Critical Analysis of Strategy | Report

Added on -2020-02-05

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STRATEGIC MANAGEMENT
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1CRITICALLY ANALYSE THE CHALLENGES AND BENEFITS OF MERGER ANDACQUISITION AS STRATEGY WITHIN THE ENERGY SECTOR..........................................1Academic Model for analyzing internal factor............................................................................2Deals in 2014-2016 during the crash in oil prices.......................................................................2Academic model for analyzing strategy......................................................................................3Challenges and benefit of merger and acquisition.......................................................................4CONCLUSION................................................................................................................................7REFERENCES................................................................................................................................8
INTRODUCTIONStrategic management is defined as activity that results in developing the goals oforganization by senior level authority on the place of director and owners. With the help ofstrategic management process, company can engage in analysing the variant of resources as wellas measures internal and external situation under which the establishment operates their activitiesalong with their rival firms. Presently, the report focuses on critical analysis of strategy that ismerger and acquisition that is used within energy sector during the period 2014-2016 whensuddenly the oil prices has reduced. Thus, decrease in oil prices affected the profit as well asspending on projects. Thus, report will measure the challenges as well as benefits associated withthe merger and acquisition as a strategy within energy sector. CRITICALLY ANALYSE THE CHALLENGES AND BENEFITS OFMERGER AND ACQUISITION AS STRATEGY WITHIN ENERGYSECTORStrategic management develops different policies and strategies that will support theenterprise in attaining set objectives. In the year 2014-2016, energy sector has faced decrease inoil prices that had impacted the profit of organization negatively. Therefore, companies withinenergy sector had to accomplish an equilibrium between short term viability with keeping theirlong term objectives and investments. Thus, to improve and stabilise their position with the helpof considering different strategies. The improvement mainly includes accessing the new market,increasing technological and other resources. One of the effective strategies that are used withinenergy sector is merger and acquisition as it realigns their resources in order to gain competitiveadvantage. Along with this, Chacour and Ulaga (2015) have also evaluated that increasingcompetition, falling off the oil prices and overfull energy demand within the market are not onlyfactors that affect the overall operational activities of business (Chacour and Ulaga, 2015).Therefore, it is stated that oil and gas scenery reshaped with the possible emerging trends withinexternal environment such as changing climatic condition of region, concerted efforts used bygovernment for reducing or lowering CO2 gas as well as reducing the fossil fuels. Due to rise inlevel of competition in the market, it has become difficult for companies to sustain in the market.So, due to this basic reason, merger along with acquisition is considered as one of the mosteffective strategies for enhancing the overall performance in market.1
Academic Model for analysing internal factorIn order to focus on the internal and external factors, energy sector must be engaged inusing appropriate model that is Porter's five force analysis. This academic model will support theoverall energy industry in evaluating their possible hazards as well as opportunities. As per theviews of West, Ford and Ibrahim (2015), first step in model includes measuring the intense ofcompetitive rivalry. Another force within model includes threat of new entrants that is low in thesector which means there are numerous factors that will affect the entrance of new companieswithin industry (West, Ford and Ibrahim, 2015). For entering in the market, huge capital isrequired by the firm as well as they need to spend more finance on Research and developmentprovision for improving their services. According to Proctor (2014), threat of substitute is weakin the energy sector as for producing the energy, there are different substitutes that are availablelike nuclear energy, biofuels, coal, etc. Therefore, the switching cost is very high for theorganization. In addition to this, another force includes buyer power which is the internal factorthat would affect the operations of organization within energy industry (Proctor, 2014). Thebuyer in this sector has low power as with the emergence of new player in the energy sector, itresults in presenting non-differentiable product to buyer that is electricity. Lastly, factor includedin the model is supplier’s power that is relatively high in the energy industry as only largegovernmental organizations are the suppliers in this sector. Deals in 2014-2016 during the crash in oil pricesAccording to Foxall (2014), in the period of 2014-2016, crash in oil prices has resulted inengaging the firm to adopt merger and acquisition strategy so that decrease in oil price may notaffect their investment as well as profits. In the year 2015, there were around 379 merger andacquisition deals within energy industry that is quite low as compared to the year 2014 (Foxall,2014). In the year 2015, leading merger and acquisition was announced by Royal Dutch Shell(Shell) which means they acquire BG Group that was expected around $82 billion. Further, inthe year 2015, Schlumberger had also acquired Cameron leading oilfield service sector.According to Hollensen (2015), organization must focus on acknowledging Resource BasedFirm Theory that basically focuses on different aspects that clearly states the reasons for whichestablishment goes for targeting the strategy that is merger and acquisition. It is also stated forgenerating the sustainable competitive advantage. This framework plays a significant role indetermining certain characteristics as well as firm’s resources (Hollensen, 2015). As per the2

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