Strategic Performance Management Of British Petroleum Management Essay
This study explores the oil giant, British Petroleum also known as BP within the global oil sector and also it recent activities. Some key external factors have been investigated which includes PESTEL, SWOT, Competition Analysis, Five forces model (Michael Porters). This study has formulated SMART objectives after putting the above factors into consideration and this has led to the creation of Strategic Plan, Measurement and Implementation of the formulated SMART objectives.
1.2 Company background
The company British petroleum also known as BP was incorporated in 1909 then as Anglo Persian Oil Company with headquarters in London, operating in both upstream (oil exploration) and downstream (oil refining, sales and marketing) of the world oil sector, BP is one of the largest oil company in the world. The company, BP has more than 21,400 service stations worldwide and its shares is quoted on New York, London, Toronto, Paris, Tokyo, Amsterdam, Frankfurt and Zurich stock exchanges.
The history of BP will not be complete without making mention of the activities of Williams Knox D’Arcy, in the year 1901 he was granted concession by Grand vizier (Shah) in today’s Iran and as a result of inadequate fund he entered into an agreement with the British government which involved investing the sum of £2 million that led to the transfer of major shares to the government at the later end. In the 1990’s British Petroleum acquired Amoco, Arco and Burmah-Castrol. BP has several retail brands which include Arco in US, BP connect, BP travel centres, BP Express etc. BP is ranked as one of the top three oil giants in the world with staff strength of more than 97,600. Recently, the brand BP has been undergoing serious scrutiny and criticism as a result of it past and recent activities which include Texas refinery explosion in 2005, dumping of toxic waste in some African countries, Prudhoe Bay oil spillage and the recent Gulf of Mexico oil spillage.
This study will focus on the brand BP and how to manage brand name damaging crisis.
2 External Analysis
2.1 PESTEL factors
Table 1: PEST
2.1 Political/Legal
UK government endorsement/ support for BP
UK government support during the gulf of Mexico oil spillage crisis
BP activities in the Gulf of Mexico has been banned but the UK government has given the company go-ahead to continue on with the search for oil and gas in the deep waters off the coast of Britain.
2.2 Economic
The global recession has resulted into reduction in Profit of BP from the previous year.
Replacement cost of profit for year 2009 was $14 billion with a return on average capital employed of 11%
Gained new resource access in Iraq, Jordan, Egypt, Indonesia and Offshore US.
30% increase in lubricants income generated from core market, and market extension to India, China, Russia and Brazil.
Strong presence in China with upgraded Zhuhai 2 plant.
Reported production increased by 4% and unit and production costs reduced by 12%
Refining availability for the year was 93% up around 5% in 2008
Investment of $20 billion in business expansion
In Trinidad and Tobago BP recorded launch-to-production time of 18 month with Saronette Project
Discovery of Tiber in the gulf of Mexico
2.3 Socio-Cultural
Encouraging health and fitness
Creation of work environment where diversity and inclusion are valued.
Strengthening employee engagement
Creation of modernized farming initiative in Argentina
Increased employee moral
The number of employees fell from 92,000 in 2008 to 80,300 in 2009 as a result of the transfer of BP US convenience retail site to a franchise model.
2.4 Technological
Improved operating management system (OMS)
All refineries and petrochemical plants are operating on OMS
Investment in key technology like wind, bio-fuels, solar, hydrogen power and carbon capture and storage
Improved form of transportation of products.
3. SWOT Analysis
Table 2: SWOT Analysis
4.1 Strengths
Strong brand name with the slogan “beyond petroleum”.
Strong market position in both downstream and upstream of the global oil sector.
BP (Castrol) Sponsor of the FIFA 2010 world cup.
In 2009 BP and Pan American Energy in Argentina offered 63 young people scholarships with emphasis on engineering.
In 2009 the company had a 12.0% market share of the world lubricant oil which put them at 2nd largest market share after ExxonMobil.
Ranked among the top three oil in the world
Stock quoted on London stock exchange
Third quarter 2010 profit of $1.8 billion
Operates through retail brands and subsidiaries (Amoco; ARCO; BP Express, BP Connect; BP Travel Centre; ampm; Burmah Castrol etc)
BP signed a technical service contract with the Iraqi government in November 2009 to develop the Rumaila oilfield
4.2 Weaknesses
Money being lost to clean up of gulf of Mexico
Unstable oil price due to the recent recession
BP Texas refinery explosion in 2005
Toxic spillage of methanol in Prudhoe Bay in 2006
Total closure of Alaska wells
2010 third quarter loss
Oil spillage in the gulf of Mexico
A law suit been instituted by the American government
Second quarter loss of $ 17 billion
Call to shelve the use of all BP product in US during the gulf of Mexico crisis
The recent removal of Tony Harward as the CEO of the company and being replaced by a US citizen
4.3 Opportunities
Government of UK endorsements
Discovery of significant deep gas in Egypt’s West Nile Delta
Award exploration block in Indonesia
Investment in Egypt and Libya
Increase brand awareness
Increase market share
Completely new product launch ultimate 1.5
Change customers’ by continuous product development and awareness
Completely rebranding of company image as a result of the recent spillage in US
Expansion into African countries
Continuous research and development strategy e.g. $8 billion investment in research of alternative source of energy to oil including solar, wind, natural gas and hydrogen etc.
Flexible pricing to enhance healthy competition with sector rivals
4.4 Threats
Threat of substitution due to high prices
Drop in BP share price as a result of Gulf of Mexico oil spillage
Suspension of production in Rhum gas field
Sales of upstream interests in Pakistan to United Energy Group Limited
Agreement to sell interests in Pan American Energy to Bridals Corpoaration
Pipelines corrosions
Global economic recession
Refineries and rig explosions
Possibility of tax increment in countries wherein BP operate
Economical/political change in countries in which BP operates.
Legal action against company by US government
Oil price being determine by market forces
Exchange rates could affect companies profitability
Remodification of oil products to reduce pollution
New technology to substitute the usage of oil
High focus on green fuel
Government policy in countries where BP operates regarding their oil sector e.g. penalty for oil spillage
Termination of lease agreement between Bp and foreign governments
Competition from Mobil, Chevron and Shell.
3. External Analysis- Competitor Audit
As British Petroleum (BP) is situated in many different global markets the following competitor audit will focus on BP’s main competitors in the global oil industry.
Competitors:
3.1.1 ExxonMobil
ExxonMobil is the foremost publicly traded petroleum and petro-chemical venture in the globe, it operations encompasses almost all countries of the world, it has different brand names such as Exxon, Mobil and Esso, it is an organisation that is built on a concept of global business which allow it to compete favourable, efficiently and effectively in the world of energy industry. Both Exxon and Mobil have been in existence for more than a century, but ExxonMobil came into being as a result of merger between Exxon and Mobil on 30 November 1999 to form Exxon Mobil Corporation. It headquarters is located in Irving, Texas, United State with market capitalisation of $323.717 million, revenue of $301.5 billion and assets value of $233.323 billion as at 2009. The CEO of the company is Rex W. Tillerson with staff strength of 90,800, the company is quoted on New York Stock Exchange; it has thirty seven refineries and operate in most countries of the world.
3.1.1 Royal Dutch Shell
Shell is an energy giant and one of the world’s largest independent oil company with staff strength of around 101,000 and it headquarters is located in The Hague, the Netherlands. The parent company is Royal Dutch Shell Plc and it is incorporated in England and Wales with Peter Voser as the CEO. The company account for 2% of world oil and 3% of gas, it has 44,000 service stations globally and thirty five refineries. Shell operates in both upstream and downstream sector of the world oil industry. As December 2009, its revenue stood at $278.2billion and capital investment of $31.7 billion with market capitalisation of $186.618 million and assets worth of $292.181 billion, the company is quoted on London stock exchange.
3.2.1 Chevron
Chevron is one of the leading energy companies in the world. It activities encompasses crude and natural gas and the company operates in both upstream and downstream sector of the oil industry which includes manufacturing, marketing and transportation, exploration and production, sales and manufacturing of chemicals, power generation and geothermal energy. The organisation Chevron came into being after the merger between Standard Oil Company and of California and Gulf oil Corporation in 1984. Chevron headquarters is located in San Ramon, California, United State with market capitalisation of $154.462 million, revenue of $167.402 billion and assets value of $164.621 billion as at 2009. The CEO of the company is David J O’Relly with staff strength of 60,000, the company is quoted on New York Stock Exchange; it has sixteen refineries and operate in thirty three countries and it brand includes Texaco and Caltex.
3.2.3 ConocoPhilips
ConocoPhillips is a key global, integrated energy corporation, with universal scale and scope all over the oil and natural gas value chain. The company came into been as a result of merger between Conoco and Philips Petroleum Company which was completed on 30 August 2002. It headquarters is located at Houston, Texas, United State with market capitalisation of $75.772 million, revenue of $152.843 billion and assets value of $155 billion as at 2009. The CEO of the company is James Mulva with staff strength of 30,000, the company is quoted on New York Stock Exchange; it has twelve refineries in US, four in Europe and one in Asia and also operate in thirty countries of the world. ConocoPhilips is the third largest integrated energy company in United State of America.
6. Porter’s Generic Strategies
Diagram 1: British Petroleum and Porter’s Generic Strategies
Focus
Middle of the road
Middle of the road
BP in future
BP Presently
Cost leadership Differentiation
Porter (1980) states that there are four types of generic strategies that are required by an organisation to be competitively successful, and these are Focus, Cost Leadership, Middle of the Road and Differentiation. Before now, BP was using the Cost leadership strategy but at present, the company is using the generic strategy of Middle of the road as a result of the last Gulf of Mexico oil spillage.
British petroleum Brand and the Gulf of Mexico oil disaster.(Rebuilding the broken bond)
This oil disaster is the biggest crisis in the history of the oil industry in United States. We can only agree on the cause of the accident based on the testimonies of the parties involved.
The chief mechanic on the Deepwater Horizon rig testified at a hearing held by the US coastguard, he said he was present at the meeting between BP manager and the crew from Transocean. That Transocean’s chief driller was not comfortable with the request for the removal of the drilling mud from the well that day because he did not think the well is fully prepared for shut-down but based on the request and persuasion of the BP manager (as a result of the cost incurred in renting the Deepwater exploration rig which cost $500,000 a day to rent) insisted that they should start removing the mud before plugging the well, which later led to the explosion of the rig and the death of eleven crew members. This crisis has really affected the BP brand, because brands are not created by advertising, they are created primary by what organisation does.
A Model of Strategic Communication (Grunig & Hunt, 1984)
A model of strategic communication is composed of two components which are aimed to describe the evolution of stakeholders and publics. The contribution of this model is to overall strategic communication and management by diagnosing the environment to make the overall organization aware of stakeholders and publics as they evolve.
The Stakeholder Stage
The terms of “stakeholder” and “public” are often used synonymously. There is a subtle difference, however, that helps to understand planning of strategic communication. People are stakeholders because they are in a category affected by decisions of an organization or if their decisions affect the organization (Grunig & Hunt, 1984).
There are internal and external stakeholders including employees, director of boards of BP Company, society, customers, media, universities, research centres, U.S. and U.K. governments, activist groups, etc
Internal Stakeholders External Stakeholders
Employees of BP Media
Director of Boards British petroleum Public/Society
CEO Advocate groups
US and UK governments Customers of BP
Competitors
Investors
Research centres
Universities
Shareholders
Stakeholder mapping of BP Company in case of the oil spillage. Demirel. K, (2010)
After the identification of the various stakeholders, the next stage should be the determination of level of relationship i.e. the linkages.
Stakeholders State regulators Govt. Regulators Board of directors
Employees unions Suppliers
Enabling linkages Input
Normative linkages Functional linkages
Competitors Association Political groups Professional society
BP
Customers Retailers Distributors
Output
Diffused linkages
NGO Residents Advocacy group Media
Linkage model of BP Company, Demirel. K, (2010)
Referring to: Grunig, J. / Hunt, T. (1984): Managing public Relations. Rinhehart and Winston: Holt, P.141.
Part A has to do with the ‘enabling linkages’ that is, stakeholders who have total control and authority over BP company operations especially the government of U.S.
Part B. ‘functional linkages’: the ‘input and the output’, the input deals with provision of the service and output has to do with the product consumption.
Part c is the ‘normative linkages’ that is, groups and association that has common interest.
And lastly, Part D is the ‘diffused linkages’ these groups do not usually have anything to do with BP, they are only active during crisis situation.
BP Public Relations
In the first days of oil spill, BP Company downplayed “oil spill” and CEO “Tony Hayward” stated “relatively tiny” for the disaster of oil spill. After two months, BP Company has changed head of public affairs. After that, they started to provide consistent and responsible messages for oil spill through various media channels. As a part of “PR strategy”, BP Company got sponsored links on “Google” in order to provide first ranked results of key words related to oil spill direct to special part of BP Company’s website. Even though it can be considered as implementation of spin doctrine, sponsored links were successful, because most people are not able to distinguish sponsored and actual links. Demirel. K, (2010)
Crisis response and rebuilding stakeholder’s confidence
It involves seven specific steps to obtain public forgiveness
Voluntarily admit that mistake has been made.
Explain why the mistakes occurred (no matter how stupid).
Show/say/demonstrate contrition and sincere concern.
Agree to take the step necessary to fix the problem.
Ask for help from the victims/accept counsel from the community
Promise (or publicly commit to) never to let it happen again.
Find a way to pay (do penance)/alleviate/remediate
Penitential model by Gottschalk. J (1993)
We can conclude based on the penitential model that BP company responded to the crisis by voluntarily admitted that mistake has been made, and this can be seen by the stepping down of Tony Hayward as the CEO of the company, we all know the cause of the disaster based on the chief mechanic on the Deepwater Horizon rig testimony and the company has really shown concern and the U.S. government has requested compensation for the cleanup of the gulf of Mexico which the company has agreed to pay . ‘BP vowed on to pay “all necessary and appropriate clean-up costs” from the massive oil spill in the Gulf of Mexico as the Obama administration called on the energy giant to clarify how it plans to do so.’Â
Other models that can be use to earn stakeholder’s confidence and trust
Key levers to building customer trust, Dr Aaron Sum Wei Wern and David Levi (2009).
Building enduring customer trust
1. Integrity
‘Bridge gap between
promise and reality’
2. Competence 3. Transparency
‘Know what’s right for me’ ‘Be honest with me
Building enduring trust
1 Return to the fundamental trust levers
‘Focus on meeting fundamental expectations before addressing higher-order
2 De-risk and simplify
‘Minimise uncertainty in the customer’s decision-making process’
3 Build and solidify enabling capabilities
‘Prioritise capability-building through the lens of the trust levers’
uing
Conclusion:
As stated by Edward Artzt “Brand loyalty is very much like an onion. It has layers and a core. The core is the user who will stick with you until the end. Shaun and Wheeler, (2002 p.25).
BP was able to get out of the mess as a result of the following
Quick/prompt response
Acceptance of blame
Total responsibility
Accepted solutions provided
Took realistic approach
Involvement of top management team
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