Group 1 spring 2010
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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

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Strategic Analysis of J&J Electrical Contractors, Inc.

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Group 1 spring 2010

Group 1

Spring 2010

Strategic Analysis ofJ&J Electrical Contractors, Inc.


Overview

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

Overview


The southern california electrical contracting industry

Growing industry

Regulated by local cities and states

Moderate technological innovation

Change in contracting industry due to economy

Fragmented

The Southern California Electrical-Contracting Industry


Porter s five forces model

Porter‘s Five-Forces Model

Intensity of Rivalry

Very high

New Entrants

Geothermic Energy

Bargaining Power

Of buyers: High

Of suppliers: Medium

Intensity of Rivalry

Very high

Bargaining Power

Of buyers: High

Of suppliers: Medium

Suppliers

Electrical Wholesalers

Rivals

J & J, Buck Electric, Power Plus!, Daniel’s Electrical Construction Co., McBride Electric, and Champion Electric, Inc.

Buyers

Commercial/industrialclients, public sectorand private homeowners

Threat of Substitutes

None

Substitutes

Non-licenced electrical contractors

Barriers to Entry

Low

Threat of Substitutes

None


Industry attractiveness

Industry Attractiveness


Competitive strength

Competitive Strength


G e matrix

G.E. Matrix


Competitive analysis

Intense competition

- Low barriers to entry

- Many competitors

Basis of competition

- Price [esp. public sector]

- Quality

- Reputation

Competitive Analysis


Competitive analysis cont

  • 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]

Competitive Analysis (cont.)


Market analysis

  • 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

Market Analysis


Environmental trends

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

Environmental Trends


Revenues m

Revenues ($M)


Niat k

NIAT ($K)


Current ratio

Current Ratio


Debt to equity ratio

Debt-to-Equity Ratio


Cash k

Cash ($K)


Average collection period days

Average Collection Period (days)


Z 2 score

Z2-Score

Safe Zone


Financial conclusion

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 region

    However…

  • NIAT declined 20% to $136.9K

  • ACP is 63.3 days

Financial Conclusion


Strengths

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

Strengths


Core competence analysis

Core-Competence Analysis


Weaknesses

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

Weaknesses


Threats

Low barriers to entry

Increased price of raw materials

Supply shortages

Threats


Key strategic issues

How can J&J…

… expand into private projects?

… expand into other sectors and other geographic areas?

… keep up with its competitors?

Key Strategic Issues


Key strategic issues1

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?

Key Strategic Issues


J j electrical contractors has three strategic alternatives

  • Reduce ratio of public/private jobs

  • Expand geographically

  • Offeradvanced technical services

J & J Electrical Contractors Has Three Strategic Alternatives


1 reduce ratio of public private jobs

  • 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

1. Reduceratio of public/private jobs


2 expand geographically

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

2. Expand geographically


3 offer advanced technical services

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

3. Offeradvanced technical services


Criteria matrix

Criteria matrix


2006 recommendations

  • 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

2006 Recommendations


2006 recommendations cont

  • 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

2006 Recommendations (cont.)


2008 recommendations

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

2008 Recommendations


2008 recommendations cont

  • 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

2008 Recommendations (cont.)


Any questions

Any questions?


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