strategic analysis of j&j electrical contractors, inc
DESCRIPTION
Group 1 Spring 2010 . Strategic Analysis of J&J Electrical Contractors, Inc. Founded in 1987, by John Abernathy, current CEO - Wife Jean is current CFO - PowerPoint PPT PresentationTRANSCRIPT
Group 1
Spring 2010
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
Growing industry Regulated by local cities and states Moderate technological innovation Change in contracting industry due to
economy Fragmented
Rivals J & J, Buck Electric, Power
Plus!, Daniel’s Electrical Construction Co., McBride
Electric, and Champion Electric, Inc.
New Entrants
Geothermic Energy
SubstitutesNon-licenced
electrical contractors
BuyersCommercial/
industrial clients, public sector and
private homeowners
SuppliersElectrical
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
Factors Weight Rating ProductDegree of Regulation
5 0.5 2.5
Degree of technological innovation
15 0.6 9.0
Intensity of competition
30 0.1 3.0
Industry growth rate
30 0.7 21.0
Size of potential market
20 0.8 16.0
Totals 100 - 51.5
Success Factors Weight Rating ProductManagement 15 0.7 10.5Financial Strength 10 0.4 4.0Customer Service 25 1.0 25.0Brand Image 35 0.7 24.5Marketing 20 0.5 10.0Totals 100 - 74.0
Intense competition - Low barriers to entry - Many competitors
Basis of competition - Price [esp. public sector]- Quality - Reputation
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]
• 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
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
0
1
2
3
4
5
6
2001 2002 2003 2004 2005
050
100150200250300350400450500
2001 2002 2003 2004 2005
0
1
2
3
4
5
2001 2002 2003 2004 2005
00.10.20.30.40.50.60.70.80.9
11.1
2001 2002 2003 2004 2005
-500
50100150200250300350400450
2001 2002 2003 2004 2005
01020304050607080
2001 2002 2003 2004 2005
Safe Zone
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• Z2-Score is 8.57—well in the safe regionHowever…• NIAT declined 20% to $136.9K • ACP is 63.3 days
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 Z2-Score is 8.6
Capability
Is 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 Yes Yes No Sustainable competitive advantage
Above-average returns
Public-Sector Projects
Yes No No No Competitive parity
Average returns
Customer Service
Yes Yes No Yes Temporary competitive advantage
Above-average returns
Criteria for Sustainable Competitive Advantage
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
Low barriers to entry Increased price of raw materials Supply shortages
How can J&J…
… expand into private projects?… expand into other sectors and other
geographic areas?… keep up with its competitors?
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?
1. Reduce ratio of public/private jobs2. Expand geographically 3. Offer advanced technical services
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
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
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
Criteria1. Reduce
ratio of private/public
jobs
2. Expand geographical
y
3. Offer advanced technical services
Profitability P 5 7 9Growth in revenues P 5 8 7
Competitive Advantage P 5 7 9 Investment
required N -3 -7 -7Overall riskiness N -6 -7 -4Overall Score 6 8 14
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
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
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
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