GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM CAPSTONE PROJECT REPORT THE DEVELOPMENT STRATEGY OF POWER ENGINEERING CONSULTING JS COMPANY Class : D0109 Group Number : Students: Hồ Nam Tạ Quốc Dũng Nguyễn Chơn Hùng Hồ Minh Quang HOCHIMINH CITY, 2010 The Development Strategy of PECC2 ACKNOWLEDGEMENT To complete the Masters program and write this essay, we have received guidance, help and enthusiastic suggestions from the Global Advanced Master of Business Administration Program, which is the joint program between Hanoi National University and Griggs University First of all, we kindly thank the professors who have taught us enthusiastically and helped us all along Especially, we would like to express special thanks to Professor - Dr Le Van Bay who has helped us tremendously in completing this essay We also thank deeply the Board of Directors of the Power Engineering Consulting Joint Stock Company 2, who has facilitated and allowed us to investigate and conduct surveys to gather data for this essay Although we were dedicated and tried hard to complete the essay, we cannot avoid shortcomings Thus, we welcome comments from all Professors and classmates Hochiminh City, November 25, 2010 Group Class D0109 ii The Development Strategy of PECC2 TABLE OF CONTENTS Acknowledgement List of Abbreviations List of Tables List of Figures INTRODUCTION CHAPTER THEORETICAL BASIS 1.1 The basic concepts of strategy 1.1.1 Strategy 1.1.2 Strategic Management 1.2 Strategy Classification 1.2.1 Classified by strategic level 1.2.2 Classified by scope of strategy 1.2.3 Classified by the approach of strategy 1.3 The process of strategic business planning 1.3.1 Overview 1.3.2 Identify the tasks and objectives of the enterprise 1.3.3 Analysis and forecast the business environment 1.4 The tools of strategy formulation and choice 15 1.4.1 The matrix of external factor evaluation (EFE) 15 1.4.2 The matrix of internal factor evaluation (IFE) 16 1.4.3 The matrix of competitive profile 16 1.4.4 The matrix of SWOT 16 1.4.5 The matrix of SPACE 17 CHAPTER ANALYSIS OF ACTUAL SITUATION AT PECC2 19 2.1 The formation and development of the company 19 2.1.1 The establishment and development of the company 19 2.1.2 The functions and duties of the company 19 2.1.3 Corporate Culture 20 2.1.4 The vision and mission of the company 22 2.2 The characteristics of power engineering consulting industry 23 2.2.1 The characteristics of products and services of power engineering consulting 23 2.2.2 Market characteristics 25 iii The Development Strategy of PECC2 2.2.3 Criteria for evaluation of a consulting company 27 2.3 Organization and business practices of PECC2 28 2.3.1 Characteristics of the organization structure 28 2.3.2 The process of production organization 30 2.3.3 Financial features of the company 30 2.3.4 Overview of the production plan 31 2.3.5 Assessment of the plan implementation 31 2.4 The objective of PECC2 to year 2020 34 2.4.1 Criteria to build objective 34 2.4.2 The objective of the company to year 2020 38 CHAPTER SOLUTIONS, RECOMMENDATIONS AND CONCLUSIONS 41 3.1 External environment analysis 41 3.1.1 Sector analysis 41 3.1.2 Competitive forces analysis 51 3.1.3 Analysis on the macro environment 52 3.2 Internal environment analysis 53 3.2.1 Specific capacity of the company 53 3.2.2 The value chain of the company 55 3.2.3 The competitive advantages 55 3.3 The strategies to achieve the objectives 56 3.3.1 Strategy formulation 56 3.3.2 Strategy analysis and choice 62 3.4 The solutions to carry out the strategy 64 3.4.1 The group of solution of human resourse 64 3.4.2 The group of solution of expand the business market 66 3.4.3 The group of organizational solution, management, business production 66 3.4.4 The group of solutions to improve product quality 67 3.4.5 The group of financial solutions 67 3.4.6 Other solutions 67 3.5 Recommendations 67 3.5.1 Recommendations towards EVN 68 3.5.2 Recommendations towards the ministries and government 68 3.6 Conclusions 68 REFERENCES APPENDICES iv The Development Strategy of PECC2 LIST OF ABBREVIATIONS PECCs : Power Engineering Consulting Companies PECC2 : Power Engineering Consulting Joint Stock Company PECC1 (3, 4) : Power Engineering Consulting Joint Stock Company (3,4) IE : Institute of Energy EVN : Vietnam Electricity v The Development Strategy of PECC2 LIST OF FIGURES Figure 1-1: The elements of internal industry 11 Figure 1-2: Matrix of SPACE 18 Figure 2-1: A typical Project Engineering Cycle 24 Figure 2-2: Organization Chart PECC2 29 Figure 2-3: Chart of revenue in year 2009 33 Figure 2-4: Revenue from 2006 to 2009 33 Figure 3-1: Map of Vietnam and EVN/PECCs Location 43 Figure 3-2: Market share of PECCs in 2008 44 Figure 3-3: Market share of PECCs in 2009 45 Figure 3-4: Value series of the company 55 Figure 3-5: Import, purchase of area power 71 Figure 3-6: Zoning Power system until 2020 71 Figure 3-7: Connection of power system of the Three Indochinese Countries 72 vi The Development Strategy of PECC2 LIST OF TABLES Table 1-1: The 3-stages process of strategic planning Table 1-2: The matrix of opportunities - threats / strengths - weaknesses 17 Table 2-1 : Consulting evaluation criteria 28 Table 2-2: Revenue and growth rates 32 Table 2-3: Electricity demand in the period until 2020 35 Table 2-4: Predicted results in accordance with scenarios 36 Table 3-1: Market share of PECCs in 2008, 2009 based on gross revenue 44 Table 3-2: Matrix of External Factor Evaluation (EFE) 56 Table 3-3: Matrix to evaluate internal factors IEF 57 Table 3-4: Matrix of competitive profile 57 vii The Development Strategy of PECC2 INTRODUCTION The reasons for choosing the research topic: Since our country made the change of the economy, from administrative structure and centralized planning to market mechanism, enterprises have started to polarize Some are adapting to the new mechanism to be profitable and expand Conversely, some could not find a way out, incurred losses, and eventually became bankrupt Today, not a single successful business operates without paying attention to their market The market mechanism makes the rigidity of the short-term as well as long-term planning become the main cause that obstructs the development of enterprises Therefore, enterprises need to plan and implement a new planning tool that is fully flexible to respond to market changes That is business strategy The business strategy is built on the basis of analyzing and predicting the opportunities, risks, strengths and weaknesses of enterprises that help the enterprise obtaining the general information on external business environment as well as internal resources of the enterprise Based on those mentioned, they plan the strategic objectives, select the best strategy and formulate policies to achieve those objectives and simultaneously inspect and adjust the strategy to meet the changing business environment The business strategy helps enterprises not to fall into a defensive situation, but to always stand on the offensive side to be ready to face all changes of the business environment Thereby, it has increasingly become the essential role as a sharp competitive tool in the market economy The work of planning, organizing and implementing a business strategy is actually quite new for most Vietnamese companies The Power Engineering Consulting Joint Stock Company is one of them Planning for the company is limited to the annual planning without a strategic vision Therefore, the need to plan and implement long-term business strategy is very important and urgent for the survival and development of the company Page The Development Strategy of PECC2 With that scientific and practical meaning, and the knowledge from the Training Program of Master of Business Administration for Leaders organized by Griggs University (United States) in collaboration with Hanoi National University (Vietnam), our group decided to develope a business plan for The Power Engineering Consulting Joint Stock Company Our team hopes that our researched topics can become a reality when it is presented to the Leaders of The Power Engineering Consulting Joint Stock Company and contribute to the future development of the company Objective and scope of the research Given our limited knowledge and experience concerning strategy development, and considering the limitation of time, the group's objectives are as follows:  Systematize the theory basis of strategic planning  Generalize estimations of the actual situation of production and business operation of the company; find out the advantages, weaknesses, opportunities and threats which will be used to formulate a development strategy for the company until 2020  Suggest some solutions to improve the planning and implementing of the company strategy Our team hopes that our study will be a premise for further studies to amend the development strategy of the Power Engineering Consulting Joint Stock Company and contribute to the consolidation and development of the company Research method The findings are based on information from primary and secondary data collected from means of mass communication, units directly involved in production and business operation of the company, and from the company itself The construction and research of the strategic choice matrixes are based on the expert method, which consists of consultation with well understood experts of the company's products, and market situation, in particular, the general and electrical construction consulting industry From here, we can establish features and evaluate those features The advantage of this method is simple and easy to implement Page The Development Strategy of PECC2 The structure of the report Besides the general opening, this report is made in three chapters as follows: Chapter – The theoretical basis This chapter is a brief introduction of the theoretical basis that will be applied in the research and implementation process of the project The theoretical contents include: the concept of strategy and strategic management, strategic planning process, and the tools for strategic planning and choices Chapter – Analysis of the actual situation of the Power Engineering Consulting Joint Stock Company (PECC2) This chapter includes: General introduction of PECC2, characteristics of the power engineering consulting industry presentation, the actual construction work and plans implementation at PECC2; and the objectives of PECC2 from now to year 2020 Chapter – Solutions, recommendations and conclusions This chapter reviews the ex-internal factors; particularly those that may affect the production and business operation of the company We then create strategies and specific solutions to achieve the objectives On the other hand, this chapter also makes some recommendations to policy makers and EVN to help create favourable conditions for the development of the power sector in general and electrical construction consulting industry Page The Development Strategy of PECC2 - Build knowledge of power source and power grid consulting based on insight understanding of customers’ demands and aim to provide best quality service for customers; - Provide training through working and training on the site; - Develop efficient and professional management system to meet consulting capabilities requirements;; 3.4.4 The group of solutions to improve product quality - Based on recruitment and training to find good experts who are directly involved in research and development of proposal (products) - Strive to study technology of equipment manufacturers to improve consulting capabilities and improve competitiveness in international integration process 3.4.5 The group of financial solutions - Find suitable capital source to expand manufacturing and business and improve efficiency; - 3.4.6 Develop flexible financial solutions to ensure capital for manufacturing and trading, ensure quick capital turnover and efficiency; Invest in upgrade and take advantage of existing infrastructure to expand to other businesses Other solutions - - 3.5 Coordinate with companies strong in mechanical technology in the world, take advantage of low cost and high quality labor in Vietnam to participate in mechanical manufacturing processing tender packages in the region; Cooperate with international contractors in EPC tender packages and gradually bid for these packages by itself Recommendations Power Engineering Consultant is an exceedingly important task, a leading contribution to Vietnamese electricity system; therefore, it greatly needs the concerns of all levels In order to impulse the development of the industry as Power Engineering Consultant, it is essential to have the cares Page 67 The Development Strategy of PECC2 and supports from all levels and State The followings are some recommendations: 3.5.1 Recommendations towards EVN - - Giving recommendations towards Economic Institute – Ministry of Construction for unit prices of designing work the projects of Hydropower plant and power substation; - Continuing to nominate for consulting services for the projects of which the EVN is the investor 3.5.2 Giving supports of the procedures of advance payment guarantee, guarantee of contract performance and warranty guarantee for the projects of which the EVN is the investor; Arranging budget for the power network projects Recommendations towards the ministries and government - - Giving preferential policies so that the PECCs may take part in the projects of neighbour countries; 3.6 The Economic Institute – Ministry of Construction re-setups the set of unit prices of designing work for the projects of Hydropower plant and power substation; Pay more attention on arranging budget for the projects of EVN Conclusions Setting up business strategies is an extremely important affair of the Companies in the market economy at present Nearly all the failures of the Companies have originated from incorrect strategies There are a lot of approaches in order to set up the strategies However, to making a right and effective business strategy is not simple This study topic has offered how to approach in order to set up a process of making business strategies at Power Engineering Consulting Joint Stock Company 2, in conformity with present market circumstances and with the development of the country in general and with the branch of electricity in specific Page 68 The Development Strategy of PECC2 The basic matters of the process of setting up business strategies include: - To specify the objectives of the Company; - To assess the environmental factors influencing on the Company; - To find out the opportunities and threats with regard to the activities of the Company, in association with the evaluations of the strong points, weak points of the Company; - Thenceforth, setting up and choosing the strategies For Power Engineering Consulting Joint Stock Company 2, setting up the business strategy is now in the starting period The Strategy-forming Board has been established; however, the operation of this Board has not really been effectively because of a lot of objective and subjective reasons In which, a great reason is that almost all members of the Board are not aware of the importance of strategy creation yet This topic has many mistakes surely; however, Group hopes that its studies will be the relatively sufficient preparations so that PECC2 completes its business strategies Page 69 The Development Strategy of PECC2 References: Fred R David (2006), Khai luan ve quan tri chien luoc, Translator: Truong Cong Minh, Tran Tuan Thac, Tran Thi Tuong Nhu, The Thong ke Press Fred R David (2009), Strategic Management – Concepts and Cases, Pearson International Edition, the United States of America Philip Kotler (2000), Marketing Management - Millenium Edition, Pearson International Edition, the United States of America Nguyen Trong Nam (2003), Performance Improvement Plan for PECC2-EVN, The CEFEB’s Turgot Program 46th Session, France The Institute of Energy (2005), General electricity developing scheme of National electricity for the phase 2006 – 2015, including 2025 The Institute of Energy (2010), Draft of general electricity developing scheme of National electricity for the phase 2011 – 2020, including 2030 Financial Report of PECC1, 2, and Website: www.pecc1.com.vn www.pecc2.com www.pecc3.com.vn www.pecc4.com.vn Page 70 The Development Strategy of PECC2 Appendix – Some informations of Power Scheme VII (Source: Institute of Energy) With China 220kV:~ 400-500MW (continued) 500kV: expectation With Laos ~2500MW (2024-2030) North and Center of Laos: ~1500MW South of Laos: ~1600MW With Cambodia Total of expected import capacity NEEDS OF POWER IN 2020 Figure 3-5: Import, purchase of area power Power system of whole country consists of power systems of associative regions: - Northern power system: provinces from the North to Ha Tinh outwards - Central power system: central coastal provinces to Khanh Hoa and four provinces of Tay Nguyen: Kon Tum, Gia Lai, Daklak, Dac Nong - Southern power system: provinces of the South, Binh Thuan, Ninh Thuan, Lam Dong Figure 3-6: Zoning Power system until 2020 Page 71 The Development Strategy of PECC2 Figure 3-7: Connection of power system of the Three Indochinese Countries Page 72 The Development Strategy of PECC2 Appendix – Preliminary analysis of financial indicators Rate of payment ability Company No Target Year PECC1 PECC2 PECC3 PECC4 Average of the industry Current payment rate 2008 1.063 1.280 1.111 1.402 1.214 2009 1.066 1.318 1.187 1.431 1.251 Express payment rate 2008 0.670 1.100 0.880 1.375 1.006 2009 0.724 1.129 0.835 1.376 1.016 a) Short-term payment ability: Short-term payment rate = floating rate/value of short-term debt In general, the short-term payment ability at PECC is rather stable, less different, less various and all are greater than PECC1: In 2008, PECC1 had 1.063 dongs of floating assets and short-term investments in order to guarantee dong of short-term debt, while this number of the average of branch was 1.214 dongs In 2009, this rate of PECC1 did almost not increase, only increased 0.003 (1.066) in comparison with the increase of the average of branch: 0.037 (1.251) This showed that the payment ability in 2008 of PECC1 was weaker than the Companies within branch and such circumstance was not improved in the next year PECC3 Similar to PECC1, PECC3 had the short-term payment was weaker than the average of branch; however, this difference was not a lot In 2009, the rate of short-term payment of PECC3 was 1.187, increased 0.076 in comparison with 2008 (1.111) This speed of increase was greater than the average of branch: 0.037, which showed that although the short-term payment ability of PECC3 (of 2008 was 1.111) is less than the average of branch (1.214, the difference was 0.103), this ability was gradually improved (in 2009: 1.187 in comparison with 1.251, the difference was 0.064) Page 73 The Development Strategy of PECC2 PECC4 Among four PECCs, the short-term payment ability of PECC4 was highest and was in the increasing trend In 2008, its rate was 1.402 and increased to 1.431 in 2009 while the rate of branch was only 1.241 and 1.251 Though its payment ability was the highest in branch, but this matter was not quietly good because the Companies without disadvantageous development often had this rate greater than the average of branch PECC2 The short-term payment ability of PECC2 was relatively good in comparison with the Companies in the same industry; the difference in comparison with the average of branch was not much (in 2008: 1.280 in comparison with 1.214 of the branch) and this ability was raised nearly equal to the increasing speed of the branch (the rate in 2009 increased 0.038, up to 1.318 times in comparison with the average of branch, increased 0.037 up to 1.251 times) This was positive and should be upheld b) Express payment ability Express payment rate = (Floating rate - Inventories)/Short-term debt In comparison with short-term payment ability, the express payment ability of four PECC had special changes, especially PECC1 and PECC3 who had this rate less than This showed that PECC1 and PECC3 had weak express payment ability, this rate of PECC2 and PECC4 was better (both were greater than 1) In detail: PECC1 In 2008, PECC1 only had 0.67 dongs of floating assets which could be instantly mobilized in order to pay for each short-term debt in comparison with this rate of branch 1.006 Coming to 2009, this figure was improved, but was only at 0.724, still greatly lower than the rate of 1.016 of the branch This showed that the express payment ability of PECC1 was extra less than other Companies of the same industry and its operation might be influenced if the debtors asked for payments at the same time Though this rate was improved, it was still very low The short-term payment ability of PECC1 was not at the low rate (>1), but its express payment rate was too low (