PESTLE Factors That Influence British Petroleum Performance - Case Study Example

?Operating environments are known to create both problems and opportunities for organisations, which must cope with changes in cost of capital, labour, raw materials among other aspects. Understanding the business environment within any organisation is fundamental to the successful operations that ensure profitability and efficiency. For this reason, environmental analysis provides a unique opportunity to further knowledge based on the status of an organisation in present times and emerging trends. The process of continuous acquisition of information on events, trends, and the organisation’s external environment is descriptive of environmental scanning whose goal is to provide facts essential to the decision-making process. The oil and gas industry, established after the discovery oil pits near early civilisations and subsequent utilisation of the liquid, is characterised by numerous petroleum products that are because of purification processes accorded the crude oil. Petroleum is a crucial element to the economy with numerous applications across all industries, and it is, therefore, critical to maintain the supply to drive the global economy. Apart from driving the global economy, the industry provides employment chances to many workers around the world. BP plc is a major player in the oil and gas industry and is ranked fifth by market capitalisation as well as revenues. Owing to the significance of this company in the society, it is serves as a prime subject of evaluation based on performance in view various environmental factors. While focusing on environmental scanning, this paper seeks to explore the political, economic, social, technological, legal, and environmental factors that influence BP’s performance. However, this paper overlooks the physical infrastructure and corporate organisation with regard to governance since these are internal aspects influenced by the institution’s service mandate. Political Political factors play a critical role in determining operations in a majority of organisation worldwide owing to their role in driving the economy. Political structures effect their influence through polities that can serve to promote or limit an institution’s operations. In this regard, BP has received its fair share of political influence that serves to promote as well as limit their economic activities. Governments exercise their regulatory powers in the oil and gas industry through trading policies that seek are geared to ensure sustainability of the much-depended commodity. The recent oil spill at the Gulf of Mexico involving BP asserts the role of political organs in organisations. Following this incidence, President Obama visited the site and offered to increase the work force in efforts to clean up the spill while calling for stronger oversight to avoid such incidences. Evidently, BP has been under enormous scrutiny following the incidence that caused rifts among entities calling for harsh penalties against the company and those assisting in the clean-up exercise (Kapucu 2011, p.23). It lies within the government’s responsibility to ensure that environmental accidents are avoided or responded to promptly. Similarly, the oil industry is often subject to political stability where prices fluctuate owing to harsh economic environments created. Political instability and tension affects the cost of production by encouraging hoarding, which creates artificial crisis in the sector. Moreover, diplomatic relations play a critical role in fostering international trade and expansion of multinational corporations. BP is placed in a unique platform that is supported by favourable political structures, which encourage foreign investment and understand the benefits realised by the endeavour. With its headquarters in the United Kingdom, compliance to the European Union’s regulation policies with regard to fuel components is key to BP’s operations. Economic Notably, prevailing economic factors play a major role in influencing the national and international economy. For this reason, it is critical that stakeholders strive to provide a favourable economic environment for the betterment of the national economy. BP operates numerous offshore oil and gas fields in the UK that contribute a significant amount of fuel to the national supply. In light of this, the withdrawal or malfunction of BP’s operations is bound to affect negatively the local and national economic capacities. Experts believe that this was the case with Gulf of Mexico oil spill, which occurred prior the American economic crisis. In essence, each economy is relies on the energy industry for growth and a major determinant of the cost of living. BP continues to thrive and grow as the demand of its products increases with time creating dependence on fossil fuels. As a result, there is a need to delve into alternative source of energy in efforts to minimise dependency, which remains in contention owing to subsequent costs. Nevertheless, the concept of alternative sources of energy is crucial in ensuring health competition and accountability in the industry. The company is based on a solid infrastructure network that processes billions of oil barrels annually following years of heavy investments in the same. As such, prevailing economic conditions should enhance market opportunities for BP owing a high demand and well-laid infrastructure for effective supply. Social BP enjoys an unlimited supply of labour owing to its proliferation and multinational status. Apart from driving the global economy, the industry provides employment opportunities to thousands of workers around the world, thus improving their living standards. This is an opportunity to affect the society positively by improving their living standards while providing petroleum products. The company seeks professionalism and high academic proficiency in their hiring process, which serves to promote efficiency and attractive profit margins. Strategic installation of the company’s establishment across the world is designed to provide uninterrupted supply of their goods and services. The serves provides timely supply of products that are essential to a growing economy. The company also established a corporate campus that houses numerous businesses besides providing residential housing to its employees. In this manner, the company illustrates commitment to the societal welfare. However, the community is not always satisfied with BP’s operations especially in matters relating to the environment and corporate social responsibility. Many are of the opinion that BP has failed in its mandate to protect shareholders as evidenced in the move to utilise dividend funds to cater for the oil spill clean-up. While this could be a sound administrative decision, it fails stakeholders’ expectations besides increasing political tension on the matter. The company’s poor image especially in the United States may result in heavy losses that can take years to recover. Similarly, existing corporate social responsibility programs are geared towards improving the public view of the company as opposed to giving back to the community. It is for this reason that BP’s CSR strategies face monumental downfall and express little success (Greenberg et al 2011, p.157). Technology Technology is another significant external force that affects businesses and its adoption delivers numerous advantages by transforming various aspects, leading to efficiency. It is worth noting that BP embraces technological advances in order to streamline its operations. This has seen the company operate safely in its capacity to discover and recover resources as well as subsequent processing and manufacture of low carbon products. BP boast of modern seismic imaging technology in the industry, which serves to enhance its capacity to discover new deposits and improve its productivity. This allows BP to expand its recovery capacity in existing reservoirs especially with deep-water exploration. As such, the company has exceeded the set target to deliver an extra amount of fuel to the global market (Murray, 2012). The company also sanction the implementation of enhanced oil recovery programs for its offshore installations, whose goal is to increase the recovery output. The technology involves a modification of the conventional water flooding technique by applying reduced salinity water. Such ventures have been possible owing to improved infrastructure that continues to encourage technological investments. Moreover, BP hosts recruitment programs where successful candidates receive their training at the Caspian Technical Training Centre. This way, BP enjoys the benefits of training its technical personnel on technological advances and applications within the company. Legal Presently, the legal framework places BP in a tight spot especially after the Gulf of Mexico oil spill, which was subject to numerous lawsuits. The formulation and implementation of new legislation forced a higher level of accountability from the oil industry in time of environmental disasters. For instance, BP had to review its compensation strategies to cater for those affected by the recent oil spill. While these legislations seek more accountability from the industry, they serve as barriers and restrictions that hinder effective business operation. This can be demonstrated by numerous reviews on company policy concerning safety protocols and disaster management. Such undertakings are time consuming and divert key resources from vital company operations with devastating implications in the financial report. However, it is important to note that when accountability and compliance are enforced, organisations have unlimited potential to growth. In light of this, current employment laws serve to protect employees from poor working environments while ensuring that adequate compensation is provided. The laws address concerns about overtime violations, safety precaution, termination procedures, and compensation. The company also benefits such arrangements since it reserves the right to hire in accordance to professional qualifications, which produces a highly efficient team. This ensures the provision of quality service with regard to exploration, recovery, and processing of oil products. Tax laws have gradually eased the cost of operation and offer BP with opportunities to invest heavily in regions of interest. Most recent venture will see the company inject more capital in Alaska after the state reviewed its tax policy on oil (Swint, 2013). This creates a favourable environment for the company to increase its exploration capacity and create more employment opportunities in the society. Environment Owing to the nature of their exploration, serious accidents have occurred in the industry’s timeline that have necessitated the establishment of guidelines to protect all stakeholders. Incidences range from explosions to environmental spills of crude oil, which pose a threat to the ecology of the affected area as well as to the safety of their workers. For this reason, strict guidelines have been established to guide the conduct of oil companies during their exploration procedures. Recent events place BP at the lower quadrant on environmental issues owing to the oil spill accident that has attracted sharp reactions. The incidents renewed call for stricter legislation against the oil industry in favour of the environment. Environmental activists play a key role seeing that they hold potential of pressuring the government into curtailing operations in the industry. This is evidenced by aftermath of the recent oil spill, which saw BP pay hefty penalties in compensation and fines as well as five-year probation (Ernst and Young, 2013). In addition, activists are now opposed to deep-sea exploration and call for its ban, which holds serious repercussions to the global market and economy. In view of new laws, EU pollution standards, and the international view of the environment, it is agreeable that environmental forces on the industry continue grow at a faster rate. This play a critical role in influencing consumer behaviour who seem in favour for alternative sources of energy. Conclusion As established, political events surround BP affect the cost of production thus changes in oil prices, and the company’s capacity in global trade. Therefore, it is important to foster political stability and cordial inter-country relations, as they are fundamental determinants of success in a given organisation. The oil and industry forms the backbone of world’s economy and its disruption leads to economic hardships owing to its dependence for fuel and raw materials. The assessment indicates that the company has successfully diversified its revenue streams and leads in the market. It also has increased opportunities arising from the great demands of refined oil and natural gas in China. However, the oil company is faced with the threats with regard to uncertain economic slowdowns, employee unrest, environmental regulations, and multinational business challenges. Furthermore, the organisation is known for exorbitant profits and has been accused of not committing to conserve the environment as well as inappropriate handling of environmental interest groups as its weakness. The analysis identifies key areas on which the company can exploit and improve on based on the policies adopted. These areas are in need of resolution in order to improve the company’s public image and maintain a dominant stature in the industry. Among the solutions is the development of effective corporate responsibility that are driven by social concerns while ensuring accountability with regard to effects on the environment. Similarly, there is need for the company to review its legal framework to encompass recent legislations and regulation policies from all stakeholders. This serves to eliminate conflict and judicial contests regarding compliance. References Ernst & Young 2013, Investigations and legal proceedings, BP [Online] Available at: http://www.bp.com/en/global/corporate/gulf-of-mexico-restoration/investigations-and-legal-proceedings.html [Accessed 10/08/2013] Greenberg, D McKonne-Sweet, K Wilson, H 2011, The New Entrepreneurial Leader: Developing Leaders Who Create Social, Environmental, and Economic Value in an Unknowable World, California: Berrett-Koehler Publishers. Kapucu, N 2011, Managing Emergencies and Crises, Massachusetts: Jones & Bartlett Publishers. Murray, R 2012, BP plc deploys new technology which aims to boost oil recovery from waterfloods, offshore [Online] Available at: http://www.offshore-publication.com/index.php/technology/454-bp-deploys-new-oil-recovery-technology-29292 [Accessed 10/08/2013]. Swint, B. 2013, BP plans US$1B investment in Alaska as state lowers taxes, financial post [Online] Available at: http://business.financialpost.com/2013/06/03/bp-plans-us1b-investment-in-alaska-as-state-lowers-taxes/?__lsa=1c8b-40b2 [Accessed 10/08/2013] Read More