Managing for Competitive Advantage: Exxonmobil - Case Study Example

MANAGING FOR COMPETITIVE ADVANTAGE: EXXONMOBIL by Introduction The management of internal activities at a firmor organization has become part and parcel of the modern executive’s responsibilities on top of the fact that he should respond to the external challenges posed by suppliers, competitors, and scarce resources, political, social and technological issues among other market demands. To deal effectively with issues that affect an organization, the management must employ certain management processes that optimally capture its competitive advantages and prepare the firm to deal with unexpected internal and external demands. Strategy formulation and implementation have become key aspects in helping organizations to deal with the expected and unexpected demands that they must address. Strategy formulation and implementation helps firms to make a set of decisions that direct the organization towards achieving its objectives. This paper discusses strategy implementation aspects at ExxonMobil, identifies its current issues (about the company and its strategy), and critically evaluates its performance in terms of strategy formulation and implementation including effects on the overall financial performance, productivity and competitive position. Company Profile Exxon Mobil Corp, also referred to as ExxonMobil, is a multinational oil and gas corporation that has its head office in Irving, Texas, United States of America. It was born out of John D. Rockefeller’s Standard Oil Company and came into existence on November 30, 1999. The company was formed as a merger between Exxon and Mobil (formerly Standard Oil of New Jersey and New York) to form one ExxonMobil. The formation of the companies was a result of the 1970s Arab oil crisis that made its parent companies escalate exploration and development activities in Africa, the Gulf of Mexico, Africa and the North Sea. By the time Exxon and Mobil signed a merger agreement, the parent companies had already established roots in important locations and developed an asset base that was used as a major competing tool. The merger brought together assets to the tune of $87 billion and marked the largest merger ever heard in history. The existing Exxon shareholders own 70 percent of the new company compared to 30 percent owned by existing Mobil shareholders. The merger led to structural changes, specifically diversification, unlike in the earlier years where the parent companies had centralized structures, and the headquarters was an important entity in making key decisions with respect to issues of investment (Peng, 2013:316). ExxonMobil has an affiliation with another oil company known as Imperial Oil that is located in Canada. Since its inception, ExxonMobil has been successful in the oil industry. It conducts business all over the world and is considered the largest among the world’s super majors. The company is active in all aspects of oil and gas industry. It conducts oil exploration, development and production of oil and natural gas from its international presence. It manufactures petroleum products, transports and deals in crude oil, natural gas and other petroleum products. It is considered a major manufacturer and marketer or commodity petrochemicals that include aromatics, polypropylene and polyethylene plastics, olefins and a wide range of specialty products (Energy information Administration, 2011). ExxonMobil is the largest private oil company in the world with presence in over 100 countries. Its large size is indicated by its financial flows. It has upstream services in over fifty countries and is a leading producer in on and offshore in almost all the relevant areas including the new Gulf of Mexico, Capsian Sea and offshore West Africa. The portfolio of the company consists of oil and gas discovered resources of 70 billion barrels. In terms of downstream, it has refining operations in 26 countries, over 45,000 services stations in over 100 countries and conducts lubricant marketing in close to 200 countries. It has also established itself as a strong competitor in coal, chemicals and mineral industries (ExxonMobil, 2012). ExxonMobil has been successful in identifying potential markets and taking the advantage to ensure that it remains profitable in the face of competition. For instance, in recent years, ExxonMobil has developed an interest is electric power generation business and facilities. It has seen this as an opportunity that can be added into its business and operations segment. The company has classified its operations in terms of the downstream, upstream and chemical segments. Adding electricity generation would be essential in its business initiatives and contribute to the realization of its mission. Having seen that oil and natural gas are commodities that can provide large profits for the company, ExxonMobil undertook a vertical integration strategy from production of oil and gas products to the distribution of the same. It also extended in terms of its size in the world as a multinational to look for substantial capital investment and relationships with important players in the industry that would help the company realize its mission. This saw the company establish joint ventures with other petroleum and has companies in different sections of the world. Mission The mission of the company is “Exxon Mobil Corporation is committed to being the worlds premier petroleum and petrochemical company. To that end, we must continuously achieve superior financial and operating results while simultaneously adhering to high ethical standards”. Vision The vision of the ExxonMobil is “To be at the leading edge of competition in every aspect of our business”. Business Strategy of ExxonMobil According to Wells (1998), a strategic management, “is a systems approach to identifying and making the necessary changes and measuring the organization’s performance as it moves toward its vision” (Wells, 1998:5). It goes beyond the development of a plan to include deployment and implementation of the plan and communication to all the relevant stakeholders. According to the profit-maximizing and competition-based theory , strategic management “is based on the notion that business organization main objective is to maximize long term profit and developing sustainable competitive advantage over competitive rivals in the external market place” (Raduan, Jegak, Haslinda & Alimin, 2009:406). Therefore, strategic management has to do with issues of making proper decisions that will guide the organization towards the realization of the set objectives and fulfill the aspirations of its stakeholders. ExxonMobil has a business strategy model that focuses on the achievement of excellence and success in its daily business operations, generate high profits and create long-term shareholder value that will ensure that the organization operates in the business environment for a long time. It has consistently applied this business model enabling it to possess and maintain its competitive edge that supports strong results and positions it in a strategic position to function effectively in future business environments. Due to its strong strategy, ExxonMobil has been able to attract and retain exceptional investors, maintain a strong financial strength, operate successfully in a challenging and highly competitive business environment, achieve high production standards, use high-impact technologies, achieve maximum global integration and operation excellence in its areas of business dealings (ExxonMobil Corporation Sustainability Case Study, 2010:2). Being an American company, ExxonMobil has always put itself at the center of the oil industry in the US, as its parent country. The company is rooted in US history, tradition, politics and culture. The US petroleum industry is an important component of the US economy as it provides about 300,000 employment opportunities. In addition, 40 percent of the energy that is consumed in the United States is produced and transported by this industry. The US reliance on imported oil is approximately 50 percent, and this percentage is always increasing because the US oil reserves are small compared to other large producers in the world. To reduce the reliance on imported oil both the Democratic and Republican parties, two major parties in the US have provided different solutions. ExxonMobil has ensured that it is a stakeholder in the above issues. For instance, ExxonMobil supported the former US president George W. Bush’s energy program and it funded the Republican election campaigns. From the year of its inception (1999) ExxonMobil provided its support to Republican candidates becoming the second largest corporate contributor. This is featured in its strategy to ensure that it has a political support of its business activities so that its environment of operation is secured especially in the US (ExxonMobil., 2001). ExxonMobil has also factored the US cultural heritage in its strategy because it is an essential aspect in the company’s choice of environmental arguments. Even though it has supported political candidates especially from the Republican party, the company has had an anti-governmental attitude that was traced back to the confrontational relationship that existed between the government, the oil industry and the green movement. It has also had a different political home-base context compared to other European oil multinationals such as Shell and BP. It has been at the forefront calling for government regulatory pressures, active climate policy programs, and the creation of new market opportunities in renewable energy and fostering industry-state relationships especially in the oil and gas industry (United States, 2009:1). ExxonMobil Global Business Strategy ExxonMobil has ensured that its export industry is very strong. It exports refined products, such as kerosene and natural gas all over the world. ExxonMobil has penetrated the global market using direct investments (Coll, 2012:10). It also operates refineries throughout the world and has opted to penetrate other markets through joint ventures. Currently, the company operates joint ventures with Mobil Producing Nigeria (MPN), has a joint venture with Qatar Petroleum and also ExxonMobil RasGas. ExxonMobil established two joint ventures in China that has helped it built a base in the region. Al these joint ventures have helped the company gain access to markets in the world that would have been difficult to penetrate. It also operates regasification terminals in the United States, Italy’s offshore and the United Kingdom. This has placed ExxonMobil in a perfect position to take advantage of the growing LNG market demand. To further understand the strategic position of ExxonMobil, a PESTEL and SWOT analysis have been done below. PESTEL Analysis Political ExxonMobil:- Operates in more than 120 countries worldwide Has exploration activities in different regions in the world It is affected by world political crises Economical As of may 2014, ExxonMobil was worth $422.32 billion In 2011, the total proved reserves vase had grown by 24.9 percent Social The company was fined $497 million in compensatory damages It was also charged $1 billion in punitive damages Technological The company is engaged in actions related to product performance testing Delivers a wide range of innovations in different industries It business is dependent on technology Environmental Champions environmental conservation initiatives Supports governmental regulation activities Increased production from shale increases the effects of drilling on the environment Legal Complies with the legal provisions in the markets where it operates Resolved issues of violation issues to the company in relation to six cases of violation of emission regulations SWOT Analysis Strengths Is a market leader worldwide Has a variety of revenue streams Has a strong financial background Weaknesses Experiences persistent employee conflicts Unable to penetrate markets with other large competitors such as BP Weak upstream performance Legal proceedings Opportunities Increase in demand for LNG products Rising demand for gas and petroleum products High demand than supply of oil and gas products Threats Environmental regulations on oil and gas products Alternative energy resources Political activities around the world Terrorism Financial Analysis ExxonMobil has had a strong financial presence in the oil industry. Approximately 80 percent of its revenues are realized from its downstream operations. Despite the above fact, its upstream operations are most profitable. For example, in the year 2010, its upstream division took up only 9.4 percent of its operating revenue but it brought approximately 79.1 percent of its net income. An analysis of ExxonMobil upstream division since 2003 reveals that the average operating revenue is 8.8 percent with a 73.3 percent net income value. Since 2003, the company has recorded only a 1 percent yearly increment in the operating revenue for upstream activities and approximately 13 percent increase in the net income (ExxonMobil, 2013). In 2009, ExxonMobil expenses in terms of production and manufacturing, exploration, selling, administrative and general expenses skyrocketed because of the fact that oil prices hit $40 per barrel. Compared to 2009 and 2010, ExxonMobil experienced a growth in revenues and profit margins starting from 2011 financial year. ExxonMobil also decreased capital expenditures for its downstream and chemical divisions from 2008 and started investing on its upstream division in places such as Australia, Canada and Papua (Canada & Canadian Science Advisory Secretariat, 2010:2) ExxonMobil announced its plans to cut its capital spending to boost oil and gas production and start pumping from 16 major projects in the next three years (Chen, 2015). Competitor Analysis ExxonMobil operates in three key industries including oil, natural gas and chemical industries. In the oil industry, ExxonMobil competes with government-controlled companies because they are the dominant organizations in the world oil market. Some of the national oil companies that it competes with include Petro bras (Brazil), Petro China (China) and Statoil (Norway). Investor owned companies that the company competes with include BP and Shell in US. It also competes with Saudi Aramco (Saudi Arabia) and Pemex (Mexico) some of the national oil companies that are extensions of respective governments. In the natural gas industry, ExxonMobil competes with state-owned companies such as Gazprom (Russia) and ONGC (India). Other privately owned competitors include China National Offshore Oil Corporation (China) (ExxonMobil Corporation, 2014). In the chemical industry, ExxonMobil competes with companies such as BASF (Germany) Ineos (UK) and Saudi Basic Industries Corporation (Saudi Arabia) among others in the world. Key strategy Strengths ExxonMobil has based its activities on the need to identify, analyze and pursue high quality resource opportunities ahead of its competitors. It has been able to maximize its profitability in oil and gas production through a commercial recovery of hydrocarbons across a reservoirs lifecycle while applying cost-effective technology (ExxonMobil., 2002).ExxonMobil also invests in projects that deliver high returns through high quality project management processes that enable the execution of high performance activities. It also capitalizes on growing markets such as natural gas markets to deliver reliable supplies of the in-demand products to help meet the ever-increasing global demand. The company has a vast knowledge of global energy needs and demand within the markets that it operates giving it a competitive edge. It also runs a variety of businesses within the oil and gas industry that enables the company to use the available opportunities and also be able to have a contingency plan. Allegations and Negative Incidents across the World ExxonMobil has been hit by negative allegations and incidences in its business operations throughout the world. As one of the major companies in its sector, ExxonMobil takes its operations to any place where business opportunities are present. This includes in wealthy as well as impoverished countries and regions. ExxonMobil has invested in Acech, Indonesia and has been indirectly linked to the conflict that has erupted between the armed insurgency (GAM) and the government’s forces. Human rights were violated in this war and ExxonMobil among other foreign companies were pressured to call for investigations into the murders that occurred also clarify their involvement. ExxonMobil closed three gas fields in North Acech after the government declared new operations against GAM in 2003. Locals believed that government army used the closure as an excuse to plan an offensive. In 2001, a US NGO called International Labor Rights Fund sued ExxonMobil for complicity in the abuses and alleged that ExxonMobil gave material support to the military and had knowledge of genocide, murder and torture among other heinous acts. The war in Angola between the government and the National Union for the Total Independence of Angola (UNITA) has also been connected to the actions of ExxonMobil, Elf and BP-Amoco, which are all major petroleum companies in the country. They were accused of funding the war. Human rights Watch and Global Witness observed that the oil companies were not transparent about the payments they made to the Angolan government (Human Rights Watch, 2001). The company has also received criticism for its activities, specifically building the Chad-Cameroon pipeline that has been considered as a threat to environmental conservation. It has also been touted to cause negative economic and social consequences. It has also been criticized for indirectly reinforcing bad practices in Turkmenistan, one of the poorest nations in the world, despite its richness in natural gas reserves. The company has also been accused of several wrongdoings in the developing world. These allegations and suits among others have painted a bad picture about ExxonMobil. Recommendations ExxonMobil has achieved much success in the oil and gas industry worldwide. However, there are certain aspects that it should consider to strengthen its strategy and position in the market. ExxonMobil should strengthen its uptake of opportunities in the market by using research and development (R&D) initiatives. Research will help the organization understand new markets and the strategies needed to make a successful entry. This will help the company avoid the failures it has had with regard to entry into new markets. Being a multinational organization, ExxonMobil has a role to play world’s affairs and affect people’s lives in a positive manner. It has been criticized and sued for participation in wars and conflicts. To avoid lawsuits and criticisms, ExxonMobil should clearly state its position with regard to issues such as wars and act responsibly to avoid misunderstandings. The organization should also take strict measures against employees or stakeholders who fund conflicts or wars. It should also establish activities or programs that build the society in every market where it operates, for instance, by starting education sponsorship programs, and environment conversation programs among others. ExxonMobil should also invest more in the upstream division because research and financial analysis have shown that this division is profitable that the downstream division. Therefore, the company should invest more in this division. ExxonMobil should produce high quality products at a reasonable price to beat its competitors because the company has major competitors in every country where it has established a base. It should also pay particular attention to environmental effects and safety systems for its employees as well as customers. The natural gas market is currently oversupplied compared to the oil and chemical markets. However, this does not mean that ExxonMobil should abandon the natural gas business for the other two. The prices of natural gas are low because of oversupply and these call for a new strategy. ExxonMobil should provide high quality natural gas for its clients all over the world to gain a competitive advantage. It should also carry out awareness programs for potential customers to encourage them to start using natural gas products. By doing this, ExxonMobil will be able to benefit more from the natural gas market. Conclusion Despite strong competition from other major companies, ExxonMobil has been able to perform significantly well in the market, remaining a top company in the sector. It has been able to establish itself as a successful company in the world oil, natural gas and chemical industries. The company has had the ability to take advantage of new opportunities in the market and used them to make more profits. Demand for energy in the world keeps increasing, and the sector has a lot of demands that supply has not met up to now. This presents opportunities for ExxonMobil to find innovative ways that would enable it contribute to more towards meeting the market demand for energy. ExxonMobil is committed to providing oil, natural gas and chemical products to the world energy sector. It should avoid negative issues such as funding conflicts or unsustainable use the environment. Reference List Canada & Canadian Science Advisory Secretariat, 2010. 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