently market orientation can give you a competitive advantage. This theory assumes that, customer value is created by core capabilities throughout the entire organization, customer service is everyone’s job and that quality must be defined by the customer (Slater and Narver, 1994).
The second aspect that will be analyzed under marketing management is the marketing mix which consists of: place, product, promotion and price. Several studies confirm that the 4P’s mix is a trusted platform used in marketing issues (Constantinidus, 2006: 408).
The third variable has to do with what value proposition SETT wants to position themselves in the market. Clear customer value propositions can be the cornerstone for superior business performance (Anderson et al., 2006: 99). It is important that a company’s strategy delivers a value proposition different from those that competitors offer (Porter, 2001).
For a positive influence on viability of the service this research aims to analyze the extent of SETT’s market orientation, ideas about the marketing mix and the value proposition they want to offer.
The other functional aspect that is analyzed is R&D management. Several researchers believe that people, not products, are the major assets of innovative companies and therefore recruitment of these employees should be the main priority (Gupta and Singhal, 1993). Nevertheless, organization design, internal support and alliance are also important to facilitate a steady growing R&D organization. There should be an open organization design and a reasonable R&D budget provided together, with adequate equipment and facilities (Huang and Lin, 2006: 970). Further, work experience in R&D processes will
contribute in a positive way. All these things combined will have a positive influence on viability.
2.2.4 Moderators
In this research two moderators exist which are the degree of risk and the kind of innovation.
The service to be introduced is completely new to SETT but the newness to the market is low or in other words, the process is already proven. Lager (2002: 93) labeled this kind of innovation as ‘technology transfer’. He advises when R&D resources are allocated to such projects to consider it with care because it can be a risky investment, and process developments should preferably take place in collaboration with external partners. This labeling, technology transfer, also facilitates assessment of the portfolio with regard to aspects as:
- necessary company resources
- a proper risk/reward balance for the product development portfolio (moderator) - personal qualifications needed for different kind of product development
(moderator)
This moderator, risk degree, exists between both internal aspects and the variable viability. The amount of financial resources needed is different for a radical innovation than for an incremental innovation and has influence on the viability of the project. R&D practices and marketing management also change with a different degree of risk involved.
The other moderator, kind of innovation, only operates between the functional aspects and viability. Service development is in several aspects different from physical product development, this will be further explained in more detail in chapter 5 where service design is discussed. If you don’t take into account this issue it will negatively influence the viability of the project.
3. Research Methods
In this chapter the research set up will be discussed. In other words this forms the outline of how to reach a successful outcome to the research objective.
3.1. Research Design
The research design is the link between the conceptual model and the social reality. This design shows how the theoretical concepts of the conceptual model are translated to rough variables, how data is collected and how this data will be analyzed (Braster, 2000:
59).
This research has the form of a clinical casestudy. A casestudy is a research strategy that intensively studies a social phenomenon in one or more research entities (Braster, 2000:21). Clinical means that it focuses specifically on action and change of that social phenomenon. This research will take an interpretative approach as opposed to the positivist approach. Advantages of this approach are; its subjectivity so respondents have great influence, a qualitative research analysis which gives a richer impression and meaning to the viability concept, and the explicit focus on this unique case. A negative implication on the last advantage is that generalization is not possible, but in this case that is not relevant because this research is conducted strictly for SETT.
In this casestudy there is one research entity; ‘the new service to be introduced by SETT’.
The research entity is selected pragmatic, in other words I chose this research entity because I had easy access to this organization and fitted my school requirements.
Measurement will take place during a period of 4 months but all aspects will be measured once. There won’t be many control possibilities because this research is conducted in a natural setting where borders between the social phenomenon and its context are vague (Braster, 2000: 14). This also limits the reliability of the research. Reliability is defined as a quality criterion that focuses on measures that are independent of researcher, time and measure instrument (Braster, 2000: 75). By keeping a casestudy protocol and a casestudy database reliability will be increased but because of the strong interpretative focus the same results can never be re-produced. On top of that, this research is dependent on time.
If measurement has to be done again in a later stage the internal and external situation will have changed which will cause a different outcome.
On top of these features that characterize a casestudy there are some features distinctive for a ‘clinical’ casestudy (Braster, 2000:32). To finish this research successfully collaboration between researcher, managers, employees and other involved people is necessary. In this research help will be provided to the researcher by the managers of SETT and by a school supervisor. There will also be collaboration with third parties, for example representatives in the target market and a sister company of SETT that offers a rewind service in the German market. Another feature of a clinical casestudy is the involvement of the researcher in the process of change. In this case the researcher will give suggestions about the change and propose a detailed service design. The last specific feature of clinical casestudies is the specific attention to the phasing of the research
process. In a clinical casestudy the research process takes the form of a reflective cycle (Braster, 2000:32). In table 1 the reflective cycle is applied to this research.
Table 1: The Reflective Cycle
Activities Content
1. Description and Analysis Data collection for research background Problem Analysis
Literature research and conceptual model
Set up research plan (research methods + interviews) 2. Diagnosis (Feasibility) Deepening insights of themes (field research)
Verification of insights (data analysis) 3. Action and Evaluation Suggestions for change (design service)
Evaluation of results (conclusions) 3.2. From theoretical concepts to rough variables
Several theoretical concepts are used to give a complete view of the viability of the new service, as defined in the conceptual model. These theoretical variables are used as frameworks that will be mainly operationalized according to the theorist’s standpoints, but during the field research there is space for respondents to express their own ideas about the theories, according to the interpretative approach. This will lead to other views and standpoints of the raised aspects that influence viability and therefore add value to the research and its utility. This led to added variables during the data analysis stage which are assigned with an (*) or (**) in the tables below.
The second column concerns the relation to viability for every rough variable, which can be positive, negative or can direct both ways. This indication can help during data analysis to determine the viability of the project. The third column concerns the respondents and data collection methods. ‘Who’ these respondents are and ‘why’ these are chosen will be discussed in the data collection paragraph.
3.2.1. Environmental Forces
Rough Variable Relation
to viability
Data collection method Degree of Threat of substitute
Number / sort of existent substitutes Advantages substitute
Disadvantages substitute Buyer propensity to substitute
- - + -
Market interviews Market interviews Market interviews Market interviews Degree of rivalry among competitors
Number of competitors Degree of quality competition Degree of price competition Rate of industry growth
Degree of diversity of competitors Amount of unfulfilled needs*
Degree of current satisfaction*
Degree of buyer persuasion*
- - - + + - - -
Market interviews Market interviews Market interviews Market interviews Market interviews Market interviews Market interviews Market interviews
Degree of buyer power
Degree of participation in price decision Degree of participation in quality decision Degree of participation in time decision**
Buyer concentration to firm concentration Buyer switching costs**
Buyer information availability Degree of buyer price sensitivity Degree and kind of customer needs Kind of consumer buying patterns**
Kind of consumer attitude**
Amount of switch possibilities*
Kind of actions needed to switch*
Market position of buyers*
- - - - - + - +/- +/- +/- - - -
Market interviews Market interviews Market interviews Market interviews Market interviews Market interviews Market interviews Market interviews Market interviews Market interviews Market interviews Market interviews Market interviews Degree of Supplier power
Degree of participation in price decision Degree of participation in quality decision Degree of participation in time decision Degree of differentiation of inputs Presence of substitute inputs
Supplier concentration to buyer concentration ratio**
Supplier comparability vs. differences (according to buyers views)
Degree of input costs relative to selling price of the product
- - - + - + - -
Market + provider int.
Market + provider int.
Market + provider int.
Provider interviews Provider interviews Market interviews Market interviews Provider interviews Degree of threat of new entrants
Degree of access to distribution**
Number of new entrants last years*
Degree of reputation influence*
Sort of needs to fulfill by new entrant*
+ - - +/-
Market interviews Market interviews Market interviews Market interviews Relative power of other stakeholders
Degree of government regulations Degree of environmental regulations
- -
Market interviews Market interviews
* = variables added after the interviews
** = answers based on interpretations out of the interviews, not literally answered 3.2.2. Resources Management
Rough Variable Relation
to viability
Data collection method Presence of Financial Resources
Amount of financial resources present Amount of financial resources needed
Amount of financial resources that can be attracted
Kind of investment program available
+ - + +
Organization interviews Provider interviews Organization interviews Organization interviews Presence of Human Resources
Degree of available personnel
Responsibilities current personnel for new BD option*
Amount of personnel to attract Kind of personnel needed Degree of training needed
Degree of motivation among current personnel
Kind of skills/functions needed Education level needed
Means of recruitment*
Kind of recruitment policies
Means of motivation for new personnel*
+ +/- +/- + - + +/- - + +/- +
Organization interviews Organization interviews Org. + provider interviews Org. + provider interviews Org. + provider interviews Organization interviews Org. + provider interviews Org. + provider interviews Organization interviews Organization interviews Org. + provider interviews
* = variables added after the interviews 3.2.3. Functional Aspects
Rough Variable Relation
to viability
Data collection method Presence of marketing management
Knowledge of current market situation Kind of value proposition to offer Kind of marketing pricing strategy Kind of marketing placing strategy Kind of marketing promotion strategy Kind of marketing product/service strategy Degree of customer involvement
+ + +/- +/- +/- +/- +/-
Organization interviews Org. + provider interviews Org. + provider interviews Org. + provider interviews Org. + provider interviews Org. + provider interviews Organization interviews Presence of R&D management
Degree of market orientation
Use of technological capabilities in decisions Degree of experience in NPD
Kind of recent BD projects Degree of structured R&D
+ +/- + + +
Organization interviews Organization interviews Organization interviews Organization interviews Organization interviews 3.3. Data Collection
A major strength of case study data collection is the opportunity to use different sources of evidence; this is called triangulation of data collection (Yin, 2003: 97). In this research the main data source is interviews and in limited form existent documents. So the strength of triangulation doesn’t really come forward in this research. Furthermore, the events or facts of the case study have to be supported by more than a single source of evidence (Yin, 2003: 99). In this study in-depth interviews will be held until no new information comes up, so most findings will be supported by at least two sources. The different sources are potential customers in the target market, the organization SETT and a provider organization in the German market.
Table 2: information sources and interviewees Theoretical
Variables Information
Sources Companies Interviewees
Environmental forces
Market (A), (B), (C), (D), (E), (F), (G), (H), (I)
E&I Supervisor Purchase manager
Organization SETT General Manager
Operations Manager Resources
Management
Provider SETT NV Turboservices
Germany General Manager
Organization SETT General Manager
Operations Manager Functional
Aspects
Provider SETT NV Turboservices Germany
General Manager
In the table above the three different sources of information; the market, the organization, and a provider organization and their respective interviewees are outlined. The market consists of 9 companies in the T&T industrial sector where in each company in-depth interviews take place with the E&I supervisor and the person in charge of purchasing.
The E&I person has the most knowledge about requirements etc. of the motors but it is also important to interview someone that has decision making authority with regards to choosing a supplier for this service. By interviewing these persons the environmental forces out of the conceptual model will be fully covered. The second source, ‘the organization’ is SETT itself. Here information will be gathered by in-depth interviews with the General Manager and the Operations Manager. These interviews are held to see if the organization is ready to pursue this service introduction. And the third source is a provider organization, SETT NV Turboservices Germany. This company is already engaged in this business so this is a good opportunity to learn from their experience and expertise. The last two sources will investigate the internal forces; resources management and functional aspects. Further information about the interview questions can be found in Appendix II.
The in-depth interview is the best way to gather data because it is suited for ‘how’ and
‘why’ questions (Braster, 2000: 98). The interviews consist of open questions; this means a list of rough questions based on the rough variables. Based on the answers you can continue to ask about the subject until you have a satisfactory answer. This also adds value to the interpretative approach because an in-depth interview gives enough space to the respondent to give their true and full opinion and this way new views that the researcher hadn’t thought of before can come up; hence the added variables in the tables.
Because this research serves as basis for the set up of a new business by SETT it is of utmost importance to gain as much specific and detailed information which can only be gathered by in depth interviewing and qualitative data analysis.
3.4. Data Analysis
The rough variables will be analyzed qualitative because it will give a rich impression of the viability and in this case will have more meaning than quantitative data; this is also the reason why I chose to use in-depth interviews as main data collection method. The level of analysis will be on organization level; the persons of the organizations interviewed in the market represent ‘the market’ divided in 9 research objects (the organizations), the employees of SETT represent ‘the organization’, and ‘the provider’
represents the last organization. The organization level is chosen as analysis level because on this level the decision has to be made whether or not to continue to pursue this new business objective.
The analysis and presentation of this research needs to be utilizable by SETT. To make this study utilizable three implementing criteria need to be met. First the research needs to work with manipulating variables. In this research these variables are the internal aspects in the conceptual model. In other words; these variables can be consciously influenced. The second criterion is the discriminating effect of variables. And the third criterion is the strategic possibilities of variables. Further there are three strategic criteria that have to be met. The research needs to have the right timing. The results of this viability study will be used to decide if the service will be introduced. So this study is right in time and will fulfill the right function, what is the second criterion. The last strategic criterion has to do with not conflicting values and balances of power within the organization.
The qualitative data analysis is done through a labeling process. Its goal is to bring structure into a huge amount of raw data gained by the interviews (Baarda et al. 1995).
The hardest part of this process is to ‘label’, that is: give a name or names to text fragments. You continue labeling until no new labels appear in the interviews. The complete labeling of this research can be found in appendices III, IV and V. The last step of labeling starts in the next chapter ‘results’. The main findings of the process are presented there and will lead to the conclusion where is answered if the research objective is met.
4. Results
In this section the results of the data collection and analysis are presented. The results are divided in three main concepts of the conceptual model; environmental forces, resources management and functional aspects. The paragraphs below discuss the main findings from the research, the complete analysis database can be found in the appendices III, IV and V. The researcher made interpretations based on the used theories as well as on the researcher’s own knowledge and common sense. Sometimes suggestions are given for further actions.
The tables 3, 4 and 5 in the paragraphs below show the relation direction of the variables towards the viability of the motor repair and rewind service, based on the conceptual model. The right column shows the consequences of these relations for the viability based on the findings of the research (see appendices).
4.1. Analysis Environmental Forces
Table3: Researched environmental variables and their relation to viability
Variable Found value in
analysis per variable
Direction of
relation to viability Consequence for viability (based on analysis)
Degree of buyer power
Low - + Degree of rivalry
among competitors
Low - + Degree of threat of
new entrants Low - +
Degree of threat of
substitutes Low - +
Degree of supplier
power High - -
Relative power of
other stakeholders Low +/- +
4.1.1. General Market Information
Firstly some general information about the market is given. Nine of the biggest companies have been interviewed. This is a bit less than half of the target market for the new service. These nine companies combined posses about 7000 motors from fractional to 2750 Horsepower. The newer plants have fewer breakdowns than the older ones, but on average about 40 motors break down per company per year. The failures range from simple bearing replacements to complete rewinds and service check-ups. The main providers currently serving the market are UX and FEX. Three of the interviewed companies possess a monopoly position; the other six companies operate in an oligopoly.
4.1.2. Degree of buyer power
The overall degree of buyer power in this market is low and with the negative relation the consequence for viability is positive (+). To be able to switch providers customers don’t have to undertake neither extra actions nor pay extra costs. This gives buyers more power but on the other hand it is very positive for a new entrant like SETT. Buyers are not price sensitive which is positive for the quality service SETT wants to offer. The needs buyers have include: high quality, short delivery time, better customer service, improved human capabilities, full service repair and rewind and efficiency. Customers choose their provider based on the overall job the provider offers but currently there is not much choice; only two providers qualify for most customers’ needs. Further, information availability is limited; providers don’t advertise and only give information about prices when asked for it by customers. This implies limited buyer power because they can’t make use of all the information when they need it.
4.1.3. Degree of rivalry among competitors
The overall degree of rivalry among competitors is not high, which implicates a positive consequence (+) for the viability of the new business project. Customers complain a lot about parts of the current service offer but when asked explicitly about their satisfaction they answered ‘yes’ but with the remark ‘there is nothing better’. The prices asked by suppliers were also acceptable which lead to an acceptable quality/price ratio although some respondents found it hard to answer that question. Customers do agree that some companies offer better quality than others but overall prices are alike. In the last 15 to 20 years no other providers entered the market, so no new competition arrived. This can mean there is no business in this market or no one has seen the opportunities here.
Nevertheless, companies in the market are expanding which leads to more motors, but a motor can have a lifespan of 20 or more years so it probably won’t need repairs or rewinds in the first 10 years. This means no extra business in the near future. Further, the current competition leaves companies with several unfulfilled needs which are among others: lack of safety guarantees, short guarantees, lamination repairs, repair choke filters, form coils, lamination repair, rotor repairs, poor customer service and an unprofessional service in general. These are realistic opportunities for SETT to fill in. Last can be said that none of the competitors tries to persuade the market to do business with them, some customers believe this is because the suppliers have enough business.
4.1.4. Degree of threat of new entrants
All customers agree that there were no new entrants in the last 15 to 20 years. But one customer answered that several players were looking into this industry so their advice was to enter soon. Where they got this information from is unknown. When customers choose a provider they look at their reputation. This means SETT has to make sure customers have a positive view of their reputation, but off course SETT is not active in this area yet so they have to get it from word of mouth in their E&I business. And when they do enter the industry they have to make a good first impression, because it is much harder to recover from a bad reputation. Further, customers have a lot of wishes they want fulfilled by a new entrant. Because of the way this question was asked during data collection answers need to be interpreted with care; the answers might not be realistic and a bit over the top. Nevertheless the wishes still have to be considered by SETT to gain
extra business from their customers. Some wishes are: preventive management, all inclusive testing, professionalism, good customer service, higher safety concern, faster emergency work, and concern for the environment. Based on this I conclude that the overall threat of new entrants is low and therefore it has a positive consequence on the viability of the new business project.
4.1.5. Degree of threat of substitutes
The overall threat of substitutes is very low, which means this relates positively (+) to the viability of the new service. The only substitute customers could think of was in-house repair and rewind of motors. Some companies used to do this partly or completely by themselves but decided to outsource it because they had limited expertise, it cost too much or it was too far from their core business. The tendency is that also the last few companies will outsource these tasks in the near future.
4.1.6. Degree of supplier power
The overall degree of supplier power is high which has a negative effect (-) on the viability of the new service. Suppliers as well as competitors have significant power in the price and time decision. Only when you have a name as quality provider in the market these influences can be limited. But SETT is not operating in this market yet so they will have to gain trust of the customer that they are a quality provider and can therefore overcharge compared to competitors.
Further according to the knowledge of the interviewed provider in the German market:
motors are a poor market in general, in his words ‘you never have a winner on your hand’. This means there is a small margin on every job. On top of that there is a lot of differentiation in inputs. There are several original equipment manufacturers (OEM) and motors from each OEM need a different approach. But unless all this negative responses, a good opportunity for SETT to increase their supplier power is to gain trust in the market based on their reputation in their current E&I services and the international reputation of SETT N.V. and thereby limit the influence of competitors and suppliers.
4.1.7. Relative power of other stakeholders
With the description of the theoretical concepts it was made clear that the power of other stakeholders can as well have negative as positive effects on viability. During the analysis it turned out that there are hardly any other stakeholders that have relative power in this industry. This leads to a positive (+) effect on the viability. The government doesn’t have any regulations in place concerning this industry. There only are some international standards (NETA, NEC, EEEA, and EASA) which companies have to appeal to, but more often company standards concerning safety are higher than these international standards. Neither are there any environmental regulations, this is up to the companies themselves.
4.2. Analysis Resources Management
Table 4: Researched resources variables and their relation to viability Found value in analysis
per variable
Consequence for viability (based on analysis)
Variable
Organization Provider
Relation direction to
viability Organization Provider Situation
financial resources
No
information + + No
information + Situation
human resources
+ - + + -
4.2.1 Situation financial resources
Unfortunately the accountant of SETT didn’t give any information about the financial resources present in the organization that can be dedicated to this new project. So no answer about the consequences on the viability can be given. On the contrary the provider gave very useful information about the needed financial resources for setting up a motor repair and rewind facility. The found value for the variable financial resource during the provider interview is a (+) and therefore it has a positive effect on the viability of the new service. The provider advises to start a facility because he knows not many financial resources are needed in the start up phase. The most important expense is key personnel. Experienced electrical and mechanical personnel needs to be attracted, currently these people are scarcely available in the job market that’s why more money has to spend to find the highly skilled persons. Further a small workshop is needed together with an in-house and mobile testing facility, a crane and the basic tools, but these are all small expenses.
4.2.2. Situation human resources
The provider mentions the repair and rewind of motors mainly is a ‘handcraft’ job. This implies that human resource management is extremely important. Experience of at least 10 to 15 years is crucial for the mechanical and electrical functions. These skills can’t be learned by a few weeks or months of training as the general manager suggested. Also a education of about 3,5 years is needed in electrical machinery combined with on the job training. As mentioned in the previous paragraph these skilled persons are hard to find in the job market. So based on this information of the interview with the provider organization the presence of human resources is low and thus has a negative (-) consequence on the viability.
The data collected in the interviews with the GM and OM of SETT lead me to the opposite direction for the variable human resources. SETT wasn’t aware of the scarcity of good personnel in the job market and therefore gave me a positive view of the presence of human resources. The consequence for viability is positive (+). I came to this labeling because their answers showed they had a good idea of human resources necessities like KSAs etc. Obviously more value should be given to the answers of the provider organization because of their expertise and experience in this field. Further a sales and
marketing function is necessary to build up and retain a solid customer base. Because of the complexity of the product it is very important to build up individual relationships and listen to customer’s wishes. Concerning the motivation, the provider and the organization agree that the best means of motivation is the offer to let personnel work in a good work environment combined with a reasonable financial compensation.
Further I believe it is good to set up this facility independent from current operating activities because this eliminates conflicting roles and time dedication. New personnel should be attracted by means of interviews. Concerning the selection of the mechanical and electrical personnel the recruiter needs to have knowledge of the required KSAs because of the criticality for success of the service. Because experience is essential, take a look at personnel at current competitors. Be careful with this because first, your competitors won’t appreciate this move and therefore might try to ruin your business in the early stage. Second, because the skills of these persons might not be that good hence;
the low satisfaction in the market. Another solution is to look in other markets like the United States or Europe. Again take the advice: not to settle for less!
4.3. Analysis Functional Aspects
Table 5: Researched functional variables and their relation to viability Found value in analysis
per variable
Consequence for viability (based on analysis)
Variable
Organization Provider
Relation direction to
viability Organization Provider Situation
Marketing management
+ + + + +
Situation Business development
-- No information asked
+ -- No information asked 4.3.1. Situation marketing management
The variable marketing management has a positive relation and because the found value for marketing management in the organization and provider interviews is positive the consequence for viability is also positive. This is because of several findings. SETT is aware of the current market situation, they know what goes on in the market and who the current suppliers are, on top of that they now posses the information gained in this feasibility study so that should give them an advantage when they make decisions on the marketing mix. They also have a clear idea of what value proposition they want to offer, a professional, qualitative and reliable full service at competitive costs. The interviewed provider supports this but advises only to adjust to strong competitors and don’t try to out-compete the rest by offering the lowest price.
Concerning the marketing mix the following can be said; the organization and the provider agree that proximity to the customers is essential; therefore the facility should be placed between the industrial estate and San Fernando. The promotion of the service also is essential, especially because SETT is not active yet in this business which makes it crucial to build up a solid customer base. They can benefit from their reputation in the
E&I sector but because of the complexity of the product an individual approach to customers is a good way to build relations and trust. In my opinion the organization underestimates the value of market positioning so a wise idea would be to hire a marketing person with expertise in this business area. On top of that the new organization should place more emphasis on market orientation which can’t only be done by marketing personnel but is the task of the whole organization.
4.3.2. Situation R&D management
In this area there is a lot of room for improvement. Based on the interviews I conclude that the current R&D management within SETT is very weak. This has a very negative (- -) consequence on the viability of the new service. Because the organization is still young, only in existence since 2002, business development projects have never taken place neither is there a business development structure in place. According to the operational manager they are still struggling to position themselves as respectable E&I service provider. So if they go through with this business development project they will incur substantial risk. But because they operate under SETT N.V. they get their financial assistance and therefore don’t carry the full risk.
Above the inexperience of SETT the general manager of SETT, who will be responsible for the set up of the facility and service, neither has any experience with a project like this. I think his appointment as project manager should be reconsidered because innovative talent and expertise is extremely important for this position and his inexperience can have a negative influence on the successful progress of the process.
Further the general manager and the operations manager ‘mixed up’ the meaning of market orientation with marketing orientation. Instead of having only a marketing manager, market orientation needs to be the focus throughout the whole organization.
This increases the awareness of changes in the market and the ability of fast adaptation to these changes.
5. Service Design 5.1. Theory
There are 5 aspects that are unique to services compared to products (Rosenau, 1996:
316). The first unique aspect is the intangibility of services. Although services are most often concerned with some physical part, for the most part services are intangible and therefore customers must risk buying an eventual outcome and/or experience that they cannot fully assess prior to purchase (Cooper and de Brentani, 1991: 77).
The second aspect, individualized experiences, can be explained by the definition of service. ‘Services’ means doing something for someone, not mass producing a product for ‘everyone’ (Rosenau, 1996: 316). For SETT all the different inputs are the basis of the service and therefore are essential for further service experience; hence every motor failure needs a different repair or rewind.
The third aspect is strategic benefits for customers. Breakthrough innovations generally come from the more strategic new services that relate to the core business of the enterprise and provide unique benefits to customers (Rosenau, 1996: 317). Competitive and market forces are forcing many service firms to provide a ‘complete solution’
(Dougherty, 2004: 36). SETT’s core business is providing E&I services and because the motor repair and rewind service can be classified as such it therefore is a suitable addition to SETT’s portfolio.
Simultaneous production and delivery of the service is the fourth aspect unique to services, the designed service actually is the designed experience. Many services require substantial interaction with the client at the time the service arrangement is first established as well as in later stages of the relationship (Cooper and de Brentani, 1991:
77).
The last aspect, the variability of services, has to do with the heavy dependence on human resources and people in general. Because each customer can have different expectations, some employees can have better communication skills compared to others, and varying environmental circumstances the actual service outcome and customer satisfaction when consuming the service can vary at each occasion. For SETT this variability is even higher because every client requires a customized service experience.
Most service companies haven’t established rigorous ongoing R&D processes (Thomke, 2003: 72) because of the bigger challenge concerned with service innovation compared to physical product innovation. During the research analysis it was found that SETT has no structured R&D management program. However it would serve service companies with a great benefit if there was more special attention towards service innovation.
Because of the simultaneous production and delivery, interaction with the customer often is an integral part of the service process. This is why the development of a service is often far more complex than the development of a new tangible product (Johne and Storey, 1998: 186). Above that, interaction makes operational synergy, delivery quality and the
use of experienced personnel (Cooper and de Brentani) critical aspects to focus on. The service process map, which will be discussed in paragraph 5.4 puts extra emphasis on the interaction part of the service.
The German provider that was interviewed indicated that the repair/ rewind service mainly is a ‘handcraft job’. With this he meant that the knowledges, skills and abilities (KSAs) of employees are critical for success. Knowledge for new services literally exists in daily operations, and because the design of the service and the service operation are interrelated, this implies that services must organize everything up front to capture the knowledge (Dougherty, 2004: 36). Above this, Gwinner et al. (2005: 131) suggested that an employee’s level of customer knowledge, certain personality predispositions, and intrinsic motivation positively influence the propensity to both adapt their interpersonal style and the actual service offering. This means it is important to recruit adaptive employees and train employees to be more adaptive.
5.2. Objectives Tree
Objectives are the mixture of abstract and concrete aims that the design must try to satisfy or achieve (Cross, 2000: 62). The service objectives are based on the desires or needs of the market, which were analyzed during the market research (see appendix III).
These desires and needs are called customer attributes. These objectives are ordered into higher and lower level objectives and this hierarchy can be seen in figure 4.
Reading to the right a link indicates ‘how’ a higher level objective can be achieved, the reverse relation indicates ‘why’ a lower level objective is included (Cross, 2000: 65). The customer attributes are generally reproduced in the customers’ own words (Hauser and Clausing, 1988: 65). This increases the chance that the engineers interpret the attributes the same way as the customers meant it.
The main objective of the service is to provide a professional service. Customers are dissatisfied with the current providers which offer low quality, amateurship and where customer service is awful. Based on customers’ answers professionalism consists of a qualitative end product and decent customer service. These two secondary objectives are divided in several tertiary objectives, also directly obtained from the market analysis. The stated list of objectives might not be complete because it is mainly based on customers’
answers given during the research. On top of that use of a single researcher, as is the case, can cause a bias in the importance of objectives for the new service.
Figure 4: Objectives Tree
5.3. House of Quality
Based on the objectives tree of the previous paragraph a house of quality can be set up.
The house of quality is a kind of conceptual map that provides the means for interfunctional planning and communications (Hauser and Clausing, 1988: 63). The customer attributes (CAs) are directly translated from the objectives tree to the house of quality. Weightings are given to all CAs to indicate their relative importance. These weightings are based on the emphasis the customer put on these aspects during the researcher’s direct interaction in the indepth interviews.
Along the top of the house of quality, the engineering characteristics (ECs) that are likely to affect one or more of the customer attributes are listed (Hauser and Clausing, 1988:
66). The top of the house indicates the correlation between the engineering characteristics; in this case the relations are almost all positive.
Customer Service
information availability
handle complaints
have regular contact
with market Contact person
Customer visits to facility recovery policies
customer friendly Standard price list
Information phonenumber Quality
quality end product
use of quality equipment all in one service
experienced/expertise personnel all inclusive testing
failure diagnosis
product repair certificate safety guarantees
generator repair choke filter repair lamination repair rotor repair
preventive management form coils
guarantees
deliver broad spectrum of services
No rework
Fast response time Reliability
Professionalism
