The Global Electricity Supply Industry Commerce Essay

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This report analyses the restructure of the global electricity supply industry and its reflection on Powergen, in the lead of power usage, generation and distribution of electricity plant. Deregulations in power supply industry were allowing the growth of new independent power producers whose business capability transformed the power plant industry In England and Wales. The power suppliers had to develop new technology and services to compete in the global market. According to Author, this led to the global strengthen of the power plant industry because only few or major power producing companies had the require resources and capabilities to compete in the new global environment. In early 1996 ownership of the national bulk transmission grid was divided in 12 different power companies, as a result grid or power access was opened for many power companies as well as distributor companies. In 1996 new Electricity Act allow third company access to national and local distribution grids. Now it is possible for every consumer to choose their supplier, due to this Act and some environmental condition it is very important for every company to restructure their business and need to develop new strategy, the third-party access may lead to increased competition within distribution areas. Powergen is the distributors, strategic moves at the prospect of a deregulated electricity market. It is mainly reputation their organisational changes, customer information management and product development. What actions and decisions were taken in order to adjust to the changing conditions? How well prepared were the Powergen to compete with new actors? What possibilities and threats did they see in connection with the deregulation? The distributors fluctuates regarding their preparation and readiness for the changed market conditions and that an increased market concentration may arise because of vertically and horizontally integration strategy.

Strategy: Strategic planning is not strategic thinking. One is analysis and the other is synthesis, real strategic change requires inventing new categories, not rearranging old ones (Mintzberg, 1994). Firms seeking growth have a number of choice in which to enlarge, company can pursue different sort of growth options while moving within the boundaries of a single business. The corporate strategy may select to ensure the scope of companies for general business environmental reasons that is, the surroundings in which company operates; such as market structure and firm specific reasons or internal purposes. According to rolf, a company can hardly neglect to be responsive at all with the danger of having a competitve disadvantage compared to rivals that better match conditions of the environmental. Therefore, business responsiveness is a key demand for successful corporate-level strategy. In order to make sense of the world around us, companies often simplify reality into polarized distinction that hides complex interrelationships (Rolf W. Kunneke, 2009). Strategy works on certain direction one is Base on products and markets to be pursued, second is Market segmentation, this implies only a limited subset of particularly attractive markets will be pursued, third is Market development which opposite of market segmentation and then output of differentiation and development, this implies more specialized set of product or service will be developed and in output development implies on more complete line of products or services (Lorange, 1978a).

Corporate planning:

Important purpose of corporate planning is to provide for an orderly evaluation and choice of alternatives in such a way that a direction can be established which reflects the firm's own internal strengths and weaknesses (Lorange, 1978b). Corporate Planning is a vital part of all size of business organization to decide the short and long term success of an organization. Following the effective enlargement and Implementation of corporate plans, mission, vision and ultimate goals can be explain as action and results. Being able to keep up to date and innovate new and clear ways to respond to changes quickly, predict problems and provide solutions, and develop frameworks to mutually processes are essential to maintain the competitive rim.

Contrast between corporate planning and Strategy:

-Corporate planning is a management tool in the strategic decision making process of company.

-Corporate planning's role in the allocation of the company's scarce resources such as funds, management talent, or raw materials.

-Corporate planning's role in assisting the firm to adapt to environmental opportunities and threats; identify the relevant option provide for an effective strategic fit with the environment.

-The military idea of strategy is about attacking and capturing markets, defeating rivals, winning over customers.

-Corporate strategy means intentionally choosing a different set of activities to deliver a unique mix of customer value.

-The strategy logic among many activities is fundamental, not only achieving competitive advantage, but also th the sustainability of that advantage. It is harder for rival to match a range of core activities. (E.g. Powergen is cost leader in electricity supply to its customer.)

(B) Critically evaluate the impact of changes in 'organisational structure' on PowerGen's Corporate Planning Process during the period 1990-1998. (20 marks)

Chief executive


Corporate Service Division

Finance Division

Generation Division

Technology & Engineering

Commercial Division

Figure:1 PowerGen's organisation structure, 1990 (jennings, 1999a).

Consolidation to a corporate plan

Review of divisional level

Aggregation of plans at divisional level

Business units construct plans

Corporate staff set guidance

Figure 2: PowerGen Corporate Planning cycle, 1990 (jennings, 1999b)

In the begining of 1990, the planning process was led and managed by the commericial division within a large group of assisitance, almost seven different sort of divison was helping to make desicion and following powergen's business unit. Planning process was totally centralisation, planning and development department was constructed for number of main activity of company, like handling market share, pricing strategy and competitor anaysis for core business. From the Beginning Company's future stand was clear, Ed Wallis stated that, company was first and foremost in power generation business and become low-cost producer on world class basis, planning process was very keen on development and increased PowerGen's operational flexibility.

Chief Executive

New Venture

UK electricity

Engineering & Business Strategy

Figure 3: Organization structure, 1992 (jennings, 1999c)

In 1992 PowerGen introduced a number of organisation changes that were profoundly to affect the corporate planning process. Company was reorganisation from functional to divisions. The three different division of business first is new venture containing PowerGen International, was handling finance and planning. Company has establish department for UK electricity itself, including sales and marketing, department were handling activity from planning to trading and generation to distribution, such changes were enables to department focus on core business and following the vision which is become a low-cost electricity producer. Another department is engineering & business specially focuses on new technology were allowing company to reach first to the customer with new products & services. Each division was given its own managing director.

PowerGen several of the businesses with the new venture division had developed to different stages where they justified own management. In 1996 PowerGen underwent a reorganisation that reflect development, was replacing divisional form of organisation with new clusters of business units. Each cluster such as UK production was headed by M.D (Managing Director), assisted by financial manager, responsible for financial planning. Because of new cluster that enable corporate staff to develop targets that more exactly addressed the individual business. Role of Chief executive is continuous focus company's development corporate strategy. According to Author the co-ordination between each business unit was sounds good, that's enables, all strategic actions more efficient.

Business Planning

Planning Review

Issue Planning Guidelines

Financial and strategic Overview

Draft corporate plan September February

Figure 3: PowerGen Corporate Planning Cycle, 1998 (jennings, 1999d)

Ongoing evaluation of company's organisation structure and planning process, between 1996 and 1998 company was seeking to build an integrated gas and electricity business diversification. Due to changes in Company's new development required integration of human resource planning. In planning process during September each business unit provided an updated of the plan for the previous year, taking account of development in strategy and the market context, and forward to next stage, which provide the guidelines, provide a great deal of discussion and lobbying between the corporate strategy and planning staff and business unit manager. All guidelines transfer to the Business planning unit, including all staff produced a five year plan; plan was clearly stating the business aim and objective. After submitting the five years plans to MD, business planner and team examine the overall financial picture. The final stage is draft the corporate plan.

Question 3:

(A) Critically evaluate the effect of privatisation and deregulation in the UK electricity Industry on the merger between PowerGen's and Midlands Electricity Plc in the mid-1990s.

PowerGen is vertically integrated energy company, In UK, PowerGen owns and operates, 7836 MW of power plants in England and Wales, which accounts for around 10% of the country's electricity needs. Midland Electricity Plc is 3rd largest regional electricity company in terms of volume, it operates in distribution and supply of electricity to industrial, commercial and domestic customers. (Today PowerGen is known as E-on energy in U.K)

Why merger between PowerGen and Midland Electricity Plc? Answer would be PowerGen wants to combine distribution and generation in order to become more vertically integrated, because of the decline of earnings of electricity distribution. Through Midlands Electricity, today PowerGen supplies electricity to around 2.3 million customers in the U.K.

Impact of Privatisation and Deregulation of U.K. electricity Industry:

- New generation technologies have reduced the best possible size of an electricity generator.

- The competitive UK economy requires cost reduction, electricity is a main participation for every industries.

- One argument is the state, as owner and manager of public industries, can-not act in response as quickly as private owners to economical and technological change.

- Information technologies and communication system make feasible the exchange of huge volumes of Information needed to mange electricity markets.

The UK structural reform phenomenon over the past 15 years appear to have contributed to a manifest upgrading in international competitiveness and have aid to improve productivity and growth performance (Haskel, 1991). According to Parket and Martin concluded that the U.K expericence with Privatisation and in particular the run-up to privatisation, could be associated with marked improvements in performance. This related to a reduction in overstaffing and inefficiencey in the run -up to the following privatisation. However, in certainty that several companies were able to improve performance before privatisation suggests that privatisation is not the only factor can affecting performance. Until the 1980, vertical integration, mostly under public ownership, was favoured for the power sector because it was considered a natural monopoly with sunk costs, inelastic demand and co-ordination problems in generation, transmission and distribution. After the rise of neo-liberal thinking, this model was criticised for its inefficiency and tendency to create excess capacity. It has been argued that the rationale for integrated power supply under public ownership has been weakened because of technological developments (Jamasb, 2005).

The question is of strong practical meaning, because the U.K electricity privatization is being closely observed as a possible model for regulatory reform in a number of countries. Given the attractions of deregulation and the difficulties of ensuring efficient regulation (Stigler 1971), It is clearly attractive to identify cases in which regulation can be discarded. Schmalensee and Golub (1984) estimated effective concentration in deregulated wholesale electricity markets. They found that some markets exhibited constantly high effective concentration and that in others the degree of concentration would depend sensitively on the existence of transmission capacity constraints, about which usable information was lacking (Newbery, 1992).

In process of deregulation, all nationally owned systems have been isolated in to different companies and then privatized under a new regulatory competitive framework. Where the principles of the government were clearly seem toward a general liberalization program in the U.K. The main ideal behind the privatisation and deregulation of U.K power industry seems, increase the competition in market, cost reduction on Power supply which is per unit, and as result of this, PowerGen also looking forward to be good competitive in U.K market and took decision to reach where ever company can. According to PowerGen's chief executive Ed Wallis stated that the company was first and foremost, a power generation business, to become a low cost producer on a world class basis. Company was very keen for merger & acquisition in early stage, the company would seek the opportunity to reintegrate generation with supply, implying merger with a regional electricity company (jennings, 1999). In mid 1990, it becomes actuality with Midland Electricity Plc, PowerGen (PG) is largest supplier in the competitive part of power supply market, with a 16 per cent share of this market by volume. Midland electricity Plc (MEB) is one of the 12 Regional electricity companies (REC). Following the merger did reduce from 16 to 15 the number of major players in the 100 kw supply market. One was that it would reduce competition by merger with MEB, and other would be increase competition by creating a more aggressive competitor. Merger with MEB would have benefit of making a company good and able to compete in U.K markets as well as international market, because it increased size and range of skill and experience.