UK: ERNST & YOUNG'S GASWORKS.

UK: ERNST & YOUNG'S GASWORKS. - Ernst & Young's work for British Gas earned it top marks in the Management Consultancies Association's first ever Case Study Award.

by Barbara Dobson.
Last Updated: 31 Aug 2010

Ernst & Young's work for British Gas earned it top marks in the Management Consultancies Association's first ever Case Study Award.

A decade ago, all of the UK's 19 million domestic or commercial gas consumers relied on British Gas - a nationalised monopoly - to control all aspects of gas supply. British Gas produced or bought virtually all natural gas consumed in the UK. It transported that gas from beach terminals to consumer meters, read those meters, billed all 19 million consumers and sold and serviced most domestic gas appliances.

These days, however, the picture is completely changed and inevitably far more complex: British Gas is privatised, while deregulation has allowed 40 or so competitor firms - known as shippers - to sell natural gas to Britain's consumers direct, be they commercial or domestic users. Yet whichever company is selling the gas, from the beach-head to the consumer meter the fuel is still transported through a pipeline operated by TransCo, the transportation and storage arm of British Gas. Keen as deregulation officials have been to end any monopoly in sight, they could not overlook three salient facts, namely that it takes 267,300 km of pipeline to transport gas from beach terminals to UK consumers; that British Gas had already made the investment; and that for competitors to replicate the network would be lunatic.

The only workable solution therefore seemed to be an industry-wide agreement on the use of the British Gas pipeline by its competitors and its operation under a radical new commercial regime. Sounds fine in principle, rather more difficult to achieve in practice.

Appreciating the complexity of arriving at and implementing such a ground-breaking system, known as the Network Code, three years ago TransCo brought in consultants Ernst & Young (E&Y) to help it define the legal framework and implement the new gas transportation and storage regime, supported by fully tested and operational procedures and systems. 'What we needed was assistance in turning what we feared was an almost unmanageable task with extremely tight timescales into a well-structured project with defined approaches, achievable strategies and managed risk,' says TransCo director Nigel Shaw.

Their work on the Network Code has won E&Y recognition from the Management Consultancies Association (MCA) in the shape of its first ever Case Study Award. MCA received entries from management consultants across the nation, and invited Sir John Egan, chief executive at BAA, Eric Nicoli, group chief executive of United Biscuits, and Charles Skinner, editor of Management Today, to join MCA executive director Brian O'Rorke in judging the projects.

The judges picked the E&Y team, expressing admiration for the way in which its consultants had mastered the sheer complexity of the situation, implementing a new network sharing system within an agreed timeframe, without any supply hiccups. As Shaw puts it, highlighting the potential downside, 'if the gas flow had been interrupted, it would have constituted a national emergency'.

Up to 55 consultants worked closely with around 1,000 members of shipper company or TransCo staff to devise and implement the new system.

It was established very early on that under the Network Code there would be no negotiating of individual deals, that all shippers would be bound by the same contractual conditions. For this reason, as Shaw explains, all parties had to agree on the binding terms. 'As the Network Code would have such a big impact on all parties' businesses, it had to be negotiated and agreed by them all, not imposed by one party or sub-group.'

E&Y therefore suggested setting up a panel of representatives as a forum where the shippers' views could be expressed, establishing the ground rule that panel members could reject a proposal only if they were able to suggest a reasonable alternative. Sessions were facilitated by E&Y and members of Ofgas, the Office for Gas Supply. 'The panel sessions had two big spin-offs,' says E&Y's Sam Dunnachie. 'They ensured a set of practical business rules were determined and, most importantly, established that the parties should work together to negotiate acceptable solutions in the required timeframe.'

System development, including the analysis, design, construction and implementation of computer systems to support the Network Code ran in tandem with the work of the panel. 'Automation was obviously going to be critical to the success of the Network Code regime,' explains Jayesh Parmar, E&Y project director. 'The large volumes of data, the complexity and detail of the processes, the speed of response and tight time-scales all demanded the use of modern computer and telecommunications systems.'

Running parallel with the systems development sub-project, E&Y assisted in the management of the vast range of supporting activities which underpinned the smooth implementation of this radical industry reorganisation. These varied activities included training, business simulation, data collection, testing and organisation design. Consultants initially identified the need for these activities and defined the approaches to be taken, and went on to work with TransCo to establish and manage the teams which carried them out.

'Because of the nature of the project, it seemed that each such activity involved special features which made it more complex, bigger, more time constrained, and more geographically dispersed than the normal worst case,' says Dunnachie. 'This necessitated careful management and tight co-ordination.'

Despite the complexities of the implementation process, TransCo and Ernst & Young ultimately succeeded in achieving a radical transformation of the gas transportation and storage industry within a time schedule which was agreed by the shippers, TransCo and Ofgas. The Network Code was fully introduced and implemented this September. 'The project,' claims Parmar, 'achieved a greater change in under three years than the US gas industry achieved in more than 10.'

And the other winners were ...

Consultants advise Nike, the Savoy and Rexam too Deloitte and Touche

Consulting Group won the Best Business Transformation Assignment Award for its involvement in setting up a pan-European apparel distribution operation for Nike, the sportswear company. Where Nike had had between 20 and 25 warehouses supplying customers throughout Europe, the company now operates one, in Belgium.

Deloitte was involved not only in conducting a strategy review, but also in the implementation of key tasks such as finding a site for the new distribution centre. Deloitte's work has already resulted in vastly increased efficiency at the central distribution facility, improved customer service levels across Europe, and led to multi-million dollar savings. Deloitte consultants went on to work on stage two of the project: a European footwear facility.

Kepner Tregoe took the Best Strategy Assignment prize for its work with the Savoy Hotel Group.

Consultants were brought in after shareholder frustration led to the appointment of a new chief executive at the tired and uncompetitive company in mid-1994. Asked to formulate a vision for the group to 2000 and beyond, Kepner Tregoe identified the need to strip out non-core activities, to improve customer service to justify room tariffs, to develop accurate client profiling systems and to find ways of retaining staff without upping the cost of the payroll. Room rates for new accommodation are up by 20%, reflecting the group's confidence in its offering.

Meanwhile MMM Consultancy Group took the Best Other Assignment Award, for the project its people completed with medical packaging company Rexam to set up a state-of-the-art manufacturing facility. MMM was commissioned in 1992 to take responsibility for the product handling and logistics aspects of the project. The new and operational factory, built to a highly original design partly suggested by MMM, has achieved an almost complete elimination of work-in-progress storage, since staff now work to just-in-time and make-to-order techniques.

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