BHP Billiton Oil Company Strategic Management - Case Study Example

Topic: BHP Billiton Oil Company Strategic Management Name: Registration No: Institution: Course Code: Date: 1. Introduction Many businesses are developing strategies which gives them a competitive advantage over other businesses in terms of the ability to provide quality products and services compared with their competitors (Bart, Bontis and Taggar 2001, p. 35). In most cases, the strategy of mergers and acquisition has been used by a number of businesses to ensure they are in a better position to compete favorably as well as achieve their operational objectives. An example of a business that has implemented a strategic management approach to gain a competitive advantage is BHP Billiton that was formed as a result of a merger between BHP of Australia and Billiton of Britain in 2001. As a result of this merger, it is observed that the company was in a better position to manage its activities as well as meet challenges such as competition and diversify into exploration of a variety of minerals. This paper investigates the business strategies used by BHP Billiton to acquire a competitive advantage over its competitors in a number of ways. This involves investigation of the main strategic management concepts that were applied following the merger and acquisition, external environmental factors that affected the performance of the company and the nature of Australian mining industry, internal environment and how the company made use of this environment to gain a competitive advantages as well as the core competencies that the company had as a result of merger and acquisition. In addition, this paper investigates business level strategies, corporate level strategies, international strategies and merger and acquisition strategies that have resulted into competitiveness of the company in the industry in which it operates. It has also been suggested by the company that it will split into two. This paper provides a discussion of the areas that the company will need to focus on so that it acquires a competitive advantage. 2. External environment of BHP Billiton The main external environment factors that affect the operations and competitiveness of BHP Billiton include the oil industry in general, Australian mining industry and competitors in exploration of oil and gas (Davies 2000, p. 75). Other external environmental factors that affect the operation and sustainability of BHP Billiton include threats and opportunities. The general external environmental conditions that affect BHP Billiton include inflation rates in Britain and Australia. This is because; the inflation rates in these countries affect the price at which oil products can be sold by the countries. Another general external environmental condition that affects the operation of the company is trade deficits and surpluses. When there is increased trade between Britain and Australia, the countries’ economies improve and this creates a better value for the oil and gas products produced by BHP Billiton Ford, J. A., Steen, J. & (Verreynne 2014, p.94). Increased savings among Britons and Australians also creates a better condition for the company to sell its oil at a faster rate because most of the people have the spending power which makes them buy a number of oil and gas products produced by the company. Another general external environment is government regulations to trade and exploration of oil and natural gas in the country. This is because, when there are stringent policies to exploration of oil and natural gas, the companies involved can be discouraged from doing so compared to when these policies are less stringent (Frery 2006, p. 70). Another element of government regulation is taxes and tariffs levied on produced oil. This is because when taxes and tariffs are high, it has an impact on the ability of the company to profit from its explored oil and the company incurs more costs which affect its profits. Labor laws such as the ability of a company to seek external expertise affect oil and gas exploration companies such as BHP Billiton and the future success of the company. In addition, there are a number of competitors who compete for oil and gas exploration in a similar manner that BHP Billiton strives to become competitive in the activity. There are companies that have invested heavily on expertise training and capital acquisition in order to explore oil and process it into finished products (Hambrick and Fredrickson 2005, p. 138). Competitor companies compete with BHP Billiton in acquisition of depots, sales of oil products to the market and diversification in the provision of oil and gas products. Consequently, if competitors are more efficient in a particular area compared with BHP Billiton, there is likelihood that the company can lose its productivity and sustainability in oil and gas exploration. International oil trade is another external factor that affects the exploration and sales of oil and gas products by BHP Billiton. This is because, when there is a high international competition, the company cannot risk selling its oil and gas products in international markets because it can incur losses (Hamel 1996, p. 27). This affects its aggressiveness in the provision of these services and its competitiveness in general. However, there are also a number of opportunities that exist which makes BHP Billiton’s activities in exploration of oil and gas industry relevant in the future. For instance, the increase in demand for oil and gas products in activities such as automobile, plastics industry and fuels for domestic use is increasing with increase in world population (Hitt, Boyd and Li 2004, p. 204). This implies that the company has a better opportunity to market its oil and gas products in various parts of the world. 3. BHP Billiton’s internal environment There are a number of internal environment that affect the success of BHP Billiton in oil and gas industry. For instance, resources that contribute to the capability of the company include ability to raise enough capital as a result of contributions by both BHP and Billiton towards the activities of the company (Mintzberg 1996, p. 30). For instance, it is found that as a result of the merger, the company was able to increase its market capitalization from $28 billion in 2001 to $42 billion in 2003This implies that the merger is able to acquire sophisticated facilities and machinery which allow oil exploration with high level of efficiency and capabilities. These facilities also facilitate the process of processing oil and gas into finished products which makes the company compete favorably in the oil and gas industry (Porter 1996, p. 61). The company has consequently beaten its competitors by focusing on the shift towards a new strategy that has not been exploited by competitors. A capability that has resulted from the merger also includes the ability to form a large conglomerate of minerals and petroleum divisions which make it operate in a number of regions in the world. Core competencies include a number of employees who have high competences in various areas such as management, provision of survey services, and provision of manpower and procurement of facilities for oil and gas exploration. Another competency is that the company is a merger between BHP of Australia while Billiton is a British company, due to the merger process, it will be possible to trade between Britain and Australia because companies will enjoy partnership as w result of the merger (Porter 2008, p. 246). The act of merging the two companies will create the ability to exploit various markets in the oil and gas industry which will make it competent to improve the sales of oil and gas products to customers. Particularly, the company has been able to form a conglomerate of distribution networks which enable it operate in countries that are friendly to Britain as well as those that are friendly to Australia. The main issues affecting the company include cultural differences among employees of the company. Those from Britain would like their cultural practices affecting the merger while those from Australia will also want the same to happen to them (Slesky, Goes and Baburoglu 2007, p. 305). As result, there is a high chance that the merger could face the problem of split of its embers due to cultural and ideological differences. Another issue facing the company is the difference in policies which are used to manage oil and gas operations activities, thus affecting the unity of employees in the merger. 4. Strategies that have been used by BHP Billiton to enable it success There are a number of strategies that have been used by BHP Billiton to succeed in the oil and gas industry in Australia. An example of such a strategy is business levels strategies such as identifying the right consumers of its products so that marketing of its products are focused towards the needs of a particular groups of consumers. This gives the company a competitive advantage in minimizing costs of operation by eliminating unnecessary transport costs and administration costs in areas that are not relevant (Suddaby and Greenwood 2005, p. 55). The products have also been standardized to meet areas where high need among consumers has been observed. For instance, it has been observed that most oil products customer needs include the need for fuels for automobiles. Thus the company has enhanced production of various types of fuels to meet the needs of automobiles, trucks and aircrafts. The company has also ensured it maintains a better relationship with customers through communication and acting on customer complaints. The employees of the company have also been trained to be focused on meeting customer satisfaction and being friendly to customers (Bart, Bontis and Taggar 2001, p. 45). Costs of operation has also been reduced by reducing rates of performing activities that do not generate high profits for the company and production have been simplified so that little costs are incurred in production. Furthermore, the company has invested in the latest oil exploration facilities which enable it perform oil exploration with high chances of success. This gives it an edge over its competitors in the production and distribution of oil products. Another example of a strategy that has been used by the company is corporate level strategy. This is s state where a company establishes what it is supposed to be involved in and diversifies its operations from a single market to a number of products in various markets that involves a number of businesses. In the vase of BHP Billiton Oil Company, this has been achieved by not only focusing in oil and gas exploration to the exploration of copper, coal, ferro-alloys, iron ores, nickel, diamond, and silver (Davies 2000, p. 153). This has resulted into the company becoming a market leader in the area of operation in which it is involved. Stability strategy has been achieved by using its resources in a manner that does not result into any loss in the future operations of the company. Vertical integration strategy has been implemented by focusing on the mining areas apart from only focusing on oil and gas exploration. In addition, merger and acquisition strategies have been used by the company as is illustrated that there was a merger between BHP of Australia and Billiton of Britain. This resulted into a number of advantages, such as increased market power such as the ability of the company to control a better part of oil and gas market power in the world. The company has also been able to enjoy large economies of scale by operating in an area where it has dominance over its competitors as well as provides differentiated products (Ford, Steen and Verreynne 2014, p. 38). Furthermore, the company has cross-border acquisitions and thus, a number of branches in 20 countries in different parts of the world. This gives it a better opportunity to distribute its products to these branches and improve its sales. The company has also been in a position to learn new capabilities from Billiton of Britain which gives it a better opportunity to remain competitive in oil and gas industry. For instance, competent staff from Billiton can impart skills to those of BHP thus improving their competence without much cost. International strategies have also been used by BHP Billiton to achieve success in the oil and gas exploration and sales in various ways. For instance, the company has operating 20 branches in different countries in the world. This creates s competitive advantage in provision of oil and natural gas products as well as mineral products. The staff of the company has been able to deal with a number of cultural differences that affect the operation of the company in an internal activity (Frery 2006, p. 247). Thus, they are able to come up with solutions to challenges in international operations. The main international strategy that has been preferred by the company is transnational strategy. This is where a company opens branches in other countries but deploys its employees into those branches and thus, has control over the branches. However, the company has always selected countries where the demand for its products and services is highest, where it is not possible to produce its products in particular locations or when there is the need for a strong central control in order to manage the activities of the company. 5. Assessment of BHP Billiton’s decision to split the company into two I would like to disagree with the new direction of BHP Billiton because the company has established itself in production of oil and gas products. Consequently, it has established a brand name which provides it with a competitive advantage to operate in the industry. If it opts to split into two, there will be uncertainty about the area of operation that the company focuses on. This will discourage customers from seeking its products. Furthermore, as a result of the current merger, the company has a better capital capability which enables it acquires the latest machinery and resources for oil exploration. If the company splits, this capability will be lost. In addition, it will incur addition costs in the process of trying to market itself after split. If split is not affected, such costs can be avoided. Consequently, I would suggest that the company should not split into two. 6. Summary of the case and recommendations This paper shows that BHP Billiton has been able to achieve success in the oil, gas and mining industry as a result of merger and acquisition. This has been contributed by increased capital capability, cost reduction measures and market strategies that allow it to diversify into mineral exploration. It is found that the main external environmental issues that are likely to affect the company include inflation rates, government regulations, competitors and opportunities such as an increase in demand for oil products in various parts of the world. The main internal conditions discussed include resources that create competence, employee competence and cultural factors. It is recommended that BHP Billiton should focus on its vertical integration strategy and diversify the provision of oil and gas services as well as mineral exploration. Additional investments should be made to enhance the performance of this area of operation. Employees of the company should also be provided with training in order to improve their competence in the industry in which BHP Billiton operates. When these recommendations are considered, it is hoped that BHP Billiton will be able to operate successfully and improve its profitability. References Bart, C.K., Bontis, N. & Taggar, S. 2001. A model of the impact of mission statements on firm performance, Management Decision, vol. 39, no. 1, pp. 19-35. Davies, W. 2000. Understanding Strategy, Strategy & Leadership, vol. 28, no. 5, pp. 25-30. Ford, J. A., Steen, J. & Verreynne, M. 2014. How environmental regulations affect innovation in the Australian oil and gas industry: going beyond the Porter hypothesis. Journal of Cleaner Production. Frery, F. 2006 The Fundamental Dimensions of Strategy, MIT Sloan Management Review, 48(1): 71-5. Hambrick, D. & Fredrickson, J. 2005. Are You Sure You Have a Strategy?, Academy of Management Executive, 19 (4): 51-62. Hamel, G. 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