Exxon Mobil - Relationship between Corporate Strategic and Functional Management Policies - Case Study Example

STRATEGIC MANAGEMENT A Critical Examination Name of student: Student No: Date: Name of Supervisor: Table of Contents A Critical Examination 1 Table of Contents 1 1 Introduction 2 Relationship and the Need for Compatibility between Corporate Strategic and Functional Management Policies 4 Internal And External Influences On Corporate Objectives And Strategy. 6 PESTEL Analysis 7 Porter's Five Forces 9 Four Key Points 10 Conclusion 11 References 12 Introduction Strategic management is a practise which is recognised as being intricate and sophisticated, which is necessary to the business of decision making. Management of the different, multifaceted nuances that make up the organisation's internal activities is a facet of every modern executive's responsibilities. The immediate external environment of the organisation is the second set of factors that present a challenge. These factors include competitors arising from any situation where the possibility of making a profit exists; the suppliers of resources that become less available by the day; government agencies which monitor the company's compliance with regulations; as well as customers who might have complicated demands which have to be anticipated. In addition to these external factors which directly affect the firm, there are those which are remote yet they impact on the business climate in a general yet pervasive way. These are social change, technological developments, economic conditions and political priorities. As the company executives, it behoves one to expect, scrutinise, evaluate and integrate each of these factors in the higher echelons of decision making. Nevertheless, these considerations are usually subsumed by the influences exerted by the fourth major factor and that is the various and many times contradictory goals of the business stakeholders consisting of owners, management, personnel, the surrounding community, customers as well as the country at large. In order to contend effectively with these issues, it behooves company executives to design processes for strategic management which will help to maximise the position of the firm within the competitive environment. This positioning is enabled due to the worth of these processes in facilitate a more accurate response to changes in the environment as well as improvement in preparedness to flux taking place in internal or competitive demands. Large-scale management processes have become ever more intricate since the conclusion of World War II. This is mainly due to the rise in size and number of companies in competition; of the increased participation of government in the guise of a purchasing agent, seller, competitor and regulator; as well as the heightened involvement in international trade of various businesses. This development was more prominent in the ten years spanning the 1970s in terms of planning for the long term, managing new ventures, planning, strategising, coming up with a budget and business policy approach which takes into account all the factors such as environmental prediction. In addition to that, there are the considerations of external and internal factors when formulating and implementing the plans. This is known as strategic management (Dankov, 2011). This report will seek to critically examine the relationship and the need for compatibility between corporate strategic and functional management policies. An analysis will be carried out to discover how the internal and external influences on corporate objectives and strategy. Thirdly, the report will seek to critically evaluate the need for flexibility in strategic management and the practical limits of quantifying corporate strategy. This report will focus on strategic management at Exxon Mobil in my capacity as a management consultant from a company which specialises in providing strategic analysis on the global economy. Energy companies are an important area when it comes to environmental concerns and Exxon Mobil is one of the most significant energy corporations in the world. Relationship and the Need for Compatibility between Corporate Strategic and Functional Management Policies Khalifa (2008) states that a large number of theorists have failed to explain the idea of strategy literature and how it impacts organizations. From a business perspective, strategy can be defined as a plan to facilitate the achievement of an organization’s aims and policies. Davies (2000) adds that the resources required to make this a reality are determined by strategy. Traditional thinking describes organizational design as either vertical or horizontal in terms of control. These two styles of control result in different things. The former gives the advantage of efficiency while the latter is concerned with flexibility. Businesses therefore need to select a model that is commensurate with their goals. When the company chooses one strategy over the other limits the benefits that one can attain from using both, through achieving balance through the contingency perspective are lost (Nobre et al, 2010). Use of the contingency perspective shows that a combination based on needs and objectives of both external and internal environments can create a model that ensures success for any firm. The trick is to find the right balance. Exxon Mobil consists of several business units beneath the umbrella corporation. This includes International Marine Transportation as a tanker leasing operation as well as Exxon Enterprises which is the new business development arm. The former has adopted a retrenchment strategy due to the global oil surplus while the latter has aggressively been pusing its office equiment line due to the speedily expanding market. In order to make a success of implementation in each of the units, the corporate management at Exxon has sourced for extremely diverse managers when it comes to experience, temperament and training in order to carry out their specific plans. The designation of critical managers while trying to equate the characters of individuals with the vital requirements of the plan is a difficult assignment. Further to the significance of equating the individual character with strategic needs, the manager's leadership style when working through others can be critical to implementation of strategy. A vast amount of work has been done on leadership styles. This has led to various terms with which to label these styles such as democratic, autocratic, participative, conservative, laissez-faire, theory X, Y and Z. among others. Contingency theory is a management theory which states that there is no specific means to resolve management issues. It operates on the premise that the leadership style that is effective in one situation may not work in another (Thomas, 1991). William Ouchi (1981) who is a Japanese author espouses the management style known as ‘Theory Z” which relies on collectivism and interpersonal relationships and value. Theory Z stresses three major elements which are trust, subtlety and intimacy. Participative approach is about increasing participation and contribution by employees in the making of decisions in the organisations. When this takes place, it augments creativity, effective implementation of policies and effortless solutions (Morgan, 1989). Customer Relationship Management is a strategy used by businesses in order to manage outlay and solidify the bottom line through generation of customer loyalty. When used effectively, CRM gathers and collects data from each facet of the organization as well as outside the organization where necessary, to provide a comprehensive up to date picture of every consumer. This information can then be used by employees while dealing with the clientele enabling them to deal successfully in such areas as sales, marketing and customer support. They can also be assisted in expedient decision making on such issues as cross-selling, upselling opportunities, target marketing strategies or competitive positioning (Davies, 2000). Internal And External Influences On Corporate Objectives And Strategy. In 1959, natural gas was found in the Groningen province of north east Netherlands by the Nederlandse Aardolie Maatschappij (NAM; Dutch Oil and Gas Company) which was a joint 50-50 venture between the future Shell and ExxonMobile companies (IEA, 2009, p. 62). Natural gas reserves were approximated to be at 1390 billion cubic meters in 2008. This was indicated to be almost 50% of the 2600 billion cubic meters originally said to comprise the Groningen gas field. This was divided into a little over 1000 bcm in the Groningen fields, 198 bcm found on the continental shelf while 117 bcm in other onshore accumulations (IEA, 2009; 57). There is an estimated other 100 bcm of reserves in existence but their economic accessibility is limited by the need for sophisticated technology to exploit it. In addition to that, these reserves are found in the Wadden Sea, which is labelled as environmentally fragile and a protected area (NNEN, 2010). When production has been done, traders and suppliers of energy purchase natural gas and make arrangements for its transportation to customers through a contracted network of companies. The wholesale trade is done mainly by GasTerra which is a half state-owned organisation and the other equally split between Shell and Exxon. Their traded volume is composed of almost 60% share of the market (IEA, 2009). For a long time, Exxon Mobil obstinately clung to the position that global climate change was not affected by the burning of fossil fuels. In 2006, this opinion softened and they came to an acceptance that fossil fuels were a factor in global warming. They however emphasise that there are several dynamic factors that pertain to the volume of greenhouse gas emissions. This position was influenced by the sending of a missive from the esteemed British Royal Society from its member scientists to Exxon Mobil with the request that they cease financing groups that support the view that global warming is not a result of human activities. This was after they reported in 2005 that Exxon Mobil gave 2.9-3.9 million to groups that distort scientists working on climate change (Adam, 2006). Exxon Mobil is more non-specific now and even though it admits that there could be grave consequences in the future to do with global warming, they also insist that there could be a natural decline without intervention (ExxonMobile, 2006a; 22-23). The company is however opposed to the Kyoto protocol citing ineffectiveness because no pressure is exerted on developing countries from where the energy use will have the highest emanation. They also complained about the expense incurred by developed countries (Exxon Mobil, 2006a; 23). Exxon has also shown that it believes in improvements in technology but acknowledges that it does not negate the possibility of increase in carbon emissions (ExxonMobil, 2006b;9). PESTEL Analysis 2 = Political The politics of climate change and the use of natural resources is one that Exxon Mobil has had to contend with. The issues of natural gas emissions and the laws around it have financial implications to the firm and this is something they have to take into consideration as they operate. 3 = Economic Exxon Mobil consists of several business units beneath the umbrella corporation. This includes International Marine Transportation as a tanker leasing operation as well as Exxon Enterprises which is the new business development arm. The former has adopted a retrenchment strategy due to the global oil surplus while the latter has aggressively been pusing its office equiment line due to the speedily expanding market. The global demand for energy has remained constant even in the wake of the global financial crisis. 5 = Social The letter from the scientific members of the British Royal Society exerted social pressure coupled with the world's attitude to global warming. For the company to maintain a good relationship with its surrounding community and the rest of the energy community, it has to be prepared to deal with the repercussions of environmental concerns. 4 = Technological Exxon has shown that it believes in improvements in technology but acknowledges that it does not negate the possibility of increase in carbon emissions (ExxonMobil, 2006b; 9). There is an estimated other 100 bcm of reserves in existence but their economic accessibility is limited by the need for sophisticated technology to exploit it. Clearly this issue is a crucial one to business operations. 1 = Environmental Exxon Mobil admits that there could be grave consequences in the future to do with global warming, they also insist that there could be a natural decline without intervention (ExxonMobile, 2006a; 22-23). They are also opposed to the Kyoto protocol. These are serious issues that must be surmounted or else they could threaten the future of the company. 6 = Legal The legal issues surrounding energy resources are complex and multifaceted. There are government regulations that differ from country to country with differing standards of regulation. In order of importance factors that matter would be environmental because it affects every other facet of the PESTEL analysis, political factors influence the attitude toward the energy sector, economic factors is third after the first two because of the repercussions that the economy has on the price of commodities, technological factors influence the manner and magnitude of resources that can be extracted, social factors facilitate peaceful operations and then legal factors must be adhered to in order to ensure smooth operational procedures. Porter's Five Forces Supplier Power When production has been done, traders and suppliers of energy purchase natural gas and make arrangements for its transportation to customers through a contracted network of companies. The wholesale trade is done mainly by GasTerra which is a half state-owned organisation and the other equally split between Shell and Exxon. Their traded volume is composed of almost 60% share of the market (IEA, 2009). Suppliers are therefore very important to the supply chain and their importance is high. Buyer Power The price of oil is set by OPEC and the price is more or less homogenous across the board. This means that buyers have very little power in the chain of operations. This gives them a low rate of importance. Competitive Rivalry There are several different competitors in the market that influence competition. This is however minimised the common prices across the board. Therefore competition is of medium importance. Threat of Substitution Research is continuously being done to discover new sources of energy that are more sustainable than natural gas and oil. The development of various technologies to exploit sunlight, water sources and other more sustainable sources which have less environmental repercussions and cheaper sources. Should these become more commercially viable, the threat of substitution would be real therefore its importance is medium. Threat of New Entry Oil companies are fairly well established and new entrants are minimal at best. Therefore this threat is ranked in importance as low. Four Key Points 1. The first and most important point is Exxon Mobil is subject to pressures that oblige it to deal with the environmental repercussions of energy resource use and this is an important point to note because of the potential impact it has on global climate. 2. The second point is that strategic management is influenced by several forces both inside and outside the organisation. These strategies chiefly emphasise the good opinion that Exxon requires in order to operate. 3. The third point is the resistance shown in which Exxon attempts to circumvent global protocols due to financial issues. This is probably influenced by the interests of stakeholders such as owners and shareholders. 4. The fourth important point is that seeks to minimise its objections to certain environmental protocols by showing concern for corporate social responsibility in other areas that are also potential markets. Conclusion This report started out with a critical analysis of strategic management and how it relates to Exxon Mobil and the leadership styles they employ. It gave a brief history of Exxon from its inception in 1959 and how it has grown as an organisation. A PESTEL analysis revealed the impact that the environment has on the operations of energy companies and the various bottlenecks that they consider to hinder their operations including the Kyoto protocol and sustainable use of resources. Porter's five forces outlines the various powers that different stakeholders have in the industry and several points highlighted. The conclusion that we come to is that Exxon Mobil's strategic management position is based on a delicate balance between environmental issues and financial gain. References Adam, David. 2006. "Royal Society tells Exxon: stop funding climate change denial." Guardian Unlimited. On-line at http://environment.guardian.co.uk/climatechange/story/0,,1876538,00.html. Accessed 13th August 2013. Davies, W. (2000)”Understanding strategy. Strategy and Leadership. 28, 5, p. 25-30. International Energy Agency (IEA) Renewable Energy Working Party (2004), Strategic Plan 2004-2006, Paris: OECD. ExxonMobil. 2006a. "2005 Corporate Citizenship Report." Irving, TX: ExxonMobil. www.exxonmobil.com. ExxonMobil. 2006b. "Tomorrow's Energy: A Perspective on Energy Trends, Greenhouse Gas Emission and Future Energy Options." ExxonMobil, Irving, TX. ExxonMobil. 2006c. "2005 Summary Annual Report." ExxonMobil, Irving, TX. Http://www.exxonmobil.com. Khalifa, S. A. (2008) The strategy frame and the four Es of strategy drivers. Management Decision. 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