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Global Strategy Corporation

Free essay example:

Question 1

Introduction

British Petroleum

Shell

Issues faced by the Oil and Gas industry

Corporate Governance and Business Ethics

Corporate Social Responsibility Issues

Improving Performance and Operational Effectiveness

Recruiting and Retaining skilled employees

Question 2

Expansion in New Markets through Mergers, Acquisitions and Strategic Alliances

Question 3

Tony Hayward: Management & Leadership Abilities

Conclusion

References


Question 1

The global prices of oil and gas have started declining with the increase in the demand of crude oil and petroleum products by developed as well as developing economies. With the change in the economic scenario, the companies belonging to oil and gas industries too have to change, together with their product portfolio. The profitability of the companies in this industry depends on their operational efficiency. With scarcity of resources and increase in demand, people may ask for alternative sources of energy. The companies belonging to the oil and gas industry are facing tough challenges and therefore it is high time the companies adopt different global strategies to overcome these challenges. Few of the major players of this industry are British Petroleum, Shell, Mobil, Total etc.

Introduction

British Petroleum and Shell are among the largest energy companies providing their customers fuel for transportation, heat, light and everyday necessities. The aim of these companies is to meet the need of the society in an economically and socially feasible way. In the operation process, they addressed the following challenges of Gorporate Governance issues, Business ethics, Corporate social resonsibility issues, Improving performance and operational effectiveness, Recruiting and retaining a skilled workforce.

British Petroleum

British Petroleum is an international company which has its operations in around 100 countries and six continents. The main activities of the company are exploration of crude oil & natural gas, refining, supplying, manufacturing and marketing of petrochemical products. The company originated owing to the efforts of William Knox D’ Arcy, who invested his precious time, money and efforts in the belief that valuable deposits of oil could be found in Persia. The company supports all of its business with high quality research and technology. The company runs its business on the principles of strong corporate governance with a set of polices and values which guide their behavior. The company’s turnover in the year 2007 was $284 billion with a replacement cost profit of $17.3 billion (Bp.com 2009).

Shell

Shell is a multinational company with a worldwide recognition. The Royal Dutch/ Shell group which is commonly known as Shell is a group, consists of around 1700 companies, out if which 60% of the group is owned by ‘The Royal Dutch’ and the other 40% is owned by ‘Shell Transport and Trading Group of Great Britain’. The company delivers a vast range of energy solutions and petrochemicals to its customers. Shell is known for its service stations and for exploring and producing oil and gas both at sea and land. The company also invests in making lower carbon energy sources which are extremely competitive for large scale use.  The company manages the world’s most crucial energy projects with the help of 10, 4000 people employed in this organization around the world (Shell.com 2009).

Issues faced by the Oil and Gas industry

The current borderless world has facilitated the expansion of the firms in all the corners of the globe. As firms have started operating in the global market place the competition has intensified to a significant extent and the performance standards in terms of cost, quality and efficiency have increased to a great level (Hitt et al 2005) so as to meet these performance standards and face the competition every industry faces. In today’s competitive world the oil and gas industry is facing serious issues including legal and political issues, social issues such as pollution and carbon emission, lack of skilled labour due to existence of high risk and low safety and security measures.

Some of the issues faced by British Petroleum and Shell are discussed below:

Corporate Governance and Business Ethics

 Both the companies, British Petroleum and Shell are the leading companies in the oil and gas industry. Corporate governance generally means following all the legal and ethical compliances, ensuring that both the board of directors and managers make effective and efficient decisions in a timely manner, maintain effective relationships with the stakeholders of the company and perform to a good standard with the help and co-operation of all the employees and the board (Colley et al,.2003).

To maintain its position in the competitive world, all companies need to keep their stakeholders happy. Stakeholders not only include shareholders and employees but also the society, customers, suppliers and every group of individuals who are connected with the company somehow. Doing business ethically would always lead to high performance.

Both the companies in question, believe in the importance of Honesty, Integrity and Loyalty. The BP board believes that good corporate governance involves clarity of roles and responsibilities and proper utilisation of skills and processes. At BP Plc., there are different boards and committees to review and monitor the performance of employees, managers etc. The committees are also formed to review that the company is complying with the rules of safety, ethics and environmental issues. The board of BP has always been very committed towards the interests of the shareholders and has always tried to act fairly when it comes to them. The board has always engaged in obtaining the view of the shareholders in all the decisions made by the company. By investing in solar power the company has adopted the Product differentiation strategy. With the aggressive stance on climate change, senior managers at BP have seen many advantages. One of them is that they think it allows them to cut costs in other operations of business (Claussen ET.Al, 2001). British Petroleum has been committed to provide leading edge products to its customers so as to enhance the value of the organisation as a whole. It also enhances the customer value by delivering gas and power risk management strategies.

Shell has always been committed to certain business principles so as to conduct business in an ethical way, to comply with regulatory norms, to give proper regard to health and safety etc. These principles include competing fairly and ethically, insisting on honesty and fairness in every aspect of the business, not taking part in any party politics and working to benefit the local community (Grant,2005). The company Shell always encourages its employees to demonstrate leadership, teamwork and accountability and through these behavioural aspects, contribute to the overall success of the company. The company has always tried its best to have a mutually beneficial relationship with its suppliers, contractors and joint ventures and has also tried to promote the application of its business principles in these relationships (Shell.com 2009)

Corporate Social Responsibility Issues

With the increasing interest in Corporate Social Responsibility many companies have also started changing their business practices, ranging from global labour standards to issues like global warming and public health. Corporate Social Responsibility which is also called corporate citizenship matters just because it influence all parts of the business and business matters a lot to society as it creates wealth and well being in the society. Deciding where companies fit in the social structure is the central theme of corporate social responsibility. Businesses produce what is good for the society but at the same time it can cause harm for the society by polluting the environment, layoffs, industrial accidents, etc. (Werther & Chandler 2006). Therefore, to face the issue of corporate social responsibility both the companies have adopted several strategies.

As the European industry is extremely concerned about the EU carbon energy tax and also favours Kyoto Protocol, there these two companies i.e. British Petroleum and Shell have adopted proactive strategies and set an example by developing the emission trading scheme. This is one example which would definitely increase the goodwill of these two companies in the mind of society. Regarding emission trading in the UK, both the companies have developed an In house trading system and also have taken a significant reduction target within this scheme (Hovi et al. 2005). Owing to the growing importance of “environmental consciousness” in the oil and gas industry the company Shell aims to increase its focus on producing cleaner burning gases which would reduce its dependency on coal and also ensure that they extract and deliver oil and gas in a profitable, environmental and in a socially responsible manner.

Improving Performance and Operational Effectiveness

As the oil and gas industry is in its mature state, therefore, the companies belonging to this industry should achieve enhanced profitability through best performance and cost control techniques. For improving operational effectiveness the infrastructure needs to be replaced and as the product demand is very high for the oil and gas companies , investing in medium and long term process improvements and cost control measures would make a good sense as far as business is concerned (Pwc.com 2009).

British Petroleum is a world leader in knowledge management and also has developed a healthy and systematic framework for performance through learning. British Petroleum implemented the Knowledge Management program in the year 1997. The main goal behind this was to change the behaviour of the people and the team so as to increase their performance and to distinguish themselves from their competitors (Gorelick et. al. 2004). For developing performance based service strategy in the oil and gas industry the company considers the factors and attributes that influence.

In Shell, professionals try to strike the right balance between competitiveness and cost effectiveness and carry out in depth benchmarking process in order make Shell the industry leader. Shell has introduced a new training structure for the employees in order to improve their performance. Shell recognized that the value from class room learning can be maximised further when it is combined with assignments at the work place and face to face coaching (Shell.com 2009). Shell also introduced “Drilling the Limit” strategy which helped the company to focus on how wells can be planned, drilled and managed as a process in an efficient way.

Recruiting and Retaining skilled employees

Another challenge for the oil and gas industry is to retain and attract skilled employees, because in this industry the workplace of the company may be hazardous to health. Therefore the companies need to provide health and safety benefits to employees. Companies should adopt policies so that they can retain and attract new employees.

The company Shell carries out regular job evaluations so that it can establish a hierarchy of job groups and can manage pay levels to link rewards with employee performance. The company makes sure the reward package work for the employee so as to suffice their living in the country they are employed in. Shell has also introduced the Goal Zero strategy which focuses on ensuring that none of its employees are hurt.

British Petroleum seeks to create a workplace which is safe and professional.  Employees are offered a competitive reward package which includes salary, bonuses, share plans, health and retirement provisions as well as other fringe benefits. Allowances are also paid for working extra hours, for the location where the employee is placed and for increased responsibilities of the employee.  British Petroleum also offers a wide range of flexible working hours, including working from home for a portion of your work.  The employees concern program ‘Open Talk’ at BP enables its employees to seek guidance on the code of conduct and report suspected breaches at the same time.

Question 2        

Expansion in New Markets through Mergers, Acquisitions and Strategic Alliances

Ansoff Product/Matrix Grid is a well known marketing and growth tool which was published in Harvard Business Review (1957), in the article named as “Strategies for Diversification”. The Ansoff Product/Matrix Grid suggests that the growth strategy for any business depends upon whether it markets new or old products in new or old markets. The output of this matrix is a series of different growth strategies (McLean, 1997).

image00.png

(Source:  McLean,1997).

These suggested growth strategies include firstly the market penetration strategy where the main strategy is to increase the market share of the current products by securing dominance in growth markets, second strategy is product development strategy where organization aims to introduce new products in the market, the third strategy is market development strategy where organization wants to sell existing products in the new market and lastly the fourth strategy is diversification where organization wants to sell new products in the new markets (McLean, 1997).

To adopt these strategies like market development, market penetration the organization has to look upon different methods like mergers, strategic alliance, takeover etc. These methods are discussed below.

A merger takes place when two companies are combined together and run their business as a single entity. Acquisition is when one large company acquires a small company into its business. One single move can change the course of the company, can help to create value for shareholders, and can change the careers of the managers employed with the company. There are three different types of mergers namely horizontal mergers, vertical mergers and conglomerate mergers. There can be many different reasons when a company decides to go for a merger or an acquisition. If a successful merger and acquisition takes place, it can create a lot of synergy for the company. If the merger and acquisition is rational then the combined entity formed after the merger and acquisition will have more value than individual parts. Some of the important forces which drive company’s mergers and acquisition are to increase the market share, to achieving economies of scale, to enter a new market, to achieve more co-ordination, etc. (Arnold, 2002).

Strategic Alliance can be defined as the relationship between two companies having the same interests and goals. Companies enter into a strategic alliance in order to mutually benefit each other. Strategic Alliance is effectively formed to gain a long term financial, marketing and operational advantage without exposing competitive independence (Glovers and Wasserman, 2003). These strategic alliances play a critical role in the expansion of a company and in diversifying the product portfolio of the company.

With the increase in competition, the number of mergers, acquisitions and strategic alliance are also increasing. British Petroleum being one of the largest energy companies, also wants to expand its supply and business in new markets so as to sustain its competitive position in the market. Now a day the oil and gas industry is facing severe competition, except in those areas where there are state owned monopolies. The mergers and acquisitions in the oil and gas industry have helped British Petroleum to grow organically over the last few years.

British Petroleum’s historical mergers and acquisitions have been with AMOCO, ARCO, BURMAH CASTROL, TNK-BP, VASTAR, and VEBA OIL AND E.ON. In 2007, British Petroleum and TNK – BP entered into a strategic alliance with Gazprom which is also one of the largest oil producing companies. The synergy so created by the alliance would help to improve supply chain management practices, to develop a long term cost effective price structure and would thereby enhance their performance. British Petroleum’s merger with AMOCO in 1998 and acquisition of ARCO and Burmah Castrol in the year 2000 made BP a global corporation. After the merger of BP- AMCO, the safety performance of BP also improved to a great extent. British Petroleum has always employed a focused exploration strategy in the areas which have potential for large oil and natural gas fields as new profit centres. This strategy has helped British Petroleum to expand its operations and explore new markets (Bp.com 2009). Another important factor behind these mergers and acquisitions is to have cost leadership advantage in the industry. The acquisition of AMOCO by British Petroleum has resulted in reduction of around a total of 93,000 combined employees by reducing about 6,000 jobs. This reduction in the number of employees has resulted in a cost saving of about $ 2 billion (Hitt et. Al, 2001)

Question 3

Tony Hayward: Management & Leadership Abilities

In order to achieve company goals and make the company the best in the industry, the owners (CEO, Top level management) of the company should take care of the people working in the company, as their efficiency in performance would help company to achieve its goal. Therefore, a good integrated communication and co-ordination network would be required to sustain its image in the industry.

A 7S framework model was developed as a model of organizational change by Waterman, Peters and Philips. This framework can also be used as an organizational analysis tool and it also depicts that organizational effectiveness stems from interaction of various factors. The 7S framework is shown below:

image01.jpg

(Source: Blair and Meadows, 1997)

The above diagram has no starting point or hierarchy and it shows that by considering organization from these 7 viewpoints it would be possible to establish major strength and weakness. 7S framework shows the 7 most important things that should be kept in mind by the management for achieving organizational goals. The British Petroleum’s management framework clearly sets out principle on how to delegate authority and responsibility. As the responsibility of running the company is efficiently is given to CEO, therefore CEO should take care of all the seven S mentioned in the framework.

Tony Hayward after being the Chief Executive for almost a year, wanted to implement a radical change in British Petroleum’s structure and approach. He had suggested that simplification is the key to success. According to Tony, British Petroleum had incredible assets and a great workforce. The only need was to bring these assets and people together to form a more productive, efficient and powerful organization. The core problem that was cited by Tony was the Bureaucratic management structure which was formed because of the number of mergers and acquisitions in the organisation. According to Tony, the people who knew most about the company were the people who were running operations at the bottom level. Tony also noticed that the management had become too introspective at the top level and was not listening to the employees about safety and reliability.

Tony has now set his priorities right and these include safety, people and performance at the top of the list. The greatest responsibility of an organization is to run safe and reliable operations. Considerable steps should be taken up so as to make employees sure that they are working in a safe and healthy environment. This would help Tony to retain the employees and also to generate a sense of belongingness among them. Another major factor is that there should be a new operating management system which should be so designed so that it could help to bring more consistency in the operations of the company. This can be done by implementing cross group programmes. People are one of the main assets of a company and placing right people at the right place would surely help the company to perform efficiently and effectively. Another one of Tony’s priorities is to improve performance which has fallen in the last few years. This decrease was simply because of the missing revenues from the delayed and poor projects in the United States. Secondly, this was due to the unnecessary complication in the way of managing business. Tony would require focusing on improving behaviours of employees by motivating them to work in a more efficient and coordinated way. This can be done by rewarding them, giving them more fringe benefits and providing them safety and security at the workplace. There is also a need to build a high performance culture in the organization. With coordination among different operations and departments, a high performance culture and highly motivated employees, Tony can unquestionably make British Petroleum a simpler and more efficient organization (Bp.com 2009)

Conclusion

The price of oil and gas has been very volatile over the last few years. For achieving growth, making sound decisions and for facing problems regarding fluctuating prices in this industry, the oil and gas companies have to focus both on long term as well as short term conditions. Also, to maintain a long term competitive edge over the others, the oil and gas companies need to invest in research and development (R & D), people and technology and while making such important investments oil and gas companies also need to focus on controlling costs, reducing risks and improving controls. A key challenge for oil and gas companies is developing business strategies that would ensure environmental stewardship, socially responsible practices and sustainability.  

References

  1. Aras G., Crowther D., (2008), “Governance and sustainability: An investigation into the relationship between corporate governance and corporate sustainability”, The Journal Of Management Decision, Vol. 46 No. 3, pp 433-448
  2. Arnold G., (2002), “Corporate Financial Management”, Financial Times/ Princeton Hall Publications , Second Edition
  3. British Petroleum (2009), http://www.bp.com/genericarticle.do?categoryId=98&contentId=2000344 [online]. [accessed 5th March 2009]
  4. British Petroleum (2009), http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/downloads/B/bp_board_governance_principles.pdf [online]. [accessed 10th March 2009]
  5. Claussen E., Cochran V.A., Davis D.P., Pew Center on Global Climate Change, (2001), “Climate Change: Science, Strategy and Solutions”, Brill Publications
  6. Colley J.L, Doyle J.L., Stettinius W., Logan G., (2003), “Corporate Governance”, McGraw Hills Publications.
  7. Crane A. , Matten D., (2007), “Business Ethics: Managing Corporate Citizenship and Sustainability in the age of Globalization”, Oxford University Publications, Second Edition
  8. Glover S.I., Wasserman C.M, (2003), “Partnerships, Joint Ventures, & Strategic Alliance”, Law Journal Press Publications
  9. Gorelick C., Milton N.J., April K., (2004), “Performance through learning: knowledge management in practice”, Butterworth-Heinemann Publications
  10. Grant R.M., (2005), “Contemporary Strategy Analysis”, Blackwell Publications, Fifth Edition
  11. Hitt M.A., Harrison J.S., Ireland R.D., (2001), “Mergers and Acquisitions: A guide to Creating Value for Stakeholders”, Oxford University Press Publications
  12. Hovi J., Stokke O., Stokke O.S., Ulfstein G., (2005), “Implementing the Climate Regime: International compliance” , Earthscan Publications
  13. Monks A.G, Minow, (2008), “Corporate Governance”, John Wiley and Sons Publications, Fourth Edition
  14. Moser T.F., (2005), “Social performance: key lessons from recent experiences within Shell”, The Journal of Corporate Governance, Vol. 5 No. 3, pp 105-118.
  15. Oil and Gas UK (2009)., http://www.oilandgasuk.co.uk/issues [online]. [accessed 9th March 2009]
  16. Price Waterhouse Coopers,(2009),  http://www.pwc.com/extweb/industry.nsf/docid/13125AA4E36B0DF0852571D1004D6F30 [online]. [accessed 10th March,2009]
  17. Shell (2009), http://www.shell.com/home/content/aboutshell/who_we_are/our_values/sgbp/sgbp_30032008.html [online]. [accessed 11th March 2009]
  18. Shell (2009), http://www.shell.com/home/content/responsible_energy/integrated_approach/the_business_case_for_sd/the_business_case_for_sd_000407.html [online]. [accessed 7th March 2009]
  19.    Werther W.B., Chandler D., (2006), “Strategic Corporate Social Responsibility: Stakeholders in a Global Environment” , Sage Publications

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