STRATEGIC ANALYSIS OF
J&J ELECTRICAL CONTRACTORS, INC.
Group 1
Spring 2010
OVERVIEW
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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
THE SOUTHERN CALIFORNIA ELECTRICALCONTRACTING INDUSTRY
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Growing industry
Regulated by local cities and states
Moderate technological innovation
Change in contracting industry due to economy
Fragmented
PORTER‘S FIVE-FORCES MODEL
Intensity of
Rivalry
Very high
New Entrants
Geothermic
Energy
Bargaining
Power
Of buyers: High
Of suppliers: Medium
Suppliers
Rivals
Buyers
Electrical
Wholesalers
J & J, Buck Electric, Power
Plus!, Daniel’s Electrical
Construction Co., McBride
Electric, and Champion
Electric, Inc.
Commercial/indus
trial clients, public
sector and private
homeowners
Threat of
Substitutes
Substitutes
Barriers to
Entry
None
Non-licenced
electrical
contractors
Low
INDUSTRY ATTRACTIVENESS
Factors
Weight
Rating
Product
Degree 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
100
-
51.5
Totals
COMPETITIVE STRENGTH
Success Factors
Weight
Rating
Product
Financial Strength
15
10
0.7
0.4
10.5
4.0
Customer Service
25
1.0
25.0
Brand Image
35
20
0.7
0.5
24.5
10.0
100
-
74.0
Management
Marketing
Totals
G.E. MATRIX
COMPETITIVE ANALYSIS
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Intense competition
- Low barriers to entry
- Many competitors
Basis of competition
- Price [esp. public sector]
- Quality
- Reputation
COMPETITIVE ANALYSIS (CONT.)
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A few very large national competitors
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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]
MARKET ANALYSIS
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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 addons
ENVIRONMENTAL TRENDS
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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
REVENUES ($M)
6
5
4
3
2
1
0
2001
2002
2003
2004
2005
NIAT ($K)
500
450
400
350
300
250
200
150
100
50
0
2001
2002
2003
2004
2005
CURRENT RATIO
5
4
3
2
1
0
2001
2002
2003
2004
2005
DEBT-TO-EQUITY RATIO
1.1
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2001
2002
2003
2004
2005
CASH ($K)
450
400
350
300
250
200
150
100
50
0
-50
2001
2002
2003
2004
2005
AVERAGE COLLECTION PERIOD (DAYS)
80
70
60
50
40
30
20
10
0
2001
2002
2003
2004
2005
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
STRENGTHS
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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
CORE-COMPETENCE ANALYSIS
Criteria for Sustainable Competitive Advantage
Capability
Is this
capability
valuable?
Is this
capability
rare?
Is this
capability
costly to
imitate?
Is this
capability nonsubstitutable?
Competitive
consequences
Performance
implications
Master
Builder
Software
Yes
Yes
Yes
No
Sustainable
competitive
advantage
Above-average
returns
PublicSector
Projects
Yes
No
No
No
Competitive
parity
Average
returns
Customer
Service
Yes
Yes
No
Yes
Temporary
competitive
advantage
Above-average
returns
WEAKNESSES
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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, alternativeenergy-source installations, or system wiring
Principals have differing visions for the company
THREATS
Low barriers to entry
 Increased price of raw materials
 Supply shortages
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KEY STRATEGIC ISSUES
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How can J&J…
… expand into private projects?
… expand into other sectors and other geographic
areas?
… keep up with its competitors?
KEY STRATEGIC ISSUES
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?
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J & J ELECTRICAL CONTRACTORS HAS THREE
STRATEGIC ALTERNATIVES
1.
Reduce ratio of public/private jobs
2.
Expand geographically
3.
Offer advanced technical services
1. REDUCE RATIO OF PUBLIC/PRIVATE JOBS
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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
2. EXPAND GEOGRAPHICALLY
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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
3. OFFER ADVANCED TECHNICAL SERVICES
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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
CRITERIA MATRIX
Criteria
1. Reduce ratio
of private/public
jobs
2. Expand
geographicaly
3. Offer
advanced
technical
services
Profitability
P
5
7
9
Growth in
revenues
P
5
8
7
Competitive
Advantage
P
5
7
9
Investment
required
N
-3
-7
-7
Overall riskiness
N
-6
-7
-4
6
8
14
Overall Score
2006 RECOMMENDATIONS
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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 (CONT.)
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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
2008 RECOMMENDATIONS
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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 alternativeenergy-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 (CONT.)
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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
ANY QUESTIONS?