Electricity Generation and New Management

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TERM REPORT
Industry: Power Sector
Company: Karachi Electric Supply Company

Submitted to:
Sir Abdul Qadir Molvi

Submitted & Prepared by:
Mashal Rasmir – 8890
Shahzaman Murtaza Khuhro – 7189
Sidra Bashir – 10596
Zehra Mirza – 10536

December 31, 2012

EXECUTIVE SUMMARY

We chose Karachi Electric Supply Corporation as the organization for Strategic Management’s term project. Our objective was to find the major factors behind recent profits and the need for turnaround strategies by analyzing its performance since the new management. Ppower industry is the backbone of an economy because it fuels the whole industrial sector. KESC is a major player in this sector because of its hold over Karachi, adjoining areas of Sindh and Baluchistan’s electric distribution network. KESC’s past performance has not been up to par therefore we feel this company is an interesting study to analyze the flaws in their strategic decisions and to identify/recommend turnaround strategies. The continuing energy crisis and hiking prices of electricity are the main factors hampering national economy. The acute power shortages is forcing the industrial sector to work at under- production level and threatens badly the export performance besides creating social as well as law and order problems in the country. In order to conduct our research we interviewed two senior officials to help us understand the mechanisms of this monopoly. In this report we have used tools such as Porter’s Five Forces, SWOT Analysis and Space Matrix to strategically analyze KESC. A brief investigation and overview of the ratios is also provided to support our analysis. At the end, recommendations are also presented according to our understanding of the company’s competencies and areas of improvement.

TABLE OF CONTENTS
EXECUTIVE SUMMARY2
BACKGROUND7
INTEGRATED BUSINESS CENTER7
ISSUES AT KESC8
FINANCING PROBLEMS9
RESEARCH FINDINGS10
CORE ISSUES10
CURRENT STRATEGY10
R&D EFFORTS & DISPOSAL OF ASSETS11
COST REDUCING STRATEGIES11
LABOR UNION MANAGEMENT11
MONOPOLISTIC POSITION AND RIVALRY11
REASON FOR RECENT PROFITS12
FUTURE PLANS12
SWOT ANALYSIS13
STRENGHTS13
WEAKNESSES15
OPPORTUNITIES16
THREATS17
PORTER’S FIVE FORCES MODEL17
THREAT OF NEW ENTRANTS/ POTENTIAL COMPETITORS - LOW17
THREAT OF SUBSTITUTE PRODUCTS: LOW17
BARGAINING POWER OF BUYERS - LOW18
BARGAINING POWER OF SUPPLIERS - HIGH18
COMPETITIVE RIVALRY - LOW18
SPACE MATRIX18
FINANCIAL STRENGTH18
ENVIRONMENTAL STRENGTH19
COMPETITIVE ADVANTAGE19
INDUSTRY STRENGTH20
FINANCIAL ANALYSIS21
OPERATIONAL HIGHLIGHTS21
PROFITABILITY22
LIQUIDITY AND DEBT POSITION22
RATIOS23
PERFORMANCE OVERVIEW24
RECOMMENDATIONS25
REFERENCES28
APPENDIX – QUESTIONNAIRE29

BACKGROUND
KESC was incorporated on September 13, 1913, under the Indian Companies Act of 1882; the company was nationalized in 1952 but was re-privatized on November 29, 2005. KESC came under new management in September, 2008; a significant number of professional managers with experience in running utility and other large companies have joined under this management and will be running it until the company is turned into a best practice utility. KESC is listed on all three of Pakistan's stock exchanges: the Karachi Stock Exchange, the Lahore Stock Exchange and the Islamabad Stock Exchange. At present, KESC is the only vertically-integrated power utility in Pakistan and manages the generation, transmission and distribution of electricity. KESC covers a vast area of 6,000 square kilometers and supplies electricity to all the industrial, commercial, agricultural and residential areas that fall under its network. INTEGRATED BUSINESS CENTER

To help KESC focus better on their customer relations and to improve their customer services, they launched the Integrated Business Centers (IBCs); the pilot project was based in Defense Housing Society. After...
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