STRATEGIC ANALYSIS IN

ENERGY SECTOR

Mitul Mecwan
ID:49842
What is Strategic Analysis?
Strategic analysis is a process that involves researching an
organization’s business environment within which it operates.
Strategic analysis is essential to formulate strategic planning for
decision making and smooth working of that organization. With the
help of strategic planning, the objective or goals that are set by the
organization can be fulfilled.
In a constant strive to improve, organizations must periodically
conduct a strategic analysis which will, in turn, help them determine
what areas need improvement and areas that are already doing
well. For an organization to function efficiently, it is important to
think about how positive changes need to be implemented.
Strategic analysis is essential if a company has a goal and a
mission for themselves. All leading organization who are well
known for their achievements have years of strategic planning
being implemented at various stages. Strategic planning is a long-
term task involving continuous and systematic planning and
resource investment. The main question that a company should
consider when performing a strategic analysis is: How is the
market constituted? How are the active clients in this sector?
While conducting strategic analysis, organizations must know
their competitors and thus be able to define a strategy that will
help them an unbeatable player in that market. One of the most
important functions of strategic planning is to predict future
events and deduce alternative strategies if a certain plan doesn’t
work out as expected.
Types of Strategic Analysis:

Internal strategic analysis: As the name suggests, through this

analysis organizations look inwards or within the organization and
identify the positive and negative points, and establish the set of
resources that can be used to improve the company’s image within
the market. Internal analysis starts from evaluating the
performance of the organization. This includes evaluating the
potential of an organization and its capacity to grow.
The analysis of the strengths of the company should be oriented to
the market, focusing on the client. The strengths only make sense
when they help the company to fulfill client’s needs. When doing
an internal strategic analysis one should also know the weaknesses
and limitations that a company faces existentially or in the future.
SWOT analysis is one of the most reputed techniques for internal
strategic analysis. There is no better way to benefit from a
strategically performed analysis than to use it to detect the
strengths, opportunities, weaknesses, and threats that your
project may suffer.
Performing SWOT analysis will help you create a strong and long
term vision through strategic planning for your organization. The
important thing is to constantly evaluate the environment in
which the company operates, and act accordingly. It is essential
for an organization to take into account the SWOT principle in
order to be able to plan efficiently. Through a thorough SWOT
analysis companies will be able to prevent a number of problems
that can arise if there is no systematic analysis.
Let us further break down these attributes and understand how an
organization can conduct a complete strategic analysis to be able
to plan and perform better with each passing year.

Strengths of a company: There are several attributes within the

company that are positive, that you can control in order to obtain
better results, they are your strengths, which makes you stand out
from others. Surely there are certain resources or strategies that
have led to your organization’s process year on year. Knowing
these resources or strategies are also considered as strengths.
Knowing this type of information is very important because these
are the elements that give you an advantage over your
competition.
Business weakness: It is practically impossible for an
organization or a company to have only strengths and not have
weaknesses. Therefore, there are certain characteristics of an
organization that they need to be improved in order to be able
to perform better and compete in the market. These are called
business weaknesses. Most of the factors are foreseeable and
an organization needs to identify them well in advance and
approach the problems with a corrective measure.
Threats to an organization: There are going to negative factors
that will affect the growth of the organization and these factors
can be analyzed too. These factors need to detected and a risk
management strategy needs to be put in place so that threats like
stronger brand value of the competitors, better relationship of
competitors with retailers etc. don’t have an adverse effect on the
company’s growth. Also, threats like multiple players in the market
with the same products, downturn in economy, better advertising
of the same product by competitors are some threats that have to
be dealt with carefully so that competitors don’t take advantage of
the situation.
Opportunities for the company: Detect the opportunities you have
to grow. Knowing the path organizations must follow is a great step
towards success. Take advantage of all those external factors that
are positive for the organization. Identify all the opportunities and
take advantage of them.
External strategic analysis: Once the organization has
successfully completed its internal analysis, the organization
needs to know about external factors that can be a hindrance in
their growth. To do so, they need to know how the market
functions and how consumers react or behave to certain
products or services. Measuring customer satisfaction is a
common external analysis method. PESTLE analysis is one of the
most widely used external analysis techniques. The process one
is most likely to adopt when using a PESTLE technique is relatively
a simple one.
PESTLE analysis (Political, Economic, Social, Legal and Environmental)
describes a framework of macro-environmental factors used in the
environmental scanning component of external strategic analysis. The
model has been extended by adding Ethics and Demographic factors.
It is a part of the external analysis when conducting a strategic
analysis or doing market research and gives an overview of the
different macroenvironmental factors that the organization has to
take into consideration. By using PESTLE analysis one can:
Find out the key issues beyond the organization’s control, like changes
in political scenario changing rules that can be implemented at any
point in time.
Identify the impact of each issue.
See how important these issues are to the organization.
Rate the likelihood of its occurrence.
Briefly consider the implications if the issue did occur.
Strategic Analysis and Market Research:
Market research can provide you with the necessary information to
know the different market scenarios and suggest strategies to
achieve more sales. Market research is
either qualitative or quantitative in nature of conduct.Market
research can provide you with the necessary information to know
the different market scenarios and propose strategies to achieve
more sales. For example, through market research, an organization
can know the degree of recognition that the brand has and plan
marketing campaign correctly.
Organizations can also bet effectively the introduction of a new
product into the market, or innovate through the new ideas of
customers. Ask the right questions to customers and get
their feedback.The data provided by the investigation will help you to
plan correctly what you have to do, for example, in case your
competitors lower their prices, or are there changes in the behavior
of your consumers?
Strengths of Strategic Analysis
Strategic analysis allows you to have clarity of the internal positive
attributes of the organization that are under control. By knowing
these positive attributes an organization can focus on the factors
that lead to positive performance and can replicate the strategy
wherever applicable.
It helps identify strength of both internal as well as external
resources, such that it leads to an increasing competitive
advantage.
It offers you the internal components that add value or offer a
competitive advantage to your business. When you have a
reasonable competitive advantage over you competitors half the
game plan is clear. The only aspect that would need clarity is what
is not going the company’s way.
Weaknesses of Strategic Analysis:
Strategic analysis can generate too many ideas, but doesn’t
help to choose which one is the best.
Sometimes too much time is spent on existential problem
solving, such that there is little or no time left for innovating
new products or making service level changes at the
organizational level.
EXAMPLE:
EDF ENERGY (UK BASED
COMPANY)
EDF Energy
EDF Energy is one of the largest energy supplying companies in
UK. It was formed in 2002 following the acquisition and merger
of SEABOARDPLC, London Electricity PLC, SWEB Energy and
some coal and gas power stations. They are in charge of
supplying gas and electricity to most UK homes and businesses.
They are an integrated branch of the EDF group, which
generates about 1/5th of UK electricity. In 2011, they retained
their potion as the largest UK generator of electricity and the
largest generator of low carbon
• EDF generates electricity using fossil fuels, wind, and nuclear
and renewable energies.
• EDF energy consists of three main business units: Nuclear
Generation, Nuclear New Build, Energy Sourcing and
Customer supply.
• The Nuclear Generator (NG) are in charge of operating and
maintaining eight nuclear stations in United Kingdom. It has a
capacity of approximately 9000mw electricity.
• The Nuclear New Build (NNB) are in charge of delivering the
new generation of the nuclear plant.
• The Energy sourcing and Customer Supply (ESCS) runs the
power station and wind farms, they sell and buy power. They
are in charge of customer handling and small business.
AIM AND SCOPE OF REPORT:
This report is going to analyse strategically, the UK based
EDF Energy Company. The analysis would be broken down to
virtually
• Macro-environment analysis
• Micro-environment analysis
• Internal analysis
• A summary of the findings using SWOT analysis.
MACRO- ENVIRONMENT ANALYSIS:
Going through this analysis would help to identify the
factors that are outside EDF Energy’s control but affect it
nonetheless whether directly or indirectly. It would also help to
spot out the opportunities that can be taken advantage of. This
analysis is done using PEST (political, economic, sociocultural,
technological) analysis tool.
PEST is an acronym for political, economic, sociocultural, and
technological, which are the four factors that would be
considered in this Macro-environment analysis.
POLITICAL:
Energy is a major issue politically in UK. There are many
speculations and buzz on how much carbon emission is out
there and how secure the supply of energy is With the
escalating demand in energy from emerging economies, there is
equally a rise in competition for Energy supplies. It is typical that
we consider the political factors that may affect EDF Energy as
the leading Energy Supply Company in UK or factors that may be
taken advantage of to further improve. These factors include;
Security of UK Energy supplies:
• Security of Supply can be defined as a guarantee of supply of
goods and services sufficient for a Member State to discharge
its defense and security commitments in accordance with its
foreign and security policy requirements.
• In the energy case in UK, the UK energy supply is become
more and more depended on the production from UK’s
offshore oil and gas industry, which has gradually depleted
creating a vulnerability to escalating price and shortage of
supply.
• Also, the countries with which UK sources are based on can be
under political unrest, which would affect the supply to meet
UK’s high demand of energy.
• Because of this dangerous mix of high demand of energy and
depleting supply, the price of fossil fuel may be driven up a lot.
International competition for energy:
With its production of oil and depleting, UK has to compete in
the international energy market. With countries like china, India
with rapidly growing encomia’s, the struggle for energy supplies
at the international level is harder than ever and that is because
these countries have a large appetite for energy and have a
great influence in the market and with the energy suppliers.
Change in climate:
As of 2013, Carbon emission is seen as the major threat to the
ozone layer and thus perceived as the basic cause of the climate
change. This puts a strain to Energy Company’s and their
production of fossil fuels. The UK government is determined in
finding alternatives to burning fossil fuels and concentrate on
“clean “ renewable energy. As of recent, companies have to pay
for the carbon emission they release to the atmosphere. The UK
government is promoting initiatives to reduce co2 at all cost and
investing in energy saving product.
This has affected the economy an thus climate change is now
the topic of many political debate and its reduction is now
negotiated internationally.
Potential terrorist attacks:
The power stations and pipelines are the number one target in
case of a potential terrorist attack in the UK. The main threats
are from countries that do not agree with UK foreign policies like
military units from middle east and attacking the gas pipelines
and power stations wouldn’t not online affect lives but it’s a
good way to cripple the UK economy. Because of this, the UK
government would be triggered to create more and more
nuclear stations etc. All these would disrupt the supplies to UK
energy companies.
Planning Consent:
UK energy companies now require consent for infrastructure
projects from the government. There are also changes that
would streamline decisions on energy company’s
infrastructures.
ECONOMICAL:
Global economic downtown:
Because of the global crisis in the economic sector, banks
including those in the UK have limited the way they loan and
invest in companies. And this has put a strain in the energy
companies in UK, who especially by 2020 would need a lot of
investment for the infrastructures and difficulty in getting the
banks to loan and investment would delay future projects or
cripple them.
Investment in Infrastructures:
In order to provide an efficient and equally sufficient service in
the long run, the uk energy market has to make huge
investments in infrastructure all over the industry. To generate,
new nuclear power stations need to be built, renewable energy
projects need to be funded for. To transmit, new renewable
energy plants are need, the gas sector needs efficient storage
units, in distribution; the maintenance has to be monitored –
meters are being dispatched to homes.
SOCIAL:
Social factors that may affect EDF are self explanatory. Factors
like
• Rising energy prices
• Reduced carbon emission
• Microgeneration
• Energy supply security
• Marketing of gas and electricity
TECHNOLOGY:
Renewable energy:
Technological challenges would be faced as emerging projects in
the renewables energy sector is required. The renewable
energy market is gradually expanding and wind farm amongst
other renewable energy sources would have to be built to keep
up with this demand.

Carbon capture and storage:

EU legislations has limited the extent to which power
stations can be used without a realistic reduction in the carbon
emission. The technology used to capture carbon (CSS) is a
necessity and should be considered.
Smart meters:
Extensive work needs to be put out to give consumers
information at which they consume energy. That is where smart
meters come in handing, these devices can be used to measure
and control how much energy consumers use.
Threat of new entrants:
• The main barriers to entry in the energy industry are:
• Delivering government policy
• Access to wholesale energy supplies
• Low margin expectations
• Complexity and regulatory burden
• Frequent network changes
• Scales economics
Bargaining power of buyer:
• A lot of customers need and want gas and electricity. EDF
supplies electricity and gas to a round up of 5.5 million user
(both residential and business) in the uk. By volume it can be
seen as the largest supplier of electricity in the UK.
• With prices soaring higher than ever lately, a lot of buzz about
switching energy suppliers have been heard. But how easy is it
really to switch supplier? What is the bargaining power of the
buyer?
• Although there are other energy suppliers, a recent survey by
BBC watchdog shows that it’s not really easy to switch energy
suppliers becos of reasons like cancellation fees, delays in
instalment, paper work, double billings etc.
Bargaining power of supplier:
EDF energy gets the bulk of its supply from own UK
power stations and some are bought from independent power
generators. Since EDF produces energy mainly from nuclear
power station and they own their own PowerStation, they do
not have any threats of suppliers having a lot of bargaining
power over them. (they are also vertically integrated with the
option of self supply.)Although in cases like fossil fuels, where
EDF trades on the gas market, as they do not have gas fields, the
bargaining power of the supplier is high hence the price
fluctuations in gas prices.
INTERNAL ANALYSIS:
EDF Energy is known as the largest electricity in the UK with
approximately 5.5 million customers including business and
domestic. EDF deals mostly with nuclear energy with a total of
eight nuclear plants capable of producing 9000 mega watts of
electricity.
Not only does EDF produce electricity but it also distributes/
supplies it. Even though the company doesn’t have its own gas
field, financial reports have shown that it gets the bulk of its
revenue from electricity dealership.
EDF Energy’s core competencies are its efficiency in its nuclear
power sector. The EDF group in France from where EDF Energy
UK comes from is the biggest nuclear power generator in the
world.
 WEAKNESSES
POSITIVE NEGATIVE
1. Communication and reaction to customer needs is slower than
smaller companies.

1. STRENGTHS Good customer knowledge. 2. Unplanned outages

2. Customer resilience to change: habit to subscribe to EDF. 3. Dependency on thermal generation

3. Monthly quarterly bills facilitate marketing efforts.

INTERNAL
4. Knowledge of and access to state of the art technology.
5. Financing capacity.
6. Vertically integrated structure.
7. Brand name.

OPORTUNITIES THREATS
1. Significant margin for improvement with regards to end use energy 1. Risk of competitors imitating service offered
efficiency
2. Inovational opportunities with regards to reduction of carbon 1. Opening of market to competition will diminish EDF market share.
emission
3. Access to state of the art technologies enabling monitoring of electric 1. New laws and regulations.
appliances. EXTERNAL
Recession
4. Contribution to the dematerialization of economy by offering services
that enable decoupling.
Thank you.!
References:
• https://www.questionpro.com/blog/strategic-
analysis/#What_is_Strategic_Analysis?
• Cornwall Energy Association Report-Published Q4, (2011)
•
• http://www.consumerfocus.org.uk/files/2011/07/Big-Six-profits-2006-2010-
Excel.xlsx]
• http://www.edfenergy.com/energyfuture/edf-energys-approach-about-edf-
energy/edf-energys-history].
• Case No COMP/M.5224 - EDF / BRITISH ENERGY Article 6(2) NON-OPPOSITION
Date: 22/12/2008
• Mergers and acquisitions in the European electricity sector: cases and patterns
(PDF, pages 40–44; Centre d'économie industrielle)
• UK Power Networks Services – the new name in infrastructure projects (PDF,
page 1; UK Power Network Services)
• Nuclear development in the United Kingdom (World Nuclear Association)
• Drejer, A. 2002, Strategic management and core competencies: theory and
application, Greenwood Publishing Group
• EDF Energy, No Date, Key figures, [Online] Available at:
http://www.edfenergy.com/sustainability/performance-report/economic/key-
figures.shtml [Accessed on May 06, 2010]