BHP Billiton Strategic Analysis - Case Study Example

BHP Billiton Strategic Analysis Name: Course: Tutor: Institution: Date: Table of Contents Table of Contents 2 1.0 Introduction 3 2.0 External Analysis 3 2.1 Industry Competition and Competitors 4 2.2 Opportunities 5 2.3 Threats 6 3.0 Internal Analysis 7 3.1 Resources 7 3.2 Capability 8 3.2 Core Competency 8 4.0 Successful Management Strategies 9 4.1 Corporate Strategies 9 4.2 Business Level Strategy 10 5.0 Organisational Split Decision and Recommendations 10 6.0 Conclusion 11 References 13 1.0 Introduction Strategic management has been an evolving issue in the global market. In this regard, due to the merits and gains of the strategic management process application, a majority of the multinational organisations have adopted and applied this management approach (Hanson, Hitt, Ireland and Hoskisson, 2014, p.13). One such organisation is the BHP Billiton Company, a market leader in the European and Australian mining industry. This report offers a strategic evaluation of the process through which the organisation applies the strategies management system approaches. In particular, the report focuses on the adoption of industry alliances, acquisitions, mergers, and diversification strategies. In this regard, the report develops a detailed review on the extent and process through which the organisation blends its strategies with changing market topography. Finally, the report offers recommendations for the process through which the organisation proposed split should be managed for the long-term organisational strategic gains and market competitiveness sustainability. 2.0 External Analysis An external analysis repents the macroeconomic factors that affect organisational and industry operations. In this regard, although the factors have both direct and indirect impacts on the respective industries and organisational operations, such organisations lack control over them. Therefore, in the wake of changing macroeconomic factors, organisations develop strategies that enable them mitigate and optimise on any existing favourable external environment factors. In order to develop a strategic evaluation and analysis of the BHP Billiton Company, this analysis evaluates the Australian external market conditions, including the situation and condition in the mining industry listing the opportunities, industry competition and threats. 2.1 Industry Competition and Competitors One of the emerging industry competition aspects in the Australian market is the concept of back ward integration. A backwards integration trend is described as a situation in which industry stakeholders, especially the primary producers and manufacturers in an industry develop alliances. In this case, a fundamental justification and rationale offered for such backwards integration trends in an industry is the need to develop sustainable operational frameworks in the anticipated market and industry changes. In this regard, a market forecast and evaluation of the Australian mining industry illustrates a growing trend of backwards integration Key organisational competitors emerging as a result of this practice application include The Alummin Limited and the CSR Limited Mining Companies respectively, that have experienced a growing profitability since 2011.. In this regard, Morandin and Smith (2011, p.41) stated that the Australian market, with the increasing market efficiency levels, has resulted in increased competition and the need for organisations to develop alternative competitive edges. As such, organisations have resulted in the use of backwards integration as a means of ensuring control and dominance of the production process. For instance, organisations in the mining industry have developed partnerships with not only peer processing industries, but with the key industry suppliers (Morandin and Smith, 2011, p.47). This is a strategic move through which the industry supply control is enhanced, to reduce entrants’ threats. Therefore, the organisation participation in the backward integration practices will increase its overall market competitiveness. Although backwards integration strategies are a positive development in any industry, the forecasted projection of the trend into the future poses a major challenge to the BHP Billiton Company. In this case, the organisation is bound to lose its market dominance in the future, thus requiring a new strategy to counter the developments. 2.2 Opportunities Technology development has been a critical and among the most influential developments in the mining industry offering the highest opportunity value in the future. In this regard, increased technology changes have facilitated enhanced efficiency in the metals and metal ores mining and processing procedures. In this case, the changes have enhanced the application and use of machines and innovative ore mining and processing practices. As a result, technology developments have influenced the mining industry in two specific instances namely cost reduction and quality improvements in the market (Lassen, Kandampully and Barker, 2002, p.263). On one hand, through improved mining technology and mineral processing procedures, the industry has reduced the overall time lag and production costs allowing for increased profitability margins. This trend is expected to project into the future as technology changes revolution continues. On the other hand, technology changes have enhanced mining products quality. In this case, the purification and ore cleansing efficiency has been exponentially improved, a factor that has allowed for increased acceptability and high pricing of the industry products. Based on the above discussion, this analysis concludes that the BHP Billiton Company operational costs are bound to decrease in the future. In addition, it products quality will improve in the future, a move that will increase its profitable margins, as well as its brand reputation on quality across the globe. Therefore, in order to maximise on the merits ad expected gains in technology development, the organisation should develop a strong IT infrastructure supported by an internal system of operation. The unit should ensure that the existing organisational IT infrastructure is improved on a regular basis to accommodate the external industry conditions in the market. In addition, the organisation applies the merger and acquisition strategies such as the merger between BHP and Billion to form the BHP Billiton organisation that is increasingly competitive. In addition, it has spread across the Australian, EU and Asian markets through integration. In this regard, the strategy, as well as its internationalisation of the global market increased the organisational overall opportunity to grow and expand influence in the long run period. Acquisitions and merges allow for a low cost internationalisation approach, providing for the opportunity for alternative organisational revenue maximisation practices. 2.3 Threats High living standards and higher social class membership in Australia are an illustration of improved social standards which increases the society propensity for spending, posing a threat of a changed buying behaviour and preference for imported goods in the Australian market. An economy social standard represents its member’s living standards as well as social class status. As McLean (2012, pp.207-208) discussed, an evaluation of the Australian social standards and living conditions illustrate that the society has improved over the last decade. In this regard, increasing disposable incomes ad earnings since the 2008 global financial crisis end has played a crucial role in raising a large population base from the lower middle class to the upper middle-class social categories. In turn, the technology developments have direct implications on the mining industry as the societal overall demand is expected to rise in the future, enhancing the industry growth and expansion. Therefore, he consumer increased purchasing power is bound to expand prompting a change in their buying behaviour in the future, as more revert to importation of mineral accessories form Europe as was the market tradition prior to the global financial crisis period.. 3.0 Internal Analysis In order to offer comprehensive strategic analyses on the BHP Billiton Company, it is imperative to evaluate its internal environment factors. In this case, an internal organisational analysis involves the consideration of the organisational resources, capabilities and competencies that offer such an organisation a market edge advantage over peers both in the short and long term periods respectively. This internal analysis evaluates the organisationalresources, capability and core competencies as a part of its internal resources. 3.1 Resources Organisational operations and growth strategy success is based on the principle of financial stability which is the BHP Billiton key resource base. In this regard, a financial stability system ensures that such an organisation ha ability to fund its operations through its working capital. Due to the organisational merger it increases its market capitalization from $28 billion in 2001 to $42 billion in 2003. In this regard, the increased market capitalization implied that the organisational, operational efficiencies were enhanced thus promoting its profitability and expansion levels in the future. In this case, the organisation attained a $285 million efficiency optimisation savings $10 million more that the merger forecasted gains. Therefore, this illustrated that the approach allowed for increased economies of scale, a virtual that reduced operational costs and in turn improved the overall profitability margins and financial stability for the venture. 3.2 Capability The existing organisational high market capitalization provides the organisation an opportunity to acquire funding and credit facilities from the financial institutions. In this case, a high market capitalization increases the overall its credit rating allowing for the financial flexibility to fund organisational projects and growth strategies as and when the need arises. However, the financial stability resource and competitive edge is not sustainable in the long run period. In this regard, the increasing trend for backwards integration in the mining industry is bound to raise the market capitalization for other industry players allowing for increased competition threats. Therefore, the current competitiveness edge based on financial stability will be unsustainable, and the venture will have to develop alternative competitive strategies. 3.2 Core Competency The BHP Billiton Company has a strategic brand image reputation which is its key sustainable market competitiveness. In this regard, analysis of the organisational operations indicates that the venture is a market leader or almost market leader in all the industries the venture operates in. Therefore, this offers the organisation a competitive market edge over peers in the market through market preference by the consumer base. Coll (2012, p.32) stated that with a brand image and reputation as a tangible asset it is imperatively hard for industry competitors to imitate and to counter such a brand positioning is a long-term investment. Therefore, this analysis establishes that the brand image competitiveness is sustainable in the foreseeable Australian mining industry future. Hence, this offers the organisation a competitive base through which to leverage and counter the existing competition. 4.0 Successful Management Strategies The BHP Billiton Company, as a key market leader has applied and developed a series of successful management strategies. This section offers a strategic evaluation of the organisational corporate and business level strategies that have formed its main success backbone. 4.1 Corporate Strategies In evaluating the organisational corporate strategy, this analysis applies the porter’s generic model that lists four different generic strategies for organisations (Davies, 2000, p.27). In this regard, based on the operations and strategic framework for the BHP Billiton Company, this analysis establishes that the organisation applies the diversification strategy. Under a diversification strategy, organisations develop multiple products and avail the variety to a large and multi-segmented market base. BHP Billiton Company deals with the mining and processing of different ores and metals and in turn supplies the products not only in the Australian and EU market, but also across Asia and USA. In This regard, the market diversification strategy has ensured that the venture reduced the threat of market concentration in any of the respective markets, by ensuring that losses in any segment are offset by profits from other segments. However, as Kenny (2009, p.67) noted, a diversification strategy adoption and application reduces an organisational ability to focus and concentrate on a single market segment. In this regard, organisations fail to develop a sustainable consumer base through loyalty that is a major weakness for the BHP Billiton Company success. 4.2 Business Level Strategy A business level strategy involves the operational functions that support the organisational strategic and corporate level strategies (Glowik and Smyczek, 201, p.108). An evaluation of the BHP Billiton Company operations establishes that one of the applied business level strategies is marketing. In this case, the organisation has developed an elaborate marketing strategy as a means of ensuring the sustainability of its current brand reputation in the market. As such, the marketing strategy supports its operations by facilitating not only the retention of the current consumer base, but also enhancing venture penetrates into new foreign markets such as in Asia and the USA. In Addition, the organisation applied the price discrimination strategy. In this case, the price discrimination approach ensures that respective market segments are charged different prices for the same product. As such, this supports the differentiation strategy by charging high prices for the developed markets to generate profits and low prices in the developing markets to enhance penetration. However, despite the merits of such a pricing approach, the low pricing approach in the developed markets reduces the overall profitability gains for the organisations as it fails to meet its threshold. 5.0 Organisational Split Decision and Recommendations The strategic decision by the BHP Billiton Company to split its operations into two respective companies is a viable market capitalization approach. On one hand, the BHP Company will be charged with the mining and processing of four key minerals namely the long life iron ore, copper, coal and petroleum, with the possibility of adopting potash as the fifth focus mineral. In this regard, this will allow for the adoption of a concentration strategy by focusing on a less market base. In this regard, through such a market niche focus, the organisational innovation and market driven mineral products development will be enhanced. Moreover, as Giessmann (2012, p.221) noted, a market niche concentration is directly related to increased consumer satisfaction and loyalty. Hence, in the long run period, the niche market concentration will offer the organisation an additional sustainable competitive edge through consumer base loyalty, a move that will further enhance its market efficiency and reduce its marketing costs. In order to successfully execute the organisational split decision, the venture should reconsider and reshape its existing corporate strategy of differentiation. In this case, rather than focusing on differentiation, each of the two new companies should develop their corporate strategies aimed at developing an alternative market concentration approach (Harrison and Pelletier, 2001, p.172). In Addition, each should seek to develop a large influence base, by adopting the acquisition expansion approach in the respective niche market. The acquisition expansion approach adoption will ensure that the venture has both the operational infrastructure as well as reduce on market penetration costs. 6.0 Conclusion In summary, this report analyses establishes that the Australian market provides a merit in technology development and social standards improvements that provide market expansion opportunities, despite the threat of backwards market integration. In addition, an internal BHP Billiton Company analysis establishes that it has a sustainable edge in brand reputation but a weakness in declining financial stability competitiveness. Moreover, it establishes that the organisation applies the diversity corporate strategy and the marketing business strategies respectively. Finally, the analysis recommends that for the proposed split to actualize and attain the forecasted merits, the venture should discard its current diversification strategy and adopt a market concentration, and niche focus corporate strategy onward. References Coll, S. 2012, Private Empire: Exxon Mobil and American power. Allen Lane: New York, NY. Davies, W. 2000, 'Understanding Strategy', Strategy & Leadership, vol. 28, no. 5, pp. 25-30. Giessmann, A., 2012, Coating substrates and textiles: A practical guide to coating and laminating technologies, Springer, Berlin. Glowik, M., & Smyczek, S., 2011, International marketing management: Strategies, concepts and cases in Europe, Oldenbourg, München. Hanson, D., Hitt, M.A., Ireland, R.D. & Hoskisson, R.E. 2014. Strategic Management Competitiveness & Gobalisation (5th Asia-Pacific ed.), Cengage Learning: South Melbourne, Australia. Harrison , F.E., & Pelletier, M.A. 2001, Revisiting strategic decision success, Management Decision, Volume: 39, Issue: 3; pp. 169-179. Kenny, G., 2009, Diversification strategy: How to grow a business by diversifying successfully, Kogan Page, London. Lassen, H., Kandampully, J. & Barker, S. 2002, "The emergence of e-market services in the Australian mining industry: Ludowici Mineral Processing Pty Ltd, Quadrem eMarketplace, and Austrade eMarket services", Managing Service Quality, vol. 12, no. 4, pp. 257-264. McLean, I. W., 2012, Why Australia Prospered: The Shifting Sources of Economic Growth, Princeton University Press, Princeton. Morandin, N., & Smith, J., 2011, Australian Competition and Consumer Legislation 2011, CCH Australia, Sydney. Read More