BP’s strategic management Abstract:This Paper will focus on the organisation called British petroleum typically known as BP. This purpose purpose of this paper is to examine and evaluate evaluate and analyse the present strategic strategic position of BP within the industry also as we proceed further we shall also look at the environmental analysis, structural determinants of the intensity of the competition, structural analysis and competitive strategy of BP, The whole paper has been divided into three parts, in part one we look at the general analytical techniques like SWOT, PESTEL, proposed by M.E porter , latter in Part two BP will be analysed in the light of ansoff matrix and BCG matrix, and the porters five forces, the final part consists of suggestions with respect to the above analysis
Introduction :“BP is one of the world's leading international oil and gas companies, providing its customers with fuel for transportation, energy for heat and light, retail services and petrochemicals products for everyday everyday items” http://www.bp.com/sectiongenericarticle.do?categoryId=3&contentId=2006926
British petroleum well known as BP is world’s major oil and gas company, it is one of the the world third largest company company (source Wikipedia: http://en.wikipedia.org/wiki/BP http://en.wikipedia.org/wiki/BP)) it is well know brand world wide, and in business realm it is much known as a corporation which has been actively participating in vertical integration approach in every area of fuel industry, that includes excavation of oil and extraction and production refining distribution power generation and trading, recently BP has been actively involving in the development of renewable energy resources resources as it is believed by b y the end of this century all the worlds reserves of conservative fuel deposits will vanish, however however BP has its operation undergoing undergoing in 80 different countries and produced approximately 4 million barrels of crude oil, Bp’s largest maket share is in united states head quarted in Houston, the company has been alleged for the threat of environmental and safety concern following the recent spill in gulf of Mexico, Bp is the first company to realise that the the future demand for energy is expected to increase by 50% with in the next two decades and also on the BP website it has stated that the 85% of the energy demands will be met by the fossil fuels
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BP’s strategic management
PART 1:BP SWOT ANALYSIS: STRENGTHS:
BP’s History /brand:BP One of the worlds well know brand which has been operating in the business since the beginning of the 19
th
century but formally known as the Anglo- Iranian oil company , its
history itself dictates its stability with in the business, business, it has a strong holds in the united states market one of the largest consumer of oil and gas in the world also
Larger producer in the Gulf of Mexico:-
As BP is has its strong root hold in the American market the company has its own refining market and distribution channels thus it has a unique and formidable infrastructure, through the network of its subsidiaries which makes competitors daunting
Geographically diverse organisation:BP has been operating in 80 different countries world wide under different names like Amco, Burmah Castrol, BP express, express, Arco, BP connect, connect, etc. BP also listed in NSE and FTSE and LSE. however BP amco is one of the strongest brand among all the other brand that BP operates
Leadership in oil related technology:The oil related technology is defined as “Oil production related technology can help maintain revenue and profits by giving the controlling firm the ability to increase production on new oil fields. Superior technology also allows better utilization of existing oil reserves from a production
and
refining
capacity”
strength:superior-oil-related-technology)) strength:superior-oil-related-technology
Source:
(http://www.wikiwealth.com/swot-
with the definition above that BP has gained a
competitive edge among its other rivalries in increasing the production of new oil fields
Focus on Conventional Conventional oil ::“On feb 2007 the company has announced it would be spending 8 billion dollars over the next ten years in the research of various alternative methods to dig out the conventional http://en.wikipedia.org/wiki/BP#History)) Bp has over looked at the energy resources” source (http://en.wikipedia.org/wiki/BP#History
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BP’s strategic management fuel crisis thats going to arise in the coming years so it has changed its logo to Helios to illustrate it corporate social social responsibility thus thus by gaining the customer confidence confidence on the brand, this campaign was being supported by slogan called “BP beyond petroleum” petrol eum” Michael. E. Porter “ emer ging ging industries are newly formed or reformed industries that have been created by technological technological innovations, that elevate elevate a new product product or service to the level of potential viable of innovations” pg 215 .
Thus according to M. E porter usage of
unconventional energy is an emerging market where BP has made extensive efforts to gain the competitive edge. edge. Also we shall be discussing the likely likely strategies that BP can consider consider , as we proceed into the next sections of this paper
Weakness:-
Negative consumer perception:Though BP has been striving hard to position BP as a eco friendly brand, the recent incidents has put BP consumers on dilemma regarding the brand positioning, due to recent spills in Alaska and gulf of Mexico, also BP has increased it petrol prices in compared to its r ivals
Unstable Oil industry:Industries such as petroleum are at the stake due to their availability in the future , however oil industry is higly profitable , it also suffers volatility which decreases the ability of investments from the investors
Opportunities:-
Energy independence: since 8 billion dollars has been invested into research of conventional energy sources and alternative fuel methods, there will be some more opportunities arising in the fields of solar wind and natural gas energy
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BP’s strategic management Expansion of territories:BP can consider expansion of its borders to suitable oil r eserves and also by acquisition of oil and gas industries in the north sea and other areas globally
Pricing and high quality:BP can also reconsider by flexing its pricing policy in order to answer the tough competition, accompanied by same old high quality of fuel
Threats:-
Instability:Many BP’s oils producing regions are confronting with unstable government making business even more volatile
Oil Spill:BP has been alleged for being carrying out environmental hazard activities in oil excavation following the spills in Alaska and Mexico, as well a some occasional fire accidents in the BP oil rigs, corrosion in the oil pipe lines may also be posing a major threat to the company
Saturation of resources:Natural saturation of resources in the oil wells would be another major threat to the company’s existence
PESTEL Analysis :-
M. E Porter has suggested a frame work called pestel analysis in understainding the forces in the macro environment G. Schools and Armstrong states that “understanding how PESTEL factors might impact on and drive change in general is a good starting point” pg 66 The term PESTEL stands for political , economical social technological ecological and legal these forces have influence on the organisational external environment
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BP’s strategic management
POLITICAL
As discussed above due to unstable governments in the BP’s production countries the worlds energy markets are getting more volatile
Due to global warming issues and climatic disturbances governments are creating a strong barriers on oil excavations, besides encouraging such industries into find out more sustainable forms of energy
On whole the global energy market is becoming more volatile due to continued oil demands from the third world countries
ECONOMIC
The economy is supported by the energy reserves in that country
“ The pace of global economic recovery holds the key to energy prospect to next several years” (IEA. 2010 facts sheet )
Energy markets can envisage demand increase by nearly 60 percent according to IEA
Due substantial increace in the alternative energy sources supply are expected to grow in the next few decades rapidly
SOCIAL
According to the Kyoto Kyoto protocol,
control of the CF(chlorine CF(chlorine fluorine) carbon
emissions has become a legal l egal requirement
More attention has has been drawn towards the concerns concerns on sustainability of of the future though this may seem a little impact at the moment due to unavailability of production of more economical forms of alternative energy such as solar and wind energy
TECHNOLOGY
This force is likely likely seems to be a major driver of change in the global energy market as it is being underpinned by a technological advancements of production of economical economical ways wa ys of alternative energy
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BP’s strategic management
Part 2:-
The Ansoff Matrix :- the ansoff matrix is a 2x2 matrix with products market mix for existing and new markets , it was first proposed by H. Igor Ansoff, it is a growth markets matrix helps the organisation to take its strategic strategic decision decision
it also helps us to analyse how BP has
diversified itself from British petroleum to beyond petroleum
http://tutor2u.net/business/strategy/ansoff_matrix.htm
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BP’s strategic management Application of ansoff matrix to the present organization:-
Existing market
Existing product
New product
Market penetration
Product development
This involves BP extending
Bio-fuels that are produced in
its
a sustainable way, and solar
geographical
frontiers,
more retail outlets, direct
energy wind energy etc
distribution etc New market
Market development
Diversification
Advertising and marketing
Clean and renewable solar
flexing the pricing policy in
energy for homes, roads and
UK and acquiring person
businesses
owned retail outlets in prime locations
Market penetration:-
Bp has a clear and focused strategy in market penentration with its
varied products for each and every market segment like homes business and also diversified products like lubricants motor oils etc are also available to support its deliberate strategy into market penetration Product development:-
this strategy is best applied when a particular product or service is
in maturity or a decline stage however due to global environmental fuel crisis it has become necessary to dig for a new energy resources, however this strategic approach give an competitive edge to the organisation organisation like bio fuel through sustainable sustainable sources, thus BP BP has turned its promotional tag from British petroleum to beyond petroleum IEA 2004, also predicted that the future energy supply will be from renewable resources
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BP’s strategic management Market development:-
BP has been aggressively and readily applying this market strategy, as it is presently operating in 80 different countries, also as a part of further market development, BP hold its own distribution channels besides having dealer distribution channels, recently in India, BP has targeted a new demographic demographic group ie., CNG( compressed compressed natural Gas) Gas) for domestic purposes, In which BP has gained a significant market share. However, still there is a plenty of room to grow in this area by expanding more into Africa and Russia and Europe Diversification: -
Although diversification is an extremely risky strategy, to secure BP’s future BP has invested 8 billion dollars in the development of economical ways to produce renewable and alternative energies, as there are some speculations that solar energy will be utilized more by 50% than its present usage (data monitor 2004). In order to gain expertise in this sector of energy production bp has invested such a hefty sum, to regain its losses due to recent oil spills. BP has acknowledged the importance of diversification strategy, once the expertise is gained then it can be a market leader by choosing emerging industry markets entry strategies BCG MATRIX:-
(http://tutor2u.net/business/strategy/bcg_box.htm )
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BP’s strategic management
BCG Matrix :
Cash Cows British petroleum has a big market share in oil and gas industry with its wings extended in 80 different countries, however these SBU are with high market share with less room for the growth as it is a mature market, these SBU need to be managed well with right strategy to maintain the profits
STARS: BP is presently well established in most of its operating countries however, there is still room to grow to stars as it the fourth largest in terms of revenue making followed by royal Dutch and Exxon Mobil (cnn, 2010) (http://money.cnn.com/magazines/fortune/global500/2010/full_list/ )
QUESTIONMARKS:
BP is trying to venture into new markets by investing into sustainable and renewable energy resources, since it has small share in high growth market as it is predicted that market for these renewable energies were likely to rise rapidly Also BPs CNG products can be another question question mark as it has high growth growth which can can be replaced by petrol in the developed nations
DOGS: BP business can be effected by electrification of rail transport in the third world countries, Wherever BP is operating in. Due to the market for supplying diesel to locomotives are at the dog’s state, because it has relatively low growth and small share, and this market might sooner vanish. However BP can continue with this present SBU, as it cannot affect the other SBUs
BP has a stable market share in a unstable market, despite the facing allegations from recent gulf of of Mexico Mexico disaster disaster Page 9
BP’s strategic management
Part 3:Suggestions for BP for its entry into emerging energy industry:-
Michael. E. porter (1980) suggested some of the common early barriers like
Proprietary technology
Access to raw materials and other inputs
Risk, which raises the effective opportunity cost of capital and there by effective capital barriers
Proprietary technology:BP is the first company to identify the need to invest into development of new ways to produce energy; it has invested 8 billion dollars to develop and posses the new technologies in production of wind and solar energy
Access to raw materials and other inputs:Though the tendency of this particular barrier might not seem appr opriate to BP’s production of wind and solar energy as they are freely and abundantly available in nature however BP still can gain competitive advantage by reserving the copy rights of the technology that is being/will be used to convert the alternative alternati ve resources into energy. Thus generating revenue
Risk:Traditionally established companies are often not the first to be in the new emerging industry due ot technological advancement even having the abilty and obvious strengths , but climb the band wagon latter, and tries to establish by placing high higher opportunity cost, in this case BP has some relatively obvious strengths like knowledge of the customers and brand strength, so it is advisable that BP continue to press by investing into research of alternative fuels
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BP’s strategic management References:Bibliography :Books:M.E. Porter competitive competitive strategy: strategy: free press 1980 Exploring corporate strategy (2006) by G. Scholes, Armstrong et al Ft prentice Hall
Websites:-
www.economist www.economist .com www.iea.org www.bp.com www.wikipedia.org
http://www.worldenergyoutlook.org/docs/weo2010/factsheets.pdf www.franteractive.com http://www.businessweek.com/mediacenter/podcasts/international/international_08_11_06.htm http://search.businessweek.com/Search?searchTerm=bp+podcast&resultsPerPage=20 http://www.oneworkplace.com/images/dynamic/case_studies/BP.pdf
www.ft.com http://www.managementparadise.com/forums/principles-management-p-o-m/208706-pest-analysisbritish-petroleum.html Pestle http://www.ivoryresearch.com/sample1.php http://podcast.ft.com/index.php?sid=42
podcasts ft
http://www.1000ventures.com/business_guide/strategy_bcg_matrix.html
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