How Ecotricity has obtained considerable business achievements within a short period of time - Essay Example

?Small Business Appraisal Introduction Globalisation and the associated changes in the business environment greatly encouraged both cross border trade and small business enterprises. A small business represents a privately owned and operated business venture having small number of employees and comparatively low sales volume. Small business is fondly termed as ‘mom and pop store’ in the United States. In the view of Fay, generation definition of an SME can be stated as “a small firm is one that has only a small share of its market, is managed in a personalised way by its owner or part-owner and not through the medium of an elaborate management structure” (Fay, 2000, p.22). Hence, a small firm does not have access to capital market for the issuance of public securities because of its insufficiency in size. As Macgregor and Vrazalic (2007, p.3) point out that the UK Companies Act 1989 does not allow a small business enterprise to be the subsidiary of any other company. This paper will critically analyze the green energy company Ecotricity in the context of appropriate theoretical frameworks, and will make recommendations to address the constraints imposed by the size, style, and nature of the business. Definition The legal definition of a small business enterprise varies from country to country mainly in terms of annual turnover and number of people employed. According to Analoui and Karami (2003), a firm is considered as small business in the United Kingdom if it meets two or more of the following criteria; “Turnover not more than ?2 million Balance sheet total not more than ?975,000, and Number of employees not more than 50” (p.26). The emergence of the concept ‘small business’ greatly stimulated entrepreneurs to commence their venture with minimum investment and labour. Low and MacMillan (2007) (as cited in Fischer, p.1954) have defined entrepreneurship simply as the formation of new enterprises. Characteristics and Traits Ecotricity was founded by Dale Vince in 1995 using a single wind turbine. Within 15 years, the venture grew into notable heights. As Loveless (2011) reports, Ecotricity was selected as one of the twenty five British small business firms in the first phase of the European Business Awards in 2011. Dale Vince is an innovative entrepreneur who is very different from other contemporary entrepreneurs including James Caan and Steve Jobs. The Telegraph reports that Dale Vince “is a professional hippy of the kind the establishment used to deride” (Telegraph). He was a former new age traveller and had protested against cruise missiles before he arrived at Gloucester. He always had his own interests and views but never paid attention to external suggestions. Although this trait irritated the credit lending institutions and other concerned parties, his strong decisions were evidently the keys to his success. Vince was never willing to accept failure and this attitude assisted him to overcome threatening troubles with equanimity. Start-ups The push and pull theory clearly describes the concept of entrepreneurship. This theory claims that people are motivated to create innovative ventures by external factors. However, the external factors can be either positive or negative. As Dana (2004, p.134) opines, newly arising opportunities and potential elements of the industry are some of the positive factors that would inspire individuals to create new ventures. In contrast, an individual may also be motivated by negative factors to start a new business (ibid). For instance, unemployment is a negative motivational factor. The push-pull theory also contends that an individual’s family background can be a strong motive for starting a new business. Experiences show that poor and troubled family relations persuade people to be independent and this need leads them to innovations. The first wind farm established in Cornwall was the major inspiration for Dale Vince, the founder of the Ecotricity to create his own venture. Referring to the push-pull theory, Vince was attracted to entrepreneurship by positive factors. In 1991, Vince and his neighbour built a wind mast. He faced a series of issues during the early phases of his business as energy supply was a monopoly business that time. Hence, his ‘green energy’ did not get enough attention even though he tried to sell it to the London Electricity Board. Till that time, people were not familiar with the green energy generated from wind power and therefore they hesitated to purchase it. This situation raised extreme challenges to Vince. He really strived to convince the British market regarding the potentiality of the wind energy. Although many people rejected his idea, he confidently went on with his project. Finally, he attained a license for his venture in 1995 and established the first green electricity company of the world. He sold the green energy to businesses at initial stages and later for domestic use. Business Appraisal As discussed above, the Ecotricity had faced many difficulties before it expanded its business to households. However, the firm achieved a large number of potential gains within a short period of time. The firm commenced its operations in 1995 with only a single wind turbine. During the initial stages, Vince had been commercially building wind monitoring equipment and from there he began to operate with his own wind turbines. A survey conducted by The Ecologist magazine reports that the Ecotricity made huge investments, which were 100 times more than those made by the firms’ competitors including Powergen and Scottish Power, on new Enercon wind turbines in 2004. The Ecotricity’s financial data indicate that the firm has been increasing its contribution to green energy sources over the years (GoldenMap 2011). As per the data cited in the firm’s website, its contribution per customer was ?117, ?275, and ?555 in 2005, 2006, and 2007 respectively (ibid). These huge investments reflect the fact that the company has a stronger financial background, which in turn points out the high growth potential of the firm. Unlike other small businesses, profitability is not the major driving force behind the Ecotricity operations. In contrast, the firm gives fist priority to business expansion as it places more focus on its long term sustainability rather than short term financial returns. As per the 2008 company data, Ecotricity employs 150 people and thereby it is progressively coming out of the small business status (LeadershipTrust, 2008). The company has become a key player in the UK’s electricity industry with 35,000 domestic and 3,000 business customers. The firm effectively manages its growth. The Ecotricity management team continuously works with its operational strategies and communication policies. The Ecotricity won the Ashden Award in 2007 for sustainable energy, and this event widely popularised the firm across the UK market (Ashden, n.d). The award committee specifically stated that the company’s turbines are generating 46 GW h/year of renewable green energy and abolishing nearly 46,000 tonnes of carbon dioxide emissions a year. Company officials claim that its production capacity will be doubled within a few years. Since people today are more concerned about health and environment safety, the company obtains potential market support. This situation adds value to the promotion activities of the Ecotricity. In addition, the firm pays specific attention to social responsibility programs by greatly emphasising on environmental sustainability. The eco-friendly operations and preservation of non-renewable energy resources significantly contribute to the stature of the Ecotricity. Statistical data reveals that the Ecotricity’s renewable production increased from 24.1% in 2007 to 51.1% in 2011 and it is expected to reach 60% by 2012 (Ecotricity, n.d). Recently, the firm entered the solar energy sector and it established its first ‘sun park’ in 2011. Since solar energy is being considered as the most potential and cost effective renewable source of energy, this business sector would offer a prosperous future to the Ecotricity. In addition to the generation and sale of wind power, the Ecotricity also deals with some side projects like Greenbird, Namesis, vehicle recharging, and tractor. Among these, vehicle recharging is identified to be the most potential side project as it offers sustainable opportunities for the firm. This project uses electricity to fuel vehicles by replacing non-renewable energy resources like petrol and diesel. This development allows people to recharge their vehicles directly from RoadChef cites situated across the UK. Since vehicle fuel usage constitutes a huge percent of the total non renewable energy consumption, this project would be easily and widely accepted in the UK market once it is implemented properly. While analysing Ecotricity’s progress reports, it is obvious that 2010 was the firm’s best year. In 2010, the Ecotricity launched its Green Gas tariff project and obtained permission for beginning a number of new wind parks (Progress report 2010). The company also built a new windmill powering a solar panel factory; and in the same year, Ecotricity launched its EcoBonds concept – a project intended to finance green energy projects and to share financial gains with consumers (ibid). Presently, the firm vehemently tries to broaden its business from energy to other areas such as food production and electric car. The company has borrowed ?34 million from German bank NordLB to finance its increasing growth requirements. As Massey (2011) points out, Ecotricity achieved turnover of ?44 million for the financial year 2011/11 and attained a 30% growth in customer volume (Ecotricity). In addition, the company’s revenues also increased by 20% for the fiscal period of 2010/11 (ibid). However, the director’s report indicates that the firm’s profitability for the period 2010/11 was relatively lower than the previous years because of a decline in wind generation. The company has recently designed a number of green energy campaigns with intent to attract more people to green energy and thereby to stimulate the company’s growth. The firm specifically focuses on retaining the existing customers by managing on time product delivery and timely response to market needs. Marketing Marketing experts opine that small businesses can market their products and services more effectively than large business houses, because small firms would have deep understanding of the market segment in which they operate. A small business enterprise may promote its growth mainly through three different ways; acquiring more customers, persuading customer to buy more units of same products, and persuading customers to purchase more profitable products. Target marketing is highly recommended in small business sector rather than any other marketing strategy. Small business enterprises probably have limited resources and hence they cannot effectively meet the requirements of large scale operation. However, the target marketing strategy will assist them to concentrate on the correct niche market so as to avoid the wastage of efforts and time. While analysing the marketing strategies of the Ecotricity, it seems that the firm uses advertising as its main channel of product promotion. Recently, the company has created some famous advertisements, which greatly assisted the company to improve its customer base. The Ecotricity management has also framed a well structured program that integrates the firm’s sales activities with its marketing tactics. As Baker (2009) reports, the firm has launched an integrated campaign namely “Stroud 50/50” with intent to encourage people to use 50% green energy; and through this idea, the company aims to generate around 3,000 local supporters in order to market its green energy products. Ecotricity mainly depends on press ads and online and local events to publicise this campaign (ibid). Since the Ecotricity needs to compete in the market with its limited marketing budget, it specifically focuses on investment programs that would add value to customer loyalty. Similarly, it seems that the Ecotricity promotes its market growth by acquiring more and more customers. As discussed earlier, the company marketed products to businesses at its initial stages and subsequently expanded its business area to households. By acquiring more customers, Ecotricity aims to generate its revenues from a larger customer base. This strategy may aid the company to maintain its profitability even though some customers might switch their demand to other companies or substitute energy resources. In addition, it is observed that the firm never tries to market its green products directly; in contrast, Ecotricity works to enlighten the public regarding the significance of green living. This indirect marketing strategy greatly assists Ecotricity to make people more concerned about the negative effects of green gas emissions, ozone layer depletion, and climate changes. The idea is that when people are alarmed about the scarcity of non-renewable energy resources and other environmental issues, they may eventually turn to green energy products. Hence, Ecotricity’s marketing policy contributes to its sales volume as well as market stature. Furthermore, the environment-focused product promotion strategies also assist the company to trim down its marketing expenses to a great extent. Ecotricity always tries to maintain innovations in its products so as to be more competitive over its rivals. Obviously, the Ecotricity’s marketing policy will greatly benefit the firm in the long run. Human Resources Generally small business enterprises possess limited employees and hence they do not give much emphasis on human resource policies. However, business theories strongly recommend that a firm must be aware of the human resource planning even if it has only one employee. Business consultants state that a firm must develop a comprehensive human resource program if it has more than five employees. Even in a small business firm, people are the most challenging resources to manage because people cannot react to situations in a predicable manner as in the case of machines. In a small business, the owner has to clearly plan how to hire, train, and develop employees to be the valuable contributors to the business venture. For this purpose, the business owner must include HR strategic planning in his overall business plan. According to Lengnick-Hall and Lengnick-Hall (1988), a well structured human resource management program may assist small business enterprise to effectively deal with workforce planning, employee recruitment and retention, coaching and counselling, employee performance appraisal, employee promotion, inter-employee relationships, and development of job descriptions. A firm normally considers time and employees as its most valuable assets and leaders always try to gain the commitment of their employees. As Vince & Tyler (2008) point out, Ecotricity maintains special provisions for employee empowerment and allows employees to bring their creativity to job. The firm’s employees find additional time to join together even though the company management does not force them to do so (ibid). Recently, the company has launched the latest version of SAP’s Industry Solutions Utilities (ISU) so as to facilitate back-office functions for Ecotricity. The firm has also added the SAP’s human resources modules to the implemented system so as to effectively monitor employee performance and timely respond to their needs. Currently, Ecotricity’s employee strength has reached a noticeable figure of 150. The company has designed some training packages to improve employees’ skill base and thereby to ensure better productivity. Although the firm values employee contributions, it has not established a well structured human resource management system yet. The deficiency of this system raises some degree of internal management challenges to Ecotricity. Currently, the human resource affairs of the company are under the direct control and supervision of the managing director, Dale Vince. Obviously, Vince alone may not be able to manage his 150 employees because he needs to deal with several other business matters. Hence, the deficiency of a HR manager would negatively affect the operational efficiency as well as the further growth of the company. Recommendations Evidently, many economies have already encouraged the development and commercial distribution of green energy sources. Hence, such a situation would greatly benefit Ecotricity’s future operations in the United Kingdom. However, the wind power generation alone may not be sufficient to place the company at the top of the UK market. Therefore, it is advisable for the company to engage in large scale solar energy production too. Solar energy is a potential green energy, perhaps more potential than wind energy as it can be directly collected from sunlight. As compared to wind power generating equipments, less maintenance costs are required for solar energy plants. In addition, level of availability of its source- sunlight- is predictable while the degree of availability of wind power cannot be forecasted effectively. It is also recommendable for the company to specifically focus on electric car production since fuel combustion in automobiles constitutes a huge percent of green gas emissions in the UK. Further researches and developments in vehicle recharging project are also advisable for the firm. Moreover, Ecotricity has to continuously improve its customer base in order to effectively vie with other developing green energy producers. It would be better for Ecotricity to supply its products to government organisations and other institutions like schools and hospitals because this strategy would assist the company to add value to its goodwill. The company may expand its business territory across UK at the earliest, because a number of new entrants are already in the county’s green energy market. For this, the Ecotricity may depend on bank loans because the company cannot effectively finance such expansion operations with its limited resources. Evidently, along with the growth of the firm, technological requirements are also increasing. Hence, Ecotricity must also give emphasis on technological developments in order to meet the market challenges. From the business appraisal, it has been identified that Ecotricity does not have a well structured human resource management system even though it is outstandingly performing in marketing activities. Therefore, it is advisable for the company to appoint an HR manager and to develop a well planned HRM system. Thus the firm can effectively utilise its employee potentials and thereby add value to the firm’s overall productivity. Finally, the company has to use the infinite scope of internet to supply its green energy products to targeted market segments. Conclusion In total, Ecotricity has obtained considerable business achievements within a short period of time. The company’s quick market growth can be credited to strict but fruitful approaches of its founder Dale Vince. Although the company faced severe difficulties at its initial phases of launching, Dale’s strong determination aided the firm to survive all such troubles and become the world’s first green electricity company. Ecotricity achieved a high growth over the last few years and it can be attributed to the firm’s innovative marketing tactics. However, the company has failed to establish a human resource planning system. It is recommendable for Ecotricity to gradually turn its focus from wind power generation to solar energy business, because solar energy is a more potential green energy than wind power. Finally, the company must pay specific attention to the development of electric car. References Ashden n.d, ‘Ecotricity, stroud, UK: Building supply and demand for renewable power’, Viewed 04 January 2012, Analoui, F & Karami, A 2003, Strategic Management in Small and Medium Enterprises, Cengage Learning EMEA, UK. 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