Evaluating the Company E.ON’s Main Corporate Level Strategies

E.ON’s CORPORATE-LEVEL STRATEGY
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Table of Contents TOC \o "1-3" \h \z \u Introduction to E.ON PAGEREF _Toc78544606 \h 4Strategy and Strategic Levels PAGEREF _Toc78544607 \h 4Corporate-level Strategies PAGEREF _Toc78544608 \h 5Business-level Strategies PAGEREF _Toc78544609 \h 6Functional Strategies PAGEREF _Toc78544610 \h 6E.ON Corporate-level Strategy PAGEREF _Toc78544611 \h 7E.ON Growth Strategy PAGEREF _Toc78544612 \h 7Diversification PAGEREF _Toc78544613 \h 7Vertical integration PAGEREF _Toc78544614 \h 9Concentration PAGEREF _Toc78544615 \h 10Stability PAGEREF _Toc78544616 \h 11Retrenchment PAGEREF _Toc78544617 \h 12Ansoff Matrix and E.ON Growth Strategy PAGEREF _Toc78544618 \h 13Strategy Evaluation PAGEREF _Toc78544619 \h 14E.ON Corporate Strategy and Suitability PAGEREF _Toc78544620 \h 14Environmental Forces PAGEREF _Toc78544621 \h 14E.ON’s PESTEL Analysis PAGEREF _Toc78544622 \h 15Political PAGEREF _Toc78544623 \h 15Economic PAGEREF _Toc78544624 \h 16Social-cultural factors PAGEREF _Toc78544625 \h 16Technological factors PAGEREF _Toc78544626 \h 16Ecological factors PAGEREF _Toc78544627 \h 17Legal factors PAGEREF _Toc78544628 \h 17Strategic Capabilities PAGEREF _Toc78544629 \h 18E.ON’s SWOT Analysis PAGEREF _Toc78544630 \h 18Strengths PAGEREF _Toc78544631 \h 18Weaknesses PAGEREF _Toc78544632 \h 19Opportunities PAGEREF _Toc78544633 \h 19Threats PAGEREF _Toc78544634 \h 19Stakeholder Expectations PAGEREF _Toc78544635 \h 20References PAGEREF _Toc78544636 \h 21
E.ON’s Corporate-level Strategy
Introduction to E.ON
E.ON is one of the leading companies in power generation and energy trading operations in Europe and other parts of the world like the United States. The company is headquartered in Essen, Germany, and has its operation spanning 30 countries, with Leonhard Birnbaum at the helm as the CEO and Chairman of the executive board. In the UK alone, E.ON has a customer base of close to 3.8 million users, making the company an important player in the UK’s energy utility sector (E.ON Energy UK, 2017). In addition, the company has diversified its operations, with the significant business segment being energy networks tasked with the distribution of power and gas across Europe, renewables, and corporate functions, among other business segments typical of a utility company. Wind energy and biomass are the main building blocks in the company's renewables energy portfolio. The company boasts of being the largest owner and operator of onshore and offshore wind power (E.ON, n.d -a). Before the formation of Uniper, E.ON's fossil fuel asset, in 2015, the energy utility company had registered tremendous growth, peaking at 132 billion euros in 2013 before experiencing a dramatic decline in 2015 to as low as 43 billion euros (Sönnichsen, 2021). Nonetheless, E.ON has registered steady growth in sales revenue from 2018, with revenue accumulation from sales being about 60 billion euros in 2020, making it the leading energy utility company in Europe (Sönnichsen, 2021). The success of E.ON in Europe as the leading energy utility company can be attributed to several factors, all of which can be narrowed down to the company’s strategic management at different levels.
Strategy and Strategic Levels
Strategic management has become a core component of any aspiring organisation because of its significant role in shaping long-term decision-making and the many benefits that come with it. According to Johnson et al. (2016), strategy can be defined as an organisation's long-term direction, which is advantageous in two ways (p.4). First, an organisation's long-term direction can encompass both deliberate, logical strategy and more incremental, emergent strategy patterns (Johnson et al., 2016 p.4). Second, a company's long term direction can embrace both strategies that focus on competition and difference and strategies that consider the roles played by cooperation (Johnson et al., 2016 p.4). A large corporation such as E.ON can depict three different strategies: corporate-level strategy, business-level strategy, and functional strategies. The different levels are classified based on the scope of an organisation, corporate-level strategy having the largest scope that spans the entire organisation as opposed to a business level strategy that is aimed at shaping the different business segments that make up a larger corporation(Johnson et al., 2016 p.10-11). This paper provides an in-depth analysis of the corporate level strategies at E.ON and evaluates their suitability to the environment, strategic capabilities, and stakeholder satisfaction. The different strategic levels are often intertwined, necessitating understanding the concepts from a broad perspective rather than narrowing them down to a specific level.
Corporate-level Strategies
Corporate-level strategies are the topmost strategic action plans that span the entire corporation. Because of its higher scope, formulation of corporate-level strategies is the responsibility of top-level management, considering the resource available to implement the strategy and the environment within which the corporation operates. Corporate-level strategies can serve different purposes in an organisation: growth, stabilising, reducing the scope of operations, or even combining the various roles of corporate-level strategies (Furrer, 2016). The typical components of the corporate-level strategy include acquisition of new businesses, geographical scope, diversity of products and services, and the allocation of resources among an organisation’s different elements (Johnson et al., 2016 p.10). Bearing in mind that the top-level management initiates corporate-level strategy, it signifies that it follows a top-down approach.
Business-level Strategies
The business environment is full of competition from within and without. Business level strategies help the organisation differentiate itself from the pool of direct and indirect competitors by enabling the business to make strategic decisions on resource allocation and value creation to the different business units that make up a corporation (Seifzadeh and Rowe, 2019 p.12). There are several guiding principles to the business level strategy, one being cost. Cost is one element that determines business competitiveness in a scarce market. The ability to stay ahead of the competitor in terms of minimisation of costs signifies the efficacy of the business-level strategy. Differentiation is the other key element of business-level strategy. A business can achieve differentiation either through pricing or product quality. The strategy employed in the numerous lines of business that make up a corporation form a major component of the corporate-level strategy, hence the argument that business and corporate-level strategies are interdependent.
Functional Strategies
Underneath the business end of a corporation are the deliverables where the actual hands-on operations take place. Functional strategies coordinate how different components of an organisation facilitate the attainment of corporate- and business-level strategies (Johnson et al., 2016 p.11). For example, for an organisation structured into departments, the corporate-level strategy would want to see the different departments work on their goals and objectives that will further translate to success in the business-and corporate-level strategy. Functional level strategy forms the basis for the subsequent strategic levels and hence tend to be the most detailed, aligned, progressive, and resource-intensive strategic level among the three (Wheelen et al., 2017 p.251). The functional level strategy design depends on the corporate level goals set at the corporate level. The output from the objectives derived at the functional level determines the overall success of the corporation, thus certifying the interdependence between the three levels of the corporate strategies.
E.ON Corporate-level Strategy
E.ON, the German giant in the energy utility industry, has employed numerous tactics to outperform its competitors. The different strategies employed by E.ON have served different purposes: growth, stability, or retrenchment. For growth purposes, E.ON has adopted diversification, vertical integration, and concentration corporate-level strategies. The company has also played with its assets, profit margins, and business components to ensure profit stability. Retrenchment corporate strategy is often meant to lower costs and enhance stability, but E.ON has had to deploy the retrenchment strategy under pressure from the authorities. The corporate-level strategies deployed by E.ON has majored in growth, using strategies such as diversification, product development, market penetration, among others, to enhance its growth. Therefore, the Ansoff matrix becomes the most appropriate framework in modelling E.ON growth strategy.
E.ON Growth Strategy
Diversification
Diversification is a growth strategy where a company ventures into new market segments or introduce new products to offset the stagnation in the previous market or to complement growth in the original market. Diversification can take two forms: concentric or conglomerate diversification to denote diversification along with the current niche and outside the current niche, respectively (Dhir and Dhir, 2015 p.570). The different types of diversification can be triggered by different factors, with excess in resources, opportunities sprouting from research and development, and even managerial biases being the common triggers for conglomerate diversification. However, technological ineptness and competition within the industry are the major drivers for concentric diversification. The organisation seeks to strengthen its resource capabilities from within without exploring beyond its scope (Dhir and Dhir, 2015 p.570).
E.ON has capitalised on diversification as a significant component of its growth strategy for quite a long time. Since its inception in 2000, E.ON energy has utilised its unrelated diversification strategy from the initial electricity, gas, and heat operations to venture into different fields, including chemical, oil, logistics, and even real estate (Dimova, 2017 p.8). In addition, the energy portfolio for the company's non-renewables comprises different energy sources with biomass and wind energy at the top (E.ON, n.d. -a). Being an energy utility company, E.ON has further diversified its operations from the initial core business activities of selling and distribution of energy to more decentralised, green, and interconnected energy solutions that are bearable to the consumers and the environment (E.ON, n.d. -a). The most recent move by E.ON to enhance its diversification in renewable energy, energy optimisation, and decentralisation has seen the company partner with innovative companies in their respective industry areas. For example, E.ON, alongside other industry players, invested a sum amounting to over 6 million euros to a wind power generation start-up in Britain, Kite Power Solutions (KPS), to register its presence in renewable energy (E.ON, 2016 par.1). Concerning energy optimisation, E.ON has partnered with Elcore GmbH, a German-based fuel cell technologist producing energy-efficient heating systems for homes (E.ON, 2017 par.1). Finally, E.ON has partnered with Nissan in a pilot project dubbed ‘Vehicle to Grid (V2G)’ that will see the energy from vehicle batteries pushed back to the grid in a bid to decentralise energy management (Koisti, 2020 par.4). Diversification is a corporate-level strategy within E.ON has focused on the company’s industry sector and other sectors, depicting a mix of concentric and conglomerate diversification strategies.
Vertical integration
The other growth strategy conversant with E.ON energy is vertical integration. Vertical integration is a corporate-level strategy where a firm assumes all the functions undertaken by a distributor or supplier in multiple locations to enhance its vertical growth (Wheelen et al., 2017 p.223). Assuming the role of a supplier can be termed backward integration, whereas assuming the distributor's role is termed as a forward integration (Wheelen et al., 2017 p.223). By employing backwards and forward integration, the firm enhances its control of the value chain, boosting its competitive advantages. In addition, backward integration is often used to lower the costs of acquiring vital resources in the value chain. In contrast, forward integration is deployed to ascertain the firm's monopoly in distributing the product (Wheelen et al., 2017 p. 223). Thus, both backward and forward integration can enhance the firm’s competitive advantages, and both types of integration have advantages and disadvantages alike.
The energy utility industry players, and E.ON in particular, have had integration as a critical component of their growth strategy. One vivid example of vertical integration within E.ON in action can be deduced from the company's complete takeover and integration of the German energy company Innogy, in 2020 (Nhede, 2020 par.4). The takeover was aimed at diluting competition in energy distribution and gas storage and bolstering energy network infrastructure for E.ON across Europe. Although Innogy previously worked as a separate entity and not a distributor for E.ON products, the acquisition strengthens the company's value chain in energy distribution. Hence it can be regarded as forwarding integration. The other typical example of E.ON practising vertical integration can be deduced from the company’s partnership with Kraken technologies to bolster the residential and commercial customer business (E.ON, 2020 par.1). The motive for the E.ON strategic partnership with Kraken Technologies was to over the UK market by incorporating the UK-based Kraken technologies' innovative technologies into its IT system, E.ONnext. This is also aimed at boosting the company competitiveness going forward hence an example of forwarding integration.
Concentration
Concentration is a growth strategy initiated at the corporate level that aims to pump every available resource towards enhancing the profitability of a particular product or market segment (Opentext, n.d. par.1). This strategy provides the firm with a wide range of options, including market development, market penetration, or product development (Opentext, n.d. par.1). The company invests heavily in market research when market development and market penetration are deemed the most appropriate concentration strategies. For product development, investing in research and development seems the most viable option for new products in the market. Concentration strategy has been a significant growth strategy for most multinational corporations, and E.ON has had this approach as part of its growth strategy.
To gain influence among consumers who are keen to have self-sufficient energy solutions and minimise their dependence on the grid system, E.ON has been working on an energy storage solution using batteries. The battery solution sits between the power grid and the consumers' site of operation to draw power from the grid system. It can store large quantities of energy sufficient to power a local grid and even be traded to other businesses. One successful energy storage solution by E.ON is the Blackburn Meadow energy storage project that became operational in 2017, winning a contract to enhance the stability of the national grid (E.ON, n.d -b). This is a typical example of a product development kind of concentration growth strategy that E.ON deployed to extend its focus on energy distribution via the traditional grid system by offering an alternative solution in energy storage systems. Not only did the energy storage solution expand the company’s range of products, but it also became a major source of revenue due to the tenders awarded to be part of the National Grid system.
Stability
When a company is convinced that the current plan of action is working in the right direction and there is no need to shift focus yet on new businesses that will enhance growth, the company may initiate some plan of action that will ensure continued stability. The stability strategy can be aimed at two main objectives: maintaining the status quo or increasing the profit stability by either reducing costs, separating non-core businesses from the core business, or selling assets, among other options. However, not very often do corporations employ the stability strategy, as most aspire to realise growth in every area.
Stability strategy within E.ON energy can be seen in two instances where the company either engaged in asset swap or shareholder split to maintain stability. In 2016, E.ON announced a split following deliberation by the stakeholders to split into two separate entities: E.ON to focus on renewables and Uniper to focus on conventional energy (Amelang and Wettengel, 2016 par.1). Despite the company initially recoding a steady growth before the split, the spin-off that received shareholder approval of 99.7 per cent was deemed necessary to ensure shareholder profit margins are elevated (Amelang and Wettengel, 2016 par.2). The other instance where stability strategy came to play within E.ON involved an asset swap deal with RWE Energy that saw the reincorporation of Innogy's renewable assets into RWE, leaving the network and energy supply business segment of Innogy with E.ON (S&P Global, 2020 -bpar.3). The asset swap was seen from the outside as a move by the European energy giants to avert legal hurdles of market monopoly (S&P Global, 2020 –b par.5). The stability strategies within E.ON were mainly aimed at enhancing the stakeholder profits while maintaining the market in the various b...