An Overview of Capstone Turbine Corporation - Case Study Example

? CAPSTONE Table of Contents Table of Contents 2 Introduction 3 External Environmental Analysis 3 Mission and Vision of the Company 4 Porter’s Five Forces Analysis 4 Internal Environmental Analysis 7 Corporate Governance Mechanisms 8 Effectiveness of Leadership 9 Efforts to become a Responsible Corporate Citizen 9 References 10 Introduction Capstone Turbine Corporation is a US based multinational organization operating its business in the industrial electrical equipment industrial sector of the economy. The company is headquartered at Chatsworth, California and was founded in the year 1988 (Yahoo Finance, 2012). The organizations engages itself in the business of manufacturing, developing, servicing and marketing solutions related to micro turbine technology which can be utilized in the distributed power generation applications all over the world. The products offered by the company primarily include micro turbine units, components, subassemblies and different types of machineries associated with it. Other types of accessories offered by the company include rotary gas compressors having digital controls, and various heat recovery equipments for Combined Heat and Power (CHP) applications. The stocks of Capstone are traded in NASDAQ with the ticker symbol "CPST" (Capstone Turbine Corporation, 2012a). This study entails about the detailed analysis of the internal and external environmental factors associated with Capstone Turbine Corporation. Based on the internal strengths and weaknesses and external opportunities and threats experienced by the company some of the strategic recommendations have been provided in this study which could help it to compete effectively in the market and increase its profitability position. External Environmental Analysis The external environmental factors having an impact on the operational effectiveness of Capstone have been analyzed in this section. The mission and vision of the company and its effectiveness on the overall success of the company have been analyzed. Porter’s Five Forces analysis tool has also been used to assess the impact of the various industrial factors affecting the company. Mission and Vision of the Company The mission and vision of the company is to become the leading producer of low emission micro turbine systems in the world (Capstone Turbine Corporation, 2012c). The primary stakeholders of the company include its employees, company management team, the suppliers, the consumers and the investors. The company has managed to utilize its available resources in an effective manner which is indicated through its increase in profitability in the recent years. Capstone management is committed towards the growth and expansion of the company. There has been a significant rise in the revenue generated by the company for the fiscal year 2012 as compared to the year 2011. There has been a consistent increase in revenue generation of the organization for the past 20 quarters. The growth strategies of Capstone are mainly designed to achieve profitability, increase cash flow generation and improve the gross margin of the company. The company is mainly focused on the reduction in costs through various energy efficient means. Porter’s Five Forces Analysis Porter’s five forces model helps an organization to assess the competitive forces which exists within the industry (Hill & Jones, 2012, p. 49). The forces which help out in the process are named as a) threat of new entrants, b) threat from the substitute products or services, c) bargaining power of the suppliers, d) bargaining power of the consumers and finally e) competition within the industry (Society for Human Resource Management (U.S.), 2006, p.38-39). The five industrial forces having an impact on the industrial equipment industry in which Capstone operates its business activities is described below: a. Buyer Power: The industrial equipment industry can be adjudged to be highly fragmented in nature because it consists of many segments and sub-segments. Significant number of large and medium sized business organizations obtains their products from this market. The bargaining power of the buyers in the industry is to some extent dependent on the customer sizes, like the large business corporations cab have a significant amount of impact on the market players and losing them can have an adverse effect on their revenue generation capabilities. The buyers in the market are found to have varied requirements and the market players thus design their offerings in a differentiated manner through special products manufactured in accordance with specific needs and requirements of a group of consumers. Brand reputation also plays an important role in influencing the buyers in the market. In view of the uncertain nature of the market due to the recent Global Financial Crisis (GFC), most of the products that are sold in the market are large purchases and the companies look for the best deal before making a purchase. Apart from this it is difficult for the buyers to integrate backwards which compensates for the low switching costs for the buyers in the market (Accenture, 2012). Hence, overall the buyer power in this industry can be adjudged to be moderate in nature. b. Supplier Power: The raw materials used by the market players in this industry are not much differentiated in nature. However the volatility of prices of the raw materials has a significant impact on the companies operating in the industry. The market players are associated with low switching costs because there is very little to differentiate between the suppliers in the market. The suppliers of the industry cater to the requirements of a wide variety of manufacturing companies existing in the industry which reduces the switching costs for the suppliers. All these factors suggest that the supplier power in the market is moderate in nature. c. Threat of New Entrants: The electrical equipments industry is concentrated in nature with most of the major players operating its businesses in various geographical regions of the world. It is particularly strong in the US market and large companies like Caterpillar and Cummins have already established a strong hold in the market. The economies of scale for the industry are high and the high fixed costs prevalent in the industry leads to the creation of significant barrier to entry in the market. This entry barrier is further enhanced with the introduction of stringent environmental regulations that are needed to be followed by the companies operating their businesses in the industry. Hence the threat of new entrants can be adjudged to be low in this industry. d. Threat of Substitutes: Substitutes are not available in this industry. However, the used products that are sole privately in the market might act as potential substitutes for the products sold in the market. These products are sold at cheaper rates in this industry and thus prove to be a threat to the industry. However the availability of parts for the older products can be a significant issue. Hence the threat of substitutes is moderate in nature. e. Degree of Rivalry in the Market: The industrial equipment market is mainly dominated by small number of large multinational corporations. There is an intense competition between those large companies mainly because the factors like high fixed costs for the companies and low switching costs for the buyers. The revenues that are accrued by the company’s existing in the market are largely dependent on the industry conditions of the end users. However the market players are found to manufacture products for a wide range of industries and thus they are dependent on the overall market conditions. The existing rivalry in the market is further increased due to the product differentiation strategy adopted by many companies (Capstone Turbine Corporation, 2012a). Hence, overall there is an intense rivalry amongst the market players in the industry. Internal Environmental Analysis A SWOT analysis will be carried out to evaluate the internal and external factors of the company (Williams, Champion and Hall, 2011, p.108). Thus the analysis will be used to evaluate the internal environment of Capstone Turbine Corporation. The primary intentions are to uncover the opportunities, strengths, threats and weaknesses of the company. A. Strengths: The primary strength of Capstone is its brand value in the market and the differentiated products manufactured by them. The brand portfolio of Capstone is also quite strong. The company has been able to diversify its operations in many geographical areas as well. The distribution network of the company is also good and maintains a good relationship with its clients. B. Weaknesses: The Company is not that strong financially. This can be a major weakness of the company which can hinder its growth and expansion strategies because of the absence of adequate capital to implement its operational strategies. C. Threats: The impact of the Global Financial Crisis (GFC) leading to the economic downturn is a possible threat for the company. Moreover the competition is also intense in the market. Introduction of various regulatory norms corresponding with electrical equipments industry also poses threat for the company. D. Opportunities: Expansion into the markets of the emerging nations of the world like China is a great opportunity of Capstone to increase its profitability. There has been an increasing demand for the energy efficient electrical equipments in the market as well (Capstone Turbine Corporation, 2012a). The SWOT analysis of Capstone Turbine Corporation presented above can be utilized to develop an optimum strategic plan for the sustainability of the company. The company can strengthen its existing strengths by introducing other innovative energy efficient products in the market to gain competitive advantage. Moreover the company has opportunity to expand into the emerging nations of the world where it can cater to the increasing demand of products manufactured by them. The ongoing economic downturn is a potential threat for the company and it needs to take prudential decisions related to its all investment decisions. The company can diversify its product portfolio as well. All these strategic efforts that are recommended for the organization, needs to be effectively communicated to the stakeholders of the company as well. The company can build up an integrated communication plan to create value for its stakeholders. Corporate Governance Mechanisms There are various corporate governance mechanisms followed by the organization and two of them are discussed below: 1. Role of the Board of Directors of Company and their Compensation Structure: The members of Board of Directors of the company are elected by the stakeholders of the company. The Board members have the ultimate authority to take decisions on behalf of the company except for certain issues pertaining to the shareholders of the company. The Board members have the responsibility to select, give advice, and monitor the performances of the top management officials of Capstone. The compensation is determined by a separate Compensation Committee of the company and is revised every three years. The independent directors of Capstone are not entitled to receive any kinds of additional compensation. All these facts suggest that the managerial functions of the company are effectively managed by the company directors. 2. Committees of the Board: Broadly there are three standing committees of Capstone. They are the Audit committee, the Corporate Governance Committee, and the Compensation and Nominating Committee. All the committees have been assigned separate responsibilities to be carried out by them (Capstone Turbine Corporation, 2012c). This type of corporate governance principle followed in Capstone is quite effective in managing the business affairs of the company. However, the company needs to have additional committees to look after its growing requirements. Effectiveness of Leadership The leadership team of Capstone mainly comprises of the Board of Directors of the company. Darren Jamison is its President and CEO. Richards Atkinson acts as the Chief Financial Officer (CFO) of the company. The leadership team is found to have a significant influence on the strategic initiatives followed by the company. Key performance indicators have also been identified by the top management team which is helpful in evaluating the future success of the company. However it is suggested that the company should implement a strategy to source additional capital for the company which can help it operate its business activities in an effective manner. Efforts to become a Responsible Corporate Citizen The company is committed towards its efforts to become a responsible corporate citizen. It has created a strong value proposition for its customers. It offers secure, dependable, clean and affordable products for its customers. Moreover the products offered by the company can make use of renewable sources of energy and are characterized of having very low emissions. The Clean Cycle waste heat-to-electricity generator manufactured by Capstone is also another example of company’s efforts to build a clean environment. This proves the company's commitment towards a green environment (Capstone Turbine Corporation, 2012a). References Accenture. (2012). Achieving high performance in the industrial equipment industry. Retrieved from http://www.accenture.com/us-en/Pages/insight-achieving-high-performance-industrial-equipment-industry.aspx Capstone Turbine Corporation. (2012a). Form 10-K: Annual Report 2012. Retrieved from http://www.sec.gov/Archives/edgar/data/1009759/000104746912006645/a2209924z10-k.htm Capstone Turbine Corporation. (2012b). About us. Retrieved from http://www.capstoneturbine.com/company/history.asp Capstone Turbine Corporation. (2012c). Corporate Governance Principles. Retrieved from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTIwMzE5fENoaWxkSUQ9LTF8VHlwZT0z&t=1 Hill, C. W. L., & Jones, G. R. (2012). Strategic management theory: An integrated approach. Connecticut: Cengage Learning. Society for Human Resource Management (U.S.), 2006. Essentials of strategy. Boston: Harvard Business Press. Williams, C., Champion, T., and Hall, I., 2011. MGMT. Connecticut: Cengage Learning. Yahoo Finance. (2012). Capstone Turbine Corp. (CPST): Profile. Retrieved from http://finance.yahoo.com/q/pr?s=CPST+Profile Read More