Strategic Analysis Of Green Energy UK - Future Strategy Essay.

Green Energy UK is an independent sustainable energy company which sells 100% Ofgem-certified green and renewable electricity, as well as gas, to homes, businesses and organisations in England, Wales and Scotland. As green energy plays a greater role in the British market, it is making the price of power increasingly unstable.

Critically evaluate the strategic environment Green Energy UK is operating in, and its current strategy as an organisation. On the basis of this evaluation, identify a future strategy for the company.

You will need to research Green Energy UK, using as wide a range as sources as possible. Green Energy UK has been a high profile form in recent years, so there is information out there. You should consider not only issues specific to Green Energy UK, but also the forces acting in the sector in which they operate, as well as wider economic and political forces.

This report will aim to discover a new strategy for the organization Green Energy Plc. The report will initially identify the current business strategy used by Green Energy Plc. Strategic management tools will be used to analyze the operating market, their target consumers and the surrounding environment both micro and macro. The increases in the level of pollution and depletion of the natural resources, the resource dependent industries have been put under strict rules and regulations. Green energy resources are essential for increasing the sustainability of the environment. There has been a steady increase in demand for energy resources, and it is expected to rise even further in the next decade. Therefore, Green Energy UK will have to be prepared for this change in market demand so that they can become more competitive in the environment.

Green Energy UK plc is one of the companies serving sustainable energy to different businesses, homes and organizations. They mainly serve n Scotland, Wales and England and the company sells renewable and green gas and electricity which is certified by Ofgem (Greenenergyuk.com 2018). The firm is the only company in the United Kingdom to supply 100% green energy in different forms to the consumers.  The organization has its headquarters at Ware in Herefordshire, and Douglas Stewart, the chief executive officer of the company, founded Green Energy UK in the year of 2001 (Greenenergyuk.com 2018). It is the first and only private company to offer shares to the consumers in the United Kingdom.  The consumers have been included as an integral part of the company where the organization takes suggestions from the customers for strategies and measures that need to taken to improve organizations growth. The consumers are also allowed to take part in the AGM where they can question the board. The social marketing activities, customer recommendation and sponsorship are the main ways that the consumers can increase their customer base.  The green only tariff started by Green Energy UK made their offerings more enticing to the consumers in the market.

Pestle analysis is a macro analysis tool used to analyze the external environment of Green Energy United Kingdom. This will consist of identifying the different factors such as political, legal, social, environmental and technological.

The United Kingdom is a politically stable country, but there has significant turmoil in the political environment due to the contrasting opinion of BREXIT.  The government in the United Kingdom has always been supportive in developing laws for protecting the environment. Moreover, the government has developed laws for enhancing the growth of the energy sector in the United Kingdom. However, the current scenario is changing as BREXIT has divided the political parties into two groups having a contrasting opinion. Green Energy will face issues in importing and exporting electricity and gas to the other European countries (Pacesila, Burcea and Colesca 2016). They may have to pay heavy taxes while trading with the remaining countries in the European Union. The exit of United Kingdom will be a violation of free trade between the countries in the European Union which will have an impact on the trade regulations between countries in the EU. This will affect the operations of Green Energy UK while increasing their business scope.

Strategic Analysis of Green Energy UK

The growth in the economy of a country will increase the level of carbon emission and climatic change. The economics of United Kingdom is one of the most influential global economies but the recent growth of the economy had been slow, and the company took a lot of time to reach their pre-recession period which shows that inflation within the country has significantly increased. The government rules and regulations have become stricter regarding conserving the surrounding environment (Cloyne and Hürtgen 2016).  The energy requirements in the country are very high, and it is expected to rise even further in the next few years where the renewable sources of energy will be one of the major contributors to the energy demands in different countries.  

The awareness regarding carbon emission and other harmful gases have changed the demand of renewable energy sources. The electricity production through renewable sources of energy has grown significantly. Therefore, the market growth of Renewable energy and gases will be higher in the upcoming years. The availability of capital is the only factor affecting the business of the organization as other economic factors such as inflation rate, exchange rates, Moreover, as the industry is not dependent if any resources so volatility in the commodity prices will not have any effect on Green Energy (Cesa-Bianchi, Thwaites and Vicondoa 2016).  The organization has a competitive advantage in the market due to this reason as market fluctuation does not have much of an effect on Green Energy UK and as it is the cheaper solution to energy requirements, the demand and consumption of the renewable energy resources are supposed to increase in the upcoming few years. Moreover, the oil and natural gas companies in the United Kingdom are feeling the effect of BREXIT which has made the organizations more conservative. This presents Green Energy UK with the opportunity of capitalizing on the United Kingdom market.

The society at large has become much more aware of the drastic changes in the climatic conditions. The government has also made efforts to increase awareness of the general population about environmental sustainability. This has lead to the demand for renewable sources of energy as people have become less sceptical about using the energy resources. The global population is increasing rapidly, and with the increase in each count there wibe a significant increase in the consumption of energy resources (Crosby 2015).  Moreover, this is the reason that almost half of the energy needs are provided by the renewable energy resources in the United Kingdom. Green Energy is the only company providing 100% green energy to the consumers which put the company in a situation where they have the considerable amount of competitive advantage in the market. The increase in awareness among the general population will have a definite positive influence on the demand of the renewable sources of energy.

The technological factor is the most crucial factor in determining the future of renewable energy resources in a country.  Technological advancement is the key to making renewable sources as the major contributor of energy.  The use of innovation in technology is essential for increasing the levels of production of renewable energy resources (Metcalfe 2018). Technologically the United Kingdom is superior in developing path-breaking technologies for improving the production levels in renewable energy.  The government has made spending on development of new technologies for mitigating the expected increase in demand for energy in the upcoming years.

PESTEL Analysis

The United Kingdom has always been strict about the environmental regulations and rules. The United Kingdom has set laws additionally in addition to the rules and regulations to prevent degradation of the corresponding environment (Bagley 2015). However, due to lack of political stability in the current environment changes in government rules and regulations will directly affect the operation of Green Energy. The rules and regulations are not limited to operations and business standards and may affect another aspect of the business. There are various support schemes for promoting the development of technology and wider use of energy resources for cost reduction and economies of scale.

The environmental laws in the United Kingdom are very strict which means that there has a significant change in the consumer awareness (Welford 2016). This will have a positive effect for the company as the demand of renewable sources of energy will increase, and the government have been promoting the renewable energy sector to maintain the sustainability in the corresponding environment. 

  Porter's five forces are a model used to analyze the micro environment of Green Energy Plc. This will consist of factors such as bargaining power of the supplier, bargaining power of the buyer, threat of new entrant, the threat of substitution and competitive rivalry (E. Dobbs 2014).

The bargaining power of the suppliers in the industry is relatively high as renewable energy companies have to spend large capital in purchasing technologically advanced equipment. The specificity of the equipment makes it harder to find a new supplier which increases the switching cost from one supplier to another (Greenenergyuk.com 2018). Moreover, there is a large number of processes that are related to installing instalments which means in some of the instances switching suppliers is not a valid option for the companies. The specialized component and technology have relatively increased the bargaining power of the supplier. Therefore, bargaining power of the suppliers in the industry is relatively high.

 The bargaining power of the buyers in the industry is low due to the high switching cost of the consumers. In general, consumers enter into long-term agreements with the energy provides which binds them to the company and they have to accept the changes in the prices, and they will have to pay heavy fines if they do not follow the trade agreements (Foley and Olabi 2017). This shows that the bargaining power of the suppliers is low due to the availability of limited options in the market.

The threat of new entrant for the renewable energy developers are high due to the high investment cost in the industry. The research and development cost in setting up such a business is very high due to the need for using advanced technology. Therefore, it is tough for the companies in the renewable energy industry to sustain in the market, and to do so they will have to invest in the large scale. This has enabled the well established to maintain a majority of the shares in the market. Green Energy is one o the major players in the market and will not face any threat from the new market entrants as it will take a lot of time for the new entrant to reach profitability after their entry.

Political

The most popular sources of energy are still energy derived from fossil fuels which are much cheaper for the consumers. Even though the cost of renewable energy resources have decreased significantly and it has been able to achieve parity in the grid which makes it affordable for the consumers in the market.  However, comparing renewable an non-renewable energy resources it has been seen that the price difference is still so oil and natural gas products will act as a substitute for renewable energy resources (Cowell et al. 2017). However, the current situation in the United Kingdom shows that there is the imbalance in the energy resources and the oil and natural gas companies are facing due to the economic situation of the company. Therefore, it can say that the threat of substitution n the industry is high.

The current competitive rivalry in the industry is medium, but there has been significant growth the industry which is expected to increase further in the next decade. The renewable energy market is one of the most growing markets which may grab the attention of large companies. Moreover, the increase in the number of competitors in the market will make it difficult for the companies to provide differentiated products.

To identify a suitable strategy for improving the growth and the market share of Green Energy UK, Ansoff Matrix will be used.  

                                                                              (Figure 1: Mindtools.com 2018)

Therefore, according to the Ansoff matrix, there are four options that Green Energy market can implement. The first strategy is a market development which consists of targeting new market segment. This strategy will use market segmentation to identify new suitable market segment for the organization (Grünig and Morschett 2017).  The second strategy is diversification where the organization diversifies the product segment to offer the different product to new markets. The third strategy is market penetration which will consist of penetrating further into the existing market. In this strategy, the organization will use different schemes to grab more consumers in the exiting operating market. The next strategy is product development where the organization will aim to develop the new product to extend the product line to offer differentiated products to the consumers.

The most suitable strategy for Green Energy UK is using market development to cater to the different market. The organization will have to expand their business to different markets by making an extensive market entry. The organization has the capability of expanding their business to different markets as being one of the market leaders in the segment.

Porter's generic strategy will provide the exact strategy the organization should implement to gain a competitive advantage in the market.

Economic

                                                                   (Figure 2: Bertozzi, Ali. and Gul 2017)

The porter’s generic strategy consists of four segments which define the means of competitive gain strategy and they are cost leadership, differentiation, focus strategy and focused differentiation.  Cost leadership deals with the strategy which emphasizes on reducing the cost of operations. This can be done by using low cost materials, improving the efficiencies of the processes, vertical integration and optimal outsourcing (Lotayif 2015).  The differentiation strategy will aim to gain the competitive advantage by differentiating the available products due to the increase in saturation in the market. Differentiation can be achieved by developing research and development facilities, strong marketing and improvement in the quality of the product. The focus strategy, on the other hand, will divide the organization target consumers into different segments to implement both cost leadership and differentiation to each of its segments.

However, the most suitable strategy for the organization is developing cost leadership where they will have to use economies of scale to reduce the cost of the available products. The product offered by the organization is already differentiated due to their 100% green energy certification.  Therefore, cost leadership will enable them to sell the product to the consumers at lower prices so that they can compete with oil and natural gas companies. The reduction of the cost will reduce the price of energy for the consumers which will increase the number of consumers due to string cost leadership strategy. Moreover, as the organization has been in the industry for a long time, it is difficult for the new market entrants to beat Green Energy regarding developing economies of scale.

The two strategies are both equally strategy for the organization increasing profitability and market share. However, the cost leadership strategy is the more appropriate for the present market as the threat of substitution is the most imminent threat for the organization due to the presence of a large number of oil and natural gas companies in the United Kingdom.  Therefore, to compete with those companies, the organization will have to reduce their operational cost to provide the consumers with electricity and gas at prices comparable to the fossil fuel. Moreover, the organization has the capability of using their technological prowess to improve their organizational processes.  Therefore, cost leadership is the most appropriate strategy for the Green Energy Plc.

Conclusion: 

The report has analyzed the macro and micro environment analysis of Green Energy and found out that the major threat faced by the organization is the threat of substitution. Therefore, to gain the competitive advantage in the market, the organization will have to use cost leadership strategy. This will enable them to compete with the companies selling non-renewable energy to the consumers.  

References:

Bagley, C.E., 2015. Managers and the legal environment: Strategies for the 21st century. Cengage Learning.

Bertozzi, F., Ali, C.M. and Gul, F.A., 2017. Porter’s Five Generic Strategies; A Case Study from the Hospitality Industry. International Journal For Research In Mechanical & Civil Engineering, 3(2), pp.09-23.

Cesa-Bianchi, A., Thwaites, G. and Vicondoa, A., 2016. Monetary policy transmission in an open economy: new data and evidence from the United Kingdom.

Cloyne, J. and Hürtgen, P., 2016. The macroeconomic effects of monetary policy: A new measure for the United Kingdom. American Economic Journal: Macroeconomics, 8(4), pp.75-102.

Cowell, R., Ellis, G., Sherry-Brennan, F., Strachan, P.A. and Toke, D., 2017. Rescaling the governance of renewable energy: Lessons from the UK devolution experience. Journal of Environmental Policy & Planning, 19(5), pp.480-502.

Crosby, A.W., 2015. Ecological imperialism. Cambridge: Cambridge University Press.

2014. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45.

Foley, A. and Olabi, A.G., 2017. Renewable energy technology developments, trends and policy implications that can underpin the drive for global climate change.

Greenenergyuk.com 2018. Green Energy – Green Gas | Green Energy UK. [online] Greenenergyuk.com. Available at: https://www.greenenergyuk.com/ [Accessed 24 Apr. 2018].

Grünig, R. and Morschett, D., 2017. General Strategic Planning as the Starting Point for Going International for New Markets. In Developing International Strategies (pp. 57-65). Springer, Berlin, Heidelberg.

Lotayif, M.S., 2015. Selection Factors of Market Segments and Porter’s Generic Marketing Strategies: Evidence from an Emerging GCC Market. International Journal of Business and Management, 11(1), p.199.

Metcalfe, S. ed., 2018. Evolutionary theories of economic and technological change: present status and future prospects(Vol. 44). Routledge.

Mindtools.com 2018. The Ansoff Matrix: Understanding the Risks of Different Options. [online] Mindtools.com. Available at: https://www.mindtools.com/pages/article/newTMC_90.htm [Accessed 24 Apr. 2018].

Pacesila, M., Burcea, S.G. and Colesca, S.E., 2016. Analysis of renewable energies in European Union. Renewable and Sustainable Energy Reviews, 56, pp.156-170.

Welford, R., 2016. Corporate environmental management 1: Systems and strategies. Routledge.