CRITICALLY ANALYSE THE KENYA POWER AND LIGHTING COMPANY USING SWOT ANALYSIS AND THEN MAKE STRATEGIC DECISIONS.
AN ASSIGNMENT PRESENTED FOR PARTIAL FULFILMENT OF THE UNIT IN ADVANCED STRATEGIC MANAGEMENT(DSM 608)
DUE ON 6/14/2018
A competitive advantage is an advantage gained through offering customers superior value. This can be achieved through offering lower prices or through offering greater benefits and service that justifies the higher prices. Kenya Power and Lighting Company is able to stay ahead in the market largely because it is the only company that generates power that can reach the vast Kenyan population. It has a great Infrastructure and all the equipment and technology necessary to do so.
A SWOT analysis is a strategic planning technique used to help an organization have a better understanding of its strengths, weaknesses, opportunities, and Threats related to its business environment. The purpose of a SWOT analysis is to specify the business objectives that may be favorable or un-favorable in the achievement of those objectives.
Strengths and Weaknesses are usually internal, while Opportunities and Threats mostly focus on the environmental placement.
Strengths are characteristics of the business that give it an advantage over other businesses while weaknesses are characteristics of the business that give it a disadvantage over others. Opportunities are elements in the environment that the business can exploit towards its advantage, while threats are environmental elements that could cause trouble for the business.
The degree to which the internal environment of the firm matches with its external environment is expressed by the concept of strategic fit. We shall critically analyze Kenya Power and Lighting Company using the SWOT analysis. Kenya Power and lighting company is a limited liability company that generates supplies and sells electricity to consumers all over Kenya. It has a long history in the business and is the dominant distributor and retailer of electricity.
Overview of the Operating Environment.
We shall do an Opportunities and threats Analysis of KPLC using PESTEL as our guide to establish and assess factors within its operating environment that would impact on the execution of its mandate.
These factors are Political, Legal, Economic, Social, Technological and Economic Factors and are discussed as follows:
Political factors are likely to have an Impact on KPLC in the following ways:
Devolution of Government is changing the way service is delivered. As development planning is now devolved to county governments, the company has to treat counties as the basic planning unit for network development plans and allow for a bottom-to-top approach and the other way round.
Elections due after every five years raise pressure for decision making to be made factoring in the interest of the public. There is also raised emphasis on social obligation activities such as rural electrification.
International relations, as with all businesses, affect the level of insecurity and thus the business climate, especially with neighboring countries.
However the Integration of the East African Community countries — Kenya, Uganda, Tanzania, Rwanda and Burundi –is going to bring about a more robust economy. This will lead to an increase in market size for local industries and thus raise power demand. This is because the EAC countries formally agreed to expand free trade area and launch their own common market for goods, capital and labor within the region with the goal of creating a common currency and eventually a full political federation.
These are factors that form a basis for high business growth potential for the company and Include positive GDP growth, population growth, and discontinued use of traditional forms of energy consumption and the economic consequences of recently discovered natural resources, these factors allow for ambitious sales and peak demand growth expectations.
Competition in the electricity sub-sector from self-generation by customers or non-KPLC supply to Large-power customers may not rise significantly due to the substantial price disadvantage of non grid thermal electricity. However, a growing number of large power consumers who have access to cheap energy resources, such as sugar and tea producers, are applying to become Feed-In Tariff (FIT) or IPP generators to the national grid in addition to supplying power to themselves. This would entail loss of a significant amount of sales to the company.
Economic shocks are expected to happen with the volatile nature of the operating environment. Economic effects such as the acts of terrorism have both direct and indirect consequences to the business environment. Such consequences include increasing the cost of security provision to company installations, loss of significant amount of sales from the tourism industry and discouragement to many potential investors who would be prospective power customers.
Economic shocks from crises in foreign economies as witnessed in the 2010 collapse of financial markets in western developed countries. The capacity of foreign contractors to implement major power projects in this country can be severely affected by withdrawal of financiers.
External economic events can have positive impact on the domestic power sector such as the fall in international crude oil prices in late 2015.
Recent natural resource discoveries are a major source of business opportunities for example, new power demand from extractive industries within reach of the national grid, especially titanium and coal, is a significant source of demand growth. Construction of new pipelines and other facilities to serve the oil and gas industries will also raise power demand significantly. Eventually, the coal oil and gas industries will provide substantially lower-cost electricity generation resources for our country’s growth prospects.
Rising levels of education in the country’s population translates to changing lifestyles. There is a change from traditional to modern leading to a greater percentage of the population seeking electricity connection. This has majorly contributed to the increase in customer applications and connectivity being experienced recently.
Vandalism and crime against company assets entails a substantial direct material financial cost to the company as well as lost sales revenue and customer inconvenience resulting from outages caused by vandalized equipment.
The company will continue to find necessity for diverse reasons to implement strategies for community engagement. This will especially be in regard to promoting public safety against the dangers of electricity infrastructure, marketing initiatives to drive the customer connectivity campaign, promotion of new company services and facilities, and the implementation of corporate social responsibility initiatives. Community activism has occasionally interrupted progress on power project development. Issues such as way leaves, land compensation and undesirable environmental effects have often been reasons behind community resistance to projects.
Introduction of new technologies provides many potential benefits to the company. Typical objectives that will be served by new technologies will include reducing power losses, operational cost savings, lowered peak demand, new or increased revenue streams, improved long-term growth prospects and improved customer satisfaction.
The major new technologies that will be implemented by the company during the plan period will aim to increase SMART grid capabilities of the network. The new technologies will be applicable to metering solutions and automation of the power grid. The installation of fibre optic cables on power lines up to the “last mile”, besides facilitating SMART grid (two-way communications with customer meters), will also allow the company to engage in partnerships with telecommunications companies in provision of retail broadband services to customers.
Change in technology use by the public can also affect the pattern of power demand growth. For example, the need for all schools and other public institutions to adopt digital technology will require all public institutions to be connected to the national grid in the next few years and will significantly raise the level of power demand.
Several factors in the physical environment will influence the outcome of the company’s operations. These include:
Drought and hydro risk can potentially cause a significant change in the end-user tariffs charged on monthly basis given that standby alternative to hydro power is the much more expensive diesel power.
International environment protection policies require that efforts are made to reduce greenhouse gas emissions in production processes. Thus, these requirements will be taken into account in Public Power Agreements (PPAs) the company will enter into with power generators.
Easy access by customers to renewable sources of energy can significantly impact on the level of electricity sales. For example, the increased use of solar panels for water heating and the continuing use of wood fuel for cooking are detrimental to the company’s electricity sales.
Other environmental factors with a bearing on operations include territorial, geographic and climatic considerations such as distance to the grid, population density, temperature and other weather attributes. These factors affect project design and implementation costs, operations and maintenance costs, and commercial viability of investments in network assets.
The Legal and Regulatory environment has experienced changes since the enactment of the Energy Bill 2015. The institutions created under this act include: the Energy Regulatory Authority, Energy and Petroleum Institute, Rural Electrification and Renewable Energy Corporation and Energy and Petroleum Tribunal. These pose as threats to the company as the bill paves way for licensing of distribution companies as separate businesses from electricity retailers and allows the entry of new companies to connect new customers from existing or new substations.
The Act will integrate energy planning at both the national and county levels of government within the framework of the National Energy Policy.
The act specifies the legal rights of stakeholders with regard to rights of way leaves, and use of land for energy resources and infrastructure as well as setting licensing requirements for electricity Generation, transmission and distribution.
An introduction to the operations of the power market that will arise from the new Energy Act will be provision of a Wholesale Spot Market. It is intended that the market provides a mechanism for determining the price of electricity not covered by bilateral contracts between sellers and purchasers of electricity. This will call for open access by generating companies to the national transmission grid to be facilitated and will lead to greater competition in electricity supply.
The KPLC SWOT analysis serves to identify the internal factors (Strengths and Weaknesses) and external factors (Opportunities and Threats) that are most relevant to the achievement of the company’s goals and gives an indication of whether the goals are attainable. This analysis provides the basis for strategy formulation to exploit strengths and opportunities and mitigate challenges and threats.
Other Internal factors that are strengths to the company are:
The Human resources which includes staff, volunteers and board members are key strengths to the company. The staff is a vital resource in undertaking its mandate in a professional manner following the best practices possible while the board should be in a position to make vital decisions that will lead to the company’s continued growth.
Physical resources such as your location, building, equipment give the company the ultimate competitive edge in the business. It will take some time before another company can establish itself the way Kenya power has.
Financial resources such as grants, funding agencies, other sources of income will help to further grow the company towards the vision 2030 goals which means more business for the company.
The Activities and processes of Kenya Power and Lighting Company which include the programs they run and systems employed.
Past experiences provide building blocks for future learning and success as well as their reputation in the community.
Key Strengths include:
• The company provides an essential service that is a necessity to both businesses and Individuals.
• There is High demand for electricity in the Kenyan Economy and it keeps growing every day.
• The firm’s ability to readily adapt to a dynamic and modernizing operating environment
• The Company’s presence in all counties gives it an added advantage in supply of electricity.
• They have a well trained and highly skilled workforce capable of handling the ultra-modern facilities that they have.
• Automation of its Substations reduces response times Challenges making it efficient.
• High revenue collection rates all over the country.
• The ability to attract external funding from both, public private, domestic and international sources as it has got a great growth potential.
• The ability to sustain high growth rates in new customer connectivity.
• Insufficient transmission and distribution network.
• Inadequate capacity to absorb all the loan capital financing available
• High internal costs of Construction: putting up the grids is a costly affair.
• The cost of transmission and distribution is very high
• The quality of power supply remains wanting.
• The uncoordinated planning among Infrastructural developers.
• There is a Low level of workforce engagement.
• Insufficient project commitment and post-implementation analysis, including business project re-engineering upon completion of new project such as automation.
• There is long-term growth potential in the market due to current low level of market penetration.
• New business ventures in Fiber Optic telecommunications and consulting
• Good potential for sourcing cheap power from neighboring countries with the coming up of the East African Community.
• Lower cost energy from economies of scale as the power system expands.
• Street lighting opportunities increasing linkages with county governments and sales.
• Adverse climatic conditions such as prolonged periods of lack of rain that affect electricity generation.
• The process of acquiring way leaves is difficult and complicated.
• Low population density in rural areas that leads to high connectivity cost.
• Illegal electricity connections and theft of electricity
• Limitations due to regulatory bodies.
• There are delays in tariff reviews.
• Self-generation by customers, especially the use of renewable sources such as solar and wind
• Inability to absorb all new generation to be installed in the short to medium term may substantially raise capacity costs.• Levies and taxes imposed by County Government and other Government/regulatory bodies.
I would however recommend that the company work on the following areas to achieve absolute superiority in the business of generating and retailing electricity.
• An Improved energy-generation mix that is efficient, reliable, and competitively priced.
•An Increase in customer connectivity because there are still some areas in Kenya that they are yet to reach.
• Improve on electricity supply and quality that exceeds customer expectations at minimum costs possible. This will lead to an increase in sales revenue which all lead to higher revenues for the company and improved service delivery to the customers.
• An ultra- modern and efficient electricity system infrastructure that caters to the increased demand for electricity. This is especially so as we work towards the Kenya vision 2030 meaning that we will be a middle class economy leading to an increase in the demand for electricity.
• A reasonable return on investment to its shareholders as an appreciation for their Investment to the company.
• A good corporate governance system and management for enhanced service delivery through internal capacity growth and development and resource alignment.
• Diversify sources of revenue from its existing assets and innovation, for example, collaboration with the county governments towards the street lighting Initiative.
Kenya Power and lighting company should acknowledge that customer satisfaction is its core objective and will go a long way in sustaining the company’s growth and expansion agenda as it provides an essential service as an input in productive activity and residential life in the modernizing economy