AusNet Service: Understanding Operations And Measuring Performance Essay.

Company Overview

AusNet Service is a public limited company which is primarily listed on the Australian Stock Exchange and has a secondary listing on the Singapore Exchange. The company is owned by Singapore Power (32.3% ownership), State Grid of China (19.9% ownership) and publicly owned (48% ownership). The company is geographically headquartered in Melbourne but mostly serves Victoria and its main scope of operations concerns the business of delivering energy services (Reuters, 2022). AusNet owns and operates $11 billion worth of gas and energy network assets and are mostly recognized for distributors of electricity and gas in Victoria (Bloomberg.com, 2022).

The main purpose and objective of this report is to understand the scope of operations and the operating environment of the aforesaid company which includes the current organization strategy and the strategic direction of the company for negating competition. Additionally, this report looks to prepare the Balanced Scorecard for the selected company for measuring both the financial and non financial aspects of performance. Lastly, this report also looks to recommend how the company can enhance its performance in future.

The strategic priorities enable AusNet to continue to deliver reliable, safe and affordable energy to their customers and target market. Amid the current state of affairs, the company looks to grow their business for creating long term value which revolves around three stakeholders in particular that are customers, communities and investors. The company also understands its role and significance into paving the transition to renewable energy and a sustainable future. AusNet intends to own and operate the best energy network and would want to adapt and respond proactively as Victoria moves ahead to a renewable energy future. The four main strategic priorities of AusNet include:

1. Passion for customers which helps guide the company throughout the scope of operations.
2. Energising ‘people’ by extending their support such that the company can attain its vision.
3. Operational excellence for always finding the safest and best way to deliver services to customers.
4. Acceleration of growth by transitioning into a renewable energy future.

As AusNet belongs to the energy industry in Australia, it only makes sense to gain insights into the competitive forces shaping the competitiveness within the industry. This is done with the help of the Five Forces Model developed by Michael Porter which discusses the intensity of competition to depend upon the culmination of five basis forces (Ansoff et al. 2020). These are discussed as follows:

1. The Threat of New Entrants: The competitive threat arising as a result of any potential new entrant can be considered low. The market size of the electricity retailing & distribution industry in Australia has witnessed a decline of 5.5% each year on an average in between the years 2017-2022 (Ibisworld.com, 2022). Furthermore, industry revenue has declined by 3.5% through 2020-21 (Ibisworld.com, 2022). Additionally, setting up a business within the industry will require access to significant capital investments for operations and transitioning into a renewable future. The high internal competition within the industry can also cause high barriers to entry.
2. Degree of Competitive Rivalry: The internal competitiveness within the industry is quite high when it comes to the Australian markets. The deregulation in the late years of 1990 also resulted in an increase in competition within the industry. There are several competitors who include the likes of AGL Energy Limited, Origin Energy Limited, ENERGEX Limited, Energy Australia etc. As a result, there exists cut throat competition in prices as well.
3. Bargaining Power of Customers: Customers hold the power which helps them to drive the prices down in an attempt to demand high quality services. The bargaining power of customers within the industry can be considered as medium. This is because the switching costs to any non renewable source of energy are more or less cheap and consumers may switch if they find cheaper energy sources. It is also worth mentioning that the electricity and gas are homogenous products with little to none scope for differentiation which can limit the bargaining power (Velikorossov et al. 2020)
4. Bargaining Power of Suppliers: AusNet control both, generation and distribution of energy. Additionally, suppliers that supply parts and components to the company have less negotiating power because of the industry being niche in nature. The bargaining power of suppliers can therefore be regarded as negligible.
5. The Threat of Substitutes: The main alternatives at present to gas and electricity comprises of biofuels and other renewable energy sources which include solar and wind energy sources. However, the industry is still in a gradual transition phase with renewable sources of energy yet to dominate the global energy mix. Thus, the threat of substitutes may be regarded as low for the present time being.

The strategy of AusNet is to own and operate the best energy networks that allow growing through connecting people with new energy. According to AusNet, the term ‘best’ refers to the provisions of reliable, safe and affordable energy to its customers. The company also strives anticipate, respond, adapt and support the choices of customers and gradually transition into renewable sources of energy. The company understands its presence and significance in the energy supply chain and in order to enable the transition it is growing and incurring capital investments alongside delivering value to its investors. Customer Passion and Growth Acceleration are the guiding strategic pillars for the company’s operations and future prospects. The company also strives for a net zero carbon future which has led to them accelerating the transformation program which has been designed to support step change improvements across the key strategic priorities. Since the possibility of differentiation is less, the company gravitates towards a cost leadership strategy for meeting the dominant competitive forces. This is validated from the annual report of the company for year ended 2021, where the Chairman of the Board states that amid the phase of growth and transition, one of the key focal points of the company remains to improve customer experience and closely manage the cost base which is driven by an organization wide transformation program introduced during the year (Asx.com.au, 2022). The company also adopts a proactive approach for managing their capital structure and aims for a strong financial standing so that they return value to shareholders by actively managing their dividend setting.

Current Strategic Direction

The balanced scorecard is one of the most popular tools for measuring performance of an organization as it is not just restricted to keeping track of financial performance, but also considers non financial performance measures for keeping track and measuring the overall performance of an organization (Quesado, Guzman and Rodrigues 2018). The Kaplan & Norton’s version of the scorecard has four different perspectives which help an organization to attain its strategic priorities and the overall vision of the business (Hasan and Chyi 2017).

(Source: Author)

The financial perspective is correlated to one of the strategic pillars of the company which is to accelerate growth. The two critical success factors which fall in line with financial perspective are growth in terms of revenue and growth in terms of shareholder’s value. AusNet generated a total revenue of 1,924 $M in 2021 which has witnessed a marginal decline from 1,977.6 $M in 2020 which can be attributed to the Covid19 pandemic resulting in a decline in distribution of gas (Asx.com.au, 2022). However, the bottomline profitability of the company has increased because of efficient cost management which allows the company to maximize the dividend per share for returning value to its shareholders.

The customer perspective is correlated to the strategic priority of customer passion. Owing to the pandemic, the company introduced several measures for supporting their core customer base which included providing rebates and deferrals on gas & electricity charges, waiving charges for small businesses for second quarter of 2020 and minimising supply disruptions during lockdowns. AusNet also introduced their first trial customer engagement forum to communicate transparently in an effort to improve customer experience. As a result, the company saw an increase in gas customer satisfaction by 5% and electricity customer satisfaction by 3%. AusNet also took several initiatives to support the community during August 2020 storms which included provision of food vouchers, welfare checks and supply of local generators (Ausnetservices.com.au, 2022).

The internal business perspective can be correlated to the strategic priority of operational excellence and efficiency. AusNet have delivered improved network reliability outcomes across electricity and gas transmission networks. New customer connections in the electricity distribution network grew by 2% and the current regulated asset base of the company is valued 1.11 Bn$ which is projected to reach 2.5Bn$ by 2026. In order to attain a renewable future, the company have also incurred capital expenditure worth 765.2 M$ which included installation of EFD sensors, upgradation of transmission networks and expanded support to growth in renewable generation.

Lastly, this perspective can be linked to the strategic priority of having ‘energised people’. Ensuring the overall health and safety of employees in an effort to decrease the recordable injury free rate is at the forefront of company’s priority. The RIFR has witnessed a decline in the previous three years decreasing from 3.99 times in 2020 to 2.71 times in 2021 as a result of 23.2% over the last three years. Lastly, the company has also been focusing upon maximizing their inclusive engagement which resulted in an increase in women participation rate to 28% aimed towards reaching 30% by 2022. A few initiatives included hiring of female employees, launching a recognition program and providing tailored learning content for professional development.

Competitive Forces

On conducting a thorough research into the annual report of the company, it is evident that the company has a strong financial performance and a positive outlook for growth in future years to come. However, based on the discussions presented in the report, there are several conclusive recommendations which can be provided to AusNet Services in their best of interests. Since one of the main strategic priorities of AusNet is to accelerate growth which sees the company transitioning into a renewable energy future, the company needs to start increasing their capital investments with respect to installations of solar panels and wind connections which needs to be supported by appropriate research and development. This will also help them reduce their carbon and environmental footprint because it significantly allows the company to depend less upon non renewable sources of energy.

The balanced scorecard tool shows that the company was able to increase profitability despite a decline in revenue. However, the dividend per share of the company has decreased from 10.20 cents in 2020 to 9.50 cents in 2021. The company should strive to increase value contributions to the wealth of the shareholders who are one of the most important stakeholders to the company. From a customer’s perspective, the company found success in the year of 2021 in their customer satisfaction score because of undertaking a trial engagement forum where feedback was legitimately received from customers concerning their products and services. AusNet should undertake such a dialogue frequently with all their stakeholders which help in risk management. The company should increase their efforts in improving customer experience especially when it comes to cost management, customer complaints and responding to outages which were some of the concerns raised by customers.

Conclusion

Given the discussions presented in this report, it can be concluded upon that understanding the competitive forces which are dominant within any industry is important so as to frame the appropriate strategies for leveraging competitive advantage. It is clear from analyzing the industry that the differentiation is not possible within the energy industry as a result of which businesses have to focus upon cost leadership. This report also concludes upon the effectiveness of the balanced scorecard tool for seeing beyond financial indicators for measuring performance proving to be an effective tool for including non financial indicators as well.

References

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<https://www.ausnetservices.com.au/en/About/Investors/Sustainability> [Accessed 18 January 2022].

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Hasan, R.U. and Chyi, T.M., 2017. Practical application of Balanced Scorecard-A literature review. Journal of Strategy and Performance Management, 5(3), p.87.

Ibisworld.com, 2022. IBISWorld - Industry Market Research, Reports, and Statistics. [online] Ibisworld.com. Available at: <https://www.ibisworld.com/au/market-size/electricity-retailing/> [Accessed 18 January 2022].

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Quesado, P.R., Aibar Guzmán, B. and Lima Rodrigues, L., 2018. Advantages and contributions in the balanced scorecard implementation. Intangible capital, 14(1), pp.186-201.

Reuters, 2022. [online] Reuters. Available at: <https://www.reuters.com/companies/AST.AX> [Accessed 18 January 2022].

Velikorossov, V.V., Genkin, E.V., Balakhanova, D.K., Sidorov, M.N., Maksimov, M.I., Sulimova, E.A. and Loshkov, B.D., 2020. Strategic management.