LMA – GARDNER CASE STUDY · Gardner‟s Early Career ... The following case study is to be read in conjunction with case study assignment instructions, titled

CASE STUDY

GARDNERS BECOMES RELIANCE SERVICES

Leadership Management Australia

© Leadership Management Australia, 2010 2

Contents

Gardner‟s Early Career ......................................................................................................... 3

Gardner‟s Electrical & Plumbing Ptd. Ltd ......................................................................................... 3

Organisation Structure ........................................................................................................................ 4

Product Innovation ............................................................................................................................... 4

Timeline ................................................................................................................................................. 5

Organisation Structure: Discount Electrical & Plumbing Pty. Ltd. ........................................... 6

Company Merger .................................................................................................................. 7

A Turning Point ..................................................................................................................... 8

Appendix 1: Reliance Services Pty Ltd Organisation Structure and Details …………………10 Appendix 2: Simmons letter to Hardwick………………………………………………………. 11 Appendix 3: Hardwick's letter to Simmons………………………………………………………..12 Appendix 4: Simmons resignation letter…………………………………………………………..13


The following case study is to be read in conjunction with case study assignment instructions, titled “Case Study Assignment – Gardners becomes Reliance Services”. Gardner’s Early Career In 1990, at the age of 38 James Gardner founded an electrical and plumbing business in Adelaide, Australia, called “Gardner‟s Plumbing & Electrical Pty. Ltd.” James started working with a large plumbing and electrical firm, Northern Trade Services Pty. Ltd (Northern) as a 16 year old apprentice in 1968. He worked in this firm for 22 years, first as a plumber and later as a supervisor of a team of plumbers and electricians and then as manager of the company. Northern focused on servicing the domestic and smaller commercial market. During his years at Northern, James developed a strong relationship with a wide network of customers, suppliers and tradespeople. As well as home and small business installations, Northern was often called in to repair hot water services and air conditioners not long outside their warranty period. While this extra work was good for their business, he recognised that the work was a result of poor quality imports and that the consumers of these products had no alternative local product to choose from in South Australia. Despite the questionable quality of the imported air conditioners and hot water services, James and Northern always took pride in providing a high quality service, and customers grew to appreciate this over the years. Gardner Plumbing & Electrical Pty. Ltd. James wife, Julie, was not very impressed when he spent much of his long service leave, researching and planning how to commence his own business manufacturing hot water services and commercial air-conditioning units. He was looking for a bigger challenge and saw the opportunity to provide local competition for imported products. Gardner Plumbing & Electrical P/L started their manufacturing operations in a factory premises on 2nd May, 1990 and opened a showroom for trade sales on 1st July, 1990. Joe Wilmot, an electrical engineer, was recruited to head up his manufacturing operations. James managed the showroom and installations side of the business, and his wife Julie managed the business administration and accounting. The manufacturing side of the business grew quickly, helped by supplying Northern, his previous employer, with products that were moderately less expensive and of higher quality materials and parts than the imports they had been using. While James business was focused on selling through tradespeople, James saw the opportunity to lift his profit margins in 1993 by selling and installing products directly into small commercial businesses. Gardner‟s wide network of customer contacts over the years came in handy developing this direct commercial business, but it led to tensions. The head of Northern threatened to not use Gardner‟s products if he approached Northern customers directly. Gardner eventually made a commitment to Northern to not approach their small commercial customers. His newly appointed Sales Manager, Joe Sanderson thought James was being far too cautious by making this commitment. Joe believed that James should have negotiated some type of commission arrangement with Northern. However, the direct sales to commercial customers continued to grow steadily after an initial contraction in 1996. Julie Gardner transferred the accounting function to a new employee, Marcia Stiles who was appointed as Administration Manager in 1996. Marcia thought the accounting records were


in good shape, but she was concerned that the rest of the company had been „flying by the seat of its pants‟ in many areas. She found a lack of systems and documentation within the business, which from her experience posed quite a risk to the growing company. Marcia made some initial progress with the documentation of policies and procedures across the business. These included processes for procurement, payroll management, performance review, manufacturing, and expenditure approvals. However, James wasn‟t that supportive, being concerned she was creating „red-tape‟. Yet Marcia‟s idea to formalise longer term maintenance contracts helped build his confidence in her. Previously the contracts had been renewed annually, but the new approach to these contracts suggested by Marcia provided longer term assurance of steady annual revenue, and the customers appreciated longer term maintenance assurance as well. When Joe Wilmot retired in 1997, Gardner appointed 30 year old electrical engineer Rod Simons to run the manufacturing division which had 19 full time employees by 1998. Simmons quickly reorganised production and within a year productivity and morale had both improved. James was proud of the consistent product quality that was being achieved, and the way Rod was developing a very committed team in both the manufacturing and the growing number of installers. The installation and service team had grown to 12 employees, including 5 apprentices across both manufacturing and installation. James was also pleased that his only son Michael has started working in the manufacturing division as a leading hand after he finished his electrical engineering degree. James gave Rod plenty of scope to run the division the way that he wanted to. His only concern was the seasonal nature of the manufacturing workflow, and that this aspect of the business had the lowest profit margin.

Organisation Structure & Details (1998)

Gardners Plumbing & Electrical Pty. Ltd.

James Gardner (CEO) Budget: $0.9M

Manufacturing Sales Administration Installation 19 F/T employees 12 F/T employees 14 F/T employees 12 F/T employees Budget: $2.8M Budget: $1.2M Budget: $0.5M Budget: $0.85M (includes marketing) General Manager Sales Manager Manager Team Leader Rod Simmons Joe Sanderson Marcia Stiles Ben Saunders


Product Innovation In 1999, James was troubled by several newspaper reports about burns from accidents with hot water in local aged care facilities. He shared his concern and some ideas he had with Rod and Michael, and they worked together on developing and patenting a safety switch for hot water services. The safety switch required the nurse or carer to enter a PIN code to turn on the hot water and to set the temperature level. Joe Sanderson initially promoted this safety feature in aged care facilities, and it was a big success. This success encouraged James, Michael and Rod Simmons to develop and manufacture mobile heaters with patented safety features in 2001. The heaters were marketed by Joe for small commercial application. In 2002, Gardners extended the distribution of these patented products to Victoria, with the help of Victorian distributor Discount Electrical and Plumbing, amongst other distributors. The success of the product innovations and additional volume through the distributors helped the company to increase their profit margins in the manufacturing side.

Timeline James Gardner’s Career 1968 - 2004 1968 James Gardner begins plumbing apprentice with Northern Trade Services

Pty. Ltd. and over the 22 year career with them, progressed to managing the company

1990 James commenced own company called Gardner‟s Plumbing & Electrical

Pty. Ltd. with Julie Gardner, his wife, and Joe Wilmot 1993 „Gardners‟ commences selling directly to small commercial customers, rather

than only through tradespeople 1996 James appoints Marcia Stiles as Administration Manager at Gardners 1997 Rod Simmons commences as head of Manufacturing, as Joe retires 1999 James and Rod develop and manufacture their first patented products 2002 Gardners decides to distribute patented products in Victoria Sales continued to grow steadily through the period 2001 to 2005 even though Sanderson left Gardners in 2004 to further his career with full time studies. Sanderson was replaced by Ted Larkin as Sales Manager. Ted was younger and more ambitious. Encouraged by the success of the patented product sales, Ted put forward a proposal to James, who then discussed it with his wife Julie, son Michael and the rest of his management team. Ted recommended exploring a possible merger with the distribution company based in Victoria, Discount Electrics & Plumbing Pty. Ltd (DEP). Gardner‟s had already had a working relationship with DEP as they were the most successful distributor of Gardner‟s patented products. DEP was well established and had a large share of the Victorian domestic market for hot water services, heating and air conditioning.


Ted‟s proposal recommended expanding into the high volume domestic market, within SA and felt DEP‟s knowledge in the domestic sales market would help. He also wanted to capitalise on DEP‟s distribution capabilities to further market other products Gardners were producing. James could see that competition was growing from national brands with large distribution networks. He was concerned that if they didn‟t expand, then their niche market in South Australia would come increasingly under threat. Rod Simmons the Manufacturing Manager, was concerned about the lower margins in the domestic market and the need for a major increase in manufacturing capacity to service this market, but could see the strategic rationale for merging with DEP. DEP was owned by two private investors. It‟s CEO, Simon Hardwick had come from a career in logistics, and ran a „tight ship‟. DEP business development strategy was focussed strongly on marketing and call centre follow up of leads. DEP had forged strong alliances with new home builders that generated good business. Contractors did all DEP installations, and its Call Centre responded to any customer inquiries. Ted stressed strongly in his proposal that these existing alliances would be a definite benefit to the merged company, allowing the new entity to further expand into the small commercial sector within Victoria, the domestic sector in South Australia, and given time, the capability to then expand into other States. Ted‟s proposal also covered some possible problem areas in DEP. There was a high turnover in DEP‟s call centre, amongst a large proportion of casual employees. Larkin also felt that Simon Hardwick had a very directive leadership style which suited a logistically focused organisation, and that this style had contributed to a very authoritarian culture within DEP. Ted wasn‟t sure how adaptable this culture would be, and how well it would merge with the open and inclusive culture that was dominant within Gardner‟s.

Organisation Structure & Details (2004)

Discount Electrical & Plumbing

Simon Hardwick (CEO) Budget: $0.4M

Call Centre Sales & Marketing Administration Installation 8 F/T employees 5 F/T employees 10 F/T employees 12 contractors 25 casual employees Budget: $3.4M Budget: $2.2M Budget: $0.4M Budget: $2.3M Team Leader Team Leader Team Leader Team Leader Mandy Cousins Jenny Ng Jim Dobson Richard Curtis


Company Merger In 2007, after six months of negotiations, the two companies agreed to merge and became Reliance Services P/L. The new entity had a total of 123 employees. Gardners and DEP had the opportunity to capitalise upon substantial synergies. Gardner‟s had the expertise in manufacturing and successful sales and service contracts in the commercial market, and DEP were experienced in distributing to the mass domestic market. DEP brought 25 years experience in distributing and installing major plumbing and electrical products for the domestic market to the merger. Their 53 employees were primarily employed in the call centre, marketing and corporate administration divisions. Installations were outsourced to contractors. The initial strategic plan of the merged company was to expand into domestic markets nationally, after piloting this expansion into the South Australian domestic market. It also planned to duplicate Gardner‟s previous success in the SA commercial market in Victoria. The opportunity for lucrative contracts in a much bigger market was one of the biggest potential advantages of the merger. The second key strategic goal was to market and sell Gardner products in the small commercial markets nationally, after piloting this expansion within Victoria. Ted was promoted from being Gardner‟s Sales Manager to the role of Business Strategy Manager of Reliance Services. His key mission was to implement and oversee integration strategies to ensure that maximum financial value was gained from the merger. Michael Gardner, James son, took over Sanderson‟s old role and headed up Sales in South Australia. Michael‟s new role now included managing Reliance Services expansion into the domestic market in South Australia. Marcia Stiles was appointed to manage both finance and human resources for the merged company, but she now reported to Simon Hardwick instead of James. A joint management committee managed Reliance Services for the first 12 months. The committee reporting to a Board, made up of James Gardner, Simon Hardwick and the two DEP investors. James and Simon still managed South Australia and Victoria respectively, and during the first twelve months they left it primarily to Joe to capitalise on joint synergies. After 12 months of merged operations, the management committee did a review of operations. They were pleased with an overall revenue growth of 20%, good growth in South Australian domestic sales, and strong growth in small commercial sales in Victoria. They were concerned about reduced overall profitability, increased price competition from overseas and increased customer complaints in the domestic market. James Gardner was disappointed to find that the sales of their patented products in Victoria had not really improved. Both divisions still had distinct and different cultures. Prior to the merger, DEP had outsourced the commercial installations and had not promoted maintenance contracts as part of the sales. James was very concerned about the rise in customer complaints, often related to poor communication with or inferior installation work carried out by the contract installers. Exacerbating this was the mounting evidence that the contract installers gave little or no time or effort into developing relationships with both domestic and small commercial customers. Speaking with installers revealed to James that they believed that their contract was to install the product; they were not paid to build relationships! Marcia Stiles blamed these problems on a lack of procedure, unclear role descriptions and a lack of performance reviews. James believed that it was not possible to implement these types of procedures with contractors, and Joe did not want the boat rocked because it was hard to get tradesmen to do the work.


In response to the company review Ted was dismissed and the company was restructured based on product lines six months later. The management committee was disbanded, replaced by the creation of two General Manager roles that reported directly to James Gardner. James was appointed Board Chairman and CEO. Rod Simmons was appointed to manage manufacturing, all commercial installations and service contracts across South Australia and Victoria. Michael Gardner changed roles to support Simmons in identifying alternate low cost producers for some of their products. He was also given a seat on the Board. Simon Hardwick was appointed to manage all commercial and domestic sales across Victoria and South Australia. Within six months, the majority of their domestic air conditioning products were being produced in China under the Reliance brand. Michael Gardner had done well in selecting a manufacturer, the quality was good and the products were approximately 20% cheaper. Domestic sales kept increasing initially but there were few new commercial clients in either State. Tensions continued to grow between Rod Simmons and Simon Hardwick, further fuelled by a slow down in sales during 2009 due to the Global Financial Crisis. Simon refused to increase prices even though the Australian dollar had dropped significantly in late 2009. He continued to argue that they must hold prices to retain their share of the domestic market. A Turning Point A low point in James‟ working career occurred when Rod Simmons tendered his resignation in early 2010, after 14 years of service. Simmons had taken up a directorship with a large engineering firm. The role included the opportunity to become a part owner in the business as well. James had always seen Rod as his own replacement. He regretted not listening enough to Rod‟s concerns about how Reliance Services had been performing over the last few years. Rod told James that the directorship was an opportunity too good to miss, but it was clear from his resignation letter that he had become very frustrated with the way the business was now managed. James couldn‟t help but conclude that he had got it wrong; success for him was about a lot more than just making money. Rod had delivered the quality that had built the reputation of Gardner‟s and then Reliance Services, and he had led his people well. James wondered whether he had provided the leadership that Rod deserved? Either way, James had lost one of his best executives, and with it lost access to all of Rod‟s experience and expertise. Rod‟s resignation prompted Gardner to take stock of his own leadership and how the company was going. His concerns were magnified by the fact that he was turning 57. His long term plan had been to hand over to Rod, who would run the company until his son Michael was ready to take control. That plan was now defunct. It was clear from Rods‟ letter of resignation that most of the concerns raised in the previous business review had continued. The results from an employee and customer service survey also gave James no cause for comfort. The customer complaints continued, and integrating the two pre-merger cultures was more challenging than he had expected – it was evident now that this wasn‟t going to just happen. Some sort of formal action needed to be taken, he just didn‟t know what. Even though the business was recovering from the global financial crisis over the 2008 – 2009 financial year, the revenue drop reminded him that the merged business was now much too reliant upon new business growth to achieve profitability.


James didn‟t regret the merger, but he recognised that there was still plenty of work to be done to build a merged business that he would be proud of. He could see broad ranging action was needed, and knew that the Board needed to get it right this time. To add to the uncertainty Simon Hardwick advised James that he was planning to retire in two months time. James retired as CEO and gained agreement from the Board to recruit a CEO externally. Michael Gardner took over Simmons‟ role. It was agreed by the Board that the company would wait for the new CEO to be appointed before finding a Sales Manager to replace Hardwick.


Appendix 1 - Organisation Structure & Details (2010) Reliance Services Pty. Ltd.

VACANT (CEO) Budget: $0.3M

Manufacturing & Domestic Sales Finance & Human Call Centre Marketing Small Commercial & Installation Resources 47 F/T employees 18 F/T employees 22 F/T employees 10 F/T employees 5 F/T employees & 8 contractors & 12 contractors

Budget: $6.5M Budget: $4.5M Budget: $1.3M Budget: $3.5M Budget: $1.1M GM GM Senior Manager Team Leader Team Leader Michael Gardner Vacant Marcia Stiles Mandy Cousins Jenny Ng

Marcia Stiles Finance & HR

Budget: $0.4M

Finance Finance, SA Human Resources Human Resources Victoria South Australia Victoria South Australia Don Hall Vicki Townsend Sally Webber John Hammond 9 F/T employees 5 F/T employees 4 F/T employees 4 F/T employees

Michael Gardner Manufacturing & Small Commercial

Manufacturing Manufacturing Installation Installation Small Commercial Domestic Small Commercial, SA Small Commercial, VIC Michelle Barnes, 2IC Jim Sanderson Richard Parks James Chui 20 F/T employees 15 F/T employees 12 F/T employees 8 contractors

Appendix 2 - Simmons letter to Hardwick August 20th, 2008 Rod Simmons GM, Small Commercial

314 Brisbane Street. ADELAIDE 5001

Simon Hardwick GM, Domestic Market 250 Adelaide Street. MELBOURNE 3000 Dear Simon, Re: Customer Service Survey Results – August, 2008 I am sure the CSS results are a concern to us both. While there are some positive areas, the following are my concerns from the survey, and ways that I ask for your assistance in addressing these concerns in the Small Commercial market in Victoria: (i) lack of relationship building in Small Commercial Market This reinforces to me the urgency we need in recruiting our own employees to do the installations, rather than using contractors. This is reinforced by the level of complaints, as well. As I am based in South Australia, I seek your urgent attention to direct your Human Resources people to conduct this recruitment in Victoria. (ii) lack of communication with small commercial customers Until we can recruit our own installers, we need to rely upon the contractors to take the time to explain the product to the customer and answer any questions. I appreciate they are paid by installation rather than by the hour, but surely we can expect more from them in this area. (ii) selling maintenance contracts While not mentioned in the survey, a related concern with contractors is their reluctance to sell maintenance contracts in Victoria. I appreciate that you have asked for instructions and training to support them in this, but how hard can it be? We are just offering the assurance of on-going service. Yours sincerely, Rod Simmons


Appendix 3 – Hardwick’s reply letter to Simmons

August 22th, 2008

Simon Hardwick GM, Domestic Market 250 Adelaide Street. MELBOURNE 3000

Rod Simmons GM, Small Commercial 314 Brisbane Street. ADELAIDE 5001 Dear Rod, Re: Customer Service Survey Results – August, 2008 The CSS results are a concern to me too. We are in agreement on the positive areas and the problem areas. Where I suspect we differ is how to address the problem areas in the Small Commercial market in Victoria: (i) lack of communication with small commercial customers I think someone from small commercial side needs to spend some time talking with our installers about what how we want them to help us in this market, rather than just demanding it from them from afar. Is their a role description anywhere about what you want them to do? Are you willing to pay them to spend some time attending regular team meetings and doing some training? (i) Selling maintenance contracts Rather than recruiting our own employees, which is difficult in current labour market, why don‟t we give our contractors some instruction and training on how to sell maintenance contracts? Fair enough to ask “How hard can it be?” But your blokes in South Australia have been selling them for years. I figured you would have some procedures to pass onto the Victoria contractors, but it all seems to be passed on word-of-mouth. With some help and guidance, and maybe some commission, I believe we can solve this without the inflexible cost of recruiting our own permanent full-time employees as installers. Yours sincerely, Simon Hardwick


Appendix 4 – Simmons resignation letter March 29th, 2010 James Gardner CEO, Reliance Services P/L 314 Brisbane Street. ADELAIDE 5001 Dear James, Re: Resignation from Reliance Services P/L I tender my resignation from Reliance Services, with a month‟s notice. As I am sure you can imagine, it has been a difficult decision. I have been offered a directorship in a large engineering company, with the opportunity to take part ownership in the company. It is an opportunity too good to miss. It is satisfying looking back on what has been achieved in South Australia over many years, and I have been fortunate to have been part of it. I can‟t say that our attempts in the last two years to address our concerns at Reliance Services have been very successful. The Victorian culture, led by Simon Hardwick, has not helped us much in developing the right approach for the small commercial market in Victoria. My view is that Reliance is still a way from being ready to expand into other States. I accept that this situation reflects upon my leadership as well, but I hope that any reviews will show that I have sought to take every opportunity to progress the business when I could. I wish you and Reliance all the best in achieving its objectives in the coming years. Yours sincerely, Rod Simmons

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LMA – GARDNER CASE STUDY · Gardner‟s Early Career ... The following case study is to be read in conjunction with case study assignment instructions, titled