Page 1: Introduction
In today’s competitive business climate no marketplace is completely static and some markets are more dynamic than others. One which has changed beyond recognition over the years, is that of electricity. Since the start of privatisation in 1989, the UK electricity industry has seen many strategic changes in structure, direction and activity. This represents a new challenge for electricity producers who, at the same time, still concentrate upon producing reliable electricity supplies at low prices for their customers.
PowerGen is one of the largest privately-owned electricity generating companies in the world. Before privatisation, the Central Electricity Generating Board (CEGB) owned all of the generating capacity in England and Wales. At privatisation, these assets were split between three competing generating companies, PowerGen, National Power and Nuclear Electric. In addition, new competitors were encouraged to enter the market and construct their own generating capacity.
Privatisation has not only introduced competition into the world of electricity generation, it has also introduced it into electricity supply. By the end of 1998, all electricity customers in the UK will be able to choose who supplies them with electricity. Competition occurs when ‘competitors’ supply products that are either similar or substitutable to customers in the same market. The threat posed by competitors will depend upon the willingness of customers to transfer their purchases to other suppliers. In this changing marketplace, PowerGen’s challenge since privatisation has been to try and grow its business when competition in its core markets is increasing.
The starting point in a changing marketplace is to understand how you differentiate yourself from competitors and how competitors differentiate themselves from you. No market can be evaluated without a good understanding of the competition. Similarly, no management team will ever know enough about their competitors. Therefore competitors should never be underestimated!
The first task for the newly formed PowerGen was to analyse the market situation it faced upon privatisation. There are four distinct sectors in the privatised electricity industry. These are: