Analysis by Nick Best
TOPCIMA
EGC
Strategic Analysis
Nick Best
Analysis by 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
Analysis by Nick Best
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!
Analysis by Nick Best
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!
Analysis by Nick Best
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
Analysis by Nick Best
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!
Analysis by Nick Best
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
Analysis by Nick Best
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
Analysis by Nick Best
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
Analysis by Nick Best
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
Analysis by Nick Best
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
Analysis by Nick Best
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.
Analysis by Nick Best
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)
Analysis by Nick Best
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
Analysis by Nick Best
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.
Analysis by Nick Best
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
Analysis by Nick Best
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
Analysis by Nick Best
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!
Analysis by Nick Best
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
Analysis by Nick Best
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.
Analysis by Nick Best
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
Analysis by Nick Best
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
Analysis by Nick Best
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.
Analysis by Nick Best
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
Analysis by Nick Best
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)