Executive summary
This report has been written for the senior executives and the board of directors of CLP Holdings Limited detailing the success and direction of CLP Holdings Limited to provide a strategic view that is comprehensive and assist with the full strategic plan execution.
CLP Holdings Limited’s external environment analysis, internal resources, activities, and capabilities analysis has been done to determine the key issues that CLP Holdings Limited is facing ad to evaluate the company’s strategic choices. These choices, their corresponding SMART goals, and the provided recommendations provide what is significant to achieve, why the company needs to pursue them, their risks and their timing for implementation, and the persons who will be responsible and champion for its completion.
The CLP Holdings Analysis report found out that CLP Holdings Limited has minimal or no competition in the local energy market in Hong Kong. CLP Holdings Limited enjoys the low competition of barriers to entry such as the high amount of capital hence the buyers have low bargaining power. The company is also extending its global presence by investing in Asian markets and in Australia
The report provides a detailed and clear pathway of venturing into the energy industry, keeping up with the latest technology, and keeping competitors at low. The presentable plan with tight time frames is achievable given that CLP Holdings Limited faces the threat of environmental regulation from its CO2 emissions, and its growth targets increasing significantly. CLP Holdings Limited’s need for a strategic plan that is clear which ensures that it remains strategically placed is imperative and critical.
According to Porter (2008), despite external factors impacting CLP Holdings Limited, a better strategy for the threat comes from within. The success of CLP Holdings Limited in the local energy industry in Hon Kong has made them effective and hence the need to diversify and invest in renewable energy to comply with the environmental regulations and keep abreast with technology.
It is significant for CLP Holdings Limited to use this report in exemplifying and defining their activities in a very unique manner. The company needs to focus on their strategy, enlarge globally, and adopt the best technology.
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1.0 Introduction
This report details a strategic review of CLP that is comprehensive. CLP Holdings Limited is an electric company in Hong Kong having many businesses in many Asian markets and also in Australia. According to Bankes & Hatter (2001), CLP is the main company in Hong Kong that generates electric power. Formed in 1991, CLP Holdings Limited’s core business operations remain retailing, transmission, and generation of electricity (Bannon & Maione 1998). Appendix one of the report provides a detailed overview of the customers, markets, products, and ownership structure.
The report will identify the core relevant issues of CLP Holdings Limited and present significant reasons for a change. The reason is further supported by the internal and external detailed analysis in reviewing the company at its four strategy levels, identify important key issues through the application of many analytical tools, highlights appropriate goals and strategic choices, in addition to providing recommendations on the manner in which CLP Holdings Limited should go about in handling and addressing the identified issues and the proposed strategic goals.
The report also has presented a plan for risk management tabulating the risks in undertaking and also not acting of the provided proposals. With the managements’ careful consideration of the report’s outcome, it will propel the success and direction of CLP Holdings Limited to ensure that it remains a profitable and a viable organizations when faced with challenges of fierce global competitions.
2.0 Important key issues for CLP Holdings Limited
A strategic analysis of CLP Holdings Limited that is comprehensive and detailed has been done using many analytical tools. From the analysis, the outcomes has been presented in appendices two to seven. The following identified key issues provides a compelling and a clear argument for need of changing current strategic direction of CLP Holdings Limited.
2.1 failure in charting the direction of CLP Holdings Limited
The report’s appendix two is a review of CLP Holdings Limited’s four strategy levels and also a highlight of several areas that is of great concern. The review considers CLP Holdings Limited’s enterprise, corporate and functional levels.
From the environmental report of Hong Kong, it is clear that a clear direction of the current state of energy industry of Hong Kong is strongly needed to pursue green energy. Despite CLP Holdings Limited’s acknowledgement, the need for an articulated vision cascaded through the organizations all strategy levels is of great significance. Lack of vision that is well articulated for CLP Holdings Limited helps in explaining its resistance and slow pace to change.
With the stated vision of CLP Holdings Limited still focussing on decarbonising the company’s generation portfolio and in management of their operations environmental impacts, there is no doubt as to why the company’s functional strategy has no mapped plans to investing or diversifying to renewable energy. At this critical time, CLP Holdings Limited does not need its employees and the managers to forming their long term direction by encouraging decision making that is rudderless which does not assist the lower departments in syncing with the intended vision of the overall company.
Without CLP Holdings Limited changing its direction, it will continue producing electricity using the natural raw materials like coal and fossil fuels which pollute the environment before being faced out by potential entrants in the industry with renewable energy.
2.2 increasing marginal cost and output
Due to the number and value of machines and equipment invested by CLP Holdings Limited in infrastructure, it has a high fixed costs. CLP Holdings Limited is the major producer and distributor of electricity in Hong Kong and is spreading its wings to other Asian markets. Production and distribution of electricity needs a lot of machinery and equipment to distribution to large number of consumers hence higher output.
The high investment on infrastructure and large output of its products is making CLP Holdings Limited to favourable compete locally and internationally with its competitors. However, taking into account other limiting factors from the analysis of CLP Holdings Limited’s external environment such as tax policies, meeting the required CO2 production maximum level globally, and the senior management now faces the issue of increasing marginal cost and possible decrease in output. Failure to address these will result in profit margin reduction and decline in profit for the business
2.3 Sustainable power production in Hong Kong
External analysis of CLP Holdings Limited suggests that power production in Hong Kong and in international countries is sustainable. CLP Holdings Limited’s management has been able to negotiate better labour rates for its employees and expatriates, have good relations with the Workers Unions, has best support from the government hence making production in Hong Kong and internationally favourable (Datamonitor 2000).
Even if CLP Holdings Limited diversify into renewable energy production, the company has a lower likelihood of confronting competition. This is because of large economies of scale, ownership of major distribution channels and large pool of customer base. Despite the fact that CLP Holdings Limited has strengths in capabilities, resources and value chain, the company needs to strategies on its pursuit of aggression to lock out potential entrants and to continue expanding its area of operations.
2.4 CLP Holdings Limited’s strategic assets
From the analysis, local energy industry in Hong Kong will not face any new entrant soon from the strict government relations and huge capital needed to enter the market (ICEE 2011). This will enable CLP Holdings Limited to maintain and increase its pool of customers and increase its revenue. Moreover, CLP Holdings Limited will continue enhancing its global footprint by expanding its operations in other remaining Asian markets not yet exploited
Given that CLP Holdings Limited is a multinational company having global footprints, it will be able to transfer some of its services and improved or tested products to be in line with the expectations of the customer. The company will be in close proximity to its clients, it will be strategically placed to expand more.
2.5 Active Inertia and fear of possible failure
From the analysis of CLP Holdings Limited, it appears it is facing “active inertia.” This term was created by Sull (2005) to describe an organization which has realised market changes but is attempting to adapt but is remaining inactive because of the company’s prior commitments. There is a great need in change in the energy industry to shift to renewable energy. For CLP Holdings Limited, this mind-set perhaps stems from the company’s employees who have worked for many years and not willing to adapt to changes
CLP Holdings Limited also appears to fear possible failure for their reluctance or avoidance of pursuing reasonable risks and investments in pursuit of greater opportunities in diversifying into renewable energy. This also stems from the company’s excellent success history for over a century, which possibly and interestingly may have been from the company’s ability in the first place to accept failure
2.6 Mismatch of human resources to strategy
There is significant business development activity and expands on taking place in CLP Holdings Limited. Despite the fact that CLP Holdings Limited has been growing and expansion its operational sphere, the pace at which the company is diversifying into renewable energy production is too slow. According to CLP (2000), if the assumption is that United Nations Environmental Program will maintain its campaign on global CO2 emission on atmosphere, then CLP Holdings Limited will reduce its output in few years. This will also hamper its expansion efforts significantly
Whilst the engineers and other expatriates teams have long tenure and are highly competent, their skills only relate to the electric power generation and distribution using fossil fuels. Failure of CLP Holdings Limited changing, or recruiting new staff who are competent and knowledgeable in new technologies of solar power production, wind power, nuclear, and hydroelectric will result in business as usual, and no changes in this critical area.
2.7 Raw material price fluctuation
Price of commodities like goal, oil and other metals prices fluctuates every day and depends on situations and news around the world they can vary a lot. For example if citizens in a certain create a riot and cause political uncertainty, price like gold and oil might rise due to a common thought that those are most needed and valuable during war times. On the other hand if the economies are doing well price of goal and oil might drop. The biggest problem of all is that commodities prices do not reflect these types of activities anymore and they are not easy to forecast. These price fluctuations can have significant impact CLP since most generators or turbines CLP owns use coal, gas or fuel as backup and the prices of these development of the country. Through environmental policies also, there is conservation of critical natural resources are all linked to each other.
2.8 Rising labour cost and labour unrest
Due to rising housing and living costs, labour cost is creating pressure for every company and CLP is also one of them. Union is very common worldwide especially in manufacturing, or other labour intensive work. The unrest of workers and the rising cost give CLP a real problem to solve. Naturally CLP will need to balance between investing in new work process and machinery, or accept the rising labour cost.
2.9 Environmental issues
Emission from generating electricity plays a big role in environmental issues like global warming, toxic air, acid rain, water pollution, etc.. The global trend of reducing all kinds of greenhouse gases emission will give pressure to CLP as reduction in emission simply means reduce electricity production. As we all know turbines like goal or gas powered ones will create gas like CO2 which is one of the most common known greenhouse gas. Reduce in production not only means that there will be a decrease in electricity supply, but also means that there will either be a shortage of electricity or increase in electricity price. CLP will need to focus on this issue before governments start to enforce regulations to cut down greenhouse gases emission.
2.10 Extreme weather
Weather might not seem like a big problem to electricity users at home in Hong Kong, but severe weather can cause all kinds of problem for electricity suppliers around the world. Electricity supplier like CLP takes historical data and create a model that forecast the power demand at different time of day, different season and weather in order to project the power needed and generate electricity accordingly without wasting too much resources. We can see electricity generators like our car, if we idle it for too long it will be a waste of gas, but if we do not plan our trip properly and start and stop the engine all the time it is going to cause damage to the engine and also waste gas. In order to use the resources like coal, gas or fuel efficiently, power plants need to plan ahead to set daily or even hourly output. Weather can costs sudden increase in demand, but most importantly it can cause damage to power network, generators or all kinds of power outages. For example in northern part of China where there are ice storm, snow storm and freezing rain, etc., these are common severe weather which CLP and its partners need to deal with.
2.11 Setting measurable goal
CLP visions for 2020 is great and forward looking, but some of them are just not SMART enough. For example they want to hold a significant stake in a leading listed Australian energy supplier before 2020, I think they have already achieve this goal, but quantitatively significant is just not specific enough. Another goal, to maintain its base and core operating business in Hong Kong is not measurable, it is simply just a decision they make to be based in Hong Kong or not.
2.12 Achieve China and India goal
CLP want to invest and operates transmission and distribution assets in India and in the Chinese Mainland. Setting up a goal like this is unpractical since as if they are just hoping it to happen instead of setting a goal that they can work towards. Goals are the desired target that direct our actions, and it is also a motivating force to keep our actions towards the desired outcome. The reason why we need to choose an achievable goal is that we can develop a plan that can be listed out in manageable steps to work towards our goal.
2.13 Timeline instead of end time
Setting a timeline will be more useful than just setting an end time for the goal. The same reason why we need to set a timeline to achieve our goals is that we can time our steps towards that goal and adjust it if after reviewing that we are moving too slow towards the goal.
3.0 SMART objectives
CLP has a long term vision for 2020 and they are working their way towards that goal using SMART goal setting.
Specific – CLP goals are very specific and yet simple. They want to maintain its base and core operating business in Hong Kong. They want to be the controlling shareholder of a listed energy company in India and Southeast Asia. They want to own a significant but minority stake in nuclear energy in Southern China (Already done). They want to invest in and operates transmission and distribution assets in India and in the Chinese Mainland if possible. They want to exit the minority positions in conventional coal-fired generation in the Mainland China. They will also want to be one of Asia’s largest investors in clean and renewable energy.
Measurable – Although not all goals are measurable, but they are either they have achieved it or not. For example, to hold a significant stake in a leading listed Australian energy supplier is not measurable and significant is not specific enough. Also, another goal which is to maintain its base and core operating business in Hong Kong is not measurable, but it is specific enough.
Achievable – All the goals are achievable since CLP is a public listed company hence they have all the resources to achieve the goals, the only matter is how they make it happen. The only goal that might not be achievable will be to invest and operates transmission and distribution assets in India and in the Chinese Mainland. This goal will only be achievable if India and the Chinese government agree to let CLP setup transmission and distribution assets in their countries.
Realistic & Relevant – To an average company or even a single person is one of Asia’s largest investors in clean and renewable energy might sound like a pipe dream, but for CLP it is just a few steps forward and it is definitely realistic and relevant to the organisation.
Time-Bound – It is definitely time-bounded as the vision is for 2020 and those goals are to be achieved in or before 2020.
4.0 Recommendations
These recommendations presented in this report address the identified key issues in section two and also contribute to the achievement of the outlined goals in section three of this report. The relationship between the key issues, goals, and recommendations is in appendix six. Collectively, the key issues, goals, and the recommendations will propose and present a strategy which generates sufficient revenues in covering costs creates value to the customers, and realise profit.
CLP has been delivering very reliable electricity to its customers in Hong Kong with 99.999% reliability. The real problem CLP face indirectly is how it can transfer this reliability to customers in countries like China, Australia, and India where power demand, weather, technologies, are all very different than Hong Kong. Hong Kong is a very developed city where the weather is very mild and the most extreme weather we can get is a typhoon, but most of the time they just go by instead of hitting Hong Kong directly due to the surroundings. CLP will need to study whether implications in those areas where they invest in generators or turbines and understand and manage the risk that might be involved in those areas. For example in extremely cold areas, they will need to select different types of cables and select the length accordingly for transmission since the extreme temperature can cause the power line to tighten up and in some cases, they bring down the towers because they became too short. On the other hand in extremely hot weather combine with the added demand for electricity to run air conditioning can cause the power line temperature to rise and extend the line until they are sagging on the ground and cause a power shortage. CLP will need to do thorough research for those countries that they are not familiar with in their local weather and plan accordingly.
CLP strategy has been going after numerous China power plants, Australian Power Company, and also Indian electricity market. From the data, we can see that China’s power consumption is much higher than Australia’s, but from CLP annual report we can clearly see that Australia’s business is generating more electricity than those combined in China and more profit coming from Australia also. One of the reasons behind this is the depreciation of RMB. CLP might need to take the exchange rate into account as it’s based is in Hong Kong and HKD is linked to the USD rate hence if RMB rise and USD falls, it will certainly be good news for CLP but if it is the other way around, they need to use financial tools to leverage the loss they might encounter. On the other hand, although Australia made a promising performance during the first half of 2014, it is foreseeing some problems ahead as there is an announcement that the Point Henry Aluminium Smelter will be closed down as it is one of the biggest electricity users in Australia. On the other hand, there is a lot of competition going on with devices like rooftop solar panels and conservative customers are starting to take measures to cut down energy use and be more efficient. In order to deal with these problems, Australian business unit will close down some of its operations in order to reduce total costing. CLP will need to think of ways to compete in this market as it is not like Hong Kong where they just need to concentrate on supplying reliable electricity. They should invest in solar panels as well and this would be a way to understand the competitor and on the other hand to compete in solar panels market also and if possible drive those competitors away by setting up an entry barrier for them. For example they can invest in solar panel combo electricity plan for home users where they will install Energy Australia solar panel with the use of regular supply of electricity through transmitter they can get a discount when they sign up for the combo or they can get the solar panel for free to try for two months before they need to purchase it. These types of strategies that require a large amount of capital can create entry barrier for its competitors.
CLP is the largest developer of wind energy in India and they see growth opportunities in the renewable energy sector. Wind energy is one of the most promising renewable energy source, since air movement can be found everywhere, the only problem is if we have the technology to capture that energy. The same problem goes with solar energy where the solar panel can only capture certain amount of energy but using a large area of space. Wind turbines are usually huge and they need to be installed in deserted areas where there are wind and little people around. CLP should start to invest in other types of technologies like solar panel windows where they can be installed in high rise buildings and turn the whole building into absorbing solar energy to power its own needs. Also for wind turbines, they can try to make mini versions where they can capture the smallest air movement and turn them into power. It does not take much, it can probably sponsor universities to create innovative devices that generate electricity. CLP direction is correct in investing in renewable energy, but I think to take another step further and try to create a new technology and find a new source of renewable energy can be the idea that brings CLP to be the top energy producer in the world.
Environmental factors are becoming more and more important nowadays as the general public are more aware of the environmental damage that can be done or on the other hand be reduce if they start to be conservative. For the Hong Kong market, CLP do not need to worry too much because they do not have choice to choose from, but in other countries like Australia, consumers can choose their electricity provider and if one company is more environmental than the other one, consumers are likely to pick the environmental one if all other factors are equal. Not only that, environmental groups are very powerful nowadays and they can go to extreme actions against those companies or organisations that are damaging the environment. Being environmental will definitely be a good decision to make for the future, not only for the environment, but also for the future of human race and earth.
Raw material supply is a major concern on costing where prices fluctuates every second. One way to counter that problem is the use financial tool like derivatives to counter the risk of price fluctuations. This is a way to manage the risk of having fluctuating prices but it increases the cost also since if material price drops, the company will lose money on that derivative contract. Another way around is to purchase coal mines and oil fields to create its own supply of raw material, this way they can easily control its cost and also generate another stream of revenue from coal mining or crude oil.
5.0 References
Bankes, T., & Hatter, D. (2001). Fast Track CLP Lotus Notes/Domino 5 application development. Indianapolis, IN, New Riders Pub.
Bannon, C., & Maione, D. (1998). CLP training guide: Lotus Notes. Indianapolis, IN, Que Pub.
China Light And Power Holdings Ltd. (2000). Corporate governance: CLP principles & practices. Hong Kong, CLP Holdings.
CLP Power Hong Kong Limited. (2014). Brightening up the hearts of Hong Kong: performance pledge. [Hong Kong], CLP Power.
Datamonitor (Firm). (2000). CLP Holdings Ltd. New York, NY, Datamonitor. Retrieved from http://search.epnet.com/login.aspx?direct=true&db=buh&jid=OMH
International Conference On Electrical Engineering. (2011). The International Conference on Electrical Engineering (ICEE 2011): towards smart & low-carbon electrical engineering : 10-14 July 2011, Harbour Grand Kowloon, Hong Kong. Hong Kong, The Hong Kong Institution of Engineers.
Kong, F. C. (2007). Commitment in an organization undergoing rapid change: a case study of CLP power Hong Kong limited. Thesis (PhDBusinessandManagement)–University of South Australia, 2007.
Organisation for Economic Co-Operation and Development. (1999). CLP report on positive comity. Paris, France, Organisation for Economic Co-operation and Development.
PORTER, M. E. (2008). The five competitive forces that shape strategy. [Boston, MA], Harvard Business School Publishing.
Sull, D. (2005). ‘Why good companies go bad’, Financial Times,
6.0 Appendix
6.1 Appendix One: Clp Company Overview& Structure
CLP Group – CLP Power has served Hong Kong for 113 years and its core vision is to provide reliable electricity and excellent services to customers, also environmental and safety performance are part of their commitment. CLP holding company holds CLP Group and under the umbrella, there are different units to support CLP’s vision. Out of all, Hong Kong is their core business unit and in will continue this way in the near future. The second largest unit is the Australia business unit, it account for 26% of CLP group’s assets, but only account for roughly 7% of CLP group’s earnings (First half of 2014). Other business include China ventures, India, Southeast Asia and Taiwan (CLP Power Hong Kong Limited 2014).
6.2 Appendix Two
Enterprise Strategy
| Evidence of the organization addressing this strategy level. | Identification of weaknesses that need addressing |
| vCLP Power has served Hong Kong for 113 years and its core vision is to provide reliable electricity and excellent services to customers
vCLP Power is committed to environmental and safety performance vIn the past years they have footprints all over the Asia Pacific region including Australia, China, India and Southeast Asia v | CLP’s vision is broad and focuses only on decarbonizing their generation portfolio and managing their environmental impacts. The vision and operations of the company should focus on investing on research and supply of renewable or green energy rather than polluting the environment and later invest on how to manage polluted environments and decarbonizing the atmosphere. It is better to prevent pollution than manage a polluted environment |
Corporate strategy
| Evidence of the organization addressing this strategy level. | Identification of weaknesses that need addressing |
| vCLP has the advantage of solid foundation of a power provider and being listed on the Hong Kong stock exchange in 1998
vConcerned with building a competitive advantage in a single business unit of one line of service. vCLP is constantly undergoing expansion by expanding its areas of operations in Asia vAims to have a balanced global presence to reduce economic dependence on one market. | CLP is primarily focussed on its vision for expansion and penetrating new markets and not concerned with the success and satisfaction of the Hong Kong Local market this suggests that expansion is encouraged by it has not fully exploited the local market to all geographic regions which may offer substantial return and revenue. |
Business strategy
| affected by mental or physical health disability. However, research Evidence of the organization addressing this strategy level. | Identification of weaknesses that need addressing |
| vCLP has the advantage in experience and capital to invest in new technologies and use their experience to take opportunities to join force with China cooperation to grow their company foot print to China and Asia & Oceania region in order to compete to be the global leader in electricity supply
vIt has also invested in renewable energy facilities and research which is the global trend now because fossil fuel is limited and eventually it will run out | CLP has no clear strategy of entering international markets, how to compete already established companies in the industry, and its plans of distribution. This is disadvantageous given that CLP still depends on fuel to produce energy yet its international competitors has heavily invested in renewable energy. |
Functional strategy
| affected by mental or physical health disability. However, research Evidence of the organization addressing this strategy level. | Identification of weaknesses that need addressing |
| vCLP has transferred staff from the group to different operating business units to gain efficiency and take advantage of synergies
vIn order to help its customers to be more energy efficient, they have launched the new GREENPLUS Experience Centre in Sham Shui Po, Hong Kong to help small businesses to save energy and costs vThey have a volunteer team that serves senior citizens in a lot of ways including repairing or replacing electric appliances for them. | CLP has minimal skilled staff in the company. Dispatch of skilled staff to the field affects the operation of the company majorly since they attend to few people in the field compared to high productivity had they been centralised in one areas. |
6.3 Appendix Three: Pestel Analysis
Political
| Dimension | Analysis | Implication to the organization | Possible actions |
| vPolitical issue is not really an issue for CLP as it has a long history in Hong Kong and it is almost like it is part of Hong Kong. The only political related issue would be the tariff increase | vIncrease in tariffs will increase the power prices of CLP to its exported countries such as china and Australia. Because of this, CLP may face competition from the local competitors or the domestic power producers in host countries where CLP export its products (Kong 2007) | vIncreased cost of production and high competition. Moreover, it may restrict CLP from entering certain markets | v Make an agreement with the host governments to liberalize their markets and allow free trade. |
Economic
| Dimension | Analysis | Implication to the organization | Possible actions |
| labour cost | Since minimum wage was enforced in Hong Kong, labour cost has been increasing ever since (Porter 2008). | Increase in labour costs will put an upward pressure on the prices of CLP hence making the company vulnerable to competition. Moreover, rising labour costs on CLP in Hong Kong may eat up CLP’s capital for sales, marketing and advertising | CLP should establish a system of monitoring the cost of each unit in wages. Similarly, CLP can counteract the growing expense in two areas. First, by reducing the costs of materials through renegotiating with their suppliers. Second, raising the prices they charge for their products |
| crude oil price increase | Although crude oil price has been up to above $100 since 2010, it is dropping to around $60 now in 2014(CLP 2014). | This is good news for CLP which uses a lot of fuel for their business. Increase in oil prices increases cost of production while decrease in oil prices decreases cost of production. | CLP have been using oil contracts to control their risks on fluctuating oil price, so price fluctuations has not been having huge impact on their production cost |
Socio cultural
| Sociocultural forces is not a critical issue for CLP since electricity is an unavoidable need for everyone who lives in the city |
Technological
| Dimension | Analysis | Implication to the organization | Possible actions |
| Government research funding | Government might not be enthusiastic about giving research funding to companies like CLP, but it has enough resources to develop the technology needed or even better just purchase them from other companies by M&A activities (Sull 2005). | Allocation of funds for research and innovation is essential for continuity, relevance, competitive and in meeting the needs of the clients | Identify technologies that can be developed by CLP to generate electricity, that are friendly to the environment and is cost effective. |
Environmental
| Dimension | Analysis | Implication to the organization | Possible actions |
| Green energy | Environmental factors is also crucial to CLP because generating electricity with fuel typically generate waste and could harm the environment, even if it is just CO2. Renewable energy will be the future for generating electricity | Adoption of green energy will reduce usage of fuel in electricity production by CLP hence reduces cost of production. Moreover, it will reduce greenhouse gas emissions which has negative environmental impact | CLP researches and develops renewable energy sources like solar panels and wind generating turbines, etc. |
Legal and regulatory
| Dimension | Analysis | Implication to the organization | Possible actions |
| labour law and tax law | minimum wage had a big impact on labour cost because it not only raise the wage of entry level labour workers, but slowly put pressure on those staff way above the minimum wage level and increase the overall labour cost by a lot | It will affect CLP costs | Lobby government to amend its laws and to support local and international companies |
6.4 Appendix Four: Porters 5-forces
| Dimension | Analysis | Implication to the organization | Possible actions |
| POTENTIAL NEW ENTRANTS | LOW | ||
| Entry barriers | |||
| capital requirements | CLP is the leading electricity provider in Hong Kong and basically there is no competition as the capital requirement is too high for creating an organisation to supply electricity at the same scale (OECD 1999) | Potential new entrants may access the capital requirements for the start-up by outsourcing some operations parts to companies capable of leveraging existing investments. | CLP should enhance good customer relations and build its brand loyalty to its customers. This will prevent decamping of its clients to the new entrant as a better alternative. |
| access to distribution | electricity runs through cables and most electricity cables runs underground in Hong Kong and to create a network that covers the same are not only cost a lot but it also involve a lot of construction work and also takes up space underground (Bankes & Hatter 2001). The government is likely not going to approve such plan. | This is a barrier of CLP of locking out potential entrants since all distribution channels are owned by CLP. | Lobby the government to pass a law preventing other entrants from sharing CLP distribution channels. |
| Dimension | Analysis | Implication to the organization | Possible actions |
| SUPPLIERS | HIGH | ||
| Determinants of supplier power | |||
| Very few experts in the industry | It is not easy to find experts in this industry. Moreover, there are no substitutes experts locally and import expatriates is costly to CLP | The experts can increase prices unconditionally, or even halt their services when there are not in good pay agreement with CLP. | CLP should build a win-win relationship with the expatriates. |
| Increase prices of the raw materials when demand is high | Although the raw material CLP uses basically comes with a fix price, but the fluctuation on raw material price will have certain degree of effect on CLP costs. The suppliers intentionally withhold the raw materials to increase the prices because of the limited suppliers and high demand | Increase in raw materials prices increases the costs of productions to CLP | Sign an agreement/contracts with the suppliers to control their risks on fluctuating oil price, so price fluctuations will not have huge impact on their production cost |
| No substitute for the oil input/raw material | According to Bannon & Maione (1998), CLP has not heavily invested in other sources of energy like solar and wind energy equivalent to oil and coal production of electricity. The scarcity of the substitute makes the supplier has a high bargaining power when supplying the raw materials | Over-reliance on the suppliers hence can be exploited | Maintain a better contract of win-win relationship with its suppliers. |
| Switching costs | CLP cannot switch to alternate suppliers in the industry at minimal cost. Many global suppliers of their components charge high prices (Datamonitor 2000).
It is very easy for the CLP suppliers to get new customers since most oil products are used globally in all sectors | Threat of integration of the suppliers | Maintain and renegotiate better trade agreements with their suppliers |
| Dimension | Analysis | Implication to the organization | Possible actions |
| SUNSTITUTE | LOW | ||
| Determinants of substitution threat | |||
| vPropensity of the buyer to switch to substitutes
vRelative substitutes price performance vSwitching costs | Currently there is no major substitute for electricity in Hong Kong, but before electricity was invented, there was spring stored power, and steam engines (ICEE2011). Although there are no substitutes for electricity, there are different sources of electricity which CLP might face in international markets from generators, nuclear power, solar power, wind power, hydroelectricity (CLP 2000). | Potential competitors adopting new technologies may lose business because global platforms reduces differentiation hence minimal costs in switching | CLP should explore research and development to ensure they are ahead of the competing technologies. Moreover, CLP can secure partnerships with the alternative or sister companies such as the companies producing electricity through wind, solar and nuclear power to reducing the risk of their clients switching. |
| Dimension | Analysis | Implication to the organization | Possible actions |
| BUYERS | LOW | ||
| Determinants of buyer power | |||
| Bargaining power | Buyers do not have bargaining power as those people who lives in Kowloon or New Territories have no choice but to use electricity provided by CLP and those who lives on Hong Kong island have no choice either to use the second electricity provider in Hong Kong(CLP 2014). | With the low bargaining power of the buyers, CLP can increase its profit potential since the costs of switching is so high and the backward integration threat is low | Secure integration with potential substitutes like the wind power, solar power producers to minimize alternative for the buyers. |
| Price sensitivity | The price sensitivity of the buyers is very low Unless the price CLP charge is high enough to move people to Hong Kong island, if not there will be no pressure from buyers (Kong 2007). | CLP has minimal demands or threat of the customers stopping the purchase of the products. | Maintain the price range of the products, and if there if need to increase price, CLP should make insignificant price increase to avoid high prices which can make the buyers be sensitive to the prices |
| Dimension | Analysis | Implication to the organization | Possible actions |
| INDUSTRY RIVALRY | HIGH | ||
| Rivalry determinants | |||
| Competitors | In Hong Kong, basically there is no rivalry as the other electricity provider cannot supply electricity to CLP customers (OECD 2011). | No rivalry in the industry indicates that CLP enjoys monopoly, and determines the prices | Maintain its distribution channels, its customer base and suppliers to prevent entry of other competitors |
| Innovation and growth | In the global power supply market, the most important factor for this industry is to sustain the competitive edge through innovation and expanding their market share. In order to do that CLP use M&A activities to expand their market and also gain knowledge on new technologies or even buying substantial amount of that company (Bankes & Hatter 2001). After all, if an organisation refuse to move forward, eventually it will fall behind and be acquired by those who will. | Through health care sector. The act of patenting medical innovation, CLP is able to keep up with the technological advancement and trends. Moreover, by merging with other industry players, CLP is able to expand its market share, and create economies of scale. | Invest more on green energy since the work is slowing moving to green energy. Moreover, they should form mergers with international companies to get access to international markets. |
| Industry growth | CLP has shifted focus to emerging economies of China, Australia and India in its international market penetration. This is a great potential for CLP since these emerging economies has a domestic markets growing at a higher rate | CLP has financial ability to invest and create subsidiary companies in the international countries where costs is low | Focus more on renewable energy which as low costs and require new technologies to compete the local companies in host countries |
| Brand identity | CLP is seen as the only, and the preferred producer and supplier of electricity in Hong Kong. This makes it well positioned in receiving new quotations of businesses | CLP is perceived as a trusted producer and supplier of electricity because of the proven successful record of electricity supply for over a century | Expand its market share to leverage its global footprint in delivering its products to the customers. |
6.5 Appendix Five: Swot Analysis
| STRENGTHS | Analysis | Implication to the organization | Options to capitalise on strength |
| Potential strengths and competitive assets | |||
| possess capital resources | CLP possess capital resources that is in global scale which give it the capital needed for any project where they see fit can be fulfilled without hesitation | Invest in research and development especially on new technology | |
| Location in Hong Kong | CLP is based in Hong Kong which give it the advantage of being close to China which is the world’s number one consumer in electricity | By being close to China and with previous experience doing joint venture with China organisations it has the advantage to enter the biggest electricity market in the world. | |
| WEAKNESS | Analysis | Implication to the organization | Options to address weaknesses |
| Potential weaknesses and competitive deficiencies | |||
| Large production of CO2 daily | Harmful gases emitted from the fuels negatively affect health of the employees and the general population hence reduces their productivity | Invest in technology on how to arrest CO2 and recycle it making other products such as fire extinguishers | |
| OPPORTUNITIES | Analysis | Implication to the organization | Options to exploit opportunities |
| Potential market opportunities | |||
| market in the China region | china region is a great opportunity to supply electricity because of major industries and high population in the region | Apply for business permit in China | |
| New technologies in powering engines and technologies | As technologies grow nowadays, electricity suppliers and motor manufactures are searching for ways to use new sources to power generators or engines. | Form partnerships with major automotive and machinery manufacturing industries | |
| Plans to reduce CO2 emissions | To compete in a world where more and more people are being environmental, having plans to reduce CO2 emission is a way to improve company image and also gaining funds for research from governments in certain countries | Create a department of research and development | |
| THREATS | Analysis | Implication to the organization | Options to address threats |
| Potential external threats to an organisation’s future | |||
| Rapidly rising cost of production | The cost of production has been rising rapidly in Hong Kong and also in China, the major reason behind this is the increase in labour cost. This reduces the profit margin for CLP | Negotiate with the workers unions for affordable wages, or increase the prices of their products | |
| volatility for the raw material like natural gas, coal and fuel price | This creates uncertainties and unexpected costs when the price goes up acts as a threat to the company. | Sign long term supply contracts to avoid being affected by price fluctuations | |
| Global recession of 2008 | After the financial tsunami in 2008, global economies are still in recovery and with the interest rate increase which is going to slow down the economy and also will decrease electricity demand which will affect CLP | Lay out proper strategies of cushioning the company from the effects of the 2008 global recession. | |
| Environmental regulation | Poses another threat to electricity providers as they will be forced to make investments to improve their processes and reduce emission or they will be taxed or fined for exceeding a certain amount of emission. | Invest in technological methods that produces renewable energy | |
6.6 Appendix Six: Audit- Key Issues/ Recommendations/ Goals
| Key issues | recommendations | Goals |
| failure in charting the direction of CLP Holdings Limited | Align the whole company in achieving goals to avoid failure. The management should direct the company and emphasizes why it must be achieved | By 2018, the turnover to be $20 billion |
| increasing marginal cost and output | Reduce labor cost and increase the prices of goods | By mid-2015, reduce the operating costs by 20% |
| Sustainable power production in Hong Kong | Maintain power reliability | Maintain the reliability at 99,99% |
| CLP Holdings Limited’s strategic assets | Align the company’s human capital in achieving the vision of the company. | Establish a profile and presence |
| Active Inertia and fear of possible failure | Push people out of their comfort zones | Reshuffled senior and middle managers. Additionally, have updates quarterly on employee personal business objectives |
| Mismatch of human resources to strategy | Employ additional staff members to drive on the strategy of adopting renewable energy | By 2017, about 5% of the employees should be new engineers who are trained professionals in renewable energy, and have been dispatched to different enters. |
| Raw material price fluctuation | Sign long term contracts to avoid being affected by price fluctuations | 10-year stable contract |
| Rising labour cost and labour unrest | Long term working formula with union officials | |
| Environmental issues | Adopt technology in electricity production that will reduce CO2 emission | Adopt full technology by 2010 for renewable energy |
| Extreme weather | ||
| Setting measurable goal | ||
| Achieve China and India goal | Heavily invest and market its products aggressively in china and India | Own 30% of Indian market share and 50% of china energy argument |
| Timeline instead of end time | Design plans for company projects and activities to achieve objectives and the final end goal | By 2020, all the presented job timelines and end goals shall have been achieved |