The Competitive Options of Anglo-American Mining Company - Assignment Example

? Role and Impact of Strategic Thinking for the Competitive Options of Anglo American Mining Company Word count: 3 130 Table of Contents Table of Contents 2 List of Figures and Tables 3 Role and Impact of Strategic Thinking for the Competitive Options of Anglo American Mining Company 4 Section A 4 Strategic Setting 4 Values 5 Mission 6 Objectives 7 PESTEL and SWOT Analysis of the Company 7 SWOT Analysis 7 PESTEL Analysis 10 Section B 12 Strategic tools of the company business operations 12 Ansoff’s Growth Matrix 12 Mind Tools Ltd, 2012. The Ansoff Matrix. (Electronic print) Available at: (Accessed 19th June 2012) 13 Porter’s 5 Forces 14 Porter’s Diamond and Competitive Advantage 15 Boston matrix – Product Life Cycle 17 Value Chain Analysis 17 Section C 19 Evaluation 19 Recommendations 20 Conclusion 22 Mind Tools Ltd, 2012. The Ansoff Matrix. (Electronic print) Available at: (Accessed 19th June 2012) 24 List of Figures and Tables Figure 1: A graph representing Profit in Million Dollar against Business Unit in 2010...........7 Figure 2: The Ansoff matrix-business……………………………………………………….10 Figure 3: Representation of porter’s diamond……………………………………………….12 Table 1: The 2010 profit distribution in various business units of the company……………...6 Role and Impact of Strategic Thinking for the Competitive Options of Anglo American Mining Company Section A Anglo American is one of the globally dominant mining companies. It is an international mining company with operations stretching from Europe through Africa to North and South America among other nations. It has an employee pool of approximately 100,000. Its portfolio is normally focused on mining and exploitation of natural resources. Some of these natural resources include platinum, diamonds, metallurgical coal and nickel (Jack, 2003, p.55; Runge, 2003). According to BBC business news (2012), the Anglo American management predicts a robust improvement in demand for its commodities as exemplified by 2011 revenues, which showed operating profits increased by 14% to record $11.1bn (?7bn). According to the company director, Rene Medori, the company is expanding iron ore business in West Africa and Brazil (BBC, 2011). This paper discusses business strategies that enables the company attain competitive advantage over its competitors. Strategic Setting A strategy defines short to long-term plan by which the objectives and aims of an organization are achieved. The company has a range of strategic programs formulated to improve performance of the company as well as minimizing the impact of its operations on the environment. The company also targets to uplifting the lifestyle of the resident communities in those regions where it operates (Campbell, 2007). They develop programs that support innovation and application of new technology. The company has also invested in use of alternative energy such as wind power that accounts for 20% of the company’s energy supply. This prevents shortages or depletion of energy sources like organic fuels. Wind power is more reliable and does not pollute the environment. Values The company culture is determined by value statement. Anglo-American company has six strategic values that guide its business operations, these are; 1. Safety for the employees and environmental welfare: This value postulates that the company cannot maintain enhanced productivity for a longer time without ensuring them of their safety such as protective clothing and insurance schemes. Measures applied in catering for environmental welfare include rehabilitation of mines and reduction of sound pollution especially in Africa that provides 76% of the company’s workforce. 2. Accountability; Activities such as corruption or any measure that may result into enticing any parties to get favors. This ensures that the all employees are treated equally and fairly. 3. Care and respect whereby all the company stakeholders are treated with dignity, respect and courtesy. This promotes the ethical condition of the organization and eliminates any tendencies of victimization or discrimination. 4. Innovation whereby the company encourages through the development of new ways of operation and solutions to all challenges funding and training. 5. Integrity; all employees and stakeholders are encouraged to be fair and ethical to everyone regardless of their status. 6. Collaboration whereby the company encourages teamwork through activities such as rewarding the best performances and offering training and workshops on team work management (Collins, 2009, pp.111-210). Mission The mission of the company represents its long term business intentions and the focus of its activities. The mission statement incorporates aims that determine its social, economic and environmental performance (Microlinks, 2009, p.481). The aims target three main factors namely the shareholders, society and the environment. For instance, in the United Kingdom, the company accounts for 700,000 opportunities in the job market. These aims are: 1. Maximizing the benefit value to the stakeholders that includes the local community through involving them in decision making and promoting community projects such as conservation activities. 2. Becoming a partner of choice for all governments through ensuring that the company portrays the necessary zeal and promotes the economic activities of the resident country. Many governments would prefer an investment partner who can promote internal development activities 3. Improving internal efficiency by minimizing costs and challenges such as elimination of corruption and hiring qualified and efficient personnel 4. The company also aims to preserve and reduce environmental pollution, as well as efficient use of water (CIA, 2011; Cressy, et al., 2012, pp.325-340). Objectives These are medium term goals that helps a business enterprise achieve is aims. Anglo American’s objectives are clear and easy to attain. They include: 1. Creating job opportunities in areas where its operations are rampant to improve the welfare and economic status of the inhabitants 2. Establishing new mines to maximize profits and expand the company 3. Increasing their efficiency on services to reduce internal costs through strategies such as improving the working conditions and remuneration for the employees. 4. Re-using water where possible to ensure effectiveness and promote water conservation. 5. Establishment of energy conservation projects that would curtail emission of waste into the environment and enhance conservation activities (Campbell, 2007; Armstrong, et al., 2007, pp.116-134). PESTEL and SWOT Analysis of the Company SWOT Analysis This acronym defines internal strengths and weaknesses of a company, as well as opportunities and threats that characterize it. The external environment is portrayed by threats and opportunities while the internal is defined by strengths and weaknesses. A stable enterprise should maximize its strengths and opportunities while minimizing threats and weaknesses (Campbell, et al., 2005, pp.140-146; Bensoussan, et al., 2008). Strengths of the Company: It has a strong market position because of the large number of countries it extends its operations. This has enabled it to out smart most of its competitors. The company boasts of a revenue base that is geographically extended. Its market position has enabled the company to diversify operations leading to more opportunities. The company has recently embarked on exploitation a wide range of natural resources that includes nickel. For instance, in 2010, the company benefits comprised of 800 million dollars, which were distributed as follows: Table 1: The 2010 profit distribution in various business units of the company Business Unit Profit (in million dollars) Platinum 188 Copper 90 Nickel 58 Kumba Iron Ore 89 Metallurgic coal 74 Thermal Coal 97 Corporate 24 Iron Ore Brazil 90 Corporate 24 De Beers 3 Total Core Assets 713 Other Mining and industrial 87 Total 800 Figure 1:A graph representing Profit in Million Dollar Against Business Unit in 2010 Opportunities: In the recent past, the company has acquired more properties and workforce in a bid to strengthen its business position. For instance, in China, the company is exploring opportunities due to the recent rise in the general number of deals Available at :< http://advisoranalyst.com/glablog/tag/anglo-american/> Weaknesses: Most of the company segments have of recent registered poor performance that was blamed on management failure to handle the enormous nature of the company size. The time being lost on injuries and machine breakdown has increased of late leading to losses due to time wastage. Corruption is also a weakness, for instance, in 2011, the US department of Justice investigated Freeport McMoran over alleged bribery of Indonesian security officers. The tussle also led to strikes. Threats: Coping with strict health, legal, and environmental laws is challenging to the company. For instance, the company had to incur relocation cost for South African Ga Pila community whereby 98% of the residents relocated to a safer village. It is also difficult to adjust product prices to rhyme with the ever changing international prices among different countries (Anglo American Fact Book, 2008, pp.49-53). PESTEL Analysis Prior to implementation of a business plan, it is eminent for a company to assess its business external environment. This includes political and economic among other factors that affect business operations (Campbell, et al., 2005). Political: The Company faces lease and clearance difficulties from state governments in different nations. Internal politics also affects the composition of the company management. Economic Factors: According to Anglo American Annual Report and Accounts 2009, the economic down turn of 2008 led to a steep fall in the price of company products such as copper and coal (Yunus, 2002; Saavedra, 2010). Stabilization led to an increase in the prices. According to the business community report (2009), the economic responsibility is as stipulated: Business in the Community (2009), economic development, Available at: < http://www.angloamerican.com/~/media/Files/A/Anglo-American-Plc/docs/bitc_feedback.pdf > Social: According to the world fact book, 2011, social environment includes the local community, company employees as well as the business environment that includes the competitors. According to the Business in the community report (2009), the social responsibility index of the company is as shown below; Business in the Community (2009), Equality, Diversity and Inclusion in the Workplace Available at: Technological: The Company is adapting to the changes that are being caused by the recent change in technology application to improve its operations. These technologies should cater for the core values of the company. If technological knowhow is well utilized, the value of the company’s services would improve thus winning more clients. Legal: Interstate laws on environment directly impacts on the activities of the company. Coping with strict health, legal, and environmental laws is challenging to the company (Schernikau, 2010). Expansion and opening of new branches is normally restricted by laws that differ among different countries. Section B Strategic tools of the company business operations Ansoff’s Growth Matrix This is tool assists companies to design their products and formulate strategies for Market growth. The matrix suggests that a company’s potential for market growth is dependent on whether it supplies or offers services to new or existing clients in new or existing targets (Hambleton, 2008). Due to the competitive nature of the mining industry, application of this matrix in the business operations of the company is crucial to the attainment of the set objectives and goals. The company management spends most of the time planning on how to increase operations through various ways like centralizing the global supply chain, opening up new markets and launching new marketing campaigns. For instance, the company’s 45% interest in De Beers has enabled it invest globally in diamond business. The matrix outlines ways through which the company can grow and the risks accompanied by each alternative. The matrix is configured such that every time the company applies a certain option, the risks associated with the option increase. For instance, in a bid to attain a competitive advantage over Rockwell Diamond, the company has redesigned the previous methods of mining diamonds to a more efficient one. However, this has led to increase in production costs implying that the increase in service demand leads to increase in production. According to Hambleton (2008), the matrix outlines four factors of business growth. These are incorporated in the mission statement of the Anglo American Company. Mind Tools Ltd, 2012. The Ansoff Matrix. (Electronic print) Available at: (Accessed 19th June 2012) In Market development, the company’s international status is eminent as it targets both home and international Markets. Use of online advertisement also promotes the market pool for the company products (Katie, 2009). Most of its services targets customers of all nationalities; for instance, mining products like jewels are used by all people. The services they offer, for example, environmental conservation benefit all mankind. Targeting a wide range of customers enhances markets. Company diversification into different mineral products is strategically beneficial as this widens the service potential. This is because if one service delivery mode collapses the other may not be affected, and thus it cannot exit from the business. However, the strategy is risky because there is minute scope of utilizing the existing expertise as they are trying to introduce new products in the market. This differs from market penetration approach whereby the company tries to sell existing products in the same market. This implies that advertisement and promotion strategies will be eminent. Anglo American Company has achieved this through online advertisement of their activities (Katie, 2009). Buying of competitor companies has also enabled the company to reduce competition as well as market expansion. Loyal customers have been offered with a loyalty scheme whereby their needs are catered for on a first priority basis. The company has maintained product development though offering additional services like after sales services and transit security for the extracted mineral resources from mine pools. The strategy has cultivated loyalty among their clientele. Their upgrading of the existing products has made their services retain competitive advantage over other mining companies. Porter’s 5 Forces The five forces make up a model that influences a company strategy in relation to competition partners. These forces include rivalry among the existing competitors, the threat of new entrants, bargaining ability of buyers, bargaining ability of suppliers, and the threat of substitute products and services (Porter, 2008, pp.81-90; Hitt, 2001). In the mining industry, a high concentration ratio is held by the most competitive firms. Anglo American is fortunate to be one of these firms as it possesses sophisticated equipment. Mining industry is not disciplined because rivalry among the mining companies is high. Every company yearns to improve demand of its services. Rivalry in the mining industry is influenced by a larger number of firms, high storage of mining equipment, a diversity of rivals and industry shake out. Most of the new entrants face entry barriers such as legal requirements, large capital investment in acquiring mining equipment and technological requirements. Once in the industry, new entrants face difficulties when exiting as the industry involves specialized assets and has high exit costs. Porter’s Diamond and Competitive Advantage Figure 2: Representation of porter’s diamond Anglo American Company has applied the model in creating a competitive advantage over their competitors like Adex Mining, Alumina Limited, Rockwell Diamond or Sifto Canada. To curb rivalry with other competitors, the company has embarked on improvement of internal operations through application of measures such as constant reviewing company procedures and processes. These are referred to as operation reviews (OR). The OR process provides a business framework through which product value can be improved to acquire competitive advantage in the Market (Elsevier, 2011, p.40). The Market environment of the company is not disciplined as there are other competitive mining companies that compete for market opportunities in the industry. To reduce rivalry, Anglo American has applied measures such as lowering operation prices, to achieve a temporary competitive advantage and improvement in product differentiation such as change in equipment designs. Effective use of efficient channels of acquiring technology aids for instance, working with equipment suppliers. It has also colluded with a number of firms that guarantees effective retaining of workforce, for example, Women Mining Network that ensures development of women workforce in mining sectors (Esty, et al., 2006, pp.142-555). To avoid the threat of substitutes, the company has focused on a wide range of mineral products that can be substituted to each other in terms of mining requirements for instance, iron and manganese (Dill, 2010). Most of the company activities are advertised in mineral rich regions where the hiring chances are higher. This improves their operation populace. The company branches are situated in locations where raw materials are adequately available. Most suppliers are situated these locations implying that the supplier power is commendable. Most of the new entrants in the industry are assimilated by the company due to its staunch establishment status and has a favorable stronghold in the industry. Boston matrix – Product Life Cycle The matrix is based on the theory of product life cycle that determines the priorities to be given in the product or operation portfolio of a company (Sa?a?ksvuori, et al., 2004). The company should be conversant with categorization of products depending on their market value and their relevance to company operations. Most of the minerals that the Anglo American company exploits are precious minerals that are currently in high demand. This strategy has contributed to the dimensions of the matrix namely market growth and market share (Baker, et al., 2010, p.567). Placement of products in the matrix leads to four categories namely: stars that represent high growth and high market share. If the Market share is maintained, the rewards are cash cows whereby the company experiences low growth at a high Market share. This category represents the foundation of a company; low investments with a corresponding increase in profit. The reverse of cash cows is the dogs whereby a company experiences low growth at a low Market share. Anglo American has for long minimized the number of dogs in its systems through adequate funding of its operations. The last category represents question Marks whereby the company experiences a high growth at a low Market share. Value Chain Analysis Value chain analysis is a description of activities that occurs in a business enterprise. It also involves comparing them to analysis of business strengths that ensures its competitive advantage in the Market. Porter (2008, p.80) suggested that the activities of a business could be categorized into two; primary and support activities. Primary activities are concerned with the mining and delivery of minerals, for instance, mining and refining of mineral products. Support activities encompass those activities that increase efficiency or effectiveness of a business enterprise. Support activities are normally related to management. They include community management, market place management, environment management and work place management. The Business in the Community report (2009), carried out a sectional level summary of the above activities and came up with the following: Available at: < http://www.angloamerican.com/~/media/Files/A/Anglo-American-Plc/docs/bitc_feedback.pdf > The six basic functions of the value chain analysis are; production, research and development, distribution, customer service, designing processes, services and products, and marketing as well as sales (Elsevier, 2009, p.357). Anglo American ensures that its value chain analysis activities are of higher standards compared to those of their competitors (Glynn, et al., 2012, pp.1-9). This maintains the much needed competitive advantage. Some of the primary activities the company undertakes include control of inbound logistics for reception and storage of out sourced mining equipment, mining of the mineral resources, transporting the mined resources to manufacturing companies, advertising their services in all channels, and delivery of social responsibility services (Elsevier, 2009; Katie, 2009). The support services they offer include; procurement of mining tools and human resource management that is, development and motivation of the workforce. Technology development infrastructure management and environmental management ensure efficiency in the mining industry. In undertaking a value chain analysis, the company should reorganize its structures into key activities, estimate the cost of adding value to the expected impact on the competitive advantage and determine the strategies that are the most suitable in attaining or sustaining competitive advantage. One of the strategies has been related to winning community support. For instance, in South Africa, 40% of its managers are drawn from the local community. Section C Evaluation Recently, Anglo American Company has transformed into a more focused and performance oriented international mining company. According top Anglo America plc feedback report, the company had an 89% index in community management, 90% index in environmental management, 88% index in market place management and 88% index in work place management (The World Fact Book, 2011). It has strategically embraced itself in driving its ambition of being the most proficient mining company globally. For instance, in South Africa, the company has been involved in supporting Black Economic Empowerment movement through selling 26% of its assets to such groups. It has a strong Market position in reference to the number of countries it has extended its operations. This has enabled it to out smart most of its competitors as it has a wide clientele base. Its Market position has enabled it to diversify operations leading to more profits. In addition to mining businesses, the company has also embarked on engaging in corporate social responsibility projects like environmental rehabilitation and funding of community initiatives. This has won the confidence from clients, as most mining activities are associated with discharge of pollutants in the environment as well as land reconfiguration. Its operation values that include safety, accountability, care and respect, innovation, integrity and collaboration make clients to favor them over other competitors (Fombrun, et al., 2003). However, the company should formulate a way of overcoming threats and weaknesses that are threatening to cut down its business operations. Anglo American targets to emerge the world’s leading mining company in the near future. Recommendations The company also strategizes to be the preferred service provider, as well as the employer of choice. To achieve this, company has to ensure that all its operations meet the required business, as well as social standards. Most of mineral resources that the company deals in are those that are in high demand implying that the demand for its services will be high. The strategy should be accompanied by high standards of sustainable and safe mining. This enables preservation of resources to be utilized in future. The company should ensure that the shareholders yield significant returns from their investment. This is because the company receives substantial income from mining activities coupled by its status as a world leading mining industry. The employees should also be provided with appropriate working conditions and fair remuneration packages. Local communities should be assured of a safe practice in case a mining activity is undertaken within their locality. Any accidents related to mining activities should be compensated. The company aims should entail behaving in a socially approved way helps the company to win the confidence of the community that forms part of its stakeholder group. Minimizing environmental impact of its activities shows its concern for nature and the welfare of the local communities. The company should also take account for the needs of all employees including suppliers, governments, employees, communities and consumers. Conclusion Anglo American Company values helps to create a sustainable business culture for the company to boost its performance. The typical pattern of employee behaviors and beliefs encompasses the culture of an organization. The culture of an organization determines the decisions made by the top level management. Through the application of its aims, objectives and values, the company will establish a wide clientele base through optimizing energy use and minimizing waste production. 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