Bp Stakeholder Analysis, Porter’s Five forces Analysis, Value Chain Analysis, Strategic actions PDF

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British Petroleum – Stakeholder Analysis, Porter’s Five forces Analysis, Value Chain Analysis, Strategic actions SECTION 1. Identify British Petroleum’s (BP) key stakeholders and map these stakeholders in terms of the power/interest grid. The stakeholder analysis of British Petroleum will identify those entities that can influence or are influenced by the company’s objective and strategies (Freeman, 1984). By analysing these groups it will be possible to identify, understand and prioritise the need of British Petroleum’s main stakeholders. Consequently, the spotlight will be on the way in which these entities engage in formulating strategies and how relations between them and the company are best managed (Grant and Jordan, 2012, p. 236). Operating with many different stakeholders can lead to high levels of confusion within top management. Freeman (1984) pointed out that power and interest are significant factors in defining stakeholders, and suggested the use of the ‘Power-Interest Grid’ to assist in the process of identification of needs and priorities of all stakeholders, even if they are numerous (Ackermann and Eden, 2011). The four parts of the grid identify four types of stakeholders. Those stakeholders positioned in the upper two quadrants have most interest in the company, but with different amount of power. ‘Players’ benefit from higher power which influences the organisation’s strategy, while ‘Subjects’ still have still a high interest, but a lower degree of influence in affecting the strategies. ‘Context setters’ are those entities with high power over the future of the organisation, especially in terms of affecting the context in which future strategies will operate, while ‘Crowd’ is the quadrant for those who have low interest and have no power in affecting strategies (Ackermann and Eden, 2011). British Petroleum’s Stakeholders Internal stakeholder

External stakeholder

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Shareholders

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Customers

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Employees

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Competitors

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Suppliers

· Local communities

· Interest groups (Academics, media, NGOs

Shareholders are central in huge corporations such as large oil companies and within British Petroleum they play a fundamental role since they invest great amounts of capital, which is essential to set up and operate a business. In addition, they receive their reward from their share of the profits in the form of dividends (British Petroleum, 2014). British Petroleum employs over 80,000 people over the world. As stakeholders, employees are affected by the company performances, but also they influence the way in which the company operates. The extent of employees’ commitment to excellence and health and safety is fundamental to maintain British Petroleum’s prominent position in the sector. Moreover, non-

compliance can result in a loss of prestige and a decline in support from fellow employees (British Petroleum, 2014). Suppliers play a crucial role in British Petroleum’s chain of production. The company embeds different core values that are important in every kind of operation and its reputation relies on ensuring that its actions reflect these values (British Petroleum, 2014). One of British Petroleum’s main objectives is to “understand consumer expectations and to deliver quality products to customers throughout the retail network”. Achieving this aim is challenging as customers require value for money which means producing the highest quality of goods at competitive prices. In recent years, customers have steadily become more concerned about pollution and environmental damage and, consequently British Petroleum have introduced more energy-efficient products such as biofuels and renewables. This demonstrates of how the company can be influenced by customer pressure and why the company must be able to satisfy customer expectations (British Petroleum, 2014). Communities located nearby the oil refineries have raised concerns over their safety. British Petroleum has attempted to address these concerns and gain credibility by taking required safety measures. This involves managing plants in safe ways and providing people with information about emergency procedures (British Petroleum, 2014). British Petroleum operates in conjunction with a range of interest groups, such as academics, government, media and NGOs. All these are linked to the company and have varying degrees of influence. Governments have high degree of power over British Petroleum, inasmuch as the company is global and must gain approvals and licenses it needs to demonstrate that it operates according to the proper standards internationally. As for Governments, their interest lies primarily in tax collection and securing vital energy supplies. As for the media, it is crucial for an ambitious company such as British Petroleum to garner positive press support. A positive reputation strengthens its position in the market and it is a source of attraction for new customers (British Petroleum, 2014). One of the main duties of the strategists and managers is to raise the level of interest of powerful stakeholders, to help them fulfil their anticipated role within the scaffolding of corporate governance (Rothaermel, 2013). While planning the future of the company, strategists can shift the position of specific stakeholders towards one with more power and interest level. In the case of British Petroleum the position of the suppliers could be upgraded with the establishment of relationships with new contractors and other partner in completing the supply chain operation. In addition, the interest of competitors, both rival and complementary, could be increased in order to set up mergers and acquisition activities with the aim of exploiting proven reserves and avoiding unnecessary and risky drillings. More engagement with NGOs could help in improving the company approach by changing operations and reducing environmental impact.

SECTION 2 – By employing relevant data from case, conduct a five forces analysis of the energy industry. What do you conclude about that industry’s attractiveness? According to Reilly and Brown (2006), in order to formulate an efficient competitive strategy for a single firm, it is appropriate to analyse the competitive structure of its industry, inasmuch the profitability of a firm is substantially conditioned by the profitability of its industry. The aim of this analysis is to examine how the competitive structure of the energy industry affects the actions of oil companies in their attempt to achieve sustainability. 1. Threat of new entrants The threat of new entrants highlights the fact that the profitability of an established firm within an industry sector can be influenced by new competitors. The extent of this threat relies upon the

barriers to entry and the responses of existing competitors (Dess, Lumpkin and Eisner, 2010, p.56). Despite the attractiveness of the energy industry, the threat of new entities coming in is very low. This is mainly due to high barriers to entry, such as fixed up-front cost of investments linked to the activities performed by the oil industry, cost disadvantages for new entrants in production and transport of oil, and inability to control the production costs at each stage of the chain (Dess, Lumpkin and Eisner, 2010, p.57). 2. Bargaining power of buyers The bargaining power of buyers refers to the power of buyers in forcing down prices, high quality product demand and struggle among competitors (Dess, Lumpkin and Eisner, 2010, p.57). In the energy industry the price of oil is fixed internationally and relies upon the economic relationship within global demand and supply. A degree of power can be exerted only from highconsuming countries, such as USA, Japan or China, with their significant demand. The standard and undifferentiated product and the impossibility of switching costs lock buyers into a relationship with just a few sellers (Dess, Lumpkin and Eisner, 2010, p.58). 3. Threats of substitute products The substitute products restrain the profitability of the industry inasmuch they influence product pricing (Reilly and Brown, 2006, p.471). Substitutes in the oil industry include biofuels and renewable resources. The threat from these alternative sources is quite low since they are still in an expansion process. However, oil is an overriding and predominant source of energy in many sectors such as transportation and industry. Compared to other fuels, the price of oil is low. As both drilling and exploitation technology develop apace, there is reduction in costs, and oil is set to remain one of the cheapest sources of energy in the near future. However, governments around the world are adopting polices that seek to protect the planet by discouraging the use of fossil fuels. This of course represents a threat for the oil industry. However, it is evident that the threat from substitute products is currently at medium level. 4. Bargaining power of suppliers Suppliers can influence the future of firms by increasing prices or reducing the quality of the product or the services they offer. The power of the suppliers increases when they are small in terms of numbers, when they are more concentrated than the industry to which they sell, and when they provide crucial input to different industries for which substitutes exist (Reilly and Brown, 2006, p.472). Energy companies are surrounded by a complex chain of suppliers, such as oil fields suppliers, engineers, field development management, organisational management, pipeline installers, researchers, and quality specialists. Oil producing countries also possess a relevant bargaining power since without permits to exploit national territory the survival of these industries would not be feasible.

The nature of this complex number of suppliers provides the energy companies with a choice from a wide range of dealers, which drastically reduces their bargaining power. 5. Rivalry between established competitors Competition among single firms determines the general level of profitability and the overall state of competition of the whole industry (Grant and Jordan, 2015, p.52). The degree of competition between firms revolves around the interplay of five factors: seller concentration, diversity of competitors, product differentiation, excess capacity and exit barriers, scale economies and ratio of fixed to variable costs. The energy industry is characterised by the presence of few majors and strong entities and a consistent number of small players with less power exertion. In many cases, the strongest entities are those companies with developed know-how. The smaller players are represented by companies that have large reserves of oil fields. Over recent decades, the rivalry has become fierce among the big players as a consequence of the drying-up of the oil fields. They have, as result, started to create acquisitions, mergers and alliances with smaller entities (Weston, Johnson and Siu, 2001). Product differentiation is not yet crucial in creating competition since renewable energies are still in the developmental phase. However, they will undoubtedly be vital in the long term since, as stated before, governments around the world have started to adopt policies that aim to restrict the use of fossil fuels in favour of biofuels. The exit barriers are quite high due mainly to fixed costs relative to variable costs, the burden of the requirements of the sector, including job protection for its employees.

From this analysis, the energy industry is still an attractive sector for investors as the world’s current oil reserves and production continue to show an upward trend, despite the fact that oil is not a renewable resource. Moreover, the world population will keep expanding in the next century leading to increases in demand for energy, and at the same time technological progress, it is to be hoped, will facilitate the expansion of non-conventional and renewable sources, thus adding more value to the energy industry as a whole. SECTION 3 – Evaluate British Petroleum’s resources and capabilities by utilising the value chain framework. How is the company creating value? Discuss how could the company develop and improve further in respect to this? The value chain analysis enables strategists to spot what are the value-creating and valuedestroying activities within a company. By using this method of analysis, the firm can focus on finding solutions where there are inefficiencies and remove or outsource non-value added and value-destroying activities. The first stage of British Petroleum value chain is the exploration of potential areas to explore for oil and gas extraction, subsequently petroleum fields are valuated, developed and exploited. The exploration and development can be defined also as “upstream” activities, to which belong also

supportive processes such as seismic evaluations, safe drilling, facilities supply and engineering plans. The following stage is the transportation and the storage of the crude oil, these activities are crucial in the whole chain and work as interlink between the initial and the conclusive stage. They are defined as “midstream” activities. The final stage includes the refinement of extracted oil and the distribution to the wholesale. The refinement of the oil turns the extracted hydrocarbons into serviceable products ready to be retailed to direct industrial customers. These two steps are also defined as “downstream” activities (Tordo, 2009). In addition to these activities, the company outperform five supportive activities, which are firm infrastructure management, human resource management, technology development and government relation management.

BP has been more inclined to follow the path of cost leadership. In order to improve its performances and progress among competitors BP need to exploit the gains of differentiation by investing on partnerships and alternative resources (Andersen, 2014). Competing in a saturated

market does not help in sustaining high performance and competitive advantage (Kim and Mauborgne, 2004). The strategies suggested are the acquisition of both reserves and operators who are already fracking and the investment in research and development of renewables. Alternative energies are still in the process of development and by shifting the focus on their research, BP could gain ground over competitors, create uncontested markets space, originate new demand and establish itself as a leader in the energy global market (Kim and Mauborgne, 2004). SECTION 4 – What suggestions could you make to British Petroleum’s senior management team to achieve sustainable competitive advantage in the competitive global energy market? BP was one of the first movers to act over the climate change issue, which unleashed a new dynamic in the industry. The company has attracted a great deal attention and has acquired much support, but has also become a target of public criticisms (Kolk and Levy, 2001). This new outlook has exerted a massive influence on competitor companies such Shell and Texaco, encouraging them to follow the same pathway and avoid lagging behind. Moreover, British Petroleum has exposed itself to critical analysis. For instance, NGOs have brought into focus the unsustainability of the oil sector, the marginal investments into solar energy compared to other expenses and the company’s continued commitment to oil. The attitude of British Petroleum has been quite ambiguous. On the one hand, it has created a greener public image, but it has continued nevertheless to adopt drilling practices that are not in line with the principles of sustainability. The consequences of this ambivalence were the two recent incidents in 2005 and 2010, namely the Texas City Refinery explosion and the Deepwater Horizon disaster (Andersen, 2014). Shifting attention towards renewables is a creditable decision, but evidence and records show that the world must not underestimate the importance of oil and gas as it battles to meet the evergrowing demand for clean and affordable energy (Edwards, Ishaq and Johnsen, 2010). In order to achieve its competitive advantage in sustainable energy, BP has to leverage strategic technologies in order to exploit oil and gas reserves that are in decline, to intensify improvements in existing fields, to reduce its environmental footprint and discover new hydrocarbon energy reserves by accessing new challenging operational frontiers (Shuen, Feiler and Teece, 2014). Many alternatives are considered potential substitutes for fossil fuels. Yet, despite the development of alternative energies, especially renewables which will be expanding more and more, this growth will be affected by four factors: viability, scalability, practicability and compatibility. The presence of these factors will result in a low return on investment when compared to the usual returns made from fossil energy (Shuen, Feiler and Teece, 2014). British Petroleum must put into effect organisational and managerial innovations, both at the internal and external level, in order to seize opportunities, to conquer challenges and reduce risks. Organisational and managerial innovations involve expanding supply in the face of expanding demand; standing up to competition; bringing in new technologies; administrating challenges related to HR limitations (Teece, 2013).

Particularly, British Petroleum must focus on three specific dynamics. The company should: – Accrue awareness across mature and developing domains. – Develop the capability to better manage the upstream business ecosystem. – Improve the management of health, safety, security and environmental (HSSE) issues. Accruing awareness across mature and developing domains In changing business environments such as energy, inertia constitutes one of the most dangerous threats. Sustainable value and competitive advantage are achieved by learning, adapting and reconfiguring assets and foundational capabilities. In the energy sector, mature venture and emerging opportunities are strategically important. Advantage in mature business necessitates control, efficiency, replicable processes, expanded productivity and shortened fluctuation. Advantage in emerging business necessitates autonomy, innovation, search and embracing of variations. BP should promote both: setting up separate organisational entities, business models, systems and cultures for each, maintaining them together with strategic aims, common values and connecting apparatus to leverage assets. BP should be capable of handling several domains such as mature and emerging ventures, revitalisation of the heartlands, new frontiers and alternative resources. To capitalise upon these opportunities, BP should provide organisational entities with appropriate financial, human and technological resources, while at the same time ensuring that all their actions are designed to connect up the sub-units efficiently (Deloitte, 2014). In order to achieve this, the company should allocate resources to emerging domains, i.e. those domains that require re-education throughout the main organisation and its subunits, as well as outsourcing workloads to contractors. By joining ventures with expert producers well-versed in unconventional and renewable resources, BP will accelerate the process of learning and expansion. Within this process of re-education and expansion, British Petroleum’s leaders should create a balance among the centralised and decentralised entities of the organisation, so as to enhance intelligence-gathering, support and track technological change, pick appropriate opportunities, advocate consistency and shared values across the layers of the organisation (Shuen, Feiler and Teece, 2014). Develop the capability to better manage the upstream business ecosystem The capability to manage the ecosystem is indispensable in supporting on-going success. British Petroleum faces daily challenges such as the need to increase production, the decreasing numbers of technical experts, the broad range of expertise needed for extended operations, the need to continuously renew the technology and the need to work in unstable or remote locations (Gra...