Presented By:

Rafi Sheikh
Sheeraz Malik
Syed Ahmed Ali
Umair Ali
Waqar Ameen

Bob Hemphill, a vice president charged with designing and implementing a

new process for selling and delivering Heatway products. Proposal to Payment
(PTP) was upset over the spending budget.

PTP was a sweeping, radical change involving not only a new process, but also
a new organizational structure, a new IT architecture, and even a new
philosophy of business.

Hemphill had requested $35 million for the 1995

Allan Firestone, president of Heatway Corporations Industrial Products

Division, however, offer only $15 million to spend on PTP in 1995

Hemphill felt that $35 million was necessary to meet the objective of full
implementation of PTP by 1997

Firestone wondered how he could get the money for PTP without sacrificing
his profit objectives for the year

Heatway Electromechanical Services Co LTD was established in 1988

Heatway did business in industrial and consumer markets in 27 countries

throughout the world.

The company start working with Central Air-conditioning

(Heating, ventilation,

and air conditioning -HVAC) Installation in Big Buildings such as Hotels,

Commercial Centers, Office Block buildings and small projects as dancing

clubs, Restaurants and Houses

Heatways business enjoyed an upturn with earnings of $375 million on

revenues of $4.6 billion in 1994.

It had 20,000 employees, 40% of whom were based in the U.S

The Industrial Products Division had its own direct-sales and engineering
groups (it worked with distributors particularly in instances of smaller
customers).

Reengineering at Heatway and IPD

Heatway was an early adopter of new approaches to business

improvement.

The entire firm had embraced notions of quality and continuous

improvement in the 1980s.

In the late 1980s, the company's European business units began to

adopt more radical approaches to business improvement.

Though Heatways European efforts were later viewed as too incremental to

lead to radical improvements, they were initially well regarded within the
firm.

Reengineering at Heatway and IPD

A corporate group, led by a Heatway manager and Don Kacher, vice

president of the IT, adopted the same approach and identified and described
10 key processes within the entire business. One of these became PTP
(activities from proposal for an HVAC job to delivery and payment). However,
the group concluded that the first effort within the U.S. should be in financial
processes.

Required order-of-magnitude improvements in

Time

Cost
Quality

Business Process
Reengineering

Where we are

Where we want to be

Work divided into two teams

Team A
8 members
Analyze current state of the processes
Understand the costs & time of doing business
Recommend short term improvements
Team B
10 internal managers& consultants
Create vision for future state of process.

Both teams were jointly responsible for managing the organizational

change required for the initiative to succeed.

The current-state team members began immediately to lay out the

current process on large boards within their offices.

They interviewed more than100managers, employees, and distributor

personnel in the field in order to better understand the process.

1On average, it took 56 days and cost more than $12,000 for the

entire process (from proposal to collections)

Some sales revenues were lower than this cost amount overall.
The cost and time of distributor-oriented sales, was estimated
around $10,500

the operation committee set the performance targets for the new
process one-tenth of the current figures.

The objective of the future-state team was to formulate a very concrete and
detailed vision with descriptions of the process inputs and outputs,

technologies and organizational approaches to be employed, and specific

performance measures.

The team analyzed the firms strategy and operational vision.

Spoke with customers about their requirements for the process,

The team sent members throughout the country to benchmark other firms
approaches to order management and other relevant processes.

The focus of benchmarking activity was to finding innovations adopted by a

variety of firms' innovations that could be adopted by Heatway

The team researched how information technology might be employed in the

new process.

Finally, The team analyzed how new organizational approaches, such as

front-line empowerment and self-managing teams, could be applied to the
PTP process.

The design of the new process began to take shape. Some of the design components
were as follows:

The configuration for the order would be produced in real time at the architect or
contractor site, using a notebook-style computer, a mobile data network, and
access to multiple databases within Heatway;

Customers would be served by an autonomous team of support personnel who

would sell, install, and service Heatway equipment in the field (this aspect of the

vision overlapped with service processes, which were not really changed in PTP)

The two teams (future-state and support-personnel) would have control over most
aspects of the process that served customers, including pricing, invoicing and
payment, collections, and measurement of customer satisfaction; Heatway referred
to the teams as franchises because they performed the entire PTP process and
could act as a separate company (though field personnel would still be Heatway
employees)

Heatway would generally dispense with offices for field employees, encouraging
them to work from the road or their homes; however, certain customers would be
compensated for acting as demonstration and service training sites.

The customer administration function would, in Hemphills words, be blown up.

The franchise teams could hire administrative personnel, but at their own expense.

A key aspect of the new process design was a new set of highly integrated
information systems that would enable more coordinated interfaces between
sales, engineering, finance, manufacturing, and inventory management

The team concluded that an integrated package from SAP AG, would be well
suited to Heatways information needs.

Kacher and the reengineering team subset began to interview consultants for
SAP help, beginning with the firm being used for the reengineering work.

While designing the process, the team concluded that customers could not be
effectively served unless the interface between PTP and manufacturing was
improved

A small tea m was created to redesign this process, which came to be called
Solution Design and Construction.

Similarly, the PTP team concluded that the distributor-based processes differed
so much from the rest of PTP that they should be redesigned separately; another
small team was formed, called Channel Processes.

Salada heatway chairman was heard to tell one team member, This is the most
important project in the company right now. One concern of the more
aggressive members of the senior management tea m, such as Don Kacher, was
that the new design would not be radical enough. But when the staff got a

preview of the new process design in mid-1994, that was no longer a concern.

Team created a large financial model to analyze the costs, benefits, and
financial risks of implementing the new PTP process.

The new process was very expensive (around $150million)

Cost for prototype process efforts
Cost of SAP Implementation
Cost of fully implementing and operating the new workstations, networks, and
SAP software
Cost for retaining, relocating, and removing employees
Return on the PTP investment appeared very high.

Changes in Information technology

Mobile data network necessary
SAP installation
Sales force workstation

Adoption of the new process.

Management, evaluation and compensation of their day to day work.

Communicated the nature of these changes through written

communication.

Mixed Reaction
Performers loved the new process because of more freedom and less
bureaucracy.
Less capable performers were worried about how they would fare

It was clear to all that some employees would not survive in the new
environment.

In mid-1994, Heatway announced a reorganization and

management shuffle.

Salada would remain chairman, but a new CEO from the defense
industry would become president and CEO.

Kacher would leave Heatway,

The Information Systems function would be outsourced to an

external firm with substantial SAP experience.

Firestone kept his responsibility for IPD in the U.S. and was given
responsibility for the U.S. Consumer division,

All of the non-U.S. business units were transferred to the Senior Vice
President International, a position with no immediate incumbent.

Reorganization could have been problematic for PTP

o

Firestones greatest concern was that the European groups would now
have less incentive to adopt the PTP design.

He was concerned also that the new information systems provider would

want to implement SAP without concern for the PTP process vision.

The new CEO told Firestone that his budget for PTP would probably
have to be cut, and asked him for suggestions on how to slow down
the implementation.

Difficulty in assessing how rapidly the construction and rollout of PTP

capabilities should take place.

Other members of the operations committee were neither worried nor

committed to PTP.

Change in the commitment by the key managers after the reorganization.

These are those managers whose functional areas would shrink with the
adoption of PTP despite being offered important role at Heatway.

In Financing for PTP

o

If all the resources are devoted then both revenue and profitability

goals would not meet

Firestone, had both revenue and profitability goals to meet over the
next several years.

It was clear to everyone that if PTP was successfully implemented, it

would be a good investment. Firestone would have to spend a lot of

money to save a lot of money, however, and he did not have much
to spend.

the new CEO and several senior members of the Operations

Committee did not seem willing to fund PTP substantially.

Firestone tried unsuccessfully to make PTP a corporate initiative, but that

did not seem to be the style of the new Heatway corporate management.

Hemphill and Firestone was frustrated at their difficulty. Their

reengineering project had delivered on a new process design that will
radically improve the old process of Heatway and that had all the signs
of being implementable.

Now it was up to Firestone and other executives within Heatway to

decide how quickly to roll out the new process, and how to fund it.