1
Image source: L&T annual report
Juggling Hypercubes: Long-Term EPC Business Strategy for Hydrocarbon Sector
L&T OutThink 2017 – Round 2
Team: ShootingStars
October 15th, 2017
This case is developed by L&T Institute of Project Management, Vadodara. Case solution is given by the team ShootingStars of IIM RohtakAll the recommendations related to the business problems, as mentioned in the case, are based on the assumption that DGHE is similar to LTHE of L&T Group
1Source: Case study, Team analysis.
Executive Summary & the Approach
Note: 1 In our analysis we have assumed that DGHE business is very much similar to LTHE business of L&T Group
1
Strategy & Sub-Strategy
Resource Based Ideas
Type of Control
Co-creation Strategy
SWOT, Porter’s Generic Strategy and Company analysis suggests that DGHE should focus on differentiation
Resource based view suggests to align strategy to gain competitive advantage and organizational capabilities
Control system analysis suggest to follow decentralized control; centralized in case of improving desired qualities
Stakeholder co-creation leads to exploitative and exploratory knowledge and satisfied customers
Gap
Id
en
tifi
cati
on
Bu
ildin
g O
rgan
izat
ion
al
Co
mp
eten
cy
Table of Contents
1. Recommendation for DGHE’s Strategy2. Sub-strategy recommendation for various activities3. Gaps in DGHE Competency4. Organizational issue in 20th Century Organizations5. Sub-strategies for efficient workflow6. DGHE’s top 5 risks for project execution7. Centralized & De-Centralized Controls8. Ideal Individual Competencies/Skills/Mindsets of
DGHE’s Employees 9. Ideal competencies/skills/mindset for DGHE project
teams10. Skill/Mindset challenges for construction industry11. Making DGHE a project friendly organization12. Co-Creation Strategy for DGHE13. Strategic Decision Making Model for DGHE project
teams14. Insight on strategic element in Indian Context
2
Porter’s Generic Strategy suggests DGHE should go for a successful Product differentiation Strategy to gain market share & create brand loyalty among customers
1. Recommendation for DGHE’s Strategy
4
3
33
3
Bargaining Power ofBuyers
Industry Rivalry
Bargaining Power ofSuppliers
Threat of NewEntratnts
Threat of Substitutes
Note: Rating is based on qualitative Analysis. Higher the number, more good it is. Source: Team Analysis; Porter’s Generic Strategy. Please refer to slide #23 in appendix to check area-wise porter’s analysis
Cost Leadership
S Increasing Profits, Efficient Logistics
WHigh Investment in New Technologies,
Charging lower prices
ODigitalization, Operational Cost
reduction
TChina: a low cost competitor, Europe:
with better technologies
SDiverse Service under one name, Attractive and Unique Products
W High Costing, Low Asset Base
OSpecialization in certain features, Highly Valued Customer Service
TCreative and Innovative Competitor, Entry of other players in Long term
0
1
2
3
4
5
6
7
S W O T
Differentiation
SCheaper price, Acquire market Share
in low cost
WNot suitable for long term, High
upgradation cost
OAccess to new market/customers,
Can help in scaling up the products
TFailure because of cost focus,
Cannibalization 0
1
2
3
4
5
6
7
S W O T
0
1
2
3
4
5
6
7
S W O T
Cost FocusSC
OP
EB
RO
AD
NA
RR
OW
SNew product development,
Differentiated Product Portfolio
WAdditional cost involved, R&D
investment for customer needs
OGain of Market Share, Increase in
Employability
T Entry of Big Players, Product Might Fail
Differentiation Focus
SOURCE OF COMPETITIVE ADVANTAGECOST DIFFERENTIATION
0
1
2
3
4
5
6
7
S W O T
3
2. Sub-strategy recommendation for various activities
-
5
10
15
20
25
2015 2020 2030 2040 2050
PHWR LWR (Russia) EPR (France) FBR AHWR AP 1000
-15.00%-10.00%-5.00%0.00%5.00%10.00%15.00%20.00%25.00%
0
2000
4000
6000
8000
10000
12000
Jun-17 Jun-16 YOY Growth
DGHE Sub-StrategyBIDDING/PROPOSAL ENGINEERING
MANUFACTURING Bidding of more and more projects which are
crucial to the economy like Metros, Nuclear, Hydel,
Ports, Special Bridges and Defence
Enhance the bidding process to upgrade project
execution on an EPC basis for export gas
compression facilities
Strategic tie up with nuclear business
Future of Nuclear Energy (Capacity Projects in GW)
Gross revenue from engineering has reduced
from 3.8% to 3.1% in current year, DGHE should
focus on innovation & technology
Company has excellent track records at places
like Oman, so joint ventures in that region will
increase the number of projects
Infrastructure (especially transport
infrastructure) vertical can offer EPC services for
off-shore projects
D&G Segment Annual Growth
Making more and more
manufacturing plants capable of in-
house facilities to design,
manufacture and supply a wide
range of products related to specific
industries around the area, For
example – Kancheepuram,
Tamilnadu
Middle-east is a prospective region
to explore & set-up processing units
0
1000
2000
3000
4000
5000
ShipBuilding IndustrialMachinery
Realty MMH
2016-17 2015-16
Gross Revenues in crores
Source: Team Analysis; L&T annual report; orfoline.org; Economic times report on L&T and its businesses
Considering the future industry growth and turns, DGHE should focus on strategic tie-ups, joint ventures & providing in-house facilities to manufacturing plants
4
DGHE Sub-StrategySUPPLY CHAIN CONSTRUCTION
PROCUREMENT
Business tie-ups with local and international
consortium partners for pre-qualification for
mega projects in the GCC countries (Mostly in
East Africa and Kuwait, as they are new
markets). Doing this will ease-up as well as
speed-up the procurement process
Considering the world class fabrication facilities
present in India’s east and west coast (in Hazira
and Kattupalli), the procurement facilities can
be improved by implementing load-out jetties
to facilitate delivery of large and heavy modules
vie ocean-going vessels and barges
Development of commercial buildings is
increasing on exponential rate, thus strategy of
procurement centres at places where
construction of malls, offices are taking place
will help save lots of time with least cost
involved
With respect to the transport
infrastructure, construction of more
engineering design centres to cater to
international projects
Installation of improved engineering
models like Inclinometers, GPS system
and LIDAR surveys for quality
improvement, timely completion, cost
optimization and efficient resource
utilization
Backward Integration into Engineering
and Procurement
0500100015002000250030003500
0
10000
20000
30000
40000
50000
Revenue Order Inflows PAT
Source: Team Analysis; L&T annual report; orfoline.org; Economic times report on L&T and its businesses
Process standardization which will
automate manual or mundane work
processes therefore, making it easier to
streamline supply chain management
practices
Since the supply chain highly depends on
outstanding vendor performance, it needs
to be monitored and rated through robust
metrics available through ERP systems.
Long term agreements for India’s emerging
deep water market and to execute Saudi
Aramco’s offshore facilities on EPCI basis
0
5
10
15
20
25
2015 2016 2017 2018 2019 2020
Estimated Spending on Logistics and Supply Chain (Global) in B$
Further analysis shows that DGHE should strategies in process standardization, installation of improved engineering models & business tie-ups with international partners
5
3. Gaps in DGHE Competency
Premier EPC Contractors
HSE Management Systems
Business lines Solution
Commissioning Business
EPCI Projects
3D model based engineering solutions
Internationally Certified
Engineering Design Centers
Collaborations Engineering Services
In this era of evolving technology,
DGHE is not equipped with the
current technologies and thus there
is a huge gap in its competencies
Evolving information technology
Collective learning in the organization
Major Orders
Perspective of the Company Leaders
The co-ordination between diverse
production skills and integrate
multiple streams of technologies
There are very less major orders and that
too, confined to a certain region, which
restricts the global development
Top management was unable to conceive
of the company as anything other than a
collection of discrete businesses.
Gap
s in
DG
HE C
om
pete
ncy
DGHE’s Core Competency
Source: Team Analysis; L&T annual report; orfoline.org; Economic times report on L&T and its businesses
Offers ‘total engineering solutions’ right from ‘concept to commissioning’ across all its business lines
Long term agreements
with McDermott
International for India’s
emerging deep water
market and Saudi
ARAMCO to execute
Saudi Aramco’s
offshore facilities on
EPCI basis
The Company’s HSE Management System is OHSAS 18001 and ISO
Concept Studies,
3-D model based
engineering and
special studies to
commissioning
Co
re P
rod
uct
Competencies
An extensive set of suppliers from
around the globe, networked
through an online procurement and
an e-business platform
Procurement
Fully integrated capability chain
Division of businesses into value chains
Digitized project control
In-house engineering and R&D centres,
world-class modular fabrication facilities
as well as onshore construction and
offshore installation capabilities
Offshore, Onshore, Construction Services,
Modular Fabrication Services and
Engineering Services
Enable the business to establish itself as
one of the premier EPC contractors, both
in the Indian industry and in targeted
overseas markets.
Accu
mu
late
Co
re C
om
pete
ncy
Evolving technology & in-house engineering are major gaps in DGHE’s competencies; its core competency consists of collaboration, management system & type of contractors
6
4. Organizational issue in 20th Century Organizations
Self-esteem
Relationship
Survival
Transformation
7 levels of organizational consciousness
Key issue was to consider reconstructing plausible histories
Synchronization of culture, politics, knowledge management
and team management
Organizational politics representing attempts at control
and resistance
Key Issues
Source: Team Analysis; narratives by Monika Kostera, and guidelines as per Mackay/Sisodia’s Conscious Organization model
Key issues consist of Reconstruction of Histories and synchronization of different phases of an Organization like Culture, Knowledge Management and Leadership
7
5. Sub-strategies for efficient workflow
The core competencies should be used to
modify short-term competitive positions that
can be used to build longer-term competitive
advantage
Source: Team Analysis; Ghemawat, David Teece, Gary Pisano, and Amy Shuen
Tangible
• DGHE’s physical Resources like Land, Buildings, and Machinery. They confer little advantage to the company in the long run
Intangible
• DGHE’s brand reputation, trademarks, intellectual property are all intangible assets. They are built over a long time and is something that other companies cannot buy from the market. They are the main source of sustainable competitive advantage
Assumptions
Heterogeneous
Immobile
DGHE Sub Strategy
Valuable?
Rare?
Costly to imitate?
Is the Firm organized to capture value?
Sustained Competitive Advantage?
• Companies achieve CA1 by using different bundle of resources
• Company can’t replicate immobile resources giving them CA
YES
NO
NO
NO
NO
IN DGHE EVERY WORK-FLOW
SHOULD BE BASED ON THE
RESOURCE-BASED VIEW
MODEL. COMPANY SHOULD
ALLIGN ITS STRATEGY TO
GAIN CA
BY FOCUSING ON
ORGANIZATIONAL
CAPABILITIES DGHE CAN GAIN
COMPETITIVE ADVANTAGE1 CA = COMPETITIVE ADVANTAGE
YES
YES
YES
For efficient workflows short term positions, DGHE should be modified to build long term competitive advantage
8
6. DGHE’s top 5 risks for project executionRisks Coding
Demand Risks
Increasing penetration of electric cars and the broader mobility revolution D1
Gas Demand D2
This rising prosperity drives an increase in global energy: energy demand increases by only around 30% D3
Environmental
Increasing Emission of Carbon affecting environment P1
Renewables are the fastest growing fuel source,quadrupling over the next 20 years P2
Supply Chain
second wave of LNG supply growth is slow to materialise causing a temporary period of tightness within LNG supplies S1
Financial
Focusing on short term cost reduction rather than long term development F1
Legal
Onerous contract terms by client and counter-party risk L1
Other Risks
localization requirements O1
tight schedule O2
forex exposure O3
High
Med
Low
Low Med High
D1
D2
D3
P1
P2
S1
F1
L1
O1
O2
O3
RIS
K P
RO
BA
BILITY
RISK IMPACT
Periodic review to ensure that the executive management follows a properlydefined framework
Investment made in the Middle East for training of workmen.
Showing a long term commitment to consolidating presence in selectgeographies through setting up of offices, entering into alliance withcollaborators and developing marketing networks.
operational excellence initiatives, alliances, cost optimization and improvedcustomer intimacy
compliance with stringent HSE standards, strong contract & claimsmanagement and identification of key personnel and talent at the pre-bidstage
detailed assessment of deliberation on mitigation measures by the ARMC
RIS
K M
ITIG
ATIO
N
RISK MANAGEMENT FRAMEWORK
Identify
Analyze
Plan & Action
Control & Mitigate
• Pre-Bid Review of All Processes at business and at the corporate level
• Executive management assesses its strategic, financial, operational and accident risk factors.
• Periodic review to ensure that the executive management follows a properly defined framework
• evaluation of risks using a risk matrix, thereby also assigning monetary values to risks
• Project managers/selected project team members undergo a certified Risk Induction Program conducted by ECRI. Collaboration with Engineering and Construction Risk Institute (ECRI), USA
• Investment made in the Middle East for training of workmen. Contingency plans are prepared for significant risks.
• Following well documented Standard Operating Procedures(SOPs) detailed assessment of deliberation on mitigation measures by the ARMC
• Structured risk management frameworkSource: Team Analysis; Case Study
DGHE’s risks are high short-term cost & fast growth of renewable source. For performance, periodic review, detailed assessment & compliance with standards should be followed
9
Environment
Goals & Strategy
Culture
Technology
Size
Site Level Organization Level
• For Customers, Suppliers and Sub-Contractors, the execution managers have to co-ordinate with safety and quality functions at every point of time, leading it to a decentralized decision making.
• At the same time for projects, the decision depends on the size of the project.
• CEO along with corporate managers, have to deal with the general environment like economic, political, technological, environmental and international forces.
• There is high level of interaction with the customer and the focus of the employees is customer satisfaction and faster execution. so there is high level of decentralization.
• The goal is to get more projects and devising ways to improve the efficiency of execution. Since Top management are not involved in day to day execution of projects, the process remains decentralized
• Mostly culture remains same, so high level of decentralization .
• Change in CEO may affect the culture of whole company including the facilities available for site based employees, shows a bit of centralization
• The process is mostly continuous and less human intervention is involved. All the departments performing the activities follow decentralized structure
• Each site has an average strength of 50; employees. ideal for organic structure. integration is possible and increases efficiency of employees. So, decentralized process
• the work done at corporate level cannot be automated, knowledge and skills are the most desired qualities and work depends a lot on them; thus a bit of centralizedprocess if followed
• Corporate office houses more than 2000 employees. Best suited structure is mechanistic structure where integration is low and centralized decision making increases efficiency. So, centralized process
7. Centralized & De-Centralized Controls
Source: Team Analysis; Case Study; Management Control Systems – R.N. Anthony, V. Govindarajan
Studies reveal that site level control is dominated by decentralized decision making, whereas in organizational level, centralized control is followed to improve the quality
10
1 On 76% of the great days, respondents mentioned progress as the real reason (HBR – Breakthrough ideas for 2010 article)
2 Growth mindset employees reach higher level of productivity. Managers should promote growth mindset among the employees
Source: Team Analysis; Stress experienced by active members of trade unions, Nandram & Klandermans; The progress Principle, Teresa Amabile; HBR – Break through ideas -2010; Growth & Fixed Mindsets, Dweck Carol;
8. Ideal Individual Competencies/Skills/Mindsets of DGHE’s Employees
Challenges
Obstacles
Effort
Criticism
Success of Others
…Embrace Challenges
…Persist in the face of
setbacks
…See effort as a path
to mastery
…Learn from criticism
…Find inspiration in the success of
others
Growth Mindset leads desire to
learn & therefore a tendency to
GROWTH
MINDSET
76%
43%
25%
53%
19%25%
12%4%
43%
15%
Progress InstrumentalSupport
InterpersonalSupport
Collabration Important Work
What happens on a great day? 1
Best Day Worst Day
Competencies & Skills Individual Productivity
DGHE’s managers should create both the perception & the reality of the progress
Cultivate a culture of helpfulness, properly support employee’s effort
Managers should celebrate progress, even the incremental sort
When workers sense they’re making headway, their drive to succeed is at its peak
Core Competencies
Behavioral Competencies
Technical Competencies
Functional Competencies
• DGHE’s huge experience in setting processes, methodologies, technologies can be used for competitive advantage
• Apply knowledge to identify issues and internal problems; work to develop additional technical knowledge and skills
• Work harmoniously with others to get a job done; respond positively to instructions and procedures; work well with staff & co-workers
• Challenge conventional practices; adapt established methods for new uses; pursue ongoing system improvement; create novel solutions to problems
DG
HE
sho
uld
incu
lcat
e id
eal
co
mp
ete
nci
es
in it
s e
mp
loye
es a
nd
de
velo
p t
he
gro
wth
m
ind
set
to b
oo
st p
rod
uct
ivit
y2
Mindset
DGHE’s manager should focus on inculcating the ideal competencies in the organization by creating a growth mindset, perception & reality of the progress
11
9. Ideal competencies/skills/mindset for DGHE project teams
Project teams have some characteristics of start-up companies like…
Source: Team Analysis, Strategic thinking: can it be taught?, J M Liedtka; Causation and Effectuation, S D Sarasvathy; Effectual versus predictive logic in entrepreneurial decision making, S D Sarasvathy
DGHE project teams should embark Strategic Thinking as a skill to take project decisions
DGHE project teams should see vertical & horizontal linkages within the system from multiple perspective
DGHE project teams should marshal and leverage their energy, to focus attention, to resist distraction, and to concentrate for as long as it takesto achieve a goal.
DGHE project teams should think on what to keep from past, what to lose from past & what to create in present to reach the desired goal
DGHE project teams should accommodate
both creativeand analytical thinking
sequentially in its use of iterative cycles of
hypothesis testing.
DGHE project teams should
encourage lower levels to practice
intelligent opportunism in
order to avoid strategic
dissonance
Increases Project
Productivity
Are DGHE project teams like startups?
Effectual Reasoning in Decision Making
• For project teams, goals emerge by imagining courses of action based on given means. Similarly, who comes on board determines what can be and needs to be done
• Project team frames the problem as one of pursuing adequately satisfactory opportunities without investing more resources than stakeholders can afford to lose. The focus here is on limiting downside potential.
Causal Reasoning in Decision Making
But at the same time some characteristics of project teams are not that entrepreneurial…
• Teams frame the future as a continuation of the past. Hence accurate prediction is both necessary and useful.
• Teams frame promulgate a competitive attitude toward outsiders. Relationships are driven by competitive analyses and the desire to limit dilution of ownership as far as possible.
• Accurate predictions, careful planning and unwavering focus on targets form hallmarks of project teams. Contingencies, therefore, are seen as obstacles to be avoided.
DGHE’s project teams should think strategically while making decisions. Project teams are similar to startups when they are managing project tasks with minimum resources
12
10. Skill/Mindset challenges for construction industry
PO PM PM CHires
Performs
Monitors
Informs
Hires
Performs
Hires
Performs
Self In
terest
Self Interest
Self Interest
Self
In
tere
st
po c
Glo
bal
Eco
no
my
Glo
bal
Co
nst
ruct
ion
Sect
or
$ 37/hour
$ 25/hour
$(1.63)
$(0.03)
$(0.05)
$(0.07)
$(0.44)
$(0.46) $(0.58)
Africa
South America
Middle East
Asia Pacific
Europe
North America
Average value added by employees per hour worked
1 Assumes total productivity catches up with total economy productivity and current employees are reemployed at the total economy productivity rate
2 PO = Project Owner, PM(po) = Project Owner’s Project Manager, PM(c) = Contractor’s Project Manager, C = Contractor. Relationship between PM(po) & PM(c) is the key to success
3 1 = Bureaucratic control, 2 = Information system, 3 – incentives, 4 = corporate culture, 5 = reputation, 6 = Trust (most important strategy to minimize information asymmetry)
Loss in economic value due to the skills gap by region1, Productivity Gap = 1.63 $ trillion
Source: Team analysis; Reinventing Construction through a productivity revolution, McKinsey Global Institute; Strategies for minimizing information asymmetries in construction projects, Anita Ceric; Minimizing communication risk, Anita Ceric; Construction market labor skill crisis, Andrew R J
0.176 0.17 0.135 0.154 0.164 0.20
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
0.2
1 2 3 4 5 6
rethinking design and engineering processes
improving procurement and supply-chain management
improving onsite execution infusing digital technology, new materials,
and advanced automation reskilling the workforce.
Skill Shortage Risk: due to lack of productivity, there’s an economic loss of $1.6T. Middle east – most productive
Information Asymmetry: Principal-agent theory Labor Productivity: over the past decades growing at a
glacial pace – 1% Technology and Digitization: Less use of technology, no
automation
Risks & Challenges
DGHE should convert these challenges into opportunities by …
1. Understanding relationships and passing on the Information2
2. Acting in these 5 areas simultaneously to boost productivity by 50-60%
3. Minimizing the information asymmetries by following these 6 strategies3
Uti
lity
Imp
ort
ance
Skill shortage & low labor productivity are the main challenges in the construction industry. DGHE can minimize information asymmetry by focusing more on creating trust
13
1 DGHE should use project manager model to built trust in the organization & making it project friendly
2 Project performance model should be used for efficient & successful execution
11. Making DGHE a project friendly organization
Source: Team Analysis; Characteristics of a project friendly enterprise, Vittal Anantatmula; Project leadership role in improving project performance, Vittal Anantatmula
Competent Practices & Professionals
Productive Teams
Project Friendly Organization
Rank value of proposal & project Rank desirability of Contractor Manage project facets like cost,
duration, risk using planning, fine tuning, Change management& tradeoff analysis
Measure the attributes
Divide into teams – proposal team, proposal portfolio team, project team, project portfolio team
Make a team charter – specify personal behavior & professional performance
GuidelinesProcedure & Models for Managing attributes
Project Proposals Portfolios
Consistency in Performance Success
Team Norms for Performance
Deliverables Reporting Punctuality
Behavior & Attitude Trust Conflict
management Harmony
How DGHE can leverage over it?
Senior Management must facilitate formalization of prioritization of projects
DGHE should support a comprehensive project management office infrastructure to support projects, proposals, and portfolios
DGHE should formalize the process, and should articulate DGHE’s strategic objectives and financial resources
Frequent monitoring of the effectiveness of DGHE’s initiatives
FRAMEWORK FOR MAKING DGHE A PROJECT FRIENDLY ORGANIZATION
Incremental efforts by setting up an enterprise
project management office
Prioritize projects based on financial, strategic and
funding category constraints
Create Clarity in Communication
Define roles & responsibilities
Communicate Expectations
Employee Consistent Processes
Facilitate Support
Establish Trust
Manage Outcomes
Given Means Ends
Pro
ject
M
anag
er
Mo
del
1
Pro
ject
Per
form
ance
M
od
el2
DGHE can become a project friendly organization by focusing on Competent Practices and Productive Teams. DGHE should use project performance model for increasing productivity
14
12. Co-Creation Strategy for DGHE
Stakeholder co-creation completes the interaction between multiple stakeholders. Applying this in a project:
• Increases the likelihood of more engaged and satisfied stakeholders
• Increases the danger of losing focus on those stakeholders who possess the most critical resources for the project's survival and progress
• Increases the danger of inducing stakeholder disappointment due to expectation escalation and impossibility of embracing conflicting requirements and wishes.
Framework for co-creation at DGHE
Source: Team Analysis; Case study; Martina Heumann, Co-creation strategy
Capabilities before & during stakeholder’s co-creation project helps in exploitative and explorative knowledge. It also increases likelihood of satisfied stakeholders
15
13. Strategic Decision Making Model for DGHE project teams
Multi-Attribute Utility Model1
ranking the preferences of an agent over
bundles of goods under uncertainty.
Using MAUDM model team mangers can assess the utility of different options having different attributes and an uncertainty attached to them.
Since, it’s an ordinal utility model the scope of including qualitative attributes (variables) in the model is also there.
Process
Assess different attributes
Calculate utility function using Von Neumann–Morgenstern utility theorem
Take decision if expected utility of one option is more than other
Pros
Accounts for uncertainty in
decision making
Based on the utility of the
decision
Constraints are inherent
Attributes are used as
criteria
Qualitative factors can be
factored in
Cons
Attributes are explicit in
nature
Utility function is difficult
to calculate
Can be used only for finite
number of decision
Model becomes complex
for more attributes1 Tool used to take decision based on certain attributes. Criteria is based on attributes and not the objectives
Source: Team Analysis; Decision Making Theory; Multi Criteria Models for Strategic Decision making
DGHE’s project teams should take decisions based on Multi – Attribute utility model. It’s a multi criteria based attribute decision making model
161 Content based on telephonic interview; Source: Team Analysis; google scholar
14. Insight on strategic element in Indian Context
Project Taken - Derivatives and its various strategies. Situation Analysis – A full service brokerage firm providing advisory services to all its clients under one roof, enabling to manage all financial needs. Clients is a mix of institutional, high net worth, and retail investors. Solution – Meeting the support needs of the investors through execution skills driven by experienced sales team and researched backed advice generated by team of experienced analysts. Strategy –1. Proper Training to the respective teams2. Both Pull and Push mechanism3. Emphasis on R&D
AJAY PANDEY RAGHU ANANTANARAYANAN1 KANIKA BHAL
Project Taken – Organizational Development and AlignmentStrategy – Most of the systems follows closed model, but rather it should follow network model where they can enhance supplier-customer relationship. With respect to same, 4 voices needs to be connected and to be worked on :Voice of Customer – What customer wantsVoice of Employee – How should we achieve itVoice of Wealth – How much money is involvedVoice of Technology – What technologies should be involved so that adjustment is easyAll are equally important and equally prior. Informal Comments – Try to show it as, all the 4 things are equally important and the act of joining of all 4 will lead to the successful organization
KIRANKUMAR MOMAYA
Project Taken – Foundation of Core Ideologies and Vision in StrategyStrategy - Leadership was identified to be the most important factor, particularly in context of core ideologies. Accelerated Growth through internationalization, value capture in global markets and late stage of ascent on the value curve Organizational values should be articulated as part of strategic intent (e.g. Mission, Vision, Values). These are often a sub-set of values the leadership of an organization evolves over time
Project Taken – Accessing the nature of decision making in public and private sector organizationsStrategy - New and Improved Marketing Strategy Push Strategies at most of the times, but at times pull strategyAreas – Ethics and LeadershipWork – Measuring the quality of interaction between leader manager and members
The basic insights emphasizes on R&D, combination of all 4 voices and accelerated growth through internationalization and value capture in global markets
APPENDIX
Team: ShootingStars
L&T OutThink 2017
Juggling Hypercubes: long-term EPC Business Strategy for Hydrocarbon Sector
September 30th, 2017
This case is developed by L&T Institute of Project Management, Vadodara.All the recommendations related to the business problems, as mentioned in the case, has been given by team Shooting Stars from IIM Rohtak
Image: Pexels
Executive Summary & the Approach
1
Existing Business Model
Value & Goals
External Analysis Internal AnalysisSWOT
Business Level Strategy
Global Strategy
Arena Selection Model
Corporate level Strategy
Portfolio Contribution
Impact on Competitive Advantage
Human Leverage
Stra
tegy
Fo
rmu
lati
on
Stra
tegy
Im
ple
me
nta
tio
n
1
2
3 4
5
6
7
8
9
10
Approach Flow Chart
1
2
3
Source: Case study, Team analysis. In our analysis we have assumed that DGHE business is very much similar to LTHE business of L&T Group
BCG, SWOT and Porter’s Five Forces analysis suggests DGHE has a strong competitive positioning
Arena Selection Model suggests Middle East & North Africa as a first choice followed by South East Asia. PESTLE analysis suggest South East Asian countries as 1st Preference
DGHE’s contribution to DGHE has significantly increased. Its EBITDA margin is 6.8%
21
Outlining DGHE’s Strategy (2-6)Arena Selection Model (7-9)DGHE’s Contribution (10-13)
Source: L&T annual report
DGHE executes capital projects through EPC contracts. DGHE can leverage on its value proposition to gain a competitive advantage in a maturing industry…
2*We have assumed that the growth in orders of DGHE is similar to LTHE unit of L&T. SOURCE: L&T Annual report , Case study & Team analysis
1 Existing Business Model
EPC Contracts
offshore onshore
• Well-head platforms
• Process Platforms
• Modular Structures like living quarters, heavy jackets
• Subsea pipelines, brownfield
• Floating system & offshore drilling rigs
• Refinery expansion and revamping projects
• Gas treatment facilities
• Fertilizer projects
• Petrochemicals
• Cryogenic storage tanks and terminals
• Pipelines
76%
25%
43%
12%
0%
20%
40%
60%
80%
100%
120%
140%
Best Day Worst Day
Growth in Orders of DGHE Subsidiary*
Progress
Source: Annual Report and Appendix 1
Pros: “Single Point Responsibility” ensures completion of
projects in schedule and budget Guarantees Competitive advantage to clientsCons: Over-aggressiveness w.r.t schedule leads to unfavorable
delays, and decline in quality No periodic assessment of costs and risk of not having
the skilled labor force to complete the project
2 Value Proposition and Goals
Can DGHE meet its goal and continue offering the customer value?
The recent increase in the orders is favorable, but we should alsolook into the cons of the business model to address the demand
DGHE
Suppliers
Competitors Complementors
Customers
PLAYERS: DGHE, DGHE’s existing client base, new clients, other
competitors, Co-opetitors (Potential Partners)
ADDED VALUE: Flawless project deliveries, state of the art
execution, top class safety, sharp focus on quality, huge experience
RULES: Usually projects are EPC contract based, risk is high
TACTICS: Excellent PTR, high available capacity, integration
SCOPE: Huge scope in emerging economies
Currently, DGHE is more focused on Indian subcontinentand nearby regions. Existing business model offers anexcellent leverage to venture into other economies
0
2
4
6
8
10
12
14
16
18
1965 1975 1985 1995 2005 2015 2025 2035
OECD China India Other non-OECD Asia Africa Other
Following the prolonged downturn, the oil & gas industry is showing some signs of revival, oil prices are expected to rise and emerging economies will be the largest energy market …
3Source: Team analysis, BP global outlook 2017 . *scores based on team analysis
3 External AnalysisFive Forces Analysis*A region - based perspective
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
4.5
5.5
1965-75 1975-85 1985-95 1995-05 2005-15 2015-25 2025-35
GDP(%) Primary energy(%) Energy Intensity(%)
Growth in GDP is expected to become stable, but growth in primary energy is expected to decline
Due to increase in energy efficiency, there’s aslowdown in primary energy requirements.The pace at which global energy intensitydeclines is projected to increase as China’seconomy rebalances and India leverage itsgrowth on favorable macro conditions
• China is expected to be the largestenergy market, but India will overtake itby the end of 2035. Africa, also will be agrowth market in a long term.
• DGHE should consider it expansion inthese countries to gain as an earlymover by leveraging its valueproposition
Energy Consumption by region
0
200
400
600
800
100010.9031735
416.4 4.5
• Industry attractiveness is more in middleEastern Countries
• South Asian countries are center ofattraction for DGHE
Advancement in technology has led to slow down in oil demand from industry and transport sector. DGHE should focus on diversification of its services…
4
0
1
2
3
4
5
6
7
1965 1975 1985 1995 2005 2015 2025 2035
Industry Buildings Transport Non-Combusted
Production by region Consumption by region
0%
20%
40%
60%
80%
100%
120%
1975 1985 1995 2005 2015 2025 2035
Gas Non-Fossils Oil Coal
There’s a supply -demand gap ofaround 4-5 millionbarrels per day.Majority of theconsumption isfrom Asia PacificRegion, America& Europe
Due to recent advancement intechnology, the share of primaryenergy has shifted from coal to non-fossils sources of energy. It’s a riskfor Hydrocarbon Engineering EPCfirms
Shares of Primary Energy Increase in energy efficiency has led to theslow demand in industry and transportsector
Total energy consumption by sector
Macro factors are not that favorable, because it’s maturing industry. Business diversification is required
Source: Team analysis, BP global outlook 2017
Immense amount of experience has led DGHE to gain a competitive advantage. BCG analysis suggests that pipelines and head platforms are most profitable project types for DGHE…
5
4 Internal Analysis: Building Blocks of Competitive Advantage
Competitive Advantage:• Differentiation• Cost effective
Superior Quality
Superior Efficiency
Superior Innovation
Superior Customer
Responsiveness
• In-house capabilities helps to deliver complete from design to build turnkeysolutions
• The business has repeatedly delivered, large, critical and complex projects,globally, by virtue of its customer focus & responsiveness, experienced &highly skilled human resources, world-class Quality & HSE practices andculture of excellence
BCG Matrix analysis for project types (Revenue Streams)*
Relative Position (Market Share)
Gro
wth
Rat
e
High Low
High
Low
Invest ?
Cash Cow Dog
• BCG analysis shows that businesses like well head platforms, subseapipelines, cryogenic storage tanks, pipelines are in “investment zone”
• DGHE should use its resource to leverage on these kind of projects
Source: Team analysis, Annual Report, EY business outlook
SWOT analysis, with a score more than 2.5, suggests that DGHE has a huge competitive advantage over its competitors…
6
5 SWOT Analysis: Strategic Factor Evaluation Matrix
External Factors Weight Rating Weighted Score
Threats
High growth rate of renewable sources 0.15 4.8 0.72
Sharp decrease in demand of coal 0.15 4.2 0.63
Projected closure of global refineries in Europe, OECD Asia, North America
0.10 3.5 0.35
Decrease in demand of oil due to use of non-combustibles 0.05 1.6 0.08
Increasing energy efficiency 0.05 1.2 0.06
Total Scores 1.00 3.79
Internal Factor Evaluation Matrix
External Factor Evaluation Matrix
Internal Factors Weight Rating Weighted Score
Weaknesses
Little presence in markets other than India, Middle East 0.20 4 0.8
Project assessment not as good as European companies
0.10 2.5 0.25
ROE is less according to Indian standards 0.10 2.0 0.2
Total Scores 1.00 4.03
Internal Factors Weight Rating Weighted Score
Strengths
Robust track record on project deliveries 0.15 5 0.75
Vast client base, covers almost all major players 0.15 4.8 0.72
Market leaders in capital intensive projects 0.15 4.8 0.72
Major Focus on Operational Excellence 0.10 4 0.4
Umbrella for huge range of services 0.05 3.8 0.19
External Factors Weight Rating Weighted Score
Opportunities
Projected substantial increase in import of LNG in China and Europe
0.15 4.8 0.96
large scale and low cost resources in Middle East, US, Russia
0.10 3.0 0.3
Projected decline in liquids supply, while demand increases for China, Asia, Europe
0.15 3.4 0.51
Slow increase in oil producing market in Brazil 0.05 1.6 0.08
Increase in energy consumption to generate power 0.05 2 0.1
SWOT Analysis suggests that odds are in favor of DGHE
Source: Team analysis, case study, annual report
Hydrocarbon industry is in mature stage. The business level strategy for DGHE should be more focused on deterring rivals and diversifying across economies…
7
6 Business level Strategy: for Maturing Industry
Strategy for Deterring Entry of Rivals
Product proliferation
Price Cutting
Maintaining Excess Capacity
Strategy to manage Rivalry
Price Signaling
Price Leadership
NonpriceCompetition
Capacity Control
Market Penetration
Product Development
Market Development
Product Proliferation
ProductsExisting
Mar
keti
ng
Segm
en
ts
New
New
Exis
tin
g
• By focusing on diversified range of products,DGHE can improve its competitive positioningand deter competitors from entering
• Dynamic price cutting for high margin productsand efficient cost structure will give acompetitive edge
• DGHE can maintain excess capacity bydeveloping well tested processes
• DGHE can go for a tit-for-tat price signalingcompetitive strategy
• DGHE can leverage over its experience, resourcesand capabilities to gain price leadership
• Right forecast of capacity will help DGHE inefficient budgeting
• Hydrocarbon segment has high EBITDAmargin – hence penetration should bedone
• Electrical & Automation in Hydrocarbonsegment – penetration may lead tocompetitive advantage
• Innovation can lead to new productdevelopment in EPC life cycle
Four Nonprice Competitive Strategies
Source: Team analysis, case study, annual report
South East Asian & North African Countries seem very attractive after Middle East Countries. DGHE should look for divestment in these countries…
8Source: Team analysis, case study, annual report BP energy outlook
6 Arena Selection Model
Oil consumption per capita (in tonnes)Trade flows worldwide (in million tonnes)
Most trade flows in this region
Huge consumption in Middle East, America and South East Asia
Arena selection model suggests, after taking 7 important parameters, Middle Eastern and North African countries for penetration, followed by South East Asian countries. Qualitatively, south Asian countries are preferred..
9Source: Team analysis, case study, annual report
0
1
2
3
4
5
6
Track record RepeatableAvailability of
Projects
Customer Base PEST Analysis Risk Metrics Accessibility (CAGE) Availability ofResources
Middle East and North Africa Russian Common Wealth South East Asia North America Average Socre
Arena Selection Model – Analyze on different parameters and compare with the average
We can clearly see from the above model suggests Middle East, North Africa and South Asian Countries
0
0.5
1
1.5
2
2.5
3
3.5
4Political
Economical
Social
Technological
Legal
Environmental
Middle East and North Africa Russian Common Wealth
South East Asia North America
Average
PESTLE ANALYSIS
After qualitative analysis, preference order of region where DGHE should penetrate: South Asian Countries > Middle East & Africa > North America
After selection of the market, DGHE should align its global strategy with its business strategy and core competency…
10
8 Global Strategy: How to concur the world?
Glo
bal
Str
ateg
y fo
r Su
pp
ly C
hai
n o
f O
il an
d G
as
Cost cutting: A diet for the overweight
Vertical Integration: One-Stop shop
New Revenue models: for future rewards
Consolidation: Increasing Concentration
New Service models: Design to value
• Cost cutting by making well tested process • Use improved tech and BIM to reduce leaks
• Collaboration to simplify contractor management • In-house equipment purchase – 30% cost reduction
• High leveraged capital structure • Focus more on OPEX and capitalize by parts
• Joint ventures to gain the competitive adv. • Merger and Acquisition to gain mkt. share
• Collaboration with other co-opetitors• Leverage on technology
Company Response Strategy
Diversification of Revenue Streams
Effective cost controls & Customer Service
Safety and Human Capital Investment
• Offer broad service range • Consolidate & Leverage existing business in UKCS• Emerging market opportunities such as Africa
and Asia
• Continuous Capital Expenditure & Technology investments to improve economies of scale and efficiency
• Reduce operational cost base utilizing innovative approaches (e.g. cut down wastage)
• Ensure project deadlines & service delivery timely
• Investment in Employee Health & Safety• Initiatives to ensure continuous supply of talent
pool• Adequate succession planning for senior
management
Overcoming the Barriers to Change
• Utilize integrated logistics policies to cut down project timelines
• Bespoke risk & asset management strategies to address capital allocation decisions.
• Effective communication strategies to understand employee & customer needs
• Training and human capital development
Source: Team analysis, case study, annual report
D&G corporate strategy has four key areas. D&G group subsidiaries should contribute to D&G’s portfolio by focusing on these 4 areas…
11
9 Corporate level Strategy: Four Key Areas
Strengthening execution and operational
efficiency
Business value unlocking Digitalization
Emphasis on improving Working capital
level
D&G Group
DGHE
Source: Team analysis, case study, annual report
DGHE’s contribution to D&G’s portfolio is very significant. There’s a substantial increase in orders & EBITDA margin but asset size has remained low…
12
10 Portfolio Contribution of DGHE to D&G
6%
10%
0%
2%
4%
6%
8%
10%
12%
0
5000
10000
15000
20000
25000
30000
2016 2017
Number of Orders % Contribution
• There’s a significant increase in the number oforders from around 15000 to 25000
• The percentage contribution to total portfoliohas also increased significantly from 6% in2016 to 10% in 2017
• Hydrocarbon segment’s EBITDA margin hasincrease significantly frim 0.5% to 6.8% in amatter of one year
• Such increase indicates that the portfoliocontribution of DGHE to the parent companyhas become significant
• Despite being a significant increase in EBITDAmargin, there’s no significant increase inAssets as such
• DGHE has achieved such a high EBITDAmargin by having a light asset base
D&G consolidated – Hydrocarbon order bookD&G consolidated – EBITDA Margin D&G consolidated – Assets
Source: Team analysis, case study, annual report
The Impact web shows that the there’s a huge impact of corporate level strategy on DGHE’s business. DGHE’s should effectively use human capital to gain competitive advantage …
13
The Impact Web
• High EBITDA margin from DGHE business is inline with the corporate strategy ofstrengthening operational efficiency and execution
• D&G is planning to divest some of its business to diversify. DGHE being a highEBITDA and low asset business, it’s highly unlikely of such case to occur
Leveraging Human Capital
Organizations deliver superior and sustainable value when they have:
Evolutionary Purpose
Spiritual Intelligence
Entrepreneurial Ability
Shared Tacit Knowledge
Trust Communication
DGHE should leverage on it’s strong human capital by creating a trust among the employees
Source: Team analysis, case study, annual report