As Sanjay Sharma (Strategy Consultant from Corn & Cherry, Abu Dhabi), we were asked to make a presentation to Corn & Cherry panel. We had to make a 10 slide presentation highlighting the 10-year strategic roadmap for LTHE (referred as DGHE in the case).
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Larsen & Toubro - Outthink 2017 (Strategy Case Competition) - Grand Finale
1. Juggling Hypercubes: long-
term EPC Business Strategy
for Hydrocarbon Sector
Team: ShootingStars
L&T OutThink 2017 (Finals)
November 10th, 2017
Image source: L&T annual report
This case is developed by L&T Institute of Project Management, Vadodara. Case solution is given by the team ShootingStars of IIM Rohtak
All 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
Anupreet | Neha | Utkarsh
2. 1
10 Year Road-Map for DGHE1
1 In our analysis we have assumed that DGHE business is very much similar to LTHE business of L&T Group
Year 1 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Year 2
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
A
B
Long Range
Planning
A BIdentification
of Corporate
Strategy and
initial fund
allocation
C
D
Focus on intensive growth
Focus on integration of the functional areas
Focus on diversification
Use present
capabilities to gain a
competitive
advantage
C Integrate various areas
and create a design chain
where everything is
popularly communicated
New Services & Product Development
Market Penetration
Create Design Chain
Outsource Activities
Integrate Different Functions
After Construction Services
Renewable Businesses
Leveraging on
core
competency
Diversify in other
potential areas such
as renewable energy
sector
D
Integration &
creating
Design Chain
Diversify
across
Businesses
3. 2Source: Case study, Team analysis.
Internal and External Analysis explains the risks and uncertainties. It
suggest to adopt internal strategies to achieve future outlook
Climate change
concerns
-
-
-
-
-
-
Uncertainty
energy policyWorsening fiscal
terms
Access to reserves:
political constraints &
competition for proven
reserves
Competition from
new technologies
Cost containment
Health risks
Human
Capital deficit
New Operational
challenges
Price Volatility
Predicted Risk level
-More Same Less
51% 48% 58% 48%
Automation Enhanced oil
recovery
High Pressure
Drilling
Sub-sea & Deep-
water Equipment
Before 2020 Around 2025 Beyond 2025
Fiscal Policy Shifts in Middle East
Distribution of risk, becoming less
favourable to EPC Contractors
The abundance of assets, might lead
to fierce pricing competition
Explore New Markets
Undertake efforts in North Africa
and CIS
Strategize roll out of Government
Plans
Operational Excellence
Alliances
Cost optimizations
Improved Customer Intimacy
Compliance with Standards
Uncertainties
Internal Control Strategies
Future Outlook
4. 3Source: Case study; Team analysis;
Total energy investments
over the next 5 years will
reach $900 billion. Largest
Player plans to spend
$334bn across the value
chain by 2025.
Pipeline to transport
to China has been
constructed.
Proportion of crude oil
to Asia has
significantly increased
Mexico to boost its internal
gas pipeline, expected to
grow more than 90%.
Highly integrated energy
market, attract
investments and lower
capital costs.
Gas production is expected
to climb rapidly from most
offshore area. The region is
net exporter of Gas, mostly
to North Asia as LNG.
-1000
0
1000
2000
3000
4000
5000
6000
7000
8000
1990 2000 2005 2010 2011 2012 2018
Production (kb/d) Demand (kb/d) Net Imports (kb/d)
0
1
2
3
4
Political
Economical
Social
Technological
Legal
Environmental
0
10
20
30
40
50
60
70
KSA Iran Egypt UAE Iraq Algeria
EPC FEED Study
Global Persspective
Along with internal strategies and brief analysis of the conditions of different
regions, we recommend extensive focus on Middle East and North Africa
5. 4Source: Case study, Team analysis.
Intensive & Integrated growth are short term options, whereas Diversification
in the long term leads to quantum leap of revenue and profits margin
0
5000
10000
15000
20000
25000
30000
35000
0
5000
10000
15000
20000
25000
2014 2015 2016 2020 2025 2028
Natural Gas Production (bcm) Natural Gas Consumption (bcm) Oil Products Production (bcm) Oil Products Consumption (bcm) Global Energy Investment (in USD trillion) Revenue
EXPECTED GROWTH DUE TO DIVERSIFICAITION
EXPECTED GROWTH DUE TO INTEGRATION
EXPECTED GROWTH DUE TO INTENSIVE GROWTH
BASE CASE
STRATEGIC GAP
ValueofGrowthDrivers
RevenueinRs.Crore
Growth Forecast for different cases
6. 5Source: Case study; Team analysis;
In order to reduce strategic planning gap, DGHE should focus on existing
market penetration and new product development
1 Based on the regression model with various driving factors
Strategy in a case of super-abundant capital age
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
200000
2016 2020 2025 2028
Base Case Intensive Integrate Diversification
B
Intensive Growth Strategy
Integration
Diversification
D
B
C
Base CaseA
Strategy Planning Gap
Exhibit 1: Financial Projections for Various Strategies1
DGHE can use 3 growth strategies to achieve long-term goal Intensive Growth Strategy
Current Value Propositions?
• Hydrocarbon Offshore
• Hydrocarbon Onshore
• Hydrocarbon Construction Services
• Hydrocarbon Modular Fabrication Services
• Hydrocarbon Engineering Services
Market
Penetration
Product
Development
Market
Development
Product
Proliferation
Products
Existing
MarketingSegments
New
NewExisting
But How?
BY DEVELOPING NEW PRODUCTS & SERVICES BY UNDERSTANDING CLIENT’S REQUIREMENT
C
D
A
• Long term agreement with client
like Saudi Aramco
• Associating with more companies
like ONGC for piloting the products
• Explore new markets with good
long term business potential
• Strengthen support to
international clients other than
L&T Offshore Projects
• A percentage of Engineering
Man Hours can be invested on
EPCM in Middle East
• End-to-end solutions for
Onshore and Offshore
Construction
RevenueinRs.Crore
7. 6Source: Case study, Team analysis; Strategies for minimizing information asymmetries in construction projects, Anita Ceric
Integration growth strategy reduces risk and delay in the value chain of EPC
based business by outsourcing and integrating functional areas
Integration
The value chain for EPC based contract exists only for the duration of the project1
Integrate various aspects
of value chain to make a
“design chain”, in which all
value chain members are
engaged in collaborative
design problem solving
PO PM PM C
Hires
Performs
Monitors
Informs
Hires
Performs
Hires
Performs
Self
Interest
Self
Interest
Self
Interest
Self
Interest
po c
Procurement
Design
Finance
RISK DELAY
Value Management
Design Management
Financial risk
Timely Review
Over aggressiveness
Pressure from Client
1 Create Design Chain 2 Outsource Activities
A firm may specialize,
based on strength and
weakness, in one or more
value chain activities and
outsource the rest.
3 Integrate Functional Areas
Effective integration of all the
functional systems. Primarily a
conducive environment needs
to be created within all
divisions and subsidiaries of
the company.
4 After Construction Services
Provide ancillary construction
and maintenance services and
create knowledge resource
1 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
8. 7Source: Case study, Team analysis; Wardley Maps; based on John Boyd’s OODA framework & Sun Tzu’s book – “Art of War”
For long term, DGHE should focus on diversification, moving towards
renewable sources like Solar and Wind
Diversification
Market
Penetration
Product
Development
Market
Development Diversification
Products
Existing
MarketingSegments
New
NewExisting
DGHE should diversify, in solar & wind, in
order to survive in the long
How to implement the strategy?
Purpose
Landscape
Climate
Doctrine
Leadership
Observe
Orient
Decide
Act
Vision, Mission & Goals
Mission is to provide integrated solutions for Oil and
Gas Industry to build end-to-end solutions including
all services Professional management, focus on
customer satisfaction
Business-Environment
The oil & Gas industry is maturing . There’s a shift
from non-renewable energy to renewable energy
Macro-Environment
Macro-Environment factors are good enough to give
EPC business a growth of 7%-8% CAGR
Competency
DGHE’s huge experience in setting processes,
methodologies, technologies can be used for
competitive advantage
Leadership
DGHE project managers should embark Strategic
Thinking as a skill to take project decisions. The
strategy should be properly communicated to the
lowest levels
0
20
40
60
80
100
120
140
2012-13 2014-15 2016
Wind Solar
Linear (Wind) Linear (Solar)
Expected Annual Power Generation (in Twh)
9. 8Source: Case study; Team analysis; Balance Score Card – Robert . D. Kaplan, David P. Norton
Note: Based on Balanced Score Card Methodology
Primary strategy which should be pursued by DGHE and management teams
is Communication, Business Planning and Strategic Learning
POTENTIAL AND
GROWTH
CHALLENGES
INTERNAL
PROCESSES
CHALLENGES
CUSTOMER
CHALLENGES
ACHIEVE MARKET
SHARE GROWTH
ACHIEVE SUSTAINABLE
AND POSITIVE FINANCIAL
RESULTS
SATISFY THE
CUSTOMER’S
EXPECTATIONS
IMPROVE COMPANY’S
IMAGE
DEVELOP
EFFICIENT
PROCUREMENT
MANAGEMENT
GAURANTEE
CUSTOMER ORIENTED
INNOVATION
MANAGEMENT
INCREASE DIRECT
PROCESSES
EFFICIENCY
CREATE AND MANAGE A ROBUST
PROJECT MANAGEMENT STRATEGY
TO ADAPT TO RISKS AND DELAYS
GAURANTEE DECREASED COSTS
AND NO DELAYS
DEPLOY PROJECT
MAMANGEMENT
TECHNIQUES
ACHIEVE HIGH
PERFORMANCE
CULTURE
BECOME SECTORIAL
REFERENCE FOR
AUTHORITIES
DEVELOP
SUSTAINABILITY AS
MANAGEMENT
PRINCIPLE
INCREASE
INDIRECT
PROCESSES
EFFICIENCY
STRATEGY MAP
Translating Vision
Communication & Linking
Business Planning
Strategic Feedback &
Learning
Use high quality
employees to provide
services that surpass
customer needs
Communicating & Linking
through various channels.
Linking reward program
with performance and
setting goals
Setting Targets, Aligning
strategic initiatives,
allocating resources,
Establishing Milestones
Learning that produces a
change in people’s
assumptions and theories
about cause-and-effect
relationships
10. 9Source: Case study, Team analysis; Making Flowing Stream Strategy Work – Sushil, IIT Delhi
DGHE should extend its services for new customer by following shift and divert
strategy channels. It should also diversify its business in different sectors
Continuity
Forces
Change
Forces
0
1
2
3
4
5
Core competence
Customer base
Infrastructure
TechnologyLabour
Brand
Culture
0
1
2
3
4
5
Globalization
New Opportunity
Competition
New Technology
Government Policies
Global Standards
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0
LOW
HIGH
HIGH
DGHE
CHANGE MASTER
(Wind)
QUICK ENHANCER
(Mushroom)
SYNTHESIZERS
(Flowing Stream)
STABALIZERS
(Tree)
CONTINUITY FORCES
CHANGEFORCES
Vital: Customer Base
Desirable: Culture
Burden: Low skilled labor
High Impact: New Opportunity
Mid Impact: Government Policy
Low Impact: Competition
0
1
2
3
4
Cost Reduction
Improvement in
Process
Market Penetration
Market Share in
Renewable Sources
End to End Solutions
As-is To-be
Strategy Landscape –
Before & Aspirations
VDB analysis of Continuity forces
VDB analysis of Continuity forces
Strategy Channels
Divert
Partition
Shift
Extend services and penetrate the
market
Shift some of the activities to other
business verticals or create new verticals
Diversify in renewable sources
11. 10Source: Case study, Team analysis; Characteristics of a project friendly enterprise, Vittal Anantatmula; Strategic thinking: can it be taught?, J M Liedtka;
Considering the key competencies of DGHE, project friendly organization can
be achieved by competent and productive teams
DGHE project
teams should
encourage lower
levels to practice
intelligent
opportunism in
order to avoid
strategic
dissonance
Strategic
Thinking
Systems
Perspective
Intent
Focused
Thinking in
Time
Hypothesis
Driven
Intelligent
opportunism
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 takes
to 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 creative
and analytical thinking
sequentially in its use of
iterative cycles of
hypothesis testing.
Increases
Project
Productivity
DGHE project teams should
embark Strategic Thinking as a
skill to take project decisions
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
Guidelines
Procedure & Models for
Managing attributes
Project
Proposals
Portfolios
Consistency in
Performance
Success
Team Norms for
Performance
Deliverables
Reporting
Punctuality
Behavior & Attitude
Trust
Conflict
management
Harmony
Ideal Competencies for DGHE Making DGHE a project friendly organization