BUS-475 for Bravo Brain

SOCIAL PERFORMANCE OF AN ORGANIZATION: BP PLC. CASE STUDY

Renzo Rey de Castro

Strayer University

Professor Melvin Murphy

BUS-475

August 1, 2016

Nature, structure and type of products

BP plc., formerly referred to as the British petroleum company, is among the world’s largest energy companies. It is a vertically integrated oil and gas company. Through two main operating segments, the upstream and downstream segments, it finds, develops, and produces essential sources of energy and converts them to products that people need. More comprehensively it operates in all areas of oil and gas production. This includes exploration, production, refining, distribution and marketing of oil and oil products. Besides that, it as well is involved in petrochemicals, power generation and trading with interests in renewable energy, biofuels and wind power. The company generally creates value from the hydrocarbon value chain. Besides having interests in alternative sources of energy such as wind and other renewable energy, the corporation as well has research facilities, besides wind farms that are aimed at continually finding new methods of producing environmental friendly energy and methods of ensuring that even those energy sources that are mainly not environmental friendly are produced in the most environmental friendly way.

The company operates in six continents and thus needless to say, it is a Multinational Corporation. Its services and products are available in more than 100 countries across those continents where it operates. It was established in the year 1908. It is until the change of Persia’s name to Iran that it became Anglo-Iranian Oil Company in 1935 having been Anglo Persian Oil Company there before since inception. It became British Petroleum in 1954 and later on in the 21st century became just BP (The History of the British Petroleum Company, 2 Vols. 2012).

As a corporation, it is owned by shareholders whereby there are about 1.2 million of them. It is listed at the London Stock Exchange and is a member of the FTSE 100 Index. It as well has secondary listings on Frankfurt Stock Exchange and the New York Stock Exchange. It has a refinery capacity of around 2.7 crude oil barrels per day and has interest in about 17 moil refineries. Castrol, Acro, Aral, ampm and Wild Bean café, besides BP, are its main brands (Lustgarten, 2012).

The company has the objective of geographically locating oil and gas sites through exploration and coming up with producing methods to extract the finds. Most of its international activities consist of joint ventures. In these joint ventures, the company offers expertise as well as training and management support and in this method it enables other oil companies to come up with and develop new business ventures with the help of an already well developed oil and gas company ; in this case, BP.

On the structure front, the BP structure is a hierarchy composed of different levels of operations and functions. The company is headed by the board of directors and below them is the executive management which runs the corporation in a more hands on approach. The Board of directors comprises of the CEO who currently is Robert Dudley, Chairman of the Board and directors. Below the executive are the operational branches or divisions of the organization with regards to Business operations. They are Exploration and Production, Refining and Marketing and then, Alternative Energy. The exploration and production is concerned with identification of new fields and mining or extraction of energy from its natural; sources. Refining and marketing is all about making of various products and branding them as well as availing them to the markets for consumption. With the increased problems of global energy especially global warming that is coming from fossil fuels, the company is seeking alternative sources of energy since that is the way the future looks into. These include clean sources of energy and renewable ones mainly in wind.

There can also be another categorization in the structure with the segments being Upstream and Downstream in this case. The Upstream concerns itself with activities in oil and gas exploration as well as field development and production. Midstream transportation, storage and processing also belong to this section of BPs structure. Downstream segment basically has global manufacturing and marketing operations. It concerns itself with three businesses namely, fuels, lubricants and petrochemicals.

The organizational structure has changed significantly following the 2010 BP oil spill. The upstream segment was restructured after the spill. Initially, it was a single segment but was subdivided into three separate functional divisions namely, exploration, development and production divisions. These are meant to carry out how the group manages third party contractors in an effort to enhance accountability for the case of risk management and help to avoid disasters such the Gulf Oil Spill which had very detrimental effects on the environment as well as on the reputation of the company too which definitely affected its performance. Initially this was aimed to be a response to the breakdown in communication which was put in an internal report findings to have been the contributing factor to the BP oil spill of 2010 (Lustgarten, 2012).

External factors influence on performance

The government and competitors are two external factors that easily affect the performance of an organization or a company. Government policy can favor or fail to favor a company. Excessive taxes for instance may result to tax burdens and financial constraints. At times, these policies could be aimed at protecting domestic companies in the industry from competition of established foreign companies. BP can suffer from this kind of protective policies in countries with upcoming energy companies (Carroll, & Buchholtz 2012).

Competitors affect a company’s Performance in different ways. Perfect competition, which is the most common form of business, ends up having the companies struggle to always find new and better ways to enhance efficiency while still holding onto existing customers and trying to win more. Thus, this leads to innovation, a lot of research and development and mostly new products come up with prices going doing holding other factors constant or putting them into consideration, such as inflation (Carroll, & Buchholtz 2012).

Stakeholders influence on the organization’s financial performance

Primary stakeholders are those parties which are directly affected any the operations and business activity of an organization. Such activities could be distribution of a product, change to a product, services etc. BP Oil Company touches very many stakeholders. The very fact that its activities are very sensitive with regards to the environment make almost every living organism and the ecosystem in general, and not just people, to be stakeholders in the organization. Thus, this brings on board communities with various advocacy groups involved as well as regulatory bodies including governments. Other stakeholders are customers, business partners and associates as well as suppliers and employees.

The first stakeholder that affects the financial performance of any company is the government. The government through various agencies acts as the main regulatory body. With respect to BP, several governments are to be involved noting that it is a Multinational corporation. Legal requirements are relevant with regards to regulations. If they are not met, lawsuits by the government, penalties and fines would hinder a healthy financial performance of the organization. Mainly, governments as well have the responsibility of balancing the economy through various monetary and fiscal policies so as to at least have some control over economic cycles. Policies of the government as well as control of the economy can affect how BP could perform financially. For instance, if the government increases taxes in any energy that is considered unclean and especially those that have carbon, the BP would lose more in taxes especially when compared with other companies that are not in the same industry.

Communities are quite an issue here. When the term ‘communities’ is identified, it mainly refers to those individuals and parties which are interested in the company from the perspective of Corporate Social Responsibility. There are several methods of looking at this case. Communities can enhance the brand name if the company is involved in corporate social responsibility activities that indicate that it has the interest of the people at heart. An example would be where the organization struggles to foster a green environment. For example, lead is a hazardous component of leaded fuel. Most oil companies have of late started coming up with unleaded products and encouraging consumers to make use of it through price discounts. While lead has been used to prevent knocking in engines, the short term efficiency that leaded oil has doesn’t make up for the long term environmental detriment that it has (Bergin, 2012).

When ten incident of oil spill took place, the most critical of the case were members of the community through various advocacy groups. It is the positive response that BP took which at least salvaged its image to some extent and prevented it from collapsing out of what the community saw as an environmental scandal rather than an accident.

Needless to say, customers and clients are the main reason as to why businesses exist. Without them, then there wouldn’t be anyone top offer the products and services. The way a company treats customers determines customer loyalty and if the customers would be repeat buyers. This is the impacting stakeholder group especially for long term oriented businesses such as BP. It is the core support of customers that makes a business last. The value of products and services matters most when it comes to customers since they want value for their money. Other than that, a business needs to be honest and transparent not only in its operations but most significantly in its dealings with customers. They need to be given the primary attention in most decisions of a company. When customers are satisfied and pleased, they establish customer loyalty and can easily influence other stakeholders who as well have influence on the organization (Carroll, & Buchholtz 2012). For instance, the community can have a positive regard for a company that treats its customers well and the same can still lead to governments instituting policies that are friendly to such companies. Take for instance a situation whereby a government can go on to loan or bail out a business ensuring times of economic adversity. This comes basically because in the absence of the company customers would suffer. Thus, correct treatment of customers can give the company a health financial position.

Business associates can also have a huge influence in the company’s financial performance. Suppliers, distributors and marketers are among the associates and partners who are significant at ensuring that the products leave their production and reach the customers and also that they do so in time (Evans, 2015). It is cooperation among these that leads to a seamless flow without which customers would be displeased and would definitely result to competitors who have better services. The exodus in customers would reduce the company’s market share and mostly this comes with reduction in financial performance.

Employees can affect an organizations financial performance through their actual output. Actual output is mostly directly proportional to production and volumes, all factors held constant, finally determine revenue. If employees are motivated and taken care of, they are likely to work hard, mart and come forth with innovative ideas whose value boosts the financial performance of the organization. With displeased employees, there can even be lawsuits such as in cases where there are work place hazards. They can also join unions and strike and during such times when they have strike, there is low production or no production at all and with crippling of production then there is as well crippling of all other processes that result to revenue generation.

Controversial Social Responsibility Concern

In 2010, the BP oil spill in the Gulf of Mexico almost effectively caused an irreparable damage on the image of BP as a company. There was outcry from all sectors; not the citizens, environmental conservationists, academics in the respective areas such as environment, Botany, Zoology among others as well as the government (DesJardins, 2013). The US government in particular responded with the president ordering the federal government to delay issuing of new offshore drilling leases until review was carried out and determination made on whether more safety systems were needed. Prime Minister David Cameron of the UK admitted that a sensible dialog was needed in a case that was almost causing diplomatic tensions. He observed that BP would require certainty over its liability for compensation and the comment wasn’t met well by the American public.

The then BP CEO Tony Hayward initially downplayed the problem saying that the leakage was only a 1000 barrels per day which he called a relatively tiny spill in comparison with the huge ocean. Despite him admitting that the situation was a catastrophe days later, the downplaying of the magnitude of the disaster whose impacts are felt to date angered many people and it appeared as a spokesman of BP, he wasn’t taking responsibility and so was the company. Eleven people were killed. There were public protests following the spill with calls to boycott BP by advocacy group ‘Public Citizen’. There were some arguments that probably the spill was as a result of corner cutting and risk taking that BP had taken as a culture (Bergin, 2012).

Despite all this, BP managed to survive the controversy. The CEO was replaced with the current one. There was also re-structuring mentioned earlier to ensure that there was no other problem with communication that would occur again. Then, in collaboration with government and government agencies, the organization worked to minimize the impact of the spill to the environment and human health in general. This was done by containing, removing and dispersing the oil offshore through implementation of strategies to protect the shoreline and clean up any oil that came ashore. BP also settled the final oil spill claims for 20 billion dollars. More than 50 billion dollars was used by BP to help with the clean-up and in compensation.

These positive steps taken up by BP showed concern and the aggrieved parties as well felt compensated. The fact that the CEO and his predecessor took blame as well served to ease tensions. The company took various measures to show with regards to the response to the incident and its commitment to ensuring that such risks are mitigated. These actions generally brought it back within a positive view of the public domain.

References

Bergin, T. (2012). Spills and spin: The inside story of BP. London: Random House Business.

Carroll, A. B., & Buchholtz, A. K. (2012). Business & society: Ethics, sustainability, and stakeholder management. Australia: South-Western, Cengage Learning.

DesJardins, J. R. (2013). Environmental ethics: An introduction to environmental philosophy. Australia: Wadsworth Cengage Learning.

Evans, M. (2015). Artwash: Big Oil and the arts. London: Pluto Press.

Lustgarten, A. (2012). Run to failure: BP and the making of the Deepwater Horizon disaster. New York: W.W. Norton.

The History of the British Petroleum Company, 2 Vols. (2012). Cambridge Univ Pr.