Business Strategy for BP Oil Company: Semester 2 Report

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Business Strategy
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Table of Contents
Introduction......................................................................................................................................3
Task 1: Analyze the impact and influence which the macro environment has on an organization
such as BP Oil Company and its business strategies.......................................................................3
1.1 Definition and explanation of ‘strategy’................................................................................3
1.2 Role of strategy to achieve business objectives.....................................................................3
1.3 Different strategies to resolve issues of BP oil......................................................................3
1.4 Macro environment of an organisation and the influence of the macro environment on BP
oil.................................................................................................................................................4
1.5 Stakeholder analysis for BP Oil.............................................................................................5
Task 2...............................................................................................................................................5
2.1 Internal Environment of an organization...............................................................................5
2.2 Capabilities of an organization..............................................................................................6
2.3 Strategic capabilities and components of BP oil...................................................................6
2.4 Analysis of internal environment of BP Oil 200...................................................................8
Task 3...............................................................................................................................................9
3.1 Application of Porter’s Five Force model on BP Oil............................................................9
3.2 Application of Ansoff Matrix on BP oil..............................................................................12
Task 4.............................................................................................................................................13
Produce a strategic management plan that has tangible and tactical strategic priorities and
objectives.......................................................................................................................................13
Conclusion.....................................................................................................................................16
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Introduction
BP Oil Company is the world’s largest oil and gas company with headquarter in London, UK
and operating in about 80 countries, which runs nearly 22,400 service stations all over the world.
Currently, BP is facing issues in meeting the demands of all stakeholders. This study provides
appropriate business strategies that can be used to rebuild the confidence of stakeholders.
Task 1: Analyze the impact and influence which the macro environment has on an
organization such as BP Oil Company and its business strategies
1.1 Definition and explanation of ‘strategy’
Strategy is a plan of actions specified for an organization and its components to attain a desired
goal. It’s all about incorporating organizational activities and allocating resources to meet the
desired objectives. Strategy is the blueprint of resolutions in a company that exhibits its goals,
lessens the key policies and action plans for accomplishing these goals, and describes the dealing
the company is to maintain in future. It also defines the contribution an organization plans to
make to its customers and society in a long run (Ahmad et al. 2017, p. 242-252).
1.2 Role of strategy to achieve business objectives
Strategy allows an organization to avoid any unfavorable situations by taking necessary
measures proactively. It helps in constructing realistic goals and objective, increases operational
efficiency. Strategic plan assists a company to align its functional activities and decision-making
(Madsen and Walker, 2015, p. 125-129). It makes a business more durable. It helps to increase
profitability and market share.
1.3 Different strategies to resolve issues of BP oil
As a junior manager I will make a strategy to restore the environmental equilibrium of the
affected area first. It has been identified that the communication gap in the supply chain of the
organization has caused the oil spill incident. To prevent the re-occurrence of the incident I have
decided encourage communication within the organization by initiating a reward system. Apart
from that, I have also decided to improve the bottom line that includes cost-cutting measures.
Less expensive transportation modes will be utilized to thwart down the cost.
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1.4 Macro environment of an organisation and the influence of the macro environment on
BP oil
Macro environment of an organisation specifies the vital external factors that have impacts on
the performance and strategies of the company and influences its decision making. In this
scenario, PESTEL analysis is a useful tool and this is based on Political, Economic, Social,
Technological, Environment and Legal (PESTEL) factors.
 Political Analysis - In major business such as BP oil which has a very high rate of
financial turnover political intervention is necessary. Political factor means
government policies which include lobbying, inter-country relation, trading policy
etc. In this scenario, BP oil needs political assistance to increase the manpower and
clean up the spill on a quick basis.
 Economic Analysis – Economic factors are very much important in business because
it has direct impacts on GDP, redundancy rate, inflation rate etc. We should invest
more on gas and oil reproduction and infrastructure to ensure company stability and
to avoid any further tragedy. There should be a good monitoring on inflation and
exchange rate.
 Social Analysis – It is related to customers’ desires and requirements. It changes with
religion, population growth rate, ethics, attitudes, priorities and social changes.
Therefore we have to compensate the affected persons first and keep a frequent watch
on customer needs.
 Technological Analysis – Technology is the main factor in energy based companies
like BP. BP has the advanced technology in deep water exploration of oil. We have to
concentrate more on energy efficiency and invest in low carbon contents. Integration
with markets is highly essential (Shukla and Karki, 2016, p. 490-507). Modern
technical training should be given to employees.
 Environmental Analysis – Environment factors deals with population and
environment on contributing to the social development. BP has to work actively to
decrease environmental risks with its eco efficiency activities such as reducing
greenhouse emissions, minimizing water and energy consumption, generation of
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sewages, production of residues solids and pastes. We should develop projects on
people education, quality of life and so on in partnership with community.
 Legal Analysis – An organization should work according to the law, it includes
employment law, anti-trust law etc. BP should be aware of Oil pollution act, Carbon
emission act etc as all these laws affect company operation, product demand and
pricing.
1.5 Stakeholder analysis for BP Oil
Stakeholder Analysis is used to identify stakeholders and analyzing their needs. It is important to
recognize all primary and secondary stakeholders who have interest in the project. Stakeholders
of BP Oil are workmen, fisherman, environment, oil-industry, government etc.
Many different stakeholders such as fishermen and workmen were economically affected.
Hotels, restaurants, and other businesses related to tourism, also felt the adverse effect. We
should compensate them and encourage the travel industry to grow.
We should take effective measures to restore the wetland and wildlife conservation destroyed to
protect environmental equilibrium. We can use methods such as burning, skimming and
chemical dispersants to minimize the amount of oil reaching shore.
Task 2
2.1 Internal Environment of an organization
The notion of internal environment refers to the particular component of the business
environment, which is formulated by a divergent range of elements present within the
organization, which can affect or can be affected by the decision, activities and choices of the
company. It encompasses culture, work process, management, members and management
practices.
For example, the value system, vision, mission, objective and the organizational structure of BP
Oil defines the internal environment of the company. The vision of BP Oil is having the best
competitive operating and corporate and financial performance (Badiru and Osisanya, 2016, p.
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234-238). This vision of the company, which is a part of it internal environment, affects its
activities, decisions and choices.
2.2 Capabilities of an organization
Capability of an organization refers to the ability of a firm to handle its resources, such as time,
labor and capital, effectively in order to gain competitive advantage in the market. Fulfilling the
demands of the end customers should be primary focus of the organizational capabilities.
For instance, BP Oil possesses the primary purpose of transporting hydrocarbon elements in all
parts of the globe and delivering agile and innovative marine solutions. The four key pillar of the
organization, such as technical, commercial, operational and health and safety are oriented to the
proper management of the resources and thus fulfilling the demands of the end customers.
2.3 Strategic capabilities and components of BP oil
McKinsey’s 7s Model
The strategic capabilities and components of the hydrocarbon transportation company BP Oil
will be identified using McKinsey’s 7s model. The seven elements of McKinsey’s framework are
Strategy, structure, system, shared values, style, staff and skills.
 Strategy: Strategy in McKinsey’s framework refers to the plan that is devised to build
competitive advantage in the market. The strategy of BP Oil has a dual focus of
delivering more energy in a new and better way for cultivating a low carbon future. The
company is utilizing the strategy of using new technologies to transport more
hydrocarbon material effectively to meet the expected rise in the demand of energy. It
helps the company to stay competitive when the policy, prices and customer preferences
are changing at a rapid pace.
 Structure: Being a large company, BP Oil has layered structure in which employees are
divided in several layers and possess different levels of responsibilities. It is a
hierarchical structure with the focus of having an effective communication within the
organization. Its upstream segment of the business is divided into three functional
divisions, such as development, exploration and production. These separate functional
areas are under executive management which follows the orders of the board of directors
(Ravanfar, 2015, p. 126-129).
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 System: It refers to the daily activities in which the employees of the organization
indulge into. The roles and responsibilities of the employees of BP oil are divided in
various categories. From finding reserves of energy safely and reliably to refining the
resources the workers of the company conducts all the functions. Furthermore, ensuring
the resources are being transported to the end customers is also a task of the staffs of the
organization. The technicians and engineers of the company ensure the safe and
responsible operation of the equipments.
 Shared values: Shared values are the core values of the company; it can be witnessed in
the general work ethic and work culture of the company. BP Oil has five fixed values
which provides the company a fixed point of reference based on which they work. The
five key shared values of the company are safety, respect, excellence, courage and one
team.
 Style: Here style refers to the leadership style adopted by the company. In case of BP Oil
the company is known for adapting leadership styles based on the demands of the
situation. John Browne was the CEO of BP Oil had adopted a participative leadership
style where almost 250 managers were given operating authority like ‘mini-CEOs’
(Channon and Caldart, 2015, p. 1). Apart from that, the company has also utilized a
transformational leadership style during the time when John Browne was the CEO. This
transformative leadership style helped the company in inspiring the workers and taking
the organization to a higher level of excellence.
 Staff: BP Oil Company is facing problems due to high employee turnover. The number
of workers in the company was as high as 86,400 during 2013. However, it has decreased
to 73,000 in 2018. The company looks at its workers as their most valued asset.
 Skill: BP Oil has a divergent range of workers who possess different types of skills. The
engineers and technicians of the company need to possess sound knowledge in modern
technology and they should also possess the skill of handling and maintaining these
machines effectively. Other workers of the firm need to possess skill, which are needed
for the successful completion of their tasks.
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2.4 Analysis of internal environment of BP Oil 200
The internal environment of BP Oil will be identified using the VRIO framework. The
framework identifies the value, rareness, imitatability and organization all of which helps in
identifying the competitive advantages and weaknesses of the organization.
Resources Value Rareness imitation organization Competitive
advantage
Alignment of
corporate
strategy and
activities
Yes No Each farm
tends to possess
their own
strategy
BP Oil company
possesses the
organizational
skill to extract
maximum out of
it
There is
scope for
further
development
Local and
global presence
The company
is known for
transporting
hydrocarbon
elements in all
parts of the
world
Yes It can be
imitated by the
competitors
BP Oil is one of
the most
diversified
companies in
this industry
It provides
the company
a strong
advantage in
the
competitive
market
Brand
awareness
Yes BP Oil is one
of the leading
brands in the
current industry
It cannot be
imitated by any
other company
It has used its
leading brand
position in
several market
segments
A
competitive
advantage
that is
sustainable
Flexibility of
the supply chain
BP Oil has a
large supply
chain which is
known for its
flexibility
Yes Close
competitors of
the company
also have
flexible supply
chain and some
of the suppliers
are shared by
these
The supply
chain of the
company is
utilized at its
highest potential
Helps in
running the
business
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companies
Rights of
intellectual
property,
trademarks and
copyrights
It helps in
thwarting the
competition
IPR, trademark
and copyright
are rare and it
is hard for the
competitors to
copy them
Chances of
imitation is
quite low;
however,
margins in the
industry
disruption
chances are
high
IPR and other
right have not
been fully
utilized by the
company
It facilitates
the process
of providing
strong
competitive
advantage
Task 3
3.1 Application of Porter’s Five Force model on BP Oil
Figure: Porter’s Five Force Model
(Source: Graham, 2017, p. 459-461)
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Porter’s Five Forces model proves to be effective for the determination of a strategy framework
which will help the company in implementing strategic decision for the analysis of its present
competition. The below-mentioned parameters are focused on in the model.
 Threats of new entrants: Low
The oil and gas industry retains high barriers which keeps the threat of new entrants, low. The
new entities seeking to enter the industry will have to bear immense infrastructure costs in terms
of enormous capital investment and highly expensive and heavy equipment, among others. It
becomes prohibitive for newer entities seeking to enter the industry (Bogomolova et al. 2015,
p.221).
 Threat of substitutes: Low
The alternative energy industry is not fully developed and the same does not possess the capacity
of meeting customer demands. Also, the companies also incur a high cost of production. These
combined factors keep the threat of substitution at a much lower level (Graham, 2017, p. 459-
461).
 Bargaining power of buyers: Medium
Bargaining power of buyers tends to be medium as the services and products offered by one
company in the industry are not particularly different than another. It leads the buyers to opt for
such company which offer lower prices and favorable contract stipulations. The power is held to
be medium as attrition of individual buyers may not have significant impact on BP oil (Bishop et
al. 2017, p. 253-254).
 Bargaining power of suppliers: High
The power of suppliers in the industry is significantly high on account of the presence less
number of energy or alternative energy suppliers. The greater concentration of suppliers puts the
same in dominant position, which will eventually lead to the decrease in the margins of BP oil.
High prices may be extracted from the company which will negatively affect the overall
profitability of the company (Heflin and Wallace, 2017, p. 337-374).
 Rivalry among existing competitors: High
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The oil and the gas sector experiences high competitive rivalry due to the fact that the companies
operating within the sector are big entities. The companies mostly offer low-differentiated
products. Intense competition impacts the prices which are brought down. Such instances have
an adverse bearing on the overall profitability of the companies (Bridge and Bradshaw, 2017, p.
229-241).
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3.2 Application of Ansoff Matrix on BP oil
Figure: Ansoff Matrix
(Source: Badiru and Osisanya, 2016, p. 228-234)
Market penetration: Market penetration with the existing customers and products requires
earning of brand loyalty from the customers, and more services may be provided to existing
customers on account of potential business (Lin and Li, 2015, 229-241).
BP oil should concentrate further on its existing customer base as acquiring customers will prove
to be expensive for the company and in the given circumstance customer trust may further erode.
For the purpose of market penetration, the company will have to make appropriate segmentation
of its products.
Product Development: Product development becomes crucial for the strengthening of
competitive advantage of company within the particular market segment. It may prove to be
instrumental in giving rise to greater customer satisfaction (Badiru and Osisanya, 2016, 228-
234).
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