BHP Billiton Strategic Management - Case Study Example

Case Study: BHP Billiton and Strategic Choices Name Tutor Date Case Study: BHP Billiton and Strategic Choices Introduction This article analyses the fundamentals of strategic management. Essentially, the paper examines the leadership of BHP Billiton in regard to the management practices as well as their longevity. With respect to the contemporary business environment, which are basically characterized by stiff competition, globalization, technological inventions, innovativeness and emerging trends in marketing among other factors, it is very critical for business organizations to examine their core management techniques. The strategic management refers to actions and decisions that are undertaken by firms to enable sustain their existence in the highly competitive environment. The analysis highlights the strategic goals of the organization with regard to both internal and extern al environments as well as the objectives, the vision, mission and values of the organization. BHP Billiton’s Core strategic Management Concepts The major strategy of BHP Billiton is based on diversification. Diversification refers to the strategic expansion of the scope of an organization to involve wide range of products. Santarelli and Tran (2010), observe that product diversification refers to the exploration of new markets through provision of new products. In other words, according to Froot and Jeremy (1998), diversification entails the degree to which firms are willing to be involved in new markets. It can also mean the readiness to add products that are either related or similar to the ones in the markets. This can be strategically achieved in two ways which include revaluation of the production processes to enhance generation of new products or services. Basically, this entails elevation of the managerial competencies that are in place. At the time of merger in 2001 both BHP, one of the key players in Australia’s mining and oil industry and Billiton, a UK based mining company, combined their board of directors to form a strong conglomerate of leadership. Under such circumstance, it is noteworthy to observe that the managerial competencies of the subsequent merger were highly enhanced. From the BHP Billiton’s 2014 Strategic Report, it is well articulated that the aim of the company is to provide diversified low cost products, to explore diverse markets and wide range of geographical settings. In order to plan their activities so as to enhance achievement of these objectives, the company requires streamlining its operations. Such alignment enables correspondence between the production processes and the organizational goals (Prahalad and Gary 1990). BHP Billiton ensures that they work towards the achievement of these goals by ensuring that every aspect of the organization is matched with their intended outcome. The company acknowledges that the demands of their consumers are ever changing. As such, they ensuring that they have diversification portfolio that meet such changing demands. For instance, the company hires employees who are diversification focused. The diversification strategy is often faced by some challenges (Vannoni 2000). It is a common knowledge that as a much as a business organization may be successful, there is no guarantee that it will definitely succeed in every venture it pursues. In addition, this strategy is severely threatened lack of or shortage of infrastructure. This implies that diversification requires additional resources which may escalate to the point that it compromises the value of the venture (Gordon 2007). It is evident that as a result of the diversification strategy, the BHP Billiton requires additional resources amounting to $U2.6 billion annually in costs to sustain their profitability (Bart Bontis and Taggar2001). Another key management concept that is prevalent in the case of BHP Billiton is the strategy formulation. Strategy formulation basically refers to the ideology of developing certain actions that enhance achievement of organizational objectives. The primary purpose of strategy formation as a management strategy is to the profits of the organization (Iacobucci and Rosa 2005). One of the major ways of maximizing profitability is through lowering the cost of production. On this note, it is observable that BHP Billiton merger employed strategies that resulted in the reduction of the operation cost. As a result, the company saved the resources that would have been lost in the production process amounting to $285 million exceeding the targeted amount of $270 million. In addition, this strategy enabled the company to elevate its market capitalization from $28 billion I 2001 to $ 42 billion in 2003. This success enabled the company to outperform its strong competitors. External Environment Factors One of the critical roles of board of directors in strategic management is monitoring the performance of an organization. Hunger and Wheelen (2012) argue that as each country has unique social factor that pertain to geographical settings, there are several potential environmental factor that have significant impacts on the operations of a business. BHP Billiton is a multinational resource company. In addition to this, its management strategy, which is essentially centralized on diversification, make the company susceptible to political forces in the various international markets it explore (Murphy, Trailer, and Hill 1996). Political factors are the vital determinant of the organizational performance in a given market setting. It affects organizational operations in terms of the ease or complexity associated with obtaining the license to operate and running pipeline projects (Frery 2006; Rauch and Trinade 1999). Mining industry is the most regulated sector by environmental bodies in various economies. The players in the industry are greatly influenced by various environmental policies that are put in place by environmental conservationists (Hitt, Boyd & Li 2004). For instance, BHP Billiton is subjected under the regulations of various regional and global environmental bodies such as the Kyoto Protocol of 1997, the Asia-Pacific Partnership on Clean Development, Climate and Clean Emission and the European Union Emission Trading System (EUETS) (Davies 2000). BHP Billiton dominates almost every market it operates in. This impressive performance stems from the strong brand image of the company. Over the last decade, the firmly established itself in the mining industry to become a renown company that has diverse portfolio of assets. The diversity management strategy enables the company to have wide customer base (Luo 2002). This strategy places the company in a strong market position. Due to this reason, the company has realized superior financial performance. The company’s growth and development is also thwarted by a number of significant weaknesses. For instance, there are significant elements that point out that the company is at the verge of human resource challenges. From the company’s 2014 strategic report, it can be seen that the company strategically targets to recruit employees who share their goals and ambitions of diversity (Morris & Hyun 1999). The problem is getting a perfect workforce that exactly suits the needs of the company. This factor forces the company to employees who are not qualified enough and hardly corresponds to the objectives of the company so as to match its fast growth. Internal Environmental Factors The company has strong leadership that formulates strategies that steer the company to its growth. At the point of merger, the boards of director of the respective companies were not dissolved. Rather, they were merged were conjoined to form one strong set of leadership structure that share common goals and objectives. This has significantly contributed to success of the merger. The company also has vast number of resources. The merger resulted in a large pool of resources which since the time of its inception it has used to expand its operations beyond geographical realms. The large pool of resources has enabled the company to gain competitive advantage over its rival by enabling the company to establish itself strongly in the market. By holding strong position in the market, the company effectively dominates the other players in the markets in which they operate (Slesky, Goes, & Baburoglu 2007). The company uses its large pool of resources to form large conglomerate of minerals and petroleum divisions to outdo competitors. This aspect results in constant stream of diverse revenue (Nasser 2014). The company has international distribution networks that most of the close rivals can hardly achieve. Besides the geographical expansion, the company has effectively expanded the products it offers. Due to this reason, the company has realized more sales which in turn translate to better economies of scale. In other words, this implies that the company has uninterrupted financial flows. Implementation Strategies A critical evaluation of both the external and internal environments of the company highlights some vital elements that have significantly elevated the performance of the company. These factors can also be referred to the company’s key success factors. One of the strategies is exploration and development. As mentioned earlier, the company has a wide range of customer base with diverse backgrounds. Such large customer base constantly demands efficient and cost effective supply of products (Suddaby & Greenwood 2005). In addition, the products must be of high quality and should be delivered in a timely manner. In order to make these possible, the company has built and sustained quality products that satisfy the standards of international product portfolio. Mining industry is one of the critical sectors of economy with regard to environmental conservation. Every stakeholder in this case is concerned with how the players in the industry treat environmental issues such pollution and environmental degradation. It would be very fetal for the company to overlook their environmental responsibilities. As a result, the second strategy that has been implemented by the company which significantly steered it towards growth and expansion is sustainable development. In this case, it is important to note that at the time of merger, the company adopted the strategies of the constituent companies. One of these strategies included operation with high regard for the communities and environments in which they operate. Sustainable development is at the core center of every organization (Price Water Coopers 2014). For BHP Billiton, sustainable development is taken refers to the protection of natural environment. The decision to Split the Company The alleged restructuring of the organization that would eventually result in the demerger of the company is inappropriate for the success and development of the company. It has been pointed out that the decision to merge the two companies was undertaken at a time when the individual constituents had matured and had begun to decline. At this particular point, the merger was very critical since it saved the constituent companies from cynical instabilities in both cash flows and sale revenue. Porter (1996) observes that one of the disadvantages of the demerger is that it will reduce the scope of the individual companies. This implies that the products that are offered by the individual companies will significantly reduce as opposed to when they stay together. Competitive advantage is one the valuable instrument of the synergies. It is arguable that the BHP Billiton has enjoyed success by creating a strong competitive environment that that is far much beyond the scope rival companies. Therefore, splitting the companies would deprive the companies this privilege and expose them to unhealthy competitions. According to Price Water Cooper (2014), companies with alliance operate efficiently compared to companies that operate in solitude. List of 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. BHP Billiton Annual Report, 2014, Value Through Performance. Accessed on April 14, 2015, from Davies, W. (2000). Understanding Strategy, Strategy & Leadership, vol. 28, no. 5, pp. 25-30. Frery, F. 2006 The Fundamental Dimensions of Strategy, MIT Sloan Management Review 48(1): 71-5. Gordon, J.L 2007, Strategic Options. Accessed on April 14, 2015, from Froot, K.A. & Jeremy, C. S 1998, “Risk Management, Capital Budgeting, and Capital Structure Policy for Financial Institutions: An Integrated Approach.”Journal of Financial Economics 47(1), 55-82. Hunger, D. & Wheelen, T. L 2012, Essentials of Strategic Management. Accessed on April 14, 2015, from http://biotechconsultancy.net/files/news/management/Strategic-Management-Essentials.pdf Hitt, M., Boyd, B. & Li, D 2004, ‘The State of Strategic Management Research and a Vision for the Future’, Research Methodology in Strategy and Management, 1: 1-31. Iacobucci, D. & Rosa, P 2005, “Growth, Diversification, and Business Group Formation in Entrepreneurial Firms,” Small Business Economics, 25(1), 65-82. Luo, Y 2002, “Product Diversification in International Joint Ventures: Performance Implications in an Emerging Market,” Strategic Management Journal, 23(1), 1-20. 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Santarelli, E. and Tran, H.T 2010, Diversification Strategies and Firm Performance: A Sample Selection Approach. Accessed on April 14, 2015, from Slesky, J., Goes, J. & Baburoglu, E 2007, ‘Contrasting Perspectives of Strategy Making’, Organisation Studies, 28(1): 71-94. Suddaby, R. & Greenwood, 2005, ‘Rhetorical Strategies of Legitimacy’, Administrative Science Quarterly, 50: 35-67. Vannoni, D 2000, “Diversification, the Resource View and Productivity: Evidence from Italian Manufacturing Firms,” Empirica, 27(1), 47-63. Read More