ASSESSMENT PLAN: A Case Study of Centrica Energy’s Five Years Strategic Business Plan
Introduction
Perhaps the space between the new organization design and implementing it into actuality is the whole coverage of organization change and development. People are adaptive to change. However, certain skills must be present from the initiators of change so as to successfully implement their project. Thus, managers need to have the necessary abilities not only in detecting what needs to be changed but also how to effectively introduce the change.
But the reliance to the internal resources of the organization will not do if environmental considerations of the company are not likewise considered. These include the significant market characteristics that directly and indirectly influence and dictate the strategic business implementation and sound decision-making from the options available. The forecast of subsequent political, economic, and social implications that change will result to also needs to be identified and enumerated in order to ensure the success and development of the organization and the welfare of the public in general.
This paper will present a case study of Centrica Energy evaluating its competitiveness in the UK energy industry. In this light, the paper provides a PESTEL analysis of the company’s e3xternal environment, the Porter’s Five Forces model, and the critical success factors of the energy industry along with the internal analysis of the business organization’s internal competencies and capabilities. Relevant theories and business models were incorporated in the paper to strengthen the claims and arguments that were presented. The results of the analysis provide an illustration of a five-year strategic business plan of the company.
Company Profile
Centrica was initiated in 1997 after a demerger from British Gas Plc currently assuming three consumer brands – British Gas, One.Tel, and Centrica Business Services. In 2004, the company sold the AA and required the integration of Managing Agent and TFM service provision characterizing the diverse portfolio of the company of over 200,000 properties which is composed of two pricipal headquarters, critical data centers, offices, call centers, and power stations. Centrica Energy and Centrica Storage are the company’s two non consumer-facing brands ().
Centrica Energy is the leading energy provider in the UK, recently expanding its home and commercial services to North America and Continental Europe while employing business management strategies that will improve its overall customer service and operations. The company sources gas and electricity to residential units as well as industrial clients all over Great Britain. Its operations include gas production, electricity generation and renewable asset operations, wholesale and industrial gas sales activities, energy procurement optimization and scheduling unit. Access appropriations to gas and power supplies make it possible for the organization to be successful in the energy retail business ( 2005).
The company recognizes the fact that increase globalization trends calls for a more competitive as well as more stable business operations in order to meet the long-term and short-term obligations and object6ives of the organization. The impact of high international competition when it comes to energy production and energy services resulted to highly unpredictable and complex business environment in the international energy industry. Along with these market challenges includes the non-renewable characteristic of most energy sources limiting the life span of the entirety of the business existence. The inevitable environmental changes that confront all energy business entities present the need for Centrica Energy to cope and position itself competitively in the international energy production and services industry. In line with these economic considerations, Centrica Energy follows specific international management and operations strategies which includes (1) deeper customer commitment and relationships, (2) sustaining competitive supply cost, (3) operational efficiency through research, and (4) best practice ( 2005).
PESTEL Analysis
One of the core characteristics of a successful organization is focus. Since the business environments are fast becoming more and more complex added to the fact that it changes rapidly and dynamically, businesses need to concentrate on a few key elements that are most important to their organizations survival. Thus, it is not surprising the critical success factors keep the organizations from straying too far with external issues not relevant to their company’s success.
The success of the business organization entails detailed understanding and examination of political, economic, social, technological and legal factors that influence the growth and continuous operations of the company. Studying the important consideration relevant to the organization to serve the purpose and objectives of the company will determine its success. Consequently, decision-makers of the company should be sensitive of the general trends and changes that are taking place in their industry. This will include efforts to maximize the opportunities available while reducing the risks that confront the business organization. The political, economic, and social trends that characterize the operations of Centrica Energy are detailed in the discussions that follow.
Political trends. The political situation and stand of the government contribute to the factors that energy companies should take into account to ensure success and competitive advantage in the industry. The government directly influences the energy industry in the political agreements and contracts that policy-makers sign in order to improve the economic and social conditions of the government. Distinction between government-owned power corporations as well as private electric companies should be considered in examining the viability and competitive advantage of the organization since these market players are constantly aware of the current trends in the business environment. Most importantly, energy companies should be able to determine the business relations and contract agreements between and among the competitors to make easier predictions of the changes that will occur in the industry so as to make necessary strategic business plans that will best serve the interests of the company in whatever situation it is confronted with.
Economic trends. Business administration and management characterizes the process of leading and directing the systems within an organization by exhausting available resources extensively so as to achieve the objectives of the business operation. It most of the time includes the conceptualization of business plans and monitoring its execution for assessment and evaluation of the efficiency and effectiveness of the business transactions. Strategic management should be able to identify and enumerate the aims of the organizations in order to come up with sound business policies and plans from which the profit of the business organization will be fully maximized.
Proper allocation of funds and investments on business ventures is practiced in order to achieve the expected results of a specific business plan thus providing direction to the whole enterprise. Conceptualizing the business strategy should be always in sync with the available resources of the company, recognizing the circumstances of every business move which the company will be responsible in the future. Strategic advantages in the business environment, particularly in the energy industry, determine the success of the conjured business plan through a continued focus on controlling costs and increasing efficiency by putting the organization into a position that will make its mission a reality.
Introducing competition within a small electricity system throws up two major issues in addition to those facing larger systems. First, small systems are generally built around a few large power stations that each slot into a specific place on the overall load shapes. Consequently, they do not naturally compete one with another. Second, a smaller customer base must carry the cost of introducing new generation capacity. As such, the size of the market is a significant factor in the need for vertical integration.
Socio/cultural trends. The consumer population of the electricity and energy products which includes the residential as well as the commercial areas that greatly depend on power source to perform their daily activities comprises the focus of analyzing Centrica Energy’s economic positioning. Market determines the viability of a particular product or service as the consuming end of the supply and demand chain. Peppers (1993) elucidate on this when he noted that another advantage of having a strong customer base is that it is more inexpensive to maintain one than acquiring new customers. In order to maximize the procedure of identifying the company’s target market, consumer studies are conducted. Surveys or interviews for instance, can help in determining the needs, biases and preferences of the customers. Online surveys, constituent focus groups as well as direct mail surveys may also be used in order to gather pertinent information.
Technological trends. The technology and exploration endeavors that power companies engage in likewise determine the success in the energy industry. This contributes to the strengthening of the organization’s market advantage in being able to offer products and services that the competitors lack. In this light, increased competitive advantage is fully exhausted and maximized by the company. Investing on energy exploration ventures will sustain the long-term goals and objectives of the company through continuous service to the consumer population. A commitment to rigorous environmental management through community consultation, proactive planning, compliance, sustainable development and auditing for continuous development should be continuously initiated by the company.
Legal trends. The current arrangement in the fuel supply market largely determines the extent to which effective competition in generation can be achieved. Issues such as the lack of competition in gas and coal supply, the strategic importance of fuel diversity as well as existing contractual commitments need to be resolved since large gas resources are unlikely to be developed without a substantial foundation customer such as a liquefied natural gas export project. As such legalities of business transactions and effectiveness of contractual terms between companies arise to protect the interest of both parties. These companies are able to bring substantial commercial, legal and negotiating resources into any fuel-contracting situation.
They gain further commercial strength from the lack of depth on the fuel market, their overall importance to the government and national economies and, in some cases, the cross ownership between resources. The presence of smaller producers in the market ensures there is competition for purchases of small trenches of fuel. Considering and current arrangement in the fuel supply market will largely determine the extent to which effective competition in generation can be achieved. In particular, issues such as the strategic importance of fuel diversity and Centrica Energy’s existing contractual commitments need to be resolved.
Porter’s Five Forces Model
Understanding the dynamics of the competitors in the industry helps assess the potential opportunities of every business venture by differentiating the similar products or services offered by the company against other business organizations. According to David (2003), there are at least four types of resources which the company can use to achieve its objectives: financial, tangible, human and technological resources. As such, it is necessary to realistically assess potential levels of profitability, opportunity and risk based on five key factors within an industry so as to determine the long-term profitability of a market or market segment.
Suppliers. An organization that offers products as well as services also depends on suppliers that deliver the company’s raw materials. This condition leads to the buyer-supplier relationships within different industries. Such relationship is directly influence by the changes in the supply and demand variables based on the existing needs of the consumer population. The influence of the supplier is defined by its ability to dictate price and influence availability of materials. Other strengths of the supplier include their ability to (a) increase prices without suffering from a decrease in volume, (b) reduce the quantity supplied, (c) organize in a formal or informal manner, (d) compete in an environment with relatively few substitutes, (e) provide a product/material that is a critical part of the end product or service, (f) impose switching costs on their customers when they depart, and (g) integrate downstream by purchasing or controlling the distribution channels.
As such, every company that depends on the services and materials from key suppliers need to be sensitive on the variables that are highly important and considered by the suppliers. In the case of the energy industry, particularly in the current situation that confronts Centrica Energy, decision-makers of the company should have a clear understanding of the business dynamics in which suppliers are directly involved in. These include the suppliers’ concentration or their focus and core business interests, variety of products, design and services offered, and the alternative resources that are available. In this light, it is most appropriate to build win–win relationships with suppliers or arrange the use multiple suppliers in order to protect the interests of both ends.
Buyers. The power of buyers describes the impact customers have on an industry. When buyer power is strong, the relationship to the producing industry becomes closer to market conditions wherein the buyer has the most influence in determining the price. As such the bargaining power of buyers increases when they have the ability to (a) make agreements with other companies providing similar products and services, (b) purchase a product that represents a significant fraction of the expenses incurred by the company, (c) purchase of a product that is undifferentiated, (d) incur low changes in costs when they change vendors, (e) be price sensitive by bearing in mind the options available, and (f) integration to purchase the goods of the suppliers.
In the case of Centrica Energy, maintaining its integrated organizational structure wherein distinctions between the energy generation, transmission, and retail operations are part of one all-encompassing market player, buyer power will be high since it will be able to dictate the prices of its raw materials incurred from the suppliers. Another consideration is the large market size that the company caters to and the fact that the company enjoys the position of being the major key market competitor I terms of international energy production and services industry.
New Entrants. The possibility of new companies entering the industry influences the pace of the competition. Thus, the key is to evaluate the methods of entry and exit for a new player to the industry. Although any company should be able to enter and exit the sector, each industry presents different levels of difficulty influenced by economics. These unique characteristics of the each industry are referred to as barriers to entry which may come from different aspects of the business ranging from supplies to technology. They seek to reduce the rate of entry of new entrants which leads to maintenance of a level of profits for the existing players.
In the case of the energy industry, barriers to entry are high because of the limited energy deposits that can be harnessed by a new company. Besides, large corporations particularly Cebtrica Energy is a difficult electricity provider to compete. The expensive cost of venturing into the energy industry likewise contributes to the challenges that a new market player should overcome to emerge successful in the business.
Substitutes. “Substitute products” as those that are available in other industries that meet an identical or similar need for the end user. As more substitutes become available and affordable, the demand becomes more elastic since customers have more alternatives. The treat of substitutes often impacts price-based competition since substitute products may limit the ability of firms within an industry to raise prices and improve margins. Other concerns in assessing the threat of substitutes include the presence of new technologies that can contribute to competition though more diverse and economical substitute products and services. A segment is unattractive when there are actual or potential substitutes for a product.
In the case of the energy industry, there are several existing energy sources that are concerted to electricity which can serve as alternatives. Solar energy is captured through solar panels to produce electric power that will enable appliances and other electric machines and devices to function. Other sources of power energy which can be converted to electricity include wind energy, rivers, geothermal, tides, waves, and biomass (1996). However, these alternative energy resources are determined by the topography and distribution of natural resources in a particular location. With regards to Centrica Energy, the available energy sources which proved promising to the company have been fully explored and discovered which made it the major market player in the energy industry. As such, the viability of providing alternatives to the services and products offered by the organization will be difficult and could be almost impossible. But if new technologies will enable the availability of substitute products and services, there will be new opportunities to gain entrance in the industry.
Industry Competitors. Firms strive to secure a competitive advantage over their rivals. The intensity of rivalry varies within each industry and these differences can be important in the development of strategy. Industries that are “concentrated,” versus “fragmented,” often display the highest level of rivalry. In pursuing an advantage over its rivals, a firm can choose from several competitive moves: (a) changing prices, (b) improving product differentiation, (c) creatively using channels of distribution, and (d) exploiting relationships with suppliers.
Centrica Energy is confronted with several competitors in the UK energy market in terms of production, transmission, and distribution. This includes AA, Armeda, Atlantic Electric and Gas, Basic Power, Beacon, British Gas, Calortex, Cambridge Gas & Electricity, Countrywide Energy, Daily Telegraph, East Midlands electricity, Eastern electricity, Ecotricit, Elf at Home, Equigas, Equipower, Green Energy, Ideal, Independent Energy, London Energy, Lloyds IdeaL, meb, Midland Shires Farmers, Midlands Electricity, Midlands Gas, National Power, Norweb Energy, RSPB Energy, Sainsbury Energy, Scottish Gas, SEEBOARD Energy, Sterling Gas, Telecom plus, SWEBB Energy, Tesco Energy, TXU Energi, Unit [e]-, Virgin Home Energy, and York Gas. These companies serve as threat to the company in terms of market share, services, and products ( 2006).
Implementation & Action Plan
The table contains the implementation plan for Centrica Energy for one year, three years and five years.
Time
Goals
Activities
One Year
Finalize Centrica Energy strategic business plans
1. Reveal results of the Feasibility Study
2. Introduce to the people the new business organizations that will deliver their specific consumer needs.
3. Increase community relations activities to further promote the plans with the local communities
Three Years
Fully exhaust and maximize the opportunities that will surface among the different production and services divisions of the company.
1. Maintain strong relationship with the fuel suppliers.
2. Establish brand name and product visibility concerning the power generation, transmission, and distribution interests of the business.
3. Improve marketing efforts by highlighting the intensified service plans for the benefit of the consumer population.
Retain market leadership in terms of power generation operations and improve the transmission and distribution competitiveness of the organization.
4. Initiate revolutionary business plans and strategies that will address the necessary approach to improve the transmission and distribution aspects of the company.
5. Continue marketing efforts in all the power generation, power transmission, and power distribution interests of the business.
Five Years
Become the market leader in Great Britain and world energy industry in terms of power generation, power transmission, and power distribution.
1. Increased exploration efforts for more resources of energy generation.
2. Research and development for technological innovations in all the core business interests of the company..
3. Increase product visibility and brand strength over the competitors in the power generation, power transmission, and power distribution industry.
Credit:ivythesis.typepad.com
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