Electronic Systems Consultants: Making Data-Driven Decisions

You could call Electronic Systems Consultants LLC (ESC) of Aspen, Colo. a "new breed" of integrator, but that label might be considered a bit misleading since the company has been around for 20 years.

Make no mistake about it, though, ESC is one of a select group of integrators that has created and adheres to strict internal business procedures that are unlike most other dealers.

The company's business processes include such elements as: regular customer satisfaction surveys, profit-sharing among all employees, defined career paths for employees, an off-site completion and testing facility (CFT) -- where every job is "pre-manufactured" -- a "secret" modular installation method and a real-time proprietary computer software system that integrates nearly every facet of the operation (scheduling, billing, ordering, proposals, etc.) and offers up-to-the-minute analysis of gross profitability.



Meanwhile, all the company's collected data is compiled and analyzed by management to guide long-term decisions.

In a nutshell, ESC is decidedly "uncustom-like" by emulating highly successful companies in other fields.

Now, 20 years after its founding, ESC boasts 40 employees concentrating on a new-home niche and six-figure installations.

Its total gross revenues are private, but according to one executive, the figure would put the company "very high" on the annual CE Pro 100 list.

Working the Plan

The systematic nature of ESC can be traced to the background of founder David Daniels, who recalls his methodical father advising him to "plan your work … work your plan."

While attending medical school at the University of Oklahoma, Daniels worked in a salon-style audio store. In 1982, he moved to Tulsa and ended up buying a purely retail audio store and renaming it The Phonograph.

A few years later, Daniels branched into multiroom audio installations and home theater.

"That's when I first got involved in looking at processes," he recalls. "In retail, you need processes in place or you won't make any money."

In 1988, Daniels did an installation in Aspen, took one look at this Rocky Mountain community and fell in love with it. He sold the Tulsa business and started ESC, which originated as a derivation on the "Escape" button on a keyboard.

The move gave him a chance to start over with a "process- and procedures-based organization that thematically supports your mission in the marketplace," as he describes it.

In Aspen, Daniels wanted to focus on the architect/engineer/contractor community, not retail.

"It seemed like a better model to me," he says candidly.

One the first things ESC did was come to terms with its human resources perspective. "I realized first that I needed to balance human capital, structural capital and financial capital to succeed," Daniels explains.

"So, I surrounded myself with people a lot smarter than me who could take my vision for the company and run with it."

One of those smarties is Anson Fogel, chief operating officer, who was instrumental in developing a suite of software and operational manufacturing methods that provide ESC's clients and employees with standard practices representing a greater number of opportunities for mass customization.

Building the Processes

Like most dealers, ESC offers complete integration services, including lighting control, climate control, multiroom audio, HDTV and digital television, digital music systems, media rooms and home theaters, home automation controls, customized user interfaces, software services and telecommunication.

ESC also partners with a local security company for about 80 percent of its jobs.

In most cases, the company is working with an architect very early in the design process, according to Fogel. He adds that more than two out of every three residences in the area are second homes.

"Aspen is a market dominated by architects," he says. "Construction drives the economy as a whole, but architects wield a lot of power, and the majority of our referrals come from architects. Aspen has an image of rural town, but in reality, it's a small city.

"And because of that, there is a strong referral business. You have to take exceptional care of the customer, so they feed positive information back to the architects and builders. Because it's a small city, one unfortunate experience will spread like wildfire."

That strong referral community forces ESC to be more attentive about quality control and obsessive about processes, especially with the company's niche as a high-quality, high-cost provider.

"You can't get away with screwing it up," he says. "There is no 'magic trick' or 'Holy Grail' about working with architects. Doing a great job is the best way to maintain relationships with architects. The quality of your work cannot be minimized -- that's 90 percent of it."

To maintain that quality, ESC approaches architects with very specific processes that show off its value proposition. According to Jim Raras, ESC's corporate development manager, the identity and brand of the company is carefully orchestrated, even down to the format and layout of its marketing materials for end users and trade partners.

"Architects need to feel like you are a peer with them in the professional environment," he says. For example, the company uses autoCAD software to create construction-level drawings as a functional resource for architects and builders.

One epicenter of ESC's processes is its proprietary suite of software called EPIC.

From a process perspective, the custom installation business is challenging and can be information intensive. How does a dealer take the information about a project, which can include thousands of datapoints, and put it in a place where everyone can get to it and change it in real time?

A place where everyone, from the president of the company to someone installing wires on the job, can access it? That's what EPIC is, according to Fogel.

"Most people say they need a system to write better proposals.Writing proposals is pretty easy.What they really need is a project information management tool. But the proposal has to become a living, breathing thing that everyone can get to," he says.

Web-based EPIC allows ESC employees to see the ongoing profitability and ongoing installation progress. The inputs are pretty typical, including such data as timesheets with labor codes per project (using various online tools).

Using the ESC intranet, employees can log their work hours, designers can create proposals (ESC's salespeople do not write proposals), project managers or lead technicians can input change orders from the field, and service technicians can input service orders.

They are all doing it on the Web in real time. The information can then be used daily, weekly, monthly, quarterly, etc., by project managers and executives.

EPIC has helped ESC apply more than 40,000 man-hours since it was developed seven years ago. Nevertheless, the software would be meaningless, notes Fogel, were it not for the accompanying processes.

"It is not a panacea. Not matter how great software is, it automates the process, but it is not the process," he says.

"You could do everything EPIC does manually. It would be difficult, but if you had the discipline you could do it. I could say that the software doubles our profitability, but if I gave it to another company, it wouldn't. It's only part of the process."

Fogel believes that he cannot emphasize enough to other integrators that hard work and long-term thinking in developing processes and structural capital are the keys to success -- not a software program by itself.

Profit Sharing as an Incentive

They say that a man's wallet is connected to his heart, and ESC counts on that.

The company has established a bonus program for every employee based on the gross profit of every job. The performance of projects is posted quarterly, and everyone sees how much everyone else gets in bonuses.

"It's very public," comments Fogel. "There is a pool of dollars from the profit on a project and everyone shares them based on a ratio. So if you are slowing things down, you are damaging everyone."

Fogel cites gross margin performance as being "overwhelmingly, the most important metric in this business."

ESC employs a number of methods for efficiency in order to boost its gross margins. Here are several of them:

• Installers can go directly to jobs, but it is really determined by where the job physically is located.


• The company uses as few vendors as possible for as long as possible, and doesn't change vendors if possible.


• Using its processes and software, ESC management has "the right information in front of the right individuals at the right time." Whenever a person is in the field, it has to be very clear what he or she is doing.


• ESC makes sure it has a clear set of expectations with the client.


• Culturally, ESC management gets everyone in the organization to buy into the idea that his or her own personal success depends on gross margin.

Finally, the company knows its level of performance on every job. "Even if you don't know your performance for 90 days in arrears, you have to know how much you really made on every job," explains Fogel.

"It's surprisingly challenging to get good project performance data," he admits, adding that once benchmarks are determined, it can be done "if you put a system in place and you give it at least two years to succeed."

Modular Off-Site Staging

"A dirty little secret of this business is that it is very rare for all the buttons to work on a client's new system.

It either works or it doesn't," says Fogel bluntly. That black-and-white analysis led ESC to establish its Client Testing Facility (CTF) a few blocks from the headquarters office.

According to Raras, the CTF is a manifestation of the company's modular business process.

"As an installing company, you face lots of external roadblocks dealing with the building schedule, other trades, etc. This facility allows us to take those variables out of the field and into a controlled environment," he says.

The CTF is a separate building that includes several bays, where a large system can be "manufactured." It takes the system all the way through software being loaded, displays being taken out of the box and plugged in, etc.

There is 10 miles of broadcast-grade cable in the facility. The connection points are modular and everything gets terminated.

The self-imposed challenge ESC took on when creating the facility was to get 100 percent of its buttons to work from the first day the client has the system -- not one week, not six weeks, not six months.

"We analyzed this question for years," recalls Fogel. "We had maximized our site-built systems processes. So we came up with a solution patterned after military applications.

"It required a fundamental rethinking of the business, including proposals, estimating, billing and ordering. It was so crazy that we decided to go there. We spent four years getting EPIC into place and that last four years getting the CTF in place."

At the CTF, every system gets 100 percent built and tested before it goes on site at the job. Every actual keypad, not proxies, gets set in a tray that has speakers and gets hooked to a rack that is on one side of the bay.

On the other side of the bay are all the physical devices beyond the central rack (TVs, DVD players, controls). It is all programmed, debugged and delivered to the site.

This process leaves wiring at the job site as the only variable in the installation. But it would take too much time to wire everything at the CTF, then unwire it, then ship it to the job site and rewire it. ESC has solved that dilemma too, but it doesn't want to reveal that "secret."

On average, every system ESC sells has 3,300 unique parts, with some as high as 15,000. "A system with that many parts would be a bitch to connect and reconnect," Fogel says.

"So, we look at it as a set of pre-built modules that get put together to create the entire system. That approach is used from sales to service. The way we deal with the wiring transforms the service process. When the technician shows up, there is a very clear disconnection location. Everything is labeled. Every wire is labeled with laser label."

He says it took years to implement, but it has resulted in a 15 percent improvement in ESC's gross margin.

"We are unequivocally in and out of the home quicker. It doesn't mean that you are building the system faster; it just means you are building it with fewer variables. It's just better," Fogel concludes.

He specifically cites the difference between ESC installation process and other dealers, noting that the company's programmers and lead technician don't have to "live in the house" in order to complete the job.

Instead, ESC technicians "live" in the CTF, where it's air conditioned, quiet and has all the tools workers require readily accessible at arm's length. So, 90 percent of the system is built and debugged in a controlled environment two blocks from the office.

Surveying Client Satisfaction

Most mature businesses in other industries survey their customers.

So, why can't a custom installation firm? ESC does exactly that.

The company conducts customer satisfaction surveys every quarter and routinely achieves a performance-approval rating over 90 percent.

Upon completion of the job, clients receive a survey with their move-in packet. Later, surveys are sent quarterly with service invoices. The company tries to ask the same question multiple ways.

For example, it asks questions like:

- How would you rate your satisfaction with ESC as a whole? Very good, good, fair, poor or terrible?

- Please rate your experience with ESC as a whole while your system was being built? Very good, good, fair, poor or terrible?

- When you contacted ESC for service, rate your initial experience. Very good, good, fair, poor or terrible?

- When ESC dispatched someone to your house for repair, how many visits did it take to get fixed?

- How did you feel about your overall satisfaction with ESC's service? Very good, good, fair, poor or terrible?

Executives use the information during quarterly management meetings, quarterly executive meetings and quarterly all-staff meetings, during which they analyze upward or downward trends and the factors that led to any deviations.

Clients aren't the only ones surveyed. ESC employees are surveyed, too. Annual employee surveys are issued and analyzed to gather data used in planning and to ensure that the goal of making ESC a great place to work is being pursued.

"It's all about making data-driven decisions," Fogel says.

Daniels agrees, saying that he is consistently looking at the level of demand and the competitive landscape over one, five and 10 years in the future.

"I am not a conspiracy theorist. I do not see a sea change for the custom channel on the horizon. We think we can continue to grow and be profitable in the range of 10 percent to 20 percent per year.

"All of our metrics will dictate how fast we grow. Most dealers outstrip their resources annually, but that only works for one or two years. Our approach is very analytical."