- Programme: Market Driving Strategies
- Nationality: British
- Job Post-programme: Connected Home Director
How HomeServe became a technology company
Craig Foster was looking forward to taking a marketing course at London Business School. But he didn’t expect it to change his future... and his company’s.
It’s not often you find yourself in a restaurant late at night with your CEO debating what kind of business you are in and scribbling it all down on the back of a napkin.
But it was this kind of radical brainstorming that has taken the UK home assistance provider and repairs company, HomeServe, into uncharted territory with its new hi-tech leak detection product… and transformed Craig Foster’s career from product director to head of an innovation lab.
“If someone had told me back then that we would manage to invent a hardware product, develop it and launch it, I would not have believed them,” says Foster, 36, who’s been with HomeServe for seven years after stints with HBOS and Procter & Gamble. “We still don’t know how ultimately successful we will be but we are already working with some of the largest insurers around and even just to have got to where we are today is a fantastic achievement.”
Know your business
The napkin debate was sparked by Professor Rajesh Chandy’s provocative questioning on the Market Driving Strategies Course at London Business School in 2013. First he asked class members to think hard about what business they were really in.
“We used to think we were in the insurance business but once we switched our mindset to think we’re in the home assistance business it started to make new things possible,” explains Foster who was on the course with HomeServe’s incoming UK CEO Martin Bennett.
Then Chandy told the class to think about the future and how technology and other winds of change will affect the marketplace and the value they deliver to their end customers.
That was the real “sucker punch” says Foster. “We realised that 100 per cent of our resources at HomeServe were focused on running our day-to-day business. There wasn’t even one person whose job it was to work on future business.”
Look into the future
Bennett and Foster started thinking about the impact that could come from the Internet of Things, which will suddenly make it possible to see how your home is performing – whether it is controlling your household’s temperature through smart thermostats or spotting a problem with your boiler thanks to its internet connection. And they started to realise how this could change the whole nature of “home assistance”. By the end of the course they were both seized by the spirit of innovation and the drive to make it happen.
Back at HQ in Walsall in central England, Bennett released some internal seed capital for Foster to investigate new business models and carry out tests on emerging technology. He managed expectations at board level telling directors they could afford to take this as a risk investment without knowing where it would lead and refusing to set any revenue targets or five year plans. He also took Foster and his team outside the normal sign-off processes to let them make their own decisions.
Meanwhile, alongside his normal role, Foster started building a team of product and marketing people who were interested in the project. They carried out customer interviews and formed links with forward-thinking companies including the German company Tado that makes smart thermostats.
But six months on when the team presented their findings to the founder and CEO of HomeServe group, Richard Harpin, he urged them to be more ambitious.
“Richard is an out-and-out entrepreneur and I think he decided to rattle our cage a bit,” explains Foster. He told us: “Look, you guys are playing at this. There’s real potential in some of these ideas but no one created a billion dollar business off the side of their desk. If you’re really serious about it, you need to put your money where your mouth is and give up your day job.”
The team decamped to a small office on the far side of the company car park that subsequently became known as The Shed. It then became this team's full-time job to think more seriously about everything to do with connected homes and added more diverse skills to the team – designers, hardware engineers, coders.
Smart thermostats were just making inroads into the market and they remained a key interest for The Shed team. But they also knew that HomeServe’s core business is around plumbing, with the biggest share of policyholders taking out plumbing protection. The company fixes hundreds of thousands of leaks and has a network of thousands of plumbers. Connected leak detectors were available on the market but Foster says the team was unimpressed by them.
“Most of them consisted of two metal prongs so that if there was a puddle of water the two prongs would connect to the circuit and tell a central hub where the problem was,” says Foster. “But these systems are expensive and they’re also predicated on you knowing in advance where you’re going to have a leak. We fix a lot of leaks and I can tell you people don’t know where a leak is going to happen.
“What’s more, it’s really small leaks that cause the biggest claims. That’s because they’re often hidden – behind a wall or in a cavity in the floor somewhere – so they drip for months until one day the ceiling falls in or the walls go rotten, and then that’s thousands of pounds in claims for the insurer.”
It was CEO Richard Harpin who pondered whether you could simply clip something onto a pipe to detect a problem. Someone contacted a friend of a friend, Dr Samuel Bailey, a serial inventor with more than a dozen patents to his name, and the idea was enough to get him going.
Bailey, who has a PhD in control engineering from University College London, realised that when you measure the temperature of the pipe where the water enters a property and compare it with a second temperature reading of the surrounding air, the difference between those two temperatures will be affected by even a small leak.
He built a prototype test kit from a Raspberry Pi, a SIM Card and some temperature sensors and worked on an algorithm that could tell the difference between regular water flow and flow with a leak. “LeakBot” was born.
“We got really excited that we had this engineering solution and went out to tell our customers about it thinking they’d want to buy this amazing kit,” says Foster, who says he was interested in product development even as a teenager. “And that’s when we got a bit of a smack in the face, because they weren’t interested. They just said: “I don’t know, it’s not exciting us.”
Building a business model
But it was a chance conversation with an insurer on a different project that opened a window of possibility. The insurers realised the leak detector’s potential to reduce the £629m UK insurers pay out on water claims every year. Now Foster’s team, which has graduated from being called The Shed to a separate coany called HomeServe Labs , is working with insurers to offer low-cost LeakBots to their customers for free on the basis that it will protect their houses.
“For insurers this solves a big problem that’s really worth solving and that makes it an innovator’s dream,” says Foster. “There's an existing budget being spent on water damage claims that could instead be spent on preventing these claims in the first place."
HomeServe went public with LeakBot in June 2016 when the device’s patent application was published and Foster says the response has been overwhelming. The team are now working with major insurers in the UK, mainland Europe and the US. They’ve set up as a separate trading entity, HomeServe Labs, and are now looking to scale the business. With the first 5,000 test units being made in a factory in Wales, the next step will be to mass produce in China as a way of getting the cost per unit down to make it possible for insurers to give them to their customers.
All of this is a very different business venture for HomeServe. It has a home assistance network yet it’s offering LeakBot to insurers who have their own home assistance networks. Could it be challenging its own business?
Think like a start-up
“This is a strange idea to many people in HomeServe,” says Foster. “But one lesson Martin took from London Business School is that you can be too wedded to your existing business model and be too fearful of cannibalising your core business.
“Rajesh gives the example of Kodak which had all the patents on digital cameras but was so focussed on its existing business model and was so nervous about upsetting the distributors in the film business that it was just unable to act.”
Foster, who says he’s always wanted to work at a startup, has thrived at the heart of HomeServe Labs enjoying the “freedom, autonomy and excitement” as well as the pleasure of working with a team with so much passion. A management studies graduate from Nottingham University, he says he’s read every book he can find on innovation. Bennett describes him as “one of our brightest and most dynamic people”.
And Foster says the pair still talk about the LBS course that got them started. “Whenever we give presentations we talk about that course as being the starting point of the journey we’ve been on since. So many light bulbs came on in that week; it was definitely a formative experience.
“People ask me now how you go about setting up an innovation hub and I realise that the trust that was cemented between Martin and I during the week, and the fact that we were on the same page about how to proceed, was so important afterwards, because I think a CEO has to take a bit of a risk to give an innovation team so much freedom, and then protect them from the rest of the business.”
CRAIG FOSTER’S TOP READING ON INNOVATION
The books and articles that have been the most help along this journey are:
The First Mile, Scott Anthony
The Startup Owner’s Manual, Steve Blank
Crossing The Chasm, Geoffrey Moore
For insights into the behaviour of successful innovators read The Innovators’ DNA, Jeffrey H. Dyer, Hal B. Gregersen and Clayton M. Christensen, Harvard Business Review, 2009.
Why the Lean Start-up Changes Everything by Steve Blank, Harvard Business Review, 2013, gives a neat summary of the principles of the lean start-up. Blank pretty much invented the idea and then Eric Reis built on it.
Why Customers Don’t Buy: The Psychology of New Product Adoption by John Gourville, Harvard Business Review, 2004, is the academic foundation of the “10x Better” principle used at Intel and by Google’s innovation lab (GoogleX) which invented Google Glass and driverless cars.
Beating the Odds When You Launch a New Venture by Clark Gilbert and Matt Eyring, Harvard Business Review, 2010, introduces the concepts of “path dependencies” and “deal killers” when thinking about uncertainties.
For some thoughts on what to “borrow” and what to “forget” from the core business when you are an innovation team within a big business read Building Breakthrough Businesses Within Established Organizations by Vijay Govindarajan and Chris Trimble, Harvard Business Review, 2005.