Strategic Analysis: British Petroleum - Case Study Example

Introduction This paper examines the elements of business and corporate strategy employed by British Petroleum in their quest to attain improved results through a new and a better strategy that incorporates Economic, Social and Environmental Factors. In order to attain proper results, a firm will need to capture market share in the industry by maintaining their competitive advantage. Competitive advantage is attained by taking control of the firm’s resources and using it to position the organisation in the business environment in order to attain the best results. Section A of the paper will focus on the competitive environment of BP and how these strategic matters affect the industry. In Section B, the internal analysis of BP will be conducted and this will include the presentation of various tools to evaluate the internal competencies and internal structures for the company. Section A The environment within which BP operated in the period under review can be classified on the grounds of evaluating the external framework, intermediate (industry) framework and the internal structures of the business. These different structures provide a basis for the formulation of an appropriate strategy for BP within the business environment and its circumstances. External Environmental Analysis In order to position an organisation, there is the need for a critical review to be undertaken into the factors and elements of the general business environment within the economy that a firm operates (Bensoussan and Fletcher, 2012). In order to do this, an analyst must examine the Political, Economic, Sociological, Technological, Environmental and Legal (PESTEL) factors of the nation and global region within which a firm is to operate (Kornberger, 2011). In the case above, there are some factors that are relevant in addressing issues related to the United States and the global economy within which the petrochemical industry operates. Political Politically, it appears that the elements of international agreements including the Kyoto Protocol and other legal arrangements relating to the United States government and the carbon emissions policies influence the supply side of the industry within which BP operates (Kutney, 2010). This determines demand as well as research and innovation tendencies for BP and other entities in the industry. In practice, the federal and state rules and regulations define the demand and scope of the production and consumption of energy products. However, this default position of the US government authorities is strongly influenced by the power of environmental groups like Greenpeace, WWF and other entities that lobby to change rules and regulations relating to the industry. Economic The main economic systems and processes relating to the energy market involves the petroleum flow and the petroleum prices which are influenced by the elements of demand and supply. This is obviously influenced by peace in the Middle East. However, the cost of acquiring clean fuel is a fundamental concern that rules the industry that BP operates within. This is because it determines investors and consumers attitudes since demand seem to be relatively stable. Sociological Awareness about environmental consciousness is growing in the US and around the world. The growth of the medias influence is strong and it keeps shaping the relationship between the petrochemical industry and the wider society. This has caused people to build a taste for clean and responsibly-sourced fuel. Technological The demand for clean fuel has caused major players in the energy sector to invest in researching and producing clean fuel. This has caused major entities to research into better production methods and manufacturers have also moved towards producing more energy responsible products. The move towards renewable energy is also common in todays world. Environmental Environmental management is now an important part of the energy industry. Every energy company finds ways of reducing its environmental footprints because of the high numbers and growing influence of pressure groups and energy entities. Legal Laws have been made about health and safety. The triple baseline system has been put in place to require firms to report on their environmental footprints. The possibility of litigation has made it more desirable for firms to take reasonable steps to protect the environment, community and workers in areas that they produce in. Firms are required to take the most reasonable steps to prevent spills and other leakages that can affect flora and fauna. It is clear that BP is in an industry which is sensitive to environmental matters and environmental situations influence the economic and sociological components of the industry. Hence, there is the need for BP to build on its "Beyond Petroleum" strategy by focusing on environmental management. This is because environmental concerns and environmental footprints are factors that influence political policies and other economic variables like demand and efficiency levels. Hence, it is important for BP to maintain a strategy that has environmental management at its heart. As it stands now, there is the need for BP to examine its failures in the "Beyond Petroleum" strategy it put in place. These failures must be addressed and the achievements the firm has made must be consolidated. Porters Five Forces Porters Five Forces is a tool used to study and examine the competitive trends in a given industry. It is used to examine the main players in the industry who are and can potentially become competitors in a given industry (Porter, 2008). This shows the boundaries of possible competitors who can determine trends in an industry and it includes the identification of: 1. Risk of entry by potential competitors; 2. Bargaining power of buyers; 3. Bargaining power of suppliers; 4. Closeness of substitutes to the industry; 5. Competitive rivalry in the industry (Hill & Jones, 2012) In the energy industry that BP operates, the risk of entrance by potential competitors is relatively low and almost negligible. This is because the industry is a capital intensive one. And it will take a lot of effort for an organisation to pool resources to become a major player at the level of BP. Hence, the potential for new competitors to enter the market, particularly in North America is minor and will demand a lot of effort. The bargaining power of buyers is also minimal. This is because BP produces fuel for a large number of small consumers who acquire the fuel and energy in small quantities. Since the industry is capital intensive, these small entities sourcing fuel cannot easily grow and enter the energy research, exploration and production industry to compete with BP and its close competitors. Bargaining power of suppliers include the possibility of entities that supply to BP to consolidate and become competitors. This is because BP and similar entities source from many entities including labour, capital and other factors. Hence, this is also negligible. Closeness of substitutes is however a real threat. This is because there are many small entities that are conducting research into cleaner fuels and renewable energy like sunshine. Hence, these substitutes provide a major and realistic threat that can influence a firm like BP. These are normally small entities that are growing independently and can get the support and assistance of various entities like governments and other pressure groups. Competitive rivalry refers to the competition of firms within the same industry. In the case of BP, the obvious competitors include Exxonmobil, Shell and other entities like Saudi Aramco. These are multi-billion dollar entities that operate over a large scope of affairs and activities. They target the same markets which include energy and fuel distribution firms and wholesalers who seek to sell conventional fuels to consumers on a large scale around the world. From this analysis, it is important for BP to examine the emerging trends relating to substitutes. This is because they can potentially modify the competition and even render the current industry BP operates within obsolete. Hence, they must watch out for innovations and try to review their positions as regularly as possible. BP must also examine the competition from its rivals in the industry. This must include examining where they are expanding to and reviewing their position in relation to these changes. This will involve careful reviews of plans and strategies in order to remain competitive in the industry. Market Structure From the facts of the industry discussed above, it is apparent that BP and its direct competitors (viz Shell, ExxonMobil and Saudi Aramco) are operating in an industry where they are highly distinguished because the industry is very specialised and it has huge capital requirements to maintain a viable business. This makes the industry an oligopolistic one. This is because there are few businesses operating in this highly distinct industry. Hence, BP is operating with a few competitors. Industry Life Cycle Industry life-cycle involves the classification of the relationship between players in a given industry, their products and the markets and this seeks to show the level of acceptance that consumers grant to these products (Stark, 2011; Press, 2012). This includes the following stages: 1. Introduction 2. Growth 3. Maturity 4. Decline Figure 1: Industry Life Cycle The characteristic of the introduction phase involves the early years of the introduction of a given industry and it involves fast growth in demand for the products. In the case at hand, BP and the energy industry have a history that goes back into the 1930s when American explorers sought better means of acquiring energy through the use of hydrocarbons to replace coal and other methods that were somewhat limited in mobility. Therefore, the introduction level of the energy industry in question is long gone. The growth level of the energy industry BP operates in can be said to be the period after the Second World War to the year 2000 where a lot of people acquired cars and economies grew at a fast pace around the world and needed huge volumes of fuel and energy. However, at the maturity phase, this growth slows down and the industry becomes choked. In this situation, it appears that the energy industry that BP operates within is at the maturity stage. This is because from all evidence, it appears that people are looking for new methods of generating energy. This explains why the pressure groups and environmentalists are arguing against firms like BP. This is therefore a sign that BPs industry is heading towards a period of decline and this will mean BP will either have to diversify and/or find new niches to produce in order to survive. Conclusion The business environment within which BP operates is one that is strongly influenced by the elements of environmentalists and environmental awareness. In order to survive, BP will need to take reasonable care to go through the right channels in order to attain the best and most optimal results in the existing market. Generally, competition is not so rife in the industry. The real competition that threatens BP is the fact that there are some firms about the size of BP that operates in the petroleum industry. However, there are also threats of substitutes that makes it difficult for BP to operate in the industry and attain results. Therefore, BP will be in the best position by seeking to diversify its operations and also improve its service offerings. Section B Internal analysis is an important and vital part and aspect of strategic analysis. This is because it provides the basis for the identification of the firms internal competencies and abilities. This allows a firm to formulate a strategy that utilises all the possible strengths it has and also eliminate its weaknesses. VRIO/VRIN Analysis VRIO (now VRIN) is a tool meant to deduce the sources of competitive advantage in an organisation (Sanchez and Henee, 2012). It deduces the main things and factors that make a firm unique and distinct from other firms in the industry and this helps to identify the internal strengths of the firm and improve it (Peng, 2013). The Variables are Value, Rarity, Imitability and Organization. Value The main value that BP renders to the society is the ability to take energy resources from the ground and generate energy for consumers around the world. This helps people to power machines like cars and other household utilities. The value they bring together include the tapping of natural resources including petroleum and other things in the most report parts of the world like Alaska. This helps people to attain their main and fundamental ends. Rarity BP is able to go into the most distant parts of the world including the developing world and other wildernesses to tap natural resources, transport them and process it appropriately for consumption. This is something that BP and a few of its closest competitors can do at the scale at which BP operates. As a means of differentiating its efforts, BP introduced the "Beyond Petroleum" as a pioneering effort to respond to the demands and expectations of pressure groups and environmentalists. This sets BP apart from other entities. Imitability In general, BPs processing of energy is one that cannot be easily imitated or copied by firms except its closest competitors. The Beyond Petroleum arrangement of BP is unique, but it can be copied and even improved by its competitors. Technically, all the other competitors in the industry had similar arrangements. But they had modified them. It is therefore possible for BP to go further and develop new trends and processes in its Beyond Petroleum arrangement. Organisation So far, it appears that BP has not been able to exploit its Beyond Petroleum arrangement convincingly. This is because it has come under criticism in relation to the following: 1. Economic opportunism; 2. Cover up 3. Spills and accidents 4. Failures to meet principles of best practice These issues provide some degree of weaknesses that has plagued the Beyond Petroleum arrangement. Although the arrangement is a propitious sign and provides the impetus for competitive advantage, it has serious deficiencies and weaknesses that need to be addressed before some improvement can be made to it. Stakeholder Analysis The Ashbridge stakeholder model seeks to integrate the views and expectation of stakeholders into the mission and vision of an organisation (Moran and Riesenberger, 2013). From the approach, it appears that the concept of Beyond Petroleum presented by BP did not really seek to integrate different elements and ideas of thoughts in the companys affairs. First of all, the purpose of Beyond Petroleum seemed to be confused. This is a weakness because it seems to reflect an approach towards presenting a positive image of the company to stakeholders in order to attain economic benefits. It ought to be more social and more environmental in output. Hence, the economic features need to be eliminated in favour of a more realistic and meaningful approach to dealing with the issues at hand. Beyond Petroleum does not seem to permeate the strategy and values of BP. This is because it was introduced in a way that makes it somewhat distinct and unique from the fundamental strategy of BP. This failed to influence the behaviour of BP and modify its character towards a more socially and environmentally responsible firm. In order to improve, BP will need to centralise its environmental policy and find ways of improving the operations of the firm in order to integrate social and environmental responsibility in all aspects of the firms operations and activities. This will include re-drawing the environmental plans and consulting all the stakeholders to take their views before drafting a new environmental theme. With this background, BP can create a workable strategy that is within the context of environmental standards and targets that can be put together to guide practice. Sustainable Competitive Advantage Sustainable competitive advantage involves attaining competitive advantage and holding on to that competitive advantage into the foreseeable future (Chaston, 2012). Focus is central in maintaining sustainable competitive advantage because a firm will have to identify a particular niche to operate within and try to develop the best techniques and tools to provide the best interest of these consumers over a long period of time. Porter identifies three main tools of attaining sustainable competitive advantage and this includes: cost leadership, differentiation and innovation. BPs industry gives room for differentiation and innovation in its environmental strategy and production systems respectively. Differentiation will include maintaining an environmental strategy that is unique and distinct and causes BP to become one that is sensitive to the environment in all its operations and activities. Innovation will include specialising in cleaner and more responsible energy types like solar energy. This will produce better energy systems and also create an environmentally responsible fuel production system that can help consumers. Resource/Mark Based From the case analysed, it appears that BP will have competencies that can be questioned if it continues to go into new production sites without taking reasonable care to improve their control of technology. If BP is able to pioneer good technology and good production systems, these will become resources that can be used to their advantage. This is because a breakthrough in the production of cleaner fuels and/or solar energy will give BP the right to produce and replicate technology that will bring her royalties. This will help BP to develop a strategy that can improve and enhance their competency over a long-term horizon. A resource based strategy is one that links the competitive advantage of the firm in order to create a sustainable corporate strategy (Johnson et al, 2012). So far, the value of BP which includes helping people on a massive scale by providing them with their energy needs enables BP to attain some kind of competitive advantage. Their attempt to make sustainability a direct and important aspect provides the basis for the formulation of their strategy and an appropriate system. In order to attain results, there is the need for BP to align its source of competitive advantage - environmental responsibility to the different aspects and different elements of their operaitnos. This will be done by integrating the environmental responsiveness of BP into all aspects of its operations. This will be done in a way that will enable all stakeholder concerns to be integrated into the affairs of BP. Also, BP will be able to represent all aspects of their affairs and operations into their environmental framework by improving upon lessons already learnt in order to attain and retain competitive advantage over a long period of time. References Bensoussan, B, E. and Fleisher, C. S. (2012) Analysis without Paralysis New York: FT Press Chaston, I. (2012) Strategy for Competitive Advantage London: Routledge. Johnson, G, Scholes, K. and Whittington, S (2013) Exploring Corporate Straetgy London: McGraw Hill. Hill, C. and Jones, G. (2012) Strategic Management Theory: An Integrated Approach Mason, OH: Cengage Kornberger, M. (2011) Strategy: Theory and Practice New York: FT Press Kutney, G. (2010) Carbon Politics and the Failure of the Kyoto Protocol London: Routledge Moran, R. T. and Riesenberger, J. (2013) The Global Challenge: Building the New Worldwide Enterprise London: McGraw Hill Peng, M. (2013) Global Strategy Mason, OH: Cengage Porter, M. E. (2008) Competitive Strategy New York: Simon and Schuster Press, J. (2012) A Life Cycle for Clusters? London: Springer Sanchez, R. and Henee, A. (2012) A Focused Issue on Identity, Building and Linking Competency London: Emerald Group. Stark, M. (2011) Product Lifecycle Management London: Springer Read More