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Strategic Analysis of British Petroleum Company

Updated on March 19, 2015

Company Description

British Petroleum is a British multinational gas and oil entity based in London, England. By market capitalization, it is the sixth largest energy producing company globally. Based on her 2012 revenue, it is the world’s fifth largest organization. In terms of production capacity, it measures up to be the sixth-largest gas and oil company. Apparently, BP is integrated vertically and operates in virtually every area of gas and oil industry. This includes exploration and production, distribution and marketing, refining, power generation, petrochemicals and trading. Moreover, the company also undertakes activities in renewable energy where it focuses on solar, wind power and bio-fuels. This hub is aimed assessing the company’s external environment as well as the current strategies.

The Principles Forces Acting Upon the Supply and Demand

Pestel Analysis

PESTLE is management tool used in identifying the forces that affect businesses both at present and in future perspective (Rieple and Haberber 25). PESTLE analysis is particularly used in analyzing the macro environment of a firm.

The energy industry is depicted by high competitiveness level, and heavy regulations. There are also other challenges, which are caused by drastic changes in customer preferences as they move to alternative energies as well as behavior brought about by various external factors including economical situations.

Political Analysis

Political factors are very critical for business operation and entry into new markets. In essence, the political situation in any nation has a direct impact on the company’s performance. UK’s policies in regard to oil and other forms of energy production are constantly changing. In recent perspectives, importation tax has been increased by over 3% (OBR). This has consequently had a negative impact on the country’s oil industry. It therefore, comes at no surprise that many oil companies are facing significant challenges in their operations. Other policies that have been changed severally include the petroleum revenue tax which is currently 50% more on the overall company tax for those companies that were established before 1990s (OBR).

Economic Analysis

Mackenzie articulates that economic factors determine the success or failure of an entity. This is because they affect the cost; availability of capital as well as demand (3) The supply of money had a great impact on the economy of UK. Many banks became cautious in regard to funding higher resources. This aspect has led to inadequate supply of funds for many oil companies, subsequently resulting into some of them stopping operations. On the other hand, recession and higher inflation had a negative impact on the citizen’s income. For instance, many people resorted to using public transportation instead of using private means, as well as alternative energy sources that were less costly.

Socio-cultural Issues

It is anticipated that UK’s population will increase in the near future, thanks to the number of surging immigrants, and that of the aging population. However, the aging population has subsequently resulted into low energy demands. This had a significant impact on UK’s gas and oil industry and particularly BP owing to its massive market share.
Technological Factors

Presently, technology plays a vital role in each organization in sustainability and gaining competitive advantage over her rivals (Aguilar220). Many gas and oil companies are pressurized to utilize innovative technology as a means of gaining maximum resources and utility. However, these innovations have also facilitated the growth of alternative sources of energy, which compete with oil and gas products.

Environment

The processes of refining and operations lead to use of high amount of chemicals. In addition, the production and processing of petroleum causes pollution and other environmental hazards. The many hazardous elements that are emitted into the air by gas and oil industries are related to many environmental risks. Consequently, The Environmental Management System of UK have instituted various laws and policies to control the risk factors related to gas and oil operation.

Legal Factor

Safety and healthy has been a concern in the oil and gas industry. Owing to these aspects, the government of UK has established regulation and policies that are intended to protect the health of workers and the citizen in this industry. In addition, there are also regulations on oil product formulation and raw materials. This is why BP had to face major legal challenges when it faced an accident of oil spills in the Gulf of Mexico. Further, gas and oil companies are required to have safety measures for their workers because of the high number of accidents and injuries in this industry.

Porters Five Forces Strategy

The five forces of competition is a model used in analyzing marketing opportunities for an organization. The forces identified under this model are Rivalry among extant firms, Threats of New Entrants, bargaining power of Buyers, and Threats of substitute’s products or services (Porter137).

Threat of Market entry

In most cases, the threat of new entry relates to the barriers in the market entry. In oil and gas industry, there is generally low threat of new firms entering the industry when compared to other sectors. In addition, the government support especially for existing firms makes it hard for new players to venture into the market.

Threat of substitutes

In this sector, the threat of substitution is determined by the cost of switching. In particular, these costs may relate to redevelopment costs, which normally occur when customers decide to use alternative products in the market. It is not easy to forecast the end of domination in fossil fuel. Hence, presently, fossil fuel is the only notable replacement to renewable energy.

Rivalry among existing competitors

Essentially, the major industry players in oil products are aware that fossil fuel will diminish some time to come. This will completely lead to adoption of alternative forms of energy. This translates that in order to sustain themselves, all the industries have to strategize on developing alternative energy sources in order to strengthen themselves in the existing market, as well as positioning themselves in the new markets.

Bargaining power of the customers

The power of customers is a critical force that determines the use of values, which a business creates. The application and volume of customers is the most vital determinant for the power of buyer.

Supplier Power

The buyer, which suppliers exhibit directly, reflects the power of buyers. Through utilization of innovation and vast resources, BP has managed to develop and internal and external network in all countries it operates.

Competitors

Among the company’s major competitors include Shell, Exxon Mobil, Chevron, and ConocoPhillips, all of which have also invested heavily on alternative energies.

Assessment of Current Strategies

Mission and Vision

The company’s mission is to be recognized globally as a great company and become a competitive force to reckon. Further, the company’s vision is to meet the worlds increasing need for energy. It aims to do this by producing affordable and secure energy that does not harm the environment. BP further defines its mission as being performance driven, innovative, progressive and responsible.

Resources

BP harbors strategic, tangible and intangible resources and capabilities that have enabled it to sustain itself and acquire a competitive advantage. The resources are in form of R & D facilities, human resources and administrative infrastructure. Further, the company has many oil fields and bases in various parts of the world, which enables it to continue with operations in case other fields are not productive.

Capabilities

The company’s capabilities include high-level production, maintenance, sales and marketing, and human resource management. These capabilities when combined create products and services. BP has been famous for establishing unique strategies sales and marketing, cost reduction and research and development. Further, the company is also noted for employing technology its production processes. Despite the events of the oil spill Gulf of Mexico, the company has revived itself through its R&D and focused on developing new alternative energy through fermenting of biomass into ethanol. BPs international strategies are based on the fact that depending on one country for sales may not be profitable enough and may expose the company to risks in case the market base diminishes. Armed with this knowledge, the company has done explorations and drilled wells in many countries, and it sells its products through various known brands.

Conclusion

The factors analyzed in this paper have revealed how various options and strategies have helped BP overcome the cost of the 2010 oil spill in Mexico Gulf. In essence, the company has utilized its resources and capabilities well in overcoming this challenge, which almost brought the company into its knees.

Recommendation

Despite its strategic successes, the company can still strengthen its financial resources and manage its current oil spills and accidents in the workplaces. Further, they should also delve more into other alternative sources of energy such as solar and wind power in order to sustain itself in the market. Moreover, the company could also strengthen its R&D to focus on how to leverage environmental risks by use of technology. These strategies will help the company regain its reputation, as well as reducing pollution and environmental risks.

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