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The accelerating pace and increasing scope of innovation in the utility industry is challenging, faced with collaborative workforce, environmental constraints, de-regulation, geopolitical uncertainty and growing concerns about sustainability and reliability sparked the changed. Utility companies are responding to a wide range of issues to improve corporate strategies in the organisational structure and strategic planning to promote growth of the company, to increase profits and innovation. The Power Generation Company (PowerGen) PLC was incorporated in 1989 and now wholly owned subsidiary of E.On AG, is a leading gas and electric company build from the breakup of the nationalized electricity industry in England and Wales. When the privatization started, PowerGen is taken as a separate division of the Central Electricity Generating Board (CEGB) in 1989 and after two years it is integrated as a public limited company with the majority of its shares sold to the public (see Appendix C: Company History). Powergen's vision is to become one of the world's leading independent electricity and gas businesses (Company History, 2006). "The company's aim is to grow by generating, distributing and supplying power both in the U.K. and other countries in which it operates. As a low-cost, innovative and environmentally responsible operator, it delivers value and quality to its customers, shareholders, employees, partners and communities" Powergen PLC (2003).
This report looks at the progress made by the PowerGen to reconcile the changes and challenges in developing the strategy, company's planning process, organization and environment which associated with global corporate policies and strategies. The objective of this report is to carry out appropriate analyses of the global corporate strategies of PowerGen and other global utility industries such as E-ON, EDF, Npower and Electricité de France (EDF). To be able to understand the process of strategic management and implementation, the role of culture, and how these strategic decisions affects the PowerGen utility industry then and now.
Section 1 of the report will discuss about the definition of strategy and corporate planning and its comparison. This will also examine on how the impact of strategic changes and emphasis is placed on significant improvement in the organisational structure of PowerGen's from 1990-1998 based on the PowerGens' case study. An overview on the planning process will be discussed on this section.
Section 2 reports will discuss the relevant literature and comparison of the two Powerhouses EDF and E-ON's core competencies and dynamic capabilities. It will examine and highlights on how PowerGen's core competencies and capabilities contributed to the market share and profit before tax in England and Wales during 1991-1998.
Section 3 will review and critically analyse the effect of privatisation and deregulation in the UK Electricity Industry in the mid-1990s on the merger between PowerGen and Midland Electricity Plc. It will also discuss and examine on how centralised approach to planning incorporated with Central Electricity Generating Board (CEGB) linked in the article of Geert Hofstede's (1993) 'Cultural constraints in management theories. The role and importance of culture in a strategy development process will be discussed.
What is Strategy?
In response to market regulation innovations and the evolution of new technologies, further industry structures are developing in the energy and other utility sector, it is important to consider that these organisation look into effective execution of strategy and corporate planning. It is essential to strengthen the existing capabilities of their companies and, in some cases, establish new ones by creating a flexible and continuing strategy. The word 'strategy' has been widely used for different purposes with that there was no universal meaning of the word 'strategy'. But to sum up the content of its meaning, define as the actions that an organisation takes to gain competitive advantage and a better way of approach to the success and survival of the organisation. It is about shaping the future, looking in a long term perspective and on how the organisation can make a difference and sustainable. Strategy is what the organisation 'Do' and Corporate Planning is the execution of how you do it. It means reinventing new concepts of attracting customers, sets out innovative work streams and this requires an empowerment and creative execution style of management to be able to engage team members in the reinvention process. Whittington (2001) states that it is one way of saving us from going back to the first principles at each stage they are short-cuts to action.
Johnson et al (2005) argues that it is a must that strategy have to communicate consistently to their teams, and understandable to staff, to achieve greater performance. As what other books of strategy says, strategy must be holistic, the involvement of the whole organisation is important to achieve the goal, and also the fact that the building blocks of Powergen's corporate strategy apart from its internal and external resources are the alignment of their business processes. Mintzberg (1994) believes that strategic thinking, the ability to spot change when it arise, to identify discontinuities and to recognise opportunities is the key to successful strategy. PowerGen's strategy and planning period should seek more opportunities to afresh their range of functions and maximize and utilise the availability of resources they have. Strategies may require major resource changes for an organisation, For example in the phases wherein PowerGen acquired East Midlands Electricity (EME), to enable them to sell both electricity and gas to household consumer, and this will be discuss more fully on the third part of the report. PowerGen merger and strategies to cut fixed and variable costs and to offering low cost on a world class basis enable them to have a wider base of expertise in bidding for overseas contracts and to generate more profits (Wallis, 1995). The effectiveness of PowerGen strategy plays a significant role in taking the risk to survive during these phases of challenges, like cutting their fixed costs dramatically, staff reduction, reducing operating costs in order to supplement the improvement of their technical performance.
Corporate Planning is basic essential in strategy making in a systematic way. It is about consolidating the internal and external resources that an organization may have and a system which comes from the structure of the company to achieve its long term objectives. Corporate planning supports implementing the corporate strategy of an organization. For General Electric Company their way on how they do corporate planning is `They lay out what they are going to do, what new products they are interested in, and what our competition is doing" Byrne (1997). Corporate planning represents the processes of meeting the company's future challenges and opportunities. Strategy and Corporate planning are fundamental and must coincide together to create good output in decision making. In this respect, Whittington (2001) view literature that corporate planning has been pioneered by General Electric, wherein the "purpose of this is to create a new approach to managing the vast and to diversify". And until now it has been adopted in all organization, different terms but the same concept. Planning in a more complex environment has been found to be more flexible and external environment has value in the planning process.
Grinyer et al (1986), discussed that Planning plays an important roles in a sense that it enable the organization to have a "wide response to environmental change; protecting core technologies through helping to recognize and address uncertainties; providing an integrative device and acting as a basis for divisional and business control". However there is still a need to have an equal approach between adaptation and execution.
In the context of Corporate planning of PowerGen, Jennings (2000) discussed that "a different points of view has been identified and one of which is it plays a vital role in identifying new concepts and ideas, new growth areas and assessing the corporate portfolios to identify". To gauge the effectiveness of the planning process the reconfiguration of planning system to reflect contextual change. It also involves setting down overall corporate financial goals and using these as the basis for goal setting in the various functional areas of business and transforming the configuration of the planning process. In the case study of PowerGen it has been magnified by its operation that creating a strategy will help stakeholders to respond to new policy developments in a structured and co-ordinated way. Therefore it is part of PowerGen's long-term plan to broaden its interest in natural gas. It also assists policy-makers by showing complexity and inter-connectedness of issues faced by regulator and its consumers. As mentioned in the case study of PowerGen "The central strategic planning staff developed the corporate strategy", In relation to this concept the robust analysis, transparency, good communication, and cooperation that involves its staff are vital in the success of the organization. And then it follows the need to maintain a positive collaboration with the government, other utility stakeholders and variety of companies. Mintzberg (1994) wrote, "When companies understand the difference between planning and strategic thinking, they can get back to what the strategy-making process should be". It is also to systematize the organization's target into steps for execution and formalising the steps to achieve goal.
The Evolution of PowerGen's 'Corporate Planning Process'
Organization structure and effective execution in work processes will enable the organization to operate and creates capabilities at its best. Prior to Privatization the Mc Kinsey consulting company had been employed to help develop PowerGen's strategy and organizational structure (De Wit and Meyer, 2004).
Focusing in the organization structure on PowerGen's 'Corporate Planning Process' during the period 1990-1998 in the case study (See Appendix A & B), Organisation structure, 1990 as compared to 1992 re-organisation, the existing large, central planning team was replaced by planning staff within the division, A much smaller functional organisational structure was introduced to formulate more action programs for both corporate strategy and corporate planning. The devolved planning process in 1992 represents a move to a more adaptive orientation approach. PowerGen's focused primarily on establishing an organizational structure to adapt the new market conditions and to cope with the demands and needs in developing the organization from 1990-1998. In the Re-organisation in 1992, made a huge impact on corporate planning process by simply looking at this changes, there were skills gaps that needs to be build up to integrate the flow of skills and knowledge of the existing staff and the new team in the Finance and other department that is new to the company (Wallis, 1995). In addition to that, the development of Powergen's corporate planning process, during those phases and stages created an impact to the business units' adaptation to the changes taken place. Staff reduction, several power plant closures, dramatic redundancy and cost cutting programs happened during this period. However the strategy seemed to be successful as the company's profit is well despite negative in sales. (See table 3).
The reorganization in 1996, improved the focus of unit managers specifically associated with their businesses, and it also enabled corporate staff involved in planning process to develop targets that addresses the role and maximise the potential talents of the individual businesses particularly in decision making (Jennings, 2000). Therefore the planning system encouraged initiatives by the business units within a corporate context and it also addressed the need for coordination between a number of the business units, and the developing overseas operations in this case there should be a harmonious flow of disseminating information in the overall strategic and financial direction and human resource planning and allocation of PowerGen. In addition to that the involvement of financial division has been given highlighted for them to anticipate and cure the problems in the past and to have a financial direction to support strategic plan.
In the Johnson and Scholes' model of strategic management and implementation (see Figure 1.) view the direction of resource planning, organisation structure and people and systems. It explains that the implementation of a new strategy should blend with adaptations to PowerGen's staff, structure, system and managing the required acquisition and deployment of the resources. Successful strategic implementation requires that organisation deal with resources required, organisational structure changes and must judge how best to organise the business in order to carry through the strategy, and systems and work force necessities.
In the case study of PowerGen, one key factor to determine success for the corporate planning process in 1996-1998, are as follows: a skills transfer that required integration of human resource planning and superior project execution skills in retaining, coordination of the business units and to the new department in the organisation for example, a willingness to solve the solutions and more practical, standardized and consistent strategies, simple and clear that may will make it possible to execute with great reliability (See Figure 2. Corporate planning cycle, 1990 and 1998). Prahalad and Hamel (1994), stated that "strategy is the result of analytical process, and execution is an organizational process the phase of formulation and implementation of strategy cannot be separated or made sequential in a structure-conduct-performance". As cited in De Wit and Meyer (2004) PowerGen case study, "Business unit strategy was established before developing detailed planning guidelines; partly this reflected the need for co-ordination. However, there was scope for flexibility: issues affecting business unit strategies often emerged and had to be addressed within the subsequent stages of the corporate planning process, prior to board approval". Bozon et al (2007), argues that the importance of the ability to attract, retain, and develop top-class project managers capable of balancing the complex between internal and external factors, technical, financial, commercial, and political factors inherent and that may interfere in the future. In this case, talent and human resource developments will remain a vital concern for power generation industries throughout the coming decade.
Figure 1: Three elements of strategy implementation
Adapted from Johnson and Scholes (1993)
Figure 2. Corporate planning cycle, 1990 and 1998
Corporate planning cycle 1990
Corporate planning cycle 1998
Source: De Wit and Meyer (2004) PowerGen, Case Study
Changes in the planning process at PowerGen as summarized in Table 1. has become a more delegate process concerning more demand in the market and strategic involvement. From a large organization' planning unit to small corporate planning staff, from technical and resource-based to financial and strategic focus. Jennings (2000), pointed out that the involvement of business units in viewing the contingencies that challenge them has been managed through taking part in cross-organization scenario planning. The planning cycle is completed in a shorter period of time that is from twelve-month to six-month, a development that is consistent with the increased environmental complexity and uncertainty of the PowerGen's business condition.
Table 1. Changes in the planning process
CEGB pre-1990 PowerGen 1998
Large central planning unit Small central planning staff
Central forecasts Scenarios developed on a devolved and cross-business basis
Technical and resource-based focus Financial and strategic focus
Narrow scope for (business) unit options Wider and more strategic range of business unit options, degree of freedom varying between units
Detailed business plans following a prescribed format Brief plans, discretionary format
Twelve-month planning cycle (or more) Six-month cycle
Source: Jennings (2000)
Core competencies and Capabilities
In viewing the literature, Prahalad and Hamel (1990) suggested that the key issue facing organisations in the 1990s is to assess their 'core competencies', "Core competencies are those capabilities that are vital for competitive well being and which significant resources must be put into acquiring". It is consider as the organization's competitiveness and core products. Core competencies are used to search for maximum world producing share in core products and the output will be its product market share. Linking this definition to Powergen, these are the skills and abilities to connect it to Powergen's activities to create competencies and achieve competitive advantage. Then, if "the essence of strategy is choosing to perform activities differently that rivals do", the core competencies enable the choice of diversity to be followed (Porter, 1996). The Core competencies are the system of management/technical know-how linked with wide range of technologies, processes and resources balancing, and producing good quality product and services. This empowers and adds value to the organization. These are supplements and it has significant value for growth and survival of the company.
Figure 3: The changing core competency perspectives
Adapted from: Hamel and Prahalad (1994)
In Table 3. It shows that PowerGen's profit before tax increase each year from 1991-1996, building dynamic capabilities in acquisition can be the start of dynamic capabilities and learning, their ability to sustain profitability by reconfiguring assets and competencies to address the PowerGen market challenges. This supports the classical focus perspective on Core competencies (see Figure 3) the acquisition in market share. The company have the ability in aligning their strength to achieve opportunity, e.g Power station of PoweGen across the board. And in market share as shown in Figure 4., it can be conclude that the competition is tough during these years and further reduction of the prices also had a great impact, and to sustain the competition in the domestic market, PowerGen also needs to adjust their prices.
Table 2: Market share in England and Wales
Generator's share of total output of electricity in England and Wales (%)
1991 1992 1993 1994 1995 1996 1997 1998
National Power 45.5 43.5 40.9 35.0 34.0 32.6 24.1 20.9
PowerGen 28.4 28.2 27.0 26.0 26.0 24.2 21.5 19.7
Nuclear Electric 17.4 18.6 21.4 23.2 22.2 22.3 24.2 24.7
Scottish and French interconnectors
1.7 8.2 8.0 8.7 8.5 9.3 9.1
2.5 7.8 9.1 12.4 20.9 25.6
Source: De Wit and Meyer (2004) PowerGen,Case Study
Source: De Wit and Meyer (2004) PowerGen, Case study
* 1998 (211) Pre-tax profit is before windfall tax.
E.ON is a Germany-based public utility company engaged in the generation, transmission, and distribution of electricity, and the transmission, storage, and sale of natural gas. The company primarily operates in Europe and in the US Datamonitor (2008). E.ON's core energy business is divided into seven market units: Central Europe, Pan-European gas, UK, Nordic, US Midwest, energy trading, and new markets. PowerGen is a UK based subsidiary of E.ON. It generates and distributes electricity and also involved in the transportation, supply, marketing and trading of gas (Datamonitor, 2005).
In the report presented by Datamonitor (2009), E.ON generated revenues of $130,061 million in the financial year ended December 2008, an increase of 25.6% compared to the previous year. The increase was due to E.ON's acquisitions, particularly in Russia, Italy, Spain, and France; positive price effects and higher pass-through effects pursuant to Germany's Renewable Energy Law at Central Europe; and production expansion and energy price movements at the Pan-European Gas market unit of the company. The company's net income totalled $2,347.1 million in fiscal 2008, a decrease of 79.2% compared with 2007 due to tight competition. As also mention in the previous section of this paper that the company's capability, will concentrate exclusively on core energy service business pursue their growth in acquisitions to combine its leading position in Europe at the same time to position a solid foundation worldwide.
EDF Energy is the UK arm of state-owned Electricite De France and one of the largest distributors and suppliers of gas and electricity in the UK. The company employs 20,000 people and supplies gas and electricity to 8 million customers in the UK. EDF Energy is headquartered in London, UK (www.edfenergy.com). (see Table 7: E-ON and EDF Core Competencies)
Looking at the competition
The intensity of business competition has significantly increased, thus maintaining a competitive advantage is a must in order for the organization to survive. Prospectors may not have the resources to fund head-to-head battle; reactors are those lacking an effective defensive strategy. Therefore, it is important to know what type of strategy being adopted by an organisation competitor. Each organization has its own unique resources, through their core competencies and capabilities that provides basis for its strategy. As stated by Ed Wallis, PowerGen chief executive, that the company was 'a power generation business', which focuses on their core competencies and capabilities that the company have to sustain and re-integrate generation with supply at the same time 'reshaping the core electricity business'.
Grant (1991) argues that the "firm's resources and competencies on one hand provide the basic direction for a firm's strategy and on the other is the primary source of profit for the firm". In the Table 6 it explains that E.ON and EDF identifies their resources, assess strengths and weaknesses respective to their competitors, through these they can also identify opportunities to improve their resources. A "core product" is the "physical representation" of a core competence. In Prahalad and Hamel's (1990) view, "the diversified firm resembles a tree, where the core competencies are the roots which supply food, support and stability". In line with this E-ON is a diversified energy company, wherein its core competencies and capabilities are its roots to create a sustainable future.
Capability perspective (see Figure 5) on E-ON Energy Company is important to sustain the success in today's increasing technological advancement and business globalization.
Figure 5: E-ON Capability Perspective
In the core competencies of EDF listed in Table 7, about the providing affordable energy, creating trust fund to their customers, it can be observe that their core competencies can be view by customers as value addition to the product and it boost future high number of markets. The reason why these firms are able to carry out activities at a lower cost, is to create a greater value for the customer and as a leeway to entrance strategy also lies in that which Porter calls "drivers", and that which determine competitive advantage to be carried out.
Table 7: E-ON and EDF Core Competencies
Term Definition E-ON EDF
Strategic capability The ability to survive and prosper; resources and competence of the organisation
-their changing energy business strategy, innovate developments.
- Capability upgrading (dynamic learning)- is essential to the evolutionary of sustainable advantages and creating new bundles of resources
Nuclear new build which is tasked with the delivery of the new generation of nuclear plant in line with EDF's global programme of producing safe, affordable, reliable, low-carbon production of electricity in the UK.
EDF Energy and British Energy in 2009 form one of the UK's largest energy companies. The combined business is the UK's largest producer of electricity.
Resources needed to meet customers' minimum requirements to continue to exist
Setting the pace of innovation in their technology and industry structure.
-reliable energy networks and diverse energy resources, with secured energy supply
- Power-gas Convergence: Power and gas are strongly connected, upstream, midstream, downstream.
-further foreign direct investments in plants and projects overseas.
EDF runs power stations and wind farms, buys and sells power to meet future generation and customer needs and deals with all their energy customers.
Threshold competences Activities and processes needed to meet customers' minimum requirements to continue to exist
Presence along the entire value chain: value chain in power and gas: in production, import, wholesale, distribution, and end-customer sales. E-ON's Market knowledge enables them to operate efficiently and to create value along the entire value chain.
EDF operates eight nuclear power stations in the UK with a combined capacity of almost 9,000 megawatts, electricity that is vital to the UK economy
Unique resources Resources that underpin competitive advantage, competitors difficult to imitate
utilizing its superior internal as well as external collaboration capability
Core competences Activities that underpin competitive advantage, competitors difficult to imitate
E-ON's operational skills: they are generating and supplying electricity since 1920's. They have a strong market position. These are also part of their growth strategy.
-They have proactive approach to M&A
-talented and highly skilled staff
involved in some of the UK's most important projects and developments.
A strong market position.EDF company was founded in 1946 and became public company in 2004.
-financial strength of a large European group, as well as combined procurement capabilities, pan-European dealings for major customers, international expertise and access to significant R&D resources.
E.On's strategy is to become a top global, by focusing its resources on integrated energy service provider and growth strategy. With that the company's capability, will concentrate exclusively on core energy service business, pursue their growth in acquisitions to combine its leading position in Europe at the same time to position a solid foundation worldwide, dispose of non-utility and non-profitable activities, and continually cut costs and restructure group. Its competitive advantage is focused in developing international power generation business, and opening up more electricity market to foreign investment. Through continued use as a source of E-ON's competitive advantage and stretching their activities, it will create a difference in time, a capability "should be neither so simple that is highly imitable, nor so complex that it defies internal steering and control" (Schoemaker and Amit, 1997). In order to operate in the power generation industry, it is necessary to possess both the ability to manufacture or supply gas, energy, or electricity by using other sources of energy, and importantly, a detailed understanding of their expertise and experience on how energy supplies work on how to generate power. Superior knowledge on these and reputation are E-ON core competences. For E-ON, diversification can increase market power by controlling more of the value system or supply chain within their industry. The E-ON's distribution network can provide some guarantee of market share upon which it could further build because the ownership of a costly input such as fuel could reduce the costs of production through the effect of scale economies and also act as a potential barrier to entry.
Most strategic management scholars in relevant literature, argues that dynamic capability provides a new way for organizations to adapt to advance environmental change. Dynamic capabilities are defined as a firm's ability to build, integrate and reconfigure internal and external competencies to address rapid environmental change (Teece et al, 1997). According to Eisenhardt and Martin (2000), dynamic capabilities are set of specific and identifiable processes such as product development, alliances and strategic decision making. E-ON has the capability to optimize their operations across markets and leverage their synergies to position from this broad European market. And to address the rapid environmental change, to meet this challenges E-ON focus primarily on enhancing their generation fleet's efficiency, reduce its carbon emissions and promoting climate-friendly energy for the future. To be able to strengthen the identifiable processes in product development and position their brand in European gas supply, they acquired one of the world's largest gas fields Yuzhno Russkoye in Siberia and North Sea Skarv-Idun in Norway to boost their production. Through this they are reconfiguring their assets to build a sustainable energy and gas supply system in the future. As a utility sector these are their means to combat the challenges and changes of the global industry by strengthening governance and regulatory compliance.
Figure 6: Porter's Five Forces Analysis
Table 5: E-ON and EDF 5 Forces
Porter's 5 Forces E-ON EDF
Threat of new entrants Barriers of entry for both company can take into different forms like the regulatory and legal constraints, it may then vary according to their industry regulation. If EDF and E-On are obtaining economies of scale this will give them advantage to match each other and other competitors to lower the unit cost of production.
EDF innovates in terms of investing in new technologies in not just renewable but solutions like carbon capture and storage to make burning fossil fuel much cleaner in terms of emission (www.edfenergy.com). Investment in new technology and combining power services with other utilities can differentiate them with other market
E-ON is investing in LNG (Liquefied Natural Gas) and natural gas to safeguard supply, to provide low-carbon alternative to oil and coal. They are building more efficient fossil-fuelled power plants and expanding renewable to 1/3 of their total generation capacity and working on to make carbon capture and storage commercially viable (E-ON Company Report, 2009)
Power of suppliers The brand and geographical coverage of E-ON, its geographic diversification and the opening up of electricity markets to foreign investment. Its capabilities in power distribution in the key market such as Germany, Central Europe and UK and E-On's new generation capacity can put them an edge in producing energy and gas globally. Its power on
Power of buyers Adding value to their consumers like their new advertisement about energy saving can increase the awareness of the consumer to switch to this new concept of E-ON. An energy company to help customers to reduce their energy usage. To promote energy awareness to their customers, they launched 'Smart Saver'.
Threats of substitutes Gas and Self generation through solar panels. E-ON defended this challenge by acquiring gas and electricity 'a one-stop-shop'. This can somehow be threat in the future if the consumer will be aware on how the self generation is done.
Competitive rivalry - There is a high competitive pressure high result from these 2 companies both of them are the largest player in the European utilities market.
- E.on and Electricité de France (EDF) increase the rivalry in the market since they benefit from scale economies and may compete more intensely on price.
-E-On response to this is that they emphasize their extended competition for value than competition to their existing rivals.
Table 6: EDF and E-ON Snapshot Profile
Company Generating Capacity Number of employees Number of customers
EDF Energy 4.8 GW 156,125 worldwide 37.8 million worldwide
E.ON 73 GW (gigawatts) 88,000 30 million
Source: edfenergy.com / eon.com
The two Power houses E.ON and Electricité de France (EDF) boosts the rivalry within the market since they benefit from scale economies and may compete more intensely on price (see Table 5: E-ON and EDF Forces). Robert Hammond, energy expert from Consumer Focus mentioned that 'E.ON customers will see this as a piece of welcome news. Any price cut is better than no price cut at all, but a pattern is emerging and yet again our energy companies are operating with a pack mentality. It is the same as the pricing strategy done previously by E-ON's competitors. 'It is crystal clear that suppliers are operating in a low-risk market where there is insufficient competition to drive down prices'. (see Appendix D: Estimated GB Average Energy Prices). In order to gain an advantage over rival firms E-ON and EDF can benefit from lowering their prices as part of their strategy or merging power services with other utilities to differentiate them in the market. E-ON, as an energy company can also adjust the structure of their tariffs to satisfy the needs of their big energy consumers.
Privatisation and de-regulation
Following the rapid adoption of privatisation and de-regulation policies in many countries, most organisation now have unprecedented opportunities to invest in foreign electricity sectors. As discussed by Jennings (2000), that "the act of privatization, with consequent changes in ownership and competition, implies that change will occur in the internal processes of the privatized organization". Privatization need a massive restructuring of the industry designed to encourage competition where feasible but to regulate prices where natural monopolies existed. Indeed, this concept suggests that the outcomes of privatisation in sectors like in utilities are dependent on the effectiveness of regulation.
Privatization of the utility was designed to contribute beneficial result to market forces. It was argued that the introduction of competition in power generation would lead both to greater efficiency in the industry and low-price. Within a few years, however, concerns had already risen, as critics of the scheme had predicted from the start. A duopoly which at the time of its creation held such a significant majority of the electricity generating market was never likely to embody the purest form of free market operations.
Advantages of Privatization
Privatization has cut the cost of Generation to Customers
PowerGen has lower prices to Regional Electricity Companies (REC) to meet the needs of their customers in the domestic market; with this greater competition in the UK large customers have begun to benefit from lower prices. Policy makers neglected the importance of designing tariff structures for affordable services during the process of restructuring and privatisation (Estache, 2006).
Competition has remained uncertain even in the segments of the market where it has been considered feasible. Through PowerGen's strategy and aiming to be competitive in the market, makes them also improved the quality of their services. According to Wallis (1995), "When the product cannot be differentiated in terms of quality, it is the quality of service that gives the edge".
Delivered benefits to Environment
Through reduction of carbon emissions of sulphur dioxide, nitrogen oxides and carbon dioxide per unit of electricity generated.
PowerGen's profit has been equally shared
Shareholders, taxpayers and staff have benefited from PowerGen's success, and UK Plc has also benefited, as other generators as PowerGen have encourage to develop new business in energy related sectors in the UK and internationally (Wallis, 1995).
Merger and Acquisition
PowerGen's acquisition of East Midlands Electricity plc (MEB) in mid-1990's is considered as a moved to leverage their core competencies in other energy related areas, following the divestment of East Midlands's generation capacity, knowing the fact that East Midlands Electricity is the third largest Regional Electricity Company (REC) in England and Wales, PR Newswire (2010). It will create a positive effect for PowerGen to position itself as integrated electricity and Gas Company in UK, the 'one-stop-shop' strategy as the solution to maintain long-term profitability of PowerGen. This is also link to the PowerGen's vision to build one of the world's leading integrated electricity and gas businesses (www.powergen.co.uk). Likewise, deregulation of public utilities in many countries has also created an opportunity to look and gain other benefits, for instance through invention of multi utility sector offering electricity and gas. Through this merger, both companies can benefit from each other, like for instance in the exploitation of their strategic capabilities, through buying East Midlands it can leverage marketing, Research and Development (R & D) skills overseas. Ed Wallis, stated that, "This transaction represents a significant step forward for PowerGen providing it with distribution expertise and a broader customer base. Structurally, the move creates a strong growth platform in the converging electricity and gas markets. The deal benefits the shareholders, customers and employees of both companies. I look forward to welcoming the East Midlands Electricity staff to our company and to the challenging and exciting future we have together." In acquiring East Midland Electricity, PowerGen has the capacity to renew its core competencies and to achieve conformance with the business environment uncertainties.
The rival pressures suggested by the electricity market required innovation and flexibility at business unit level in the reduction of costs and it is the cure for market failure. Likewise the development of the new businesses required a less centralized approach. De-regulation, as it applies to electricity, was sought to aid competition among electricity providers. Helm and Jenkinson (1998), argues that "the threat of regulation has been a good and powerful tool in gaining compliance by participants. The voluntary undertakings by National Power and PowerGen in 1994 to divest 6,000 MW of plant and price in the Pool to meet an average over 2 years were an example of such compliance".
Figure 7: Merger Effects of PowerGen and East Midlands Elecricity
(Adapted from: PR Newswire 2010)
The Culture Aspect of Management
The electricity system became a 'utility' providing a 'public service' on a cost plus basis. "In today's business environment, collaboration between companies means collaborating across national and cultural boundaries. Supply chains, marketing and distribution systems, research partnerships and production joint ventures are formed between businesses in different countries and on different continents. And as more businesses operate multi-nationally, internal collaboration also requires the crossing of many borders" Witzel, (2006). Hofstede, argues that "Culture is more often a source of conflict than of synergy, cultural differences are a nuisance at best and often a disaster." In cultural aspect of strategy development it is also important to recognize the 'country-of-origin effects' (see Appendix F).
In the 'Cultural Constraints in Management Theories', cited in De Wit and Meyer (2004) Hofstede also mention that 'theories are formulated within national cultural contexts, and reflects local demands and predispositions'. To some extent, in order to sustain the integration of some various changes in the organisation, PowerGen primarily organized simple functional system; in line with this specific processes were utilize to drive cultural change. In terms of centralized approach to planning of PowerGen to CEGB, characteristically, decision making becomes centralized and head office moves to play an intervention and to mandate role in the routine running of the organization. The management style may not be applicable to the other; eventually the acquirer will act to adopt the same culture in time. Thus it is important to know the impact of change that will have to acquire and adopt, to achieve the good results and create a new 'best of both worlds' culture.
Geert Hofstede's theory on cultural constraints in management may explain why and how the concept of centralized approach to planning with the CEGB, adopted by the PowerGen by means of comparing the differences on management style and understand the different views and interpretations each other may have on the world. Without this awareness, the organization cannot even begin to understand more specific behaviours within a corporate context with regards to planning. It can be seen during this phase in the case study that the process of cultural change and the importance of strategy to manager, the skills that they require really counts in. It has been noted in the case study that the planning process during 1996 successfully managed the PowerGen's challenge to involve individual business units in leveraging the core competencies to operate in domestic and overseas market, by engaging delegated business units in the strategic management process.
This also supports the philosophy of General Electric Company, CEO Jack Welch Determined to harness the collective power redefined also relationships between bosses and subordinates. He said that: "The individual is the fountainhead of creativity and innovation not the system, and we are struggling to get all of our people to accept the countercultural truth that often the best way to manage people is just to get out of their way. Only by releasing the energy and fire of our employees can we achieve the decisive, continuous productivity advantages that will give us the freedom to compete and win in any business anywhere on the globe (www.ge.com)."
Cultural evolution and devolution
The centralized approach to planning associated with PowerGen and CEGB highlighted on this part that relates to cultural constraints wherein the CEGB became increasingly less relevant with the opening of the market for electricity, the wholesale Electricity Pool, at the start of April 1990. The operation of the Pool became the focus of PowerGen's strategy, requiring the development of both a strong commercial orientation and increased operational flexibility (De Wit and Meyer, 2004). In this context the organizational culture has also been linked to market strategy and managerial style (Piercy and Peattie, 1988; Sathe, 1983). The managerial style of PowerGen in this context is important as it will have influenced the way in which CEGB behave and conduct in their business including their management process that may be applicable to both organization. Several factors occurred in these phases of changes, like the acceptance of planning, abrupt change in planning system, and the role given in each division.
Jennings (2000), noted that "the style of organization may be determined by factors that are constant across the organization that includes the CEO's personality, management skills, the organization financial condition and portfolio of the business". The change in the PowerGen's operation planning system indicates that the aspects of corporate style can be flexible to adapt changes and may vary according to business units.
Table 8: UK and Germany Cultural Dimension Scores
PD : Power Distance
MA : Masculinity
UA : Uncertainty Avoidance
LT :Long Term Orientation
Source: The Sigma Two Group International Business Centre (2005)
The Geert Hofstede analysis shown at Table 8: UK and Germany Cultural Dimension Score, illustrates how UK and Germany businesses are in the same high dimensions towards individualism and masculinity. This reflects that British culture promotes individuality however on a micro level in the business environment context the individual may be more involved with themselves rather than the team. The UK power distance and uncertainty avoidance are ranked lower. While the uncertainty avoidance for Germany is in the middle dimension. Long-term orientation ranks the lowest; pointing out that change in UK can be manage immediately than in other countries like Germany.Â In this analysis we can also discuss the issue of how the German company like E-ON strives to be a European multi utility company. However in the E-Ons' corporate values it reflects the value of openness, togetherness of being in 'ONE-E-ON' and teamwork across organizational boundaries and diversity development. In line with the centralized approach, E-ON enable them to manage and optimize value from their assets, in order to leverage synergies and sustain their growth through its trading activities, combining cross-commodity and cross market management expertise (E-ON Annual Reports, 2009).
An alignment with the organizational structure, strategy and culture are key determinants of a successful and sustainable organization. It is seemed necessary to know the planning phases, organizational structure and the previous background of PowerGen to be able to fully understand global strategies of the industry and its opportunities and risk that firms are facing in energy markets in general. PowerGen established its foundation and made it more flexible to manage that is why it is still existing in the shadow and part of E-ON's success.