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Group 1 Spring 2010.  Founded in 1987, by John Abernathy, current CEO - Wife Jean is current CFO  Does electrical contracting for heavy industrial installations,

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Presentation on theme: "Group 1 Spring 2010.  Founded in 1987, by John Abernathy, current CEO - Wife Jean is current CFO  Does electrical contracting for heavy industrial installations,"— Presentation transcript:

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 Degree of technological innovation Intensity of competition Industry growth rate Size of potential market Totals

6 Success FactorsWeightRatingProduct Management Financial Strength Customer Service Brand Image Marketing Totals

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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

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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 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

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