STRATEGIC MANAGEMENT

Course instructor: Ekhlaque Ahmed

Submitted by: Mehwish Aqeel (8403)

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 Foreword

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

Thank you Sir

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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 development

CONSUMERS AND USERS

 Residential
 Commercial
 Industrial

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NEEDS

Since 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 development

CUSTOMERS & USERS - WHOSE NEEDS

What 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 customer

K electric creates customer by adapting these measaures:

Core Values:

 Professional Integrity
 Customer Satisfaction

Brand values:

 Innovative
 Trustworthy

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COMPANY ANALYSIS

After 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
stakeholders

CSR:

 K-Electric to provide free electricity to Children’s 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 meters

ADDED VALUE

 e-billing (online)
 Mobile payments (Omni, easy paisa etc )
 Duplicate bills
 Energy conservation
 Reporting of safety issues
 Sukuk

BUSINESS WE ARE NOT IN

K Electrics solely provides electricity.

ORGANIZATIONAL AND MANAGERIAL RESPONSIBILITY (AUTHORITY

AREAS)

7 authority areas:

 Generation Department
 Grid Stations & Transmission Lines Department

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  Distribution Department
 Consumer Department
 Human Resource Department
 Supply Chain Department
 Finance & Account Department
 Marketing Department

COMPETITOR’S BUSINESS SCOPE

Since 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.

WAPDA: PEPCO:

 Faisalabad Electric Supply Company  K – electric

 Gujranwala Electric Power Company
 Hub Power Company
 Hyderabad Electric Supply Company
 Islamabad Electric Supply Company
 Kot Addu Power Company
 Lahore Electric Supply Company
 Multan Electric Power Company
 Peshawar Electric Power Company
 Quetta Electric Supply Company
 Tribal Electric Supply Company

MARKET STRUCTURE – VERTICAL INTEGRATION

Monopoly

PEPCO

60% own
Generation- Plants Grid station production and 40%
imports

Transmission Cables/ wires

35% loss during
transmission

Distribution: End Electricity (Purely

user/ Applications intangible)
Products

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Other 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:

Area Estimated Area Estimated

losses 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%
53.69% 27.59%
Liaqatabad Bahadurabad
Gulshan
Malir 50.60% 26.44%
Iqbal
50.33% Tipu Sultan 23.68%
Nazimabad
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.
35.31% SITE 6.29%
Nazimabad

MARKET SIZE & GROWTH – PAST YEARS

Generation (in %)
2008 2009 2010 2011 2012 2013
30.4% 31.5% 33.5% 33.6% 35.64% 37.7%

Transmission – wastage of electricity (in %)

2008 2009 2010 2011 2012 2013
3.15% 1.87% 1.85% 1.45% 1.39% 1.03%

Distribution – losses (in %)

2008 2009 2010 2011 2012 2013
36% 35.9% 34.9% 32.2% 29.7% 27.8%

Overall – Value chain (in Billion Rupees)

PKR bn FY09 FY10 FY11 FY12 FY13

EBITDA (6.9) (3.8) 3.5 17.4 26.7
Net Profit(Loss) (15.5) (14.6) (9.4) 2.6 6.7

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MARKET SIZE & GROWTH – FUTURE YEARS

Generation (in %)

2014 2015 2016 2017 2018 2019

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

Transmission – wastage of electricity (in %)

2014 2015 2016 2017 2018 2019

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

Distribution – losses (in %)

2014 2015 2016 2017 2018 2019

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

Overall – Value chain (in Billion Rupees)

PKR bn FY09 FY10 FY11 FY12 FY13

EBITDA 27.8 29.2 30.5 32.4 35.7
Net Profit(Loss) 7.8 9.2 10.5 12.6 14.7

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 EXPOSURE

Since KE is the sole electricity provider in Karachi, therefore its customers are:

 Residential – 77% residential customers

 Commercial – 22% commercial

 Industrial – 1 % industrial customers

Total 2.1 million customers

MARKET SIZE – OVERALL

The 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)

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  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
o fossil fuel: 65% of total
o hydro: 31% of total
o nuclear: 4% of total

Electricity consumption

 Electricity – consumption: 74.62 TWh

 Electricity – exports: 0%
 Electricity Consumption per Capita = 430.183 kWh/capita

By customer Type By Revenue

Commercial Industrial Residential Commercial Industrial Residential

22% 18%
32%
1%

77% 50%

PLC

Since the product of KE is pure electricity therefore its availability is shown by PLC is:

Product Segments INTRODUCTION GROWTH MATURITY DECLINE

Residential +

Commercial +

Industrial +

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COMPETITION / SEGMENT MATRIX

Competition Segments Overall

No competition 1 2 3
Residential Commercial Industrial 100%
Historical Growth 77% 22% 1% 100%
Projected Growth 80% 30% 10% 100% + 20%
Company 32% 18% 50% 100%
Profitability

 Total share of K electrics = 2,121 MW / 21,143 MW

 Therefore, 19,022 MW others

9%

K Eelctrics

91%

Findings and Reasons

 Business worth increase by PKR 49.606 billion

o New businesses
o 72.58% Pvt.
o 25.66 % Govt.
 High cost of electricity
o Tampering of Meters
o Industrial clients who are billed according to a sanctioned load use bigger
grips to get more power
o People use “kundas” (hooks) on distribution lines
o Theft and technical faults
o Loss during transmission up to 30%
 Gaps - Load shedding
o Demand and supply gap
o Fuel supply constraints (natural gas from SSGC and furnace oil from PSO)

 Historical lack of investment and master planning (haphazard growth)

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  Load shedding

o Demand and supply gap

o Transmission & Distribution Bottlenecks
o Fuel constraints
o Liquidity /Cash flow constraints

 Load imbalance

o Actual load greater than sanctioned load in most instances (“tripping” and
“voltage fluctuation”)
o “Rights of Way” issues with municipal authorities leading to delay in
execution of projects – underground wiring

DISTRIBUTION STRUCTURE 2009 - 2013

% of Rs Residential Commercial Industrial

2009 - 2013 2009 - 2013 2009 - 2013
Generation 30.40% 33.70% 30.40% 33.70% 30.40% 33.70%
Transmission 43.1% 44.4% 53.6% 48.3% 68.6% 63.5%
Distribution 26.5% 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 returns

Taking
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

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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: Nil

SWOT ANALYSIS

S 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 Internal
analysis analysis

Opportunities Threats Strengths Weaknesses

Poor
regulation,
wastage of
energy
Tariffs
Cater industries

High return after catering

Competitive Advantage: Monopoly in Karachi

Constraints: High cost of fuels and tariff

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PEST ANALYSIS

P Political intervention, High tariff

E Lack of resources for new plants, Cost

S High consumption of electricity

T Technological boom, electricity is essential

THE CUSTOMER: BASIS OF OUR BUSINESS

Customer wants low cost

consistent electricity

Assignments for further

Low cost and consistent Company knows this
knowledge improvement
electricity

No rivals
Reduce cost

Monopoly = Strength

Tariff = Weakness

RELATIVE IMPORTANCE OF FACTORS

Factor Absolutely Very Quite Nice to Not Don’t

Critical Important Important Have significant Want it

5 4 3 2 1 0

Consistent **
electricity

Secure **
wiring

Low cost *

CSR *

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RATING AGAINST CUSTOMERS BUYING CRITERIA

Quality & Price K 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
Total 100% 41%

CUSTOMER’S CRITERIA

Question Keep it
its Cost UP

New
Generation
Better plant

Relative Consistent
Performance Same electricity
Rating
CSR Wiring
Worse

Improve
Do Not 10% 20% fast
Sweat
Least Most

Attributes important to
customers

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IMPACT OF ISSUES ON STRATEGIC PROFILE

Issue Number Issue 1 Issue 2 Issue 3 Issue 4 Issue 5

Cost Inconsistency CSR Secure Gap
wiring (demand
Issue Name
supply)

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 & OBJECTIVES

Strategic 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.

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 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 # 01

What How Who When

Focus on residential segment

Value added Through rebates and CEO and customer care In 2014
services check and balance (HR)

ACTION PLAN # 02

What How Who When

Focus on commercial segment

Low cost Through innovation & CEO In 2014

electricity cost cutting strategy

ACTION PLAN # 03

What How Who When

Focus on industrial segment

Consistent Through proper check CEO and Technicians In 2014 – 2015

electricity and balance of voltage (Engineers)
and load

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APPENDICES

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