BHP Billiton Strategic Management Concepts - Case Study Example

BHP Billiton Name Course Lecturer Date Strategic Management Concepts One of the strategic issues that the company has applied is to own and operate large, long life, low cost, upstream, expendable assets by commodity, market and geography. The company has carried this strategy for many years even before merging in 2001. It is a unique strategy by the management of the company has entrenched as a key driver of growth and market positioning. This strategy has enabled the company to register increasing margins for decades through economic cycles. This is a strategy that will be discussed in detail in this report. Another strategic issue that the company management has to address is demerger. This will also be discussed in detail in this essay. External Environmental Factors Impacting BHP Billiton BHP Billiton faces serious competition from well established firms in the mining industry; there is a very strong rivalry among the competing firms in the mining industry. BHP Billiton faces stiff competition from firms such as Alcoa (AA), Alcan Inc, Rio Tinto, Anglo American (AAUK) and Companhia Vale do Rio Doce (RIO). The fierce competition is due to the fact that all these firms compete for access to natural resources across several continents. In addition, there is competition for qualified mining staff as well. Increased costs of staffing have inflationary effects on labour wages (Macklin & Thompson, 2010). Moreover, there is competition among the mining firms of securing construction staff and transportation infrastructure for building of new development phases. Notably, competition makes BHP Billiton unable to lower its prices for natural resources. The company is already pushed to the lower limits of pricing its natural resources and hence cannot stretch further in reducing the prices. There are few expectations of pricing power for this company. Nevertheless, it has remained strong in spite of the rivalry in competition. The company has developed a successful reputation over the years; this gives it a clear edge over the competitors (Low, 2011). The power of emerging markets presents the company with a very good opportunity. For instance, there is high demand of natural resources from the developing countries such as China, India, Brazil and Russia. These economies show better resilience to the mining industry with increasing demand for mining products to cater for the high economic growth rate. The developing countries are also emerging as global consumers for oil demand; their population plays a significant part of this demand. China and India are the two most populous countries in the world accounting for 30% of the world’s population. Moreover, they continue to register strong economic growth and development of infrastructure development, this increases the demand for natural resources and oil products. As such, BHP Billiton has a very good opportunity to supply iron ore, energy coal, metallurgical energy, oil and gas, aluminum, copper, nickel, uranium, manganese and silver. These products are in very high demand in emerging markets (Bonn & Fisher, 2011). BHP Billiton Internal Environment BHP Billiton is a well renowned natural resources company that provides quality and wide range of products. In addition, the company has a diversified portfolio of assets at its disposal. Encouragingly, BHP Billiton has a very good opportunity in exploration and development. The company has a wealth of expertise to explore and develop new mining opportunities in various continents. It has the capacity to build and manage world class commodities, product portfolios, successful extractions, and transport and market bulk commodities. This is a very good opportunity for the company to exploit. Exploration and development is a very good opportunity for BHP Billiton, this is because the demand for natural resources is increasing. Customers demand efficient, cost effective and timely supply as well as delivery of quality commodities products with a high degree of customer service and expertise. The company has the capacity, ability and resources to deliver this to customers. The strong leadership, skill and capability is an added advantage for the company in realising this opportunity (Mayes & Pini, 2010). One of the strategic issues that the company has applied is to own and operate large, long life, low cost, upstream, expendable assets by commodity, market and geography. The company has carried this strategy for many years even before merging in 2001. It is a unique strategy by the management of the company has entrenched as a key driver of growth and market positioning. This strategy has enabled the company to register increasing margins for decades through economic cycles. This has been crucial to the company's resilience in growth of revenues and profit margins. It increases the company's cash flow while at the same time reducing its exposure to one commodity or currency. It also provides for more robust and predictable financial performance. This is especially important in forecasting and setting targets. Another internal strength of the company is an experienced management team and board, it provides the company with clearly defined strategic priorities that enable the company to realise its objectives. The management instills a distinctive, powerful identity and culture. This makes the company unique and different from the competitors. Through the effective management team, the company owns the world’s largest single of lead and silver, has a very strong market position and it is the largest supplier of uranium in the world. Still, the company has superior financial returns. It has access to capital to finance its operations. These aspects indicate effective and dynamic management team and board (Wise & Zednickova, 2009). Strategies Implemented by BHP Billiton BHP Billiton has implemented strategies that have enabled it to record remarkable growth and excellent performance. One of the strategies for the remarkable growth and good performance is merger. Billiton merged with BHP in 2001 to become BHP Billiton group. The merger increased the groups’ capacity to acquire more resources fields and to invest in huge capital projects from all over the world. This enabled it to deploy its considerable financial firepower; this has brought success to the company. Importantly, the merger has helped the company to diversify; this is evidenced by the growth of its benefits of scale. Its increased and vast size after the merger helps it to meet the growing demand from China. Another strategy implemented by the company is a strong corporate culture, execution of growth plans, leadership and communication with the stakeholders. The company is very effective in these aspects, this has enabled the company to achieve its objectives in providing timely information to stakeholders, realising its growth targets, maintaining a strong corporate wide culture and providing leadership. These are the centerpiece of the company's growth and success. Effective corporate leadership is vital for the company's sustained growth; it helps it to develop supply sources for all its development portfolios (Floris, 2013). Assessment of BHP Billiton Demerger The decision by the company to demerger is a strategy of to extract best value from its proposed divestments. It is a clear signal to its resources. The demerger will enable the split companies to focus and concentrate on specific direction. The demerger is a strategic move by the company especially considering the nature and movement of the market of the natural resources. The demerger will bring down costs as well as return production growth. Moreover, it will enable the respective companies to be more focused on their portfolios (Seccombe, 2014). BHP Billiton will be better placed to achieve further productivity benefits in its vital portfolio while at the same time creating a new markets and demand. In addition, it will simplify BHP Billiton; it will be able to venture in both large and small projects. The demerger will make the company to have the potential to unlock shareholders value while creating new global diversified mining and metals company with a substantial industry presence in all its major commodities (Streetinsider, 2015). This is essential for the future of the company. The demerger will not change the company's strategic priorities; it will remain one of the largest diversified global resources firms. Simplification will enable the company to further focus on generating value from its core portfolios (Thompson & Macklin, 2009). The resulting company will benefit from the wealth of quality assets as well as dedicated management team and board. In this case, adopting an independent business strategy will give it an opportunity to pursue investment prospects and growth that may not then be pursued if its interests remain within BHP Billiton (Chessell, Stevens & Macdonald, 2014). Currently, BHP Billiton has more than 41 assets dispersed across 13 countries and in six continents. The demerger will materially simplify the portfolio in single step; this is a major progress by BHP Billiton towards achieving its identified core portfolio of 19 assets across eight countries and three continents. To sustain success in coming years, BHP Billiton must maximise shareholders value. It must focus to invest in the most productive and valued portfolios. This will propel the company to be a safe, responsible, lean and predictable operator of its portfolios of high quality diversified mining assets and metals. By managing its capital in a disciplined way, the company will be able to maximise the value of shareholders and hence continue to consolidate its market position. Notably, by continually seeking to optimise its portfolios, BHP Billiton will establish a productive, powerful and distinctive identity crowned with success (Verrender, 2014). Recommendations The power of emerging markets presents the company with a very good opportunity. For instance, there is high demand of natural resources from the developing countries such as China, India, Brazil and Russia. These economies show better resilience to the mining industry with increasing demand for mining products to cater for the high economic growth rate. The developing countries are also emerging as global consumers for oil demand; their population plays a significant part of this demand. China and India are the two most populous countries in the world accounting for 30% of the world’s population. Moreover, they continue to register strong economic growth and development of infrastructure development, this increases the demand for natural resources and oil products. As such, BHP Billiton has a very good opportunity to supply iron ore, energy coal, metallurgical energy, oil and gas, aluminum, copper, nickel, uranium, manganese and silver. These products are in very high demand in emerging markets. The decision by the company to demerger is a strategy of to extract best value from its proposed divestments. It is a clear signal to its resources. The demerger will enable the split companies to focus and concentrate on specific direction. The demerger is a strategic move by the company especially considering the nature and movement of the market of the natural resources. The demerger will bring down costs as well as return production growth. Moreover, it will enable the respective companies to be more focused on their portfolios (Seccombe, 2014). BHP Billiton will be better placed to achieve further productivity benefits in its vital portfolio while at the same time creating a new markets and demand. In addition, it will simplify BHP Billiton; it will be able to venture in both large and small projects. The demerger will make the company to have the potential to unlock shareholders value while creating new global diversified mining and metals company with a substantial industry presence in all its major commodities (Streetinsider, 2015). This is essential for the future of the company. The demerger will not change the company's strategic priorities; it will remain one of the largest diversified global resources firms. Simplification will enable the company to further focus on generating value from its core portfolios. The resulting company will benefit from the wealth of quality assets as well as dedicated management team and board. In this case, adopting an independent business strategy will give it an opportunity to pursue investment prospects and growth that may not then be pursued if its interests remain within BHP Billiton (Chessell, Stevens & Macdonald, 2014). Currently, BHP Billiton has more than 41 assets dispersed across 13 countries and in six continents. The demerger will materially simplify the portfolio in single step; this is a major progress by BHP Billiton towards achieving its identified core portfolio of 19 assets across eight countries and three continents. References Bonn, I., & Fisher, J., (2011). Sustainability: the missing ingredient in strategy. Journal of business strategy, 32(1), 5-14. Floris, M., (2013). Strategizing as multi-modal and rhetorical discursive practice: a case study of the BHP Billiton's failed acquisition of Rio Tinto Low, E. (2011). Financing From the Perspective of Mining Companies (Doctoral dissertation, Thesis, Queen's University Kingston, Ontario, Canada). Macklin, R., & Thompson, P. (2010). The Big Fella: The Rise And Rise Of BHP Billiton. Random House Australia. Mayes, R., & Pini, B. (2010). The ‘feminine revolution in mining’: a critique.Australian Geographer, 41(2), 233-245. Seccombe, A. (2014, September 11). Obvious logic to split in AngloGold assets. Retrieved April 7, 2015, from Financial Mail: http://www.financialmail.co.za/features/2014/09/11/obvious-logic-to-split-in-anglogold-assets. Stevens, J. C. (2014, April 24). BHP Billiton eyes $20bn demerger. Retrieved March 7, 2015, from The Australian Financial Review: http://www.afr.com/markets/commodities/metals/bhpbilliton-eyes-20bn-demerger-20140423-ix9ax Streetinsider. (2015, Mrch 17). BHP Billiton Ltd. (BHP) Plans Spinoff of South32. Retrieved April 7, 2015, from Streetinsider: http://www.streetinsider.com/Corporate+News/BHP+Billiton+Ltd.+(BHP)+Plans+Spinoff+of+South32/10378478.html Thompson, P. A., & Macklin, R. (2009). The big fella: the rise and rise of BHP Billiton. Queensland Narrating Service. Verrender, I. (2014, August 12). BHP Billiton to split mining company, spin off assets. Retrieved March 7, 2015, from ABC News: http://www.abc.net.au/news/2014-08-15/bhp-billiton-confirms-it-will-split-the-company/5674346 Wise, R., & Zednickova, J. (2009). The rise and rise of the B2B brand. Journal of Business Strategy, 30(1), 4-13. Read More