Strategy Report 1
STRATEGY REPORT
By (Name)
Course
Professor
University
The City and State
16th May 2024
Strategy Report 2
Table of Contents
Introduction.....................................................................................................4
Environmental Analysis (PESTEL Analysis of BP Plc)........................................5
Political Factors.............................................................................................5
Economic Factors.........................................................................................6
Environmental Factors..................................................................................6
BP Plc Five Forces Analysis..............................................................................7
Competitive Rivalry......................................................................................7
Threat of New Entrants.................................................................................8
Threats of Substitute Products.....................................................................8
Bargaining Power of Buyers..........................................................................8
Bargaining Power of Suppliers......................................................................9
Internal Analysis..............................................................................................9
VRIO Analysis................................................................................................9
Strategic Position of BP Plc.........................................................................11
BP Plc Recommendations..............................................................................12
Implementation.............................................................................................14
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Introduction
BP Plc is a leading global oil and gas company based in London, United
Kingdom (UK). The company's critical operations include exploring,
producing and developing oil and natural gas in the form of natural gas
liquids (NGLs) and liquefied natural gas (LNG) (Global Data, 2024). In
addition, the company engages in midstream operations, including trading,
transporting and marketing natural gas.?
On the other hand, BP has downstream operations, which encompass
power generation as well as manufacturing, refining, marketing, supplying,
transporting and training petroleum products, crude oil, and petroleum, as
well as the provision of related services to the retail and wholesale
customers (Global Data, 2024). With the company's world-class technologies,
marketing and trading capabilities, its leadership has established a
diversified, innovative and flexible integrated business model that enables it
to offer more LNG globally and increase its access to the downstream gas
market (BP Plc, 2021).
This report seeks to produce a comprehensive internal and external
analysis of BP, thus analyzing the company's capabilities, strategies, and
business environment. This report will focus on internal and external
analyses to recommend the company's three strategies, critique Mintzberg's
seven descriptive schools, and discuss further implementation for the BP plc
company.
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Environmental Analysis (PESTEL Analysis of BP Plc)
This analysis evaluates the external environment in which BP Plc
operates. It thus assesses the state and impact of the political landscape and
economic, social-cultural, technological, environmental, and legal factors on
the company's operations. Notably, BP operates in the energy markets,
which have been fundamentally shifting towards a low carbon, influenced by
government laws and regulations, consumer preferences, sustainable
development campaigns, and climate change initiatives advanced by
numerous stakeholders (Wu et al., 2018; Siddique et al., 2023). This report
will focus on three essential factors, Political, economic and Environmental,
that significantly impact BP Company; the other two factors (Social and
Technology) will be mentioned in Appendix 1.
Political Factors
One of the major political factors impacting energy markets is
geopolitics and political instability across the West (Bricout et al., 2022).
According to BP Plc (2022), the global oil and gas industry and the energy
markets have been significantly impacted by Ukraine-Russia military action.
A recent report by the International Energy Agency (IEA) organization (2023)
highlights that after Russia invaded Ukraine in 2022, it cut 80 billion cubic
metres (BCM) of pipeline gas supplies to Europe, causing the region into an
energy crisis. At the height of geopolitics, the European Union (EU) sought to
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phase out Russian fossil fuel imports, which caused an immediate energy
deficit.?
Additionally, as geopolitics persists and extends to other regions like
China and Asia, the energy markets have experienced a slowdown in gas
deliveries and fluctuating energy prices (IEA, 2023). Furthermore,
governments across nations are enforcing regulations and policies to
regulate the production of fossil fuels while promoting renewable energy
production. This shift has come as nations seek to contribute positively
towards climate targets while bolstering their domestic energy security (IEA
Organization, 2023).
Economic Factors
As denoted by the IBISWorld report (2024), the global oil price
positively impacts BP plc's revenue. The figure above shows that when the
price of oil increases, BP plc's revenue will increase. In 2022, the oil price
significantly increased from 67.96 to 98 USD dollars (IBISWorld, 2024), which
is why BP plc's revenue increased from 114 billion to 195 billion GBP (WSJ
Markets, n.d.).
According to the IBIS World (2024), the exchange rate is a key
economic factor impacting BP plc's financial performance, as the largest
proportion of extracted oil is exported to another outside the UK. The world
market currency is USD dollars, which implies that the weaker the pound
value is, the more profit the company will earn. In 2021, the pound value was
weaker than USD dollars, from 1GBP = 1.23 USD to 1GBP = 1.37 USD dollars.
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At the same time, the WSJ market reported that BP plc's revenue in 2021
was 114,694 GBP, which is higher than last year, which was 82,617 GBP.
Environmental Factors
Rising environmental pollution from the consumption of fossil fuels and
high rates of climate change over the past decade have pushed for and
shaped sustainable development goals, more so goal number 13 of climate
action (Farghali et al., 2023). In this light, many nations have been under
pressure to minimize the consumption of fossil fuel, particularly after the
Paris Agreement and the United Nations (UN) Conference of Parties (COP-
26). Accordingly, extant research reveals a growing popularity of renewable
energy whilst increasing energy production in the industry, with estimates
suggesting a rise in consumption from 14% to 74% between 2018 and 2050
(Osman et al., 2023; Farghali et al., 2023).
BP Plc Five Forces Analysis
Table 1: BP Plc Five Forces Analysis
Competitive Rivalry Very high
Threat of New Entrants Low
Threat of Substitute Products Very high
Bargaining Power of Buyers Low
Bargaining Power of Suppliers Moderate
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Competitive Rivalry
Competitive rivalry in the oil and gas industry is very high. Notably,
several giant companies that have international operations dominate the
industry. These companies include British Petroleum, Exxon Mobil, Cheron,
Total, Royal Dutch Shell and ConocoPhillips (Badia et al., 2021).
Threat of New Entrants
This threat is low in the oil and gas industry, primarily due to the high
entry barriers. Notably, entry into the oil and gas necessitates substantial
upfront capital investment, rendering it intricate for new entrants to
establish operations in the market. Moreover, the industry is highly
regulated, subject to geopolitics, and has bureaucratic processes to obtain
licenses and permits (Badia et al., 2021). In addition, with large companies
holding significant market share, it becomes difficult for small players to gain
traction in new markets.
Threats of Substitute Products
There is a very high threat of substitute products. This is attributed to
the growing availability of alternative energy sources like renewable energy,
solar, wind, and hydroelectric power (Appia et al., 2021). These substitutes
present a huge obstacle to conventional oil and gas companies amidst a
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global energy transition trend that is requiring them to reduce their GHG
emissions and carbon footprint and offer environmental energy to
consumers.
Bargaining Power of Buyers
The oil and gas industry consumers have low bargaining power, partly
because the producers of gas and oil and related products are
multinationals, which restrains the capacity of buyers to force or lower
bargain prices. Furthermore, consumers of these products often have limited
alternatives since oil and gas are crucial inputs in various sectors, including
energy production, transportation and manufacturing (Appiah et al., 2021).
Bargaining Power of Suppliers
Both suppliers and buyers have moderate bargaining power due to the
large companies supplying inputs, including drilling rigs, equipment, and raw
materials (Taha, 2018). This size of suppliers renders it relatively easy for
them to exert pressure on huge companies such as BP Plc and drive up
prices.
Internal Analysis
Pinard (2023) reported that internal analysis is the roadmap for a
company to understand its current condition, identify problems, and create
strategies to solve them to achieve its goals. The internal analysis mainly
measures financial performance, people performance, operation
management, brand awareness technology, and innovations. This report, the
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VRIO analysis framework, will analyze the company's internal activities and
resources.
VRIO Analysis
The VRIO table can be seen in the appendix.
After conducting the VRIO (appendix), the company has a robust
resource allocation procedure. Notably, for capital investments beyond
certain financial thresholds for inorganic or organic spending, investment
decisions and approval are undertaken through executive-level resource
commitment meetings (RCM) led by the CEO (BP Plc, 2022).
As such, the RCM evaluates every proposed investment's merits
against a balanced set of criteria while considering how the investment is
aligned with the organization's strategic focus (PB Plc, 2022). This ensures
that resources are spent only on viable investments with the most significant
shareholder returns. More importantly, BP boasts invaluable capabilities like
innovation and technology integration, strategy formulation and execution,
the ability to penetrate new markets (global presence) and a substantial
brand equity.
Regarding financial resources, Fame (n.d.) reported that the liquidity
ratio increased from last year (2022) 0.80 to 0.94 in 2023 (5 years of liquidity
ratio table shows in the appendix). Maverick (2024) denoted that a liquidity
ratio measures the company's ability to pay its short-term debts by using the
company's current assets. A high liquidity ratio indicates that the company
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utilises its financial resources effectively to pay off its debts and does not
have a financial problem.
BP is internationally recognized as a powerhouse in the energy sector
due to its global presence, products, and brand equity (ERP, 2022). It also
ranks in the top five of the world's most valuable energy companies. Its
operations stretch from rigs to retails, from desert to deep sea, and it
delivers energy services and products to consumers across nations (ERP,
2022).
By illustrating a strong commitment to technology integration, the
company has established a digital technology team and a digital product
management team focusing on horizon scans and trials and employing
pioneering new approaches and solutions (Global Data, 2023). For example,
the company has been investing and adopting Artificial Intelligence (AI tools
to enhance its upstream operations that involve exploring the potential for
crude oil fields and natural gas, operating wells and drilling exploratory wells
across the globe (Global Data, 2023).
Furthermore, the company invests in research and development (R&D)
initiatives to discover new energy solutions for the company (ERP, 2022). In
their totality, these resources and capabilities have been a source of its
sustained competitive advantage.
Strategic Position of BP Plc
The competitive mapping can be seen in the appendix.
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BP's business purpose and mission are to reimagine energy for people
and the planet whilst becoming a net zero company by 2050, thus aiding the
world in getting to net zero. Furthermore, the company seeks to play a
crucial part in addressing the multifaceted challenges facing the world today,
such as climate change. In this light, the company has a vision to be a
leading provider of low-carbon energy solutions and contribute to the
ongoing global transition to a low-carbon future (BP Plc, 2024), which
connects to the Sustainable development goal between goals 7 and 12.
Furthermore, BP planned to achieve more SDG goals to improve people's
lives (goal 11) and focus on saving the planet and removing emissions (goal
13).
On the other hand, compared with other BP competitors such as Sasudi
Aramco, Chevron Corporation, and DCP Midstream, BP ranked 4th in pricing,
below Saudi Aramco, which is 3rd. The customer rates the BP pricing with a
score of 3.7 out of 5, meaning that BP plc products are quite high priced
(Comparably, 2024).
BP Plc Recommendations
From a competitive position point of view, BP plc is a highly advanced
technology company because of its high-tech resources in the production
process, which offer products and services at a higher price compared to
other competitors.
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·By applying Porter's generic competitive strategies, it is recommended
that BP plc apply the cost-leadership strategy and differentiation strategy.
The cost leadership strategy would entail managing cost efficiency for
firms, managing the economics of scale by reducing unnecessary average
costs and managing the fixed cost to offer the product and services to
customers at a lower price. On the other hand, a differentiation strategy
proves the uniqueness of products and services to the market
(Whittington, 2023).
·BP plc's oil market competition is very high, and the threat of substitute
products is high as well. Thus, BP plc should invest in a renewable energy
plan and EV charging should be of high quality and unique in order to
build a strong customer relationship and increase the brand image
concerning its strategy of embracing ethical issues. BP plc used to have
an environmental issue, which caused it to have a bad image from the
Deep Water Horizon project.
·Based on the external analysis (PESTEL), it is recommended that BP plc
should stay informed about political and economic changes. This analysis
concluded that political and economic factors have a major impact on the
oil market. Additionally, economic factors such as the global oil market
price should also be considered since, in 2023, the company's profit went
down from 27 billion USD to 13 billion USD because the price of oil fell
(Edser, 2023).
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·BP plc is also recommended to continue investing in renewable energy
while engaging with shareholders. Currently, BP plc's purpose is to
reimage energy for people and the planet and become an integrated
energy company to achieve net zero emission by 2025 with the help of
advanced digital innovative technology and engaging with more
stakeholders who will help them to achieve their goal of sustainability
frame (provide low carbon energy, improving people life and focus on
saving the planet). Additionally, it would be great if BP plc maintains its
goal and company strategy of investing more in non-emissions energy as
rising oil consumption causes climate change. Ultimately, if BP plc
maintains its goal and its strategy for reducing emissions, the company
will be able to achieve the SDG goals of 13 and goal 11. One of
Mintzberg's descriptive schools that will be discussed is environmental
school. Hattangadi (2019) said that Mintzberg’s environmental school is
mainly situational based and gives importance to the environment, and
the situational analysis tool is primarily used in this school.
·It is also recommended that firms need to be agile and create strategies
that are environmentally sustainable care. The SWOT analysis for BP plc
has been conducted, which can be seen in the appendix. The greatest
strength of BP plc is that it has a global presence. However, one of its
most significant weaknesses is the ethical image issue during the oil spill
'Deep Water Horizon' in the Gulf of Mexico, which was the largest oil spill
and caused massive environmental damage to marine species and
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thousands of birds during the reproduction process. As recommended, BP
plc should maintain its strategy of focusing on renewable energy and
invest in reducing emission infrastructure, recover its bad image from the
incident and ensure that the company has a significant risk assessment
process to avoid incidents that will cause environmental damage in the
future.
Implementation
