The Air Space Heaters Case Study
Air Space Heaters is a UK-based manufacturer of domestic space heaters which are sold to customers in the UK, France, and Germany. Air Space Heaters was founded as a sole trader business in 1947 and became a private limited company in the
1960’s. The organisation remains family-owned with strong links to traditional methods of manufacture. The granddaughter of the original proprietor of Air Space Heaters is both chief executive and a main shareholder. The remaining shareholders are all descendants of the family. Three of them are directors of the business, while the remaining two directors are not members of the family.
The company is organised into five functional areas – Marketing & Sales, Design, Finance & Procurement, Human Resources and Manufacturing Operations. A breakdown of the number of people currently employed at Air Space Heaters in each of these functional areas is shown in Table 1.
Functional breakdown of staff employed at Air Space Heaters as at year end 2012
Functional Area
Marketing & Sales Design Finance & Procurement Human Resources Manufacturing Operations
Directors 1 1 1 1 1
Line Managers 1 2
Engineers and Designers 7
Administrators 1 1 1
Skilled Workers 14 7 6 35
Table 1
Air Space Heaters manufactures two types of space heater. The first is its traditional design which uses smokeless-coal and has changed very little since the company started trading in 1947. However, the rise of cleaner, more efficient ways of space-heating and the problem of CO2 emissions have resulted in sales in traditional coal-fired space heaters becoming more, or less, static. But the company still wants to increase sales in this market. The second type of design is Air Space Heater’s modern glass-fronted, clean-burning, efficient space heater appliance, which uses bottled bottled-gas.
Despite intense competition and recessionary pressures in the UK market for space-heating appliances, the sales of this particular product continue to increase steadily and account for some 85 percent of Air Space Heaters’ annual revenue.
The retail prices in 2012 of Air Space Heater’s traditional and modern space-heating appliances were £450 (€560) and £250 (€310) per unit, respectively. These prices exclude the costs of buying the coal and bottled-gas, which were £0.05 (€0.06) per kWh and £0.16 (€0.20) per kWh, respectively. Table 2 gives the sales between the years 2010 to 2012 of Air Space Heaters’ traditional and modern space heaters in the UK, France and Germany.
Air Space Heaters traditional and modern space-heating year-end appliance sales, 2010-2012 UK France Germany
Year 2010 2011 2012 2010 2011 2012 2010 2011 2012
Traditional Space-Heating Appliances Sales (Units) 1676 1763 1750 300 335 371 150 200
247
Modern Space-Heating Appliance Sales ( Units) 8520 9467 10150 1000 1500 2104 1350 1375 1403
Total Appliance Sales (Units) 10196 11230 11900 1300 1835 2475 1500 1575 1650
(note: assume appliance sales to be equal to actual output)
Table 2
Air Space Heater’s key business objective is to achieve an average year-on-year sales growth of at least 10 percent in all segments to which it supplies appliances. On the other hand, Air Space Heaters Executives are concerned about the potential risks to the organisation of overdependence on UK sales, particularly as the UK economy could possibly enter an unprecedented ‘triple dip’ recession. Given the appliance growth potential that appears to exist in France and Germany, some members of the Executive feel that at 20,000 space heater units per annum Air Space Heaters not only has the necessary design capacity for growth, but needs also to be less ‘inward-looking’. So it is high time to review the organisation’s key business objectives and strategy.
As much as overdependence on UK appliance sales is a problem for the Executive, it is equally concerned about the potential impact of a number of other business environment issues, which if not tackled effectively, could threaten Air Space Heaters future viability. At a recent weekend retreat of the Air Space Heaters Executive a number of business issues were identified as priorities for the organisation.
An important part of the Coalition Government’s Carbon Emissions Reduction Target (CERT) is the obligation it places on energy suppliers with 50,000 or more domestic consumers to reduce carbon dioxide emissions. Since the coal and bottled-gas used in Air Space Heaters appliances are supplied by other companies, Air Space Heaters is not an energy supplier.
Recently, however, these two suppliers with whom Air Space Heaters has a long-standing relationship have become increasingly critical of Air Space Heaters apparent complacency on this issue. As responsible organisations, these suppliers are convinced that Air Space Heaters too ought to be working alongside them in supporting initiatives to promote more efficient energy use and reduce carbon dioxide emissions.
The Directors of Marketing & Sales and Design (who are not family members of Air Space Heaters Executive) are concerned that the organisation’s survival owes more to good-fortune, than on a systematic assessment of underlying demographic
trends and technological know-how. For example, factors such as smaller households, increases in the rented sector, changes in expected levels of home comforts, lifestyles, and greater awareness of green issues, are all likely in one way or another to impact on product sales. Likewise, there is a danger that domestic customers may become increasingly dissatisfied with the growing technological ‘gap’ between coal/bottled-gas space-heating and other appliances, especially in relation to ease-of-use, automation, control and design for safety.
The Director of Marketing also feels that Air Space Heaters traditional approach to the sales and delivery of its space-heaters could benefit from immediate investment in on-line sales capabilities. In this way, the firm may be better equipped to service and possibly grow the UK market, but more particularly in France and Germany. The concern to develop the business in this way relates to the risks to which the business is likely to be exposed should an unusually cold
winter ensue in the UK as this could result in a downturn of sales in the UK and lead to reduced revenue and profits.
While there appears to be some in-built flexibility at the current overall manufacturing efficiency of 60 percent the Director of Manufacturing and Operations still remains sceptical about the ability of the business to respond effectively, should the fear of a long hard winter become a reality. A further concern for all directors is the issue of the technical barriers Air Space Heaters may need to confront such as the tighter fuel burning efficiencies in the French market, should the business decide to increase its trading in the European Single Market.
The Director of Manufacturing and Operations is not against the notion of taking a systematic approach to improving the business. However, she feels very strongly that improvements to the manufacturing operations and supply chain for both the traditional and modern space-heaters might be a more efficient short-run approach to increasing sales revenue. Long-run approaches such as the establishment of an on-line sales capability, argues the Director of Manufacturing and Operations,
are important but could be quite risky, especially that the current sales and revenue trends are still rising. The current average order fulfilment time agreed with Air Space Heater’s sole distributors of seven days from initial customer order to home delivery, works well. Also a recent customer survey commissioned by Space Air Heaters indicated that its customers in the UK were more than satisfied with the personal touch associated with the home delivery, installation and after-sales services provided by this distributor. Currently, this approach is to deploy a purpose-built fleet of transit vans, each with a well trained (technically and in terms of customer services) craftsman-driver who delivers targeted service to the customer. Moreover, although a survey was not commissioned to elicit customer’s views in France and Germany, the anecdotal
evidence suggests that these overseas customers appear in general to be satisfied with the road-transport based delivery service which Air Space Heaters provides from the two small deliver hubs located at strategic points in these two countries. So it is the Director of Manufacturing and Operation’s considered opinion that the current supply channels are
working reasonably well and should remain substantially unchanged, at least in the medium term.
In terms of the reliability of Air Space Heaters products, while the survey did reveal that customers were in general satisfied, a small proportion of customers (approximately 5 percent of those surveyed) complained of cracks appearing in
the glass panel of their space heaters, often following a prolonged period of use. Coincidentally, so as to increase the product throughput of its modern space heaters, Air Space Heaters had also installed and commissioned a new robotic assembly line, which the Director of Manufacturing and Operations suspects may have been the source of this problem. But at the prevailing five percent failure rate of these glass panels, it may not necessarily be viable for the business to expend its scarce resources to resolve this problem.
With retail prices for electrical domestic space heaters of between £35(€44) and £50(€63) most customers could make the switch from coal or bottled-gas space-heaters to alternative substitutes. Also with a comparable price per kWh, barriers to exit from the coal and bottled-gas space-heating market are relatively low. Fuel poverty – defined as households which spend more than 10 percent of their income on fuel – could also drive poorer customers to switch to electrical space-heating because of the added flexibility to target electricity consumption to actual need.
Once a customer buys an Air Space Heaters space-heater, most of the costs incurred will be to purchase either the coal or bottled-gas. The demand for Air Space Heaters space-heaters is derived from the demand for energy. In turn, the demand for
energy depends on the global price of oil, which is determined on a monthly basis by the Organisation for Petroleum Exporting Nations (OPEC) – an international group of oil producing nations. The popular view among oil analyst and the suspicion among members of Air Space Heaters Executive is that at USD110 per barrel, the global price of oil is being kept artificially high. The real worry for the derived demand market in energy products and services and for Air Space Heaters products in particular, is what might happen to the price of oil.
The Air Space Heaters Consultancy Assignment – PVIC Module
The context of the consultancy assignment Following the recent weekend retreat the key strategic business issue upon which the Air Space Heaters Executive Board cannot agree is whether or not it should be adopting short-run, or long run project approaches to improving manufacturing performance and customer satisfaction. On the one hand, short-run project approaches do tend to deliver revenue in the immediate term but fail to address underlying change issues. Yet on the other hand, long-run project approaches are more likely to sustain revenue streams in the longer-term as well as to deliver more fundamental and lasting change within the organisation. Short-run project approaches are also much less challenging than long-run project approaches in terms of navigating the consequential organisational change issues and associated business risks.
Never before has an issue resulted in such soul-searching within the Air Space Heaters Executive Board and there are now real concerns within the Air Space Heaters Executive Board to resolve this problem one way or the other.
The consultancy assignment
As a specialist consultant in projects, innovation and change management you have been head-hunted and tasked by the Air Space Heaters Executive Board to present a consultancy report to support discussion and decision-making at their next planned retreat. This report should contain the following:
a) A written review of the organisational innovation and change issues of which the Air Space Heaters Executive Board should be aware in deploying approaches to project management for the delivery of short-run and/or long-run improvements to manufacturing performance and customer care.
(Word length: 1400)
b) A critical analysis of the project management, innovation and change issues arising from the case study which may flow from a decision to adopt a long-run approach to improving manufacturing performance and customer satisfaction at Air Space Heaters. This should be presented in the form of a written narrative addressed to the Air Space Heaters Executive Board and should make clear the key related issues of which the Executive Board should be aware in going ahead with the decision.
Amongst other things, your written narrative might address the following issues:
• The challenges which lie ahead for the Air Space Heaters Executive Board in managing the organisational change issues stemming from a decision to adopt a long-run approach to improving manufacturing performance and/or customer
satisfaction.
• How the likely costs and benefits associated with going ahead with the decision might be analysed.
• How the decision might impact the quality assurance and control of Air Space Heaters products
• The way in which emergent political and cultural issues may be navigated in bringing about this change at Air Space Heaters
• The impact on human resources at Air Space Heaters
• Strategies for minimising the potential business risks associated with the decision
• Possible ways by which lessons emerging from the change process may be embedded at Air Space Heaters
• The international implications of the decision
• The reduction of Air Space Heaters carbon footprint.
You should use the relevant innovation, project management and change concepts, tools and techniques with which you are most familiar to support the written narrative to the Executive Board.
(Word length: 1000)
c) On the basis of the critical analysis of the key issues identified in section b), above:
a. justify to the Air Space Heaters Executive Board the reasons why they should adopt the chosen long-run project approach to delivering the desired manufacturing performance and customer satisfaction;
b. devise a strategy for implementing the change process. This strategy should also advise the Board of the key benefits and risks of the decision.
(Word length:
600)
The assessment criteria
In assessing your consultancy report due regard will be given to the following assessment criteria:
i. The synthesis of the project, innovation and change management ideas discussed in the literature review
(25%)
ii. Grasp of the practical project, innovation and change management issues which impact and may be impacted by deploying approaches to project management which deliver short-run and long-run improvements to manufacturing performance
and customer care.
(25%)
iii. Critical demonstration of knowledge, awareness and insight of the relevant project, creativity and change management concepts, tools and techniques
(20%)
iv. The viability and practicability of your proposed strategy for change
(20%)
v. The visual quality of the report, its readability and engagement
(10%)
Progress and feedback milestones
The seminar activities in weeks 9 and 10 (Session 5 for block learners) will be given over to the critique, oral
presentation and defence of your draft narratives with your fellow students and tutors acting as critical commentators.
This will provide useful feedback with which you can improve your draft narrative and section c) of the assignment in good time for its.
The assignment carries a weighting of 100 percent and should be no more than 3000 words and is to be submitted via Moodle with an accompanying turnitin report.
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