Report on a Contemporary External Strategic Environment
Introduction
The strategic business environment for any business organisation makes it easier for them to identify the opportunities that lie in front of them in terms of capitalising on them and achieve business success and growth (Prajogo, 2016). The implication of the strategic business environment also makes it easier for the organisation in determining the factors that need to be kept in mind while designing and developing business strategies to achieve better results and open up the growth of opportunities in near future.
During this report, the external business environment in form of PESTEL and Porter Five Forces will be examined and critically discussed as a result of which it will make it easier to determine factors that either support growth or creates a hindrance for the business organisation. A plausible scenario for the business organisation will be examined and determined based upon which the most suitable plausible situation will be considered to carry out the report in a successful manner.
External analysis of the energy industry
PESTEL analysis
Political: Energy industry while operating within the UK business environment will be facing a tough situation due to the growing tax by 19% annually (Gov, 2020). Furthermore, it has also been noticed that the inflation rate within the UK is also expected to grow by 2.1% due to the current pandemic situation that also will be creating the risk of doing business within the country.
Economical: Although the economy of the UK is considered to be one of the most developed, in the current situation it the GDP of the country has been estimated to fall by 0.6% (Statista, 2020). Therefore, the chances of establishing and operating business within the country shrinks. Furthermore, the fiscal policy of the UK in the global market is also falling rapidly that increases the inflation rate within the country, that also negatively impacts on the business opportunity of the energy industry.
Social: The society of the UK is recognised as multicultural due to the presence of people from different and diversified background. Recently, the Average Annual Income of the UK society has grown to £ 29,600 that has increased the purchasing capability of the UK people (Gov, 2020). Considering this factor it can be stated that the energy industry within the UK has the rapid growth of business opportunities.
Technological: Recent growth in the UK technological field has contributed towards the growth of the business organisation, the advancement in technology such as Lean management, JIT, AI and automated system integration technique has increased the rapid urbanisation of business enterprises such as energy industries. Support from the UK government in the form of investment of £ 3 billion has also increased the R&D process within the energy industries that have brought rapid transformation.
Environmental: The government of the UK is very strict towards sustaining and conserving the energy and therefore the government has enforced The Environmental Protection Act of 1974 (legislation, 2020). Under this act, all the energy industries will have to comply by the guidelines as how much carbon can be emitted within a year and what specific measures need to be followed to maintain environmental sustainability for the future generation.
Legal: The legal guidelines that the Energy industries will have to maintain by includes of Health and Safety Act 1974, under which all the employees will have to be provided with training and right set of equipment while they work in the hazardous situation (Hse, 2020). Complying with the guidelines will benefit the organisation in establishing its operation in the UK and operate their business successfully.
Porter’s Five Forces
Bargaining power of the buyers:
The bargaining power of the buyers is low in the energy sector of the UK as they are only interested in the product quality and price. It is essential for the companies operating in the industry to comply with the global benchmarks for determination of the price. The bias of energy includes common household’s, industries, refineries, national oil companies distribution companies and other countries.
Bargaining power of the suppliers:
The bargaining power of the suppliers is very high in the energy sector due to being fully integrated and offering a significant position in the value chain. The suppliers in the industry comprises of international coal and oil companies like Shell Chevron, Saudi Aramco etc. The suppliers have the direct ability to influence the energy prices.
Threats from substitutes:
The threat from substitute is very high in the energy sector given the present circumstances of global drive for sustainability and lowering carbon emissions. The alternative sources of energy in this regard are nuclear energy, hydrogen and biofuels. The alternate sources of energy have the ability to replace the use of hydrocarbons for producing energy while also providing better performance and quality at lesser price (Weforum, 2016). Renewable energy sources and alternative energy companies working with solar and wind energy at small and medium levels also provide tough competition to the existing companies.
Threats from new entrants:
United Kingdom’s energy sector faces are significantly low threat from the new entrants in the market due to the requirement of huge capital upfront along with the difficulty in operation due to the control of national oil companies on the maximum percentage of oil and Gas reserves. It is also very difficult for the new entrance due to the intense internal competition and the volatility of the prices of oil and gas. The location of the reserves of oil and gas in conflicted and warzones makes it very difficult for the new entrance to assert their position in the market.
Competitive Rivalry:
There is intense competition in the energy industry while considering the upstream sector due to the presence of key players having significant roles like the Royal Dutch Shell, British Petroleum, Chevron, and Total. Additional Li the national energy companies like Saudi Aramco and China National petroleum company have control of more than 90% of the present non renewable energy reserves and hence have a competitive advantage in the sector.
Four plausible scenarios
Technology integration
There is a scope of technology integration at a very high level in the energy sector of the UK. The plausible scenario in this regard is the use of measures like lithium-ion batteries supported with nickel for high-performance and backup along with the widespread use of electric vehicles, which would reduce the level of emissions (Forbes, 2020). Blockchain as a technology would be used in the energy sector for streamlining the process of supply and payment. Examining the application of blockchain technology within the UK energy sector critical information has been gathered that points out its ability towards making the energy industry more efficient. The challenges that persist within the UK energy sector includes of transactional and complex system and rise of middlemen, integrating blockchain technology enables the UK energy sector in peer-to-peer trading, eliminating the middlemen along with managing data management (Imperial, 2020). Based on the article of Insider, (2020), it has been noticed that the investors of the UK have invested £ 62 million to help the energy sector in developing green technology. The energy sector within the UK is also increasing the usages of green technology because it accelerates the transition of new and exciting integration of technology to sustain zero-carbon emission.
Higher investment in the sector towards service improvement and consistency
Investment in the UK energy sector has helped in transforming the industry that signifies about the growth of green technology and harnessing clean energy for sustainable energy in future. Investment of £ 47 billion has been proposed by the government of the UK to install the 30GW of offshore wind by the year 2030 (Theguardian, 2020). The higher investment within the UK energy sector has also led to service improvement and consistency followed by cutting down the emission till the end of the year 2050. Furthermore, evidence gathered towards the UK energy sector has also attracted investors towards the industry where £ 10 billion has been invested towards developing and designing new energy infrastructure to support the commitment towards zero-carbon emission and sustaining green technology (Theguardian, 2020). The service improvement and consistency that has been identified within the UK energy sector includes of stimulating growth, boosting productivity along with supporting jobs for supporting the local economy that supports opportunities and growth within the energy industry (Theinvestor, 2020). To support the UK energy sector the government has started initiated onshore wind projects that aim towards generating 3.2 GW of green energy to harness clean energy and grow the economic infrastructure of the country.
Decarbonisation and regulatory push for renewables
The UK energy department BEIS has laid down the proposal design to support the decarbonisation of the energy sector. The regulatory body of the energy sector in the UK has also launched a consultation in regards to new financing models for nuclear power based approach (Renews, 2020). Regulatory push or initiative has been taken by the governing body of energy sector within the UK to keep pace with low carbon innovations along with eliminating the carbon emission to foster zero-emissions by the end of the year 2050 in order support the initiative of decarbonisation along with pushing the concept of renewable and sustainable energy (Deloitte, 2018). Shreds of evidence gathered in regards of decarbonisation and regulatory push towards sustained and renewable energy also aim towards transforming the usage of energy that are used within homes and businesses but also it aims towards keeping the cost of energy as low as possible and ensuring that security related to energy is never compromised (Renewableuk, 2020). The aim of the UK energy sector towards the decarbonisation aim towards supporting the development of an offshore grid that harness wind energy over the next 10 years to encourage investment and tackle climate change.
Localization of energy systems
One of the significant ways through which the energy sector can harness clear and green energy includes of localising the energy system, currently, in the UK, 1.9% of energy are being driven through solar power, which is less in comparison what has been expected (Bbc, 2020). Localising the energy system within the UK has helped the country in cutting down the extra cost of expenditure that were being used to produce energy. Demand to supply factors is being taken into consideration for the same that includes providing value through peak demand reduction along with representing the distributed energy resources within the UK that produces 60 GW capacity of energy (Bbc, 2020). Localising the energy increases intermittency in supply, that further grows the need for grid balancing, localisation of the energy sector has also increased the asset electrification that as a result has helped in offering electricity to the consumers as per their need. Adaptation of technology while localising the energy system also increases the chances of the big data control system that increases visibility over the grid systems. The concept towards localising the energy system within the UK economy has proven to be crucial as because it has managed the energy sector in procuring smaller volume of energy as low as 100 KW that has created grid flexibility and harnessed sustainable energy.
A most justified plausible scenario
Over the years the UK energy sector has experienced a steady and fundamental shift towards embracing renewable and cleaner energy that aim towards sustaining the environment and conserving the natural resources. The most plausible scenario that has been considered within the report includes technology integration that aims towards achieving decarbonisation. Self-powering homes are one of the most evident technologies that are being used by the UK energy sector to establish and sustain renewable power infrastructure within the UK (Energy-storage, 2020). The energy sector within the UK also uses advanced technology that includes the rooftop solar system that aims towards offering clear and green energy to the people. The government of the UK has also taken initiative towards improving the solar technology that makes it easier for the energy business organisation in integrating green energy into the building and commercial areas within the UK. Adaptation of technology in the form of blockchain has also helped the UK energy sector in improving visibility, developing operating efficiencies along with streamlining regulatory reporting. Examining the most justified and plausible scenario significant information has been gathered that points out blockchain technology facilitate energy transactions on a virtual grid system (Nef, 2020). Evidence gathered in regards to application towards blockchain in the energy sector within the UK also facilitates towards reducing the cost of utility bills along with lowering the need for working capital. Furthermore, technology within the energy sector within the UK also comprehends new opportunities to communicate among energy devices that includes electric vehicles, batteries and solar PV installations. Besides, technology integration in form of system application within the energy sector has also helped the UK energy industry in developing peer-to-peer energy trading that includes of community resilience building along with renewable energy expansion (Power-technology, 2020). Usages of blockchain application also comprehend streamlining of activities towards conserving energy that enables the business organisation in directing and transparent renewable energy procurement. Finally, the adaptation of technology within the energy sector has also managed in improving the overall economy and infrastructure of the UK.
Conclusion
This report is based upon examining the strategic business organisation that explains the application of PESTEL and Porter Five Forces. Evaluating the PESTEL analysis it has been noticed that the political situation of the country is not suitable due to the rising taxation and inflation rate. Furthermore, strict environmental laws of the UK government also creates challenges for the UK energy sector. Porter’s five forces have also been examined where the powers of buyers and competitors have also been explained. Four plausible scenarios have been identified and analysed within this report that has helped in identifying the future of energy sector within the UK economy. Appropriate justification of the most suitable plausible scenario has also been described within this report.
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