organization economics

Exxon Mobil Corporation (XOM) is an American Multinational Company in the energy and petroleum. It engages in exploration, production, sale and marketing of the crude oil and natural gas. It has exploration and development activities in the USA, Europe, Canada, Australia, Africa and Asia. Oil and petroleum products are consumer commodities whose demand is increasing exponentially. In the event of the material decline in oil or gas, company operations could be adversely affected. Production activities at XOM is more capital intensive than labour-intensive and therefore, it is expected that variable and fixed cost to be fluctuating depending on the nature of machines and also changing in the prices of other variable factors. Business level strategies-cost leadership and skilled workforce have been established to greatly influence the success of the XOM and Corporate strategies that is integrated business model-upstream, downstream and chemical segments together with fundamental annual management process to be main corporate strategies that influence the success of XOM.

Keywords: cost leadership, skilled workforce, upstream, downstream, chemical, fundamental annual management, vision, mission and operating expenses.

Introduction

Exxon Mobil Corporation was incorporated in 1882 headquartered in the State of the New Jersey. It operates in the USA market and also in most of the countries in the World. It performs 4 main activities which are exploration, production, transportation and sales of the crude oil and natural gas. Further, it engages in the manufacturing of petrochemicals. It has exploration and development activities in the USA, Europe, Canada, Australia, Africa and Asia. One of the factors that position XOM above its competitors is its long-standing commitment to the development of the f proprietary technology. This is demonstrated by the multiple of the research programs company where by the end of the last financial year-2018, it had 13,000 active patents worldwide. Through the use of the technology and research programs, XOM is always in the mission of identifying consumer preferences and producing high-quality energy and petroleum products which meets and surpasses the expectation of the consumers. To reiterate the significance of the technology to XOM, in the last fiscal year, a technology that was licensed to the third parties generated total revenue of $119 million (Exxon Mobil Corporation, 2018).

XOM is committed to its vision of being premier petroleum & petrochemical company in the world to be achieved by strict adherence to the business code of the conduct with the ultimate goal of realizing operational efficiency and strong financial results. Further, its mission statement is aligned to vision the firm where it commits itself to the production of the safe, affordable and reliable energy in its effort to improve standards of the people globally. The firm depends on its mission and vision statement to develop business and corporate strategies which are a continuum of the success to the firm (Braun et al…, 2012).

In alignment with the vision and mission of the firm, it has established basic tenets on how to create value and better use of customers, employees, stakeholders and communities in which it operates. For stakeholders, it concerned with creating high value to them through engaging in profitable business activities that will lead to a high return to stakeholders. For employees, the firm creates a conducive working environment, hires qualified workers and offers training and development to its employees which lead to low employee turnover. For the case of the customers, it provides petroleum and energy product that meet preferences of the customers, a strength made possible by great use technology to produce innovate petroleum at affordable prices. Lastly, for the case of the communities, XOM carries its business activities ethically and socially respecting local communities, their values and cultures and adhering to clean environment standards and guidelines (Exxon Mobil Corporation, 201i8).

XOM has two main strategies which competitively position the firm above its rivals. First, it has business-level strategies with a focus on cost leadership through the production of high valued petroleum products at affordable prices, optimal use of the technology to produce innovative products that meet the preferences of the customers and well trained and skilled employees (Exxon Mobil, 2018). Second, XOM depends on the corporate strategies which significantly influence its operation in the energy and oil market. Some of the corporate strategies include; an integrated business model which is classified into 3 segments-upstream, downstream and chemical segments which contributes to the long-term success of the firm (Exxon Mobil, 2018). Lastly, fundamental annual management process which is used to critically evaluate the viability of the investment project in the frame of the short-term and long-term longevity (Exxon Mobil Corporation, 2018).

XOM faces stiff competition in the energy and petroleum industry with its main competitors being Chevron Corp, ConocoPhillips, Shell and Total. XOM operates in the oligopolistic market structure. This means that it is one of the key players in the market and it progressively carries out exploration and research programs so that it can continue adding to its market share to have greater influence in the market and industry at large.

Section 1: Demand Analysis Concepts:

The oil, gas, and petrochemical businesses are fundamentally commodity businesses. This means that they are consumed on a daily basis. Additionally, it is good to note that population is one the increase rate and also a number of the people owning vehicles and motors are on the increase. Further, industrialization is progressively growing which means the demand for petroleum products is on the continuous increase. In the event of the material decline in oil or gas, company operations could be adversely affected.

There are demand-related factors which affect the demand for petroleum products. Some of these factors include change of the consumer preferences to alternative sources of energy such as electric vehicle and wind energy could really affect the demand for petroleum products.

XOM has devised strategic advertising activities which are aimed to create a presence in the world. The firm leverage use of social media to strategically advertise its product. Second, they sponsor sports events which attract a large number of spectators and viewers. Lastly, they have corporate social responsibility activities which they use as a stepping ladder for them to reach to a larger customer base.

Section 2: Production and Cost Analysis Concepts

In the process of the XOM undertaking four main business activities- exploration, production, transportation and sales of the crude oil and natural gas, there are fixed and variable cost which is incurred. Operating expenses for 12 months ending 30th of June 2019 was 64.459B which had declined by 3.78% when compared with that of the previous year (Macrotrends. (2019). Majority of the production activities in XOM are capital intensive. This is because the majority require services of the machines. For example, exploration activities require machines and technological devices to identify potential reservoirs. Similarly, drilling is done by the use of the machines and human capital is only required to command machines to work. Therefore, capital (machines) takes a substantial portion of the operational activities in XOM.

Section 3: Strategy Analysis Concepts:

XOM capitalizes on two types of strategies to create competitive advantages. Business level strategies are cost leadership and a skilled workforce. Demand is sensitive to price and that is why XOM focuses on the various areas to take the cost down. Some of the areas of focus in cost leadership are technology to produce innovative products at affordable prices, investing in research and scalable technology to meet growing demand cost-effectively. On part of the skilled workforce, XOM recruits talented employees and expose them to series of the combined work assignments, focused training and education which are aimed to equip its employees with necessary skills and competencies that prepared employees to take higher responsibilities and also applies the cross-cultural model to develop employees sensitive to cultural diversity.

On the other part, XOM uses corporate strategies. First uses an integrated business model which contribute to the long-term success of the firm. Its integrate business model is divided into 3 segments which are: Upstream that deals with exploration, production and marketing of hydrocarbon resources; downstream that handles refining and marketing of the fuels and lubricants where it is operating in 25 countries and lastly chemical segment with 13 facilities marked to meet the growing demand where already 7 are operating. (Exxon Mobil, 2018).

Lastly, the fundamental annual management process is used in the process of evaluation of the investment projects. Projects that are the firm would like to invest into, are evaluated on the basis of the prevailing market conditions which help the firm to invest in an advantaged project which promise to deliver higher returns and also, they are going to serve for a long time.

Alignment of the vision and mission to the success of XOM

Vision and mission of the firm have been used to explore on development of the objectives. In line with the vision and mission of the XOM, the firm invests heavily in the research and development and also in the scalable technology which leads to the production of the innovative and affordable energy and petroleum products. This has helped the firm to continually meet the growing demand and also produce a product that meets the preferences of the consumers. Finally, XOM has been making global presence by signing agreements with various government for an establishment which continually lead to exponential growth physically and financially.

Conclusion

XOM has experienced exponential growth both physically and financially. This success is attributable to business-level strategies and corporate level strategies employed by the firm. The firm has taken deliberate efforts to invest in technology, research and developments which have significantly has contributed to an increase in the revenue. Investment in the recruiting talented workforce and investing in the programs that develop employees’ capacity to take more challenging task has been paying to the firm towards producing high-quality products that lead to increase in demand noted through an increase in the sales.

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