Strategic Management - BHP Billiton - Case Study Example

Strategic Management: Case of BHP Billiton Name Instructor’s Name Course Number Date Corporation identification BHP Billiton is a big and well established corporation in Australia, with varied operations. In fact, BHP Billiton is primarily listed on the Australian Securities Exchange (ASE) whereas Billiton Plc. is listed on the London Stock Exchange (LSE) on premium basis (BHP Billiton 2015). It produces various products, ranging from minerals like iron ore, to oil and gas products. A corporation, according to Chandel and Sharma (2014), is a firm or business venture, that having made all the necessary legal requirements, is allowed to fully operate as a separate legal entity, separate from its owners. It is also known as an artificial person, since it executes business contracts. The sole existence of forming a corporation is to produce goods and services. According to Ichikawa and Tsuji (2016), whereas product portfolio refers to a collection of all goods offered by a company, service portfolio on the other hand refers to the collection of services offered by a particular company. Corporation Research Business unit identification  BHP Billiton is made up of various departments, including Marketing and Operation departments, tasked with different responsibilities and functions that are geared towards the achievement of BHP Billiton’s strategies. For instance, The marketing department is tasked with the duty of accounting for BHP Billiton line of revenue, including management of sales and proper coordination of the organization products in the market (BHP Billiton 2015). Additionally, marketing department also undertakes trading of BHP product inputs for the operations department. On the other hand, the operations department is tasked with the conversion of raw materials used by the corporation. The department is also responsible for ensuring that the corporation strategies are suitably delivered (BHP Billiton 2015). Meaning of Business Unit. According to Kotler, Keller, and Goodman (2009), a distinction should be made between a subsidiary and a business unit, since a business unit is mostly mistaken to be a subsidiary. Whereas a subsidiary is a body corporate and is treated as a separate entity, a business unit refers to parts that comprise an entity. A business unit reefers to a department found within a given business entity, mandated with the responsibility of undertaking a certain specified corporate activity. Business units include departments like accounting and marketing (Kotler, Keller, and Goodman 2009).  Identification of Product and Service Lines   BHP Billiton, being a global company, undertakes the exploration, development , Production, processing and marketing of minerals such as metallurgical, coal, uranium, aluminum and iron to name just but a few (Kotler, Keller, and Goodman 2009). Besides the exploration of minerals, it also undertakes exploration, development, production, processing and marketing of gas and oil, both conventional and unconventional. BHP Billiton has two distinguished service lines. One service line deals with the exploration, development and processing of minerals like iron, copper and others whereas the other service line deals with the exploration, development, processing and marketing of oil and gas (Mackenzie, 2015). Meaning of “service lines “and “products line” From the business perspective, service line refers to all the products and services which are related to a certain division or business unit in a business entity or corporation BHP Billiton 2015. For instance, BHP Billiton has a service line that deals with exploration of oil and gas and another one that deals with the exploration of minerals. A product line, from a business perspective, refers to a collection or group of products sold by the same company. Most companies sell a multiple number of products under different and varied brands (Kotler, Keller, and Goodman, 2009). For example, BHP Billiton sells two bands of copper, one at a higher price, and the other at a lower price, but all of them being produced by the same company Corporation revenue centers Revenue centers refer to parts of the organization that generates revenue for the organization, mostly through selling the organizations goods and services. BHP Billiton’s revenue center is the marketing department, which ensures that there is proper coordination of the organizations products in the market (BHP Billiton 2015). Products lines creating the greatest revenues for the corporation. BHP Billiton being the largest mining company in Australia made over 73.84 bn. profits in the year 2014 (BHP Billiton 2015). Of the minerals products produced by the company ranging from Iron, copper and aluminum, Iron ore generated the highest profit, contributing to more than 52% of the total revenue. In fact, the companies iron ore operations is ranked third globally in terms of size and level of production (BHP Billiton 2015). Meaning of the term revenue Revenue refers to the income generated by an e entity or corporation from its activities. In The case of BHP Billiton revenue refers to the amount of money the organization collects from the various business units, relating to products produced BHP Billiton 2015. For example, having made a profit of over 73.84Bbn, BHP made a different analysis to realize the amount of profit contributed by each business unit and service center. The report indicates that iron ore being the largest revenue earner for the company, contributed to 52% of the total revenue (BHP Billiton 2015). External Environmental Analysis Political, Economic, Social, Technological, Environmental and Legal operating environments business units. The marketing and operations departments, being BHP Billiton’s business units, are affected by a number of factors, which are beyond their control. One of the political factors affecting BHP is the role the Australian government plays on the mining industry (Mackenzie, 2015). The government is concerned on tax issues in the mining industry, thereby impacting on the profit margins. Interest and inflation rates are economic factors affecting both the marketing and operations units. Technological advancement is a challenge, since it is expensive purchasing and making use of latest technology in the mining industry. Similarly, environmental and legal factors also affect the two business units. For instance, the Australian government imposing business regulations affects business operations in both the two business units in BHP Billiton (BHP Billiton 2015). According to Stukalina (2014), Political, Economic, Social, Technological Environmental and Legal factors (PESTEL), refers to those factors affecting business operations beyond the control of the company. They range from political instability to government regulations. Operating environment refers to the environment in which a business undertakes its operations, and range from Political to Legal environment. Source of Sustainable Competitive Advantage Sources of sustainable competitive advantage for each business unit. BHP Billiton marketing department, being the department tasked with the duty of managing and coordinating the company’s revenue, is functional and highly effective in its operations, making the company operate at higher competitive levels, thereby enjoying maximum competitive advantage (BHP Billiton 2015). The company’s business unit ensures that high quality raw materials are purchased, which guarantees on high quality products. Similarly, the company’s supply chain is well established and risks are well managed, therefore acting as a source of the company’s competitive advantage. On the other hand, the operations department or business unit ensures that the production process of products does not stop by rightfully communicating with the marketing department, which ensures timely supply of raw materials. This therefore acts as a source of competitive advantage for the operations department (BHP Billiton, 2015). Four factors of sustainable competitive advantage. Cost- Cost refers to the price charged for a certain product or commodity (Huang et al., 2015). Often, customers will tend to concentrate much on the lowly priced goods. Cost is a factor to be considered to achieve sustainable competitive advantage, and is a factor that has been appropriately used by BHP Billiton. Quality- From a business perspective, quality refers to the product’s variability and its ability to meets customer needs (Huang et al., 2015).Customers always tend to prefer high quality products, another technique which has been utilized by BHP Billiton in its operations, enabling it obtain a competitive advantage. Lead- Lead-time refers to the time that elapses between the Moment an order is placed and when it is received (Cizaire, 2014). It is a factor that determines competitive advantage and has been fully utilized by BHP Billiton. For example, the marketing department ensures that high quality raw materials are ordered and received in time to prevent production stoppage in the operations department. Ideally, the shorter the lead time, the better Differentiation-Differentiation is a strategy that a business uses to achieve competitive advantage by ensuring that it makes itself different from the competitors. Differentiation can be in terms of cost or even quality (Huang et al., 2015). BHP Billiton has capitalized on this strategy to achieve e competitive advantage by producing and selling cheap yet high quality products. Business level strategies In order to be competitive and relevant in the market, an organization’s focus should be placed on establishing the best ways of satisfying customers, which is only possible through the development of business level strategies (Fiegener, 2011). Business level strategies refer to actions taken a business entity to ensure that customers are given value for money, inorder to obtain competitive advantage (Michael et al., 2011). A business level strategy that is used in BHP Billiton’s marketing department is to lower prices and to undertake diversification, both geographically and product wise. On the other hand, the operations business unit ensures that it produces high quality products, whose availability is assured in the marketplace, a business level strategy that has enabled it obtain competitive advantage (Fiegener, 2011). Recommendations for future strategic direction i. In order to be close to its competitors in the industry, BHP needs to work on improving its profits margins the return on equity ii. BHP Billiton should work on empowering its manpower, especially those working in the mining part of the corporation. iii. BHP Billiton should work on establishing and enhancing effective communication channels with its stakeholders , especially on the part of answering corporate queries Bibliography BHP Billiton 2015, Resourcing global growth annual report 2015 (2015). Available at: http://www.bhpbilliton.com/~/media/bhp/documents/investors/annual-reports/2015/bhpbillitonannualreport2015.pdf (Accessed: 24 August 2016). Chandel, K and Sharma, N 2014, ‘Revisiting marketing strategies for MSMEs in the resilient business environment’, Indian Journal of Marketing, 44(8), p. 32-34. Cizaire, C 2014, ‘Pricing: The third business skill: Principles of price management’, Journal of Revenue and Pricing Management, 13(4), pp. 339–340. Fiegener, M.K. (2011) ‘matching business-level strategic controls to strategy: Impact on control system effectiveness’, Journal of Applied Business Research (JABR), 10(1), p. 25-27. Huang, K.-F., Dyerson, R., Wu, L.-Y and Harindranath, G 2015, ‘From temporary competitive advantage to sustainable competitive advantage’, British Journal of Management, 26(4), pp. 617–636. Ichikawa, Y. and Tsuji, M 2016, ‘Evaluating the product portfolio of NHK, the Japanese public service broadcaster: A propensity score matching approach’, International Journal on Media Management, 18(2), pp. 117–136. Kotler, P., Keller, K.L. and Goodman, M 2009, Marketing management: First European edition, Harlow, England, Prentice Hall Financial Times. Mackenzie, A 2015, BHP Billiton Chile BHP Billiton Pampa Norte Minera Escondida. Available at: http://www.bhpbilliton.com/~/media/bhp/documents/society/reports/2014/csr-eng150518sustainabilityreport2014bhpbillitonchileoperations.pdf (Accessed: 24 August 2016).  Michael, E. P et al., 2011, HBR’s 10 must reads on strategy (including featured article ‘what is strategy?’ By Michael E. Porter), Boston, MA., Harvard Business Review Press. Stukalina, Y 2014, ‘Strategic management of higher education institutions’, Management of Organizations: Systematic Research, 70(70), pp. 79–90. http://dx.doi.org/10.7220/MOSR.1392.1142.2014.70.6 Read More