STRATEGIC MANAGEMENTCourse instructor: Ekhlaque AhmedSubmitted by: Mehwish Aqeel (8403)

Foreword

This report is dedicated to Sir Ekhlaque Ahmed; whose guidance makes me able to complete this project.Thank you Sir

BUSINESS SCOPE K electric is a service based business. Since there is no other electricity provider in Karachi therefore it got Monopoly. As per terms and conditions; High penalty if anyone want to introduce any alternative Now K electric is private company because Abraaj Group holds 72.58% of its share and Govt. holds 27.42% shares.WANT TO BE IN To focus on consistent electricity with low cost and customer solutions.THE BUSINESS WE ARE Provides electricity throughout the Karachi but still not cost effective (since 1913; 1952) The new identity, that entails 3 feathers that represent their primary function & ESG (Environmental, Social Governance) values, creates a perception of a strong organization dedicated to serve Karachi The customer relies upon us to do the right thing because we are responsible to the people and for protecting the environment.REGIONS The corporation provides electricity throughout Karachi and in the nearby towns of Dhabeji and Gharo in Sindh and Hub, Uthal, Vindar and Bela in Balochistan. The coverage of electricity is maximum, that is in every area but its exposure is minimum or instability due to theft incidents.FUNCTION WHAT NEED To provide low cost electricity Security : proper wiring to avoid mishaps/ accidents Better quality service, quick response Quality of service monitoring Representatives at maintenance centers Deliver uninterrupted electricity Proper allocation (Scheduled Load Shedding Policy) Back up planning esp. for summers Reward program for those who pay their bills prior to due date Infrastructure upgrades and process developmentCONSUMERS AND USERS Residential Commercial IndustrialNEEDSSince K-Electrics have monopoly but they can build customer trust by: Reliability Convenience Focus on safe electricity Accurate customer solutions To provide low cost electricity Security : proper wiring to avoid mishaps/ accidents Better quality service, quick response Quality of service monitoring Representatives at maintenance centers Deliver uninterrupted electricity Proper allocation (Scheduled Load Shedding Policy) Back up planning esp. for summer season Reward program to those who pay bills on time Infrastructure upgrades and process developmentCUSTOMERS & USERS - WHOSE NEEDSWhat important for you, does not mean important for your customers. Those companies who understand this philosophy will be able to breakthrough in the market. Company needs to answer the critical question; what do our customers want? What are the most important aspects? Do we really know that? If not then it is an assignments for further knowledge improvement. How do we Score? Who are our competitors, current as well as potential, their key strengths and weaknesses?Analysis It is dissimilar in the case of K electric; they have changed their brand name but still doing the same mistakes as they have done earlier. Also, community welfare program is not important because K electrics is not an NGO.How k electric create customerK electric creates customer by adapting these measaures:Core Values: Professional Integrity Customer SatisfactionBrand values: Innovative TrustworthyCOMPANY ANALYSISAfter conducting interview of GM of K electric it is analyzed that: There is lack of integration between departments Financial issues; billing and tariff Lack of innovation, company still following backward measures Poor utilization and allocation of resources; high loss of electricity due to poor infrastructure Re- engineering need. Need for Employer branding so that employees get motivated towards works Incompetent and lazy HR Lack of motivation Lay off so that new candidates can break through in the system AZM Internal Newsletter, for internal matters between employees and employers Umeed External Newsletter, for external matters between corporation and its stakeholdersCSR: K-Electric to provide free electricity to Childrens Village Karachi KE successfully completes 2nd phase of Low-Cost meter installation K-Electric and UNICEF unite against childhood preventable diseases in Pakistan KE to successfully install 500 Low-Cost metersADDED VALUE e-billing (online) Mobile payments (Omni, easy paisa etc ) Duplicate bills Energy conservation Reporting of safety issues SukukBUSINESS WE ARE NOT INK Electrics solely provides electricity.ORGANIZATIONAL AND MANAGERIAL RESPONSIBILITY (AUTHORITY AREAS)7 authority areas: Generation Department Grid Stations & Transmission Lines Department Distribution Department Consumer Department Human Resource Department Supply Chain Department Finance & Account Department Marketing DepartmentCOMPETITORS BUSINESS SCOPE

PEPCO:K electricWAPDA: Faisalabad Electric Supply CompanyGujranwala Electric Power CompanyHub Power CompanyHyderabad Electric Supply CompanyIslamabad Electric Supply CompanyKot Addu Power CompanyLahore Electric Supply CompanyMultan Electric Power CompanyPeshawar Electric Power CompanyQuetta Electric Supply CompanyTribal Electric Supply CompanySince K electric got monopoly but these are the rival firms if we take whole cities of Pakistan into consideration. In which WAPDA regulates all electricity supplier and PEPCO regulates KE only.

MARKET STRUCTURE VERTICAL INTEGRATION

Monopoly

PEPCO

60% own production and 40% imports

Grid stationGeneration- Plants

35% loss during transmissionCables/ wiresTransmission

Electricity (Purely intangible)Distribution: End user/ Applications ProductsOther than loss of electricity by company, the electricity is theft by hook system and by tempering of meters.These are the areas in which theft incidents take place:AreaEstimated lossesAreaEstimated losses

Orangi 59.48% Shah Faisal 34.75%

Korangi 56.56% F. B. Area 33.99%

Landhi 54.83% Garden 31.18%

Baldia 53.94% Johar 28.41%

Liaqatabad 53.69% Bahadurabad 27.59%

Malir 50.60% Gulshan Iqbal 26.44%

Nazimabad 50.33% Tipu Sultan 23.68%

N Karachi 49% Clifton 23.14%

Surjani 46% Saddar 18.21%

N Karachi 49.46% Uthal 17.54%

Gadap 48.77% Defence 17.47%

Lyari 43.32% Bin Qasim 9.74%

N. Nazimabad 35.31% SITE 6.29%

MARKET SIZE & GROWTH PAST YEARSGeneration (in %)200820092010201120122013

30.4%31.5%33.5%33.6%35.64%37.7%

Transmission wastage of electricity (in %)200820092010201120122013

3.15%1.87%1.85%1.45%1.39%1.03%

Distribution losses (in %)200820092010201120122013

36%35.9%34.9%32.2%29.7%27.8%

Overall Value chain (in Billion Rupees)PKR bnFY09FY10FY11FY12FY13

EBITDA(6.9)(3.8)3.517.426.7

Net Profit(Loss)(15.5)(14.6)(9.4)2.66.7

MARKET SIZE & GROWTH FUTURE YEARSGeneration (in %)201420152016201720182019

38.4%39.5%40.5%41.6%42.64%43.7%

Transmission wastage of electricity (in %)201420152016201720182019

1.02%1%0.85%0.45%0.39%0.03%

Distribution losses (in %)201420152016201720182019

25.9%23.9%22.8%21.8%19.8%16.9%

Overall Value chain (in Billion Rupees)PKR bnFY09FY10FY11FY12FY13

EBITDA27.829.230.532.435.7

Net Profit(Loss)7.89.210.512.614.7

Changes and effects:The demand of electricity is higher than the supply due to several factors such as theft, high tariff, government regulations etc. This has been deemed a gap. BUSINESS EXPOSURESince KE is the sole electricity provider in Karachi, therefore its customers are: Residential 77% residential customers Commercial 22% commercial Industrial 1 % industrial customersTotal 2.1 million customersMARKET SIZE OVERALLThe total power generation capacity of Pakistan is 21,143 MW and the electricity demand is 14,500 MW and PEPCO is merely generating 10,000 MW. K electrics productions are: Bin Qasim Power Station 1 (Capacity: 1260 MW) Bin Qasim Power Station 2 (Capacity: 560 MW) Korangi Thermal Power Station (Capacity: 125 MW) Korangi Combined Cycle Power Plant (Capacity: 220 MW) SITE Gas Turbine Power Station (Capacity: 88 MW) Korangi Gas Turbine Power Station (Capacity: 88 MW)Electricity production Electricity production: 88.42 TWh Electricity production by source fossil fuel: 65% of total hydro: 31% of total nuclear: 4% of totalElectricity consumption Electricity consumption: 74.62 TWh Electricity exports: 0% Electricity Consumption per Capita = 430.183 kWh/capita

PLCSince the product of KE is pure electricity therefore its availability is shown by PLC is:Product SegmentsINTRODUCTIONGROWTHMATURITYDECLINE

Residential+

Commercial+

Industrial+

COMPETITION / SEGMENT MATRIXCompetitionSegmentsOverall

No competition123

ResidentialCommercialIndustrial100%

Historical Growth77%22%1%100%

Projected Growth80%30%10%100% + 20%

CompanyProfitability32%18%50%100%

Total share of K electrics = 2,121 MW / 21,143 MW Therefore, 19,022 MW others

Findings and Reasons Business worth increase by PKR 49.606 billion New businesses 72.58% Pvt. 25.66 % Govt. High cost of electricity Tampering of Meters Industrial clients who are billed according to a sanctioned load use bigger grips to get more power People use kundas (hooks) on distribution lines Theft and technical faults Loss during transmission up to 30% Gaps - Load shedding Demand and supply gap Fuel supply constraints (natural gas from SSGC and furnace oil from PSO) Historical lack of investment and master planning (haphazard growth) Load shedding Demand and supply gap Transmission & Distribution Bottlenecks Fuel constraints Liquidity /Cash flow constraints Load imbalance Actual load greater than sanctioned load in most instances (tripping and voltage fluctuation) Rights of Way issues with municipal authorities leading to delay in execution of projects underground wiring

DISTRIBUTION STRUCTURE 2009 - 2013% of RsResidential2009 - 2013Commercial2009 - 2013Industrial2009 - 2013

Generation30.40%33.70%30.40%33.70%30.40%33.70%

Transmission 43.1%44.4%53.6%48.3%68.6%63.5%

Distribution26.5%28.9%16%18%1%2.8%

100%100%100%100%100%100%

DRIVING FORCES Low cost electricity Fast customer services Try to take steps for cost cutting by reducing wastage of electricity Since K electrics got size advantage therefore more focused on providing sufficient electricity so that new business established in Karachi and take incentives with government Launch new grid stations and transmission lines Lure industrial buyers High returnsTaking advantage

Trend Potential impact K electrics

Planning Consistent electricity No

New grid stations Govt. incentives Yes

Price decrease New business - FDI No

Industrial selling High return No

PORTER FIVE FORCES MODEL Threat of New Entrants: Low due to capital cost Threat of Substitutes: Low Bargaining Power of Buyers: Low Bargaining Power of Suppliers: High Current Rivalry: NilSWOT ANALYSISS Coverage (size) advantage, Unique product, Monopoly in Karachi

W Poor performance, Customer service, Wastage of resources

O Re engineering, Cater industries

T Govt. regulation, High cost of gas and fuel, Tariff

External analysis

Internal analysis

WeaknessesStrengthsThreatsOpportunities

Poor regulation, wastage of energy

Tariffs

Cater industries

High return after catering

Competitive Advantage: Monopoly in KarachiConstraints: High cost of fuels and tariff

PEST ANALYSISP Political intervention, High tariff

E Lack of resources for new plants, Cost

S High consumption of electricity

T Technological boom, electricity is essential

Customer wants low cost consistent electricityTHE CUSTOMER: BASIS OF OUR BUSINESS

Assignments for further knowledge improvementCompany knows this

No rivals

Reduce cost

Monopoly = StrengthTariff = Weakness

RELATIVE IMPORTANCE OF FACTORSFactorAbsolutely Critical5Very Important4Quite Important3Nice to Have2Not significant1Dont Want it0

Consistent electricity**

Secure wiring**

Low cost*

CSR*

RATING AGAINST CUSTOMERS BUYING CRITERIAQuality & PriceK electric

Non-Price attributes Affecting Customer Choice%Weight%Weight

Product Related

1. Consistent electricity.25.1

2.Free maintenance.25.2

Service - Related

1.Customer care.25.01

2.Secure wiring.25.1

Total100%41%

CUSTOMERS CRITERIA

Question its CostKeep it UP

BetterNew Generation plant

Consistent electricity

CSRImprove fastWiring

20%10%Do Not SweatMostWorseRelativePerformanceRatingSame

Least

Attributes important to customers

IMPACT OF ISSUES ON STRATEGIC PROFILEIssue NumberIssue 1CostIssue 2InconsistencyIssue 3CSRIssue 4Secure wiringIssue 5Gap(demand supply)

Issue Name

Customers++++

Regions++

Money++

Needs/wants/applications++

Products (prices)/services++++

Strategic Management++

Product Creation Process+

Sales Acquisition Process++

Operations (Production/Logistics)++

Customer base Management++

Technology++

Plant & Equipment++

Distribution Channels+++

VISION, MISSION & OBJECTIVESStrategic Intent: To provide low cost electricity, and truly made Karachi City of light. Competitive Innovation: Recover wastage; fill gaps produce low cost energy for every sector.Mission: Brightening the lives of the people of Karachi by building the capacity to deliver uninterrupted, safe and affordable power.Meanings: Cost of electricity is very high; therefore company is working to cover cost so they can easily provide consistent and affordable electricity.Vision: To restore and maintain pride in K-Electric, in Karachi and in Pakistan.Meanings: Since the name of KESC or K electrics got ill reputed; therefore company is working to regain its image in the eyes of customers and all of its stake holders.Objective: Cover loophole with strategic fit.Therefore the competence of K electric is defined as:Competence = (Technological improvement + Customer care + Learning from past and new advancement)After strategically analysis of K Electric, the action plan for every segment is concluded as:ACTION PLAN # 01WhatHowWhoWhen

Focus on residential segment

Value added servicesThrough rebates and check and balanceCEO and customer care (HR)In 2014

ACTION PLAN # 02WhatHowWhoWhen

Focus on commercial segment

Low cost electricityThrough innovation & cost cutting strategyCEOIn 2014

ACTION PLAN # 03WhatHowWhoWhen

Focus on industrial segment

Consistent electricityThrough proper check and balance of voltage and loadCEO and Technicians (Engineers)In 2014 2015

APPENDICES

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