The Central Electricity Generating Board - CEGB was the cornerstone of the British Electricity Industry for almost 40 years. When electricity demand grew rapidly, but plant and fuel availability was often unreliable. Industry saw it as there mission to provide an adequate Electricity supply rather than focusing on the cheapest generating route.
Since the privatisation of the British Electricity industry in the early 1990's the power industry changed dramatically. As with most privatisation, the government wished to see increased efficiency in the production of electricity.
By privatization, the government hoped to incentive organisations seeing higher profits as a reward for efficiency, so more effort would be made in research and development of new techniques to make production more efficient, in order to pass savings onto the consumer. Certain restrictions were imposed by the government and OFGEM to prevent monopolies exploiting the customer.
The Electricity market as seen today has been born from the dissolving of the CEGB, thus creating a new era. ( Newbury and Pollitt 1999)
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The term's 'Strategy' and 'Corporate Planning' can be used interchangeably, but there are a few significant differences :-
A Strategy is a long term view, a plan or ploy or perspective (Dewit and Meyer 2004 ) where as a Corporate plan has a defined scope of intend, time scale and costing ( Porter 1998 ) Often organisations use these terms interchangeably, as they mean the same thing to them. Unfortunately, in many companies such as CSC, whom I worked for, demonstrated such a failure to separate operational strategy from planning on many occasion, CSC had very defined set corporate objectives from their corporate plan. However there was a failure to maintain consistency and drive throughout the business to achieve these targets.
Industries such as PowerGen whom focused on internal structure re-organisation to increase their competitive advantage alone, could be criticized for being far to static in an ever changing environment. But they demonstrate moves for change in 1993 by incorporating 'Strategic fit ' and 'Strategic stretch' methods to meet the environmental, political needs, by leverage of skills to capitalise on these opportunities.
A strategy is the result of brainstorming sessions, evolving in a static corporate plan. Successful organisations view both as live dynamic documents and processes, demonstrating that the business environment is dynamic. ( Moschandres 2000 )
Strategy ( Minzberg et al 2003 ) suggests "is an arrangement or pattern of decisions whereby an organisation determines it's objectives, purposes or goals, policies and procedures, in which it needs to reach it's goals or end product. A strategy of an organisation should be very flexible on how to achieve something and be adaptable should the requirement arise".
The theory as suggested by (Johnson and Scholes 1998 ) "a strategy is the direction and scope of an organisation spanning over a period of time, to achieve an end goal. It is to create an advantage for an organisation using it's resources, within the boundaries of it's environment, market and stakeholders expectations. The strategy must maintain a level of agility to be adapted at will".
From 1991 to 1998 there were 3 organisational structures which PowerGen implemented. The initial change was brought about in conjunction with the McKensey consulting group, whom where brought in to develop the structure.
Restructuring was to 'downsize' the 'Top - down' centralised structure, by removing some management layering, becoming more functional in approach. The initiation of Business Units where to assist the business focus. This approach to strategic planning was led by Corporate ( Scholz 1987). As (Johnson et al 2005) comments " a competitive advantage cannot be achieved if the strategic advantage of an organisation is the same as that of another. It can however, be that a competitor has unique or rare capabilities that assist in the providing of a competitive advantage.
The idea that 'culture and strategy' are considered to be interchangeable" suggests that organisational structures can influence both.( Lismen et al 2004)
The corporate strategy of focusing on 'Core business' such as operation of "the Pool" was to enable operational efficiency, suggesting an 'inward' focused strategy.
Privatization tends to promote the shareholder as the primary stakeholder, and so expect annual returns in terms of dividends and an increased share value, in turn promoting strategy focus on profit and short-termism ( Lane et al 2006 ). Supporting the planning process to be led via the commercial team, and limiting, input from technological arena. Suggesting profit before investment in terms of a strategy.
Always on Time
Marked to Standard
CEO Ed Wallis commented that PowerGen was in the "Power generation Business" suggesting that focus was to be on 'low cost production' - A narrow approach to planning, which missed the competitive threat - Nuclear Power in 1993/94.( Porter 1998 )
In 1992 the structure changed from a 'functional' set up to a smaller self contained ( from a leadership perspective ) business unit. This empowerment promoted an "entrepreneurial culture" ( Macdonald 2007 ). Supporting the fact that rather than driving the business via targets the Business Units leadership teams where expected to act more strategically. PowerGen moved from a 'Top down' to a 'middle / bottom up' approach to strategy formation. For a leadership team to be effective, authority must be tempered and go hand in hand with accountability. To achieve this, the newly formed management team had P&L responsibilities. However finance remained centralised suggesting that the Corporate management team believed that the overall control should remain in control of the financial reporting. This caused problems as lack of P&L experience at the Business Unit level led to a disconnect between strategic spend v's profitability.
The smaller corporate strategy team was an attempt to maintain some 'Top down' control and the esurience of effective, efficient use of resources across businesses. This structure highlights a difficult situation for a business to manage. On one hand needing to be business aware and making use of resources, capabilities and competences efficiently, but on the other wanting to promote autonomy and entrepreneurial activities within smaller Business Units. Conflicts such as internal competition, additional bureaucracy or duplication of resources, can prove difficult to manage.
The overall business strategy could still be criticized for being overly narrow focused as they did not predict competitive threats ( Veljanovski 1998 ) from Nuclear Power. Which led to last minute unpredicted strategic thinking. Suggesting business reviews where formed as a result of the predicted 'rigid' scenarios. As opposed to reviewing as a continuous process ( DeWit and Meyer 2004 ) demonstrating the problems of formal planning rather than encouraging ongoing dynamic customer and market focused processes. Showing a culture of rigid planning as opposed to consistent strategic development ( Macdonald 2007 ). The issue with this new strategy was that it was not all encumbering and so highlighted a disconnect between Business Units and Corporate Finance.
The 1996 Reorganisation saw the CEO become the chairman maintaining a stable leadership ( Blanchard 2000 ). Ensuring levels of strategy became more defined and focused. The set up of the management Triangle, CEO - Corporate Strategy and Finance only FD, was to ensure the management focus was as efficient as possible, in an uncertain business environment, due to deregulation ( see Deregulation issue Appendix 11 ) and increase in competition. The ongoing evaluation suggests that they adopted a more dynamic approach, and a new realisation that the forward strategy maybe different than the planned strategy.
Business growth was led to the introduction of group MD's ( a more bureaucratic style - but less agile organisation style. ( Cummings et al 2005 ) .
The overall strategy between 1991 - 1998 was focused on short term operations, supported by the lack of capital investment at that time which would give towards long term planning. leading to parts of the business being sold. ( 778)
Core Competences and Dynamic Capabilities are both very important to an organisation in very different ways. However they are generally utilized together to create an important advantage for any organisation.
Core Competences are seen as Individual abilities or related knowledge, which gives an organisation a competitive advantage, in creating and delivering value to its customers, a strong basis from which to gain the additional competence to do a specific job or that a company has a strong basis from which to develop additional products. Where as Dynamic Capabilities are an organisation's ability to integrate, build, and reconfigure internal and external competences to address rapidly changing factors surrounding them.
Dynamic capabilities are a set of specific and identifiable processes, ie product development, strategic decision making, and alliance
They have significant commonalities ( 'best practices'), in dynamic markets, dynamic capabilities resemble routines. They are detailed, analytic, stable processes with predictable outcomes. ( Hamel and Prahalad 1990 ) state "that over time an organisation can develop key areas of expertise which are distinctive to a particular company and can achieve long term success".
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The characteristics of core competencies are that they can influence change. Particularly important to organizations that need ongoing renewal of core competencies to reinforce and create structure before, during, and after a change; the combination of these long- and short-term organisational activities are a framework for an organisations strategic fit as an integrated organisation-wide system that links top management goals.
This can be seen from PowerGens decisions in 1993 to restructure, they maintained the commercially driven processes, to focus on short term profitability rather than long term planning, possibly because of the change in forecasting electricity demand, making forecasting a harder option to risk. Another possible reason for a short term focus could be that PowerGen anticipated core industry slow down in domestic power demand. From the case study it suggests that they favour leverage core competences both vertically and horizontally rather than investment, but the expanding product base in there portfolio can be seen as adding real value to the internal and external competencies to serve the consumer. The alignment and deployment of an undifferentiated '5 year plan' which although is a common business 'Time Frame', fitted fundamentally due to the environmental dynamics and capabilities of the company. The strategy to downsize the management activities could be seen as an increase in responsiveness to cope with the tense market uncertainty at that period of time.
(Teece et al 1997 ) takes the basic assumption "that there is a 'Dynamic Capabilities' framework in place to cope with the fast changing market, which forces a company to respond quickly to meet these needs and wants."
See Appendix 5 - Characteristics of physical Assets vs Intellectual Capital ( Unit 2 Strategic Capability - p49 - Course module).
EDF is Frances leading Electricity producer, Marketer and Distributor, whom produce and sell Electricity and Gas. They manage Electricity, Distribution and Transportation networks, along with being suppliers of energy related and environmental services.
E.ON were initially were a broadly positioned conglomerate, whom changed focus to enhance there core businesses, Electricity and Gas. They maintain ownership of Power Generation, Transmission and Distribution of there businesses.
From a domestic users perspective the competencies of each business look quite similar, ie, they provide power to the home, they have the same shareholder perspectives to measure there collective competencies for the consumer and share value and profit for the shareholder.
(Appendix 13 Table's 1 and 2) show the differences in financial stat's over a limited period of time, both tables show considerable gain's from the business, differences in forecast against actual profits could be due to the economic downturn as both companies feared, but also the upturn or new entrants into the market also could have had a bearing on the end results. (Appendix14 Table 3 SWOT analysis)
There are also differences in regards to the financial domains: they operate within-
EDF are in the Electricity Generation and Distribution Sector while, E.ON are in the Fossil Fuel and Distribution. They also are in different index's :- EDF operate in CAC40 and FTSE Eurofirst 300 while E.ON are in XETRA Dax and DJ Euro STOXX 50
(Appendix 15 Table 4) E.ON and EDF Products and Services, both companies have core products and services which they focus on. Which enable them to enhance international opportunities.
E.ON acquired expertise and capabilities by mergers and acquisitions to position themselves in global scale markets, and are restructuring there organisation to streamline there functionality in regards to strategy thus becoming more efficient in terms of response to changes in market needs.
Once the markets were opened EDF complied with the minimum level it could, it was reported by Francois Roussely - EDF chairman, "That the utility could prosper under these new conditions, and that the goals for EDF where that they would see half it's revenue would be from other areas than electricity in France by 1995".Electricity privatisation efforts can be seen as meagre in France, relative to those in other European countries. Electricity generation, transportation and distribution is dominated still by EDF, and the state owned Electricity monopoly, as EDF is still Europe largest nuclear power supplier which accounts for approximately Â¾ of Frances Electricity Generation.
They appear to focus on the leverage of core competences across the organisation to enable them to meet significant cost reductions. But maintain profitable for shareholders.
There technological innovation is one of there core developments by which there strong research and development (R&D) function, demonstrates the capabilities and competencies in which to innovate. Highlighting in joint projects with various universities which they say will 'accelerate the development of the next generation of energy' with this in mind it is easy to see that E.ON are harnessing quite a vast entrepreneurial resource base which will in time strengthen there market position further. (Appendix 16 EDF and E.ON Core Business Activities)
EDF and E.ON appear to have adopted the theory of creating 'in-house' versions of a 'balanced scorecard' approach with the objectives of creating, and sustaining continuous improvements in regards to culture. Both have taken the approach of being vertically integrated organisations in order to maintain the commercially driven approach to business.
E.ON appear to have a financial advantage as they have backing from their parent company to harvest it's growth, in order to facilitate core skills in the widespread arena in which it operates,( Rumelt 1994) ensuring it's delivery of high shareholder return. The Performance approach is geared towards both domestic and shareholder profitability, by utilizing the ( best practice ) and core leverage of skills throughout it's organisation, whilst driving down cost's of operation to ensure as high as possible profit return, demonstrating it's 'Inward focus' evolving process
EDF also are very profit driven and again also appear to be expanding it's expertise widespread through Core competencies in liberalisation of the market thus providing resources for a profitable growth. It would appear that EDF, although focusing on the core businesses of Power to the home, are forging ahead in the Nuclear power segment thus showing a differential in the two companies. Again as with E.ON, EDF appear to be specialising and leverage core skills across the organisation through dynamic evolving processes ( Tidd et al 2009) demonstrating a clear financial management leadership via ( portfolio management ) ensuring a high proficiency of leveraged assets and resource across the company to maximise Size / Growth or Return / Profit return.
Both however consider there to be a sizeable threat to there businesses via Regulatory and Economic downturn. ( 791)
Since privatisation the change from state or governmental control to private business sector in 1991 saw developments in the Electricity industry change dramatically, the increasing mergers and takeovers increased competitive optimisation of the UK marketplace. The elimination of government ruling constraints or the deregulation of the market enforcement saw a new found freedom from strict regulations opening the market to new competition, thus allowing the market to evolve. The increase in new market entrants penetrating the markets increased from one pre Privatisation (CEGB ) to 30 by the end of 1998.
Changes since the elimination of the regulated industry, such as:-
The change in fuel mix from coal to gas generation in 1990. Coal accounted for approximately 70% of the generation; by 1998 this had fallen to 35%.
Increase of Nuclear Power from 20% to 28% because of reliability and availability of Nuclear Power stations.
Employment - huge reduction of employees from approx 55,000 in Gas and 66,000 in Electricity. At the beginning of privatisation the industry employed around 144,000 staff, however by 1998 this had fallen to just 76,000 a loss of approx 46% in 8 years. PowerGen and NGC's combined workforce was approximately 28% of its size in 1998 compared that of 1990, but labour productivity appeared to have doubled during this time.
Job losses in distribution companies. (Appendix 11 Effects of Privatization on Employment)
The merge of PowerGen and MEB announced September 18th 1995 was opposed by the Office of Fair Trading ( Report published Oct 2002 ), the secretary of state advised against the purchase of MEB on the grounds that vertical integration between electricity suppliers and generators at the stage of liberalisation of the energy markets would inhibit the development of competition.
In 1998 the divestment of East Midlands Generating company saw majority shareholdings put up for auction, PowerGen argued that they should be allowed to bid for it as they had been previously for East Midlands, they argued that the competitive situation was different to that in 1996.
An overview of OFGEM's review, noted that PowerGens German parent (E.ON AG ) did not face any competition in Germany and so advised they should not be able to make further purchases in the EU market.
But market developments in 1996 meant that PowerGen indeed acquired the distribution company in 1998, indicating that market forces had significantly changed since OFGEM's initial consultation in 1996. ( Review taken from Competition - commission website )
The merger between PowerGen and MEB reduced the major players from 16 to 15 in the over 100KW supply market, the competition commission views:-
Reducing competition by removal of MEB as a competitor.
Increasing competition by creating a more bigger aggressive competitor.
No change in ability to charge higher prices than other suppliers.
However it was noted that it would be more difficult for the Director General of Electricity Supply ( DGES ) to monitor and enforce licence conditions, such as prohibition on cross subsidiary and discrimination. Thus the merger would give rise to uncertainty, regarding the ability of DGES to prevent PowerGen from jeopardizing the ability of MEB to finance it's activities.
See Appendix 6 and 7 For PowerGen and MEB reasoning for merger.
One of the main aims of privatisation was to create competition in the generation arena and to free REC's to 'Shop around' between generators thus exerting a downward pressure on prices. Since 1990 all bar one of the REC's have invested in generating plants, usually as a partner in IPP, introducing further competition.
Appendix 9 - Elements of the English and Welsh Electricity Industry Value chain. ( 602)
The initiation of McKenzey consulting to develop an organisational structure, resulting in a functional structure, still maintaining a reasonable amount of centralisation in design.
The structure was very strong in terms of a centralised approach from a commercial management perspective in order to achieve organisational objectives to fulfil both shareholder returns and serve business needs. Typical of centralised planning process, initially no other department within the organisation held authority for change, so communication and spontaneity was limited. However the structure was especially good for coordination from a business dictatorship point of view, as initially the planning approach was maintained centrally to providing an organisational focus, but in time this approach modified as relevance to market forces changed too.
PowerGens vision to match all possible scenarios was very rigid strategy behaviour, making such decisions inflexible in terms of 'outside of the box' issues fitting for centralistic structures. But not an approach which fits with the ever changing commercial an environmental needs. Attention was given to development of the new business portfolio based mainly in the UK, the upstream activities, a logical way forwards to those from down stream and assets which had been previously acquired.
The introduction of organisational changes to the corporate planning process consisted of 'downsizing' in to divisions, changing from the centralised approach, but still the restructure was to maintain the commercially driven process "Centralisation to a degree", to focus on the business core interests by incorporating the Business Units key skill sets. Thus creating '"Middle to bottom up structure' encouraging communication flow.
( see Appendix 1 for Organisational structure 1990 ) and ( Appendix 2 for Corporate Planning Cycle 1990 ), re-defined structure ( Appendix 3 - Organisational structure 1992).
In 1993 mismatches between strategic decisions within the business units and corporate finance which were believed to be due to the way the structure had been formed, division of the planning processes, and failure of communication regarding scenarios deployment surrounding the processes and business requirements.
( See Appendix 4 - Organisation Structure 1996 ) The replacement into a 'cluster type Business Unit was to focus the BU managers on there individual units, freeing up corporate staff to focus on development of the organisational targets, increasing responsiveness to emergent issues
This new structure initiated a greater efficiency and effectiveness, therefore increasing flexible communicative flow chain between BU's and Corporate management.
The incorporation of company initiatives for the workers such as bonus incentives schemes had been deployed for both individual and Business Unit performance.
Geert Hofstede theory suggests that management styles along with the representation of the word 'Management' differs quite considerably despite being utilized around the world. He states that the 'Individualism dimension' focuses on the degree to which a culture encourages an individual as opposed to a collective group. That "in an individual culture such as the UK emphasis is on the personal initiative and achievement, and that everyone is entitled to an opinion and private life". This "dimension" maybe a culture ad practice for the present say, however it would appear this was not the case in early CEGB and PowerGen days, as strong hierarchical and dictatorship management approaches where demonstrated very clearly.
English culture has changed over time in regards to management and 'class society'.Hofstead believes that the English demonstrate strong feeling towards individualism and masculinity, Power distance, long-term orientation and uncertainty avoidance. The last 3 being lower ranked than the first. Which sit well with the 'centralisation planning approach' that both CEGB and PowerGen approach to strategy and planning utilise. (Appendix 12 for definitions). ( 598)
PowerGen pursued strategy as a Short term plan ( Minzberg et al 1998 ) did to a certain degree suffer from 'Strategic drift' ( Johnson et al 2005 ) thus failing to adapt fast enough to changes within environmental and political movements. So losing some ground to new incumbent competition. From various studies it is clear to see that the management planning team focused heavily on financial matters possibly at the expense of leveraged sales through product management. So although PowerGen did encourage entrepreneurial skills, this failure does indicate for not enough focus on those particular skills. ( 97 )
To improve future prospects of being prosperous a business could consider viewing the strategy the 'Ideas Lens' ( Johnson et al 2005 ) Business level strategies attempt to manage the paradox of Market v's Resources ( DeWit and Meyer 2004 ) by focusing core competencies towards reducing but investing in a number of key products within it's portfolio. However the 'inside out' perspective apparently taken by PowerGen had failed to address the ever changing business environment due to over emphasis on internal reviewing or detailed market assessments and scenario planning.
PowerGen as a business requires visionary, decisive leadership, focusing on leverage of 'core complacencies' to increase both upstream and downstream growth. PowerGen must invest in superior skills and resources which taken together represent the ability of a business to do more or do better (or both) than it's competitors ( Day and Wensly 1985 )
Could By mapping a series of metrics to the current strategy programs they would receive fast feedback informing them if they where on track, thus providing clarity of vision allowing all individuals within it's organisation to focus their energies on value added activities. ( 188 )
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Tech * Eng
Sales and Marketing
Appendix 1 PowerGen Organisational Structure 1990
Initial structure developed with McKensey Consulting group. To change approach becoming more 'Functional' in focus. Centralisation in management style via to commercial / financial team.
a corporate plan
Appendix 2 - PowerGen Corporate Planning Cycle 1990
Incorporated to ensure all plans all discussed at appropriate management level, focusing on practicalities, company strategy and objectives. This type of planning cycle is to assist in reducing planned mistakes, an attempt for continuous development / improvement.
Appendix 3 - PowerGen Organisational Structure 1992
Finance & Planning
2nd Change, to move towards 'Business units' as a way of focusing on smaller self contained units, thus promoting empowerment, entrepreneurial and leadership skills.
Appendix 4 - PowerGen Organisation Structure 1996
Chairman & CEO
PG North Sea
Legal & Company Secretary
3Rd major change to move business units focus towards streamlined corporate strategy. Working towards more integration between units and business as a whole.
Change for Senior Management to a focus more on corporate issues and unit managers to focus on matters within the Business units.
Thus 'cementing' a continuous communication flow between business units and corporate concerning strategy and financial direction.
Appendix 5 - Characteristics of Physical Assets v's Intellectual capital ( Unit 2 Strategic
Capabilities p49 - Course Module
Resources ( Physical )
(Skills, Competencies and Capabilities)
Held in control of the organisation
Affects the organisation to do this effectively
Largely independent of organisational members
Inherently attributable to organisations members
Unaffected by culture and governance structure
Influenced by culture and governance structure
Items such as physical assets, buildings, inventory. Can have fixed value, ( Tangible )that can be assigned and therefore can be seen as adding value to an organisation.
However items such as Goodwill, copyrights, trademarks, knowledge base as have value to an organisation but cannot have a monetary value assigned ( intangible )
Appendix 6 - PowerGen's Reason's for Merger with MEB
Acquire skills and experience with large number of small customers, better placed to compete in the under 100KW market in 1998.
Attracted by the profitability and distribution businesses An integrated company would combine expertise in generator, supply and distribution.
By funding the acquisition through new cost debt and increasing balance sheet efficiency the merged company costs of capital would be reduced.
Appendix 7 - Midlands Electricity Boards Reason's for Merger with PowerGen.
Believed that it would have more scope to expand as it would be substantially less risk and would therefore be better able to compete rigorously to the supply market.
It saw the balance of generators and supply activities as the key to success following supply deregulation in 1998.
Would achieve a greater presence in the gas supply as a broader based energy company.
It might on it's own lack sufficient balance sheet strength to achieve it's objectives
The merger would give it the capability to compete world wide for electricity business opportunities.
Appendix 8 - Elements of the English and Welsh Electricity Industry Value Chain
Electricity Electricity Supply
Generation Distribution Company SME Customers
Industrial & Commercial
Six Main Vertical Integrated Tens of supply companies fronted by brands
Generators and actually supplied by a smaller No. of
Electricity supply companies
Using Oil, Gas and Coal
Plus many more smaller
Generators powered by Hydro - Electric
and wind Sources
Wholesale Market Supply Market
One significant outcome of the deregulation was the instability caused by artificially high return of electricity prices. Normalising under more natural market conditions. This instability caused a significant drop in the wholesale price of electricity
Appendix 9 - E.ON Key Beliefs: to sustain success in the Power and Gas business
Presence along the entire value chain
Power Gas convergence
A strong market position
Value from experience ( Core competencies )
Market and competition.
Vertical integration - A presence throughout the 'value chain' creating a sound 'business model'.
Power and Gas Conversion- Creation of economic growth and presence in both markets, a key competitive advantage.
Strong Market Position - In liberalized markets, being an integrated player with 'long term plans' gives a competitive edge to growth and market presence.
Growth - Organic growth for value creation gives a moderate growth rate in the core markets. Enhancing external growth ensures share value rise for shareholders.
Value from experience - Value by managing a broad range of assets in different markets, and leverage of core expertise and skills along with utilisation of best practices across the organisation.
Market and Competition - Open competition markets are the best variety for energy security and efficiency. The integrated market is the best environment for E.ON to achieve it's expanding market position and growth,
Integrated power and gas business
Run an integrated power and gas business with leading market positions
Engage in total value chain management
Make investments in infrastructure where these investments enhance our market access and connectivity.
Clear geographic focus
Strengthen our leading positions in our core European markets
Pursue selective growth in new markets like Spain, Italy, Russia, and Turkey
View North America as a growth market for our renewable business and a long-term growth option for our integrated energy business.
Clear strategic priorities
The top priority is to strengthen and grow our position in Europe
Maintain our strong, diversified generation portfolio while systematically reducing our specific carbon dioxide emissions
Strengthen our gas supply position through our own gas production and liquefied natural gas.
Strict investment criteria
Focus on selective investments and acquisitions with significant value-creation potential
Observe our strict strategic and financial investment criteria.
NB, Taken from E.ON Energy Web site Strategic Direction.
Appendix 10 - Effects of Privatization on Employment
Outsourcing - or sale of certain factories, ie - most of the retail outlets.
Mergers and take-overs - a result of restructuring and generating savings thus increasing profitability
Development in IT - leading to further reductions in staff
Distributions - Outlets cutting staff to reduce costs, necessary due to regulations imposing tighter constraints on prices.
Liberalisation of energy market.
However research shows that there have been no losses involving retrenchment, seeming that all reductions have been achieved via attrition, voluntary severance and early retirement.
Appendix 11 - Issue of Deregulation.
Issues of Deregulation are that it decentralises generation investment - which shifts the investment risk from the customer to investor, which can create uncertainties extending to transmission and distribution investment.
It can also be seem to jeopardise reliability as a regulated integrated utility is often accused of over investment under the rate of return regulation. But such investments can yield high reliability / deregulation can jeopardise reliability
Under investment - reduces investment in the electricity sector. Therefore harming reliability, capacity withholding market power abuse can compromise reliability
Transmission constraints - a system designed for operation by an integrated utility is not suited to accommodate wholesale trading which transmission expands across trading margins
Complexity - grid operation by an integrated utility is done under centralized command and control, with almost perfect information.
Operations are carried out through decentralized scheduling by market participants - resulting in more uncertainties and less control.
It must be noted that deregulation does not always reduce costs. There is a supporting argument which says that Electricity deregulation is the competition and privatization, which can improve a sectors costs. Performance, which in turn lowers the price of electricity. However the unbundling of generators and the introduction of wholesale spot market has not lowered prices.
Considering strategy in terms of perspective ( Minzberg et al 1998 ) would facilitate PowerGen in 1996 to think as a collective mind allowing individuals to unite with a common understanding or purpose. "Strategy" is in this respect is what personality is to an individual ( Mintzberg et al 1998 ). The whole company would become involved in the strategic thinking rather than the apparent insular group back in the early 1990's
Appendix 12- Geert Hofstead Culture definitions:-
The Geert Hofstede analysis for England illustrates their strong feelings towards individualism and masculinity. The power distance and uncertainty avoidance are ranked considerably lower than the first two. Long-term orientation ranks the lowest, indicating that change in England can be achieved more rapidly than in many other countries
A High Individualism ranking indicates that individuality and individual rights are paramount within the society. Individuals in these societies may tend to form a larger number of looser relationships.
A High Masculinity ranking indicates the country experiences a high degree of gender differentiation. In these cultures, males dominate a significant portion of the society and power structure, with females being controlled by male domination
A High Power Distance ranking indicates that inequalities of power and wealth have been allowed to grow within the society. These societies are more likely to follow a caste system that does not allow significant upward mobility of its citizens
A Low Uncertainty Avoidance ranking indicates the country has less concern about ambiguity and uncertainty and has more tolerance for a variety of opinions. This is reflected in a society that is less rule-oriented, more readily accepts change, and takes more and greater risks.
A Low Long-Term Orientation ranking indicates the country does not reinforce the concept of long-term, traditional orientation. In this culture, change can occur more rapidly as long-term traditions and commitments do not become impediments to change.
Early Cultural Management style in CEGB and PowerGen was very much in the style of 'Large v's Small' Power Distance - As individuals appeared to accept power relations more readily. Relations such as autocratic or paternalistic, subordinates would acknowledge the power of others, based on the formal, hierarchical positioning.
Table 1 shows the Financial differences between the two companies:
Table 2 shows Operational Profit and Net profitability between to two companies:-
Table 3 - Differences between E.ON and EDF ( SWOT Analysis )
Strong Domestic Market Position
Vertically Integrated Structure
Strong Customer Base
Efficient Power Stations
Financial backing from Parent Company
Dependency on Thermal Generation
Controversy Re new Coal Power station in UK
Increasing Financial liabilities
Ageing Asset Base
Environment issues ( Climate change )
Integration with British Energy
Focus on Renewable Energy Sources
New Power Plants
Rise in Electricity prices
Focus on alternative Energy Sources
Acquisition and interests in generation plants
Laws and Regulations
Volatility in Electricity prices
Global Economic Downturn
Table 4 - Products and services they provide:-
Product or Service
Power Sales and Retail
Gas Exploration and produce
Gas Transport and Storage
Gas Retail and Sales
Renewable Energy Sources
R&D Future Research
NB, The above are the main headings of Products and Services provided. There are Sub-products and services which are offered, but not listed above.