managing Small business

As such, MJB is considered a Small business enterprise in the UAE, due to the fact that it operates within the Jebel Ali freezone which was primarily setup to cater to this segment of businesses.  Secondly it is also physically located within the Oilfield Supply centre which is a unit setup within this zone specifically for Oil and Power related SME companies.

By EC definition, it would be classied as a medium enterprise (between 100-499) employees. Within the UK it would be classified as a small manufacturing company, as per the Bolton Committee definition.    Furthermore, the company carries all the following characteristics:

1. Has a relatively small share of the marketplace
2. Managed by Owners or part-owners although trough a formalised structure
3. It is an independent company

(Deakins & Freel, 2006)

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2. Products & Services

MJB’s principle area of expertise is for maintenance services for General Electric’s ‘Frame’ fleet of industrial gas turbines. These engines represent approximately 30% (MJB Market Data, 2009) of all heavy industrial gas turbines in operation across the world.

There are a number of products and services offered by the company, including sale of new and refurbished capital and consumable spare parts, field services, component repairs, and complete refurbished gas turbine packages.  The characteristics of each of the services offered are as follows:

3. Capital Spare Parts

Sales of items with high capital value to the customer. These parts are typically complex and with a limited supply chain. Reverse Engineering of these parts is a source of significant competitive advantage.

4. Refurbished Spare Parts

Sale of refurbished capital spares to clients as an option at a reduced price to that of new, with the benefit of being available at much reduced lead time. Refurbished part sales can be lucrative, but are unpredictable in nature.

5. Consumable Spare Parts

Routine commodity business of selling consumable spares is most successful when sold within a Long Term Service Agreement (LTSA). Consumable spare parts are less successful when sold independently due to MJB’s suppliers providing direct at lower cost to end users.

6. Field Engineering Services

The field engineering service business involves the hire of specialist manpower to clients sites to perform mechanical, electrical and controls Engineering services of gas turbines and associated equipment.

7. Component Repairs

Component repairs are a service performed on customer owned parts that are sent to the repair facility for overhaul. The workshop employs over 60 full time staff of technicians, welders, and skilled operators.

 

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3. Research Objectives & Questions

The following key objectives and questions will be addressed during the research phase of this report:

1. How can the industrial gas turbine market be segmented?
2. What are the key segments targeted by MJB?
3. What are the key success factors within these segments?
4. What is the nature of the competition within these segments?
5. What are the opportunities and threats within the segments in which MJB operate?
6. What are the capabilities and resources of the existing organisation?
7. What are the strengths and weaknesses within the existing organisation?

4. Research Methodology

In order to answer the research questions, different forms of research will be performed. The primary source of information will be from the author’s access to internal company information. Other primary sources of information about the company will be gained by performing questionnaires.

Following an analysis on the market segmentation and the definition of the key segments in which MJB operates, the external environment will be analysed for these segments. SWOT and Porters Five Forces Models will be used for the external analysis.  The Key success factors will then be identified for these segments.

Following the external analysis of the key success factors, SWOT and Porters Value Chain models will be used to perform the internal analysis upon which to evaluate MJB as a company.

In addition, we will attempt to analyse how the company has coped with its various stages of growth during its stages of development into a successful business.  The Greiner Growth model will be used.

Following these analyses, recommendations will be made for MJB to improve its performance.

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5. Market Segmentation

The market served by MJB can be segmented as shown in Figure 1. It is a highly complex market and further segmentation is possible below each of the below categories.

Figure 1: Market Segmentation

6. Sales Regions and Analysis

The commercial department is split into three principle operating regions; Near East and India, Africa and Gulf Peninsula, operating out of two offices in Abu Dhabi and Dubai. There are a total of 29 people in the commercial department.

8. Regions of Operation

1. Gulf Peninsula

The Gulf Peninsula is managed from both the Abu Dhabi office, serving clients in Abu Dhabi, Qatar and Saudi Arabia, and from the Dubai office, where the department serves clients within the Northern Arab Emirates, Kuwait, Bahrain, Oman and Yemen.

2. Africa

The African continent is managed from the Dubai office and serves clients in Morocco, Kenya, Algeria, Libya and Nigeria.

3. Near East and Indias

This region is managed from the Dubai office and serves clients in India, Pakistan, Bangladesh, Sri Lanka, Iran, Iraq, Syria, Jordan, Lebanon. This region also serves clients in Myanmar and Cuba.

9. Sales & Marketing Analysis

The sales mix in 2007 and 2008 by product and by region is shown in Figure 2 and 3 (MJB Sales Data, 2009).  This shows that sales in the majority of product and services grew significantly from 2007 to 2008, and in many areas exceeded budget in 2008.

Figure 2: 2007 - 2008 Sales by Product

Figure 3: 2007 - 2008 Sales by Region

Figure 4 shows the 2008 sales distribution by customer (MJB Sales Data, 2009). There were a total of 111 customers in 2008. From this data the following observations can be made:

• 9% of clients (10/111) were responsible for 62% of the sales
• 11% of clients (12/111) were responsible for 20% of sales
• 80% of clients (89/111) were responsible for just 19% of sales.

Intercompany sales represented 4.4% of the total.

Figure 4: Sales breakdown by region and client size

Figure 5 shows the sales mix for the 22 clients spending above a threshold of $1M pa (MJB Sales Data, 2009). The sales mix for this segment echos that of the total 2008 sales by product (see Figure 2). The most significant product categories for this segment are spares capitals, and spares non-capitals.  There is however also a good distribution of the other product groups.

Figure 5: 2008 Sales Mix for Top 20% of Clients

The sales mix for the 89 clients spending below a threshold of $1M is shown in Figure 6 (MJB Sales Data, 2009). This segment of customers makes up just 19% of the total sales revenue. This shows the different product preferences for this segment. This segment has a noticeably more balanced requirement for spares consumables, service manpower and repairs, with a much lower volume coming from sales of capital spares capitals.

Figure 6: Sales Mix for Bottom 80% of Clients

10. Market Potential

Figure 7 shows a summary of Frame design gas turbines around the world (MJB Market Data, 2009). The data was collected from 1991 to 2005, but shows that the Middle East region has the second largest number of Gas Turbines behind America. Africa and Asia are ranked 5 and 6 respectively.

Figure 7: Global Frame Gas Turbine Distribution by Region and Type (MJB Market Data, 2009).

4. Sales and Marketing Analysis

From the sales and marketing data analysed, it is possible to make the following conclusions:

• 10 customers in 2008 provided 62% of the total company revenue. These 10 customers are evenly distributed across the 3 sales regions.
• 89 Customers in 2008 provided just 19% of the total company revenue. Of these 89 customers, 51% are in the Gulf Peninsula region
• Higher spending bracket customers (>$1M pa), tend to buy more Capital spare parts, which are of high value.
• Lower spending bracket customers (<$1M pa) tend to have more balanced requirements across the full product range, but in lower volumes.
• The market potential for ‘Frame’ engine services lies in the Middle East Region, as this carries the largest number of installations under MJB’s geographical coverage.

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7. Key Success Factors

The Key Success Factors for the segments of operation are summarised below:

11. Ownership / Manufacture of Parts

Original Equipment Manufacturers (OEM’s) own the intellectual property of the design of the components, and so the information is not freely available within the public domain. In order to protect their intellectual property, OEM’s often change part numbers and have protected certain elements of the designs with patents. One of the most critical elements for non OEM companies being able to sell components cost effectively therefore is the ability reverse engineer the components, thereby owning the intellectual property and the capability to manufacture.

12. Location and proximity to key clients

The areas in which MJB principally operates are familiar with non OEM services, and are receptive to using non OEM maintenance providers. One of the key success factors in order to be able to deliver the required service is location and proximity to the clients. Gas Turbines can extremely expensive items of equipment to not have working, and for every hour of downtime, the loss in revenue for the operator can run into hundreds of thousands of dollars.

13. Local Representation

Local representation in regions of operation is critical within the industry as this enables the building of the close relationships required to secure business, through promotion of services and products and provide customers an alternative to the OEM.

14. Flexibility and Responsiveness

The reasons some clients have preferences to using non OEM services are that they are typically faster and more responsive, offer greater value for money and a greater degree of customisation that is more suited to their specific requirements.

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8. Analysis of Competition

Using Porters Five Forces Model of Industrial Competition, the market competition is shown in Figure 8.

 Figure 8: Porters Model of Industrial Competition for the Industrial Gas Turbine Industry

The relative competitive position of the principle players within the Industrial Gas Turbine Market is shown in Figure 9. This shows that in all product and service categories, high and low tech components, repairs and field services, GE is the market leader. (MJB Market Data, 2009)

Figure 9: Relative Competitive Position (MJB Market Data, 2009)

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9. Strengths and Weaknesses

Along with having good inside sales representatives that cover the regions of operation, following interviews with the General Manager of MJB, the strengths and weaknesses of MJB within each of the products and services offered can be summarised as follows:

5. Spare Parts

• Frame 3 – successful in areas with strong representation, otherwise uncompetitive due to the fact that parts supply is outsourced.
• Frame 5 – steady although low tech competition is becoming increasingly aggressive.
• Frame 6 – competitive market but current price levels provide significant sales. Supply is however struggling to meet demands.
• Frame 7 – large market potential in Saudi Arabia, but lack of available product is an issue.
• Frame 9 – significant market success on available “in house” parts. Large potential market and high value sales.
• Consumable parts are successful when sold into an LTSA, refurbished units or rehabilitation projects. Less successful when sold independently due to MJB suppliers selling at lower cost direct to the end user.
• Maintaining key spares at minimum stock levels allows competitive advantage through responsiveness
• Dependence on single source suppliers for spare parts

1. Repairs

• Very strong GE component repair capability in all regions. Saudi Repair contract agreements provide stability to cover company operating costs allowing competitive pricing and good margins.
• Rotor Repairs are strong in Frame 3, Frame 5, Frame 6. Development of capabilities on larger Frame 7 and Frame 9 rotors will open significant opportunities as the global fleet of these engines could realise significant revenue.
• Plan for a larger capacity third workshop in Dubai will significantly enhance repair capabilities in larger engine sizes, and other OEM technologies.

1. Field Service

• Strong reputation within the regional market.
• Competitive Rates and high % utilisation
• Growth of this service is restricted by limited resources. There is therefore a need to recruit and train more field service engineers and staff.

• Solid Reputation
• Recognised Brand
• Experienced but ageing field service personnel

1. General Weaknesses

• Limited turnkey project capability
• Limited sales presence within regions of operation
• Inability to quote turnkey projects when compressors or steam turbines are involved.

10. Threats & Opportunities

According to interviews with MJB Management, the principle threats facing MJB in the principle segments operation are as follows:

• Other independents manufacturing low cost parts
• Economic sanctions
• Currency fluctuations
• High inflation within the UAE resulting in increased operating costs
• OEM incorporating Long Term Service Agreements (LTSA’s) to new sales
• OEM continuously releasing new technology and upgrades into the market
• Loss of potential clients and business due to inability to provide competitively priced spares within an LTSA framework.
• Competitors and independents re-engineering competitively priced spare parts
• MJB suppliers going directly to end users and ‘cutting out the middle man’.
• Industry acquisitions and mergers are strengthening competition, for example Ansaldo / Thomassen.
• Market demand for technology beyond MJB scope of supply for example Dry Low NOX low emissions combustion technology
• Currency fluctuations and exchange rates
• Economic sanctions within some areas of operation, for example Cuba and Iran.
• Security risks within regions of operation, for example Saudi Arabia, Nigeria and Iraq
• Increased operational costs as a result of high inflation within UAE.
• OEM’s poaching competent field service staff to support their increasing new build requirements.

11. Growth Model Analysis

For identifying the stages of Development, The "Greiner Curve" is a useful way of thinking about the crises that organizations experience as they grow.  MJB may not have used this model to its fullest but we believe that similar initiatives unknowingly may have been used to tackle problems during the growth of the company.

Greiner's Growth Model describes phases that organizations go through as they grow. All kinds of organizations from design shops to manufacturers, construction companies to professional service firms experience these. Each growth phase is made up of a period of relatively stable growth, followed by a "crisis" when major organizational change is needed if the company is to carry on growing.

Through internal analysis, we believe that MJB is currently in the growth through collaboration phase (Phase 5) as they are aggressively seeking partners around the globe to streamline their sales operations and turn-around times for service contracts.  Although the head office is based in Dubai, it still relies on partners to deliver quick solutions to its remote customers.

We also feel that it is reaching another crisis point, where the demand in growth is far outgrowing their current capacities. It is at this point where they will be required to move into Phase 6.

12. Resources & Capabilities

1. Resources

The resources of MJB can be summarised as follows:

• Gas turbine workshop in Dubai capable of offering full repair and refurbishment capabilities on a wide range of gas turbine equipment.
• Supply chain and logistics management capable of ordering and delivering a very large variety of spare parts for a wide range of engine types.
• Technical expertise in maintenance and operation of GE Gas turbines and a wide range of associated equipment.
• Strong financial backing from shareholders, intent on reinforcing MJB’s competitive position.

1. Capabilities

The capabilities of MJB can be summarised as follows:

• Ability to provide fast response tailor-made gas turbine solutions to customers in all regions.
• Ability to provide a lower cost more flexible option to gas turbine owners and operators.
• Ability to offer innovative solutions where OEM’s decline to provide support.

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13. Strategic Recommendations

The following are a list of recommendations to improve the firm’s performance.

• Seek alliance partners for technology services beyond the current capabilities of MJB, such as in compressor, steam Turbine and generators.
• Continue in reverse engineering programs to develop spare parts supply.
• Develop other gas turbine technology for repair and field services.
• Initiate Recruitment for field service and sales staff.
• Expand cooperation between group companies on sales.

14. Summary

We feel that MJB has potential in becoming a large multinational company if it continues to deliver a wider range of services by partnering and forming alliances to leverage on a wider skill set and technical capabilities.  The demand for products and services is still on the increase.

It also needs to evaluate their current workforce and enable training programmes to position the business to grow further into a more profitable company.

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15. References

MJB Market Data, 2009, ‘Gas Turbine Global Data.xls’[internal source data provided by MJB, via Iain Bell].

MJB Sales Data, 2009, ‘2008 Sales.xls’ [internal source data provided by MJB, via Raj Menon]

Mullins, L., J. (2005), Management and Organisational Behaviour, Pearson Educated Limited, Essex.

(Deakins & Freel, 2006) – Entrepreneurship and small firms 4th Edition, McGraw-Hill Education.

Using the Greiner Curve