1. Group 1 Spring 2010

2.  Founded in 1987, by John Abernathy, current CEO - Wife Jean is current CFO  Does electrical contracting for heavy industrial installations, commercial and office buildings, educational institutions, public works, and many specialized systems including maintenance services  Competes in the Southern California electrical-contracting industry  Well established company known for excellent customer service  NIAT declined from 2002 to 2005

3.  Growing industry  Regulated by local cities and states  Moderate technological innovation  Change in contracting industry due to economy  Fragmented

4. Rivals J & J, Buck Electric, Power Plus!, Daniel’s Electrical Construction Co., McBride Electric, and Champion Electric, Inc. New Entrants Geothermic Energy Substitutes Non-licenced electrical contractors Buyers Commercial/indus trial clients, public sector and private homeowners Suppliers Electrical Wholesalers Bargaining Power Of buyers: High Of suppliers: Medium Intensity of Rivalry Very high Threat of Substitutes None Barriers to Entry Low Bargaining Power Of buyers: High Of suppliers: Medium Intensity of Rivalry Very high Threat of Substitutes None

5. FactorsWeightRatingProduct Degree of Regulation 50.52.5 Degree of technological innovation 150.69.0 Intensity of competition 300.13.0 Industry growth rate 300.721.0 Size of potential market 200.816.0 Totals 100-51.5

6. Success FactorsWeightRatingProduct Management 150.710.5 Financial Strength 100.44.0 Customer Service 251.025.0 Brand Image 350.724.5 Marketing 200.510.0 Totals100-74.0

8.  Intense competition - Low barriers to entry - Many competitors  Basis of competition - Price [esp. public sector] - Quality - Reputation

9.  A few very large national competitors  But they go after large contracts  More direct competitors include Buck Electric, Power Plus!, Daniel’s Electrical Construction Co., McBride Electric, and Champion Electric  Buck Electric specializes in solar photovoltaic  Most competitors are doing residential construction field, whereas J & J Electric is focused more on commercial and public sector [classrooms]

10. The target market is all residential, commercial, industrial, and public-sector electrical-contracting work in the Inland Empire Price-sensitivity is high, especially in public-sector bidding Growth rate was high in residential construction in mid-2000s Current customer needs are: quality, price, on-time completion, initial installation, bringing public buildings up to code, and energy conservation incentives Future customer needs are renovations and add- ons

11.  Declining of commercial and industrial construction, due to recession of early 2000s  Energy Policy Act of 2005 was passed and, as a result, State and local government legislation increasingly addressed code updates for older buildings  Population growth was increasing, creating more potential jobs  Greater affordability and demand for alternative-energy installations such as solar photovoltaic, fuel cells, and microturbine-power plants  Greater demand for networked installations and security systems

18. Safe Zone

19. The company is in strong financial condition, but NIAT is declining and ACP is too high In 2005… Revenues increased 2.62% Current ratio is 2.82—good working capital Debt-to-equity ratio is 55%—good financial leverage Cash is $108M—good for future investment Z 2 -Score is 8.57—well in the safe region However… NIAT declined 20% to $136.9K ACP is 63.3 days

20.  Strong reputation for integrity, responsibility, and reliability  Strong working relationships in the private sector  Additional estimator/project manager enabled J&J to bid on larger projects  Master Builder software allowed for more precise bidding  Ahead in the experience curve  Revenues increased 2.62%  Cash is $108 Million  Z 2 -Score is 8.6

21. CapabilityIs this capability valuable? Is this capability rare? Is this capability costly to imitate? Is this capability non- substitutable? Competitive consequences Performance implications Master Builder Software Yes NoSustainable competitive advantage Above-average returns Public- Sector Projects YesNo Competitive parity Average returns Customer Service Yes NoYesTemporary competitive advantage Above-average returns Criteria for Sustainable Competitive Advantage

22.  Not competitive with price wars in private sector  Limited geographic expansion into different markets  Low “hit rate” in public-sector bidding (1 in 15)  Declining NIAT  Very high ACP because of high A/R in public-sector projects  High ratio (9:1) of public- to private-sector projects  No technical expertise in low-voltage applications, alternative- energy-source installations, or system wiring  Principals have differing visions for the company

23.  Low barriers to entry  Increased price of raw materials  Supply shortages

24.  How can J&J… … expand into private projects? … expand into other sectors and other geographic areas? … keep up with its competitors?

25.  Should J&J… … reduce its ratio of public to private projects? … pursue more community-college and university bond projects? … become a general contractor? … broaden its services offered to include home-audio or security systems, low-voltage installations, or installation of alternative-energy-power sources … expand into other high-growth areas in California and neighboring states?

26. 1. Reduce ratio of public/private jobs 2. Expand geographically 3. Offer advanced technical services

27.  Become more selective in pursuing public projects  But pursue the lucrative community-college and university bond projects  Get more residential-remodeling and commercial work  Do more market research within the growth areas  Form strategic alliances with corporate developments  Hire a marketing consultant to help promote the company’s name in the private sector  Continue working closely with other general contractors  Continue the company’s culture of outstanding service and ethical operations  Continue current programs  Increase market share  Finance through cash and debt

28.  Expand to other high growth areas in Southern California  Expand into Northern California  Increase market share  Open new locations—one at a time—in developing parts of the Inland Empire  Acquire small 1–3 person firms in the right locations that have the right skill sets  Continue bidding on school and community-college projects—but now in an expanded area  Improve the hit ratio through better estimation of future costs  Continue the company’s culture of outstanding service and ethical operations  Continue current programs  Finance through cash and debt

29.  Begin offering high-tech services such as home-audio or security systems, low-voltage installations, or alternative-energy-power sources  Increase market share  Seek and hire individuals (not all at once) with the experience and expertise to install both systems and alternative-energy-power sources  Form strategic alliances with manufacturers of alternative-energy-power sources and telecom/network systems  Cross-train employees in these new areas  Continue current programs  Continue the company’s culture of outstanding service and ethical operations  Finance with cash and debt

30. Criteria 1. Reduce ratio of private/public jobs 2. Expand geographicaly 3. Offer advanced technical services ProfitabilityP 579 Growth in revenues P 587 Competitive Advantage P 579 Investment required N -3-7 Overall riskinessN -6-7-4 Overall Score 6814

31.  Increase revenues 15% and NIAT 10%  Increase market share  Aquire resources necessary to advance technology  Raw materials and operation equipment  Hire individuals who are experienced in both new and current systems  Implement training and development programs  Market to new and existing customers  Continue the company’s culture of outstanding service and ethical operations  Maintain customer loyalty  Continue current programs

32.  If competition is severe in offering new advanced technical services, causing revenues to lag projections by 15%, then J&J should intensify its marketing efforts

33.  Increase revenues 20%/yr and NIAT 15%/yr  Increase market share  Offer price incentives for first-time customers  Maintain customer loyalty  Form strategic alliances with manufacturers of alternative- energy-power sources and telecom/network systems  Cross-train employees in these new areas  Stay current with the latest technological advances  Continue the company’s culture of outstanding service and ethical operations  Continue current programs

34.  If copper-wire costs increase, causing NIAT to lag projections by 15%, then J&J should use R. F. Romex wire instead of electrical conduit