STRATEGIC ANALYSIS FOR THE BRITISH GAS LIMITED (Research Paper Sample)

STRATEGIC ANALYSIS FOR THE BRITISH GAS LIMITED Student’s Name Code + Course Name Professor’s Name University Name City, State Date Introduction The energy gas industry is important to every country. Without energy products, such as gas, many businesses and homes would not carry out their respective duties properly. In the UK, there are several energy companies that offer various services to the business communities as well as homes. One such a company is the British Gas Services Limited (BGL)- a subsidiary of the Centrica Inc. As of 2012, the BGL dominated the energy sector in the UK and served close to 8 million homes around the country (Lehtonen 2013; Parker 2012). Though dominant and currently ranked among the "Big Six”, the BGL has other competitors whose performance may continue to impact both the company and industry in various ways. The following paper has two sections: BGL’s strategic analysis and three drivers of strategic change. The second part entails the BGL’s internal environment and strategic capabilities enable it to respond to the identified three drivers. Part 1: Key Strategic Drivers at Play in BGL’s External Environment Typically, macro-environment is concerned with the major external factors, most of which are uncontrollable, that influences decision making, performance, and strategies in an organization. Some of these factors include political, social, and legal conditions. Additionally, natural forces, technological changes, and economic factors inevitably shape an organization’s approach to an industry (Beckmann 2009; McCarthy 2010). Originally, BGL crafted its analysis informed by some of these factors, the low competition in the early 1990s made sure the company was fully dominant of the energy industry. While many of the factors mentioned may have shaped the company’s approach, four had the greatest impact, especially after its privatization. The factors include demographics, social conditions, economic changes, and technological changes (Vecchiato and Roveda 2010). Considering the UK is politically stable and draconian laws targeting the business community are hardly passed, the legal and political factors did not have a significant impact on the strategic approach of BGL, particularly before it was privatized. Nonetheless, the company had to set its strategies informed by political factors after a disagreement with the industry regulator in 1992. Martin and Parker (2006) noted that the company had a disagreement "with the regulator on a fair rate of return on investment in pipelines" (pp.27). While this incident was significant to the strategy, the company devised its plans in a way that prevented the recurrence of such a case. Competitive environment As the energy industry opened up in the UK, the competitive environment compelled the BGL to seek other ways to remain dominant. As a result, its strategic approach needed to be wary of other players and devise ways to mitigate the inevitable competition effects. After the privatization, the BGL encountered some external challenges that threatened its dominance. By 1994, the UK had 42 other companies in the industry and in 1995, BGL’s market dominance fell from almost 100% to just 35% (Martin and Parker 2006; Wright 2006). Though the company remains among the top six dominant companies in the UK, the competition has been rising in the recent times. In fact, the company lost close to 400,000 of its clientele to its rivals (Stacey, 2016). Three key drivers of change Drivers of change shape an industry and compel the players to change their strategies. Typically, the changes are external, meaning a player has no choice to but to respond accordingly. Zimmermann (2011) asserted that companies that fail to adapt to the external changes tend to end up in oblivion as other players capitalize on the factors. Also, companies use the factors to their advantages as opposed to resisting them since the latter action is almost impossible. In light of the above analysis, three major drivers of change appear to be the most impactful on BGL. While it may be responding to the change due to other factors, competitive forces, customer needs, and technological change seem to be the most pressing ones. 1 Competitive forces The market forces comprise of the threat of new entrants, the power of buyers, the threat of substitutes, and power of buyers (Gozali and Sucherly 2015). As for the BGL, the major forces in this area include all of the mentioned, particularly, the threat of new entrants and power of buyers. In the recent times, the company has strived to respond to each of these forces in various ways as it becomes apparent that its dominance can be challenged. The competitive forces evidently compel BGL to undertake strategies to remain dominant in the energy industry. As indicated, the company monopolized the sector in the early 1990s. During this time, the company did not devise ways to protect its dominance (Parker 2009). Since it had an absolute monopoly, the company maintained its strategies without considering the emergence of other players. However, when the company responded to the competitive forces of new entrants, its dominance continued, though it reduced significantly. Though its market share declined, it has continued to remain among the top six companies. The response to the new entrants has been done in various ways including the retention of a sizeable workforce to cater for the customer needs. As of 2013, BGL’s workforce hit the 23,000 mark, with each department having enough personnel to respond to customer needs and to tackle other operation-related tasks (Broadberry and O'Rourke 2013). Additionally, the company has used its brand to attract new customers and utilizes customer services for customer-retention. The above measures are implemented to ensure that the buyers’ power works to the advantage of the company. Considering that there are other companies in the UK, BGL has to respond in a unique way to leverage the power of buyers. For instance, the company employs customer contracts with its clientele. In this method, customers enter into a contract with BGL to have energy supplied to them for a certain period after which the contract can be renewed. During the contract period, the company strives to offer exceptional services to its clients in a bid to retain them. Though the strategy has worked in the past, the recent data indicates that BGL lost a considerable number of clients. In the explanation, the company blamed the event on "an unusual number of people ending their energy contracts at the same time" (Stacey 2016 par.3). 2 Customer needs Another key driver of change at BGL is customer needs and awareness. After the entrance of other players in the late 1990s, BGL knew that its differentiation would be based centrally on customer service. Subsequently, it needed to have a reliable and customer-oriented department that catered for the needs of the clients. As the demand for energy products soared in the 1990s, most consumers in the UK needed a firm that could offer the services in an exemplary manner. Conversely, BGL’s dominance in the industry meant that customer satisfaction was not easy to guarantee. As a result, the need entrants capitalized on this opportunity and negatively impacted BGL’s monopoly. According to Martin and Parker (2006), BGL’s 100% market dominance happened only because no other players had emerged, not its customer relations. Informed by the happenings of 1995, the above assertion could be termed as factual. After other companies entered the industry, BGL lost its monopoly and its dominance was significantly threatened. However, the company responded to the customer needs and still managed to remain atop (Berrington 2014; Abbot 2016). As it became evident that customers were looking for exceptional services, BGL responded by ensuring that clients could express their needs anytime. Even in the midst of such a stiff competition, BGL has managed to remain among the most dominant energy firms in the UK (OFGEM 2016). The company attributes its success to the understanding of and responding to customer needs. While the company may have lost contract customers, new customers have also been choosing its services. For instance, the number of new clients has been rising in the year 2016 with other renewing their contracts for the gas supply. In essence, it is evident that BGL tends to respond to customer needs, and this trait has been integral in the dominance of the firm. While it has lost a significant portion of its clientele, it has also managed to overcome the rivalry in the industry (OFGEM 2016). It is a pattern that seems to compel BGL to improve its services and has resulted both in its profitability and dominance. 3 Technological change As the technology continues to evolve and impact almost every industry, the energy sector is not exceptional. The industry has been influenced significantly by the development of technology. Many mobile phone companies have developed products that could compel the players in the energy sectors to adopt the technological inventions. Further, the internet and social media continue to impact all industries, the energy sector included. Moreover, the technology has continued to evolve in the area of energy products as more companies strive to produce appliances that are energy-efficient (Simmie 2016; Cucchiella and Kohn 2015). While this development may appear unrelated to the energy industry, it is essential. As competition rises in the industry, companies can respond to technological change by developing or selling such appliances. None of the players in the industry has fully satisfied the customers in the recent times,...