BPs SWOT Analysis and Strategic Recommendations - Case Study Example

BP’s SWOT analysis and Strategic Recommendations Author Date (final submission) Illustration which reflects the content Module/tutor Word count Table of Contents Table of Contents 2 Terms of References 3 Procedure 3 1.0 Introduction 3 2.0 Findings 4 2.1 SWOT Analysis 4 2.1.1 Strengths 4 2.1.2 Weaknesses 5 2.1.3 Opportunities 5 2.1.4 Threat 6 3.0 Conclusion 7 4.0 Recommendations 8 5.0 References 9 6.0 Appendix 10 Figure 1: Ageing UK population (WAI-AGE 2009). 10 Figure 2: Annual losses by BP (1985-2014) (Katakey 2015) 10 Terms of References The report provides insight into the origin of the current state of low sales and negative reputation that BP suffers in its local UK and the global market in general. It is guided by the research question: what solutions should BP use to counter the current low reputation and sales? The purpose of the report is to suggest the possible solutions to the crisis facing BP. The report is written by a consultant and will be presented to the BP CEO on April 15, 2016. Procedure The data herein is collected from a review of news article, and scholarly literature, as well as BP strategic and financial reports published between 2011 and 2016. 1.0 Introduction With its headquarters in London, the British Petroleum’s (BP’s) products manufacturing and distribution operations are currently served in more than 80 nations across the globe. Currently, BP encounters several environmental, health and safety challenges in its operations across the globe, specifically after the oil spill in Alaska and Gulf of Mexico in the United States, which damaged the company’s reputation significantly (Associated Press 2011). In 2015, as a result, the company experience a 90% decline in profits in its fourth-quarter earnings after low sales and decline in oil prices (Katakey 2015). This business report assesses, investigates, and analyses BP’s SWOT analysis in order to conceive an effective business strategy, strategic choice, in addition to business success criteria in the global market. 2.0 Findings 2.1 SWOT Analysis 2.1.1 Strengths BP currently has enormous amounts of retail brands. It also has reputable subsidiaries distributed in more than 80 countries globally, including BP Connect, ARCO, Castrol, Amoco, BP Travel Centre, and BP Express. Collectively, these present the company with an extensive revenue portfolio as a diversification from its petroleum production and distribution business. As a consequence, the diverse businesses cushion BP from the likely losses that originate from the diminishing sales in the industry, particularly as more consumers are going for energy-efficient machinery like hybrid cars (Bp.com 2015b). BP also enjoys good reputation for dealing in products that are of high quality. An example of this includes spending an estimated £175 million annually in research and development in the United Kingdom alone. The quality products and production processes have ensured strong brand loyalty from its global customer-base and unrelenting high revenues from global sales. Greater technological investments by the company have opened up opportunities to sustainably produce and sell oil and gas products (Bp.com, 2015a). This follows the breakthroughs realised in the technologies for exploration and extraction of ultra-deep-water reservoirs (Bp.com 2015a). An example of this is where BP made an investment of about £4.5 billion in its Clair Ridge project that pioneered a full-field injection of desalinated water. The technology enhanced oil recovery for the company (HM Government, 2013). 2.1.2 Weaknesses The company is yet to rise above the major reputational damage after witnessing extensive oil spills that ultimately led to significant environmental damage, and injuries and deaths to humanities in the areas affected. An example includes the occurrence of oil spills in the Gulf of Mexico and Alaska, which collectively made the company to earn a negative reputation for being careless among its customers globally. BP’s oil spill that occurred in the Gulf Coast contributed to considerable economic loss of the company, having cost the company as much as US$25 million to contain the extensive spill, as well as to do clean-ups of the oil spill. The company also had to spend nearly US$5 billion as a payment to damages for claims (Bp.com 2015b; Associated Press 2011). The collapse of oil and gas price globally means that BP would continues to realise lowers sales volume than it was initially. The environmental hazards that result from BP’s operations, including oil spill and dumping waste in seas, have been raising concerns from the public and environmental lobby groups. The public concerns have made some customers to boycott BP products. These have collectively contributed to low sales (Talevski & Lima, 2009). 2.1.3 Opportunities More partnerships and business deals with market leaders in other countries are providing BP with opportunities to establish operations and market leadership in other countries. In October 2015, the company signed a US$10 billion liquefied natural gas (LNG) supply deal with a Chinese energy firm called Huadian power producer (Reuters 2015). Huadian is currently the largest manufacturer of gas-fired power generator in Asia. The business deal with Huadian, therefore, opens up an opportunity for BP to cement its reputation as a market leader in Asia, and operate in almost all Asian countries. During the last half a decade, the natural gas market has continued to increase in parts of North America and globally. Indeed, 2011 data shows a likely rise in the US total gas demand, from nearly 24.4 trillion feet to some 30 cubic feet by 2040. What this implies is that BP is likely to have a sustained market for natural gas in the United States, as well as globally. The company, also, has prospects of expanding its export business in emerging markets like India, Brazil, and China. Current data shows that the three countries are reporting increased demand for petrochemicals and refined petroleum products (Bp.com 2015b). Additionally, the company has promising prospects of establishing itself as a market leader in production and sale of alternative energy solutions. As more energy users are resorting to eco-friendly energy solutions like wind energy, solar and shale gas. BP can focus on these areas to diversify its business. Already, the company has set up operations to produce wind energy, solar and shale gas (Bp.com). More consumers in EU and across the globe are doing away with carbon-emitting products and instead giving preference to sustainable energy sources. 2.1.4 Threat Globally, more countries are increasing environmental protection regulations, which are increasingly limiting BP’s petroleum business. An example of this is the new US regulations intended to protect the environment. In particularly, the United States government eventually intervened with stricter regulations targeted at oil producers and distributers after the Alaska and New Mexico (of which BP was responsible) by initiating the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling in 2010. The regulation has resulted in greater government oversight over BP’s drilling activities and business in the US market. In some states like California, the state government had to terminate offshore drilling. These have limited BP’s oil production capacity, as well as freedom to trade in oil in the United States (HM Government, 2013). BP has also recently cut nearly 4,000 jobs in its operations across the globe due to 70% collapse of oil prices. The loss of jobs has undercut the company’s reputation as an employer (Whitehouse 2016). The company may find it difficult attracting talented employees in future. Fewer employees also mean smaller production capacity for the company. The strengthening dollar currency is also making it trickier for BP to export its oil and petroleum goods as it is raising the prices of products once exported to other countries globally. A review of the UK’s current demography shows a steadily ageing population (See Figure 1 in appendix) (Elliot 2015). This is increasing the cost for the company, considering that it would be compelled to pay pensions to the extensive large base of ageing employees. This has negative implications, as it means that BP’s profits would be reduced due to increased expenditure. It would also mean diminished demand for BP’s products, such as petroleum, because of diminished travel. 3.0 Conclusion BP has suffered major reputational damage as a result of the Alaskan and New Mexico oil spills, leading to low subsequent sales and stricter regulations in the US that limited its access to the US market. This is compounded by the collapse in oil prices globally, hence lower revenues for BP. The changing customer preferences, where more customers are preferring eco-friendly energy, including alternative energy sources supply like green energy have also meant that BP realises low sales of its oil and petroleum products. Despite this, BP has several fundamental competencies it may capitalise on to sustain its business and profits, including large presence in more than 80 countries globally, quality and diverse oil and gas products, and milestone in research and development. Also closer business partnerships and deals with market leaders in other countries imply greater market penetration prospects in emerging markets like India, China, and Brazil. 4.0 Recommendations BP needs to remedy its negative reputation in the area of employee and customer safety, which resulted from Alaska and New Mexico oil leaks and spills, as this would restore its initially high sales (Baker 2010). In this respect, it needs to invest more in advanced technology designed to mitigate environmental hazards like, oil leaks and spills, blasts, and pipeline corrosion (Bp.com 2015a). This would be possible through its highly financed and equipment R&D programme in UK. It also needs to engage in public relations activities to promote its image as an environmentally friendly company that learnt lessons from the unfortunate Alaskan oil spill and changed from then (Assael et al 1995; Ghodeswar 2008). BP also needs to leverage product diversification strategy and product development strategy to incessantly act in response to the unpredictable environment threats and the changing customer behaviours (Ansoff n.d.). For instance, by diversifying its product portfolio to as well comprise wind and solar energy production would mean more sales from newer segment of eco-conscious customers. 5.0 References Ansoff, I n.d., “Strategies for Diversification,” Harvard Business Review, pp113-124. Viewed 3 April 2016, Assael, H, Reed, P & Patton, M 1995, Marketing: Principles and Strategy, Harcourt-Brace, Sydney Associated Press 2011, "BP to pay out $25m for 200,000-gallon Alaska oil spill in 2006," The Guardian, viewed 3 April 2016, Baker, D 2010, After the crisis: towards a sustainable growth model, Center for Economic and Policy Research, Washington, DC Bp.com 2015a, BP Technology Outlook- Emerging Technologies, viewed 3 April 2016, Bp.com 2015b, BP Technology Outlook- Power Generation, viewed 3 April 2016, Elliot, L 2015, “Ageing UK population will increase strain on public spending, OBR warns," The Guardian, viewed 3 April 2016, Ghodeswar, B 2008, "Building brand identity in competitive markets: a conceptual model," Journal of Product & Brand Management, vol 17 no 1, pp.4–12 HM Government 2013, UK Oil and Gas Business and Government Action, viewed 3 April 2016, Katakey, R 2015, "BP Profit Tumbles 91% Amid Oil Slump, Falling Short of Estimates," Bloomberg, viewed 3 April 2016, Reuters 2015, BP signs $10 billion gas supply deal with China's Huadian, viewed 3 April 2015, WAI-AGE 2009, Web Accessibility for Older Users: Findings from the WAI-AGE Project, viewed 3 April 2016, Whitehouse, K 2016, “BP to slash 4,000 jobs globally as oil prices drop," USA Today, viewed 3 April 2016, 6.0 Appendix Figure 1: Ageing UK population (WAI-AGE 2009). Figure 2: Annual losses by BP (1985-2014) (Katakey 2015) Read More