Global Corporate Strategy - Strategy Development in the Global Oil, Gas, and Petrochemical Industry - Assignment Example

Strategy Development in the Global Oil, Gas & Petrochemical Industry Answer Corporate governance and corporate social responsibility issues Corporate governance has become a burgeoning issue across the corporate world, irrespective of the sector or industry. Corporate governance is the process through which firms make decisions, organise themselves and establish communication with shareholders as well as external environment. The major issues faced by the management are recruitment and selection of executives and boards, responsibilities and mandates assigned to them, extent of shareholder participation and execution qualities of the selected board (BP, 2014b). In short, the major issue or objective of corporate governance is to promote good business and corporate practice, ensuring that all decisions made are in the interest of shareholders and investors without compromising the objectives and long term goals of the company (BP, 2014a). The major goal of BP governance is maximizing long-term value of shareholders by allocating the company’s resources to critical activities in natural gas, oil, energy businesses and petrochemicals. The board of directors is responsible for BP’s corporate governance which includes focusing on strategic and corporate governance issues, giving regard to political, economic as well as social issues. In order to effectively manage the issues faced by the corporate governance management, a risk management strategy has been formulated. These include management of daily activities, strategic and business risk management, governance and oversight (BP, 2014b). Daily management of activities includes managing staff and other members at the manufacturing and production facilities, identification and management of risks as well as promotion of compliant, reliable and safe operations. BP has launched OMS (Operating-Management System) which integrates multiple requirements of the firm on issues such as safety, health, environment, security and operational reliability (BP, 2014a). Strategy and business risk management includes integrating strategy, capital and resource allocation, performance management, project appraisal and planning through a standardized report on risk management. This report aims as providing constant and authentic overview of risks and subsequent actions. The chief executive is assigned authority and responsibilities as per the governance policies. BP identified certain corporate governance risks and high priority. These included oil spill at Mexico Gulf, geopolitical risk, ethical misconduct, trading and regulatory non-compliance and cyber security (BP, 2014a). A major safety lapse that occurred in the CSR of BP was terrorist attack in 2013 vehicle accidents in South Africa and Brazil (BP, 2014b). Since then, the company has developed many CSR strategies to improve its safety measures such as capability development, safer drilling, crisis and security management and audit reports, internal safety management procedures. For instance, the company worked in areas such as corrosion, coaching and site buildings in their petrochemicals and refining portfolio (BP, 2014c). Corporate governance and CSR related issues faced by Shell include oil spills in many of its important and big oil stations, careless attitude of the organization towards the locals and natural environment and failure to handle context and country specific issues (Beddos-Jones, 2012). In order to solve the above issues, Shell has authorized external audit committee from Deloitte to carry on surprise visits, audits and other monitoring processes in order to keep track of the security, performance, hygiene and work standards (Shell, 2014a). Shareholders and investors are communicated through updated websites, regular press conferences and investors meetings. In 2011, a report by Lord David criticized Shell for not recruiting women on its boards. Shell replied that it is planning to improve the percentage of women directors to 25 percent by 2015 (Shell, 2014a). Other corporate social responsibility strategies of Shell included initiatives such as Autism initiatives and management of families of Shell members employed in various parts of the world. Improving performance and operational effectiveness In order to improve the overall performance as well as operational effectiveness, Shell has implemented multiple strategies. The downstream and upstream engines of the firm are mature and cash generative businesses and as a result, the company has planned to make selective investments and distinct technology for enhancing overall profitability (Shell, 2014a). Deep water and integrated business of the company are major growing segments of Shell and the company utilizes the technological expertise and global experience in order to achieve competitive positioning. Similarly, the long-term resources of the company include portfolios such as gas and shale oil and new market such as Iraq, Arctic, Kazakhstan and heavy oil (Shell, 2014a). The company has also invested capital in many future projects. In order to grow its integrated gas program, Shell has brought a part of the Repsol’s LNG portfolio. This acquisition will be helpful in saving huge margins on the operations and therefore will enhance the overall operational performance of Shell (Shell, 2014b). Another strategy adopted by Shell is exploring gas and oil through conventional sources such as shale, tight rock as well as coal formations. The company has already explored areas such as Mexico, Brazil and Australia and is planning in areas including China, USA and Canada. Shell has also diversified its portfolio of chemical plants and refineries enabling the firm to store large volume from the available natural gas and oil. Thus, the company is able to regulate and streamline its operations through reserved resources and thereby improve performance overtime (Shell, 2014b). In order to increase its performance and operational efficiency, BP applies its distinctive capabilities especially in terms of risk management and safety features. The company also applies its rich source of experts and experienced professionals for enhancing overall performance and gaining competitive edge. BP has been steadily focusing on gas sector value chains, giant fields and deep water exploration (BP, 2014c). The company is now focusing on few but more profitable operations in selection nations with highest growth avenues. Also, the company has streamlines its internal performance and internal reward management processes. Apart from that, the company has also improved its transparency and reporting procedures and has assigned separate audit committee for every business function. BP has planned to launch new projects so that the average is doubled and the new cash is increased (BP, 2014c). Recruiting and retaining a skilled workforce British Petroleum is a large oil and gas multinational, spanning across diverse culture, global environments and nationalities. This diversity is reflected in BP’s overall workforce as well as senior and top level management. However, BP has been facing challenges in terms of operating in regions having specific culture, different from the organisation. As such, the company has faced various cultural and national diversity issues, during promotion of its corporate strategy (Mintzberg, Ahlstrand and Lampel, 1998). The company has launched a global strategy for inclusion and diversity and the major directives include perceiving inclusion and diversity as a corporate imperative. The company has also appointed programs for diversity management at each business unit and also ensures that proper training and development programs are given for diversity management (BP, 2014c). The recruitment and retention strategy of Shell relies on three fundamental priorities, resourcing and development of talent at present and future, enhancing professionalism and leadership and strengthening organizational and individual performance. Shell recruits both externally and internally and maintains cultural diversity by hiring candidates from different parts of the world. In order to maintain a healthy and productive employee environment, two-way communication approach is followed between staff and management (Shell, 2014b). Also, direct approach is followed during emergencies and important work practices. Employee engagement is done through regular help lines, confidential websites for whistle blowing and regular training and development programs. Answer 2 With the volatile changes in the market, the competitive environment has also changed and natural oil firms have started to participate in a greater extent in the present global marketplace. Although the gas and oil sector faces great risk and uncertainty, the huge profit margins and irreplaceable resources have made this industry important and critical to both the investors and marketers. Oil and natural gas companies such as BP are now focusing on strategies for ensuring future operational and financial successes. In this situation, where most of the products and services offered are similar and the bargaining power of suppliers and customers has increased, mergers, acquisitions, takeovers and joint ventures have emerged as one of the most profitable strategy for companies like BP (Mintzberg, Ahlstrand and Lampel, 1998). Acquisitions and mergers will enhance the cash balance, supply, production and overall position of the company, thereby enhancing its negotiation power over other suppliers as well as providing competitive advantage to the bigger firm in terms of higher brand value, brand image and positive perception from the customers and suppliers. While any new project in this sector will require long and unprofitable lead times, the requirement for oil and gas is set to increase drastically in future and the profit margin in future is expected to be huge. British Petroleum has set short-term objectives for profit maximization and minimization of losses and thereby utilizing those revenues for further investments. For instance, the company is planning to increase its flow of operating cash to 31 billion dollars by 2014. Also, BP is expecting an annual increase in its capital expenditure from 24 billion dollars in 2015 to 26 billion dollars in 2018 (BP, 2014d). Another important objective of the company is divestments. The company has planned to divest assets worth around 10 billion dollars by 2015 end (BP, 2014d). British Petroleum has been undertaking cross-border acquisitions and mergers for multiple reasons and strategies drivers. For instance, legal access to strategic and propriety assets will not only improve competitiveness of the firm, but will also increase its dominance and power over the market. Mergers, acquisitions and joint ventures are also helpful in achieving synergies and compatibility in multiple global and local operations as well as across various related and unrelated industries and sectors (Lynch, 2006). Global expansion though mergers, acquisitions and joint ventures have also been helpful in making the company larger, thereby giving advantage in terms of negotiation and competition. Diversification into new sections and regions will also spread the risks wider and help the firm in exploiting other financial opportunities that may arise in the future. With the drastic changes in the external environment and increasing competition among oil and natural gas companies, BP needs to ensure that its current share of market and revenues are kept intact as well as the company has a definite plan for future growth and sustainability. In order to ensure its operational and financial success, BP has outlined few concrete strategies for future growth and development (Lynch, 2006). Overall, two basic features of the strategy are increasing operational efficiency and cost cutting measures for saving capital and huge investment in expansion strategies such as joint ventures, mergers and acquisitions for safeguarding the future market share and company profitability. The major points of the strategic plan are as follows; 1. The operational objective of the company is to save minimum 3 billion dollars through efficiency improvements and cost-cutting measures within 2-3 years. Out of the 3 billion dollars, BP has planned to save 2 billion dollars from efficient operations and effective refining activities. Other 1 billion dollars will be saved from more effective project management strategy which will include creating a new unit for global development, especially for bigger projects (BP, 2014d). The cost-cutting plan will also include shutting down un-profitable projects in areas such as Malawi, Namibia and few other African nations. This cost-cutting measure is especially for investing in newer and more profitable regions across the globe (Lynch, 2006). 2. BP is planning to increases the overall production volume of its gas portfolio, from 40 percent to 45 percent by the year 2020. This is in light of the decreasing petroleum reserves across the globe and increasing usage of gas and its subsidiaries for energy consumption (BP, 2014d). 3. The company is also planning to launch 42 projects by the end of 2015 and add 1 million barrels of gas and oil in its yearly products. This strategy is to meet the increasing demands of oil and gas as well as gain market share in the coming years. This is also to compensate for the declining or shut down projects of BP across the globe. The company is planning to expand its base to regions such as Egypt, Libya, Algeria, Indonesia, Trinidad, Azerbaijan and internal regions of Russia (BP, 2014d). 4. The company is also expanding into new sectors such as onshore wind, bio-fuels and carbon capture in regions of China and the US. Among the above, BP will invest highly on biofuels. The company has established a joint venture with Verenium, which will help the former in developing biofuels of second generation. If successful, both companies can also enter into long-term agreement (BP, 2014d). 5. The company is also planning to buy assets in related and new fields with the objective of mitigating the risks that might arise from the depletion of natural energy sources such as petroleum (Callus, 2012). Apart from the above, the company has also laid down a 10-point plan in order to improve its performance through diversification (BP, 2014d). As the company is planning to expand its portfolio base through mergers, acquisitions and joint ventures, it is important that the risk management strategies and safety features match the global standards. Internal performance management system will be based on revenues and overall performance of each region, irrespective of the standards set by the headquarters. The revenues generated from cost-cutting measures and other efficient operations will be invested in purchasing new business avenues as described above. BP is planning to improve its net cash to 50 percent and then invest half of the above cash in reinvestment strategies (BP, 2014d). Answer 3 Management and leadership are two critical aspects of any firm and are responsible for the long term growth and sustainability of the organization. Management takes responsibilities for the emergent and intending initiatives undertaken by senior management which involved resource utilization, performance evaluation as well as making strategies for external environment. Strategic management also defines the organization’s vision, objectives, mission, developing plans and policies especially with regards to programs and projects as well as resource allocation for implementation of the above plans, policies, programs and projects. The responsibility of the leaders is to create a strategic consistency in the management actions and the goals and objectives of the organization such that organization is updated and forward in terms of market and external environment and is ready to grab any opportunity in future. The link between management and leadership is integral and both work towards the accomplishment of organization goals as well as profit maximization of its shareholders. Effective leadership can only be achieved when an organization is able to integrate as well as maximize the available resources in terms of its utilization with external and internal environment and attain societal as well as organization goals. Any lack in corporate performance may result in negative consequences and the CEOs and other management executives are the ones to blame. The recent accident at BP created huge negative publicity for the company and furors among the public. While the company covered this issue with proper and legal relations and handling the queries, this was a big blow to the brand image of the company as well as leadership ability of the oil and gas firm. In order to make the organization more effective and simpler in terms of management and leadership, various steps need to be undertaken. In the purview of the recent crisis, the top management of BP including its chairman will be to take certain stringent steps for correcting the mistakes as well as creating an atmosphere of positive work environment and leadership. The chairman will have to undertake a renewal program in order to reshape and secure the various measures for safety and security of the production plants. Two of the most important factors which the top management needs to consider are improvement of employee behavior and creating a performance driven culture. In order to create a performance driven culture, the company has been rapidly evolving with respect to its work culture as well as diversification, such as growing shale gas across the US and meeting the expectations of the society through maintaining world class standards. BP will have to increase scrutiny as well as security across commercial sectors especially where media and politicians are involved (Callus, 2012). Maintaining respect and trust of the shareholders should be the prime motive for the organization. For this, British Petroleum has started to focus on various strategies, especially designed to enhance the overall employee behavior and performance of the organization. These include capital discipline, project appraisal, performance management as well as cultural diversity (BP, 2014d). A performance driven culture can be achieved through running reliable as well as safe operations. Employees working in oil drills and wells across dangerous locations such as ocean beds and sea need assurance and confidence in terms of security and safety (Corkindale, 2010). Providing unique safety features such as latest life saving equipments for emergencies, special training facilities for escaping dangerous situations such as oil spills and accidental fires and proper compensation packages including life insurance are few of the strategies that the company can apply in order to encourage its employees and workers to perform better and efficient. Apart from that, the company should also be disciplined in terms of utilizing its financial resources. Many of the firm’s previous expansion plans such as oil wells in Namibia went unprofitable and the company has to close down the plants. Thereby, it is critical that the firm must install competitive strategies and examine all the potential regions extensively before making any financial investment (Zoller and Fairhurst, 2007). A performance driven culture can also be achieved through utilizing the profitable portfolio and focusing on those business functions that are of high quality. BP should utilize the available technology as well as expertise and experience of its employees for building strong and more fruitful relationship among the management and employees (Callus, 2012). Also, the company should choose projects not based on volume or profits, but on the basis of its value and the capability of its management and employees in successfully completing the projects. A successful leader is the one ensuring that projects are undertaken in a disciplined manner, employees and workers are contributing accordingly, capital expenditure limits are not breached as well as future rewards for shareholders are balanced (Western, 2008). Leadership in a company should start at the very top and continue downwards. The objective of the top leaders is to set values and tone for the organization, thereby shaping their behavior and performance for the fulfillment of long-terms goals of the organization. They are also responsible for creating the framework for the organization (Corkindale, 2010; De Wit and Meyer, 2010). To increase the behavior of employees towards each other as well as towards the organization, it is critical that the leaders set good examples of management and behavior. Regular communication with the team members is an effective strategy to understand the motivations and negative behavior of employees and subsequently make amendments in the leadership management processes (Western, 2008). Remuneration is another factor controlling the behavior of employees. For a performance driven work culture and positive employee behavior, BP can involve in remuneration and benefits packages based on performance, skills and experiences, rather than based on hierarchy (Zoller and Fairhurst, 2007). While the company has a long standing objective of linking performance, remuneration and strategy, it is expected that the firm will continue this feature in its leadership and management strategies also (Callus, 2012). Overall, achieving an enhanced employee behavior and performance-driven culture at BP can be achieved through the following strategic steps; 1. Establishing specific performance matrix according to the employee skills and knowledge This step will include specific definitions of goals, objectives and measures of performance. A major challenge in this step is identifying the appropriate performance measures. This can be achieved through discussions and brain-storming with the board members top management executives (Western, 2008). Also, it is essential to consult key employees before setting performance targets and other competitive measures. After the performance targets are set, next step should be exercises for goal setting as well as employee engagement so that the employees and workers are accustomed to the set performance metrics (Johnson, Scholes and Whittington, 2005). 2. Collecting, reporting and analyzing of data related to performance evaluation BP recent failures in terms of crisis management and operations have been majorly due to insufficient reporting, auditing of the oil fields and production sites and lack of in-depth analysis from the top management (BP, 2014d). In order to minimize the re-occurrence of such situations across BP, the management should ensure that the huge data on employee performance is monitored and audited on a regular basis 3. Identification of leaders A detailed analysis of the performers within the organization will provide definite results in finding leaders. For this, proper research should be conducted such as co-relating multiple performance metrics, analysis of past performances, looking for valuable and consistent work as well as acceptability of the leader among its followers (Western, 2008). 4. Establishing appropriate rewards and compensation system An important step to maintain and retail top talents as well as create an atmosphere of healthy competition within the organization is establishing proper reward systems for performers and leaders. Senior management should ensure that rewards and benefits provided are appropriate and match the individual performance of the employees (Johnson, Scholes and Whittington, 2005). 5. Training and development for non-performers Various reasons can be attributed to the negative behavior of employees such as issues of security and safety, staying away from home for a long time, issues between employees and conflicts between employees and managers. In such situations, it is essential that these issues are resolved in the best possible manner. For other non-performers, proper training and development facilities should be established. Reference List Beddos-Jones, F., 2012. Authentic Leadership. People Management, 7, pp. 44-47. BP, 2014a. Board Governance Principles. [pdf] BP, Available at: [Accessed 9th August 9, 2014]. BP, 2014b. Governance. [online] Available at: [Accessed 9th August 9, 2014]. BP, 2014c. Corporate governance and group risk. [online] Available at: [Accessed 9th August 9, 2014]. BP, 2014d. BP Annual Report. [pdf] BP, Available at: [Accessed 9th August 9, 2014]. Callus, A., 2012. BP to outline upstream growth strategy. [online] Available at: http://www.reuters.com/article/2012/12/02/us-bp-strategy-idUSBRE8B106H20121202 [Accessed 9th August 9, 2014]. Corkindale, G., 2010. Five Leadership Lessons from the BP Oil Spill. [online] Available at: http://blogs.hbr.org/2010/06/five-lessons-in-leadership-fro/ [Accessed 9th August 9, 2014]. De Wit, B. and Meyer, R., 2010. Strategy Process, Content, and Context International Perspective. New York: Thomson Learning Johnson, G., Scholes, K. and Whittington, R., 2005. Exploring Corporate Strategy: Text and Cases. Prentice Hall: Financial Times Lynch, R., 2006. Corporate Strategy. Prentice Hall: Financial Times Mintzberg, H., Ahlstrand, B. and Lampel, J., 1998. Strategy Safari. Prentice Hall: Financial Times. Shell, 2014a. Annual report: Oman. [pdf] Shell, Available at: [Accessed 9th August 9, 2014]. Shell, 2014b. Annual report. [pdf] Shell, Available at: < http://reports.shell.com/annual-report/2013/servicepages/downloads/files/entire_shell_ar13.pdf> [Accessed 9th August 9, 2014]. Western, S., 2008. Leadership: A Critical Text. London: SAGE. Zoller, H.M. and Fairhurst, G.T., 2007. Resistance leadership: The overlooked potential in critical organization and leadership studies. Human Relations, 60(9), pp. 1331–1360. Read More