Costin Paving Case Study: From Musician to Manager
Spring 2015
Submitted to:
University of Warwick, Enterprise Research Centre
Written by:
John Richmond
&
Jillian Costin
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Table of Contents
Company History ................................................................................................................ 3
Owner Profile....................................................................................................................... 3
From Musician to Manager ................................................................................................. 3
Generational Differences .................................................................................................... 4
Current Situation................................................................................................................. 4
Supply Chain ....................................................................................................................... 5
Seasonal Nature .................................................................................................................. 6
Gas and Oil Prices .............................................................................................................. 6
Pricing ................................................................................................................................. 6
Conclusion .......................................................................................................................... 6
References .......................................................................................................................... 7
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Company History
The Costin family company was founded as a trucking business in 1948 by Lorne
Costin following the Second World War. Over the following four decades, Lorne expanded
the business’s scope and profitability by taking on excavating, paving and contracting work.
The company currently has 65 years experience in the trucking and excavating business and
47 years in the asphalt business. The business was founded out of the Costin family home
on South Albion Street in Amherst, Nova Scotia, Canada.
Owner Profile
William (Bill) Costin, Costin Paving Owner and Operator, didn’t always imagine his
professional life would turn out this way. Having attended Mount Allison University in the
early 70s and earning a degree in music education and music history, Bill found himself
moving to Toronto to pursue a career as a professional horn player. Later that decade, Bill
realized his dream as a professional musician by accepting a horn position with the
Deutsche Opera am Rhein (Orchestra) in Germany. During his duration overseas, Bill found
time to earn a graduate diploma in music performance at Folkwang Schule fur Musik Rhur
,Essen-Werden. In 1987, following professional performances as a musician in both
Germany and later St. John’s, Newfoundland as principal horn player and General Manager
(from ’84 –’87) for the Newfoundland Symphony Orchestra, Bill received a phone call that
would forever change his professional life.
Bill’s father Lorne had taken ill back in Amherst, Nova Scotia, and the family paving
company was in need of a manager to direct business operations and supervise it’s work
crew. As a result of this (tragic news), Bill quit his job with the Newfoundland Symphony
Orchestra and moved his family back to Amherst to assume leadership responsibilities at the
paving company. With no formal training in management, Bill knew the task that lay ahead
would be a challenging one, requiring him to learn the ropes of the paving business from his
ailing father, existing crew, and through hands-on experience.
From Musician to Manager
Shortly after assuming his role at Costin Paving, Bill was faced with a number of
challenges. As a professional musician, Bill was a skilled and disciplined specialist, but not
necessarily accustomed to directly managing the work of others. As a result, Bill tended to
have a more hands-off style of managing than his father, which his work crew were not
accustomed to. Rather than hiring new employees, who might more readily adapt to his style
of managing, Bill kept on the nine employees who worked under his father’s tenure as they
had proven to be loyal and hard-working. Bill’s empowering style of managing eventually
took hold as his employees were trained to work independently and to take on more
responsibility. This was in part due to the training of now Manager, Ward, who could act as
Bill’s proxy on the work-site, keep him up to date on the status of each job, deal with
customers, and assist in the estimating process.
Bill also came to grips with another concern which would impact the company’s
future; his aging fleet of vehicles, equipment, and infrastructure. Chief among his challenges
at this time was determining the degree of investment required to not only keep the business
running to meet its current obligations, but also making considerations for longer term
planning. To address these concerns, Bill decided to make major investments in the firm’s
future by taking out bank loans to purchase a new asphalt plant, several vehicles, and a new
shop and office.
Another major decision Bill made was in 2006 to move the company’s office from the
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property of the family home to it’s current location at Anson Avenue in the former industrial
park in Amherst. This 6 acre location contains stock piles of various materials for asphalt
production (i.e storage tanks for liquid asphalt, gravel piles, recycled asphalt, etc), room for
the company’s growing fleet of vehicles and heavy equipment, and a natural gas line. This
move ensured the firm would have adequate infrastructure to support its operations going
forward.
Generational Differences
Although the founder and current owner were father and son, their differing
personalities resulted in two distinct approaches to managing employees whilst on the job
site. Lorne took a more hands-on approach to management, while Bill is more hands-off in
his dealings with employees. For example, when Lorne was in charge it was not uncommon
to find him at the job site working alongside employees, whereas, Bill is more likely to be on
the site acting in a more supervisory role. Although it could be seen that Bill manages from a
distance, he is kept in tune with the happenings from each job site by Ward, who is Bill’s
right hand man, and ever-present at each job site. Managing from a distance but maintaining
a presence, either through Ward, or being there directly, allows the employees to work
effectively but freely.
The differences in management style between first and second generation is evident,
not only with the way they manage external factors facing the business, but also on a
personal entrepreneurial style. The current owner is willing to take on more financial debt
and risk than the founder. This is mainly due to the fact that Bill has no other choice if he
wants to stay competitive with others in the industry and geographic area.
Other such disparities between the two generations includes the methods of
company and job record keeping, and management of the quotation process. Until the 80’s,
price quotations would commonly be delivered orally or on an unofficial piece of paper with
no signature. However, to limit legal risk, everything is written down and signed by Bill. Bill
documents everything, from the amount of natural gas used on the meter at the plant to the
weather of each day.
The Industry
The paving and road building community in Nova Scotia has approximately 160
members belonging to the Nova Scotia Road Builders Association (NSRBA). NSRBA was
founded in 1947 and consists of a volunteer board of industry professionals lead by an
executive director who organize regular conferences and help forward the agenda of road
builders in the province. As of 2015, The NSRBA indicates it’s members employ 7500
people annually with an estimated payroll of $375 Million.
Current Situation
While Bill didn’t always imagine himself as a CEO, the professional musician has
proven to be an apt manager, navigating not one, but two economic downturns, and growing
the business tenfold since taking over the reigns. The company has grown sufficiently over
the years, holding a comfortable share of the local market and depending upon work load,
employing up to 27 full-time staff. The challenges are numerous for private firms operating in
this economical depressed part of Canada, and while the firm’s progress has been
admirable, it has not come easily and requires constant problem solving and navigation
through an increasingly complex business environment. Everyday there are challenges and
obstacles to address to keep the company moving forward.
The following section details common challenges the firm must address on a regular
basis to ensure profitability through effective management and strategic decision making.
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Supply Chain
To make asphalt, a key resource for the company, you need to have gravel, sand,
and liquid asphalt (liquid tar). These raw materials play a major role in the company’s pricing
quotation process for customers. The gravel and sand is sourced locally from up to five
different quarries. The company does not own its own quarry because not enough of a profit
margin can be made.
Of these resources, liquid is by far the most expensive; accounting for 25% of the
company’s expenses in 2014. The company is very cognoscente of liquid’s monthly
weighted average asphalt binder rack price, which is a government benchmark produced on
the average cost of liquid from the previous month. Keeping supply costs low to stay
competitive hasn’t been easy; from 2007 to 2015 the government contract price of liquid per
ton has risen by 91% in Nova Scotia and 101% in Ontario (See Figure 1). For a
comprehensive listing of rack prices in these provinces please refer to Appendix A.
Figure 1 – Ontario Hot Mix Producers Association (2015). Historical liquid price
index (per ton)
The price of liquid is based on free market economy principles, supply and demand.
To mitigate the risk of high liquid prices Bill will often buy his supply from more than one
source. For example, he might compare the liquid prices from several suppliers, of which
there are three main suppliers in local area, and use the government contract prices as a
measuring stick to calculate costs to the company.
Other strategies include recycling of asphalt known as reclaimed asphalt pavement
(RAP) for use in the supply chain. In this way, the company can build new parking lots,
streets and roadways using up to 25 per cent recycled materials from job sites, which saves
on gravels, trucking costs and new asphalt cement. Another sustainable practice includes
the recycling of roof shingles to help make asphalt which saves on liquid asphalt and
reduces the amount of shingles which end up in the landfill.
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Seasonal Nature
The nature of work done by Costin Paving is seasonal, starting in May and ending in
December, meaning most of the paving employees get laid off at the end of the high season
(December), and go on government unemployment insurance. From a financial point of
view, by the fourth quarter accounts receivables start to come in and expenses are reduced,
this results in a balance sheet showing a negative gross profit until about November each
year. The company’s seasonal nature necessitates managing finances differently than
companies who operate all year around. There is sometimes a lag of 2-3 months in the
company getting paid for jobs which has an impact on cash flow.
Gas and Oil Prices
Prices from suppliers can fluctuate rapidly, which makes planning and operating in
this industry tricky. To address the risk of fluctuating prices, the company switched to natural
gas-fuelled asphalt plant in 2007 which also allowed for safer and more efficient production
of asphalt (See Appendix B for more information). Natural gas is cheaper and cleaner,
resulting in less maintenance on plant burners, less environmental concerns, and it offers a
constant supply as it comes from a pipeline. They were the first asphalt plant to switch their
burner from oil to natural gas which has given the company a price advantage over
competitors.
Financially, the conversion to natural gas was significant and the (return on
investment was significant), initial costs of $75,000 (CAD) were recouped through
operational savings within only a year. Since switching to natural gas to make the asphalt
mixes “the plant is quieter, burns cleaner, there’s no parts to wear out like nozzles or pumps,
no storage tanks to worry about, no odor, and no maintenance.” (Cashin, 2013) Says Bill.
Clearly, Bill’s has thought strategically about his investment in the company’s future to lower
costs and lessen the environmental footprint.
Pricing
Pricing is everything in this industry, it is very competitive, and demands serious
attention by company owners. When pricing a job, the company must take into consideration
where the work is, how large the job is and do we have the necessary resources to complete
the work,, whether it is a government tender and if there are any penalties, the cost of the
raw materials to be used, and the cost of labor to perform the job.
Costin Paving created a computerized quotation template in 2008 to make the job of
pricing easier. However, even with the quotation template, the company estimator must be
able to determine the size of the job, the distance to the job from the asphalt plant, and how
much time the job will take to complete. Even with a pricing template, the company estimator
must still rely on their experience from past jobs and common sense to know how to price
competitively.
The nature of contracting business is such that any pricing estimator must be
concerned with not only what they have priced but, matching the hours employees work to
the amount of actual work involved, given you are only paid for the work completed, not the
hours worked.
Conclusion
While the firm has experienced success and grown over the years, there are ever
present challenges company management must continue to focus on to stay competitive.
Decreases and aging in the area’s population, shrinking government budgets, and the
ongoing encroachment of large national and international firms must be taken into
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consideration. Effective management of strategic issues remains an ongoing concern for
Costin Paving management in the areas of supply chain management, the seasonal nature
of the industry, gas & oil prices, and pricing of customer jobs.
References
Cashin, K. (2013, July 20). Amherst now home to a natural gas-fuelled asphalt plant. The
Chronicle Herald.
Ontario Hot Mix Producers Association (2015). historical liquid price index. Retrieved from
http://www.ohmpa.org/mtopriceindex/index.html
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