analysis by nick best topcima egc strategic analysis nick best

Analysis by Nick Best

TOPCIMA

EGC

Strategic Analysis

Nick Best


Welcome

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 www.topcima.biz


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!


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!


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


SWOT

• 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!


SWOT

STRENGTHS

1. Monopoly – no threat to sales

2. Financial backing from government – assures future existence whatever their position

3. Continued (and rising) demand assures revenue streams

4. Low cost loans, which have no repayment date

5. Technically knowledgeable staff

WEAKNESSES

1. Power stations operating at maximum capacity, so little additional capacity available to meet future demands.

2. Old asset base (inefficient, not environmentally friendly, costly to maintain)

3. Poor governance (power of MD, lack of reporting, no long term planning, MDs attitude of complacency, informal decisions)

4. Too many staff (increases cost)

5. Poor cost control - culture where costs are not deemed important - few targets

6. Poor structure – lack of control for FD, long hierarchies = slow and inefficient

OPPORTUNITIES

1. New production methods – nuclear, gas, wind

2. Import/export energy

THREATS

1. Large increases in demand (with limited capacity)

2. Political change (privatisation, price increases limited, efficiency targets)

3. Change in home coal industry

4. Environmental concerns


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


Mission & ObjectivesGovernance & Ethics

Mission

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


PEST

• 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


PEST

Political/

Legal

• 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


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.


Strengths and WeaknessesResource Audit - 5 M’s analysis

Strengths Weaknesses

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)


Strengths and Weaknesses5 M’s analysis

Strengths Weaknesses

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


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.


Opportunities and Threats5 forces analysis

Factors increasing Force Factors lowering force

Buyer Power

Low

Prices fixed by government Monopoly (10 buyers)

Supplier Power

Low

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

Low

Monopoly

New Entrants

low

Unlikely as nationalised

Subs

Low

Few substitutes

e.g. oil/gas for heating – but these are increasing


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


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!


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

Other forms of energy

e.g. gas distribution (like national grid)

e.g. Oil production/distribution


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.


Stakeholder AnalysisMendelow’s Matrix

Low Interest High Interest

Low Power

High Power

MD

Technical D.Regional D.

Finance DirectorCorporation Sec

Government

Opposition

Individual employees

Unions

Coalproducers

End Users

10 DistCompanies

Environmental groups

Media


Methods of Growth

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


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.


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


Possible strategy

• Significant governance changes• Non-exec style personnel on board to bring independenceand 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)

analysis by nick best topcima egc strategic analysis nick best

Documents

pest analysis

swot analysis

forces analysis

nick best swot strengths

pest factors

cost nationalised government

case md

exam script