Incentive models to improve the installation service of solar panels - a Case Study at E.ON New Solutions

Abstract: Background The importance of services is increasing, and companies need well-developed service contracts to ensure the service providers perform at a satisfying level. In contracts, performance-dependent rewards (incentives) can be used to stimulate the agent to act desirably. This master thesis focuses on E.ON New Solutions B2C, who offers solar panel installations to residential customers. They have contracts with external installation companies as well as their fully owned subsidiary EMG Energimontagegruppen AB (EMG). E.ON wants to review their contract with EMG, investigating the use of incentives. Problem definition and purpose EMG is not performing at the level E.ON wishes they would. Therefore, E.ON wants to explore the possibility of using incentives in the contract with EMG to nudge them to improve their efficiency and, at the same time, make sure not to lose other important factors such as safety, precision, quality, and customer satisfaction. The purpose of this project was to recommend one incentive model for E.ON to use in their service contract with their internal solar panel installer. Theoretical framework and methodology The frame of reference introduces three main fields: services, incentives in contracts and performance measurement with the theoretical lens of principal-agent theory. The intersection of the three fields is performance-based contracts, which was also introduced in this chapter. To fulfill the purpose, a constructive approach with an embedded multiple case study was used. The research included a literature review and data collection through interviews, documents, and observations. Construction Relevant KPIs and metrics for the installation process were developed. These were connected to incentives, creating four options for possible incentive models. Common for all models was that they would promote efficiency, safety, quality, precision, and customer satisfaction and that they contained mainly positive rewards. A risk and sensitivity analysis were conducted, and the models were ranked on applicability and potential, to finally come to a recommendation of one model. The recommended model was characterized by gateway values for customer satisfaction and safety, a two-dimensional bonus model promoting efficiency and precision. To promote quality, a fee is subtracted from the bonus for every customer errand. Keywords Incentive model, buyer-supplier-customer service triad, service contracting, incentives in contracts