A Strategic Analysis of Consumers Energy
Public utilities are one of the last of the regulated monopolies. These entities have undergone significant internal and external changes as a result of deregulation legislation driven. Today these companies face the dual challenge of providing essential services for the public good while also meeting the basic tenets of returning a profit to its investors.
In Michigan the two major utilities are CMS Energy and DTE Energy. CMS Energy is considered the underdog in this market as it has undergone significant restructuring and transitions as a result of costly decisions to expand into overseas markets during the 1990s. Presently the company is poised to reach a level of consistent profitability.
The company was selected for this project because it offers an opportunity to analyze the internal and external strategy dynamics of an operation that is at the forefront of the “green revolution” and the many efforts to address the global wide energy crisis. It will be through a broadening of understanding and the strategic challenges facing should leading companies that a better picture is painted about the strategies and policies that will need to be given priority to address that problem facing all of civilization.
The primary area of focuses here are strategy as rational thought (presented with some theoretical context for strategy’s relevance to this analysis); strategy as an instrument of revolution (in this case, CMS Energy and key competitors of the industry’s use of innovation in order to foster competitive advantage); strategy as resource allocation and accumulation (CMS Energy’s challenge in developing a strategy that will maximize its global resources and potential as a global competitor), and lastly, CMS Energy’s ability to be a technologically adroit leading operation at a time when green energy emphasis is now the industry standard.
This analysis will first begin, however, with providing a discussion on the tools used in strategic analysis to be followed by a discussion on risk , uncertainty and effective resource allocation; and, lastly an evaluation of current research strategy research methods and techniques will be provided in this first section. These, like the aforementioned topic areas, will be discussed within the context of the underlying challenges facing CMS Energy.
Theoretical Framework
The strategy analyst has a host of tools available and they can take the forms of quantitative, qualitative, and a blending of both. These tools are utilized in the managerial environment, in the actions of external assessing of the environment, and also in various dimensions of determining competitive strategies. In the foreign markets the assessing of cross-market transfers of competencies is particularly effective.
Managers who are employing strategy are inclined to build such strategy based on the vision and mission statement. These items serve as foundational to the direction an operation is expected to go. It is through the use of both the vision and mission statements that company objectives and decisions can be effectively analyzed (Thompson, Strickland, & Gamble, 2008, pp. 18-27). If decisions are inconsistent with either of these, there is reason to pause and re-evaluate accordingly. This, in fact, is one of things mentioned by CMS Energy’s leadership in 2008—that the company was determined to get back in line with its basic vision and mission statement which is to product good energy service to consumers. In recent years the company had moved away from this in exchange for embracing a policy of internationalizing operations but doing so too quickly and with not enough consideration about global economic conditions.
For the external environment, companies can and do use a variety of tools to help craft strategies and this can include the environmental scanning method. This method, sometimes used in concert with a SWOT Analysis, helps identify restraining and supportive forces in areas that range from economic to political. Ultimately, the information derived from these tools will reveal the forces that are driving the industry.
By knowing what forces are driving the industry, it much more likely that leaders will have a better set of potential options as to how to face the future. One method that greatly facilitates these sort of initiatives is game theory. Essentially game theory involves engaging a variety of scenarios with the intention of determining outcomes that are based of an array of probable conditions. The concept dates back to 1944 but gained in prominence during the 1990s following the work of Nobel Prize Laureautes John Haranui, John John Nash, and Reinhard Selten (Render & Stair, 2000, p 22).
A cornerstone of what game theory does is help to define potential risks. For the strategist, being able to accurately identify potential risks is a powerful tool, although it is not always embraced fully. Alessandri (2008) reported how the aversion to risk becomes, in and of itself, a crippling problem within some companies that have reached certain levels of financial success. It is for this reason that many companies, and this includes CMS Energy, are encouraging more entrepreneurial thinking within its management ranks and, therefore, being more embracing of risk and also more readily capable of defining it for the organization.
An important concept that is driving broader thinking about how strategy and risk intersect is that of emergent strategy development. Downs, Durant and Carr (2003) note that such evolving notions as complexity and the embracing of “ambiguity” are actually notions consistent with the dynamic, geopolitical world that business is being conducted in today. CMS Energy, in fact, has embraced the emergent strategy concept as it moves in the direction of creating broad and complex intuitive systems in its electricity grid’s delivery system so that consumers will be able to have more control over their power usage.
In this sense, strategy is a determining factor on how resources are allocated. Folded in to any implementation—when strategy is being deployed effectively—is consideration for both the value chain of resources that will both support it and a methods of benchmarking that can provide feedback on just well expectations are being met. And increasingly, amplifying such efforts is the concept of evidence-based management, an emphasis on quality that calls in account all decisions made have to be done so within the context of what is true and what is known.
In summary, it is through a broad and consistent integration of the concepts mentioned here that strategy serves to move companies in directions that are consistent with the vision and mission statement. In doing so, the broader objectives can be met if there is willingness to embrace complexity and continual learning; these are some of the foundational elements of strategy theory.
Rational Thought: A Context for Strategy’s Application
Strategy is the underbelly of critical thinking. In its very essence strategy is very much a scientific process but its close relationship to critical thinking makes it essentially subjective-based but with equal balances of it being objective for the purpose of being evidence-based and staying grounded in reality. From another perspective, the concept of strategy takes the higher, nobler implications of the concept of critical thinking and stripes it to a functional essence. Another way of describing this is “critical thinking in action.”
Bourgeois (1980) identifies strategy as involving a careful act of synthesizing many levels and forms of disparate information (and data) in order to make measured, nuanced decisions. This definition supports Thompson, Strickland, and Gamble’s (2009) definition that strategy is “management’s plan for running the business and conducting operations” (p. 3). Porter (1996) augments these definitions by describing it as an act critical to the sustainability of an organization and one that often involves tradeoffs.
For CMS Energy which, like most publicly traded businesses today, faces extremely uncertain times, it is the tradeoffs that Porter refers to that are critical to this closer look at the rationale for strategy itself.
As 2008 ended. The global wide recession could not have come at a worse time for CMS Energy. The company was just bringing to closure a string of restructuring initiatives that had helped it post modest but steady earnings for the first time in several years. The company reported a net income of $289 million or $1.23 per share for 2008 compared to a reported net loss of $227 million, or $1.02 per share, for 2007. Additionally, federal and state governments (Michigan’s in particular) had passed aggressive legislation that set the stage for a energy producing companies to become highly diversified in establishing more environmentally supportive delivery systems and consumer support resources (CMS Energy Annual Report, 2009).
But as the darkening economy became a reality for CMS Energy, and with it the clear signs that Michigan’s primary industry and economic bell weather, the auto industry, was likely to take on huge losses in coming year, the focus of CMS Energy’s short and long term strategic plans were thrown into disarray. The reason was because a great deal of its future growth would depend on promises government investments in renewable energy, one of the critical pieces in the legislation that was passed, and it had already become clear that government resources were going to be diverted for the foreseeable future on sustaining more immediate industries such as the banking and auto industries.
This is most notably reflected in the introductory passages of the 2008 Annual Report:
We could not have anticipated when we embarked on this strategy that 2008 would end in the midst of a global economic downturn with credit markets in turmoil and equity markets in sharp decline. Michigan has been particularly hard hit with higher unemployment and the well-publicized troubles of the domestic automakers. While we weren’t completely immune to these developments, as reflected by the decline in our share price with the broader market, our restructured company thus far weathered the storm nicely and we’re cautiously optimistic as we enter 2009.
The event CMS Energy was faced with, and which a multitude of companies, countries, and households, were faced with is what author Taleb (2008) describes as a black swan. The name derives from the high improbability of black colored swans being born. He equates this to the occurrence of highly unpredictable events such as the terror attacks of September 11, 2001 (p. xxiv). The author posits that in reality, such events (including the birth of black swans) should be more easily predicted if only closer attention was being given by the media and education culture to a more evidence-based system of thought and observation. Irony is noted here as it applies to CMS Energy because history has shown that there is nothing about the energy business that has every really be predictable—even its very creation.
A discussion on factors affecting strategy for energy companies. Smith and Langford (2009) offer an appropriate premise that addresses the core value of the energy company itself, and its foundational strategy emphasis: that of addressing the public good. That is, to exist for the sole purpose of providing a service and resource critical to the basic functioning of civilization itself.
This was the core emphasis for CMS Energy and its counterpart DTE Energy and so many other energy companies throughout the U.S. and large parts of the world (DTE Energy Annual Report, 2008). The earliest companies founded came in to existence shortly after the American Civil War in the late 1860s. These companies were highly competitive but their basic driving purpose was to improve civilization, which they would do in ways scarcely imagined by those who founded the company.
The Michigan Messenger (2009) describes a public utilities central role to be in lockstep with the long term goals of communities and ultimately the states in which they reside. This makes the strategic planning emphasis for a company such as CMS one that has to be carefully integrated with those of the constituents it serves. In this sense energy companies have had global citizenship long before it was fashionable and their strategic planning has had to always consider conditions outside of its immediate financial needs. The U.S. Department of Energy: Michigan Outlook (2009) made this abundantly clear when it noted that the fortunes of the success of homeland security initiatives included degrees of success energy companies would make in the years ahead to perfect renewable energy sources. And both Bajpai and Singh (2008) and Porter (2008) augmented that point in noting the critical importance of there being leadership at the strategic level for initiatives that are energy focused. Porter placed energy issues as top on the list of to-do items for the new presidential administration. And just a few months after his work was published, the newly elected, President Barak Obama, made it clear that the economic crisis was considered to be in tandem with the need for more focus on energy policies.
An Instrument of Revolution
Strategy as an instrument of revolution most readily manifests itself when there is a carefully thought through plan that has, as the untenable premise, the achievement of a goal that will most benefit the organization. For CMS Energy that goal is found in an initiative it launched over the last five years called “Growing Forward.” The basis of is plan is that it calls the parent company to invest in for more than $6 million over the next five years while, in tandem, improving customer service and keeping rates competitive. This initiative is an external one that drives the company in a positive direction in a highly visible way, but its more noted initiative that will serve as an instrument of revolution is to be found in the long term strategy of responding to global climate change problems. Climate change has brought an unprecedented challenge to all energy companies and it has also brought with it criticism that these companies ignored the problem for too long and now must work extra hard to meet both public health and competitive needs (Connell, 2009). CMS has decided to take the high road (while not addressing critics directly) by directing plans to construct a high efficiency coal plan in Michigan and one that promises to bring 1,800 jobs with it.
These efforts on the part of CMS are being tracked by public watchdog groups, however, and it is noted that one of the likely underlying motives for this revolution in strategy is because public policy has made it clear that energy companies, which are publicly regulated and financed to some degree, must be better at delivering efficiency. As Moss (2008) points out, energy companies struggle with a duality of cultures in which one of wants to be innovative and to meet the needs of the pubic good, but another part is very much profit driven and listens sometimes ore closer to investor wishes. Still, as Sanyal and Cohen (2009), attest, it will only be through directing strategies that are tunnel vision in nature and keyed toward research and development—as CMS is doing—that long term survive improves.
Still, the devil can be in the details in such instances. It will only be through smart allocation of resources and smarter stewardship of existing resources that the fruits of a meaningful revolution strategy can be brought forth.
Resource Allocation and Accumulation
CMS has, as a competitive advantage, deep knowledge about traditional delivery of energy resources. It has geographic advantage over its competitor DTE of the Metro Detroit area in that it has longstanding relationships with communities throughout much of Michigan rural areas and in to the Indiana and Illinois areas in its western districts. This relationship with communities has helped it win favor in Zeeland, Michigan to build a gas fired generating plant there. But as Larsson and Aburas (2008) so aptly point out, if internal efficiencies are ignored, potentially positive incremental improvements can and will be waylaid.
CMS squandered its opportunity to advance its competitive position using existing resources and opportunities because when it need strong cash reserves to move the new plant in Zeeland on a fast track, that money was tied up settling litigation from suppliers and other related matters relative to selling off some its overseas assets that had be obtained too quickly. This caused an extending of the completion date for the new plant and a cascading problem of reducing the goodwill it had established in this cash strapped community that could use the new jobs the plant will bring. The launch date is now expected to be 2017 rather than 2015.
Pomianek and Joseph (2009) identify new plants such as the Zeeland one a potential cash cow for both the energy company and the community but only if long term investments are made to diversify the delivery systems to include wind energy and other innovations. While it is not clear whether CMS intends to use the plant as a launch point to grow other renewable energy initiatives the company clearly must be able to expand its options in resource allocation. The new plant will certainly help in this area. Runhaar and Lafferty (2009) offer a broader take on this as they note, from the UN Global Compact to CSR Strategies in the Telecommunications Industry, that utility companies should expect much more pressure going forward from the public as to the degree of stewardship of resources being deployed and the leadership directing such initiatives.
Looking Ahead: Leading in the Green Era
A noted theme that resonates throughout the 2008 Annual Report for CMS is that the company is acutely aware of the importance of providing better services for their customers. This is expected to manifest in the form of “smart grid” technology that will provide more real time information to customers about their energy consumption and thereby assist with better decisions about usage to be made. In tandem with this grid is the plan to fully update its computer systems also with the goal of improving customer service.
CMS appears to have learned fully the lessons of how dangerous it can be, competitively speaking, to ignore the hue and cry of customers who are looking closer at their energy bills and wondering why energy company technologies are not assisting better in helping reduce consumption (Rarick & Feldman, 2008).
Siddharth and Deshmukh (2008 ) highlight the challenges, though, that can occur why trying to implement the systems CMS will be doing over the next several years. They point out that critical to the success of such efforts will be in forging better relations with vendors, some of whom may have to be replaced due to incongruence in the quality of services they have provided. When new systems and technologies are implemented, some factoring in of strategy has to be in evaluating the quality of current deliveries and potential changes that might need to be made in this area.
Both Orth (2008) and Anonymous (2009) point out that the smart energy company will
have to keep wind energy at the forefront of development plans and should fast track prototypes as soon as possible. CMS has managed to weather much of the economic strong of these past several months no worse the wear. But it will essential for the company to take on a much more creative and dynamic mindset in order to realize the future it wants to inherent in the next generation of its existence. That future will lie in being more adaptable, being able to an assortment of energy resources including geothermal and various hybrid modalities, and also to be fully committed to embracing the larger public safety responsibility that all energy companies must now embrace (Walsh & Sanderson, 2008; Poza & Meyer, 2009).
Conclusion
This paper reviewed the components of strategy in the context of the energy company known as CMS energy, a Michigan based competitor that is one of a handful of major companies delivering critical electric and gas energy to hundreds of customers. The company faces the challenge of defining its strategy for an uncertain economic future whole also needing to be a leader in establishing new energy resources for the essential purpose of national security.
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In Michigan the two major utilities are CMS Energy and DTE Energy. CMS Energy is considered the underdog in this market as it has undergone significant restructuring and transitions as a result of costly decisions to expand into overseas markets during the 1990s. Presently the company is poised to reach a level of consistent profitability.
The company was selected for this project because it offers an opportunity to analyze the internal and external strategy dynamics of an operation that is at the forefront of the “green revolution” and the many efforts to address the global wide energy crisis. It will be through a broadening of understanding and the strategic challenges facing should leading companies that a better picture is painted about the strategies and policies that will need to be given priority to address that problem facing all of civilization.
The primary area of focuses here are strategy as rational thought (presented with some theoretical context for strategy’s relevance to this analysis); strategy as an instrument of revolution (in this case, CMS Energy and key competitors of the industry’s use of innovation in order to foster competitive advantage); strategy as resource allocation and accumulation (CMS Energy’s challenge in developing a strategy that will maximize its global resources and potential as a global competitor), and lastly, CMS Energy’s ability to be a technologically adroit leading operation at a time when green energy emphasis is now the industry standard.
This analysis will first begin, however, with providing a discussion on the tools used in strategic analysis to be followed by a discussion on risk , uncertainty and effective resource allocation; and, lastly an evaluation of current research strategy research methods and techniques will be provided in this first section. These, like the aforementioned topic areas, will be discussed within the context of the underlying challenges facing CMS Energy.
Theoretical Framework
The strategy analyst has a host of tools available and they can take the forms of quantitative, qualitative, and a blending of both. These tools are utilized in the managerial environment, in the actions of external assessing of the environment, and also in various dimensions of determining competitive strategies. In the foreign markets the assessing of cross-market transfers of competencies is particularly effective.
Managers who are employing strategy are inclined to build such strategy based on the vision and mission statement. These items serve as foundational to the direction an operation is expected to go. It is through the use of both the vision and mission statements that company objectives and decisions can be effectively analyzed (Thompson, Strickland, & Gamble, 2008, pp. 18-27). If decisions are inconsistent with either of these, there is reason to pause and re-evaluate accordingly. This, in fact, is one of things mentioned by CMS Energy’s leadership in 2008—that the company was determined to get back in line with its basic vision and mission statement which is to product good energy service to consumers. In recent years the company had moved away from this in exchange for embracing a policy of internationalizing operations but doing so too quickly and with not enough consideration about global economic conditions.
For the external environment, companies can and do use a variety of tools to help craft strategies and this can include the environmental scanning method. This method, sometimes used in concert with a SWOT Analysis, helps identify restraining and supportive forces in areas that range from economic to political. Ultimately, the information derived from these tools will reveal the forces that are driving the industry.
By knowing what forces are driving the industry, it much more likely that leaders will have a better set of potential options as to how to face the future. One method that greatly facilitates these sort of initiatives is game theory. Essentially game theory involves engaging a variety of scenarios with the intention of determining outcomes that are based of an array of probable conditions. The concept dates back to 1944 but gained in prominence during the 1990s following the work of Nobel Prize Laureautes John Haranui, John John Nash, and Reinhard Selten (Render & Stair, 2000, p 22).
A cornerstone of what game theory does is help to define potential risks. For the strategist, being able to accurately identify potential risks is a powerful tool, although it is not always embraced fully. Alessandri (2008) reported how the aversion to risk becomes, in and of itself, a crippling problem within some companies that have reached certain levels of financial success. It is for this reason that many companies, and this includes CMS Energy, are encouraging more entrepreneurial thinking within its management ranks and, therefore, being more embracing of risk and also more readily capable of defining it for the organization.
An important concept that is driving broader thinking about how strategy and risk intersect is that of emergent strategy development. Downs, Durant and Carr (2003) note that such evolving notions as complexity and the embracing of “ambiguity” are actually notions consistent with the dynamic, geopolitical world that business is being conducted in today. CMS Energy, in fact, has embraced the emergent strategy concept as it moves in the direction of creating broad and complex intuitive systems in its electricity grid’s delivery system so that consumers will be able to have more control over their power usage.
In this sense, strategy is a determining factor on how resources are allocated. Folded in to any implementation—when strategy is being deployed effectively—is consideration for both the value chain of resources that will both support it and a methods of benchmarking that can provide feedback on just well expectations are being met. And increasingly, amplifying such efforts is the concept of evidence-based management, an emphasis on quality that calls in account all decisions made have to be done so within the context of what is true and what is known.
In summary, it is through a broad and consistent integration of the concepts mentioned here that strategy serves to move companies in directions that are consistent with the vision and mission statement. In doing so, the broader objectives can be met if there is willingness to embrace complexity and continual learning; these are some of the foundational elements of strategy theory.
Rational Thought: A Context for Strategy’s Application
Strategy is the underbelly of critical thinking. In its very essence strategy is very much a scientific process but its close relationship to critical thinking makes it essentially subjective-based but with equal balances of it being objective for the purpose of being evidence-based and staying grounded in reality. From another perspective, the concept of strategy takes the higher, nobler implications of the concept of critical thinking and stripes it to a functional essence. Another way of describing this is “critical thinking in action.”
Bourgeois (1980) identifies strategy as involving a careful act of synthesizing many levels and forms of disparate information (and data) in order to make measured, nuanced decisions. This definition supports Thompson, Strickland, and Gamble’s (2009) definition that strategy is “management’s plan for running the business and conducting operations” (p. 3). Porter (1996) augments these definitions by describing it as an act critical to the sustainability of an organization and one that often involves tradeoffs.
For CMS Energy which, like most publicly traded businesses today, faces extremely uncertain times, it is the tradeoffs that Porter refers to that are critical to this closer look at the rationale for strategy itself.
As 2008 ended. The global wide recession could not have come at a worse time for CMS Energy. The company was just bringing to closure a string of restructuring initiatives that had helped it post modest but steady earnings for the first time in several years. The company reported a net income of $289 million or $1.23 per share for 2008 compared to a reported net loss of $227 million, or $1.02 per share, for 2007. Additionally, federal and state governments (Michigan’s in particular) had passed aggressive legislation that set the stage for a energy producing companies to become highly diversified in establishing more environmentally supportive delivery systems and consumer support resources (CMS Energy Annual Report, 2009).
But as the darkening economy became a reality for CMS Energy, and with it the clear signs that Michigan’s primary industry and economic bell weather, the auto industry, was likely to take on huge losses in coming year, the focus of CMS Energy’s short and long term strategic plans were thrown into disarray. The reason was because a great deal of its future growth would depend on promises government investments in renewable energy, one of the critical pieces in the legislation that was passed, and it had already become clear that government resources were going to be diverted for the foreseeable future on sustaining more immediate industries such as the banking and auto industries.
This is most notably reflected in the introductory passages of the 2008 Annual Report:
We could not have anticipated when we embarked on this strategy that 2008 would end in the midst of a global economic downturn with credit markets in turmoil and equity markets in sharp decline. Michigan has been particularly hard hit with higher unemployment and the well-publicized troubles of the domestic automakers. While we weren’t completely immune to these developments, as reflected by the decline in our share price with the broader market, our restructured company thus far weathered the storm nicely and we’re cautiously optimistic as we enter 2009.
The event CMS Energy was faced with, and which a multitude of companies, countries, and households, were faced with is what author Taleb (2008) describes as a black swan. The name derives from the high improbability of black colored swans being born. He equates this to the occurrence of highly unpredictable events such as the terror attacks of September 11, 2001 (p. xxiv). The author posits that in reality, such events (including the birth of black swans) should be more easily predicted if only closer attention was being given by the media and education culture to a more evidence-based system of thought and observation. Irony is noted here as it applies to CMS Energy because history has shown that there is nothing about the energy business that has every really be predictable—even its very creation.
A discussion on factors affecting strategy for energy companies. Smith and Langford (2009) offer an appropriate premise that addresses the core value of the energy company itself, and its foundational strategy emphasis: that of addressing the public good. That is, to exist for the sole purpose of providing a service and resource critical to the basic functioning of civilization itself.
This was the core emphasis for CMS Energy and its counterpart DTE Energy and so many other energy companies throughout the U.S. and large parts of the world (DTE Energy Annual Report, 2008). The earliest companies founded came in to existence shortly after the American Civil War in the late 1860s. These companies were highly competitive but their basic driving purpose was to improve civilization, which they would do in ways scarcely imagined by those who founded the company.
The Michigan Messenger (2009) describes a public utilities central role to be in lockstep with the long term goals of communities and ultimately the states in which they reside. This makes the strategic planning emphasis for a company such as CMS one that has to be carefully integrated with those of the constituents it serves. In this sense energy companies have had global citizenship long before it was fashionable and their strategic planning has had to always consider conditions outside of its immediate financial needs. The U.S. Department of Energy: Michigan Outlook (2009) made this abundantly clear when it noted that the fortunes of the success of homeland security initiatives included degrees of success energy companies would make in the years ahead to perfect renewable energy sources. And both Bajpai and Singh (2008) and Porter (2008) augmented that point in noting the critical importance of there being leadership at the strategic level for initiatives that are energy focused. Porter placed energy issues as top on the list of to-do items for the new presidential administration. And just a few months after his work was published, the newly elected, President Barak Obama, made it clear that the economic crisis was considered to be in tandem with the need for more focus on energy policies.
An Instrument of Revolution
Strategy as an instrument of revolution most readily manifests itself when there is a carefully thought through plan that has, as the untenable premise, the achievement of a goal that will most benefit the organization. For CMS Energy that goal is found in an initiative it launched over the last five years called “Growing Forward.” The basis of is plan is that it calls the parent company to invest in for more than $6 million over the next five years while, in tandem, improving customer service and keeping rates competitive. This initiative is an external one that drives the company in a positive direction in a highly visible way, but its more noted initiative that will serve as an instrument of revolution is to be found in the long term strategy of responding to global climate change problems. Climate change has brought an unprecedented challenge to all energy companies and it has also brought with it criticism that these companies ignored the problem for too long and now must work extra hard to meet both public health and competitive needs (Connell, 2009). CMS has decided to take the high road (while not addressing critics directly) by directing plans to construct a high efficiency coal plan in Michigan and one that promises to bring 1,800 jobs with it.
These efforts on the part of CMS are being tracked by public watchdog groups, however, and it is noted that one of the likely underlying motives for this revolution in strategy is because public policy has made it clear that energy companies, which are publicly regulated and financed to some degree, must be better at delivering efficiency. As Moss (2008) points out, energy companies struggle with a duality of cultures in which one of wants to be innovative and to meet the needs of the pubic good, but another part is very much profit driven and listens sometimes ore closer to investor wishes. Still, as Sanyal and Cohen (2009), attest, it will only be through directing strategies that are tunnel vision in nature and keyed toward research and development—as CMS is doing—that long term survive improves.
Still, the devil can be in the details in such instances. It will only be through smart allocation of resources and smarter stewardship of existing resources that the fruits of a meaningful revolution strategy can be brought forth.
Resource Allocation and Accumulation
CMS has, as a competitive advantage, deep knowledge about traditional delivery of energy resources. It has geographic advantage over its competitor DTE of the Metro Detroit area in that it has longstanding relationships with communities throughout much of Michigan rural areas and in to the Indiana and Illinois areas in its western districts. This relationship with communities has helped it win favor in Zeeland, Michigan to build a gas fired generating plant there. But as Larsson and Aburas (2008) so aptly point out, if internal efficiencies are ignored, potentially positive incremental improvements can and will be waylaid.
CMS squandered its opportunity to advance its competitive position using existing resources and opportunities because when it need strong cash reserves to move the new plant in Zeeland on a fast track, that money was tied up settling litigation from suppliers and other related matters relative to selling off some its overseas assets that had be obtained too quickly. This caused an extending of the completion date for the new plant and a cascading problem of reducing the goodwill it had established in this cash strapped community that could use the new jobs the plant will bring. The launch date is now expected to be 2017 rather than 2015.
Pomianek and Joseph (2009) identify new plants such as the Zeeland one a potential cash cow for both the energy company and the community but only if long term investments are made to diversify the delivery systems to include wind energy and other innovations. While it is not clear whether CMS intends to use the plant as a launch point to grow other renewable energy initiatives the company clearly must be able to expand its options in resource allocation. The new plant will certainly help in this area. Runhaar and Lafferty (2009) offer a broader take on this as they note, from the UN Global Compact to CSR Strategies in the Telecommunications Industry, that utility companies should expect much more pressure going forward from the public as to the degree of stewardship of resources being deployed and the leadership directing such initiatives.
Looking Ahead: Leading in the Green Era
A noted theme that resonates throughout the 2008 Annual Report for CMS is that the company is acutely aware of the importance of providing better services for their customers. This is expected to manifest in the form of “smart grid” technology that will provide more real time information to customers about their energy consumption and thereby assist with better decisions about usage to be made. In tandem with this grid is the plan to fully update its computer systems also with the goal of improving customer service.
CMS appears to have learned fully the lessons of how dangerous it can be, competitively speaking, to ignore the hue and cry of customers who are looking closer at their energy bills and wondering why energy company technologies are not assisting better in helping reduce consumption (Rarick & Feldman, 2008).
Siddharth and Deshmukh (2008 ) highlight the challenges, though, that can occur why trying to implement the systems CMS will be doing over the next several years. They point out that critical to the success of such efforts will be in forging better relations with vendors, some of whom may have to be replaced due to incongruence in the quality of services they have provided. When new systems and technologies are implemented, some factoring in of strategy has to be in evaluating the quality of current deliveries and potential changes that might need to be made in this area.
Both Orth (2008) and Anonymous (2009) point out that the smart energy company will
have to keep wind energy at the forefront of development plans and should fast track prototypes as soon as possible. CMS has managed to weather much of the economic strong of these past several months no worse the wear. But it will essential for the company to take on a much more creative and dynamic mindset in order to realize the future it wants to inherent in the next generation of its existence. That future will lie in being more adaptable, being able to an assortment of energy resources including geothermal and various hybrid modalities, and also to be fully committed to embracing the larger public safety responsibility that all energy companies must now embrace (Walsh & Sanderson, 2008; Poza & Meyer, 2009).
Conclusion
This paper reviewed the components of strategy in the context of the energy company known as CMS energy, a Michigan based competitor that is one of a handful of major companies delivering critical electric and gas energy to hundreds of customers. The company faces the challenge of defining its strategy for an uncertain economic future whole also needing to be a leader in establishing new energy resources for the essential purpose of national security.
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