British Petroleum Plc Oil Company - Essay Example

?Contents 2 Introduction 3 BP’s Strategic Management 4 PESTEL Approach 9 Political factors 9 Economic factors 9 Sociological factors 10 Technological Factors 10 Environmental Factors 10 Legal Factors 11 Conclusion 11 Recommendations 13 Appendices 14 Appendix I SWOT Analysis 14 Appendix II PESTLE Analysis 15 References 18 Abstract This paper is an undertaking to examine the present strategic position of the multibillion British Petroleum (BP) plc Oil Company; it aims at providing a detailed analysis and evaluation of the company’s business ethics and Corporate Social Responsibility strategies. In this study, focus will be on how sustainable the company is in the highly competitive oil industry, in the face of both internal and external forces that affect the industry. The paper will take a wider scope based on Carrol’s 1991 Corporate Social Responsibility Pyramid and thereafter, SWOT and PESTEL techniques of analysis will be applied. Introduction Business ethics refers to the moral guidelines that govern business practices at the workplace, and these are the universally accepted principles that are expected of each business. In the contemporary business world, the concept of business ethics has gradually been popularised and it is now a buzzword all over the world. Many firms around the world today are not only concerned with making profits and meeting fiduciary responsibilities to shareholders and consumers, but also showing corporate responsibility (Dirks 2001). There is a proven parallelism between profits and Social Corporate Responsibility, with studies showing that CSR improves profits (Robins 2011). In today’s highly competitive global capital, labour and financial markets, companies in the system cannot afford to be totally unresponsive to ethical issues and concerns. In such a system, that is highly conscious corporate responsiveness, businesses have no choice but to advertently demonstrate their commitment to ethical issues in society. This paper aims at examining the business ethics and Corporate Social Responsibility (CSR) of the multibillion British Petroleum (B.P) Company that is involved in oil and alternative energy. This analysis will endeavour to determine among other things, the ethical practices of the company, and its corporate responsiveness; in other words, is B.P an ethical firm? A vast company of global influence such as BP is obliged to cautiously apply strategic managerial approaches in promotion of global business ethics in industrial sectors. This analysis is important because it will it will raise an awareness about BP’s business ethics and Corporate Social Responsibility, and more importantly, it will establish a relevant knowledge base for future direction to all the stakeholders involved in the oil business around the world. The paper will first outline BP’s business ethics and Corporate Social Responsibility strategies, and thereafter, a detailed analysis of these approaches will be carried out in the next section using PESTLE and Carroll's (1991) CSR pyramid models. This analysis will determine how sustainable the company with respect to the 3Ps (People, Planet, Profit) or Elkington’s (1998) Triple Bottom Line (socio- and environmental goals as well as the profit bottom line). Ultimately, after the report has been concluded, what shall follow will be a set of recommendations for the company with regards to its future business ethics and Corporate Social Responsibility strategies. BP’s Strategic Management BP is one of the world’s leading oil companies that majors in exploration, production, refining and marketing of petroleum oil products, including natural gas (Warren 2012). This makes BP Oil company one of the world’s companies that are hugely involved with the use of fossil fuels responsible for major global environmental challenges in the 21st century (Mallenbaker 2012). This has forced the company to restructure its operations while stating its obligations and commitment to the creation of a stable and sustainable society. In this spirit, the company changed the meaning of its name to “Beyond Petroleum’, thereby rebranding itself as a sustainable energy company. That is to say that they are not only interested in petroleum products, but also in environmental protection and conservation. BP successively achieved its target of reducing green house gas emissions by 10% between the period starting 1990 to 2010, and this lends credence to their commitment to the environment (Warren 2012). The ethical issues faced with BP Oil Company include but are not limited to: compliance with environmental policies, shareholder and consumer satisfaction, provision of healthy working conditions and supplier satisfaction. BP Oil Company has demonstrated a commitment to ensuring a sustainable global environment, by reducing emissions of green house gases that negatively impact on the global environment (Mallenbaker 2012). This has also been achieved through the development of alternative sources of energy such as ‘green energy’ from the solar system. BP has also been a leading oil company due to its commitment to offering its customers expected satisfaction through its products; consumers of BP oil products have been constantly supplied with genuine high quality petroleum products. BP has not neglected its fiduciary responsibility to its shareholders either; the company is traditionally driven by profit motives, which have gone a long way in providing the expected financial incentive to its shareholders. BP’s ‘green image’ and alternative energy strategies have instigated a the gradual increase in BP’s share value as a result of its improved global image; as a result, business is booming, and the company is profitable accordingly. On a wider scale, the management of BP has shown its commitment to ethical issues through their decisions, policies and actions; in this regard, BP’s decisions, actions and policies have been informed by ethical considerations. According to Carrol’s model of corporate responsibility, Corporate Social Responsibility is made up of four parts, and these are: economic, legal, ethical and philanthropic. In the first part of the model, economic, businesses are expected to be profitable and not liabilities to the shareholders; this is the basis of all the other parts. In the second level, all businesses are required to obey the laws of the land, and not to act contrary to the same, and in this regard, businesses are obliged to play by the stipulated rules and regulations lest they face penalties and sanctions of trade in the highly competitive global markets. Business laws outline the acceptable codes of conduct and professionalism in society, and every business must strive to abide by the set standards. In the third level, all businesses are expected to maintain a satisfactory standard of business ethics, and these are the moral guidelines that govern business operations within the society. Businesses should naturally strive to decipher what is morally right and wrong, and choose not to harm society by doing what is right; consideration of moral obligations on the part of businesses is what constitutes to ethical business culture in society. Finally, the last stage expects all businesses to take an interest in the betterment of society through participation in philanthropic activities; this is a way of giving back to the society for the purpose of development and improvement of society. Businesses that are good corporate citizens should be at the frontline in community service, so as to improve the human condition in posterity. In this regard, businesses are supposed to contribute generously towards the development of society through philanthropic ventures, and in partnerships with other social agents. Using Carrol’s model, business that meet all the above four conditions are ideally ethical businesses as their actions, decisions and policies will be informed by these ethical considerations. BP’s business practice is in tandem with Carrol’s model because the company’s decisions, actions and policies have hugely been influenced by ethical considerations (Warren 2012). The company follows a progressive environmental protection policy that involves setting targets and constantly reviewing their environmental development progress. In this respect, BP is conscious of its obligation to improving society, for the good of all humankind, by not harming the environment. The company’s Ethical Conduct Policy obliges it to remain committed to protection of human rights, zero tolerance to enticements and bribes, in addition to, fair and legal business practices. The company has advertently demonstrated a commitment to this policy, and this includes turning down business deals from players who are not compliant with global ethical considerations. BP’s commitment to Corporate Social Responsibility has also been demonstrated through its philanthropic activities and community development partnerships with other players in the global system. For instance, BP and Red Cross are jointly involved in humanitarian activities all over the world for the sole purpose of improving societies and the human condition. The company engages in good will ventures through financial support to charitable organizations all over the world, and in this case, it gives back to society. Apart from that, BP’s assent to the United Nations Global Conduct that obliges businesses all over the world to commit to universal goals in partnership with the UN, demonstrates its commitment to Social Corporate Responsibility. With respect to stake holders, the company has been motivated by intent for higher profit margins so as to meet its fiduciary responsibility to its owners (Dirks 2004). BP has experienced a considerable growth in the recent years to achieve incredible heights of success especially due to its global ‘green image’ appeal. BP enjoys global recognition and acclamation as a leading oil firm and this has been instigated by its superior brand image. Its long history in the oil business since 19th century gives credence to its stability and sustainability in the oil industry. BP is the largest producer of oil in the Gulf of Mexico, thus the company enjoys a wider refining market and channels of distribution on a backdrop of expansive infrastructure and network. The company subsequently enjoys a global presence in over 80 different countries of the world, and its various brand names include BP express, BP Connect, Amco, Burma Castrol and Arco. BP is the leading innovative oil company with respect to oil production techniques; the company has expanded its exploration activities in new fields as well as maximised the utilization of its oil reserves through new technology. However, despite its concerted efforts at reorienting itself as an eco-friendly premium brand, the company has not been void of shortcomings; in the recent past, BP has been mired by tragic incidences that have elicited ethical concerns all over the world with regards to the company’s corporate responsibility (Eben 2011). For instance, the infamous oil spills in the Gulf of Mexico and in Alaska have had a detrimental effect on the company’s global image, thus raising doubts on its commitment to universal principles. The firm’s internal evaluation report detailed a combination of factors that resulted into the deep water horizon disaster (Baker 2010), and in this respect, the company concludes that mechanical failure, team communication, human judgement, structural design and implementation were responsible for the tragedy. Given its global premium brand status, BP has considerably increased its products’ prices in comparison to those charged by its rivals in the rest past thus causing instability in market oil prices. The company’s stakes in the future are uncertain due to the potential depletion of global oil reserves, and this inhibits investment in the oil sector. BP has been keen on emerging markets and opportunities in the oil industry and this has bolstered its global weight and business prospects. The company has seized new opportunities especially with regards to alternative energy needs by researching and developing conventional energy sources. In this regard, the company has more opportunities in the emerging fields of ‘green energy’, which is derived from the sun, wind and natural gas (Eben 2011). Other opportunities available for the firm include the expansion potential through acquisition of oil fields in other areas such as the North Sea. The company can also reconsider establishing a flexible price policy so as to march that of other rivals while maintaining its premium products quality; this will bolster its global sales and presence in light of the high competition in the oil industry. The company has been threatened by various issues in the oil industry and these include but are not limited to instability of the industry, occasional accidents such as fires and incidences of oil spillage. Governments are increasingly becoming unstable due to a myriad of factors in the 21st century and this has rendered the oil industry volatile due to the uncertain conditions. The company has also come under vicious attack and scrutiny as a result of its hazardous environmental impacts; this has been instigated by the occurrence of occasional accidental fires in its oil rigs and oil spillages such those in Alaska and Mexico. Following the continuous exploration and excavation of global oil resources, a danger of saturation of resources in oil fields may also be regarded as a potentially emerging threat to the company’s sustainability. PESTEL Approach Using a PESTEL approach, BP’s Social Corporate Responsibility is judged from the company’s ethical standpoint in response to political, economical, social, technological, environmental and legal factors (Oxford 2007). All these factors affect businesses all over the world and accordingly, they provide a basis for the Corporate Social Responsibility and business ethics approaches adopted by firms in the global market systems. Political factors Businesses are affected by political factors in the countries in which they operate, and these include but are not limited to things like tax policies, environmental conservation policies, trade restrictions and industrial labour laws. Global oil markets are increasingly becoming unstable due to political tensions in countries all over the world, and the growing global concerns arising with regards to sustainability of this industry. Businesses are subject to government regulations and policies, and this government control hugely determines how various industries should operate. For instance, with global concerns over sustainability of the world’s energy supply, the environmental impact, and increasing demand for more energy especially in third world countries, Oil companies are obliged to develop alternative energy sources. BP has been forced to reorient itself in response to political climates around the world, so as to be in tandem with government regulations. Economic factors The economy of countries is driven by the energy sector, and as a result of the rapidly growing economies around the world, there has been an increase in demand for energy. Energy companies around the world are constrained with the souring demand for energy supply to run industries especially in expansive economies such as China. This has led to a need to develop alternative energy sources to supplement the mainstream oil industry that has been feared to be unsustainable in the long run. BP has been at the fore front in this initiative by developing the alternative ‘green energy’ that is derived from solar energy; green energy is potentially sustainable as it is inexhaustible. Sociological factors These include the cultural considerations such as health and safety consciousness within a society, in addition to, skills and attitudes; sociological trends are a major determinant of business strategies in countries all over the world. Companies are obliged to be dynamic and responsive to sociological changes and trends in societies where they operate. Prevalent sociological issues concern the health impact and safety of business operations, to individuals and the societies at large. There is an increasing consciousness of the health impact and safety of business in societies all over the world, and this determines how businesses operate. BP has been subject to changes in social set ups in countries where it operates, and this has had huge impacts on the company’s business strategies. The tragic accident on the Gulf of Mexico instigated negative attitudes towards oil excavation in the area, despite the firm’s insistence on stringent CSR measures (Vijayaraghavan 2011). Technological Factors New technologies are emerging every other day and these are responsible for the new products and production processes all over the world. With the technological advancements taking place, businesses are increasingly becoming innovative by creating new products and developing efficient methods of production. These advancements have considerably reduced costs of production for many businesses around the world and this has resulted to maximization of profits accordingly. BP has been at the forefront in exploitation of new markets through innovations and the development of new products through emerging technologies. Environmental Factors Environmental factors that affect businesses all over the world include weather and climatic changes, and business are subject to such forces. Major climatic changes have been instigated by global warming, as a result of global emission of green house gases into the atmosphere. Environmental considerations have increasingly become a global concern for companies all over the world, and this has greatly impacted on business operations. Environmental protection policies have been drafted in the interest of creating a stable and sustainable global environment. BP has been subject to environmental policies and regulations, and as a result, the company has been obliged to create of environmentally friendly products, in support of universal global environmental goals. This has been demonstrated through BP’s conscious efforts to establish alternative ‘green energy’ sources such as solar energy. Legal Factors These comprise the legal environment in which businesses operate and they include but are not limited to consumer laws, antitrust laws, health and safety laws and discrimination laws. Firms operations are governed by the established legal framework of governments, and all industry players are required to play by these rules. BP plc has been subjected to legal frameworks in countries, and this has seen it involved in a number of legal suits as in the case of oil spillages. Conclusion BP plc is one of the leading oil companies in the world today and it is also a leading developer of conventional energy solutions. The company is advertently committed to promoting universal goals such as environmental protection and conservation throughout its operations and trade practices. The company’s progressive approach to environmental protection has enabled it to make considerable contributions towards environmental protection and conservation efforts. The company’s successful reduction of green house gas emissions into the global atmosphere by 10% has been proof of its intention and commitment to the maintenance of a sustainable global environment. BP has traditionally established environmental impact mitigation goals and objectives, and publicised its environmental progress reports for the perusal of all stakeholders. The company’s promotional tagline of its eco-friendly energy solutions has been a major impact on its global reputation in the oil industry. Through these initiatives, BP plc has reoriented itself as the leading global source of conventional energy solutions that have supplemented the global energy requirements. BP’s strategic management has been in tandem with Caroll’s four level Corporate Social Responsibility model; in this regard, its decisions, actions and policies have been pegged on the economic, legal, ethical and philanthropic frameworks that govern business operations. BP has not neglected its corporate responsibility in view of the significant environmental and ethical issues bedevilling the world in this century; it has been at the fore front in addressing and tackling global social and environmental challenges. The company’s Corporate Social Responsibility strategies have been demonstrated in a number of ways as depicted by its compliance with Caroll’s model of Social Corporate Responsibility. A PESTEL analysis of the company provides an insight into the internal and external environmental factors that affect the company in the Oil industry. It is emerging that political, Economic, Social, Technological, Environmental and legal factors are influential forces that determine the company’s business operations. Corporate responsibility determines a company’s performance and sustainability; the social and environmental strategies of a company as big as BP helps to reduce costs, creates new markets, and helps it to boost its sales (Dirks 2001). However, BP has also been accused of flouting ethical considerations in its operations in the past, and this has greatly tarnished its global image (Nicholechan 2012). Oil spillages and incidental fires in the company’s oil rigs has been a major concern to environmentalists all over the world, as this threatens sustainability of the global environment. This has raised concerns over the intent of the company’s green image ethical standpoint, with critics pointing out that the company may be adopting the tagline for pure selfish reasons. It is clear that these incidences were as a result of negligence on the part of the firm’s management, (Ohreen 2010) as the top management could not sacrifice the firm’s profits in order to rectify the problems. Recommendations Basing on the traditional Utilitarianism theory of ethics which implies that something is morally acceptable if it achieves the highest level of good to many people, it is only prudent that BP should take much broader risks to achieve the following: maximise its global returns, reduce safety costs, and exploit small minorities in pursuit of a more sustainable global environment. In this regard, the company’s actions, decisions and policies should aim at producing the greatest satisfaction to the largest group of people so as to override its global impacts. The company should also intensify its alternative conventional energy investments so as to take advantage of the emerging opportunities in global energy industry. Huge investments in green energy such as solar, wind and natural gas are required so as to reduce the global impact of the use of petroleum products by BP customers on the environment. The company can also exploit the emerging green energy market to ensure its sustainability in the highly volatile and uncertain global oil industry today. Increased participation in philanthropic activities around the world will intensify the company’s presence and impact in societies, and this will greatly help to revamp its tarnished image. The company should apply the stakeholder’s theory in the execution of its operations in order to avoid getting into conflicts with regards to ethical issues. Managers of the firm should strive to apply the normative principles of this theory in decision making so as to arrive at unbiased consideration of issues, and preserving ethical integrity accordingly (Ohreen 2010). Appendices Appendix I SWOT Analysis SWOT Analysis on BP plc ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ Date 08/01/2013 Internal Factors Strengths New Oil excavation technology Premium brand status Diversification of markets Global presence Weaknesses High prices Industry uncertainties High prices Ethical issues such as oil spillages External Factors Opportunities Conventional energy i.e. solar, wind and natural gas. New oil fields i.e under the seas Threats Market unstability Ethical concerns such as oil spillages Saturation of oil wells Sustainability of the industry Appendix II PESTLE Analysis PESTLE Analysis on BP plc Date of Analysis 08/01/2013 PESTLE Analysis factors Notes Potential Impact: Implication and importance BP has been affected by all the factors listed in the ways discussed below H – High M – Medium L – Low U – Undetermined Political Trading policies Home market lobbying/pressure groups Local authority rules/ local bylaws etc International pressure groups Wars and conflict Government policies Government term and change Elections Inter-country relationships/attitudes Terrorism Political trends Governmental leadership Government structures Internal political issues Shareholder/ stakeholder needs/ demands Bp is subject to political influences listed in the countries where it is located. Political instability has rendered the oil industry volatile; for instance, the company has been obliged to comply with eco friendly energy regulations. limited operations market uncertainties sustainable environment Diversified products. Development of conventional forms of energy Trading policies Activism-health and safety regulations Environmental policies Economic Home economy situation Home economy trends Overseas economies and trends General taxation issues Taxation changes specific to product/services Seasonality/weather issues Market and trade cycles BP is affected by economic factors such as increased demand for economic growth. Increased demand Constrained reserves High profitability Exploration of new markets Development of new products and technologies Expansive excavation Research on conventional forms of energy Social Consumer attitudes and opinions Media views Law changes affecting social factors Brand, company, technology image Consumer buying patterns Major events and influences Buying access and trends Ethnic/religious factors Advertising and publicity Ethical issues Diversity Immigration/emigration Health The company has a broad influence on social perspectives with respect to ethical issues such as safety, health and environmental impact. Anti-trust issues Ethical considerations Health impacts Safety issues Development of eco-friendly energy Philanthropic ventures Safety regulations Creation of sustainable environment Technological Competing technology development Research funding mechanisms/technology Technology legislation Innovation potential Technology access, licensing, patents Intellectual property issues Global communications Inventions New discoveries Research BP has developed a formidable technological infrastructure and is the leading oil company in new oil excavation technology. Low costs of production Efficient production methods Expanded exploration and excavation New oil excavation technologies Exploration of new oil fields Development of alternative forms of energy such as solar, wind and natural gas. Environmental/ Ecological Environmental issues International National Local Environmental regulations The firm is obliged to pay attention to the environmental impact. Heightened environmental consciousness Eco-friendly energy demands Excavation restrictions Creation of a sustainable environment Health benefits Environmental policies Development of conventional energy Legal Current legislation home market Future legislation European/international legislation Regulatory bodies and processes Environmental regulations Employment law Consumer protection Industry-specific regulations competitive regulations Legal factors affecting the firm include consumer laws, environmental laws and trade laws. Excavation restrictions Market barriers Consumer Consumer protection Employee policies Labour laws References Warren, S., 2012.“Is BP an Ethical Company?”. Wearedevelopment.net. [Online] Available at. http://wearedevelopment.net/2012/05/18/is-bp-an-ethical-company/ [8th Jan, 2013.] Oxford., 2007. PESTEL analysis of the macro-environment. Oup.com. [Online] Available at..http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htm [Accessed on 8th Jan, 2013] Dirks, G., 2003. CSR: A view from BP. BP.com. [Online] Available at..http://www.bp.com/liveassets/bp_internet/china/bpchina_english/STAGING/local_assets/downloads_pdfs/g/gary_speech_at_csr_forum_english.pdf [Accessed on 8th Jan, 2013] Dirks, G., 2001. Corporate Social Responsibility: A living Reality. BP.com. [Online] Available at..http://www.bp.com/genericarticle.do?categoryId=98&contentId=2000515 [Accessed on 8th Jan, 2013] Ebeni.,2012. Corporate Social Responsibility. Ebeni.wordpress.com. [Online] Available at..http://ebeni.wordpress.com/conference/presentation/corporate-social-responsibility/[ Accessed on 8th Jan, 2013] Vijayaraghavan, A., 2011. CSR Disasters: BP Spill, A Year On. Justmeans.com. [Online] Available at..http://www.justmeans.com/CSR-Disasters-BP-Spill-A-Year-On/48568.html[Accessed on 8th Jan, 2013] Mallenbaker., 2012. Corporate Social Responsibility - Companies in the News, BP. Mallenbaker.net. [Online] Available at.http://www.mallenbaker.net/csr/CSRfiles/bp.html[Accessed on 8th Jan, 2013] Baker, N., 2010. BP’s internal investigation deems eight factors caused the deepwater horizon disaster. Energyboom.com. [Online] Available at..http://www.energyboom.com/policy/bps-internal-investigation-deems-eight-factors-caused-deepwater-horizon-disaster [Accessed on 8th Jan, 2013] Robins, R., 2011. Does Corporate Social Responsibility Increase Profits?. Businessethics.com. [Online] Available at..http://business-ethics.com/2011/05/12/does-corporate-social-responsibility-increase-profits/ [Accessed on 8th Jan, 2013] Ohreen, D., 2010. Opinion: BP puts costs ahead of environment. Are we surprised?. Businessethics.com. [Online] Available at. http://business-ethics.com/2010/07/05/1432-opinion-bp-puts-well-costs-ahead-of-environment-are-we-really-surprised/ [Accessed on 8th Jan, 2013] Read More