Question 1: Critically assess the strategic context within which your firm operates using any conceptual framework which you think is appropriate, and explain which are the most important general business trends and competitive elements. Which of these should strategic decision makers in the company of your choice consider the most and why?
Answer 1: This study aims at critically analyzing the strategic context in which British Petroleum (BP Plc.) operates by utilizing conceptual framework. Further the significant business trends would be identified and competitive elements would be discussed, so as to identify the strategies which BP should focus upon. BP is listed on the London Stock Exchange and its market capitalization in the year 2012 was £81.4 billion. The major products that BP offers are natural gas, aviation fuels, motor fuels, and petroleum. The revenue of the company in 2011 to $375,517 million, compared to $297,107 million in 2010. BP Plc. is into finding and extracting oil, moving them to different place, refining them, generating low carbon energy, and offering various services to customers through their retail outlets. The well-known brands of BP are Castrol, ARAL, ARCO, AmPm, and Wild Bean Café. The companies in the oil and gas industry all around the world are looking for better opportunities and solutions in order to overcome the challenges and problems related to procurement strategies in relation to multi-cultural complexities in different countries. Companies seek to achieve competitive advantage in the market and grab market share in order to attain long term sustainability. Multinational oil companies are not exempted as they also have been striving hard to perform better than its competitors and have been looking for better opportunities in different parts of the world. Procurement and supply chain are used alternatively in the oil and gas sector industry. Procurement was not a major area of concern for the companies in the oil and gas industry previously. They were more concerned about rapid expansion of their business through fast exploring of oil using improved technologies used for the purpose. Until recently the oil companies started realizing the fact that major portion of the operating expenses of the companies were spent on its procurement or supply chain system.
It has also been observed that a particular project can go all in vain if its procurement system is not managed and controlled effectively. BP follows a ten point business strategy to grow value for its stakeholders. These ten points are the ten values that BP expects to deliver to its customers and other stakeholders of the company. The first point is to focus on the safety issues and function based on the strengths of the company, such as gas value chain, deepwater, technology, employee relationship, and giant fields.
The customers can expect safety and effective risk management measures, strong focus, standardized services, visibility and transparency. Apart from this, the measurable values that BP offers to its customers are, active management of portfolio, increasing operating cash of the company, strong balance sheet and stable financial condition of the company. As far as the existing market is concerned, BP has penetrated into many countries and has many retail outlets too, which most oil and gas companies do not possess. This means they cater to corporate clients, but also offer value through their products and service to retail customers too. Further, in order to expand to other untapped market, it also spends on advertising, promotion, and flexibility in terms of price, procurement policies and strategies based on the market condition of the country. BP has also taken initiatives in producing bio-fuels in order to find sustainable ways of designing products. Even solar energy and wind energy is being also utilized by the company to offer eco-friendly products and services to the customers around the world. Since the level of competition in the oil and gas industry has also increase, so companies are looking out for way to differentiate their offerings from others. In case of this industry, offering environment friendly products and services is a unique selling proposition on the part of the company.
Considering the present scenario the business trend of BP does not reveal a positive picture. This is because of the Deepwater Horizon oil spill that took place in the year 2010. After this incident, US government has cornered BP and the company was not offered federal contacts, which was a huge blow on the bottom line of the company. After this heavy penalty was charge on BP for such massive environmental damage that occurred due to the mismanagement and lack of attention and sincerity. Due to this reason the company recorded a net loss of $2.4 billion in the year 2010. They also spent around &17.7 billion to clear the oil spill. Apart from that, they gave out more than $15 billion to the trust funds as compensation to the victims of oil spill. This reveals that BP has been confronting volatile trends in business since the oil spill. The stock prices of the company went down considerably and a loss of $60 billion in the market value of the stock prices of the company.
Based on the information of the external and internal market trend, BP’s production in 2011 was lower than that of 2010, due to divestments, diminishing rate of production in the Gulf of Mexico. The loss that BP had to incur due to the oil spill in the Gulf of Mexico affected the company’s financial strength in 2010, and it also shadowed the growth and profitability in 2011. In the year 2011, BP got into a deal with Rosneft, the market leader in the Russian oil and gas industry. The company got into deal with Rosneft for long-term profitability. It exchanged 5 percent of its shares with 9.5 percent of 9.5 percent of Rosneft’s superior rated stocks. Though the stock swaps would dilute the earning per share of BP in the short-run. In addition to this, BP also has to also incur the expenditure for the development of oil and gas reserves in Russia on Kara Sea. BP has invested about $7 billion for the research and development of alternative sources of energy. These alternative sources include wind, bio fuels, carbon capture, solar energy, and sequestration. BP has opened a Cedar Creek II of $475 million in Colorado which would be utilizing around 250 megawatt of wind energy for supplying power to 75,000 houses.
This division of alternative energy source also employees around 6000 people. This can be considered to be one of the major competencies or competitive element of BP. BP has diversified its business towards alternative sources of energy because they have projected that a dramatic increase in the demand for renewable energy can be seen in the next 10- 20 years. The company have started investing in alternative source since 2005, so that it can make this as its core competency in future. Other competitive elements of BP are its other products such as bio fuel, microbes that would support in enhancing the recovery of oil. In response to the oil spill that occurred, BP has started taking greater risk and safety measures. New risk management system has been developed by the company, which is consistent and fast. The upstream business has been restructured into three major divisions, namely exploration, developments, and production. All these elements have developed the core competencies of the company strongly after the setback in 2010.
Of all the strategies and competitive elements that BP has undertaken or working towards, the most significant is its initiative towards the development and growth of its division for alternative energy. The oil and gas industry depends on natural resource and time is coming when excavating excessive natural resource would be harmful for the world, so the long term planning of BP to utilise the natural resources which are easily available, such as wind and solar power would be its unique selling proposition.