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TOPCIMA EGC Strategic Analysis Nick Best.

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1 TOPCIMA EGC Strategic Analysis Nick Best

2 Welcome to Nick Best’s TOPCIMA strategic analysis
In this presentation you’ll find my views on the latest TOPCIMA case study For details of courses which I am taking at Reed Business School and to learn more about the exam and how to approach it, please see

3 Well, what an unusual case!!!
ABOUT ECG Well, what an unusual case!!! I bet you weren’t happy when you heard about this one. Personally, I find this a nice change from all those medium sized quite successful businesses which seem to crop up case after case. Nasty from a student’s perspective though!

4 Despite this, there’s still plenty to get our teeth into!
ABOUT ECG The difficulty in doing a strategic analysis on this type of company is that many of our standard models don’t work well and are largely meaningless. This is the first time I ever remember doing a Porter’s Five Forces analysis where all the forces are low. Despite this, there’s still plenty to get our teeth into!

5 Electricity Generation 12 coal fired power stations
ABOUT ECG Electricity Generation 12 coal fired power stations Democratic Asian country Sell Electricity to 10 electricity distribution companies, who sell on to consumers/businesses Main goal = providing electricity to home country ‘at any cost’ Nationalised Government influenced – direct strategy Monopoly Appears to be inefficient Election (1) Current government - Greater efficiency drive (2) Opposition - Nationalise

6 On the following page you’ll find my SWOT analysis.
Remember that you MUST do a SWOT analysis as Appendix 1 in your answer. You will score 1 mark in the technical section for this, and up to 3 further marks in the application section if done well You must update this SWOT for unseen issues (underline or bold these in your exam script) A recent student script review I read made it clear that 2-3 word points in the SWOT are NOT sufficient. Aim to write at least 7-8 words for each point in SWOT. I’ve shown my points in priority order as I see it. You don’t need to do this in the exam!

7 SWOT STRENGTHS Monopoly – no threat to sales
Financial backing from government – assures future existence whatever their position Continued (and rising) demand assures revenue streams Low cost loans, which have no repayment date Technically knowledgeable staff WEAKNESSES Power stations operating at maximum capacity, so little additional capacity available to meet future demands. Old asset base (inefficient, not environmentally friendly, costly to maintain) Poor governance (power of MD, lack of reporting, no long term planning, MDs attitude of complacency, informal decisions) Too many staff (increases cost) Poor cost control - culture where costs are not deemed important - few targets Poor structure – lack of control for FD, long hierarchies = slow and inefficient OPPORTUNITIES New production methods – nuclear, gas, wind Import/export energy THREATS Large increases in demand (with limited capacity) Political change (privatisation, price increases limited, efficiency targets) Change in home coal industry Environmental concerns

8 Mission and objectives
On the following page you’ll find my PEST analysis. The PEST analysis is always an optional appendix in this exam. In this scenario, the PEST factors are more significant than most and I believe that including a PEST will be very useful You MUST cross reference your PEST in your script however, and many students do not do this well. Aim for 2-3 cross references

9 Mission & Objectives Governance & Ethics
NO MISSION IS DEFINED, BUT THERE ARE SOME HINTS IN THE CASE MD – To maintain electricity generation at any cost Minister of Energy “Productivity, Return on assets, and good stewardship of public funds” Objectives/ Performance Measurement Non-profit making Government aim – to cover operating costs through sales (not reinvestment) Few apparent cost or performance targets Governance Managed by board directly accountable to government MD reports to senior civil servants – formal annual meeting Government want ‘good stewardship of public funds’ Other meetings are informal Lack of broad business experience on board (all electrical engineers) – no non-exec roles on board MD appears to have total power – e.g. Corp sec does what told No clear recruitment process noted – e.g. nomination committee No clear remuneration process noted - E.g. Remuneration committee Ethics Duty to the people to be efficient – not current attitude All research funding by coal industry Environmental issues

10 On the following page you’ll find my PEST analysis.
The PEST analysis is always an optional appendix in this exam. In this scenario, the PEST factors are more significant than most and I believe that including a PEST will be very useful You MUST cross reference your PEST in your script however, and many students do not do this well. Aim for 2-3 cross references

11 PEST Political/ Legal Economic Social Technological
Government controlled Dependent on political policies e.g. environment Government funded (threat of change of funding method) Very important politically to ensure continued supply Health and safety important in production methods Political impact of having a nuclear ability Economic Increasing energy prices internationally – likely to have an impact on costs Some countries have lost their coal industry and uneconomic – threat to ECG Increasing inflation – links to economic uncertainty Well developed capital markets Social Increasing demand (doubled over last 10 years), need for more capacity in future Environmental concerns may drive new technology use Technological New technologies such as wind and solar power will develop over a number of years

12 On the following page you’ll find my resource audit.
Resource Audit – 5 M’s On the following page you’ll find my resource audit. This adds to the detail you’ll find in my SWOT analysis.

13 Strengths and Weaknesses Resource Audit - 5 M’s analysis
Men Knowledge of company and markets Loyal Corp sec – and his staff Long hierarchy - bureaucratic – committees, forms//inefficient/MD sign off $5000 Lack of broad business experience on board (all electrical engineers) Significant replication of duties between regions e.g. HR, finance Very big staff increases – greater than demand increases - particularly managerial Little external knowledge/experience Informal decision making – not structured Technical director – part time Phd – are they committed in such an important role? FD little control over regional finance staff MD view – Government = bottomless pit Money Government financial backing Gov. loans have no set repayment dates Low cost of debt (2% below base rates) Staff costs and overheads rising by more than revenues (reg 4.1% head 5.1%) No increase in prices despite inflation Poor cost control Poor financial information (inc o/h apportionment)

14 Strengths and Weaknesses 5 M’s analysis
Materials/ Supply Coal available Machines/ Assets Times when not able to meet demand All power stations over 15 years old Large investment required just to maintain output levels No apparent plan to increase capacity levels despite obvious need Currently near maximum practical output levels Markets Monopoly provider in home country Doubling of energy consumption Lack of knowledge and expertise in nuclear and other forms of power Low R&D spending

15 Porter’s 5 forces analysis
What a boring 5 forces analysis!!!! (see the next page) This is not one I’d recommend for this exam since its rather strange, mostly due to the fact the company is a monopoly. An analysis like this with all forces being low would normally suggest high profitability, but, of course, in this case it is largely meaningless since prices are agreed by the government.

16 Opportunities and Threats 5 forces analysis
Factors increasing Force Factors lowering force Buyer Power Low Prices fixed by government Monopoly (10 buyers) Supplier Power Fewer coal suppliers internationally Could higher prices generally encourage coal suppliers to sell overseas (Could be higher power in future for new technology e.g. nuclear) Use virtually all the home based coal – very big, powerful customer Competi-tors Monopoly New Entrants low Unlikely as nationalised Subs Few substitutes e.g. oil/gas for heating – but these are increasing

17 Product life cycle/BCG matrix
The product life cycle/BCG matrix is largely meaningless here as they have one single product – electricity – which is mature in nature. Production methods could have a life-cycle – but note that this is a ‘production method’ not product so take care in its use! Coal and gas = Mature (Int) Nuclear = Mature (internationally) Wind = Growth Oxyfuel/carbon capture – Growth

18 Why bother being a cost leader when you are a monopoly!
Generic strategies It’s so strange to say this, but Porter’s generic strategie are largely pointless in this case study! Why bother being a cost leader when you are a monopoly! No need to differentiate when you are a monopoly! Perhaps you could argue they are focused on Electricity generation and distribution, not sales, but that’s weak at best! MY SUGGESTION IGNORE THIS MODEL IN THIS EXAM!

19 Ansoff’s Matrix Existing Market New Market Existing Product
Build new power stations New production methods: - Nuclear power – not favoured internally - Wind power - Gas powered - Solar (technology not good enough yet) - Oxyfuel Better cost control and performance management New structure Redundancy programme Long term strategic planning Long term – could sell to other countries New Product Other forms of energy e.g. gas distribution (like national grid) Regional distribution and sales e.g. Oil production/distribution

20 Mendelow’s Stakeholder Matrix
I like this for use in the exam! Remember to cross reference your Mendelow’s matrix throughout your script (people are so bad at doing this – why is that when its so important???????) This case throws up a lot of stakeholders with high interest in the company which is unusual. I really struggled to find a stakeholder in the keep satisfied box, but one of my students suggested the media were a good example. I agree.

21 Stakeholder Analysis Mendelow’s Matrix
Low Interest High Interest Low Power High Power Individual employees End Users Environmental groups 10 Dist Companies Finance Director Corporation Sec Opposition Coal producers Technical D. Regional D. Media Unions MD Government

22 Methods of Growth Restructuring
Internal Development New power stations Restructuring Acquisition Possibly buy overseas power companies/stations Buy gas distribution infrastructure/business Joint Venture Other countries/companies who have expertise e.g. nuclear power Divest Split in different ways: - national grid vs production - regionally

23 So given all that analysis – what should EGC do going forward?
Possible strategy So given all that analysis – what should EGC do going forward? The following slides show you my view. WARNING!!! Just remember that this MUST be seen alongside any new information given in the UNSEEN, and that new unseen information is far more important to deal with than any of the pre-seen issues.

24 Possible strategy Plan for future capacity to meet future demands Environmentally friendly e.g. oxyfuel/nuclear Discuss and agree with political parties after election Create a financial plan, including funding issues ( government/private sector funding) Considering when current power stations need replacement Review possibility to import electricity, and infrastructure required to do so Restructuring Delayer - Lay off many staff Remove regional structure and rationalise OR centralise the functions Remove some bureaucracy

25 Possible strategy Significant governance changes Non-exec style personnel on board to bring independence and scrutiny Possible replacement of key personnel e.g. MD to help to create cultural change Clear, formal processes of decision making More discussion with and accountability to government Efficiency improvements Management information and performance targets including costing information Benchmarking vs other countries Continual cost improvement targets Culture change programme (organisational development)

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