Core Competencies And Business Strategies Of BHP Billiton

Background of BHP Billiton

Contemporary business organizations are heavily dependent on the effectiveness of their business strategies. This is due to the reason that effectiveness of the business strategies helps the business organizations in gaining competencies in the market and competes with their competitors. In the recent time, one of the most competitive and progressing business sectors is the natural resources mining sector. Almost all the players in this sector are having larger financial supports and they are competing fiercely in gaining the major market share in the global market. BHP Billiton was incorporated in 2001 after the merger of BHP and Billiton mining company. It is reported that BHP Billiton is the largest mining company in the world in terms of capitalization (bhp.com, 2018). This report will discuss about the core competencies of BHP Billiton along with the current strategies that they are following. In addition, this report will also discuss about the criticisms that BHP Billiton faced in their business operation. These criticisms will be critically analyzed. The industry competitiveness and internal environmental factors of BHP Billiton will also be identified. Lastly, this report will discuss about the organizational effectiveness of BHP Billiton.

The mission statement of BHP Billiton states their approach of operating in sustainable manner involving low cost and long life assets in meeting the energy needs of the world and embracing the life of the involved stakeholders. According to the mission statement of BHP Billiton, it can be concluded that they are aiming at operating in the most sustainable manner along with meeting the market needs (bhp.com, 2018). On the other hand, the vision statement states to become the most profitable mining company in the world with meeting all the expectations of their stakeholders. This defines their ambition of going further in increasing their business further.

In the past, there are number of strategies being initiated by BHP Billiton with majority of them is being succeeded in enhancing their business. From their initial stage of commencement, BHP Billiton was mainly focused towards horizontal growth by the means of mergers and acquisitions (Bocken et al., 2014). This helped them to grow significantly in the cut throat competitive market of mining of natural resources. It is reported that in 2001, BHP Billiton was formed by the merger of Broken Hill Proprietary Company Limited and Billiton plc. Both these companies are leaders in their respective mining operations in different sectors. Thus, with the help of this merger, both the companies gained the larger market share, capitalization and access to more mining resources around the world. Thus, with the help this growth strategy of BHP Billiton, they were to enhance their competitive strength in competing in the global market.

Vertical Growth Strategies of BHP Billiton

Another prime example of horizontal growth strategies for BHP Billiton is their decision of acquisition of Athabasca Potash Inc. in 2010. It is reported that they have acquired the 100 percent stock of Canadian Athabasca Potash Inc. This helped them to take hold the Canadian resources and helped them to gain global brand exposure. On the other hand, it is also being identified that with the help of this acquisitions, BHP Billiton was able to diversify their business portfolio by taking the access to potash basin (Phillips and Zhdanov, 2013). Thus, it can be concluded that horizontal growth strategies are being mainly initiated by BHP Billiton from their initial stage. Another strategy that was being initiated by BHP Billiton is strategic relationship in terms of joint ventures. It is reported that BHP Billiton went in to joint venture with Rio Tinto in having the access to majority of the iron ore resources in the Western Australia. This helped BHP Billiton to also gain access to the iron resources and infrastructure of Rio Tinto. In addition, it also served BHP Billiton in gaining competitiveness in operating in the international market. Thus, with the help of both horizontal growth and strategic partnership strategies, BHP Billiton has gained a significant market share and identity in the global market (Holburn and Vanden Bergh, 2014).

The current business strategies of BHP Billiton are mainly based on generic strategies. It is reported that BHP Billiton is focusing on cost leadership and product differentiation in enhancing their business effectiveness. It is reported that average cost of operation in mining facilities got reduced in the current time due to different macro factors. Thus, BHP Billiton is increasing their investments in their existing facilities to take the advantage of reduced cost of production and generating production. Thus, the average cost of operation is reducing for BHP Billiton and profitability is increasing. On the other hand, it is also identified that innovation management is initiated by them to take the advantage of lower cost of operation (nasdaq.com, 2018). This along with newer technologies is helping in reducing the average cost of production and enhancing the profitability. The major reason behind the difference in business strategies of BHP Billiton in past and present is difference in the business factors. In the initial stage of BHP Billiton, they were having the target of increasing the market share globally. However, in the current time, the main objective of BHP Billiton is to gain sustainability in business. Thus, increasing the profitability is more important over increasing the market exposure.

Horizontal Growth Strategies of BHP Billiton

One of the most significant controversies being faced BHP Billiton is Bento Rodrigues dam disaster. It was occurred in 2015 when the dam in iron ore of BHP Billiton in Brazil got catastrophic failure and got down. This caused in flooding nearby areas and casualties of more than 15 people. It is also reported that the Doce river of Brazil got contaminated by iron waste along with displacement of hundreds of localities. It is reported that in early 2013, structural issues were identified, which were overlooked by the management team (Phillips, 2018). This incident led to wide criticisms against BHP Billiton from national as well as international bodies. On the other hand, it is also reported that United Nations contradicted the statements given by the Brazilian authorities regarding the outcome of the incident. It was first reported that chemicals contaminated in the water bodies were not toxic. However, according to the report of United Nations, these chemicals are having high level of toxic materials. The criticism came mainly from the global activist and they called for harsh punishments against the involved ones. This incident caused sanction on the strategic partner of BHP Billiton in Brazil, Samarco along with the penalty of US$ 66.3 million. In addition, the top executives of BHP Billiton are also being charged in lawsuits. Larger global communities called for actions against all the involved companies and it caused BHP Billiton in negative word of mouth worldwide.

Another major controversy faced by BHP Billiton is due to their legal battle with the workers in Chilean mines. It is reported that BHP Billiton got in to legal battles with the workers when the former opted for strike due to issues with pay contract. In order to increase the profitability and return on investments from the Chilean mines, BHP Billiton initiated to have new payment contracts with the workers with having less pay scale and benefits. It was rejected by the worker union and they went ahead with the strike. However, the rather than discussing, BHP Billiton opted for legal battle with them that drew criticisms from different stakeholders (Sanderson and Hume, 2018). The workers are having the opinion that BHP Billiton is not concerned with the welfare of their internal stakeholders but profitability. In addition, it also drew flak from international communities for their non-sustainable approach. This incident caused loss of more than US$ 1 billion for the strike and damage on the brand value of the organization.

Current Business Strategies of BHP Billiton

BHP Billiton operates in one of the most intensely competitive business sectors in the world. Thus, it is important to determine the intensity of competitiveness being faced by BHP Billiton in their global business operation. The following sections will discuss about the different competing forces using the porter’s five forces analysis.

Bargaining power of buyers	Bargaining power of the buyers is moderate. This is due to the fact that demand for natural resources is high in the global market irrespective of increase in price (Baptista, 2013). In addition, number of players in the market is also limited, which is also restricting the bargaining power of the buyers. The brand value of BHP Billiton and their market leadership is also gaining upper hand over the lesser known buyers (Yunna and Yisheng, 2014).
Bargaining power of suppliers	Barraging power of the supplier is high. This is due to the reason that larger number of channels and partners are involved in the process. Workers and energy suppliers can influence the business potentiality of BHP Billiton (Arias, Atienza and Cademartoni, 2013). BHP Billiton is also having limited access to the suppliers across the world. Increase in the sourcing process and supplier cost will raise the input cost for BHP Billiton.
Threat of substitutes	Threat of substitute is low due to the limited number of competitors available in the market. Not all the competitors are having the access to strategic resources similar to BHP Billiton (Moran et al., 2014). In addition, BHP Billiton is having diverse product offerings ranging from petroleum products to iron. Thus, market coverage is more. Brand value of BHP Billiton is ahead of their competitors. Switching cost for the buyers is high and thus less intensity of threat of substitutes.
Threat of new entrants	Threat of new entrants is also low due to the extreme requirement of huge investments. New entrants are also having the challenge for getting the access to natural reserves. It is difficult for them to match the economies of scale of BHP Billiton (E. Dobbs, 2014). They will not have the capability to match the worldwide business of BHP Billiton.
Competitive rivalry	Competitive rivalry is high with almost all the competitors are trying to get the hold of natural reserves around the world. Resources are limited and thus rivalry is intense among the competitors (Roberts, 2013). However, the potential of high return is acting as survival option for the existing players.

Strengths	They are having the market leadership position and this brand value of them is helping in staying ahead in the competition. They are having presence in number of countries including South Africa, Brazil and Australia with all of them are developed or emerging economies (Lodhia and Martin, 2014). Having the access to some of world’s most strategic and lucrative natural reserves. Huge return on investments is helping in further investments and development.
Weaknesses	Got accused in number of controversies that further affect their brand value (Meira et al., 2016). BHP Billiton is also accused for ineffective internal management systems with their workers. Not having stronghold in multiple major economies across the world. Ineffective in corporate communication.
Opportunities	They are having access to some newly founded reserves that will help in gaining future competitiveness. The green initiatives including the reduction of greenhouse gases initiated by BHP Billiton will help them to gain future sustainability. Developing more sustainable resources will help BHP Billiton to gain larger market in future. For instance, developing copper mining to cater to future demand of electric vehicles (Linnenluecke et al., 2015).
Threats	Continuous increase in input cost such as worker wages and energy cost. Radical reduction in demand for certain resources in the global market will pose challenge for BHP Billiton (Bluszcz and Kijewska, 2015). Introduction of stringent government regulations regarding environmental impacts of the business of BHP Billiton.

Organizational culture in BHP Billiton is diverse and inclusive in nature. According to different reports, organizational culture maintained in BHP Billiton is pro employees. Due to the fact that they are having their business operations in different regions around the world, thus, their workforce is also diverse in nature. BHP Billiton is maintaining dedicated diversity management system in order to have the maximum output from the diverse workforce and preventing the potential challenges (Martin, 2014). It is also identified that employees are being motivated by sense of achievement. They are given challenging roles and responsibilities and recognized for their work that further helps in motivating them. BHP Billiton is having a unique 4 steps field leadership program for the workers in engaging them in safety standards (Sia.org.au, 2018). The scope of proper work life balance such as added benefits for new mothers and pregnant mothers are also being practiced in the organization. In this case, the role of their CEO, Andrew Stewart Mackenzie is important. He is considered as one of the leading earth scientists in the world. Thus, he is having immense knowledge in this field that is reflecting in managing the employees in accordance to the business requirement.

Conclusion

This it is can be concluded that mission and vision statement of BHP Billiton have stated about their sustainable way of doing business but there are still long way to go. In this report, two major controversies faced by BHP Billiton are being discussed along with their impacts. It is also identified that BHP Billiton is having probable threats if they cannot initiate sustainable business approach. In this report, the intensity of the competitiveness for BHP Billiton is discussed. This report also concludes that in terms of strategy, BHP Billiton have taken the right direction both in past and in present. The effectiveness of the organizational culture of BHP Billiton can help them in initiating more sustainable way of business in future and this will also help BHP Billiton to maintain their market leadership status.

Reference

Arias, M., Atienza, M. and Cademartori, J., 2013. Large mining enterprises and regional development in Chile: between the enclave and cluster. Journal of Economic Geography, 14(1), pp.73-95.

Controversies Faced by BHP Billiton

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bhp.com, 2018. BHP | Structure And Strategy. [online] BHP. Available at: <https://www.bhp.com/our-approach/our-company/strategy> [Accessed 5 September 2018].

Bluszcz, A. and Kijewska, A., 2015. Challenges of sustainable development in the mining and metallurgy sector in Poland. Metalurgija, 54(2), pp.441-444.

Bocken, N.M., Short, S.W., Rana, P. and Evans, S., 2014. A literature and practice review to develop sustainable business model archetypes. Journal of cleaner production, 65, pp.42-56.

E. Dobbs, M., 2014. Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45.

Holburn, G.L. and Vanden Bergh, R.G., 2014. Integrated market and nonmarket strategies: Political campaign contributions around merger and acquisition events in the energy sector. Strategic Management Journal, 35(3), pp.450-460.

Linnenluecke, M.K., Meath, C., Rekker, S., Sidhu, B.K. and Smith, T., 2015. Divestment from fossil fuel companies: Confluence between policy and strategic viewpoints. Australian Journal of Management, 40(3), pp.478-487.

Lodhia, S. and Martin, N., 2014. Corporate sustainability indicators: an Australian mining case study. Journal of cleaner production, 84, pp.107-115.

Martin, G.C., 2014. The effects of cultural diversity in the workplace. Journal of Diversity Management (Online), 9(2), p.89.

Meira, R.M., Peixoto, A.L., Coelho, M.A., Ponzo, A.P., Esteves, V.G., Silva, M.C., Câmara, P.E. and Meira-Neto, J.A., 2016. Brazil’s mining code under attack: giant mining companies impose unprecedented risk to biodiversity. Biodiversity and Conservation, 25(2), pp.407-409.

Moran, C.J., Lodhia, S., Kunz, N.C. and Huisingh, D., 2014. Sustainability in mining, minerals and energy: new processes, pathways and human interactions for a cautiously optimistic future. Journal of Cleaner Production, 84, pp.1-15.

nasdaq.com, 2018. [online] Available at: <https://www.nasdaq.com/article/-bhp-billitons-bhp-new-business-strategy-to-drive-growth-cm630262> [Accessed 5 September 2018].

Phillips, D., 2018. Brazil Dam Disaster: Firm Knew Of Potential Impact Months In Advance. [online] the Guardian. Available at: <https://www.theguardian.com/world/2018/feb/28/brazil-dam-collapse-samarco-fundao-mining> [Accessed 5 September 2018].

Phillips, G.M. and Zhdanov, A., 2013. R&D and the Incentives from Merger and Acquisition Activity. The Review of Financial Studies, 26(1), pp.34-78.

Roberts, S., 2013. Competition Policy, Industrial Policy, and Corporate Conduct. In The Industrial Policy Revolution II (pp. 216-242). Palgrave Macmillan, London.

Sanderson, H. and Hume, N., 2018. BHP Billiton Has No Regrets Over $1Bn Fight With Chile Workers | Financial Times. [online] Ft.com. Available at: <https://www.ft.com/content/5a767dc2-2a90-11e7-bc4b-5528796fe35c> [Accessed 5 September 2018].

Sia.org.au, 2018. BHP Billiton Improves TRIF Through 4 Step Leadership Program | Safety Institute Of Australia. [online] Sia.org.au. Available at: <https://www.sia.org.au/news-and-publications/news/bhp-billiton-improves-trif-through-4-step-leadership-program> [Accessed 5 September 2018].

Yunna, W. and Yisheng, Y., 2014. The competition situation analysis of shale gas industry in China: Applying Porter’s five forces and scenario model. Renewable and Sustainable Energy Reviews, 40, pp.798-805.