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Business Strategy & Policy 2

Melissa Wicks

on 2 December 2012

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Transcript of Westport

Natural Gas
Global competitors currently operating with economies of scale in other countries
Patiently monitoring and assessing North American industry’s progress
Should the industry begin to realize adequate infrastructure growth, they are poised to enter the market and attempt to dominate it

Heavy/Medium-duty Market
Many Existing firms have banded together to stimulate industry growth
Existing North American industry competitors (G.M., Ford, Cat) fall considerably short of bar set by the industry leader - Westport Innovations

Presently exploiting core competencies and implementing value added strategies
First mover - technological innovations, strategic alliances, and established supply chain relationships position favorably in market
Potentially viable global competitors will face a strong competitive disadvantage should they opt to enter North American market segments Heavy/Medium Duty
300 line-hauls, return-to-base, & refuse trucking fleets
150 transit buses
45 school buses
Light Duty
9,450 passenger vehicles
Indoor industrial market
2,000 - forklifts / ice-resurfacers Canadian Market - 2010 Threat of New Entrants Power of Buyers Rivalry Among Competitors Company Overview Mission Vision Strategies Corporate-Level Strategy SWOT Analysis Strengths Singular focus and large capital investment in natural gas technology

Success is based on consumer adoption of this fuel source, leaving the company vulnerable to shifting end-user preferences Weaknesses Opportunities Threats Key Success Factors Financial Management SWOT Analysis - Conclusions Alternatives Recommendation | | | | | | | | Plan of Action 2012 2013 Short Term 2021 Long Term Contingency Plan Alternative #1 PROS CONS Alternative #2 PROS CONS Alternative #3 CONS PROS IMPLEMENTATION OF
STRATEGY Corporate Governance Structure Rewards Culture Leadership Benchmarking Canadian based engine manufacturing company
Founded in 1995 with head office located in Vancouver
Engineer, design, manufacture and sell low-emission engine and fuel system technologies & components
Allows light, medium, and heavy-duty petroleum-based fuel engines to use natural gas and alternative fuels Related Constrained! 2012 Q2 Revenues "Imagine, build, demonstrate, and commercialize technologies that provide environmental and economic benefits to customers, while exceeding performance and operational characteristics of conventional products." “Creating
better world through innovative
energy solutions” •Approx. 50% more active patents worldwide than competitor Westport believes that effective corporate governance is critical to continue its success and maximize shareholders wealth Ownership Concentration Board of Directors Executive
Compensation 2011 Fiscal Year Information Circular:

Approx. 55 million issued and outstanding common shares

Only two investors own more than 10%:
Kevin Douglas 15.5%
Fidelity Management & Research Company 10.2%

Remaining 74.3% of shares are widely disbursed among shareholders

Diffuse ownership concentration D. Demers Founder & CEO
OUTSIDER J. Beaulieu
OUTSIDER A. Maringer
CEO: $450,000 Market
Control Interest from firms to partner with Westport Strong emerging Asian and European markets Capitalize on ability to provide large fleet companies with market power Government encouraging use of natural gas vehicles Corporate investment in infrastructure Large, rapidly growing global market Lower market price, tax advantages, and price stability - vs petroleum Competing technology from strategic partners •Skills, expertise and knowledge of Board of Directors •Vital complementary strategic partnerships
Allows Westport to exploit OEM core competencies •Strong divisional relationships within its business units •State of the art facilities and equipment Foster innovation and nurture development Despite obstacles, industry is viable and has growth potential Several opportunities and emerging threats Growth possibilities continue to attract investors Society’s adoption of a single technology limits possible success •Investment in development of technology and intellectual property CONTROLLABLE FACTORS •Form strategic alliances/partnerships UNCONTROLLABLE FACTORS •Adoption of NG as a mainstream fuel source •NG prices remaining low/petroleum prices increasing •Construction and availability of refueling infrastructure Decentralized nature empowers employees
Low job specialization and management formalization encourage creativity
Each business unit works within corporate structure to develop new technologies that create value for the customer Business-Level Differentiation Form of Functional Structure Corporate-Level Cooperative Form of Multi-Divisional Structure Horizontal nature allows Westport to exploit inter-divisional cooperation EXTRINSIC Compensation program comparable to market firms of similar size, complexity, & market capitalization Performance Measurements
Individual targets
Corporate targets
Weighted average of:
Consolidated revenue growth
Budgeted EPS
Share price performance

CEO’s annual bonus
Annual incentive bonuses Program includes: guaranteed base & performance pay, long term incentives aligned with strategic objectives Base Salary
Market trends Long-term Incentives
Non-equity INTRINSIC Opportunity to work with Dr. Phillip Hill – original researcher of Westport’s technology Employees are attracted to Westport due to its innovative technology, challenge of success, and personal satisfaction derived from pioneering an emerging industry Intrinsic Rewards Include Sense of competence to exceed personal performance standards Engaged - pride and satisfaction in work Sense of purpose & importance in accomplishing something of value Empowered to creatively solve problems Encouraged to take leadership roles Development-oriented culture “Westport has encouraged its employees to question This culture, as a whole, provides Westport with a synergistic, dedicated labour force Commitment to environmental stewardship & social responsibility provide positive community image Employees strive to contribute to differentiation of product line & strengthening efficiency of operations Endorses innovation & employee involvement assumptions in conventional engine design, and its marketing team to rethink conventional strategies” Managerial, Visionary & Strategic Leadership Competencies Action-oriented Top Management Team Six executive officers Nine board members Lean Structure Creates flexibility Reduces bureaucracy Heterogeneous Makeup Professor’s of business strategy & international business Experts in finance, accounting, & engineering Vying for pole position in a race that may never begin Risk Management Unattractive as an investment - high levels of risk when using equity for financing Dependency on revenue and profits of Cummins-Westport joint venture Financial risks Loss of intellectual property Dependence on external support (Government/Partners) Market demand of NGVs
Publicly held corporation NGV Industry Risks Interest rate Normal Business Risks Counterparty Liquidity Credit Foreign currency Expand market to include focus on farming industry by offering conversion kits for motorized equipment Capitalize on progressive social responsibility for improving air quality Farmers save 40%-60% compared to diesel Natural transition from current operations for both Westport AND farmers Farming industry may have difficulty adopting natural gas technology Lack of farm operators knowledge of natural gas Farm industry’s resistance to change Focus on furthering availability of inexpensive home refueling systems in concert with cost effective conversion kits Convenience for home owner Less of a reliance on publicly available infrastructure Increased switching cost for customer Added value of home in the long term Cost effective in the long term Need to manufacture affordable home refueling system
High investment in R&D Limited range of vehicle if no further public refueling infrastructure is available Costly for individuals Perceived safety hazard Must price kit for substantially less
Further investment in R&D A key source of it's competitive advantage Expand Asia-Pacific markets (China) by forming strategic alliance/partnership with vehicle manufacturer Fastest growing NGV market Refueling infrastructure in place Natural extension for Westport Government policies support NGV Existing competitive market Possible integration problems Potential loss of intellectual property Unfamiliar market Political and culture differences Alternative #1 - Expand Market in China Newly acquired firm - AEC of Australia Success will be realized by combining Westport and AEC’s innovative technology with Tata Motors-Chery Automobile supply chain, infrastructure, brand name, and knowledge Coordinating relationships between: Joint venture with Weichai Partnership with Tata Motors Westport's senior executives meeting
Obtain legal counsel for contract proposal
Meet with Chinese government to sanction expansion
Discuss planned expansion with Weichai-Westport
Create and present proposal to Tata Motors-Chery Automobile 2013-2015:
Aid Tata-Chery with equipment requirements Ease of implementation
Affordable cost
High anticipated market adoption as a result of forecast savings suggest
Penetration does not require substantial investment, however return is marginal Alternative #2 - Expansion into Motorized Farm Equipment Profitability Ratios Liquidity Ratios Leverage Ratios Activity Ratios 2015-2021
Extend partnership with Tata into Europe Long term, equity–based program
Aimed at ensuring executive decision making is consistent with company strategy and linked to growth of shareholder value RRSP contributions matched Benefits Annual performance bonus
CEO: $675,000 Scarcity of funding available in consumer and industrial markets Oil industry retaliation Insufficient consumer awareness Lack of fueling infrastructure Inconsistent government regulations Inadequate incentives by global governments Related-constrained character of business units supports sharing of divisional core competencies and enables development of economies of scope David Black
Sherry Davidson
Mary Querques
Michael Safko
Umara Strang
Melissa Wicks Existing market
Full transcript