Competitive Environment and Business Level Strategy Assignment PDF

Competitive Environment and Business
Level Strategy
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Executive Summary
In the current report the organisation BHP Billiton has been taken for the analysis of business
strategy by investigating the external environment. Here the ‘Mineral Australia’ strategic
business unit of the organisation is selected for the current analysis. This is one of the largest
and important units of the organisation where the Iron ore is the highest revenue centre for
the business unit. The political and economic situation of the business shows that the excess
dependence on the China export market is creating difficult situation under the global
commodity market crash. The environment and the social factor are showing that the
corporate social responsibilities and appropriate talent nurturing would be important for the
competitive advantage development. The organisation has developed low cost and asset
diversification as their competitive advantage. In making the advantage sustainable the
organisational management approach introduced continuous improvement approach in the
focused manner to the core areas like the marketing, supply, equipment, capital and people.
This approach has helped the organisation to transform the competitive advantage into
sustainable one. But here the over dependence on the China market remains and there market
diversification needs to be properly implemented. The fast growing Indian market needs to be
better targeted through the balance the lower demand of the China market.
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Table of Contents
Executive summery....................................................................................................................2
Introduction................................................................................................................................4
Corporate identity.......................................................................................................................4
Business unit..............................................................................................................................5
Revenue analysis of business unit..............................................................................................5
Business external environment..................................................................................................6
Sustainable competitive advantage..........................................................................................11
Conclusion................................................................................................................................21
Reference..................................................................................................................................22
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Introduction
In the current report the business external environment would be analysed to identify the
competitive advantage of the business which are sustainable in nature (Verbeke, 2013). In
the current business report the company BHP Billiton would be discussed through the
business strategic evaluation models in the following sections. BHP Billiton is public listed
resource based company based in Melbourne, Australia with total market capitalisation of
$98.3 bn (forbes, 2017).
Corporate identity
The corporate identity is the representation done by the business organisation to develop their
image in the market. Here the legal structure of the business is important. The definition of
the corporation status of the business can be done through its legal status exploration. This is
the business organisation that has a separate legal entity with its own liabilities and rights that
are different from the founder or the owner of the organisation (Gevurtz, 2010). The owners
of the business are the shareholders.
An example of this type of organisation is the BHP Billiton which has different business units
in their operation. The businesses are the Petroleum, Mineral America, marketing, Mineral
Australia, China and Japan business unit. These multiple unit of business operate as
autonomous business unit. BHP Billiton is mainly a resource company which is one of the
largest in the world (bhp, 2018). In the current report the Mineral Australia would be the
main business unit that would be the focus of discussion.
The business in its operation can operate through one of number of products or services. Here
the concept of product or the service portfolio becomes important. The definition of products
or the service portfolio is the total number of products that the organisation offers to its
customers (Eggers, 2012). In the portfolio of the product different lines or the category of
products can be seen. The benefit of these types of product portfolio is the risk minimisation
and revenue maximisation. The diverse product portfolio helps the business to minimise the
risk of one product failure. On the other hand it also enables the company to tap into different
potential product market to maximise the revenue (Verbeke, 2013). The business of BHP
Billiton has different products and services. For example the energy category products are
managed through ‘Petroleum’ business unit whereas the ‘marketing’ is the service oriented
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independent business which does the supply and marketing jobs for the customers, global
operation of the business, global or the local suppliers as this business part is associated with
the different asset group businesses (bhp, 2018). Then there is mineral resource based mining
businesses like the ‘Mineral Australia’ or ‘Mineral America’.
Business unit
The business of BHP Billiton is speeded on different resources based business and also
related services. The core capability of the business is in the resource sector. Here the
strategic business unit of the business is the autonomous business unit which is managed
independently in a large or diverse area based company (Resumption, 2016). The section of
the business has its own business strategy and vision. These business strategies or the vision
of this unit could be totally different from the parent company but must have the resonance
with the long term goals and objective of the parent company. In BHP Billiton there are
different business unit of this nature. The different division that were mentioned in the earlier
section of this report are the example of the strategic business unit. In the current report the
‘Mineral Australia’ is the selected independently operated strategic business unit for the BHP
Billiton Company (bhp, 2018).
There could be different product of the service line in a strategic business unit. A product or
the service line is the related products which are related associated by their consumer group
or function of channel of distribution and so on (Michalek et al., 2011). In the BHP Billiton,
the ‘Mineral Australia’ is a strategic business unit which has its own product lines which are
of mineral resource type (bhp, 2018). In the product line copper ore, iron ore, nickel ore and
the coal are the mined resources that are developed by this business unit to deliver around the
world.
Revenue analysis of business unit
The revenue for a business can be defined in terms of entire received money within a time
period by selling the services and goods to the consumer. The revenue is a broad term and
would include the exchange of asset, total received from the net sales, interest gained and so
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on. On the other hand the revenue centres are the unit that is operating distinctly in the
business (Lorna Wang, and Bowie, 2009). This revenue centre generates a particular sales
proportion to the overall revenue of the business.
In the current discussion of BHP Billiton, the strategic business unit of ‘Mineral Australia’
has different revenue centres. For example the copper ore, iron ore, nickel ore and the coal
are the different revenue centre for the business unit. Here the largest revenue centre for the
business is the Iron ore which contributes around 38% of its total revenue (statista, 2017).
[Source: statista, 2017]
Business external environment
Business external environment is also called the operating environment. Independent
existence of the business is not possible. A business is affected by the external environments
like the social, political, economical, environmental, technological and legal environment of
the market where the business is in operation. The external environment are the external
factors that is not under the control of the business but the internal factors better management
would help the business to overcome the challenges or capitalises on the opportunity
provided by the business external environment (Makos, 2015). The business external
environment analysis of ‘Mineral Australia’ unit of BHP Billiton would be done through the
PESTLE model in the following section of this report.
Political and legal factor
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Political factor means the political stability of the region where the business is operating. An
unstable political scenario would create the situation of law and order problem or unstable
environment where safe operation is not possible (Issa et al., 2010). For the ‘Mineral
Australia’ unit of BHP Billiton the political environment of Australia as well as the world is
important as the business is doing mining activity in Australia but it supplier the ores to
different part of the world. The mining resource that ‘Mineral Australia’ unit of BHP Billiton
is exploiting is owned by the government. The government provides the authorisation to the
mining companies for the resource exploitation (Zalengera et al., 2014). Because of this
reason the miner’s council develops close relation with the political establishment. In recent
time the revelation of mining council donation for the political access is the proof of that
(Karp, 2018). On the other hand the international political relation is also important for the
businesses. In this case China is one of the largest consumers of resources in the world and
here the China and Australia relation would be important for the business of ‘Mineral
Australia’ unit of BHP Billiton. The better relation and bilateral agreement developed in the
1980’s between Australia and the China is the foundation for the exporting of mineral to
China from Australia (aph.gov.au, 2017). The relationship of Australia and USA is also very
good and that has an impact on the Australia chain relationship in recent time. The fall in
political relation resulted in some type boycott sentiment of the Australian products in China
(Couriermail.com.au, 2017).
[Source: Minerals.org.au, 2015]
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On the legal front the policy for the mining activity in Australia is important for ‘Mineral
Australia’ unit of BHP Billiton. There is tax for the ‘mineral resource rent’ which was
enforced in July, 2012 (Borrello, 2013). At that time the ‘federal government carbon tax’ also
came into force. On the other hand the ‘enterprise mitigation agreement’ is the legislation that
enables the companies of this sector to employs the foreign worker when faced with the skill
shortage in the industry. Along with these the policies for ‘coal seam gas’, reservation of
domestic gas, policy for shale oil, uranium and the nuclear waste policy is also important for
the mining industry in Australia (Borrello, 2013).
Economical
The economic situation is important external environmental factor for the demand of the
products or services. Bad economic situation would provide bad sales forecast and the
business would have excess capacity and vice versa for the good economic time. The trading
situations, tariffs, inflation rate, rate of interest, the economic growth rate, foreign currency
situation are some of the important economic factor for the businesses (Richardson, 2008).
‘Mineral Australia’ unit of BHP Billiton exports their products to all over the world. China is
one of the important exporting sources for the Australian mining companies in terms of
volume of trade. The export of these resources witnesses a growth when the economic
situation improves in the world of the exported region. In the current situation the world is
expected to grow by 3.7% which is a significant improvement in recent time (IMF, 2018). In
recent time the mining industry is Australia is facing bad time as the revenue slashed. One of
the reasons is the slowing down of China and the commodity price drop in the world market.
China is showing somewhat improvement in its growth whereas other major economy like
India is showing better prospect of growth. After the falling price in the commodity market of
recent year which bottomed out in the 2016, the prices are once again showing a positive
trend in the international market and also expected to increase in the current year as the
figures shows below (worldbank, 2017).
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[Source: IMF, 2018]
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[Source: worldbank, 2017]
[Source: indexmundi, 2018]
Social
The social and demographic situation o Austria impacts the business in different way. The
taste and preference of the target consumer of the general sentiment that prevails in the
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market about the industry are the social factors (Issa et al., 2010). For the export oriented
mining industry in Australia the aging population, recent inclusion of technology and
educational level is providing the shortage of skill for the industry. On the other hand the
issues like the environment, indigenous people’s sentiment, growing awareness of impact of
mining industry, case for settlements are providing some of the challenges for the business to
operate (Lloyd et al., 2013).
Technological
Technology has already changes the production process and efficiency of the industry. The
new mining growth would come from the greater technological inclusion and that would
improve the risk minimisation, sustainability. Currently the industry spent 600m AUD every
year for exploration and the recent technological development would be useful here to deliver
better success rate (australianmining. (2017).
Environmental
The natural beauty, cultural beauty and diversity, natural environment of Great Barrier Reef,
bio diversity are impacted from the operation of the mining industry. In recent time the
awareness and agitation created issue for the sustainability of operation (Mudd, 2010). Here
the risk minimisation and better sustainable approach needs to be applied by the industry.
Sustainable competitive advantage
The competitive advantages for ‘Mineral Australia’ unit of BHP Billiton are the operation
and the asset. Here they deliver the economy of scale. The organisation has a low cost asset
class of diverse range and that is of high quality and large scale which is unmatched in the
industry (bhp, 2015).
To produce sustainable competitive advantage the above aspect is analyses through the VIRO
model of analysis.
Valuable- the asset class of the business unit is valuable for the organisation in the current
operation. The business of ‘Mineral Australia’ unit of BHP Billiton is spread all over the
Australia continent. This vast operational capability is providing value to the company (Lin et
al., 2012). The large operation of the organisation is focused on the reduction in cost and
better productivity.
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[Source: bhp, 2015]
Rare- the valuable advantages is useful for the business but to become the sustainable
competitive advantage that advantage needs to be rare in the market. The mining business
needs lot of investment in the resource acquisition, machinery, plant, technology and so on.
So for a new entrant it is difficult to achieve that within short period of time. In the current
context the advantage enjoyed by ‘Mineral Australia’ unit of BHP Billiton is rare because
that is difficult to be adopted by the existing players (Richardson, 2008). The figure below
shows the different products line based product and asset class of ‘Mineral Australia’ unit of
BHP Billiton in Australia and other part of the world. All the capacity of operation and the
strategic partnership developed for that is rare in the market.
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[Source: bhp, 2015]
Non imitable- for the further strengthening of the advantage, that needs to be non imitable.
The above operation aspect is large in size and takes time to develop. Lot of cost involved to
develop the operation and acquire the diverse asset class (Barney and Hesterly, 2010). On the
other hand the strategic partnership developed takes time to build. Therefore all of these are
not easily imitable by others.
Organisation- this large resource bases and the operational capability needs to be utilised
properly by the organisation to generate most benefit. ‘Mineral Australia’ unit of BHP
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Billiton has been able to do that by achieving the economy of scale and higher level of
productivity. The approach of the organisation in managing the competitive advantage would
make that sustainable in the long run (Kazlauskaitė et al., 2008). Here the approach is the
continuous improvement. The figure below of BHP Billiton shows that the organisation aims
to create the maximum value by exploiting the total potential of the different diverse asset
class. To do that the operation focuses on the five core aspect of operation and those are
supply, people, marketing, equipment and people. Here they use granular, simple and
integrated matrices for the operation. In addition to that the operation model developed by the
organisation improves the sustainability. The figure below shows the complementing factor
that improves sustainability.
[Source: sec.gov, 2014]
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First complementing factor is the culture and capability. The people who are working with
them are one of the valuable resources that help in maximising the operational efficiency
(Njuguna, 2009). Here the integration of the people strategy and operating model delivers the
long term sustainability.
[Source: sec.gov, 2014]
The operation model of the organisation is scalable and simple. The approach of continuous
improvement is visible here from the year on year progress on this matter. The best practice
approach is fast replicated in the common and simple system of the organisation.
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[Source: sec.gov, 2014]
The bottlenecks of the operation are rectified in the operation through the continuous
improvement manner. The 2014’s figure shows 6% and 9% improvement in the asset
utilisation and production process respectively. The equipment utilisation and availability is
also targeted through continuous improvement approach by setting the desired performance
target (Njuguna, 2009). This improvement in the truck fleet operation has enabled the
organisation to move more material by a 22% range.
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[Source: sec.gov, 2014]
Focusing on the people aspect is not only done through safety standard improvement but also
through productivity improvement and labour cost reduction (Brown et al., 2011). This
approach of efficiency helped the organisation under the difficult international commodity
market.
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[Source: sec.gov, 2014]
The supply cost of the business is targeted to be reduced through comparing with the
benchmarks. The improvement in the procurement cost in 2014 is around $1.6 bn but
continuous improvement is required for achieving the benchmark.
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[Source: sec.gov, 2014]
The marketing team influences the supply chain optimisation, better sales forecasting for
yield maximisation and maximised technical capability utilisation. A continuous
improvement in this direction as shown in the figure below is providing sustainability to this
advantage (Kumar et al., 2011).
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[Source: sec.gov, 2014]
The figure below shows the overall impact of the continuous improvement in the productivity
gain and cost and volume efficiency. This focused organisational approach of BHP Billiton
helped the organisation to achieve the developed competitive advantage to reach
sustainability (Brown et al., 2011).
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[Source: sec.gov, 2014]
Recommendation
The strategy of the organisation is to operate large with low cost and asset diversification.
This approach provides greater competitive advantage for the business. During these past few
years of bad commodity market, the overcapacity in the business created problem (Barney
and Hesterly, 2010). The asset diversification has helped the business gain advantage but the
market diversification needs to be improved here. The China market is not providing the
same optimism in recent years but the figure below shows that the business is over dependent
on the China market but at the same time Indian market is less developed for the
organisation. in current situation India is the fastest growing one of the largest economy. The
recommendation is to develop its business in the Indian market to balance the loss of demand
in the China market.
[Source: sec.gov, 2014]
Conclusion
The current report shows that the business external environment provides challenges as well
as opportunity. The competitive advantage of the business must be able to adjust this
challenge and opportunity cycle.
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