Risks of Synergy
From the video, it clear that the organization’s biggest issue at the moment is loss of profitability since 2010. As mentioned by the chief executive officer of the organization, the 2015-16 financial years were a tough one for the organization. He also mentioned that the challenges faced by the organization were mainly because of the changing energy usage patterns by the consumers of West Australia. He also mentioned some other reasons such as difficult economic condition and oversupplied market that are creating problems from the organization. Whatever, the reason is, it is true that slowly but steadily the organization is losing their grip on its market share. From the annual report of the organization it can be seen that the organization is facing challenges that have impacted its bottom line performance with an overall reduction in net profit after tax of $60 million which was nearly 125 million in the last year. This took because of the reduction in revenue of nearly $650 million in the year of 2014. In the annual report of the organization it also mentioned that the main reasons behind this low profitability are inclusion of carbon revenue and decline in average electricity prices along with a decline in electricity demand among the consumers. From the video, the thin becomes clearer as in the video it is again stated that the organization has lost 4% profitability in the last year. However, along with the loss in profitability the major risk for the organization is the decrease in demand. It was expected that after 2010, due to excessive use of technologies, the organization will gain more profitability. However, the organization is currently experiencing anything but that. The explanation behind this change is that the consumers and the technological tools have become smarter than expected. Another reason that was explained was the increasing use of solar photovoltaic cells (PV cells) among the consumers. It is stated that nearly 17% which is 170,000 consumers of Synergy have developed their own power station based on solar energy. Therefore, those consumers are now not buying electricity from the organization or any other organization. Number or such consumers are increasing rapidly. Therefore, the chances are high that in next few years more number of consumers will develop such power stations within their residents and will stop buying electricity from Synergy. This is another major risk for the organization as it will drastically hurt the profitability of the organization in the future. In this situation, it is the high time for the management of the organization to take some steps to deal with the issues. Otherwise, in the near future, it will be impossible for Synergy to cope up with the consumer trend in the power supply industry of Australia.
Causes of risks faced by Synergy
From the video, it is clear that there are some major reasons behind the fact that consumption of electricity in Australia is reducing day by day. According to the Chief Financial Officer of Synergy main three reasons behind the low consumption of electricity among the consumers are increasing use of smart appliances and use of solar PV cells.
Uses of solar energy in Australia: It can be seen that the solar energy system in Australia are popularly used homes and business organizations. Mostly, concentrated solar power energy systems are used to heat water for regular use along with to heat indoor water tanks and swimming pools. Normally, these activities consume a lot of electricity. Using solar power energy is automatically reducing a huge amount of electricity use. On the other hand, in Australia, large scale projects of concentrated solar plants are seen which are responsible for providing electricity to several business organization and homes at a comparatively cheaper price. Besides, the Australian people are also embracing the use of passive solar energy systems at the time of designing and developing new homes. These types of homes are developed with special designs where roofing, windows and the entire architecture is aligned in way that it will face the Sun at unique orientation. In the past, people used solar panels as either primary or secondary source of electric power. However, in recent time the price of electricity has increased and as a result, most of the consumers have applied solar panels as their primary and only source of power. From the video, it can be found that nearly 170,000 consumers have developed solar panels in their roofs. The number is also growing rapidly as more consumers are shifting to solar panels from conventional electricity. There are some major reasons behind these issues faced by the leading electricity producing organization of Australia. Those reasons will be mentioned in the next section of the report.
First compulsory regulatory energy efficiency measures of Australia were announced in the year of 1990. These rules and regulations were compulsory for Mandatory Energy Performance Standards (MEPS) for any type of refrigerator and freezers. From then, these standards are extended to a very wide range of residential and commercial appliances and equipments. To the new buildings and infrastructures that were built in Australia, analogous energy efficiency requirements were applied mandatorily. According to (), data was collected to measure the impact of such rules and regulations on the electricity consumption by the people of Australia. It was found that between 2006 and 2013, these mandatory rules and regulations reduced annual demand for electricity by 10.5 TWh or almost 30% of the total TWh reduction. In addition, the home appliances manufacturing companies including companies that manufacture air conditions, freezers and refrigerators started to manufacture products that are more energy efficient than ever. It means those products consume lesser amount of electricity in order to provide expected services. That was another reason that the energy consumption was reduced.
Another major reason was increased price of electricity. 2009-2010 was the time when the effect of carbon price on electricity prices became a major national and political issue. During the same year, it was seen that prices of electricity was rapidly increasing because of higher network prices. This became the political issue in Australia and also became a major preoccupation of political debate. As a result of the political attention that was given to the electricity prices, the consumers also started to pay more attention than they had previously done to their expenditure on electricity. Once the consumers started to realize that the price of electricity has increased has increased rapidly, they started to limit their consumption. The outcome showed up strongly in the overall electricity demand figures from 2011. This data or information absolutely matches with the statement of Chief Financial Officer of Synergy. In the video, he continuously stated that the situation related to electricity consumption drastically changed from the year of 2010. He also stated that due to high price of electricity the organization expected higher profitability. However, the equation and the expectation entirely went wrong as consumers started to look for alternative solutions and started to limit their electricity consumption. The organization never anticipated such behavior of the consumers which led the company to a loss.
In order to deal with the problems, the Synergy and its management will have to take some steps. In the current scenario, there are recommendations are provided below from which the organization can select the best solution to improve their current situation in the market.
Strategies to improve sales revenue
Once the organization will be able to identify and evaluate main profit drivers in the current scenario, they will be able to establish strategies to grow them further without even increasing the overall cost. If the organization is looking to make the business more profitable, then it will have to find out ways to increase sales revenue as well as decreasing cost.
In order to decrease the organizational cost the management of the organization will have to increase productivity of the employees. In order to that, it is necessary to recognize and reward employee contributions with employee performance reviews. Employees can also be trained so that their sales skills can be improved. They must be taught to upsell products so consumers can make multiple purchases at one time. Besides, for the organization it is also important to conduct surveys with the consumers to develop new products. For example, if the demand of solar panels is high among the consumers of Australia, then Synergy can develop a separate and new unit to develop and enhance solar panels. On the other hand, it is seen that the organization is mostly conducting business on Western side of Australia. If the demand for electricity is decreasing in that region, the management of the organization will have to find new consumers. Market researchers can be conducted to make sure if the organization can expand their business in new areas. Besides, as it is already stated that due to increased price of electricity, the consumers are adapting alternative measures, the organization can identify strategies to reduce the price of electricity to attract the consumers once again. As an immediate step, the management of the organization can deliver price discounts and can conduct promotions to increase the base of consumers.
Strategies to decrease cost
In order to provide lower electricity price, it is necessary to crease the overall organizational cost of the organization. The organization can start with decreasing stock control which is a good way to streamline the business. On the other hand, the organization can also ensure that it has the right suppliers for the business. Negotiation is always a productive policy for better prices or discounts for buying in bulk. Synergy management can also benchmark its business which will help the organization to compare its cost with similar businesses in the industry to understand whether they are demanding too much from the consumers or not.
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