Strategic Management in BHP Billiton - Case Study Example

Student number: [Insert here] Name: [Insert here] Date Submitted: [Insert here] MGT3SMG-All Instances-S2-2015 Assignment 2 – [Group Written assignment] [1,500 words per person] Instructions and Topic: 1. The group assignment is 1500 word per person assessment item attempted in groups of no more than five (5) persons. This assignment requires students to engage with material presented in lectures, explored in tutorials and researched in academic journal articles, in relation to the contemporary organisation. 2. Each student will reference no fewer than 10 scholarly journal articles within in the paper and the Mendeley research software must be used. Students must attach screenshots of their Mendeley libraries as appendices to the assignment, clearly labelled with their name and student number. 3. Students will use the following topic construct a paper describing how contemporary organisations are using the theories and knowledge discussed in tutorials, presented in lectures and identified in their own scholarly research: Strategic management is critical to the success of the contemporary organisation. Using any five (5) international organisations, who deliver multiple products or services across geographic boundaries as examples, describe how the concept of the four criteria of sustainable competitive advantage relates to organisational success. Your answer should take into account diversity, corporate level strategy and business level strategies in each case discussed. This item must be referenced, use the Mendeley research software and conform to La Trobe essay writing and style guidelines. . Campus: [Insert here] Lecture time: [Insert here] Lecturer: [Insert here] Tutor: [Insert here] Tutorial Time: [Insert here] Word Count: 1434 BHP Billiton is an Australian based top multinational corporation operating in the diversified resources and mining industry. The company was formed out of a merger of two large companies: Broken Hill Proprietary Company (BHP) from Australia and Billiton from the United Kingdom. BHP Billiton head offices are based in Melbourne, Australia and has a dual listing on the Australian Securities Exchange (ASX) as BHP Billiton Limited and on the London Securities Exchange (LSE) as BHP Billiton PLC. The company’s main commodities include coal, iron ore, copper, silver, manganese, nickel, titanium, aluminum, uranium, oil and gas. BHP Billiton operates in 130 locations across 21 countries. In 2014, BHP Billiton had a market capitalization of about $179 billion and revenues amounting to $67 billion, with a net profit of about $14 billion. The company employs close to 124,000 people including contractors (BHP Billiton, 2014). BHP Billiton faces close competition from other industry players, such as Anglo-American, Rio Tinto and Vera, among others. Still the company remains a dominant player in the industry. This report examines BHP Billiton’s success in relation to the four criteria of the sustainable competitive advantages. This includes a discussion on the company’s key strategies including capabilities and competences that have propelled it to its current success as a global leader in diversified resources. The company’s overall strategy is “to own and operate large, long-life, expandable, upstream assets diversified by commodity, geography and market”. To realize this, BHP Billiton has built strong internal capabilities and competences to drive its success. Through “The BHP Billiton Way”, the company has continued to improve its internal efficiencies along the value chain. BHP Billiton has built strong capacity to handle bulk commodities and shipping activities. BHP Billiton owns several ships through which it offers high-quality freight services. This has resulted in cost savings for the company and efficiencies along the supply chain (Conti, 2010). The ships are also used to provide transportation services for other companies and, therefore, provides additional revenue for the company. The company also has an efficient marketing business unit that solely handles sales and marketing activities in key markets (Gutterman, 2011). The business unit is located in the strategic location of Singapore, which has an efficient port system for easy freight and distribution to other parts of the world. Marketing for oil and gas is handled in Houston, USA, which is in the right location to feed the demand in the region. Other marketers are distributed in14 cities around the world close to the customers (BHP Billiton, 2014). Moreover, through the “Project River” undertaking BHP Billiton pretenders a great opportunity in creating shareholder value now and in future. The company’s value is further enhanced by investment in a diverse and gender sensitive workforce who are also competitively remunerated. The employees’ skills are enhanced through training especially on the health and safety standards. Through the BHP Billiton Charter values and Code of Conduct, the company engages and effectively communicates with its employees. BHP Billiton also promotes internal communication through various channels such as the internet, email, and intranet (BHP Billiton, 2014). This is to create an all-encompassing environment in which each one employee feels spoken for. The company’s organizational structure puts the required organizational foundation for efficient communication among all functional areas and facilitates the quick decision making necessary to save ongoing product development projects (Miles & Snow, 1984). In following the company strategy all the way through every stage of the economic and commodity cycles, BHP Billiton is “guided by…values of Sustainability, Integrity, Respect, Performance, Simplicity and Accountability” (BHP Billiton, 2014). BHP Billiton has differentiated itself through a diversified portfolio approach. The differentiation strategy is based on core competencies at the business functional level. Porter (1979) indicates that under a differentiation strategy, the business “performs value-creation activities that occur within the function to differentiate its products from those offered by competitors in a way that customers perceive as having value differentiation advantage.” BHP Billiton has up to six business level units through which it has created a resource portfolio that cannot be easily matched in the resources and mining industry. The units are grouped according to the product categories: (1) Petroleum and Potash; (2) Iron Ore; (3) Copper; (4) Coal; and (5) Aluminum, Manganese and Nickel. The last business unit deals with marketing (BHP Billiton, 2014). In this way, the company has been able to hedge itself against uncertainties by reducing focus on just a few commodities. BHP Billiton has also diversified its operations geographically across 130 locations in 21 countries. The company’s “Group Functions” are principally situated in London (Europe and United Kingdom), Melbourne (Australia) and Singapore. This has allowed BHP Billiton to boost its focus on particular customer segments in order to promptly and competently identify and satisfy the distinctive customer needs of each segment. Besides, BHP Billiton adopted an acquisition strategy that cannot be easily imitated which has contributed to its current size. The company leads in uranium reserves through the takeover of WMC Resources of Australia. Also by acquiring Athabasca Potash in 2010 and Chesapeake Energy’s Fayetteville and Petrohawk Energy from the United States in 2011, BHP Billiton has yielded superior results. Its financial performance and resource base have gone up substantially. BHP Billiton’s total market capitalization has gone up from about $28 billion in 2001 to the current capitalization of about $179 billion. The revenues have also been increasing on a year-on-year basis (Hill et al., 2015). The company has also employed the Greenfield and Brownfield entry strategies in its international exploration operations. Through the Brownfield strategy, BHP Billiton has increased its resources reserve base that is expected to drive future growth. The company used the Greenfield investment strategy to enter the rich copper zones in Peru and Chile as well as the offshore oil and gas rich region of the Gulf of Mexico. Exploration operations call for massive investment in equipment and technology that take away a large chunk of the company’s revenues (Porter, 2008). Many companies lack sufficient resources to engage actively in exploration activities. In 2014, BHP Billiton spent a total of $15.2 billion on capital investments and exploration (BHP Billiton, 2014). These strategies have been used to inform and drive the overall corporate strategy as a leading producer is commodities globally. Moreover, BHP Billiton has been able to adopt a low-cost strategy in order to compete effectively with its rivals on profitability and growth (Hamilton & Webster, 2012). The company has managed to make itself a low-cost producer owing to its horizontal as well as vertical integration, thus, creating an empire in virtually all stages from exploration to the market. As a dominant market leader, BHP Billiton has worked hard to contain costs along its value chain. Its investments give the company a rare and vital competitive advantage overs its industry peers. The company also continues to observe environmental regulations, particularly on climate change. Given that it mainly deals in the exploration of oil from fossil fuels that are destructive to the environment, it has shown commitment to the impact of its operations on the environment. BHP Billiton has made huge investments as a preparatory measure to counter potential impacts on the environment. The company has committed itself to reduce emissions and to reduce water usage in its production activities (Robert, 2002). In conclusion, BHP Billiton has shown huge success and growth in diversified resources and mining. The company has built strong internal capabilities and competences such as “The BHP Billiton Way” and the “Project River” to improve its internal efficiencies and create value for the customer, employees and the shareholders. BHP Billiton has formulated and executed successful strategies that have led it to be a market leader in diversified resources (Rhee & Mehra, 2006). The move to focus on six business levels is rare and cannot be easily imitated. This fits into the diversification strategy across different commodities, regions and markets. The company’s acquisitions and merger have worked in favor for the company in growing the size, revenues and profitability. BHP Billiton has also leveraged on its scale to adopt a low-cost strategy (BHP Billiton, 2014). Out of this, the company has been able to hedge itself against uncertainties by reducing focus on just a few commodities. The company has also employed the Greenfield and Brownfield entry strategies to expand exploration operations across different prospective regions. More importantly, the company recognizes the potential impact its operations may have on the environment. As part of the corporate social responsibility, BHP Billiton has made huge investments to mitigate potential impacts and committed itself to reduce emissions and to reduce water usage in its production activities. References: BHP Billiton, 2014. ‘Value through performance: strategic report 2014’, BHP Billiton Strategic Report, 2014. Conti, T. 2010. The dynamics of value generation and their dependence on an organization’s internal and external value system, Total Quality management and Business Excellence. Gutterman A.S. 2011. Business Level Strategy. Hanson, D., Hitt, M.A., Ireland, R.D. & Hoskisson, R.E. 2014. Strategic Management Competitiveness & Gobalisation (5th Asia-Pacific ed.), Cengage Learning: South Melbourne, Australia. Hamilton, L. and Webster, P. 2012. The international business environment. 2nd ed. Oxford University Press, Oxford. Hill, C, Jones, G, and Schilling, M. 2015, Strategic Management: Theory, 11th edn, Cengage Learning, Stamford, CT. Miles, R. and Snow, C.C (1984). Designing Strategic Human Resource Systems. Organizational Dynamics, 13: 36 – 52. Porter, M.E. 1979, 'How Competitive Forces Shape Strategy', Harvard Business Review, vol. 57, no. 2, pp. 137-145. Porter, M.E. 2008. The Five Forces that Shape Strategy. Harvard Business Review. Rhee, M. and Mehra, S., 2006. Aligning Operation, Marketing and Competitive Strategies to Enhance Performance, International Journal of Management Science, 34 Robert, B., 2002. Strategy is Destiny: How Strategy Making Shapes a Company’s Future, Free Press Read More