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10-29-2024
Using appropriate strategic models, critically diagnose and analyse the external environment facing Ørsted in the development of its Strategy.
H11SD
DEVELOPING AND EXECUTING STRATEGY FINAL ONLINE ASSESSMENT
August Examination and Assessment Diet 2023-2024 Duration: 24 Hours
This assessment consists of three questions.
Each question is worth 100 marks.
There is no choice in the selection of questions to be answered.
The total word limit for this paper is 4500 words, which you may divide as you see fit among the questions.
Attached: A copy of the pre-released material is provided at the end of the question paper (see Appendix 1).
Your submission: Please ensure that your submission is a Word based document, i.e. doc or docx. Pdf and dotx submissions are not acceptable and will not be marked.
Ethical Commitment: By submitting answers to this paper, I declare that the work I have submitted for the assessment is entirely my own. I have not taken the ideas, writings or inventions of another person and used these as if they were my own. My submission is expressed in my own words. Any uses made within this work of the ideas, writings or inventions of others, or of any existing sources of information (books, journals, websites, generative artificial intelligence, etc.) are properly acknowledged and listed in the references and/or acknowledgements section.
I understand that infringing this statement would represent an academic misconduct offence subject to disciplinary action according to the University Regulations and Policy regarding Academic Misconduct, with possible significant consequences for degree progression and final degree outcome.
QUESTIONS
The exam contains three questions, each marked out of 100. You must answer all three questions in light of the scenario provided below and the reading and research you have done. In all questions, you may decide to focus on a particular aspect of strategy in detail or look at multiple aspects concurrently. Whichever approach you choose, ensure that you justify your answer using appropriate tools, frameworks and evidence.
Scenario Ørsted
Ørsted is a global leader in the development of offshore wind farms. This represents a transition away from its old business model based upon hydrocarbon extraction and distribution. Ørsted moved agressively within the the offshore wind farm market making a bet on being the first mover would allow it to create a clear and sustainable position in the emerging energy transition. However, the aggressive market entry strategy was based upon benign economic and operating conditions. As these conditions turned, the risks the company was exposed to became very evident. This led to the need for short term measures to restore operating efficacy and investor confidence. The strategy for the long term still has questions marks around it especially as the ‘euphoria’ surrounding the energy transition begins to wane.
Question 1
Using appropriate strategic models, critically diagnose and analyse the external environment facing Ørsted in the development of its Strategy. (Total 100 marks)
Question 2
Critically assess – using the relevant strategic frameworks – how Ørsted’s internal resources is shaping the development of its Strategy. (Total 100 marks)
Question 3
Set out a strategy for Ørsted considering the scenario presented above, in terms of their strategic intent, the strategic options available and how they might be executed. How is the divestment of US and other offshore wind assets consistent with this strategy? (Total 100 marks)
TOTAL 300 MARKS
END OF PAPER
APPENDIX 1
Developing and Executing Strategy August 2024 ØRSTED: Hitting Turbulence in the Winds of Change
Ørsted is a Danish renewable energy company known for its focus on offshore wind power, bioenergy, and other sustainable energy solutions. Formerly known as Danish Oil and Natural Gas (Dong Energy), Ørsted was founded by the Danish state in the 1970s to help develop the country’s energy reserves as the Arab oil embargo raised fears over supplies. The company began moving away from fossil fuels in 2008. The shift to offshore wind was stimulated by a crisis as Dong’s oil and gas plants were ailing. The then boss – Henrik Poulsen – saw wind as a strategic differentiator. To that end, it disposed of fossil fuel assets and changed its names to Ørsted after the Danish discoverer of electromagnetism. The plan for move fully away from fossil fuels was curtailed by the 2022 Russian invasion of the Ukraine as the Danish government compelled the company to keep its remaining oil and gas power stations open until 2024. Nonetheless by 2019, the firm was the world’s biggest offshore wind developer with a third of the capacity outside of China. By 2018, offshore wind was 90% of profit and 80% of capital employed for the business.
Whilst a multi-play renewables supplier, it is in offshore wind where the Ørsted exhibits evident strategic leadership. By 2023, it was recognised as a global leader in this field developing and operating offshore wind farms. Its presence is most evident across the following regions.
Europe: Ørsted has a significant presence in various European countries, including Denmark (where it originated), the United Kingdom, Germany, the Netherlands, and other nations around the North Sea and the Baltic Sea.
North America: Ørsted has been expanding its operations in North America, particularly in the United States. It has been involved in offshore wind projects along the East Coast, including in states like Massachusetts, New Jersey, and Virginia. Ørsted made a big bet upon the US Market (after initially entering the market in 2015) and paid $510 million in 2018 for a string of projects across the Northeastern US. This was supported by aggressive onshore wind farm development.
Asia-Pacific: Ørsted has also shown interest in the Asia-Pacific region, particularly in Taiwan, where it has been involved in offshore wind projects and has plans for further expansion in countries like Japan and South Korea.
Other Regions: Ørsted has been exploring opportunities in other parts of the world as well, including areas like Taiwan and potentially other emerging markets with a focus on renewable energy.
This reflects a very aggressive international expansion strategy followed by Ørsted. At the core of its strategy was to be a first mover within the sector and to use this to win an increased share of Offshore wind capacity as it expands through public policy to stimulate the energy transition away from systemic dependence upon hydrocarbons. This bet and early mover strategy on offshore wind did – for a long time – a pay off.
Although costlier than onshore wind, offshore wind costs fell rapidly with these sites facing a lot less of the NIMBY hazards of their onshore equivalents and through a 55% reduction in the cost of electricity generated from offshore wind between 2010 and 2020. This strategic progress was aided by the winning of early contracts in the UK (which offered large subsidies) and with its auctions making the company very cost conscious. To this end, it is now using bigger turbines, which are cheaper to build and maintain. Moreover, its focus on wind allows it to seek out projects ahead of its generalist rivals. It manages projects closely and data from existing turbines allows it to build new ones more efficiently. By 2023, the company had more than 8.9 gigawatts of offshore wind projects across the globe – enough to power 9 million homes. The financial performance of the company from 2018—2020 is reflected in Table 1.
Table 1 : The Financial Performance of ØRSTED 2018-2020
Financial Metric
2020
2019
2018
Revenue (in millions)
$9,732
$9,470
$8,589
Net Income (in millions)
$2,003
$2,272
$2,777
Earnings Per Share (EPS)
$7.52
$8.50
$10.41
Total Assets (in millions)
$38,905
$37,835
$36,079
Total Liabilities (in millions)
$26,801
$25,881
$24,618
Operating Cash Flow (in millions)
$4,586
$4,088
$3,552
Dividends per Share
$3.57
$3.26
$2.71
Central to the success of Ørsted is the robustness of its value chain. This value chain related to the development, production, and distribution of renewable energy, primarily focusing on offshore wind. The main components of this value chains are:
Resource Identification and Development : Ørsted identifies suitable locations for offshore wind farms. This involves extensive research to assess wind patterns, water depths, and environmental impact studies to ensure sustainable and efficient energy generation.
Project Planning and Permitting : Once a potential site is identified, Ørsted undertakes the planning phase, which includes obtaining necessary permits and approvals from regulatory bodies. This stage involves detailed engineering, environmental impact assessments, and stakeholder consultations.
Construction and Installation : Ørsted manages the construction and installation of offshore wind turbines and associated infrastructure. This phase involves procuring and transporting turbine components, constructing foundations, and installing turbines at sea using specialist third party contractors.
Operations and Maintenance : After installation, Ørsted maintains and operates the wind farms to ensure optimal performance and reliability. This includes regular inspections, repairs, and maintenance of turbines and other equipment to maximise energy output and longevity.
Energy Generation and Distribution : The operational wind farms generate electricity from the wind. Ørsted then distributes this electricity through power grids or contracts with utilities and businesses, contributing clean energy to the grid and fulfilling power purchase agreements.
Technology and Innovation : Ørsted invests in research and development to enhance the efficiency of offshore wind technology. It continuously innovates to improve turbine design, installation methods, and energy storage solutions, aiming to drive down costs and increase energy output.
For a long time, Ørsted was the darling of the renewable energy sector. Its early mover strategy and aggressive market entry placed it in a very advantageous position as the public policy to stimulate the energy transition gained traction. In no small part, this was powered by a very benign economic environment powered by low inflation and low interest rates. These facilitated the rapid global expansion and enabled the firm to cope with the high upfront expenses and long-term contracts that do not always allow increased cost to be passed on to consumers.
However, by 2022, these benign conditions were turning hostile to the offshore wind sector. The sector was hit by a combination of factors that hit Ørsted’s financial performance. Rising inflation and interest rates placed the early mover strategy in jeopardy. The firm had to borrow at higher rates for projects that were of uncertain return. Ørsted paid $4bn for two US projects that had yet to be approved at the time of purchase. Indeed the ‘hasty’ entry into the US has been seen as an especial weakness. Ørsted was hoping to receive generous tax credits to support the development of US wind farms under the US’s Inflation Reduction Act. However, the granting of these tax credits depends upon using US based supplies and supply chains. Many of these do not currently exist or are immature in their development. Indeed, the offshore wind sector in the US is seen as basically `broken’ by many analysts.
Ørsted – like other offshore wind farm developers was also hit by supply chain disruptions. As noted above, the firm relies upon third parties to develop many of the projects. Ørsted’s value chain was hit by a number of factors. The first of which was delays in sourcing the foundations that secure turbines to the seabed and of vessels to install these facilities. Second, turbine manufacturers were suffering a legacy of over expansion of the sector in the decade to 2021 where companies within the offshore supply chain expanded aggressively to meet a demand which failed to materialise. This led to an erosion of capacity to meet the delayed rise in demand. Turbine manufacturers are unwilling to supply at a loss with many passing on more costs or requiring stronger commitments at earlier stages in project development. This was compounded by sharp increases in the price of copper and steel (which have risen by 50% in the five years to 2022) caused in no small part by the Russia-Ukraine conflict. Third, as wind turbines have grown bigger so the logistics system to transport them to their offshore destination has also been slow to adapt in developing and deploying the necessary vessels. Fourth have been administrative and political issues due to the accumulation of a number of factors such as governments not adjusting prices to reflect the new market conditions with an emphasis on keeping costs down for consumers, the length of time to get planning permission and by rising protectionism by western governments which can limit access to key components from China without there being ready domestic substitutes.
H11SD
DEVELOPING AND EXECUTING STRATEGY FINAL ONLINE ASSESSMENT
August Examination and Assessment Diet 2023-2024 Duration: 24 Hours
SOLUTIONS
QUESTIONS
Question 1
Using appropriate strategic models, critically diagnose and analyse the external environment facing Ørsted in the development of its Strategy (Total 100 marks)
The student will be aware of the shifting external environment and should offer a contextual of those trends upon the business. The student should deploy the correct frameworks to fully understand the external pressures upon the development of strategy. It should be expected that the answer will have a PEST analysis as standard to assess the main trends within Ørsted’s operating environment. The impact of these pressures on the main challenges will be explored notably:
The energy transition.
Energy security.
Geopolitical risk.
Unstable markets.
These feed into the use of five forces framework to assess the industry pressures upon the business. How these trends shape the five forces will be a focal point of this section.
The essay should acknowledge the pressures upon the business notably long-term demand decline, possibility of supply disruption, reputational damage.
The question should conclude with a summing up of the main issues to be faced in the dynamic operating environment that Ørsted faces.
There will be a good use of secondary material throughout the answer offering depth and data to the main external challenges facing the business
Question 2
Critically assess – using the relevant strategic frameworks – how Ørsted’s internal resources is shaping the development of its Strategy. (Total 100 marks)
Students should have an awareness of the value chain within the sector. The student should identify that the firm is a vertically integrated energy firm. It should acknowledge how these key resources are challenged by the energy transition. It should reflect that the firm has unique resource and skills that enable it to be successful. As such the application of the VRIN framework should expected. The better students should reflect how shifts in the external environment could undermine the value of these value creating resources.
Analysis should mention how the balance sheet of Ørsted has proved to be a major factor in strategy. This did give the firm the capability to adapt. Note how this reflects valuable resource. The student should note how this balance sheet has been less of an asset over recent years.
There should be an acknowledgment of the value system in which the firm operates.
Most students should undertake a SWOT to reflect the internal operating environment – it should highlight the most salient issues.
The section should offer a conclusion on the key resources and how they are impacted by the noted scenario.
This section should be underpinned by firms specific material gathered from secondary material to offer a consistent and coherent analysis.
Question 3
Set out a strategy for Ørsted considering the scenario presented above, in terms of their strategic intent, the strategic options available and how they might be executed. How is the divestment of US and other offshore wind assets consistent with this strategy? (Total 100 marks)
This section should be based upon marrying the themes within the previous two questions into the development of an executable strategy. As such, it is expected that students will deploy the ‘Options Configurator’. They should expect to look at the range of options and the issues that may impact upon their execution. Students should look at – thought not exclusively – keeping existing markets, exploiting uneven energy transition, evolving the business into a green energy business. It would be expected that the essay would include:
A clear strategy statement.
The option configuration with assessment via A3S framework.
A consideration of the execution issues in the proposed strategy, such as structures, systems, change management and measures of success.
There is no “right answer” to this question, and we are always pleasantly surprised by the range and scope of answers submitted, but a robust and structured approach using relevant ideas and frameworks is required.
The divestment assets need to be seen as either a short term measure or long term refocus. Is there still traction in the offshore wind farms or does the firm need to refocus? A student should look at the option especially if the transition is longer term that investors outlook.
Please use secondary sources with references to support your arguments.
Developing and Executing Strategy Examination Report August 2024
Course Leader’s Report
The case this diet was on wind giant Orsted. This diet continued the slightly changed format with all 3 questions now based on the case and the separate essay question removed. This was partly in response to student demands through the Forum for a greater word count and also to allow deeper arguments to be developed. The change has created a rise in the top grades with some quite wonderful and well researched answers and stopped the need for some to try to get round the word count by taking pictures of their tables! Sadly, at the other end, the number of really poor answers increased with many students strangely not even providing references at all or clearly just using the Orsted website uncritically, with few additions and many, as ever, having had little contact with our materials. Seven candidates ignored the change in format which is over a year old and invented their own Q3!
The performance, in general, was very similar to the previous diet.
In total there were 333 English submissions with only 5 flagged for plagiarism as per previous diet. Q1 provided the best response of the three, averaging a mark around 64% with last diet at 62%. Q3 was the worst with a mark around 57%
For the 8 Chinese Scripts, Q1 was by far the best with a clear knowledge of the main models required. Q2 showed a lack of understanding of internal analysis Q3 often failed to use our resources at all, as per the previous diet. For some reason these scripts normally had no references provided at all.
Excellent answers demonstrated critical argument building which was well backed up by the secondary sources.
Question 1
This now required just an external analysis of Orsted. Most students demonstrated a good understanding of the strategic frameworks covered in the course materials and stronger ones applied them critically and in good depth as now required. Very few examined the nature of the information available, others took it at face value, despite our suggestions on the VLE. Most commonly students used PEST, Five Forces and some ‘area 1’ issues.
Weaker answers may have addressed the various issues in isolation but failed to provide adequate conclusions and struggled to link these areas together. Moreover, analysis tended to be bland and general and lacking backup through research and specific examples. ‘War in Ukraine’ was a common pest entry. Often just a bullet. The better answers explained how and to what extent and analysing the specific effects here.
Pest and Five forces were, as ever, available via Google with a few new sites now known to me.
Question 2
This now required just an internal analysis. Often presented was a bland and descriptive value chain normally from the company website with no obvious additions. AI presumably now allows a 0% familiarity to be shown when the materials are clearly from the company website. We also saw lists of competencies with few specific and referenced findings on Orsted. Often this included ‘strong finances’ but presented no evidence at all. One candidate who only read our extract claimed he couldn’t provide details here as we hadn’t given them!! The better answers showed deep research and were a joy to read, especially on Cultural aspects and some Agency problems they discovered
Question 3
Required candidates to suggest a future strategy for the company bearing in mind the scenario and their research in Q1 and Q2
A not insignificant number in all languages found a section on the Orsted website which seemed an easy answer to Q3 by listing things the company was going to do. Had they read the course more closely they would have seen that we are ‘crafting’ strategies carefully showing our journey to get to the suggestions we make and looking through our strategy lenses to do so. Consequently, many answers to Q3 had not used the diagnosis and SWOT/TOWS from Q1 and Q2 and were devoid of any theory and were marked down heavily. It is, as ever, the Journey that counts, and Orsted’s use of terminology does not match ours. Orsted’s website is one view of the world and Orsted is not a management consultancy!
The excellent answer demonstrated a thorough and systematic approach, using various tools and frameworks to justify their proposed scenario It’s worth repeating that we are more interested in the process you follow and the argument you develop than the detailed strategy you propose. Stronger answers demonstrated a good application of strategic tools such as options configurator and A3S.
Common issues that resulted in lower marks were
Not presenting supporting materials from their own research and using the company website uncritically. One day students may be involved in a Due Diligence exercise where competing views are essential!
Not using the course materials such as the comprehensive strategy statement and the Options Configurator. Quite a number consider this a marketing exam or even a Making Strategies Work exam and so answered from different perspectives.
Lack of critical argument building and discussion to support the proposed strategic options.
Lack of strategic management theory and models and a general discussion of the future.
Lack of critical discussion and argument around the strategic models.
Missing out execution entirely or just describing execution issues in general without relating them to the company. Kotter is there over and over without any attempt to apply the steps to the case in hand.
Good answers demonstrated a continuation of argument building and analysis from Questions 1 and 2 as a foundation for their proposed strategy with very good critical discussion.
Example Answer
Using appropriate strategic models, critically diagnose and analyse the external environment facing Ørsted in the development of its Strategy.
Question 1: External Environment Analysis of Ørsted
To critically diagnose and analyse the external environment facing Ørsted in the development of its strategy, we will employ several strategic models, including PESTLE analysis and Porter`s Five Forces framework.
PESTLE Analysis
Political Factors : Ørsted operates in a heavily regulated industry, where government policies significantly influence renewable energy. The global shift towards sustainable energy solutions is supported by various national and international policies, such as the Paris Agreement, which incentivises investments in renewable technologies. However, political instability in regions where Ørsted operates could pose risks to project execution and profitability.
Economic Factors : The energy sector is sensitive to economic fluctuations. Ørsted’s aggressive market entry strategy was based on favourable economic conditions, but recent global economic downturns, inflation, and increasing interest rates have strained capital availability and project financing. Furthermore, the volatility in energy prices can impact the profitability of offshore wind farms.
Social Factors : There is a growing public demand for clean energy solutions as societal awareness of climate change increases. Ørsted’s commitment to sustainability aligns well with this trend. However, any backlash against large infrastructure projects, including concerns over local environmental impacts, can create social friction.
Technological Factors : Rapid advancements in technology can enhance the efficiency and reduce the costs of offshore wind farms. However, Ørsted must continually invest in R&D to stay competitive. Additionally, any technological disruption could present risks if competitors develop superior solutions.
Legal Factors : Ørsted must navigate a complex legal landscape, including compliance with environmental regulations, health and safety laws, and international treaties. Any non-compliance can result in severe penalties and reputational damage.
Environmental Factors : As a leader in renewable energy, Ørsted is under constant scrutiny to demonstrate sustainable practices. Climate change initiatives and environmental assessments will affect operational strategies, as the company must balance ecological considerations with business objectives.
Porter`s Five Forces Analysis
Threat of New Entrants : While the renewable energy sector is attractive, the high capital investment required for offshore wind farms and stringent regulatory requirements act as significant barriers to entry, reducing the threat from new competitors.
Bargaining Power of Suppliers : The suppliers of technology and materials for wind turbines possess moderate bargaining power due to the specialised nature of the components. However, Ørsted’s scale allows it to negotiate better terms.
Continued...
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