2Welcome to Nick Best’s TOPCIMA strategic analysis In this presentation you’ll find my views on the latest TOPCIMA case studyFor 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
3Well, what an unusual case!!! ABOUT ECGWell, 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!
4Despite this, there’s still plenty to get our teeth into! ABOUT ECGThe 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!
5Electricity Generation 12 coal fired power stations ABOUT ECGElectricity Generation12 coal fired power stationsDemocratic Asian countrySell Electricity to 10 electricity distribution companies, who sell on to consumers/businessesMain goal = providing electricity to home country ‘at any cost’NationalisedGovernment influenced – direct strategyMonopolyAppears to be inefficientElection(1) Current government - Greater efficiency drive(2) Opposition - Nationalise
6On 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 wellYou 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!
7SWOT STRENGTHS Monopoly – no threat to sales Financial backing from government – assures future existence whatever their positionContinued (and rising) demand assures revenue streamsLow cost loans, which have no repayment dateTechnically knowledgeable staffWEAKNESSESPower 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 targetsPoor structure – lack of control for FD, long hierarchies = slow and inefficientOPPORTUNITIESNew production methods – nuclear, gas, windImport/export energyTHREATSLarge increases in demand (with limited capacity)Political change (privatisation, price increases limited, efficiency targets)Change in home coal industryEnvironmental concerns
8Mission 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 usefulYou MUST cross reference your PEST in your script however, and many students do not do this well. Aim for 2-3 cross references
9Mission & Objectives Governance & Ethics NO MISSION IS DEFINED, BUT THERE ARE SOME HINTS IN THE CASEMD – To maintain electricity generation at any costMinister of Energy “Productivity, Return on assets, and good stewardship of public funds”Objectives/Performance MeasurementNon-profit makingGovernment aim – to cover operating costs through sales (not reinvestment)Few apparent cost or performance targetsGovernanceManaged by board directly accountable to governmentMD reports to senior civil servants – formal annual meetingGovernment want ‘good stewardship of public funds’Other meetings are informalLack of broad business experience on board (all electrical engineers) – no non-exec roles on boardMD appears to have total power – e.g. Corp sec does what toldNo clear recruitment process noted – e.g. nomination committeeNo clear remuneration process noted - E.g. Remuneration committeeEthicsDuty to the people to be efficient – not current attitudeAll research funding by coal industryEnvironmental issues
10On 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 usefulYou MUST cross reference your PEST in your script however, and many students do not do this well. Aim for 2-3 cross references
11PEST Political/ Legal Economic Social Technological Government controlledDependent on political policies e.g. environmentGovernment funded (threat of change of funding method)Very important politically to ensure continued supplyHealth and safety important in production methodsPolitical impact of having a nuclear abilityEconomicIncreasing energy prices internationally – likely to have an impact on costsSome countries have lost their coal industry and uneconomic – threat to ECGIncreasing inflation – links to economic uncertaintyWell developed capital marketsSocialIncreasing demand (doubled over last 10 years), need for more capacity in futureEnvironmental concerns may drive new technology useTechnologicalNew technologies such as wind and solar power will develop over a number of years
12On the following page you’ll find my resource audit. Resource Audit – 5 M’sOn the following page you’ll find my resource audit.This adds to the detail you’ll find in my SWOT analysis.
13Strengths and Weaknesses Resource Audit - 5 M’s analysis MenKnowledge of company and marketsLoyal Corp sec – and his staffLong hierarchy - bureaucratic – committees, forms//inefficient/MD sign off $5000Lack of broad business experience on board (all electrical engineers)Significant replication of duties between regions e.g. HR, financeVery big staff increases – greater than demand increases - particularly managerialLittle external knowledge/experienceInformal decision making – not structuredTechnical director – part time Phd – are they committed in such an important role?FD little control over regional finance staffMD view – Government = bottomless pitMoneyGovernment financial backingGov. loans have no set repayment datesLow 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 inflationPoor cost controlPoor financial information (inc o/h apportionment)
14Strengths and Weaknesses 5 M’s analysis Materials/SupplyCoal availableMachines/ AssetsTimes when not able to meet demandAll power stations over 15 years oldLarge investment required just to maintain output levelsNo apparent plan to increase capacity levels despite obvious needCurrently near maximum practical output levelsMarketsMonopoly provider in home countryDoubling of energy consumptionLack of knowledge and expertise in nuclear and other forms of powerLow R&D spending
15Porter’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.
16Opportunities and Threats 5 forces analysis Factors increasing ForceFactors lowering forceBuyer PowerLowPrices fixed by governmentMonopoly (10 buyers)Supplier PowerFewer coal suppliers internationallyCould 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 customerCompeti-torsMonopolyNew Entrants lowUnlikely as nationalisedSubsFew substitutese.g. oil/gas for heating – but these are increasing
17Product 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 = GrowthOxyfuel/carbon capture – Growth
18Why bother being a cost leader when you are a monopoly! Generic strategiesIt’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 SUGGESTIONIGNORE THIS MODEL IN THIS EXAM!
19Ansoff’s Matrix Existing Market New Market Existing Product Build new power stationsNew production methods:- Nuclear power – not favoured internally- Wind power- Gas powered- Solar (technology not good enough yet)- OxyfuelBetter cost control and performance managementNew structureRedundancy programmeLong term strategic planningLong term – could sell to other countriesNew ProductOther forms of energye.g. gas distribution (like national grid)Regional distribution and salese.g. Oil production/distribution
20Mendelow’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.
22Methods of Growth Restructuring Internal DevelopmentNew power stationsRestructuringAcquisitionPossibly buy overseas power companies/stationsBuy gas distribution infrastructure/businessJoint VentureOther countries/companies who have expertise e.g. nuclear powerDivestSplit in different ways:- national grid vs production- regionally
23So given all that analysis – what should EGC do going forward? Possible strategySo 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.
24Possible strategyPlan for future capacity to meet future demandsEnvironmentally friendly e.g. oxyfuel/nuclearDiscuss and agree with political parties after electionCreate a financial plan, including funding issues ( government/private sector funding)Considering when current power stations need replacementReview possibility to import electricity, and infrastructurerequired to do soRestructuringDelayer - Lay off many staffRemove regional structure and rationalise OR centralise the functionsRemove some bureaucracy
25Possible strategySignificant governance changesNon-exec style personnel on board to bring independenceand scrutinyPossible replacement of key personnel e.g. MD to help tocreate cultural changeClear, formal processes of decision makingMore discussion with and accountability to governmentEfficiency improvementsManagement information and performance targets includingcosting informationBenchmarking vs other countriesContinual cost improvement targetsCulture change programme (organisational development)