The PowerGen company


This report is answering three questions with two each sub questions about PowerGen. The company is coming from a privatization of the UK's Public Electricity Industry in the early 90's and through the history of company's strategic decisions and for the rest of that decade we are going to examine, compare and contrast, discuss, critically evaluate principles and theories like Strategy, Corporate Planning, Privatization, Core Competencies and Capabilities.

Question One

Strategy and Corporate Planning

According to Whittington (2001) there are many books with the title 'Strategic Management' but if we consider that strategy, its processes and applications are so easily to identify in such a book of $50 cost then why for businesses to pay the top managers with loads of money? More specific strategy is a set of steps which try to identify the cause of the existence of the company. This can be achieved by answering a combination of questions that represent the present and future of the business. Where are you? Where do you want to go next? Why do you want to go there? How do you get there (Wit, 2004)? Furthermore in order to identify what strategy is and how to do it, Whittington (2001) categorized it in four generic approaches that are designed in Appendix 2.1.A. For the classical perspective a business strategy is rational and deliberate with a proactive planning process. The evolutionary approach believes that external environment is too fast to predict and try to keep options open. The processualists "doubt whether either organizations or markets work with the ruthless efficiency that Classicists and Evolutionists respectively claim and incline therefore towards patient strategies of cultivation of core competences (Whittington, 2001)". Finally the systemic approach insists that "both ends and means of strategy depend on the character of prevailing social systems (Whittington, 2001)".

The common edge of strategy and corporate planning is that the purpose of planning except of motivating, encouraging participation and facilitating consensus, is to control the future of the business and therefore the internal environment of the business as Mintzbergh (1994) agrees. Furthermore he states that organizations must plan in order to be rational which is better than nonformalized decision making, a theory which has actually the same base with what Classical Strategists are claim for being proactive instead of reactive. Also Mintzbergh (1994) claims that "organizations must plan" in order to coordinate their activities to ensure that the overall job will get done which is connected with the question 'how do we get there?' that is already mention above as a crucial element of setting a strategy.

Impact of Changes in Organization Structure of PowerGen

According to the case study article of Dr. David Jennings, Powergen was a part of the public Central Electricity Generating Board (CEGB) which in early 1990's was separated and privatized. So from an organization with more pluralistic outcomes it must be turned to a profit maximization organization. But when an industry from a close public form becomes open to competition then the changes in market share is difficult to be predicted in advance as Bryson (1995) agrees. Furthermore the organization, with the guidance of McKinsey consulting company, changed its structure in order to be prepared for the new era. More specific the structure that Jennings describes in the case study is more likely a Bureaucratic Structure according to Pride et al (2008). We can identify the departmentalization by function, a high degree of centralization especially in the planning process but on the opposite not narrow spans of management because of the few layers of management. This kind of organizational structure according to Pride et al (2008) is common in government agencies in order to ensure that is able to deal effectively with large numbers of people. For the above reasons I personally believe that the conservative restructure of the bureaucratic type was a clearly wised decision at least temporally for that period of time for the company.

After two years in 1992 the company forced to reorganize its structure. That happened not necessarily because of the failure of the previous model but because the needs and objectives have changed and the organization was more mature in that new high competitive environment. For example the closures of power stations which were closely predicted from before lead the company to develop a portfolio of new businesses not only in UK but in Germany and Hungary as well. The new structure was considered by divisions according the existing projects and also the new ventures with business units with a wider role in decision making and considerable influence over their own revenue. This flexible new scheme gives now a tall organization with more levels of management than before but also a decentralized form of authority providing cost efficiency inside the divisions and helps to empower business - level management. It is the right time to bring that kind of change and a more employee focus policy when "the challenges and targets encouraged units to explore their potential rather than meet a set target" (Wit, 2004). On the other hand, although the time required completing the corporate planning process was reduced from more than a year to nine months due to lower level of details required, a problem revealed shortly caused from the disconnection of strategic decision and the financial requirements. That was just an element because the main problem was the lack of communication between the planning group members. That was probably caused from an unclear level of interaction or authority or even because of lack of communication channels among the managers as Pride et al (2008) claim.

Again in 1996 the need of restructuring came up because of further development of the organization. According the case study the departments became more and more autonomous giving to the new divisions the power to plan according to their own needs and objectives. The new scheme looks like what Pride et al (2008) describe as Network Structure or Virtual Organization with an obvious strength of flexibility that allows the organization in adjusting quickly in to changes. On the other hand the company had to face new challenges like the quality of work performed by the other companies and "the need for co-ordination between the UK generation and the developing overseas operations, a skills transfer that required integration of human resource planning" (Wit, 2004). Concluding, considering the development of the company from the privatization since the expansion of 1998 it is clearly that the three restructures during that time were successfully and occur as a series of actions not because of the disaster of the previous but because of the need of a further development as have been evaluated above.

Question Two

Core Competencies and Dynamic Capabilities

Starting by giving the most important aspects of core competencies we could say that there are those core elements, capabilities that are crucial for a firm to gain competitive advantage. It is very interesting that Prahalad and Hamel (1994) give an example by state that the "core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies". By combine production skills and technology we identify the role of company's resources as a source of its capabilities in achieving this competitive advantage as also Drejer (2002) agrees. He further claims that capabilities and core competencies seem for him to be same concept.

To identify Powergen's core competencies a useful tool is definitely the SWOT analysis of the company and especially the strengths and weaknesses. As two most important strengths we underline the experience of their employees in the sector and the 'know to how' internal environment meaning specialized and experienced workers. Secondly the fact that the company is coming from the public dominant Central Electricity Generating Board (CEGB) gives an unofficial leading maybe because of a possible special treatment. On the other hand as weakness we can easily identify the lack of experience in operating in a high competitive environment that caused the reorganizations we already mentioned. Also the need in cost efficiency which was not the first concern so far, but after the privatization was a real problem.

Furthermore a great threat from the SWOT analysis was that although the tendency from the power utilities in the developing countries was to reduce the prices, the demand domestically was forecasted to be low. The opportunity here was the further develop and expansion not only in other energy- related areas, e.g. gas, inside UK but also internationally. So except of the giant heritage from the former CEGB in England and Wales the company also invested in gas - fired station and in joint ventures for expand in the gas power industry. At the market share table at the end of the case study we can see a decrease of 30% for the ages 1991 to 1998 for PowerGen caused mainly from the entrance of new competitors but it is considerable lower that the 55% of National Power. Also in the performance table we can see the international expansion in terms of employee numbers but also the opposite than the market share, an increase in the profits year by year because the company has a more diversity portfolio.

E.ON vs. Electricité de France (EDF)

Actually Electricité de France (EDF) according to company's web site, began after 2002 when the three energy companies SWEB, London Energy and SEEBoard were brought together and after that, the combination of EDF Energy and British Energy in 2009 forms UK's largest producer of electricity. The company operates with a vertically integrated structure which means that they manage energy from the moment it is produced till the time it is used. Some statistical details show that EDF provides energy to 5.5 million consumers nationally but the power stations are generating enough electricity to meet about 20% of total UK demand. The company operates eight nuclear power stations nationwide with a combined capacity of around 9 gigawatts which according to the company this kind of energy is vital to the British economy. The Customer Supply and Energy Sourcing business unit runs the power stations and wind farms and also deals not only with home consumers but also covers both small-medium companies and large businesses. EDF also runs the UK's largest power network covering Public Networks and Private Networks as well. More specific Public Networks supply power to about 8 million homes and businesses when Private Networks builds partnerships for long-term infrastructure projects mainly in the public sector. For example its portfolio includes London's Underground power distribution network, EDF Energy Powerlink, and also partnerships with BAA's Heathrow, Gatwick and Stansted airports and the Channel Tunnel. Except the economic environment in which the company increases the sales every year and the environmental in which new investments are taking place in low-carbon generation technologies like renewable, nuclear and combined heat and power, there is also awareness for the social environment. For example the company is considering being a customer focus business trying to meet all customer needs through various researches that provide feedback to the customers. Finally EDF invest in employees' health and well-being by resilience enhancement programs, stress awareness training programs and occupational health teams.

On the other hand E.ON UK is part of E.ON which was formed in 2000 by the merger of the two largest industrial groups of Germany and during 2002 the acquisition of PowerGen has formed the E.ON UK. The company through their web site claim that they are a leading nationally supplier of power and gas and at the same time the second-biggest power producer in the country. Their portfolio considered of coal, gas and oil power stations with a total capacity of 10.3 gigawatts. They also claim that they are the U.K. market leader in combined heat and power units with a total capacity of 0.6 gigawatts of electric and 1.3 gigawatts of heat. Additionally they operate the UK's second-largest power distribution system but at the same time supply gas and power to more than 7.9 million consumers. Furthermore E.ON UK is operating one of UK's largest biomass plants, which is capable in producing energy for about 70,000 homes and also to displace around 140,000 tons of carbon dioxide every year. Also the company is investing in wind farms which are considering as renewable energy in 21 farms so far around UK producing more than 190 megawatts. Central Networks is the distribution business of E.ON UK with more than 5 million customers supplying energy in East and West Midlands. According to the company's web site and in addition to EDF, E.ON UK is suffering a loss in not only in electricity sales but also in gas sales the last two years. Although that loss the company still targeting in innovation and technological developments like for example at Kingsnorth Power Station where is planning to replace the existing coal-fired units with two new cleaner and 20% higher efficiency coal units and also is researching in heat storage in Concentrating Solar Power. Finally concerning the social environment E.ON UK is encouraging a customer orientation focus and drive for performance externally and internally teamwork but also leadership, diversity and further development of their employees.

Question Three

Effects of Privatization and Deregulation

Firstly let us go through the effects of the privatization in the Electricity Industry for a better understanding and after that period of time we have to evaluate the concept behind the Powergen's merger. According to Donaldson and Wagle (1995) there are two types of benefits from such an issue, the political and economic. Political benefit might be to achieve a wide shareholders distribution, to reduce budget deficit/raising money, also to ensure that enterprises do not close and at the same time to maintain employment. On the other hand economic benefit might be to improve firm's efficiency and performance, to develop a competitive industry, to achieve effective corporate governance, to secure the best price possible for maximizing the revenues, and others (Donaldson & Wagle, 1995). Except of the political benefits which are another topic of discussion, if we take a closer look to the economics' we can identify them throughout the case study as objectives of the privatization of Powergen. Of course traditional strengths that we can find in a public organization after the transportation are no longer considered as strengths. For example and according to Bryson (1995) such strengths are a relatively secure budget, the public support, no worry of competition and long term planning and employee satisfaction.

Additionally Roland (2008) claims that "in a competitive environment of profit maximizing firms without market failures, there is no efficiency case against private ownership". He also examines a set of theories which criticize the effects of either government ownership firms or private. The economic theory and specifically in general equilibrium theory Roland (2008), underlines for organizations that "there is no intrinsic reason for them to be private as long as they maximize profits".

More specific from the case study the main effect from the privatization of the two public electricity organizations is the opening of the industry in competitiveness. So for instance the two companies along with Nuclear Power supplied the industry with the 95% of the electricity at the time that privatizations took place but during 1996 that market share was around 65% which is more than 30% decline because of new entrance competitors. After the privatization Powergen had the right to expand to other energy solutions like gas-fired stations and with the joint venture of two other companies, Powergen supplied 20% of UK gas consumption. Up to 1996 the company except of the gas industry had expanded not only domestically but also internationally with mining acquisitions in Hungary and Germany and other projects in Indonesia and Portugal in the same profit maximization strategy. Consequently when the company decided for a further investment to acquire an REC because of an increasing pressure on market share and for lower electricity prices, they hit on the wall of fair competition. The Monopolies and Mergers Commission had realized that Powergen along with Midlands Electricity plc can set pool prices of 35% which is a large proportion and the government decided to block that merger. Eventually the merger occurs after two years with the condition for Powergen to dispose two large coal-fired power stations reducing the overall capacity.

Centralized Structure Caused Also from the Cultural Environment

According to Hofstede G. (1993) article 'Cultural constraints in management theories', "there are no such things as universal management theories" but actually differs to varying degrees among different countries. He further states that these cultural differences among countries can be identified by using five bipolar dimensions which are uncertainty avoidance, individualism, power distance, masculinity-femininity index and long-term vs. short-term orientation. So by looking at how each country is located on each of these dimensions we are able to make suggestions about their society, the way they operate and also what kind of role management they play.Furthermore in Appendix 4.2.A and due to Hofstede G. (n.d) list of countries we can make some assumptions only from the numbers in each cultural dimension for British organization.

Firstly the power distance score is low (35) which mean that power is shared and well dispersed and that society members view themselves as equals. In such a country we probably can see flatter organizations with fewer level managers. Secondly the individualism score is high (89) which indicate a loose connection with people inside a company with a lack of interpersonal relation and low sharing of responsibility. Here we can mention that Daniels et al (2007) call as monochronic the northern Europe countries in which people prefer to work sequentially by finishing with one task before dealing with another. Thirdly the masculinity-femininity index gives a high score (66) which mean the man is expected to be the provider, to be assertive and also strong and at the same time if women work outside home they have separate professions. Additionally the uncertainty avoidance is really low (35) showing a flexible society of few rules and people that have been encouraged to find their own way of doing things. Finally a low score (25) in long-term orientation according to Hofstede, suggest that you can expect anything in this society particularly in creative expression and fresh ideas and also they don't value tradition as much as others.

According the case study in 1989 Powergen was restructured by the McKinsey consulting company on behalf of the Central Electricity Generating Board (CEGB) which was still responsible for the electricity in the England and Wales. The company up to that point was public which means that was operating with an organizational culture same as the society that served. On the other hand Jennings described the new structure and the planning process and he clearly defined that retained a high degree of centralization mainly because of the influence of the public type operation that had so far. After one year though the objectives had changed and the market also became open to competition and that was the transformation in the private way of operating. Consequently the new restructure embrace the society's culture as part of it and form a decentralized, flatter organization with fewer managerial levels and the planning process addressed to a wider range of staff and divisions.


Summarizing, this paper compares and contrasts, discuss and evaluates general terms and theories like Strategy, Corporate planning, Core Competencies and Capabilities, Privatization and Deregulation of Powergen Company during a decade of continuing change and restructure in order to adapt to the needs of a different operating market. Also this paper examines a different approach in understanding the strategic planning decision by trying to explain through the cultural elements of the society the company belongs to. Finally there is a brief contrasting between the two current larger companies in the UK Electricity Industry in order to point similarities and differences.

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