Alternative Business Decision for Eskom Assignment 2022

Running head: ALTERNATIVE BUSINESS DECISIONS FOR ESKOM
Alternative business decisions for Eskom
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Introduction
Business organizations established within an economy have a significantly important role
to play for that concerned economy. However, often times it is observed that a business can run
in to several vital problems which greatly negate their profit margin (Maize, 2016). This paper
seeks to analyze the problem which was faced by the Eskom. In this analysis, an alternative
solution is also recommended which otherwise would have helped the management of Eskom to
avert the crisis in hand. As such, the main purpose of this paper is to provide a different set of
business decisions to solve the issue as faced by Eskom of South Africa.
Problem faced by Eskom
Eskom is the biggest supplier of public utility within the region of South Africa. In was
founded in the year of 1923 and had the objective of supplying electricity to all the citizens of the
country (Baker & Phillips, 2019). However, a major problem has been plaguing this organization
for several years. The biggest problem is the inability of the firm to meet the rising demands of
electricity among the concerned population. As a result of this, in their attempt to meet the
growing demand, Eskom took large loans from different organizations (Sadiki & Pauw, 2017).
However, now it can be observed that Eskom is unable to pay back such huge debts and is
therefore, on the verge of collapse.
Alternative business decisions to avert the crisis
The main problem faced by Eskom is their lack to meet the rising power demands of the
current population. Eskom is the largest public utility on South Africa and it is this size of the
organization which poses the main challenge (Pollet, Staffell & Adamson, 2015). The lack of the

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firm to clearly divide its responsibilities among its different smaller units has led to the high
mismanagement of their reserve of electricity.
One of the decisions which could have been taken is to divide the enterprise of Eskom in
to several smaller distribution units (Larson, 2015). In this sense, the production sector of the
firm should have been divided from the distribution sector. Furthermore, a reserve unit should
have been established by the management of the firm which ensured that around fifty percent of
the electric power produced by the organization is kept as a back up within the firm. This would
have ensured the lesser frequency of lead shedding that is currently experienced throughout the
country of South Africa.
Another problem faced by the firm of Eskom is the high amount of debt loans that it
owes to the other sectors of the world. This mainly arose as a result of the efforts of the
management to meet the growing requirement of the population. In this attempt, they took a loan
in the hopes that they would be able to pay it back with interest after receiving payment from the
general public for the usage of such electricity. However, when the general public started to
default on their payments, the firm consequently also started to default.
An alternative business decision which could have been implemented in order to avert
this crisis is that of taking lesser amount of loan (Acharya & Xu, 2017). A major bane of any
business is when they are compelled to take financial help from outside sources. This means that
they are liable to pay this loan back with a high rate of interest. Eskom should have instead tried
to raise the money from its own share holders. This would have meant that the profits generated
or the losses suffered would have been proportionally divided among such share holders who are
liable to the firm itself (Miller & Yang, 2016). Furthermore, the company should have generated
only that much amount of electricity that it can produce with their current level of financial

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reserves. The moment they decided to increase their span of distribution, they were doomed to
become bankrupt without the proper financial backing.
Since Eskom is an enterprise which is owned by the government of South Africa, its
responsibility towards the public is quite large and significant. However, an alternative business
decision which would have helped the firm to avert its crisis of debt management is the
establishment of other privately owned electric companies (Bernstein, 2015). While public
enterprises try to uphold the welfare of the people by ensuring that the requirement of every
citizen is met, this also acts as their weakness. They do not concern themselves with the
generation of profits and instead, increase their base of production without thinking about the
financial health of the organization. A private enterprise, on the other hand, is more concerned
with the generation of profits (Miller & Yang, 2016). The main objective of any privately owned
business firm is to earn a higher margin of profit. This is guaranteed by a rise in the sales volume
of the company in question whereby they try to increase the quantity of goods and services
which are produced by them. In this sense, the sale of so many products would consequently lead
to a rise in the profit margin which is earned by the entrepreneurs of the concerned business. In
this sense, if a private enterprise was established, then it would have sold its electricity at the
prevailing market rate in exchange for a superior service of electricity (Miller & Yang, 2016).
This in turn would have ensured the continued supply of power to the entire country of South
Africa.
Conclusion
In conclusion it can be observed that the different business decisions could have been
implemented in an efficient manner in order to avert the crisis of load shedding and debt
mismanagement that is being experienced in the context of Eskom. This is quite paramount since

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the problem faced by Eskom in the recent times is adversely impacting not only the economy of
South Africa but also the society of the region. Thus, there is a need on the part of the
government of South Africa to find out several important business alternatives in order to
improve the financial health of Eskom as well as its brand image.

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References:
Acharya, V., & Xu, Z. (2017). Financial dependence and innovation: The case of public versus
private firms. Journal of Financial Economics, 124(2), 223-243.
Baker, L., & Phillips, J. (2019). Tensions in the transition: the politics of electricity distribution
in South Africa. Environment and Planning C: Politics and Space, 37(1), 177-196.
Bernstein, S. (2015). Does going public affect innovation?. The Journal of Finance, 70(4), 1365-
1403.
Larson, A. (2015). Power Shortages Challenge Eskom, Force Load Shedding in South
Africa. Power, 159(3), 12-14.
Maize, K. (2016). Chronic Tardiness at South Africa's Eskom Could Be Its
Downfall. Power, 160(10), 52-55.
Miller, D. J., & Yang, H. S. (2016). The dynamics of diversification: Market entry and exit by
public and private firms. Strategic Management Journal, 37(11), 2323-2345.
Pollet, B. G., Staffell, I., & Adamson, K. A. (2015). Current energy landscape in the Republic of
South Africa. International Journal of Hydrogen Energy, 40(46), 16685-16701.
Sadiki, M., & Pauw, J. C. (2017). Government subvention to Eskom: policy or
discretion?. Journal of Public Administration, 52(4), 666-680.