BHP Billiton Management - Case Study Example

BHP Billiton Name Course Instructor Date Business Description Since its inception in 1885, BHP Billiton has gained recognition as one of the most profitable natural resources company in the world. The merger between Billiton and BHP gave rise to BHP Billiton. The merger was concluded on June 2001, and played a critical role of enhancing synergy and efficiency of the firm. Today, BHP Billiton is one of the largest natural resources company having undergone transformation mergers. This natural resource company has its headquarters based in Australia and has several branches in around 13 countries throughout the globe. The company has also emerged as the largest tax payer in Australia. Worth noting is that BHP Billiton faces competition from other minerals and oil companies, including Alcoa Inc, Vale S/A, Glencore PLC and Rio Tinto Limited. For this reason, BHP Billiton has employed various competition weapons including revising the coal prices downwards, richly diversified asset portfolio, workforce diversity, horizontal integration (potash and shale), creativity and innovation among others. Company products BHP Billiton is involved in the exploration, advancement, manufacture, processing, and marketing of minerals. The company deal with iron ore, energy coal, manganese, copper, metallurgical, aluminium, uranium, gold, potash, and exploration and production of conventional gas and oil. BHP Billiton operates through segments, including petroleum, copper, coal, and Iron ore. The Petroleum and Potash segments are involved in the exploration development and production of petroleum products and potash re-development. On the other hand, copper segment is engaged in mining gold, uranium, molybdenum, lead, zinc and copper. The coal segment mines thermal energy and metallurgical coal, while Iron Ore segment mines iron ore. Management In the management of BHP Billiton, planning in one of the major roles performed by the senior management (Thompson & Macklin, 2009 p89). It is the main actions that support the operations of the company’s daily running. As stated by Thompson and Macklin (2009, p90), planning is a recognised approach whereby an objective or aim is positioned and after that an approach is organized to accomplish that objective. Planning also serves as an assortment for the provision of organization or BHP Billiton resources. High standard planning helps the corporate, and its administrators set a mark through which they assess their performances and that of their human capital. In BHP Billiton planning is a sensible strategy through which the company set its goals. BHP Billiton has extensive policies and programs which warrant the establishment maintain a culture led by high standards of ethical conduct and a culture that safeguards the interest of the community. The determination has led to BHP Billiton recent achievement of the highest ratings for the company under the recent global index of the public company. BHP Billiton had an excellent rate of 4.4 out of 5 in the FTSE4 Rating scheme. BHP Billiton uses sustainable development management approach which is mainly rooted on the current sustainable business management plans which heavily support environmental concerns. Hubbard & Moore (2012 p78) notes that sustainable development focuses on human development goals and at the same time sustain continued ability for natural systems. The company’s corporate governance guidance is structured within several formal policies ranging from corporate governance, company’s constitution and the memorandum around the workplace. The employees BHP Billiton also implement various incentives schemes. The success of the company’s policies and plans are largely accountable in maintaining a strong strategic position in the industry. BHP Billiton has utilized complete structured approaches that help in selecting a grand strategy in carrying out its corporate objectives. Focusing on product development has allowed BHP Billiton to continue building on the founding tenants. This has provided BHP Billiton with a competitive edge over its rivals in the highly competitive natural resources industry. BHP Billiton has a good reputation of effective marketing in major global regions. Information Technology Strategy The process of incorporating IT to the business management strategies is one of the main functions of BHP Billiton’s senior leadership team. The company has incorporated IT in its running and management system which has enabled it to join a wide assortment of transactional activities, including the procurement, accounting, risk management, and contract management. When managing contracts, BHP Billiton can effectively bid and attain a contract. The inclusion of the IT has made it easy for the management to capture data from all its branches. The company has also established a system that eases search for more resources and diversifying its operations. Outsourcing and recruitment of new staff is another aspect that has experienced improvement due to accelerated processes. The management of financial and economic activities have been made simpler through superior IT systems. Competition The main competitor of BHP Billiton is Rio Tinto. The company has recently developed through organic growth and acquisitions to become almost 60% the size of BHP Billiton. Both establishments are large producers of iron ore, steel, and diamonds. The business activities between the two companies differ in terms of variety of products they deal with because Rio Tinto is highly diversified in the range of minerals it exploits. The company produces gold and silver in large quantities. BHP Billiton, on the other hand, has maintained a growing oil and gas commercial. BHP Billiton Risk Factors The company has several risk factor that include external risks, business risks, financial risks, and operational risk (Barnes et al., 2012 p231). External risks comprise of fluctuations of commodity prices and the continuing global economic volatility, reduction in Chinese demand, and fluctuation of currency exchange rates. Business risks include; likely change to the company’s portfolio of assets through divestments and acquisitions; and failure to acquire new resources, develop new operations, or maintain the existing resources. BHP Billiton financial risks include complications in recovering the investments in mining petroleum products due to dynamic industry structure and price of commodities, and decrease in liquidity and cash flow due to major capital programs that are funded. Lastly, the operational risk that BHP Billiton may face are cost pressures and reduced productivity; safety, environmental, health, and community issues along with the regulation issues that may affect the company’s reputation. Other operational risks are sustainability risks, reduced productivity, and cost pressures. Financial risk Management Strategy According to Mackenzie, Coetsee, Njikizana, Selbst, Chamboko, Colyvas and Hanekom (2013 p67), the financial risks faced by company comprise of liquidity, and credit risks. Such risks rise in the regular cause of the business. The company manages its disclosure through its multifarious risk controlling strategy. The fundamental aim of this approach is to support the delivery of groups financial targets, and at the same time, protect the future monetary security by taking advantage of natural development provided by flexibility and the nature of business activities. Mackenzie et al. (2013 p67), also notes that Cash Flow at Risk Framework is fundamental in coming up with total and spread impact of financial threats upon company’s financial objectives. The primary extent of Cash Flow at Risk Framework is measured on principal basis defined as contemptibly projected loss compared to the anticipated corporate cash flows. BHP Billiton Risk Exposures The company market risks include the movements of foreign currencies, interest rates, and prices of commodities. Other forms of risks are liquidity risks and credit risk. Market risk management The company’s activities expose BHP Billiton to market risks that are associated with the dynamics of the interest rates, changing commodity prices and fluctuation of foreign currency. The risk mitigation measures taken by the company include; execution of transactions within the scheduled mandates. The move helps on exceptional basis i.e. when the company is hedging for the purposes of extenuating risks associated to expenditure on investments or capital projects. When the company is making strategic financial transactions there may emerge opportunistic transactions. The financial instruments may aid in capturing over and undervaluation. To stop over and under valuation, the company approves execution of transactions within the sanctioned mandate. Employees The strategy of BHP Billiton is always having power over and occupation massive, economical, durable, and flexible, upstream assets. The company also endeavour to have a diversification of products, regions, and market. Such is a strategy that has been in force over several decades and has empowered the company to have high profit margins and product cycles. To achieve the above objective, the company has designed a diversified workforce that reflects the values of the communities in which they operate. The company hire employees from mass communities to draw attention from high quality people work are able to work under immense pressure and give maximum output. The company has also put in place measure to boost their employee’s satisfaction and work condition through provision of risk allowances, health insurance, medical covers, education allowance, pensions, accommodation, and commuter benefits. All these kind of incentives help the workforce to work in stable situations that support them to increase on their productivity. The human resource department of BHP Billiton depends entirely on a good remuneration strategy. The remuneration strategy determines the status of a business in the society in terms of its success. Remuneration strategies play an important role in creating a highly competitive, performing and innovative environment. The strategies provide an entrepreneurial feeling that tends to attract, motivate and retain workers with unique professional abilities in the company. Remuneration strategy inculcates guidelines through the implementation of a philosophy to achieve success. It defines the important priorities in the human resource department. Income statement According to BHP Billiton Group Market line (2016), the natural divergence in BHP Billiton’s portfolio of commodities, currencies, geographies, assets, and liabilities are fundamental elements in the company’s risk management approach. Financial ratios In reference to the company’s financial statements, the present ration of the business has elevated compared to its competitors. This is an apparent indication of the cash flow strength since it can go aboard of short-term projects without financial strain. Balance sheet All properties under the possession on BHP Billiton are part of the establishment’s books. They include the three types of assets i.e. fixed assets, current assets, and others with comprise of advances, and intangibles. BHP Billiton total assets amounted to 124.58B by the time the balance sheet was drafted. The company’s liabilities comprise of long-term loans, short-term loans that are provided by the company to fund its everyday operations. The total liabilities as at the years ended 31st Dec 2015 was 54.04B. Bibliography Barnes, T., Peck, J., & Sheppard, E. 2012. The Wiley-Blackwell Companion to Economic Geography. Chichester: Wiley-Blackwell. BHP Billiton Group Market line. 2016. BHP Billiton Group. Find Articles, E-books in One Search. Retrieved April 12, 2016, BHP Billiton to expand Australian coal mine. 2009. Pump Industry Analyst, 2009(8), 4. Hubbard, T., & Moore, M. 2012. BHP Billiton: Mining Potash. Mackenzie, B., Coetsee, D., Njikizana, T., Selbst, E., Chamboko, R., Colyvas, B., & Hanekom, B. 2013. Wiley Ifrs 2013: Interpretation and Application of International Financial Reporting Standards. Thompson, P., & Macklin, R. 2009. The Big Fella: The Rise and Rise of Bhp Billiton. North Sydney: Random House Read More