INTRODUCTION
Global electricity constitutes one of the most significant issues nowadays. The times where the electrification was a monopoly for the government have changed dramatically. The following diagrams represent a) the current public and private percentage of electricity worldwide, b) the changes from public to private hands on the last years and c) the percentage of increase of the demand for energy worldwide.
As we can see the frequency of change increases rapidly and that accentuates our interest to go a little deeper on our research on this topic.
Eventually, the same results appeared in Great Britain too. In 1990, the Central Electricity Generating Board (CEGB) was split on National Power, Power Gen and a nuclear generating company in order to solve the generic issues of the power stations and other functional problems. Power Gen (PG) which is our main topic in this assignment was later privatised (March 1991). The key issues as well as her individual activities considering her corporate planning and strategies followed we are about to analyse.
Question 1 (i)&(ii)
(i) Strategy and Corporate planning
There is a wide variety of definitions for strategy in the relative literature which derives by the holistic nature of its meaning. The overall strategy adopted by a company is known as corporate strategy, but strategy may also be developed for any feature of a company’s activities such as manufacturing strategy or environmental management (BNET, 2010). Hill and Snell (1988, pp. 77-90) argue that strategy consist a number of actions, taking into account the specification of resources that must be acquired, to achieve a specific objective. Katranidis (1999, p.16) moves at the same direction supporting that strategy consists all the methods needed to be adopted in order for a specific goal to be accomplished. All those definitions have similar meanings. But most of all, all of them in order to be considered relative in approach, they have to address the questions: 1) Where are we now?, 2) Where do we want to go and 3) How can we get there?
The systematic clarification of the corporate objectives, strategic decision making and finally the check of their progress towards the company’s objectives, consist what we define as corporate planning (Gubbins, 2003, p. 98). According to the Business Dictionary (BNET, 2010), the formal process of the detailed action plans that are drawn up to succeed the organization’s goals and implement the corporate strategy of a company, -taking into consideration the environmental factors and the resources of the company within it operates- consist what we call corporate planning. Wit and Mayer (2004) support that the planning process and context refers to how important is the corporate planning and mention its factors as:
- external context environment: the shorter plans horizons may be related to more turbulent environments and need greater management teams,
- Internal environment: Internal planning consist protection of technology and innovation, organising the company’s parts. Also it tries to promote creativity, locate external threats and to synchronise company’s parts.
Identifying the meanings of both terms we can locate a high percentage of similarity on them. In reality, we can very easily identify that they is an inter-correlative connection between these two meanings. Johnson et al, (2005, p.9)supports that “Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competencies with the aim of fulfilling stakeholder expectations”. The study therefore and also the creation of a plan of strategies in order for the above goals to be succeeded constitute what we call corporate planning.
Although those two meanings are similar and are used interchangeably, there are a number of differences between them as well. The plan is restrict and very defined as a method of accomplishing a target. On the other hand strategy is always more flexible. For example, in a soccer game, the plan would be the goal keeper to pass the ball to the defensive player, from him to the middle player and by him to the best offensive player to score the goal. Risks or any obstacles found in his way won’t be taken into consideration. If plan A doesn’t go well there is no adjustment, but we go straight ahead to plan B(vale pigi). On the other hand, strategy would provide to have this hall idea as a blueprint and fulfil the target adjusted to the situations occurring. That way, if another player was more wide open to score, the middle should pass him the ball. Similarly, military soldiers always stick to the plan, in a contrary with company managers which act according to the market conditions. The difference between a computer and the human mind belongs to the same category.
Focusing on P.G’s case study, we can very easily identify that in the beginning (1989) its corporate strategy begun as a strictly defined plan, with a high degree of centralisation and very few probabilities of divergence from its initial aim. This strategy followed was a natural effect, due to the fact that so far, this way of corporate planning was known and extensively used (the same was used from CEGB too). The strategy that was decided to been followed -having as main body the commercial division which had the upper hand almost in everything-, didn’t provide much chances for flexibility and the convenience of alternative solutions-strategies adopted if something unpredictable appeared on the horizon.
(ii) The Big Change
Analysis of the period 1990-1993
The Mc Kinsey consulting company recommended a five-stage process that was introduced in the beginning of 1990 with the commercial department running things up. A separate financial department was authorised for reviews and projection of plans. As we have previously mentioned, a high degree of centralisation was to be kept as the main strategy. The scenarios were mainly focused on market share, pool prices and competitors analysis in a twelve month process. Even the plans from the business units were aggregated in order to provide divisional plans.
But on April of the same year, the opening of the market for electricity, the wholesale electricity pool, gave the spark for PG’s policy to be changed forever. Focusing on the operation of the pool, the company initially invested on improving the flexibility of the coal units and developed gas-fired stations to succeed cost reduction. Also mergers, joint ventures, creating value with their core competencies in other energy areas and taking advantage of the rise of international demand by investing on foreign countries, PG managed to escape from the rigid status of the so far company’s strategy that was driving out important innovations that weren’t part of the plan. It also accomplished to diversified itself and adopt a commercial orientated operational strategy and create a sustainable competitive advantage in all energy areas.
Continuing this innovative approach, the hall corporate planning process of PG was changed in 1992. The replacement of the central planning team and the segregation of the functional form in three parts, made the hall organisational and executive process more flexible and gave the opportunity to those sectors to specialise in the section that they were better. The high percentage of autonomy that all business units enjoyed -by becoming profit or cost centres-, expanded their power and their capability of managing their own department. A small central strategic planning section for both corporate strategy and corporate planning was introduced. The financial planning support was reallocated towards the financial department. Also the great amount of details on planning that took place so far was reduced in order to meet the new market needs and the competitive environment. The planning cycle was also reduced to nine months.
Analysis of the period 1993-1996
During the period 93-94, a number of key factors occurred that would affect PG’s course and profitability.
First, an agreement with the industry regulator was made to CAP the wholesale prices in the electricity pool and for PG to sell 2 GW of power plant.
The unexpected
:
The electricity supply was increased by the appearance of nuclear electric which made the forecast planning to fall out (positively on the one hand, but out). This unexpected fact, led to the need for reprogramming the hall corporate strategy for 93-94 and through reprogramming they noticed that a GAP occurred between the strategic decisions and the financial requirements.
They blame for what happened was mainly dropped on the way responsibilities were assigned. Also they accused the company’s strategic planner for been responsible for making an arrangement that limited the influence of the finance department in shaping the corporate plan early in the planning cycle. After this fact, the director of finance was authorised with the managing of the corporate plan. This way the influence of finance consideration was increased. This failure showed also a scenario failure of the planning (probably and the forecast of the alternatives). Additionally, the centre took this as a thought (the price capping) but didn’t put it on the planning early enough. Finally, the problems had started from 1992 with a level of bureaucracy occurring between the parts of the company and that caused a lot of problems. The corporate priorities were filtered and often new arguments were added before the unit planners managed to address them.
The above show as that the hall plan failed to function adequately and that it had to considerably be revised for the hall planning cycle of 1994. A same situation we can support that was faced by Electricité de France (EDF), Npower and E-ON at the same period of time, so these problems were more a total situation, rather than an individual one.
Analysis of the period 1996-1998
At that period, the liberalisation of core markets and the need to develop an augmented focus for business units’ specific circumstances, drove all departments-a bit more the Sales and Marketing department- to acquired more sovereignty. Also, the need for independent management for new businesses and co-operations between the departments of the already existed, as well as the competition, environmental issues and the new regulations, created a further entrustment of the strategic decision making and planning process to business units.
The industry environmental changes led to new path of strategic options. The business unit-level scenario (with horizontally coordinated units this time) once again, replaced the centralisation plan. More gravity was given on the emergent issues considering the development and the business unit strategy was ahead from units planning. The prospect here is five years.
The merely planning of the future was no me more enough for Power Gen. The amplified force of regulatory powers on the actions and performance of PG progressively required a plan of political bargaining with the environment. This strategic plan (of how to react to environmental forces) became the strongest paper of PG.
From the divisional structure towards clusters of business units we have from the business units planning process to the business unit finance manager and from the business unit strategy development to other business unit staff member. Also, we have a strategy triangle between the CEO (for corporate strategy, supported by Finance Director (for corporate financial implications) and corporate strategist and planner), and the group MD (responsible for business unit strategy, assisted by finance manager, who managed the planning process).
Question 2 (i)&(ii)
(i) Core competencies and dynamic capabilities
Core competencies and dynamic capabilities are the basis for creating a competitive advantage in the market. If those two occur in a high level in a company, automatically this means that the company’s performance is in a high level too. Performance in its turn has to do with Market share and profit before tax (Osseo- Assare’s Lecture).
Core competencies are particular strengths relative to other organizations in the industry which provide the fundamental basis for the provision of added value. It is a specific factor that a business sees as being central to the way it, or its employees, works.( Prahalad and Hamel, 1990). It fulfills three key criteria:
- It provides consumer benefits
- It is not easy for competitors to be imitated
- It can be leveraged extensively to many products and many markets.
Core competencies are the strong points of a company in which she competes with her competitors in the short-term and long term period. Examples of core competencies are innovation and growth techniques, recourses that are hard to find by other companies, TRIPS(Trade Related Intellectual Property) and TRIMS (Trade Related Innovation Measures), divestments, mergers etc (Mentzer 2004). The power of the core competence approach is that it provides a coherent view of how superior corporate performance can be achieved, allows for the importance of the strategic actions of managers, and captures the dynamic nature of strategy (Rumelt, 1994).
On the other hand dynamic capabilities are the firm’s aptitude to integrate, construct, and reconfigure its internal and external competences and respond rapidly to changing environments (Teece and Shuen 1997). The basic hypothesis of dynamic capabilities skeleton is that nowadays the fast changing markets force firms to take action fast and to be innovative (Eisenhardtand Martin, 2000).The following dynamic capabilities are essential. First, for meeting these challenges organisations must have the capability of “learning” quickly and to build strategic assets (production). Secondly, knowledge, innovation and customer feedback (new strategic assets) have to be incorporated within the company (technology). Finally, the existing strategic property has to be changed or reconfigured (Leadeship vision).
Having the above in mind, we can come to the conclusion that 1: the above two meanings are strongly related, 2) dynamic capabilities use core competencies as tools to succeed the prementioned goals and to create value and a competitive advantage or even a sustainable competitive advantage. The Value Chain framework of Michael Porter is a model that helps to analyze specific activities through which firms can create value and competitive advantage.
Considering our case study, the best example to represent the above is the acquisition of EME which provided to Power Gen a long-sought integration considering the supply industry. It also provided the opportunity to provide gas and electricity to household consumers. This merger and also the liberalisation that occurred at the same period of time opened new horizons for PG. By taking advantage of the experience that she gained from her country, she became an expert on overseas contracts acquiring the possibility of becoming a world’s leading integrated electricity and gas business (De Wit and Mayer, 2004).This fact is also verified by the performance table in the case study which shows that from 1996 and after the number of international operations reaches a very high number. Additionally we can support that the international investments and the joint ventures with companies like Conoco, Kinetica gave the opportunity to meet the commercial and environmental challenges for PG. The increasing of gas stations and the replacement or the reduction of the coal-fired stations to the minimum, would yield cost reduction and increase the profits in the long term.
ii) EDF&E-ON (similarities and differences)
Products and Customers Service
When someone is researching on two companies of the same sector, it is obvious that they are going to have some similarities and some differences. By the first glance on EDF’s site, we can easily identify the variety of “products” for every kind of customer (household, small businesses, large businesses etc) which in our case is energy. EDF besides the classic forms of energy provides a number of other energy products that are sold online like solar security lights, energy shutdown timers and others, which are friendly for the environment and save money for customers too. By checking the same category on E-ON’s web-site we saw that similar products like energy saving bulbs exist which provide the same utility to customers. We have also noticed some extra interesting services like the FITs (Feed-in Tariffs).This is a new way of encouraging people to use low-carbon energy devises which provide renewable energy and save some money at the same time for customers. E-ON in our opinion is focusing more on the area of the customer providing some more services like a number for complains, an emergency call (i.e. gas leaking) and even a service called “Energy Ombudsman”, a free and independent service set up that helps on resolving long running disputes. Tesco collection Points by its club card adds another benefit to E-ON. EDF has the card called “Nectar Business Card” but it is only for small businesses.
Technology and Innovation
On the technology and innovation sector EDF’s web-site is informing us about the new technologies been dealt to generate low carbon energy and alternative energies like wind, tidal, wave and solar energy. The new Cycle Gas Turbine Power Station which was created by EDF in an area close to Nottingham, the integration with British energy considering the creation of nuclear power, the filling with vegetable oil of a new “green” transformer in Luton with a liquid called FR3 made from soya bean to reduce the voltage from 132.000 volts to 33.000 for households and small businesses, as well as the contribution to the first solar-powered school, are only some of the technologically innovative approaches of EDF. EDF is generally very focused on the environmental issue which is mentioned to every part of her web-site. Considering the first part, E-ON is swimming on similar waters. Their investments on microgeneration and by developing a device called “WhisperGen Micro Combined Heat and Power (mCHP)” they add their contribution on fighting the climate change – and save money for their customers.
HRM
Considering the HRM on EDF’s site we can identify a number of employee’s programmes like the Occupational health and social well-being and the Resilience enhancement programme in order for the company to achieve stress reduction and to increase the performance of her employees. On the site of E-on we haven’t notice a particular attention and report given on this subject in her web-site.
Question 3 (i)& (ii)
(i) Deregulation, Privatisation and Merger with a REC
According to the business dictionary (www.businessdictionary.com), deregulation is the reduction of rules in the supply chain, in order to increase competition and create a more spirited market. This way the market forces ability on driving the economy are increased. These forces according to Porter are five (De wit and Mayers,2004,p.260). Karperoglou (2003) defines privatisation as the sale of a public enterprise in private individuals or companies. If it concerns a part-sale parcel (therefore the state continues to lead the administration), we speak for partial privatisation and the main objective is the income augmentation which derives from the sale. If it concerns a full-sale parcel (the government loses the administration control) and henceforth, the new aim is the growth that the new management will bring in the particular company but also in the entire sector too. From the above it is easy to understand that when the government lost its “golden share” on RECs on April 1995, there would be an increased competition for their acquisition. The main purpose of the competitors would be to increase their power, their market share and to benefit themselves from the advantages of the acquisition of a REC. The strategy that was followed by Power Gen was the merger with Midlands REC.
Power Gen’s and National Power’s remaining 40% import into the stock market on March 1995 and National Grid Group import on December respectively (Sanderson, 1999 p.199-208) and the expire of governments “golden share” on March of 1995 (De Wit and Mayer, 2004, p.713), led to the augmentation of the appearance of both privatisation and competition in the electricity market. The fact that on April 1996 it was the first time that the domestic gas customers had the ability to change supplier (Weir, 1999, pp 135-147), played a significant role on the appearance of new entrants (one of Porter’s five forces) in the domestic market. For that reason, although PG’s power was increased by privatisation, its market share was falling because of the competition.
The Merger with Midlands Electricity Plc would offer a number of advantages in Power Gen considering the structure (it would increase the number and the variety of customers, both in terms of quantity, as well as geographically too), its profitability and its competitive position (considering the small businesses and the number of domestic customers as well).
Mergers in a country can be very beneficial for a company in a number of ways. Economies of scale is the first. The Renault -Nissan merger expanded the market for both countries providing lower cost (the high fixed cost for such products can be reduced as the number of the customers increases) and better quality (combinations of both companies technology) cars. International competition -dealing with the international threats more easily- is the second.It also provides greater efficiency. Redundancies can be merited if they can be employed more efficiently. Finally, more investments in R&D (greater profit= more money for research) is another very important benefit.
Finally, as the case study informs us, the merger was blocked in the beginning by the Monopolies and Mergers Commission (MMC) to prevent the domination of electricity market at that period of time. Power Gen had to sell two coal-fired power stations to pursue the MMC that the balance would be kept in order to achieve the merger in the following year.
ii) Centralised VS Decentralised Approach
The centralised approach of a company is focused on the hard aspect of an organisation. By saying hard aspect of a company, we mean it by the side of structure, strategy and the system that occurs inside her. On the other hand, the soft aspect interprets and represents the concepts of shared values, the style, the skills and the staff that orchestrates an organisation (Osseo-Assare’s lectures).
On the table of Geert Hofstede’s article (De Wit and Meyer, 2004, p.43), there is a distinction between Power Distance Individualism Masculinity, Uncertainty Avoidance and long term Orientation considering the culture effect on management. By putting UK into the game we can make some significant comments and comparisons. By the first glance we can very easily identify that the country with the higher inequality is Russia. Britain’s equivalent number is 35 which mean that the relationships between the managers and the employees are in a satisfied level with non bridgeless gaps between them considering the authority and the behavior. On the long term side means that the country treats people -British and foreign- in a satisfied level of meritocracy. Germany sails on the same waters. On the individualism side, UK assembles also a high score (89 points) considering China, Hong Kong and Japan who are considered to have a collectivism culture. That means that British are raising their children in a way called “nuclear” promoting culture values and raising them in individualistic way trying to make them independent on thinking and acting. This model and way of behaviour follows them in work too, making them more concerned about themselves and less on the other “players” of the team. UK’s masculinity score is 66. This is a tricky score meaning that either British society tends to slip away from the equality of the two sexes or that there are significant efforts for this gap to be filled. From our experience in this country we can support the second. Japans score here is 95 which define a total inequality between the two sexes and lack of assertiveness and solidarity. Considering the LTO, the Asian countries (mostly affected by the Confucian philosophy), have shown that they have an increased tendency on respect for their traditions and social obligations and a high level of strong work ethic, loyalty and commitment. UK (score 66) and the other western countries, somehow fall shortly in this area of traditions, showing more a need for promoting values like equality, respect and self-actualisation.
We left Uncertainty Avoidance last because it is highly connected with CEGB. Countries holding a high score (i.e. Russia=90) of U.A., can be called rigid (De Wit and Mayers, 2004, p.42). UK’s score is 35 which is sets Britain in a high flexible position ready to adopt new tactics and take risks, while in the operational level the relationships between managers and employees can be considered healthy. On the long term, this flexibility sets elastic rules for the companies by the government. The above show us very clearly that the centralised approach that was adopted by CEGB has been considerably changed into an eligibly flexible environment.
Conclusion
In conclusion we can support that Power Gen’s planning system seemed to be always some steps behind the actual condition of the organisation. Then again, in the absence of a planning support, in which way the organisation could have assess its choices in the quickly shifting environment of the 1990’s European energy markets?
A strong combination of core competencies and dynamic capabilities is what an organisation needs to create a sustainable competitive advantage (Osseo-Assare’s notes p.10). It also worth’s mentioning that although the competitive advantage of PG was rising year by year, its market share was falling as well. So the number of competitors and the other forces that Porter is mentioning should be considered too in such a competitive market.
Obviously, privatisation was beneficial for UK because it helped on stabilizing the market situation and it gave a spark for more competition that would benefit the customers. Considering PG, as long as she would be able to deal with the new situation without losing more of her market share by the entrance of the new competitors, we can support that privatisation was beneficial for her. As long as the government holds the reins considering company’s arrogance, privatisation is generally beneficial for countries’ markets.
The descentralised approach was advantageous for UK because it contributed to correspond in the new market times and challenges that we have mentioned in the beginning of our conclusion. The evolution of nowadays UK’s electricity industry verifies such a fact.
Finally it is significantly important to mention the fact that there is no right or wrong management adoption. Each one should follow the specific rules, culture and structure of the country that belongs to. And as Collis and Montgomery (2004, p.3) very well stated: “Most executives create a plan-vanilla corporate offices as if there were one best practice that every company should follow”.