Sunrun, Inc., headquartered in San Francisco, California, is an energy-based service provider founded by Edward Fenster, Robert Kreamer, and Lynn Jurich in 2007. Through its vision, mission, and goals, Sunrun focuses on powering the world with clean and sustainable solar energy attainable through innovation and expert service delivery. Sunrun’s vision is to power homes with clean, cheap, and improved energy. Sunrun has a simple mission, which is to “create a planet run by the sun” for all homes to utilize clean solar energy (Sunrun, 2018). The company’s goal is to design, manufacture, and manage solar systems in the local market of the US.
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Sunrun has adopted a decentralized function-based organizational structure with the company divisions headed by chief officers and vice presidents who report directly to the chief executive officer (CEO). These business divisions include finance, operations, customer experience, marketing, policy, energy services, products, and talent, which address different skill requirements for seamless business operations. Sunrun utilizes a human-centered business culture coined from its name to imply a brighter living experience for employees, consumers, and the environment. Partnerships with other energy and cable-based firms create a platform of differentiated market experience for consumers. The eco-friendly business model outlines the social responsibility initiative for environmental conservation and healthy world. Therefore, this term paper examines the internal and external environment, corporate level strategy, business level strategy, and control systems of Sunrun to determine its profitability and future growth.
Internal Strengths and Weaknesses
A SWOT analysis of Sunrun shows that a robust service platform, innovation, high-quality service, differentiated customer experience, strong financial position, and dedicated policy leadership are internal strengths. The company utilizes direct-to-customer, solar partnership, and strategic partnership service models that expand customer penetration at low cost. Verburg et al. (2017) aver that tailored product provision and hassle-free service experience considerably enhances the quality of service while ensuring consumer satisfaction. The organization’s focus to pull inexperienced staff has positively contributed to the observation of environmental policies and management of adequate working capital. Conversely, Sunrun’s weaknesses involve low service technology, limited market expansion, poor product marketing, and negative net returns recorded at $77 in 2015 (Sunrun, 2018). The company lacks an integrated technology with a mobile app to facilitate real-time management of consumer orders and monitoring of installed systems.
External Opportunities and Threats
The energy industry has enormous opportunities for growth, which include global green drive initiatives, real-time tracking, and mobile technology, economic growth, globalization, and product line expansion. Nonetheless, threats include intense rivalry, currency fluctuations, and state policies that threaten the expansion and growth of firms in this sector.
Porter’s Five-force Analysis
Porter’s five-force analysis indicates that the solar industry faces a high threat of substitute products, new entrants, and buyers bargaining power with intense rivalry from competitors. However, the supplier power is moderate. Hydrogen-based electricity and coal energy are economically cost-effective alternative substitutes threatening the demand for solar power. Besides, the low product differentiation together with a large number of suppliers increases buyers bargaining power in the energy sector.
Rivalry among competitors in the industry is high due to the presence of established traditional utilities diversifying to solar energy and entry of new players attracted by government subsidies battling for market share. Low barriers to entry are one factor that leads to the high threat of new entrants. Moreover, the government subsidies in power supply and the shifting consumer interest towards renewable energy significantly attract new players in the industry. On the contrary, the industry enjoys a large number of suppliers of raw materials from the positive effect of technology on productivity.
Industry Life-cycle Analysis
An assessment of industry factors such as inventory analysis, energy balance, and environmental pollution indicate that solar energy production is still at the introductory stage in its life cycle. Since the net power produced depends on the capacity of the power plant, inventory analysis indicates the solar system exploitation capacity is low (Zysman & Kenney, 2018, Pervan, Curak & Pavic, 2017). Also, even though the energy balance depends on the availability of the raw material, technological advances for solar power generation is low limiting the facility capacity. Fundamentally, the renewable energy sources have low effect on the environment such as the global warming. Conclusively, the low net power and high transformation loss of production indicate that the renewable energy industry is still in the introductory phase of its life cycle.
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External Environment Factors
A stable political environment in America and improved relationships in the international society promote the controlled exploitation of resources, pollution, and state facilitation, which shapes the formulation of policies within different regions. Local policies such as tax laws and production subsidies significantly influence the use of renewable energy (Pervan et al., 2017). Additionally, the stable economic growth in the US facilitates the acquisition of raw material at a low cost making solar power cost-effective and promotes citizens consumption capacity.
The solar sector has a positive prospect from the socio-cultural trends of environmental conservation initiatives in both the US and international markets. According to Gnizy and Shoham (2018), the global eco-friendly initiatives and energy policy Acts such as the Clean Air law in the US promotes fuel diversity to use of renewable power sources. Given the environmental focus, these initiatives create consumer awareness that promotes the demand for solar energy facilitating industry growth and attractiveness (Pervan et al., 2017). Advancement in technology significantly shapes innovation in solar energy and facilitates real-time management of installed system and development of quality equipment. These innovations significantly improve solar services while creating a barrier to entry to potential industry players.
SWOT Analysis Evaluation
Evaluation of Sunrun’s SWOT analysis indicates that the company’s robust platform and innovativeness enhance its competitive position. However, given the weaknesses, it is apparent that the leadership has not adequately utilized these capabilities, which have negatively influenced the company’s financial performance resulting in net returns. Fundamentally, managers need to focus on addressing the most critical factors in its weaknesses such as the technological improvements, net returns, and improvement of product marketing (Verburg et al., 2017). The existence of great opportunities that lag behind in utilization such as real-time tracking and use of mobile technology highlights the laxity in forecasting and addressing business threats. Conclusively, the company has great potential for growth and needs to enlarge the geographical coverage into the global market to ensure sustained future growth.
Sunrun Income Statement. (Sunrun, 2018).
|Total revenue||$529, 699||$453, 898||$304, 606||$198, 557|
|Cost of Revenue||$448, 085||$399, 239||$280, 535||$173, 700|
|Gross profit||$81, 614||$54, 659||$24, 071||$24, 857|
|Operating expenses||$263, 818||$269, 563||$243, 271||$157, 476|
|Operating Income||($182, 204)||($214, 904)||($219, 200)||($132, 619)|
|Other Income||$306, 729||$306, 591||$190, 954||$61, 767|
|Net Income||$124, 525||$91, 687||($28, 246)||($70, 852)|
The above cash flow analysis reveals that Sunrun has had an improved net income for a period of four years from the year 2014 to 2017. However, the company had a negative net income in 2014 and 2015 with positive returns in 2016 and 2017. The near equal amount of operating expenses in a consecutive three-year period between 2015 and 2017 indicate that Sunrun has maintained its business growth at the same level. Consequently, due to low gross profit and bulk operating expenses, the company faced a negative operating income fluctuating at a slightly the same amount in the entire four year period. Overall, the comparison of gross profit, net income, and operating expenses of the income statement shows that Sunrun performance is low and requires an upgrade for growth.
Overall Competitive Position
The analysis of the company’s competencies, financial position, and industry environment reveal that Sunrun has an enhanced competitive position over its rivals, new entrants, and substitute firms. The company’s factors that positively contribute to its competitive advantage include a robust service platform, customer service, and access to capital for consumers. Pervan et al. (2017) hold that essential industrial factors are environmental conservation initiatives, policy measures, technological advancement, and consumer socio-cultural behavior changes. These social forces shape consumer choices and influence the shift from the traditional power utilities to the use of a renewable source. This utility shift has enhanced Sunrun’s competitive position over non-renewable energy, unclean, and substitute rivals firms.
Corporate Level Strategy Analysis
Corporate Level Strategy
Sunrun has adopted horizontal integration strategy in its business operations. Cabral and Grilo (2018) argue that this growth strategy involves utilization of acquisition, mergers, and business alliances to expand the scope and control of solar energy market share. The company’s strategic platform that supports this integration comprises of two service models: solar partner channel and the Strategic partnership network. In solar partner channel, Sunrun contracts other organizations to distribute, procure, and install their solar systems in different geographical locations. Conversely, the strategic partnership includes collaboration with new market entrants and other service firms engaged in energy-related businesses such as retail cable companies to enhance market penetration and expand its brand presence. These business arrangements augment Sunrun’s sales through the incorporation of the partners’ customer coverage. Conceptually, horizontal strategy increases the firm’s power in the marketplace, reduce transaction costs, and secure a robust network of distribution channels.
Strategic Business Units
Sunrun’s strategic business units encompass operating lease division and solar systems segment. These two divisions cover the entire business functional departments. The operating lease division covers the organization’s business activities that address collaborative initiatives, consumer lease arrangements, incentives, and monitoring of solar certificate. On the other hand, the solar system segment encompasses product sales and distribution of the solar equipment to partner firms and consumer markets.
Relationship of Company’s Businesses Units
There is a strong relationship established between the two business segments that allow for seamless operations in the company. The operating lease and incentives division manages all data from customer agreements, licensing certificates, government tax credits, and rebate incentives. This business unit exchanges the information with the solar systems and product sales unit through an elaborate service platform to facilitate efficient implementation of strategies (Verburg et al., 2017). Sunrun treats each of these investments as separate entities allowing for appropriate evaluation of their independent financial performances. As a result, this business framework provides the structure for allocation of income benefits between Sunrun and its subsidiary companies based on the underlying business agreements.
Business Level Strategy
Competitive Strategies for Each Business Units
In product lease and incentive division, Sunrun employs product differentiation strategy. However, the company has adopted cost leadership in its solar systems and product sales unit. According to Pellinen, Teittinen, and Jarvenpaa (2016), product differentiation strategy consists of tailored system design and customized prices to fit consumer budgets. Sunrun has invested in strong technology that facilitates assessment of different solar solutions and delivery of service through a high-quality sales process attracting a large group of consumers. Moreover, the tailored services enable the company to provide competitive prices and flexible site-specific services with a strong unit margin that help to attract customers and enhance the organization’s competitive advantage.
Cost leadership in solar systems and product unit focuses on driving cost efficiencies through value creation in the organization’s service channels. The main service elements in cost leadership comprise of tailored solar pricing solutions and dedicated project financing for consumers (Pellinen et al., 2016). Furthermore, the system framework facilitates tight control of the organization’s partner and customer ecosystem under low cost, which provides consumers with the capacity to realize savings.
Sunrun’s functional strategies comprise of core competencies in finance, operations, human resource, management, and marketing that help to build a superior market brand while enhancing its competitive advantage. Companies utilize a service network of partner channels in its marketing strategies to capture a large market share, promote product distribution, and increase sales, which has positively influenced service efficiency and consumer responsiveness (Pellinen et al., 2016). Operation strategies involve the adoption of technology suites for efficient installation and maintenance of solar systems. Sunrun recruits experienced personnel and train its staff under human resource strategy that greatly influences innovations and quality while building a strong culture of excellence in the organization. The use of decentralized decision-making processes and established service platform ensures structured communication throughout the organization and its partner network.
Sunrun has adopted a strategic control system to oversee the organization’s achievement of organization set goals. Corporate managers adopt functional area decision making processes and reporting protocol to facilitate supervision of corporate objectives (Verburg et al., 2017). The business goals comprise of specific performance measures that include market, budgets, earnings, and income. The strategic control assesses organization’s performance against these business factors.
Sunrun’s operational control focuses on monitoring the functions of the organization’s two revenue divisions: operation lease and solar system segments relative to cost, schedules, and specifications. The company has established a strong service platform to enhance the scalability of processes and support a cost-effective structure. The control system aims to adjust processes to achieve desired product efficiency and service quality. Moreover, the control process concerns system’s ability to maintain a desired pattern of output without wide fluctuations for day-to-day production, marketing, and distribution activities.
The energy industry is one of the most evolving business sectors in the world influenced by technological advancement and globalization. Despite the low net income by Sunrun, the renewable energy industry is an attractive venture with sustainable future growth because the industry is still in its introductory phase. An analysis of energy supply business indicates that environmental factors, socio-cultural modification, economic growth, and regulatory policies positively shape the industry’s future growth. Sunrun’s current strategies relative to social needs are profitable and sustainable. The global concern on resource management and environmental conservation measures significantly support the company’s business goals. Therefore, Sunrun must exploit these industry opportunities to improve its profitability. The company needs to develop an elaborate real-time service structure and high-tech solar systems to enhance its competitive position. Additionally, it must expand its operations into international markets to achieve sustained growth.
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Verburg, R., Nienaber, A., Searle, R., Weibel, A., Den Hartog, D., & Rupp, D. (2017). The role of organizational control systems in employees’ organizational trust and performance outcomes. Group & Organization Management, 43(2), 179-206. Web.
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