Larsen & Toubro - Outthink 2017 (Strategy Case Competition) - National Finalists

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

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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


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

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HE C

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DGHE’s Core Competency


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

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Evolving technology & in-house engineering are major gaps in DGHE’s competencies; its core competency consists of collaboration, management system & type of contractors

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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

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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

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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

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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

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es

in it

s e

mp

loye

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de

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set

to b

oo

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ivit

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Mindset

DGHE’s manager should focus on inculcating the ideal competencies in the organization by creating a growth mindset, perception & reality of the progress

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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

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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

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8

10

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16

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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


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…

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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


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…

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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


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…

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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


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


Larsen & Toubro - Outthink 2017 (Strategy Case Competition) - National Finalists

Business

Transcript of Larsen & Toubro - Outthink 2017 (Strategy Case Competition) - National Finalists