Strategic Analysis of BP - Research Paper Example

? Strategic Analysis of BP Table of Content Introduction 3 Discussion of theories & models from literature 3 Dynamic Capability 4 Discursive Environment 5 Symbolic Capital 6 Public relation strategy 8 Implications of BP’s strategy and performance 9 Ability to strike a balance 11 Discussion and Conclusion 13 Reference 16 Introduction This paper represents a study to show how a reputed international firm addresses the importance of strategic implementation regarding acquisition and use of symbolic capital within the discursive environment. A detailed analysis of the strategic activities of UK based oil and gas firm BP has explored through this paper. An extensive literature review based on the firm’s strategic capabilities has been devoted in this study. Dynamic capability of a firm refers to the capabilities of strategic management in a competitive environment particularly in a perfect competition market where strategic insight is highly essential. This paper has described that theories are not sufficient to analyze the competitive performance of BP in the oil and gas industry. But a combination of study from both the field of strategic management and organization studies can show how a firm can develop symbolic capital by the social reputation and commitment. Theoretically it is called license to act which is critical activity of a firm. BP was involved in the incident of Deepwater Horizon spill in Gulf of Mexico. For this instance BP has to pay a huge amount of interest as the affected country was US and thereafter BP lost billions of its market shares. BP’s turnaround has been based on its performance and it was a symbolical event to this industry since 2005. BP managers followed a strategic activity which is theoretically called license to act which represented through the company’s acquisition of symbolic act. Discussion of theories & models from literature Three theories from the literature have been synthesized for effective discussion and analysis of the BP case. These are dynamic capability, discursive environment and symbolic capital. Dynamic Capability Dynamic capabilities reflect the relative performance of the firm which is the key interest of the firm. Any firm gets competitive advantage in major areas, these are market based competitive advantage and resource based competitive advantage. Resource based competitive advantage represents the efficient selection and optimum allocation of resources in the form of asset creation to gain capabilities that are rare and valuable for the firm itself. Organizations are aware of their internal capabilities which is analyzed by the performance and evaluated by the outcomes of the adequate level of performance. People in the organization learn new things with their work which summarized and termed as experience but when they gain experience through codification and articulation then it is termed as dynamic capability not only the general experience (Makhija, 2003, p.435). Organizations are typically constituted by past routines and patterns of different activities which the organization has followed earlier. Dynamic capabilities help the organization to realize the essential strategic objectives which can be imnp0limented through value addition in different activities. Apart from this strategic benefit, the firm can gain some other qualitative advantages. Differentiation of brand recognition is enhanced through effective strategic framework i.e. how fast and in what extend the developed strategies is implemented. The firm faces different obstacles in the way of implementation of different activities and for this reason it need to create an alternative framework for maintaining sustainable performance of the firm. The firm essentially needs dynamic capabilities for this type of effective performance strategy. It is reflected through the ability to gain new competitive advantage in the market dynamics. It is possible only through changes in the operational capabilities regarding implementation of activities. So the main aim of a production firm like BP needs to be concerned not with production but about the strategic awareness. The dynamic capabilities are qualitatively measured in the context of affinity, scarcity and accident. The capabilities of the firm involve not recombination of assets but recognizing the scarcity of alternative assets. Dynamic capabilities are the unique strategic activities of a firm by which it can configure assets through manipulation with respect to logic of exploitation (winter, 2003, p.993). Discursive Environment A firm is dependent on its environment regarding resources and there remains a higher possibility of danger. It is the firm’s interest only in asset creation that might take the firm with negative notion of environment. A firm having dynamic capabilities in terms of resources needs to recognize that the firm is subject to market and other external institutional forces. Social or environmental responsibilities of firm consist of norms, beliefs, values and regulations. A firm should have ability to conform environment standards by its behavior and action of day to day business operation. It is very essential that every firm secure its legitimacy by representing socially acceptable behavior (Oliver’s, 1997, p.670). A firm needs both institutional capital and assets to sustain its competitive advantage in the industry. There are some external forces such as political, social and economic institutional forces act on the development and performance of the firm. Performance and capabilities of a firm within the institutional environment can be qualitatively measured by theoretically and empirically. Firm’s structure is developed on the basis of discursive environment which influences the firm’s capabilities and performance. This depict that a firm exist not only in terms of development of assets and accumulation but also to the influence of environment where it operates. There are many firms operates in different environment of different region in the world but that does not mean that they have only the aim of asset acquisition. The main goal they have is to optimum allocation of resources i.e. the assets so that their business activities are environment positive. Maintaining these diversified assets in the complex fluid environments is a necessary condition for sustainable wealth creation. So, the firms needs to fundamentally concern about the strategies so that the possible challenges in the way of activities might not much influential and the firm is able to effectively operate in the discursive environment. Deep water disposal was a hardly defined blend of cost effective calculus and technology advancement. Economic and individual’s interest are considered as disposals were technically considered under the probabilistic consideration of impact and likelihood. Symbolic Capital Symbolic capital refers to the resources of the firm by which credibility and authority are developed among the various stakeholders of the firm like employees, customers, government and other constituents. The effective use of symbolic capital is only possible through the capability of articulation of legitimate judgment and implementation of the strategies (Bourdieu, 1977, p.647). Firms acquire symbolic capital through some competitive search and activities for significance and meaning. The outcome of it is that the competitors of the firm come into a mutual engagement for developing strategies for similar activities and thereby the risk of individual strategy is diversified. Firm’s employees create symbolic capital by successful achievement of the commitment and maintain reputation of the firm. Reputation is one important symbolic capital which is developed and maintain by mutual recognition so that the firm can be recognized as shared and sharable. The problem is that how the reputation of a firm is become symbolic capital in a discursive environment which is characterized by uncertainty and complexity of the firm. Securing reputation is an intangible activity which firms need to be conscious about. Commitment involves symbolic activities where the firm is aware about some significant obstacles in the way of operation. Figure 1: Texture of organizing in late modernity The dematerialization activities need to be developed in conjunction with tradition and the post materialistic values of the firm in late modern societies. The effective communication is needed between the firm and the society so that society becomes aware about the possible risk of the firm’s operation. To summarize the literature, theories and model are not sufficient to evaluate firm’s present and future capabilities and performance but these will help to qualitative evolution of business operation of the firm. Public relation strategy BP concentrated more on the corporate performance and particular competitive advantage for sustainable growth of the company. Strategic management is the founder of the methods of research which analyze the organizational performance over the time. The firm was transparent about their activities and the outcomes to the stakeholders because the firm was keen to maintain the reputation of the brand among the society by achieving the commitments made by them. BP had its embarrassments in 90s with strong publicity over the location of its existing business at that time. But there was a conflict the board of directors of the firm and the public and the employees regarding the political involvement of the firm. This event reflected a bad political impact on the firm’s business operation and administration. After this event the firm became conscious about the negative side of their business activities. The firm understood that how business activities touched the social as well as materialistic lives of others. By 1999 BP understood the need of restricting the organizational strategies and moved towards force for good. This distinct and significant stand influence BP to concentrate in the areas of social responsibilities in the form of ethical business operations. BP has been also abiding by the standards employee management, relationship with customer as well as shareholders, health and safety of the employees and many environmental issues. In 2002, BP disclosed the elaborated future strategies of these five areas of its business to the public so that to gain trust and brand image which it had earlier. Ethics demands respect and integrity for others’ rights who are related to a business. The firm needs to work within the law of need to achieve the commitment that it has made for the interest of the customers as well as employees. Implications of BP’s strategy and performance BP emerged as the largest UK firm in terms of annual profit of all times in the year 2005. The firm emerged as the largest firm of the country of UK in terms of market capitalization as well. All these indicate the fact that the firm has been able to achieve the path of sustained growth. The performance curve of the firm has taken the steady step upwards. The years between the period of 1988 and 1995 witnessed that the company was underperforming relative to its competitors. In the year 1992, the profit level of the company reached to what is called the low point. The year 1995 witnessed some revival for the company and the company gained the potential to compete with some of its major competitors in Europe (Tsoukas, 1999, p.502). But in the year 2001-02, the company emerged as one of the three major oil companies. The company gained the highest return on the employed capital. The company had a turnover of 175 billion dollars along with employment opportunities for more than 100,000 people. The market capitalization of the company ranked it second in the sector where the company operates. Shell and Exxon are the major competitors of the company. The company currently operates in 100 countries. Between the six years tenure of 1992 to 1998, the company experienced a decline from over 100,000 to nearly 55,000. The company had the replacement cost profit of 8 billion dollars. The company experienced fourfold rise in share prices between 1992 and 2001. However there has been a recent drop in the performance. FTSE share prices witnessed a decline from 700p in the month of March of the year 2006 to just above 500p in the same month but for the year 2007. The share prices regained its place at 600p in the month of May for the year 2008. There has been mixed forecasts of future earnings and unfavorable comparison are still continuing. The organizational capabilities of the company can be seen from the existing accounts for the period till the year 2005. The accounts are helpful in judging the performance of the company through the journey of change. Information on the activities of the organization can be achieved from the working team and performance management. The dynamic higher level capabilities like the capability to lead as well as the learning capacity is strengthened by this. This type of capabilities can be found in the effects that are mutually reinforcing in case of many actions across different levels. Researchers have ignored the exogenous conditions under which the company operated in the period of renewal and the behavior of the company from the view point of the environment. They have also ignored the so called discursive effects on the company and how the company came up with the slogan of performance, reputation and teamwork in the later part of process of change. The company emphasized on performance and reputation was not taken into account from the point of practical as well as theoretical significance. To complement the economic force of the corporation it is necessary to have influence that is secured by symbolism. The recent performance downturns only indicate to re-enforce the implication. The competitive advantage theories as well as the performance explanations are in line to invest attention to the influences and the capabilities by which it might be sustained. The series of events along with acts and behavior together form the blueprint which suggests the company hunted to establish authority through the capability of foundation. To explain the significant stand meant the company to invest in the fields of relationships and environmental safety along with ethical conduct. In the document of business policy in 2002 the company put stress on these areas including the steps it had undertaken in these areas. The requirement of ethics is integrity and working within the limits of the law without breaking promises. The needs and responsibilities of the employees are required to be recognized and acknowledged. The foundation of the relationship should be mutual advantage. The standards of health and safety required a promise to reduce harm and do not intensify accidents with risk awareness. The capabilities of finance and control were to be placed with the value of the long term share holder which is managed through contracts of performance on internal basis as well as regulatory compliance. Ability to strike a balance The statements of the company in the following years witness the fact that the firm is attempting to work within multiple and in some cases with deviating discursive environments. According to some researchers these conditions will still be fluid and so the working of the authority which was established by commitments should take the path of continuous progress. The path should emerge from inside the evaluation criteria predominant in any of the fields where the company has already marked its foothold or still in the going through the process of marking the foothold. The involvement of the company with the countries of Russia and China faced some questions along with different interests. The interests ranged from environmental including campaigners of human rights to shareholders. Inevitably, there was an alteration of the commitments of the company. The rumor that floats in the air as achievement is neither an achievement in real terms or declaration of the interests. It can be regarded as just the initiative towards a journey of improvements taking all categories of interests into account. Capital can be accrued through communication where the strategies of the company accepted the promises that would be restrained by others and in that process the company will achieve greater strengths. The modernization process has been regarded as “securing mutuality’ by the strategists. It emphasized the fact on how the activities of the company were beneficial for others. The consumer’s welfare got strengthened as they benefited from the warmth as well as the mobility. The pension holders got the potential to invest in the rising stocks. The technological innovations and advancements can be fruitful for the future generations as such technological up gradation will contribute in new research techniques modeling and analysis. The statement of the interagency of the month of July for the year 1997 can be taken as the early act which acknowledges the mutuality. There is no state called end state in mutual advantage. The license to act of the company involves engagement of many actors as well as arenas. The media advertisements of the company in 2004 posed the company in a reflexive mode. It can be taken as an example. The signs can be understood even in isolation. It indicates to an impression. The campaigns of advertisement and some of the other initiatives allows the public to appreciate a type of significant pattern on how the company has taken steps to ensure a relationship of complementary type between the economic forces and authority in the views of the people as well as other constituents. The public has been asked to identify the commitments as start. The investment in the field of alternative agency can be thought of as one such start. Alternative energy can be regarded as the division that looks out for other sources of energy. It also involves re-integrating resources that will allow for choices of different interests in order to gain its place within the strategy of the company. The company continues to operate within a wide range of regimes of politics and this had huge impacts on the natural environment. From the perspective of the company, it would have lost its commitment if the company ignored the conscious and significant investments made. Mutuality refers to creation and sharing of valuables that is comprehended while starting up something. The creation of symbolic capital occurred mutual endeavor and not with allocation or distribution. Hence there are some encouragements of discussions within the company of generating purpose. There was a shift from the above mentioned motto to the best is due to arrive which involves a sense of the continuous and collaborative activities. The strategies are constantly being recognized by the investments in reflection during this period. The strategies can also be recognized by importance of appreciation as well as the interests that may or may not be in line with the personal interests. The dynamics of the above mentioned mutuality were outplayed in the company’s investment in the pipeline amounting to 20 billion dollars taking oil from the Caspian Sea to the port of Turkey. This made the company to have significant contribution in the economic development of the countries. A sense is growing taking a payback period of twenty years that the pre conditions of the mutuality of the long term would not be matched. There are significant criticisms of the involvement and the reputation of the company is not at all secure. The commitment of the company is not stationary. There are criticisms from the environmentalists regarding the poor construction of the pipeline as they thought the construction will risk pollution. Discussion and Conclusion The new strategy is much about the process of finding purpose and meaning as the firm is realizing goals. In mid 1990s BP was engage to develop such strategic reflexivity by reputation and social recognition. The firm acted in the economic as well as discursive institutional environment. BP has developed dynamic capability in securing license to act by the strategic acquisition of symbolic capital. The firm moved to force for good to secure existing symbolic capital in different ways. In terms of new customer acquisition, a new sales force has been developed to encourage the potential customers of oil and gas. The firm has been convincing its potential customers to use its products which are produced with social and environmental integrity rather for “fast buck”. But there are many institutional clients who are engaged with other oil and gas producers who continuously have been maintaining the corporate responsibilities to these clients. This has become tough for BP to attract those satisfied clients of its competitors. To develop an effective relationship with the customer, the firm requires an on-going sensitivity. Overall, the analysis of the environmental issue and BP’s major stakeholders shows that, historically, the company has not been able to manage its stakeholders properly as the interests of its stakeholders are not considered in an equitable and socially justifiable manner. However, understanding the tarnished image of the company in America, the company has recently started making efforts such as honestly reporting the incidents and its views regarding the oil spills in its annual sustainability reports. The company has Corporate and Social Responsibility Committee to look into the matters related to company’s code of ethics. There has been criticism of BP by these communities for continuing the drilling activities without properly following the international standards for oil exploration and avoiding industry’s best practices. They also blame their government for not having proper policies towards the multinational companies’ operations in Mexico. BP has recognized two types of strategies for stakeholder management which has been helping the firm for the current comeback of its reputation to the customers as well as the investors. The descriptive basis offers a description of the organization such as corporate behavior and characteristics. It describes the nature of the firm, ways of managing the firm and the behavior of board members towards the interests of stakeholders. The instrumental basis provides the relationships or lack of relationships between stakeholder management and achievement of corporate goals such as profitability and growth. The instrumental aspect of stakeholder theory doesn’t explore the relationships between the causes and effects i.e. stakeholder management and corporate performance. Many business analyst of USA have argued that BP’s achievements in the US business operation are nothing more than a new departure point of the firm. The firm has no rest to build up its license to act effectively because it is an ongoing process which the firm needs to follow in near future to sustain its recognition and the performance. This can be done through social and moral activities rather than a simple one-off accomplishment. In order to satisfy its external shareholders, it needs to follow proper accounting procedures, provide timely and appropriate information regarding its financial performance and protect their interests by managing the organization efficiently. The customers of an organization expect quality and cost effectiveness of the products and services, which the organization provides. An organization that is responsible for its customers, treat them honestly and fairly. Socially responsible organizations treat their employees with dignity and respect. They need to train and promote qualified employees, and treat them as a significant part of the organization so that they can provide riskless work for the firm which is the main strategy the firm need to follow. The energy markets especially the oil and gas is being negotiated economically as well as discursively. In the advocacy of mutual advantage BP is aware about the internal as well as external stakeholders that include governments, employees, customers and the local communities. The top management manages the firm’s external affairs particularly with the US governments regarding long term strategic decision making as the firm has major part of its business there. BP involvement in China has become evidence for maintaining its commitment to its stakeholders. This committed immersion in the form of diversification in emerging markets give BP the informational advantage of global resources and provides the opportunity to access to these resources. Form an international perspective, mutual sensitivity towards the employees might be beneficial for the firm because it is a costless control of the employees and also reduces the risk associated production process. It promotes the employee involvement in the strategic decision making and also represents the employee autonomy which might result for future innovation of the company. The symbolic capital has become an integral element of manpower. In this case BP’s influence of energy agendas and emerging markets suggests that the firm’s performance is not only delivering economies of scale but also it has been influencing people engagement to the firm. Reference Bourdieu, P. (1977). The economics of linguistic exchanges. Social Science Information, Vol. 16. Makhija, M. (2003). Comparing the resource based and market based views of the firm. Strategic Management Journal, Vol. 25 Oliver, M. (1997). Sustainable competitive advantage. Strategic Management Journal, Vol. 18. Sagepub. (2012). 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