Environmental Analysis of BHP Billiton: A Business Strategy Report

This report offers a comprehensive environmental analysis of BHP Billiton, a prominent Australian natural resource mining and exploration company. It begins with an executive summary and table of contents, followed by an introduction to strategic planning and its importance. The report then provides background information about BHP Billiton, including its formation and operational structure. The core of the analysis involves both internal and external environmental assessments. The internal analysis examines BHP Billiton's resources, capabilities, and competencies. The external analysis employs Porter's Five Forces to assess the micro-environment, evaluating the bargaining power of buyers and suppliers, the threat of new entrants and substitutes, and the intensity of competition. A PESTLE analysis is conducted to explore the macro-environmental factors including political, economic, social, technological, environmental, and legal influences. The report further examines BHP Billiton's business strategy, emphasizing its diversification across geography, market, and commodities. The report also highlights the company's competitive advantages, such as its low-cost asset base and adaptable business model. The conclusion summarizes the key findings and provides insights into BHP Billiton's performance and outlook, considering global economic conditions and industry-specific challenges.

Business Strategy
Business Strategy
Report on “Environmental Analysis of BHP Billiton”
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Business Strategy
Executive Summary
The report presented hereof talks of business strategy and how the environment of any
organization must be necessarily gauged before planning and execution of set goals.
The report discusses business strategies of an Australian large conglomerate – BHP Billiton.
BHP Billiton is a natural resource mining and exploration organization with a much diverse
portfolio at present.
To conduct an environment analysis, it is important to do both an internal and an external
analysis of the environment. In the report, for the micro environment analysis a Porter’s five
forces analysis has been presented. For the macro-environment analysis, a PESTLE analysis
was conducted. The business strategy and the competitive advantage was also discussed to
conclude by shedding light on what the research revealed about the general performance and
outlook of BHP Billiton.
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Table of Contents
INTRODUCTION 4
ABOUT BHP BILLITON 5
INTERNAL ANALYSIS OF BHP BILLITON 5
EXTERNAL ANALYSIS OF BHP BILLITON 6
BUSINESS STRATEGY OF BHP BILLITON 10
COMPETITIVE ADVANTAGE OF BHP BILLITON 10
CONCLUSION 11
REFERENCES 12
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Business Strategy
Introduction
Strategic planning and performance management go hand in hand. Performance management
is primarily role of employees and is about setting and achieving the goals and objectives set
as well as, removing the hindrances for achievement of goals post identification. The process
of setting goals is where strategic planning comes into picture. Strategic or tactical planning
is the method using which--the individuals working in the organization, on the organization’s
behalf, define a set of objectives to achieve (Slack, 2015). Without proper strategic planning,
no enterprise can become successful today (Haines, 2016). Also, the strategic plan needs to
be supported by a clear vision and an equally apt performance management system to reap
benefits.
The report conducts the environmental analysis of BHP Billiton which is a behemoth
organization in Australia. The report presents internal and external analysis of operating
environment of BHP Billiton. That shall shed light on some of the strategies in use in the
organization which affects their environment of functioning.
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Business Strategy
About BHP Billiton
Headquartered in Melbourne, Australia, BHP Billiton or simply BHP, is the world’s largest
diversified resources organization. It was formed as a result of merger between BHP Limited
and Billiton PLC. The organization follows a dual listing structure where both sections
operate individually as separate trading public companies but is a single business entity with
all their assets combined. It has a mineral exploration, technology, freight and transportation
as well as logistics operation.
Internal Analysis of BHP Billiton
An organization’s internal environment analysis revolves around aspects, proceedings,
necessities and objects inside the organization. All these factors collectively influence the
organization’s performance, mainly – leadership type, culture, organization’s mission and
vision etc. Post conducting an internal analysis, the below listed factors and their influences
were deduced.
a. Resources – A resource of any organization would be a single productive unit. The
unit could be for the purpose of supporting any activity or a means in itself to realize a
targeted outcome. A resource could be financial, human, material or non-material
resource (information). For an organization such as BHP Billiton, whose primary
activity is extraction and production of minerals (iron ore), petroleum or gas. BHP has
several mineral resourcing activities worldwide, these act as its material resources as
well as assets important to BHP. Without them, BHP’s existence would be
questionable as there would be no mineral to extract or produce. All the labourers and
other employees are their human resources. They ensure smooth functioning and are
vital to the bigger picture of performance of the organization itself. All the money that
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Business Strategy
supports BHP’s operations are its financial resources. Together all these resources
support operations of the organization and contribute to its success.
b. Capabilities – The quantity of production is the capability of BHP Billiton. High
produce means the capability is high and low production means lesser capability. In
case of BHP Billiton, its capabilities are mostly influenced by availability of mineral
resources. Not only that, the processes in use, logistics used, employee skills, policies
that influence their productivity everything is interrelated (Sykes and Trench, 2016. p-
22).
c. Competencies – What led BHP to its success is mainly the knowledge and skill it
acquired over years of its operations supported by strong leadership. If it needs to be
listed though, they would be – policies and regulations for their employees, strategies
to support core objectives, varied and rich resources, financial policies in place to
support overall operations in every sphere
External Analysis of BHP Billiton
The report shall conduct micro and macro environmental analysis to present the external
analysis of BHP Billiton. For micro-environment analysis, Porter’s five forces analysis was
conducted and for macro-environmental analysis, PESTLE analysis was conducted.
Porter’s five forces analysis sheds light on the competitive factors in internal factors such as
buyers, suppliers, threat from new entrants, threat of substitutes and existing competition.
a. Bargaining power of buyers –
a. supply of natural resources is limited and demand is huge. The threat is
moderate to low in this case for BHP Billiton. The organization could pass
along any price increases here.
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Business Strategy
b. Substitutes are, more or less, unavailable in large quantities reducing the
bargaining power of the buyer.
c. BHP focusses on maintaining a long-term relationship, impact of any price
increase is thus much reduced
b. Bargaining power of supplier – BHP on the other hand, is quite affected by factors
such as labour negotiations, material availability, energy prices, shipping costs etc.
Since substitutes are more or less not there, suppliers have a strong bargaining power
c. Threat of new entrants –
a. Natural resources are limited both in their capacity and supply. This
automatically reduces the threat of new entrants for BHP Billiton.
b. Demand from China for iron ore has reduced after drop in commodity prices.
This also prevents new entrants from entering the market
c. BHP Billiton has strong financial support and impressive infrastructure in
place after years of operation. For any new entrant, it would take quite some
time to match that.
d. Presence of BHP Billiton is on choicest of locations across the globe for
mining activities. A new entrant would not be much of a match to BHP
Billiton.
d. Threat of Substitutes – The raw materials do not have much of substitutes in market.
This is the reason for a low level threat in this department for BHP Billiton. Since the
natural resources’ portfolio is quite diversified for BHP Billiton, it is holding quite a
strong position
e. Competition –
a. Among existing competitors though, rivalry is strong. There is intense
competition to gain access to the reserves of resources across the world among
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Business Strategy
rivals. Along with that retaining the human resources who are well trained has
added to increase in salaries and wages.
b. Despite such heavy competition, the industry in itself is quite lucrative
because of the potential for making profits. This is also one of the reasons why
even though the prices decrease, the competitors shall still stand in a favorable
position.
c. Major instances of mergers and acquisitions also strengthened BHP Billiton’s
position.
To compliment the understanding of macro-environmental factors, a PESTLE analysis was
also conducted. These factors also have an impact on choice of strategies by BHP Billiton.
a. Political – This factor is in favour for BHP Biliton on its home ground only. It enjoys
great support from Govt. of Australia as they contribute hugely to economy. Due to its
worldwide spread though, it is always at risk from political forces at play in different
countries it has its operations in. the key drivers such as the operating license, pipeline
of projects, growth opportunities and all the infrastructure as well as related assets.
Changes in government and policies and regulations always directly and indirectly
affects its profits. Example Chile imposed a 5% royalty tax on the mining activities.
The tax was applicable on operating taxable income from mining activities (Ebert and
la Menza, 2015. p-108).
b. Economic – Any changes to cost of energy, exploration, labour, operations etc. hits
BHP Billiton. The increases could affect the organization’s plans of further growth
and expansion and ultimately the profits 9Hecking and Panke, 2015. P-30). Also, the
global economy stability is another susceptible point for BHP Billiton. Rise and fall of
global commodities affect the demand. Once the demand is less, supply could
alternatively, increase and impact price. Example, China economy contributes to
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Business Strategy
approx. 16% of BHP Billiton’s revenue. Recently, the demand had decreased owing
to fall in commodity prices which impacted the revenues of BHP Billiton (Zhang et
al., 2017. p-248).
c. Social - All the stakeholder relationships and operations are vulnerable to socio-
cultural factors for BHP Billiton. The factors need BHP to give financial support to
local groups and facilitate natural resources for building of infrastructure such as
roads. New projects need approval of societies, activities of this kind could impact
profit or cost of development for BHP Billiton. Example – in Chile, BHP has worked
on improving worker’s conditions in their copper mines.
d. Technology – All operations are mostly dependent on technology and related
innovations. BHP invests heavily on upgrading their technology for exploration
purposes. They affect strategy building for new projects and acquiring infrastructure
(assets).
e. Environmental factors – BHP Billiton is essentially an exploration organization and is
continuously facing pressure from environment conservationists. It si extremely
vulnerable to regulations and policies related to environment. They have hence
adopted policy of ‘zero-harm’ as well as sustainable development. The responsibility
to adhere to environmental policies is strategically connected to the license of
operation.
f. Legal – This also acts as a crucial factor of risk for BHP Billiton. As in the past, they
have already faced legal liabilities for causing damage to environment. Example –
Southwest Copper Operations at Arizona. This, along with other lawsuits faced by
BHP Billiton had impacted the financial resources heavily. All of this indirectly also
affected the strategic decisions for future investments.
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Business Strategy
Business strategy of BHP Billiton
BHP Billiton’s strategy is based on diversification. Be it diversification of geography, market
and even commodity. They stress on owning and making use of large assets which have a
long life, low running costs, could be up scaled as per their three targets of geography,
commodity and market. This is the only way they have been successful in delivering
excellent quality and gaining margins again and again through various economic as well as
commodity cycles over decades. Their low cost as well as diversified assets of Tier-1 type
makes their cash flow resilient by minimizing their vulnerability to exposure to any single
commodity or currency. It is also beneficial as it allows prediction and enhanced financial
gains (Grant et al., 2014.). They have also invested on building an extremely well trained and
skilled workforce over time. Mostly they recruit from host countries itself. Then, they train
them to become high caliber performers who reflect their organization’s values. This they
believe also gives them an edge over their competitors. They continuously strive for
development and growth of their assets to suit the needs of their customers.
Competitive Advantage of BHP Billiton
BHP Billiton’s competitive advantage mostly is thrived by its low-cost asset base most of
which, is diversified. That makes its cash flow quite resilient to exposure to single currency
or commodity. This is beneficial for organization as it continues to expand and diversify its
business portfolio. Also, it quickly adapts to meet the changing need of the customer. They
have been successful in building a capability to assist different nations in their every type of
stage of economic growth. The fact that its organization structure is also so simple is a plus
point. The structure provides it with scalability (Donovan, Hartley and Billiton, 2016. p-14).
Along with that, they have robust processes which are standardized as well as controlled.
This makes it simple for the staff to handle operations.
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Conclusion
With a lot of challenges related to price suppressing policies, risks of evident geopolitical
nature and unpredictable policy formations in major economies, global economy has mostly
been resilient mostly showing good performance. All of them has helped in robust
performance in key commodities by BHP Billiton. BHP Billiton has been successful in
having positive quarter performance in 2017 as well.
BHP Billiton is favoured with good demand in Asiatic regions, specially China and India.
Owing to population growth and elevated living standards, energy demands, minerals,
petroleum, fertilizers etc. demands are supposed to increase. Technology is also expected to
improve leading to rise in potential of opportunities as well as threats. Along them,
environmental policies owing to climate changes and corresponding market responses shall
also occur. BHP Billiton believes that, with correct placement of their assets along with
correct commodities they shall enjoy an edge in their strategic choices.
The report already portrays how well till now BHP Billiton’s strategies of diversification and
low cost scalable assets have been beneficial in their journey over decades. Their outlook has
been positive and extremely flexible to adapt appropriately with the environment demands.
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References
Books
Haines, S., 2016. The systems thinking approach to strategic planning and management. CRC
Press.
Slack, N., 2015. Operations strategy. John Wiley & Sons, Ltd.
References
Ebert, L. and La Menza, T., 2015. Chile, copper and resource revenue: A holistic approach to
assessing commodity dependence. Resources Policy, 43, pp.101-111.
Zhang, M.M., Bradley, C.F., Collins, A.F. and Saunders, M.H., 2017. Economic structural
changes in China: challenges and opportunities. International Journal of Economics and
Business Research, 13(3), pp.246-257.
Sykes, J.P. and Trench, A., 2016, August. Using scenarios to investigate the long-term future
of copper mining and guide exploration targeting strategies. In AusIMM International Mine
Management Conference, Brisbane, Australia(pp. 22-24).
Grant, R., Butler, B., Orr, S. and Murray, P.A., 2014. Contemporary strategic management:
An Australasian perspective. John Wiley & Sons Australia, Ltd..
Hecking, H. and Panke, T., 2015. The global markets for coking coal and iron ore—
Complementary goods, integrated mining companies and strategic behavior. Energy
Economics, 52, pp.26-38.
Donovan, J., Hartley, P. and Billiton, B.H.P., 2016. Investigating the market manipulation
hypothesis in iron ore. AusIMM Bulletin, (Jun 2016), p.14.
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