BP’s strategic management

Abstract:-

This Paper will focus on the organisation called British petroleum typically known as BP. This purpose of this paper is to examine and evaluate and analyse the present 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 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 (source Wikipedia: 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 as it is believed by the end of this century all the worlds reserves of conservative fuel deposits will vanish, however BP has its operation 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 19th century but formally known as the Anglo- Iranian oil company , its

history itself dictates its stability with in the 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, Arco, BP 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” Source: (http://www.wikiwealth.com/swot-

strength:superior-oil-related-technology) 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 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

energy resources” source (http://en.wikipedia.org/wiki/BP#History) Bp has over looked at the

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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 responsibility thus by gaining the customer confidence on the

brand, this campaign was being supported by slogan called “BP beyond petroleum” Michael.

E. Porter “ emerging industries are newly formed or reformed industries that have been

created by technological innovations, that elevate a new 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. Also we shall be discussing the likely strategies that BP can 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 rivals

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

Expansion of territories:-

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BP’s strategic management

BP can consider expansion of its borders to suitable oil reserves 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

   POLITICAL

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BP’s strategic management

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 protocol, control of the CF(chlorine fluorine) carbon

emissions has become a legal requirement

More attention has been drawn towards the concerns on sustainability 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 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 ways of alternative energy

Part 2:-

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BP’s strategic management

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 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

Existing product New product

Existing market Market penetration Product development

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BP’s strategic management

This involves BP extending

its geographical frontiers,

more retail outlets, direct

distribution etc

Bio-fuels that are produced in

a sustainable way, and solar

energy wind energy etc

New market Market development

Advertising and marketing

flexing the pricing policy in

UK and acquiring person

owned retail outlets in prime

locations

Diversification

Clean and renewable solar

energy for homes, roads and

businesses

Application of ansoff matrix to the present organization:-

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 like bio fuel through sustainable sources, thus 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

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

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BP’s strategic management

own distribution channels besides having dealer distribution channels, recently in India, BP

has targeted a new demographic group ie., CNG( compressed natural 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)

BCG Matrix :

Cash Cows

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BP’s strategic management

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 mark as it has high growth which 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 Mexico disaster

Part 3:-

Suggestions for BP for its entry into emerging energy industry:-

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BP’s strategic management

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 appropriate 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 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

References:-

Bibliography :-

Books:-

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BP’s strategic management

M.E. Porter competitive strategy: free press 1980

Exploring corporate strategy (2006) by G. Scholes, Armstrong et al Ft prentice Hall

Websites:-

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-analysis-british-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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