British petroleum (BP) is one of the largest energy companies dealing in fuel for transportation, energy for heat and light, retail services and petroleum products. The company’s international headquarters is in London. The company has operations in more than 100 countries and employs over 96,000 people. The company has products under the BP, Castrol, Arco, am/pm, and Wild Bean Cafe brand (BPplc, About Bp, 2009). The company operates under two major business segments; exploration and production, refining and marketing and BP alternative energy.
The company basically finds, extract, move oil and gas. The company also makes fuels and products, sells fuels and products as well as generating low carbon energy in a responsible way. The company operates in six continents; South America, North America, Europe, Australasia, Asia and Africa (Vault. com, 2009). BP is also well known for its innovative technology which aims at providing energy to meet the customers demand through efficient products. Investing in low carbon energy is also another option that the company is exploring (BPplc, About Bp, 2009). Strategic audit
The strategic audit of a corporation is an eight step process that generally encompasses a holistic analysis of the company. The basic aim in strategic audit is to establish the current position which will help the company chart the way forward. A strategic audit helps the company to formulate strategies and select the best strategic alternative(s) for implementation. The first step is the analysis of the current situation. This involves the audit of the current performance and strategic posture. Current performance is evaluated in terms of profitability, market share, and return on investment.
Strategic posture looks at the mission, objectives, strategies and policies (BPplc, 2009 Strategy presentation, 2009). The second step is a look at the corporate governance. This means analysis of the board of directors and top management in terms of their structure, names and contribution to the company Scanning the external environment for opportunities and threats is the next step of a strategic audit. Under this stage, the company looks at the societal environment, task environment and finally listing all the above factors.
The next step is the analysis of the internal environment i. e. strengths and weaknesses. Here, the corporate structure, culture, resources (marketing, finance, research and development, operations and logistics, human resource management and information systems) is looked into. A summary of these factors is then prepared (BPplc, 2009 Strategy presentation, 2009). After looking at the external and internal environments, the company then analyses its strengths, weaknesses, opportunities and threats (SWOT).
These are then linked to the company’s mission and objectives to establish any relevance. The next step of the strategic audit is the analysis of the strategic alternatives in order to select the best strategy (ies) to be recommended. The recommendation should be justified by looking at the potential, changes and impacts of the strategy. After making the recommendations, the next step is the implementation of the proposed strategy (ies). The implementation will include assigning duties on who is to develop these strategies. The financial aspect and operating procedures should be analyzed.
The last step of the strategic audit is the evaluation and control. Evaluation and control involves a look at the current information system i. e. whether it can provide sufficient feedback and whether there are enough controls (BPplc, 2009 Strategy presentation, 2009). Strategic Alternatives In formulating the best strategic alternatives, the company has to consider the economic, socio-cultural, political-legal, technological and financial strengths and challenges facing the company. Economic environment This involves looking at the economic environment.
The company operates in an industry that has other large companies e. g. Shell, Chevron, Exxon Mobil, Total and other smaller companies. All these companies have the resources and technical ability to compete at the same level as BP Plc. This is why the company has focused on cost reduction through measures like staff reduction and efficient production. The company has also focused on alternative energy e. g. solar and wind. This is as a result of the challenging operating environment where there has been a growing shift to green energy that has minimal pollution.
In an industry faced with rising production costs, the company has been on track by focusing on means and ways of reducing their costs. The focus has been on reducing the number of staff and reducing the number of senior positions in the company by 20%. This strategy has borne fruit with the flattening of the cost curve of the company while those of the competitors keep on rising. The company’s focus on new technologies has resulted into improved production capacity. In fact the overall production trend for all the major companies has been declining. BP Plc.
has defied this trend by increasing its production in the year 2007-2008. The technology used by the company includes Advanced Gas Injection and Water flood technologies that have enabled the company to push the limits of the reservoirs. The drop in oil prices means declining revenues. In order to increase revenues, the company has focused on reducing the performance gap by restoring revenues in areas like Toledo, improving supply optimization in petrochemical and marketing. The company area of focus for petrochemicals is Asia where there is rising demand. The company has also established value chains for its fuel production.
Value chains are those activities that create value from the supply to the final delivery to the consumer. This has been achieved through integrated supply and trading which has lead to more revenues. In a bid to increase its oil reserves, the company has also partnered with TNK of Russia. The partnership has resulted in 30% increase in production. Socio-cultural The company has tried to endear itself to the community in which it operates. BP achieves this through training and employing local staff at all levels. The aim here is to be a local company by creating partnerships with the local community.
BP strategic aim is to reduce the levels of resistance to its operations by avoiding cultural conflicts as well as social effects. The company has entered into partnerships with the local community in terms of education, encouraging enterprise, fostering good governance, partnership in public health, access to energy, giving and volunteering, safeguarding human rights, as well as development through community case studies. All these activities are targeted at enhancing and fostering the relationship between the company and all the community in which it operates thus reducing conflicts between the community and the company.
Political-legal Some of the challenges that the company could face are the political/ legal. This is because the company has operations in many countries that may be subject to political instability. To mitigate this, the company has formed partnerships with local companies and thus reduces resistance towards the company consequently the company is able to increase its operations and revenues. Rigid legal regimes concerning the operations of foreign companies may negatively impact the operations of the company. The company has reduced this by engaging in partnerships with local companies.
Taxation and licensing may vary from country to country. This may have negative impacts on the company’s operations. Exploration and production rights may not be granted to the company. BP has overcome this challenge by partnering with the governments of respective countries through agreements. Technological In a bid to improve its operations and increase productivity, the company has adopted innovative technologies. Some of these technologies include the Bright water which uses new inter-well polymer treatment which ultimately improves water flood Recovery.
The Company has focused on technology to come up with innovative approaches that can increase production as well as solve energy challenges Financial information BP plc has been able to grow its net income by 39% to $26. 2 billion which is the highest growth rate registered by major energy companies. Cash flow from operations also grew 54% to $ 38. 1 billion on a year on year percentage basis. The company was also the only super major to register growth in reported volumes in new reserves. The company registered a growth of 1% on year on year percentage basis. Apart from operations, the company utilizes debt to finance its activities.
The debt is at the rate of 20-30%. All these financial data indicates that the company is focused on growth by efficiently using its cash resources to generate more sales and improve on the shareholders wealth by engaging in share buy backs. Recommended strategy Based on the analysis of all the above factors, some of the available strategies are; – Cost reduction strategies – Alternative energy by diversification – Focus on growing markets growth – Creating value on existing products – Partnership to grow – Technology leadership – Continuous improvement These strategies can be broadly classified into two directional i.
e. growth and retrenchment strategies. The company can utilize the growth strategies in its upstream segment (exploration and production) and retrenchment strategies on its down stream business (refining, convenience, refining) (Wheelen, 2006) Implementation of the strategy Strategy implementation involves all the activities and choices that are required for the execution of a strategy. The implementation process basically deciding who is to carry out the plan what must be done and how are the selected people selected to carry out the strategic plan going to do it (Wheelen, 2006).
These strategies are normally executed by various heads of business segments subordinated by other employees within the business segments. This has been done through budget allocations, programs that indicate the time frame in which the various strategies need to be implemented and the use of procedures e. g. the Operating Management System that covers employee capabilities to risk assessment. Some of the programs used by the company are those of closing the performance gap which runs from 2008 to 2011, and the reduction of the number of employees in refining and marketing from mid 2007 to the end of 2009 by 3,500.
After deciding on who and what must be done, the company must decide on how the strategy is going to be implemented. How a strategy is to be implemented might involve developing new organizational structure. For BP plc, to implement some of its strategies, the company has decided to eliminate certain senior and junior positions. Evaluation and control This is the process by which a company can monitor its corporate activities and performance results in order to compare the actual performance with the desired performance. Evaluation and control provides a feedback mechanism where corrective measures can be taken where necessary (Wheelen, 2006)
Evaluation and control can be summarized into the following 5 steps – Determine what to measure – Establish standards of performance – Measure actual performance – Compare actual performance with the standards – Take corrective action The company has set out plans to reduce costs and improve on efficiency on its operations. The company wants to grow its upstream business (exploration and production) while at the same time turning around its downstream business. Upstream business growth is measured by growth in reserves, increased replacement percentage, and getting more out of reservoirs.
Downstream business is to be improved through cost reduction by restructuring the company’s operations e. g. by downsizing and recapitalizations Improved bottom-line, high reserve replacement percentages, efficient operations, growth in reserves are some of the standards of performance that the company uses to gauge performance. Actual performance is measured at specified times e. g. for BP plc, restoring revenues from refining performance, improved supply optimization and margin capture in petrochemical and marketing has a time frame of 2008-2011
The comparison of actual performance against standard performance has to be done in order to establish the current position for example in 2008; the production grew 1. 5% while the replacement reserve was 136% which was more than the minimum 100% replacement. If the actual performance does not match the expected results, then corrective action needs to be taken. An example is the restoration of capacities in Texas City so as to boost refining and consequently revenues. References BPplc. (2009, March 3rd). 2009 Strategy presentation. Retrieved April 15th, 2009, from Bp. com: http://www. bp.
com/liveassets/bp_internet/globalbp/STAGING/global_assets/downloads/I/IC_bp_strategy_presentation_march_2009_script. pdf BPplc. (2009, March 3rd). About Bp. Retrieved April 15th, 2009, from Bp. com: http://www. bp. com/marketingsection. do? categoryId=2&contentId=7013628 Vault. com. (2009, April 14th). Indusrty Overview. Oil and Gas. Retrieved April 15th, 2009, from Vault. com: http://www. vault. com/nr/main_article_detail. jsp? article_id=22843159&cat_id=0&ht_type=7. Wheelen, J. D. (2006). Essentials of Strategic Mnagement. New Jersey: Prentice Hall. (BPplc, 2009 Strategy presentation, 2009)