Competitive Analysis of Oklahoma Gas and Electric Company and Nisource Inc - Dissertation Example

?Oklahoma Gas & Electric Company (OGE) and Its competitor, Nisource Inc Competitive Analysis NiSource (NI) As far as the electric and gas industry isconcerned, NiSource is acclaimed by experts as one of the fiercest competitors for any new market merger and existing firms (quote). Presently, the size of the company is given in terms of market capacity as 7.4 billion dollars (NiSource Inc, 2012). This market capacity is made up of “a total of 57,717 miles of pipelines and related facilities and serving a market segment of approximately 2.2 million customers” (NiSource, 2011). As of January 31, 2012, the 10-K report of the company states that the revenue of the company was calculated in terms of “282,180,170 shares of Common Stock, $0.01 Par Value outstanding.” Clearly, this is a representation of stiff market performance that is accounts for reasons why the company continues to have a very wide market position. Presently, the company’s strategy for growth is focused on merger with emerging competitors in developing economies. Pepco Holdings Inc. (POM) Reviewers have for long judged Pepco Holdings Inc (POM) as a major competitor for Oklahoma Gas & Electric Company (OGE) mainly because of the closeness in market strategy held by the two companies. It would for instance be seen that both companies focus on have a business strategy that “remains focused on being a top-performing, regulated transmission and distribution company” (10-K of POM, 2011). In terms of market size and capacity, the company controls a total of 4.60 billion dollars (Yahoo Finance, 2012). Fortunately for the company, it continues to experience an upload rise in its market stock value. This is represented on almost all major stock markets in the world including the New York Stock Exchange. Such a performance has contributed to the increase in total operating revenue of the company from $ 5,920M in 2010 to $ 7,039M in 2011 (10-K of POM, 2011). Wisconsin Energy Corp. (WEC) Wisconsin Energy Corp is also considered another strong competitor of Oklahoma Gas & Electric Company (OGE) looking at the fact that the two companies continue to have marginally equal marketing rating my economists and investors. Luckily for Wisconsin Energy Corp, it is one of the few companies on the New York Stock Exchange that continues to record constant positive rise in its market share price (quote). With an impressive market capacity of 9.4 billion dollars as of 2012, the company has positioned itself in the market at such a strategic standing that its main focus has been to deal with corporate groups and entities instead of individual customers. With this group related strategy, the company keeps recording a rising trend in its annual revenue with a revenue rise from $ 7,420M in 2010 to $ 9,139M in 2011. South Carolina Electric and Gas Company (SCG) The major area of business dealing where South Carolina Electric and Gas Company (SCG) poses as the strongly competitor of Oklahoma Gas & Electric Company (OGE) is in the area of market margin. This is so said because the two companies have an unusual competition for the same customers in a manner that is not very common with other major competitors. More to this, the company can boost of a very formidable market performance on different stock exchange markets. NASDAQ (2012) for instance quotes the market value of South Carolina Electric and Gas Company (SCG) as $ 6,493,822,800 with a current market yield of 4%. This is clearly a huge market struggle for Oklahoma Gas & Electric Company (OGE) that keeps its market strength along similar margin. According to the 10-K Report of the company for 2011, much of the company’s success is attributed to its current strategy, which focuses on employees as the major pillar for organizational transformation. Value Chain Analysis NI is one of the main comparative firms of OGE in the U.S. Diversified Electricity Generator Industry. The significant parts in the value chain that add value for OGE are marketing and sales, services, firm infrastructure, human resource management, and technological development. Primary Activities Inbound Logistics (Positive) OGE’s inventory turnover ratio was 10.59 in 2011, while NI’s inventory turnover ratio was 5.14 in 2011 (OGE, 2011; NI, 2011). OGE had 106% higher inventory turnover ratio than NI in 2011. OGE had higher ability to turn its inventory into sales than NI. OGE’s average days sales of inventory (DSI) was 162 days in 2011, while NI’s DSI was 61 days in 2011(OGE, 2011; NI, 2011). OGE had 166% larger days sales of inventory than NI. OGE’s inbound logistics was positive compared to NI because its inventory turnover ratio and days sales of inventory ratio had higher performance than NI’s. Operation (Positive) Operations analyze a firm’s transition of inputs into outputs. OGE’s operating and maintenance was $436 million, while NI’s operating and maintenance was $473.5 million in 2011(OGE, 2011; Ni, 2011). OGE’s operating and maintenance was 8% lower than NI’s. The data is not significantly different. OGE was neutral operations compared to NI. Outbound logistic (positive) OGE’s main production is to generate the electricity. OGE’s electric capability is 6,790 mw, while NI’s electric capability 3,322 mw (OGE, 2011; Ni, 2011). OGE had 104% higher capability than NI. This data is significant different. OGE’s outbound logistics was positive compared to NI. Marketing and Sales (O) Marketing and Sales was neutral for OGE and NI due to lack of data for both OGE and NI (OGE, 2011; NI, 2011). Service (O) OGE and NI were neutral due to a lack of data (OGE, 2011; NI, 2011). Support Activity Procurement (-) OGE’s cost of goods sold per revenue were 59% and 58%, while NI’s cost of goods sold per revenue were 86% and 74% in 2010 and 2011, respectively (OGE, 2011; NI, 2011). OGE had 46% and 24% lower cost of goods sold per revenue than NI. The data was significantly different cost of goods sold per revenue. OGE’s procurement was negative compared with NI. Technological development (O) Technological development was neutral for OGE and NI due to lack of data (OGE, 2011; NI, 2011). Human Resource Management (Positive) OGE had 3,489 employees and $3,915.9 million of revenue in 2011 (OGE, 2011). Ni had 7,957 employees and $6,019.1 million of revenue in 2011. OGE’s revenue per employee was $1,122 thousand in 2011, while NI’s revenue per employee was $756 thousand. OGE had 48% higher revenue per employee than NI. OGE’s income per employee was $104 thousand, while NI’s income per employee was $38 thousand in 2011 (OGE, 2011; NI, 2011). OGE had 177% higher net income per employee than NI. OGE had positive Human Resource Management compared to NI. Firm Infrastructure Financial Management (Positive) Company OGE NI 2011 2011 Liquidity Ratio Current Ratio 0.65 0.62 Quick Ratio 0.38 0.25 Leverage Ratio Long-term debt to Equity 1.07 1.25 Times Interest Earned 4.61 2.39 Source: OGE, 2011; NI, 2011 OGE’s current ratio was 0.65 and its quick ratio was 0.38, while NI’s current ratio was 0.62 and its quick ratio was 0.25 in 2011 (OGE, 2011; NI, 2011). OGE’s current ratio and quick ratio were 5% and 52% higher than NI’s in 2011. OGE’s ability was better to pay its short- term obligations than NI because quick ratio was significantly different. OGE’s long-term debt to equity ratio and times interest earned were 1.07 and 4.61, while NI’s long-term debt to equity ratio and times interest earned were 1.25 and 2.39 in 2001 (OGE, 2011; NI, 2011). OGE had 17% lower long-term debt to equity ratio than NI in 2011. OGE had less risk to cover long-term debt than NI. OGE had 93% higher time interest earned ratios than NI in 2011. OGE’s ability was higher to pay its interest charges than NI. OGE’s financial management was positive compared to NI’s. Organizational Structure (positive) OGE’s average tenure of the top management team is 7.6 years (Mergent Online, OGE, 2012). NI’s average tenure of the top executive team is 5.6 years (Mergent Online, NI, 2012). OGE had 36% higher average tenure of the top executive team than NI. OGE’ executive team is more experienced than NI’s. OGE and NI had no the 10-K and 10-Q amendments in the past 3 years to SEC filings for. OGE had three the 8-K amendments in 2009 and 2011, while NI had no amendment in past 3 years (Mergent Online, OGE, 2012; NI, 2012). OGE had 300% higher the 8-K amendments than NI. OGE’s organizational structure was positive compared to NI’s. Culture (O) Culture is neutral due to lack of data. VRIO Analysis Resources V R I O Competitive consequences Performance implications Human Resource Management System Y Y Y Y Competitive advantage Above returns Electricity Y N N Y Competitive parity Average returns Gas Y N N Y Competitive parity Average returns Organization Structure and Culture Y N Y Y Temporary competitive advantage Above returns Source: OGE, 2011, NI, 2011 Human Resource Management System The case of human resource management among the two companies is judged as fairly at par by researchers. Oklahoma Gas & Electric Company (OGE) is however projected at using human resource management system as a major competitive advantage because it has an overly larger human resource base than most of its competitors. The resource management is however in the control of relatively few people. This assertion is largely drawn from the two companies’ ability to retain as many of its employees as possible over changing years. In the case of NiSource (NI), it is reported that the company has less than 0.8% of employee turnover in a year with Oklahoma Gas & Electric Company (OGE) recording around 0.8% employee turnover in a year. The relativity of the figures shows that indeed the two companies rank almost equal in terms of resourcing its human capital as a means of getting them to stay at post. Electricity Supply The supply of electricity remains one of the key parameters based on which Oklahoma Gas & Electric Company (OGE) operates as a corporate company. It is for this reason that it is said that the company creates value from electricity supply. Presently, the company reports that “greater portion of the company’s worth is largely dependant on its production levels in the electricity sector” (OGE, 2011, p. 7). It is not surprising then that over 62% of the company’s net revenue is directly associated to the electricity sector. A close look at NiSource (NI)’s level of electricity production suggests that Oklahoma Gas & Electric Company (OGE) ranks slightly higher than it in terms of contribution of electricity to the overall source of revenue. This is because NiSource (NI) has 59% of its total revenue resulting from electricity supply (NI, 2011). Due to the closeness in differences, it is said that there exists only a competitive parity and not a major competitive advantage. The operating revenues of Oklahoma Gas & Electric Company (OGE) grew marginally from $2,109.9M in 2010 to $2,211.5M in 2011. This represents a growth rate of 5.19% (10-K of OGE, 2011). On the part of Pepco Holdings, Inc. (POM), the operating revenue for 2010 was $ 7,039M whiles this value declined sharply to $ 5,920 in 2011. Because of the seemingly equal strategy to electricity supply, the difficulty in imitation is stated as no. Gas Supply Oklahoma Gas & Electric Company (OGE) shows great measure of their generalized performance to the supply and production of gas and so do not leave the management of its gas companies to the affairs of few people. Again, knowing the value of gas supply to the company, the company has structured its organizational system so well that it is able to take advantage of any revenue that could be generated from gas production. In the case of NiSource (NI) the company possesses as many as nine (9) subsidiary companies that are mainly designated for gas production and supply. These companies include Columbia Gas of Ohio Receivables Corporation, Columbia Gas of Kentucky, Inc., Bay State Gas Company, Crossroads Pipeline Company and Kokomo Gas and Fuel Company. Oklahoma Gas & Electric Company (OGE) does not have as much gas companies. However, Oklahoma Gas & Electric Company (OGE) still have greater part of its overall income coming from gas supply. Oklahoma Gas & Electric Company (OGE) also has a higher quantitative profit margin for gas than NiSource. Organization Structure and Culture A critical following of the 8-K, 10-K, and 10-Q reports produced by the two companies, shows that Pepco Holdings, Inc. (POM) has always been on top of its organizational structure as compared to Oklahoma Gas & Electric Company (OGE) because the company has over the years maintained a higher percentage of the tenure of its management team than Oklahoma Gas & Electric Company (OGE). Clearly, in an organization where the core teams of managers are retained over the years, the tendency that the basic organizational structure and culture that is used to run the affairs of the company will be maintained (quote). In light of this, another correlation could be developed in relation to the attempts being made by the company to focus its competitive advantage on customer satisfaction and thus the need to maintain an organizational structure and culture that is more familiar with existing customers. SWOT Summary The present SWOT analysis is presented based on the General environment, five forces, value chain, and VRIO analyses that have already been discussed in the paper. This means that there are no new data added in the summaries of the major components of the SWOT. Strength Based on the internal systems of Oklahoma Gas & Electric Company (OGE), there are two major strengths that can be attributed to it. The first has to do with the ability of the company to raise a very wide turnover ratio between it and its major competitors. For instance between Oklahoma Gas & Electric Company (OGE) and NiSource, there is a turnover ratio of 10.59 and 5.14 respectively in 2011 (OGE, 2011; NI, 2011). This means that OGE had 106% higher inventory turnover ratio than NI in 2011. Turnover ratios are very significant in determining the viability of the company in the face of investors and so it is regarded as one of its best strengths. What is more, the company has a very special focus on the development and retention of its human resource base. This is a major plus because regular human capacity building is largely part of measures necessary in consolidating a company’s organizational culture. Weakness Still arguing from the view point of internal systems of the company, there remain key components of OGE that count as weaknesses of the company. First, the company has not created enough capacity in the production and marketing of raw gas as it does with electricity. This is a major weakness for the company because NiSource, which is OGE’s major competitor, uses gas expansion greatly to develop her competitive advantage. Again, there is a weakness procurement strategy that needs to be addressed urgently. In the face of the need to sustaining internal development, it is highly prudent that the company puts itself in a position where it would be able to rely mainly on in-house sourcing as a way of reducing the amount of capital spent on external procurement. Opportunities In the current global market, there are a number of external opportunities that OGE can take advantage of. First of such opportunities is the changing trend in the socio-culture, economy, technology, and demographic structure of the United States, which has contributed to the changes in the US composition. With the current trend of increased usage in the internet, where the use of electric power is paramount, OGE is in an excellent position to widen its market base and in effect make more profit. Again, in a very unusual manner, the company can take great opportunity from the low bargaining power of suppliers that makes companies purchase raw materials from various suppliers. With this, the company can position itself as a major supplier to various minor producers and in effect widen its income scope. Finally, the global economic recovery has created a system whereby more and more smaller companies in developing worlds are opening up for mergers with larger companies in developed world. OGE is in a position therefore to create as many international subsidiaries as possible. Threat On the external system there are a number of threats that OGE faces as a company. The first has to do with intensity of rivalry. It would be noted that the rivalry has created a fixed cost of 42.7% of revenues and this is likely to increase (OGE, 2012; SCG, 2012; NI, 2012; WEC, 2012; POM, 2012). Another threat has to do with the threat of substitute product. This is a major threat that needs immediate strategic intervention if the company does not want to loss its market stake to emerging companies. There is also the problem with increasing dominant countries. Most of these dominant countries are from emerging economies and so have the backing of their individual governments in raising capital to take charge of the electric and gas industry. This of course is a major threat to OGE, who gains most of its capital from internally generated sources. REFERENCES NI (2011) POM (2011) SCG (2011) OGE (2011) WEC (2011) http://www.nasdaq.com/symbol/scg http://finance.yahoo.com/q?s=WEC http://finance.yahoo.com/q?s=POM http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=NI:US Read More