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Tuesday, 12 January 2016

Research Paper: British Petroleum Strategic Management






British Petroleum Strategic Management




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1.0.         Executive Summary

All organizations have policies, rules, and philosophies that guide their operations. Without these rules, it becomes difficult for organizations to fathom whether they are progressing or not; given that they lack a map and a reference through which they can compare their alleged progress with. Objectives and goals are set for the purpose of enabling companies, governments, and even organizations understand what exactly it is that they need to accomplish. Furthermore, goals and objectives provide the means through which organizations can plan on how to achieve their set goals. To remain competitive, of course, it is always crucial for organizations to adopt strategies containing framework within which the organization’s goals, aims, and objectives are formulated. This paper seeks to analyze British Petroleum (BP), by looking into its mission and vision statement. Furthermore, it will employ relevant data from the given case, to conduct a five forces analysis of the energy industry to ascertain the industry’s attractiveness. Additionally, this paper endeavors to evaluate BP’s resources and capabilities by utilizing the value chain framework. This will, in turn, help in understanding how the company is creating value and also give a hint on how the company can develop and improve further. Finally, this paper will strive to suggest to BP’s senior management team ways through which the company can attain a sustainable competitive advantage in the rather competitive global energy market.

2.0.         Background Information

British Petroleum otherwise abbreviated as ‘BP plc.’ Alternatively, just ‘BP’ is a British International Company that specializes in oil and gas (BP, 2013). British Petroleum is currently among the world’s seven “supermajor” oil and gas companies. BPs headquarters are in London, England, though its operations are scattered across the globe. In the year 2012, the company’s performance made the world’s sixth-largest oil and Gas Company, and also the world’s sixth-largest energy company by market capitalization. Finally, owing to the same 2012 outstanding performance, took position five basing on that 2012 revenues.
BP is a vertically integrated firm that operates in all sectors of the oil and gas industry. Its undertakings encompass exploration and production, petroleum refining, finished products distribution and finally marketing of the distributed products (BP, 2013). Also, the company also deals with petrochemicals, generation of power, and trading. Finally, it has considerable interests in renewable energy and specializes in wind power and biofuels.
By December 2013, BP had establishments in about 80 countries, which cumulatively dispensed oil of around 3.2 million barrels a day. This establishment were proven be reserving 17.9 billion barrels of oil equivalent and had about 17,800 service stations (Jurevicius, 2013). Of all its divisions, BP America; operating in the U.S. is the largest. In Russia, British Petroleum owns a 19.75percent stake in Rosneft, which even today remains to be the world’s largest public oil and Gas Company. Rosneft owns famously known for its hydrocarbon reserves and also production.
BP is listed on the London Stock Exchange and is also a part of the FTSE 100 Index. As of 2013, the company was worth £85.2 billion worth market capitalization. It is staggering value regarding worth made it the fourth-largest company to have ever been listed on the stock exchange. Finally, the company has a tributary listing on the New York Stock Exchange and the Frankfurt Stock Exchange.

3.0.         British Petroleum Mission and Vision Statements

Ever since its inception in 1908, when it used to be Anglo-Persian Oil Company, now BP, has been adhering to some sets of both written and unwritten rules, or rather policies. Mission statements as experts would refer them to, “are statements that are supposed to guide the undertakings of the company”. Mission statement thus spells out organization’s overall goal, offers a direction, and oversees decision-making. In summary, mission statements provide the framework within which organizations policies are articulated. A Mission statement is essentially a goal that dictates what the company needs to do for itself and the world. Vision statement, on the other hand, mirrors an organization’s aspirations. A Vision statement is meant to communicate the company’s reason for being, and most importantly, how it aims to serve its stakeholders

3.1.           BP’s Mission, Vision and Value Statement

BP is among a few companies without official mission and vision statements. Nevertheless, BP provides several different utterings of what it calls, “What we do,” “What we stand for”, and finally “What we Value.” Consequently, it is from these three BP statements that this paper draws the organization’s mission, vision, and value statement, given that they reflect the ideal mission, vision, and value statement.

3.1.1.      What we do (Jurevicius, 2013):              

BP finds, develops and creates vital sources of energy. Also, BP turns these sources into suitable products that are prerequisite to people all over the world. It is apparent that people needs energy; and that this need keeps growing. BP, therefore, produces the needed energy in various forms, given that it is vital for people and the world’s progress. BP emphasizes on the fact that it expects to be held to a high standard in whatever it does. Additionally, BP strives to be a safety frontrunner in the energy industry. BP aims at being a world-class operator, a desirable corporate national and a great employer. In short, that is what defines BP; it is who BP is.

3.1.2.      What we stand for (Jurevicius, 2013):

BP claims to stand for everything that enhances both safety and excellence in its operations. BP admits that safety and excellence are fundamental to its success. BP’s approach focuses on respect, consistency, and having the courage to do the correct thing. BP believes that success derives from the effort of its people. Consequently, BP has a resolve to learn and to perform things better. Furthermore, BP depends upon long-lasting relationships. In summary, BP is devoted to creating a real difference in generating the energy that the world needs at present, and also in the evolving world of tomorrow. BP, therefore, works as a team; as BP.

3.1.3.      What we Value (Jurevicius, 2013):

BP have five values that convey their mutual comprehension of what they believe, how they aim to act, and what they desire to be as an organization. The BP’s values include:
1.      Respect
2.      Excellence
3.      Courage
4.      Safety
5.      One Team.
Given that British Petroleum does not have an official mission statement, through the combination of a few statements, BP’s mission statement has been forged. The forged mission statement retains all the features of a mission statement. Nine key components have been featured, giving adequate information regarding the business. Everyone, including its stakeholders, as well as the general public can now comprehend what BP aims to achieve and what policies defines them together with their undertakings. British Petroleum mentions all the four values that are essential to a company’s evaluation when it comes to developing a mission and vision statement. The setback of such mission statements is that they tend to be too long and exclusively focuses on the product. At no any given time does BP stress on the need to satisfy its customer’s needs. It rather focuses more on the production of rudiment sources of energy. This shortcoming ultimately offers limited opportunities for the organization to grow into other product arcades without making its mission archaic.
In summary, BP’s mission is a great mission statement, and can be used by the company to achieve many benefits. The only thing that BP needs to do is to develop a customer-oriented mission that stresses the need to put efforts in interacting with its employees.

4.0.         Five Force Analysis of the Energy Industry

Of all the currently available sources of energy, Petroleum happens to be the single largest, not only in the U.S., Europe, or Britain but the entire world the petroleum and gas industry is crucial to the world’s economy (Schramm, 2000). Also, it is expansively reported, measured, and evaluated. The industry is comprised of the comprehensive practice of exploration, refining, distributing, and marketing of the oil-equivalent products. After mining, petroleum is first taken to a refinery plant, where it is mechanical, thermally, and chemically disjointed into several fractions. These fractions are in turn rehabilitated into finished products and then taken to the market (Schramm, 2000). The largest bulk end-user products of the energy industry are gasoline and fuel oil. Additionally, Refineries also create non-fuel products such as road oil, solvents, asphalt, petrochemicals, and wax. The petrochemical products are dispatched to chemical plants, where they aid in the production of plastics and chemicals.

4.1.           The market structure

The market structure of the crude oil, petroleum and gas is categorized as an oligopoly. Oligopoly is a phenomenon that means that a few firms are dominating the market. In cases that call for decision making, the dominating firms must be consulted. OPEC: The Organization of Petroleum Exporting Countries, ever since its formation in 1961, has been striving to unify the regulations that are controlling the prices and supply of petroleum equivalent to end users (Berry, 2015). These formulated policies are meant to enhance a fair return on the involved parties’ investment in the venture. Nevertheless, there are still other forces within the industry that are derailing the entire process of progress. In the U.S., Britain, Europe, Russia, and China, to mention a few, there are independent firms that are immensely competitive though possess little market power. The energy industry has a cosmic buying and selling market and is without a doubt a rather extremely large industry. In the U.S. for instance, oil measures up to over 40percent of the country’s energy needs. Major competitors within that market include Exxon Mobile, Shell, BP, and Texaco.      

4.2.           The Industry Demand and Future Expectations of Demand

It goes without saying that the world will not run out of oil any time shortly. Unfortunately, the ever skyrocketing oil prices are steadily forcing consumers towards alternative sources of energy (Berry, 2015).  Scholars suggest that petroleum reserves are now greater than the previous consumption. However, no one can sufficiently predict their sustainability, or end. The world may or may not run out of oil in the future. The demand is forecast to be high in the future, which will compel new producers to venture into the market for an equal share of the profits. Regardless of the case, the influx of new oil producers is unlikely to increase the supply of oil, given that the supply of oil is finite.
Though stable now, what lies ahead can only be unraveled by conducting an analysis based on PORTER’S FIVE FORCE.

4.3.           An Analysis of Competitive Forces (PORTER’S FIVE FORCES)

Porter’s five external forces strive to influence a firm’s ability to compete healthily within its industry. In this paper, Porter’s Five Forces will illustrate a complicated oil market, which is subject to higher obstacles to entry and phenomenal bargaining power by both suppliers and buyers (Faulkner, 2014):

4.3.1.      Threats of entry by new competitors

Energy industry’s entry obstacles originate from political and governmental pressure, the prerequisite for hefty capital investments, the necessity for highly competent and specialized employees, physical vulnerability and risk, and asset specificity. Furthermore, the exploration and mining of oil are promptly regulated by the state, federal, and extensive compliance plan. The industry lacks specialized and highly trained worker and, therefore, money ought to be channeled to learning institutions, and people encouraged taking the required courses. Otherwise, there is a risk of lacking the personnel to work in minefields and processing plants at higher levels. Otherwise, most firms within the industry are fond of using economies of scales, which has also been proved to be an entry barrier.

4.3.2.      Rivalry among existing competitors

In 2000, the five key competing producers were said to have held a 41percent of the market share. These companies were closely followed by the next five largest firms, which held about 13percent, and then followed by other 50+ who shared the remaining 46percent on varying basis. This means that there is a lack of stiff competition. The market is presumably disciplined; showing the lesser intensity of experiencing growth, though with high exit barriers.

4.3.3.      Pressure from substitute products

As for the energy industry, the search for a substitute, or rather alternative products is predominant. Nevertheless, to this date, very few alternatives have been developed, though remains commercially unfeasible. Alternatives such as coal, solar power, nuclear energy, wind power, and hydroelectric power cannot impose enough pressure on petroleum, and thus, cannot even be referred to as pressure-amounting.

4.3.4.      Bargaining power of buyers

Oil happens to be among a few commodities that have a low bargaining power. Key players within the industry have myriad options at their disposal and can easily sell their products to equally many people without even struggling.

4.3.5.      Bargaining power of suppliers

Suppliers with about 86percent ought to have a high bargaining power given that they have a wide selection of products that they can sell to their clients. In the cases where buyers are not interested in one product, the supplier can easily introduce another one that suits the client’s need.
In conclusion, given that BP is among the five world’s largest companies in the energy sectors, it stands to benefit for a very long time. However, it should be keener on its overseas ventures, so as to avoid being ousted by the other four.   

5.0.         How BP is Creating Value for its Customers

BP applies distinctive capabilities- which includes the expertise of personnel, use of advanced technology, and finally, being strong when it comes to forming strategic relationships that enable them to easily access resources and deliver on intricate projects (Our business model, 2014). The company has two main operating segments, the upstream and the downstream. What BP essentially does is, they locate, create, and produce crucial sources of energy. Also, they turn the sources they discover into products that consumers need. Finally, BP claims to purchase and sell at all the stages of the hydrocarbon value chain.  BP claims to be relentless on safety attributes and often pass their products through rigorous testing to ensure that they are both safe and fit to use by their consumers. Their commitment enables them to comprehend that operating in technically demanding regions and politically instigated locations can be challenging and requires particular thoughtfulness to local environments (Our business model, 2014).
British Petroleum Creates value by supplying energy, supporting economic development, and finally, aid to improve the quality of life for lots of people. BP’s activities also create jobs, promote the advancement of infrastructure, encourage investment, and finally contribute revenues for the local communities, as well as governments. BP’s business model entails everything from exploration to distributing, and finally to marketing. Consequently, they have adopted a diverse, cohesive portfolio that stresses on the adaptability to prevalent conditions. BP’s integration across the group enables them to share practical excellence more proficiently across its key areas such as operation risk and safety, procurement, environmental and social acts, and technology, to mention but a few. Finally, the stages of hydrocarbon value chain provide opportunities for BP to create value since the process calls for a successful execution of undertaking that are fundamental to the energy industry. This is easily aided by the company’s idiosyncratic strengths and capabilities in conducting those duties (Our business model, 2014).
The company, however, can even further better the quality of their products by adopting more technological approaches to its production. Also, BP should employ more skilled workers in its refinery plants. Research also ought to be conducted by the company so as to ensure that improvements are made to its products from time to time, so as to suit the current needs. Finally, BP must be cautious of its activities and their impact on the environment. Oil products are known to be extreme environmental pollutants. Measures ought to employ, which will ensure that the environment is not polluted.

6.0.            British Petroleum Can undertake Management Strategies for them Gain Competitive Advantage

In many areas of modern economic conditions, businesses are changing very rapidly. Rapid technological change leads to the emergence of new technologies on which new kinds of products and services. Around new technologies and products are formed into new markets. The economy is growing, increasing individual and community well-being, changing consumer needs and demand structure (Rousseau, 2009, 121). For values of economic growth is attached more and more countries. The world economy at the expense of new technologies and the harmonization of consumer demand is becoming global. Parallel within enterprises occur spontaneous processes, blurry structures and management systems that violate the standards process, reducing handling (Pietersen, 2009, 32). Under pressure from internal and external circumstances, businesses are forced to change their policies, systems and governance structures. Otherwise, their effectiveness in an increasingly competitive environment can be quickly compromised. Those who manage to beat the competition and the first to offer the market a new, more effective management decisions tend to get a competitive advantage. Today, every type of organization has to go through live many changes in nature and scale different with temporalities and rhythms variables. These changes appear on the one handouts as more or less strong, of questioning, ways of acting and thinking found unsatisfactory and also as the development of proficient talents leading the business to a situation perceived as more satisfactory (Duck, 2009, 109). Change management can become problematic, correct malfunctions an organization through the development of new talents is also the subject of "managerial learning". Therefore, it is important to address the issue of the connection between change and organizational learning (Okumus, 2008, 283).
First of all, the combined benefits of change management. Statistical studies showed that there is indeed a correlation between the use of change management and improved business results (D'Aprix, 2009, 15). Change management helps to avoid such adverse effects, and factors such as reduced productivity, active and passive resistance to change, turn off workers from the labor process, the friction in the team, professional attrition, layoffs of their volition, the conflicts among the staff, the slow absorption change, avoidance of work, the division staff to "we" and "they” (Davenport, 2010, 65). The implementation of changes at the level of the organization is helpful to create a coherent, unified approach to change, one language. This makes the learning curve is shorter; the changes become more persistent and consistent, and thus are supported by shared resources across the organization. However, this approach creates the opportunity for continual improvement (Dent & Goldberg, 2008, 25). At the same time, informal, impromptu, which does not apply to the whole organization approach to change is much less effective, as it creates the risk of conflict of various contradictory approaches, and makes employees more likely to evade the changes to sabotage them, rather than support (Dimitriadis, 2009, 554).
 Change management involves two kinds of components: the "technical" and "human." The technical include limits and goals change, and who performs the alterations, those who provide the capital, those who sanctions and supports the project, who is implementing the project at all levels, as its wheels and cogs (Eby, 2009, 419). Components of working with people - is to create an understanding of the need for change and change management, the desire to change and maintain change management, as well as knowledge and abilities needed to perform certain roles in change management (Eccles, 2010, 70).
The British Petroleum and all other companies in their respective industries are facing intense competition from their competitors, therefore; all the organizations have to evolve constantly for their subsistence and success. As a result, change becomes an ever-present feature of organizational life, both at operational and strategic levels (Burnes, 2004). Under these circumstances, studying how to implement organizational changes becomes an important subject in business, engineering, and environmental management (Garengo, 2009, 440). There are many different definitions of organizational change, but they all carry the connotation of “changing how an organization functions or performs”. For instance, “Organizational change is the revision of established work routines, the revision of existing patterns of communication, the reshuffling of work groups, or the hiring of new employees” (Bamford, 2003, 546). “Organizational change alters how an organization functions, changes who its members and leaders are, what form it takes, or how it allocates it resources” (Collyer,2000, 222). “The intention of any organizational change is to move the organization from its current state to a more Desirable State.”

7.0.         Conclusion

The world still needs cheap, efficient, and stable sources of energy. The energy industry besides being heavily resourced and highly competitive, nothing seems to be happening, regarding developments and innovativeness. The traditional means of production are still the ones being used. Despite the rumors and claims that the market is a competitive one, this may not be the case, competition is only among the five leading producers, and the following five. The rest are just trying to survive within a market that tends only to favor a few. To avoid high exit rates, company’s within the energy industry needs to be creative and innovative. The world is still looking for commercially feasible sources of energy. Until then the existing players must unite to determine how progressively they can advance together.  
               
         













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