Memorandum - Business Plan Example

Memorandum 25 March, 2007 CEO/BP Business Management Report Executive Summary One of the world’s largest energy suppliers, BP provides customers worldwide with transportation fuel, energy for the provision of light and heat and petrochemicals for everyday use. A review of the company’s latest Annual Report1 reflects the following assets and liabilities:- a) Turnover (sales and other operating expenses) $262 billion b) Replacement cost profit (after tax, interests etc) $19.3 billion c) Employees 92,2000 d) Shareholders 1.3 million e) Reserves 18.3 billion barrels of oil and gas f) Service Stations 28,500 g) Exploration/countries 26 h) Refineries 19 The main difficulty for BP is offsetting the current decline in production as a result of problems encountered with exploration projects and internal management. These difficulties have given rise to consumer disenfranchisement. There is a common belief that BP exploits natural resources for financial gain. After conducting some research of current market trends and the consumer behavior, it appears that first and foremost BP’s focus should be on restoring consumer confidence with a view to improving production. This report provides some guidelines for improving customer relations which will eventually require internal reconstruction. Strategy Any strategic business plan should recognize that a business should always strive to move forward. As a market business BP’s should always aim to remain one step ahead of competition by testing the market with new ideas and/or products. Once a company stops moving forward, staff and customers alike are negatively impacted. There is a ‘positive relationship between market orientation and organizational performance.’2 A strategic analysis involves analyzing BP’s strengths as an energy business and coming to terms with the external factors that contribute to BP’s business position. In order to make this analysis there are essentially nine tools that can assist. They can be summarized as follows: Pest analysis –Understanding the business environment. Pest is an acronym for ‘Political, Economic, Social and Technological analysis.’3 Scenario Planning –Constructs future possibilities; Five Forces Analysis –The factors that drive competition; Market Segmentation – Identifying customer similarities and differences; Directional Policy Matrix –The competitive advantages in different markets; Competitive Analysis –The overall competitive position of the business; Critical Success Factor Analysis –The area in which outperformance is critical for the business’ success; and SWOT Analysis –The business’ internal and outside influences.4 SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats.5 For the purpose of this strategic business plan, the author suggests the implementation of the Pest Analysis, Critical Success Factor Analysis and Scenario Planning for BP. Once an understanding of the current environment in which BP’s business operates, and future possibilities have been identified a viable business strategy can be constructed. All other strategies will be obvious throughout the discussion as they form part of the entire analysis. Pest Analysis for BP The current business environment for the fuel industry is challenging. Tony Wood, Global Marketing Manager for IBM Chemical and Petroleum Industries warns that ‘overall gasoline consumption is declining, while non-fuels retailers (supermarkets and hypermarkets such as Tesco and Sainsbury’s) are gaining volume market share. As a consequence, long-term consumer fuels margins are expected to decline.’6 Moreover increased government taxation on fuel increases fuel prices and consumers are growing suspicious of fuel companies believing that they are gaining inordinate profits with the result that consumers are opting out of paying for ‘brand premiums.’7 The fuel industry is becoming saturated by the implementation of retail markets.8 Supermarkets in the UK and retailers provide 9 percent of outlets and 24 percent of the market’s volume.9 Scenario Planning and Critical Success Factor Analysis The market environment is such that BP must respond or it will not move forward. There are several possibilities for BP to move ahead. They can become the ‘best-in-class fuels marketer.’10 Another option is to become a ‘best-in class’ retailer.11 Another response to the market environment is to ‘leverage the brand and physical assets.’12 Becoming a ‘best-in-class fuels marketer’ requires the introduction of cost friendly fuel and brands for which customers are prepared to pay premium prices. To improve sales’ frequencies and volume BP should place outlets in areas with condensed traffic outflows.13 As Tony Woods suggests, it will be advisable to treat retail suppliers in a manner in which a parent company would treat its partners. The quality of the retail station’s service reflects on the supplier. Becoming a ‘best-in-class fuels marketer’ should also concentrate on making it more convenient for a customer to purchase fuel by providing easy-to-pay credit card facilities, self-service facilities and the sale of incidentals.14 Consumers are increasingly aligning fuel purchases with other shopping errands.15 Woods is of the opinion that infiltrating this market segment will force current retailers to either improve the standard of service to compete with premium brands or direct consumer interest back to premium brands.16 This move ‘could provide a cost-effective solution to offering and ‘rolling out’ the infrastructure across a gas station network.’17 A survey conducted by Business Week reflected that BP was among the top 100 company brands worldwide. Interestingly, none of the high volume retail brands such as Tesco’s made the top 100 list.18 As Tony Wood points out this is evidence that the ‘oil majors have the potential to leverage the brand.’19 This can be accomplished by connecting retail sales with incidental for instance, motor vehicle insurance. It could be useful to adapt a marketing strategy similar to ‘Virgin which has branded airlines, cola, financial services, entertainment etc.’20 Conclusion With the difficulties ahead for the fuel and energy industry, a ‘do nothing’ strategy is the next best thing to opting out.. As noted above strategic planning options include breaking into the retail business or improving the retail position by leveraging the brand. Flexibility is the key, particularly when competition is fierce.21 As a part of any reorganization, cost cutting wherever possible will be an essential part of any business reconstruction22 in order to reduce the ultimate cost to the customer with a view to restoring customer confidence. As is often the case, when oil prices rise, output is depressed.23 Bibliography Armstrong. M.(2006) A handbook of Human Resource Management Practice Kogan Page , London Baker, Willam and Sinkula, James. The Synergistic Effect of Market Orientation and Learning Orientation on Organizational Performance. Journal of the Academy of Marketing Science, Vol. 27, No. 4, 411-427 (1999) Borenstein, Severin and Shepherd, Andrea. Sticky Prices, Inventories, and Market Power in Wholesale Gasoline Markets. The RAND Journal of Economics, Vol. 33, No. 1 (Spring, 2002), pp. 116-139 Boydell. T. and Leary, M. (2001) Identifying Training Needs. Chartered Institute of Personnel & Development, London Bp(n.d) http://www.bp.com/sectiongenericarticle.do?categoryId=3&contentId=2006926 Viewed March 23, 2007 Brealey, Richard and Stewart C. Myers; Allen, Franklin; Myers, Stewart. (2005) Principles of Corporate Finance. Mcgraw-Hill College, Blacklick, Ohio De Wit, Bob and Meyer, Ron. (2005) Strategy Synthesis - Resolving Strategy Paradoxes to Create Competitive Advantage . International Thomson Business, London. Fahey, L. and Narayman,V.(1986) Macroenvironmental Analysis for Strategic Management&rdquo, West Publishing, New York Finn, M. G. (2000) “Perfect Competition and the Effects of Energy Price Increases on Economic Activity,” Journal of Money, Credit and Banking 32: 400-416. Gronroos, C. (1994) “From marketing mix to relationship marketing: towards a paradigm shift in marketing”, Management Decision, Vol. 32, No. 2, pp 4–32, 1994 Hamilton, J. D. (1996a). “This is What Happened to the Oil Price-Macroeconomy Relationship,” Journal of Monetary Economics 38: 215-220. Jarillo, J.-C. (2003) Strategic Logic, Palgrave McMillan, New York, 2003. Kaplan, R. S. and Norton, D. P. (1992) “The balanced scorecard: measures that drive performance”, Harvard Business Review, Jan–Feb, 1992, pp71–80. Land, Nigel.(2002) Is the UK Retail Petroleum Market in Europe? Petroleum Review. UK Retail Market Survey Lovelock, C. (1994), Product Plus: How Product + Service = Competitive Advantage, McGraw Hill, New York Lusch, R. F. and Lusch, V. N. (1987) Principles of Marketing, Kent Publishing, London. McKenna, R. (1997) Real time: Preparing for the age of the Never Satisfied Customer, Harvard Business School Press, Boston Mazzucato, Marianna. (2002) Strategy for Business. Sage Publications, London. Outlook – Beyond 2005’, Retail Forward, 2002. The 100 Top Brands’, Business Week, August 2002 UK Marketing Survey. (2003) Surviving a Difficult Business Environment. Institute of Petroleum . Read More