BHP Billiton Strategic Choices - Case Study Example

Case Study Analysis: BHP Billiton Strategic Choices Name: Course: Tutor: Institution: Date: Table of Contents Table of Contents 2 1.0 Introduction 3 2.0 External Analysis 3 2.1 Competition and Competitors 3 2.2 Opportunities 4 2.3 Threats 5 3.0 Internal Analysis 5 3.1 Resources 5 3.2 Capability 6 3.3 Core Competencies 6 4.0 Strategic Success Sources 7 4.1 Acquisition and Mergers 7 4.2 Diversification 8 5.0 Recommendations for the Organization Split decision 9 6.0 Conclusion 10 References 11 1.0 Introduction The global market, operational standards and systems have championed over the decades. In this regard, a majority of the organisations in the Australian market have adopted and applied the strategic management concepts and approaches in managing their operations. However, besides the management approach adoption, the execution process continues to face challenges as organisations evaluate the ideal strategies (Hill and Jones, 2012). This report develops a review of the diversification and internationalization strategies as key components of the strategic management practice in Australian organisations. In particular, the analysis adopts the BHP Billiton case study as an illustration evaluating the external Australian market, its internal analysis as well as developing subsequent recommendations for its strategic decision to split into BHP and Billiton Companies respectively. The report focus will be resolving the existing strategic management organizational challenge on whether to retain the diversification approach or to resolve to the market concentration approach in the future. 2.0 External Analysis In order to develop a successful organizational analysis, this report develops a macro-environmental factors evaluation in the Australian market. In particular, the analysis focuses on the competitors, opportunities and threats facing the Australian mining industry. 2.1 Competition and Competitors The Australian mining industry has been on a growth trend. In This regard, over the last decade, ad especially after the global financial crisis, the industry has attracted a large number of investors both domestic and foreign. Examples of the organisations in the industry include the CSR Limited Mining Company that is a key competitor to the BHP Billiton Company. Through its large consumer and capital base in the Australian market, the organisation process a great competition base with its influence expected to rise in the future, with an increasing profitability margin. In addition, as the analysis by Dickie and Dwyer (2011, p.332) illustrated, the industry is currently at its growth stage with increased potential for future market profitability and gains. Therefore, this illustrates that it will attract an additional number of new entrant investors in the future, posing additional market competition in the future. 2.2 Opportunities An opportunities analysis evaluates the nature and extent to which an industry has the potential for future development and individual organizational market share sustainability. In this case, an evaluation of the Australian mining industry demonstrates that the industry has gained regional and global recognition for the development and production of quality pure mineral accessories. This implies that with increased technology developments, the industry will expand its influence and dominance into the global market. Therefore, this implies that BHP Billiton Company will have an additional consumer base, thus increasing its prospective future market sales. An additional industry opportunity is the increased technology revolution and changes. In this case, technology developments in the mining industry have increased the safety, efficiency and environmental sustainability of the mineral extraction and processing process (Schiavi and Solomon, 2006, p.31). As such, this implies that with increased technology changes, the organization will not only reduce its operational costs to increase revenue, but also increase its market reputation and goodwill among the consumer base, enhancing sustainability. 2.3 Threats Nevertheless, besides the existing mining industry opportunities for future development, the industry has a share of its threats. On one hand, is the changing Australian market legislation approach. In this case, as a means to counter the merits of the EU free trade policy, the Australian government has adopted a free market approach to allow for foreign investment. Therefore, as Irwin (2006, p.318) noted, the elimination of the domestic industries protection regulations will increase the level of competition in the mining industry. Therefore, this exposes the organization to the threat of an international competition base, reducing its internationalization edge of a strong domestic market in the future. 3.0 Internal Analysis In addition to an external organizational analysis, this report develops a strategic internal analysis for the BHP Billiton Company. In this regard, the analysis evaluates the existing organizational resources, its capabilities and the core competencies that have enhanced its current industry success as well as their role in supporting its strategic market development and expansion in the future. 3.1 Resources Under the resources, analysis, this report establishes that the organization has two strategic resource bases, namely its supply channels as well as its financial resources (Peng, 2014, p.71). On one hand, an evaluation of the organizational supply channels established that the organization has developed and secured a comprehensive and elaborated supply chain in the Australian market. In this case, the supply chain ensures reduced delivery costs as well as enhancing efficiency in the organizational procurement and suppliers’ management process. Therefore, the supply chain though an intangible resource has played a crucial role in facilitating the organizational market success. On the other hand is the organizational, financial stability. In this context, the organization has a market capitalization of $42 billion in 2003. This high market capitalization that has ever since been on a gradual increase illustrates the organizational ability to compete and develop new market models and operational structures. Therefore, unlike peers in the market with a low financial base and market capitalisation, the BHP Billiton Company has a merit and a competitive edge in its financial resources large base and stability. 3.2 Capability An organizational capability is the nature and extent to which the existing organizational systems are elastic and able to change to allow for market expansion or accommodate market structure changes (Peng, 2014, p.73). In this regard, an evaluation of the BHP Billiton Company structure establishes that the organizational high capitalization value is its key capability. In this case, it implies that the organization has enough capital and working capital available to respond to a majority of the market changes. Unlike other organisations in the mining industry suffering financial challenges, the high financial stability, as well as a loyal consumer base provides the organization with the strategic opportunity to expand and diversify its operations as and when need be in the market both domestically and internationally. 3.3 Core Competencies An organizational core competency is the organizational attribute that is intangible and it offers an added advantage over peers in the market (Peng, 2014, p.74). In this regard, the BHP Billiton has a market reputation on quality mineral accessories production as well as through its CSR programs in the Australian economy. Therefore, the organizational reputation and existing market goodwill have over the decades offered it an added advantage in the Australian mining industry. Moreover, due to its intangible nature, and the difficulty in emulation, the organizational core competency is expected to increase its market merit in the foreseeable future. 4.0 Strategic Success Sources As already established in the report analysis, the BHP Billiton Company has developed and established a remarkable market success record. In this case, both statistically in terms of the market share and revenues as well as through its reputation, the organization has exceeded its market competitors. This report analysis section evaluates the nature and extent to which the respective organizational strategies have played a role in the success process. Among the discussed factors include acquisition and mergers, diversification and marketing strategies respectively. 4.1 Acquisition and Mergers Acquisition and mergers strategies have a shared approach in that an organization incorporates different business entities into its business model. However, their mode of operation and execution creates the difference (Papadakis, 2005, p.237). On one hand, under an acquisition, an organization acquires all the rights and patents of the acquired group absorbing it into its operational and business model. On the other hand, under the merger, expansion systems, organisations mutually agree to join operations as a means of increasing the economies of scales and thus enhanced operational efficiencies. The BHP Billiton Company has numerous acquisitions both domestically in Australia and in the global Asian market. On the other hand, its most remarkable merger was the merger between BHP and Billiton to form the BHP Billiton Company. In this case, the merger strategically improved the organizational market reputation (Katerattanakul, Kam, Lee and Hong, 2009, p.283). For instance, its market capitalization increased to $42 billion in 2003 following the merger. As such, the merger ensured that the organisation increased its market reputation as a credible organisation and investment base in the Australian mining industry. Therefore, the subsequent organisational increased reputation and share value rise played a significant role in facilitating increased financial stability that served as its key resource in its market expansion in the consecutive years. In addition, the merge allowed for increased production cost reduction efficiencies. For instance, although the merger has forecasted to optimize the production costs by $275 Million, upon the merge, it obtained an optimization value of $285 Million. This implied that the organization savings on cost and operational cost reduction exceeded the market forecasted levels by $10 Million. This is an illustration of the process and efficiency through which the acquisition and merge strategy played a key role in increasing the organizational market competitiveness and success in the Australian mining industry. 4.2 Diversification A market diversification strategy includes the process by which organisations expand their market reach. This is one among the generic strategies developed by the porter generic model. Under the model analysis, the authors argued that organisations adopt a single or duo models based on their market goals and external environmental standards (Bacanu, 2010, p.138). In this case, based on the rising competition levels on the Australian domestic market, the organization adopted the diversification strategy. In this case, the acquisitions were mainly aimed at ensuring that the organization diversified its mineral processing and extraction base to mitigate the rising market concentration challenge in the EU, USA and Australian market for the precious minerals. In this case, the organization diversified to the processing of mineral alloys as well as pure minerals supplying the products across the globe. The adoption of the diversification approach is explained as one of the strategic business approaches through which organizations mitigate low consumer purchasing power characterized by reducing products’ demand. In this case, the organization survived the 2008 global financial crisis as well as the subsequent low purchasing power in the Australian mining industry through its diversified product and market bases. As such, the strategy allowed for the spread of the risk and increasing overall quantity of sales (Betz, 2002, p.23). This enabled the organization to meet its operational costs by operating at a new breakeven point, while peers in the industry operated under huge losses. Therefore, this analysis concludes that the organizational diversification strategy was its key success strategy in the Australian mining industry. 5.0 Recommendations for the Organization Split decision Based on the above organizational and Australian and global mining industry analysis, this report recommends the proposed split of the organizations into two distinct companies. In this regard, the organization in its current status has reached the maturity stage in the organizational lifecycle. Thus, it has minimal development and expansion opportunities as its presence is global. However, through splitting the organizations in two, the venture will create a niche for each of the organizations (Lines and Ambler, 2012, p.32). For instance, the BHP Company will responsible for the key minerals such as copper and iron ore among others. In this case, the new market niche reverses the organizational lifecycle to a new growth stage where it seeks to create increased competitiveness and sustainability in processing and extracting the minerals. Therefore, as Yang, Moore, Wong, Jun-Sheng and Chong (2007, p.942) noted, extending the organizational lifecycle will promote increased operational efficiency as well as increased revenue gains in the long run period. 6.0 Conclusion In summary, this strategic management analysis report established that the Australian mining industry, although with the improving economy potential and technology development opportunity, is faced by the external foreign firm threat. Moreover, it establishes that the BHP Billiton Company has its supply chain and financial stability as the key resources and the high market capitalization as the main expansion capability base. Further, it lists the organizational brad and market reputation as its key competencies. In addition, an evaluation of the organization success strategies lists its acquisition and merger and the diversification strategies as among the influential strategies in its current market position attainment. Finally, the report concludes with a support for the proposed organization split arguing that the process would lengthen its organizational lifecycle, increasing profitability gains. References Bacanu, B. 2010, "Differentiation Vs. Low Cost Strategies In Romania", Management & Marketing, vol. 5, no. 2, pp. 135-142. Betz, F. 2002, "Strategic business models", Engineering Management Journal, vol. 14, no. 1, pp. 21-27. Dickie, C. & Dwyer, J. 2011, "A 2009 perspective of HR practices in Australian mining", The Journal of Management Development, vol. 30, no. 4, pp. 329-343. Hill, C. W. L., & Jones, G. R., 2012, Strategic Management, Cengage Learning, London. Irwin, D.A. 2006, "The Impact of Federation on Australia's Trade Flows*", Economic Record, vol. 82, no. 258, pp. 315-324. Katerattanakul, P., Kam, H., Lee, J.J. & Hong, S. 2009, "Migrating Legacy Systems in the Global Merger & Acquisition Environment", Journal of Information Systems Education, vol. 20, no. 3, pp. 281-288. Lines, M., & Ambler, S., 2012, Disciplined Agile Delivery: A practitioner's guide to agile software delivery in the enterprise, IBM Press, S.l. Papadakis, V.M. 2005, "The role of broader context and the communication program in merger and acquisition implementation success", Management Decision, vol. 43, no. 2, pp. 236-255. Peng, M. W., 2014, Global strategy, South-Western, Mason, Ohio. Schiavi, P. & Solomon, F. 2006, "Voluntary Initiatives in the Mining Industry: Do They Work?", Greener Management Internationa , no. 53, pp. 27-41. Yang, X., Moore, P.R., Wong, C., Jun-Sheng, P. & Chong, S.K. 2007, "Product lifecycle information acquisition and management for consumer products", Industrial Management + Data Systems, vol. 107, no. 7, pp. 936-953. Read More