Significance Of Strategic Management For BP And Consolidated Steel Industry

PESTLE Analysis of BP

Discuss about the Significance Of Strategic Management Of The Organization.

The report focuses on the significance of strategic management of the organization operating in the competitive business environment. Strategic management basically involves identification of how the enterprise stacks up in comparison with other rivalries and the opportunities as well as threats facing them. This has huge significance in the organization as it helps to optimize profit in the long run and improve their financial performance (Bisbe & Malagueño, 2012).  The first section of the study highlights on the major oil company BP that faced complex environment in the year 2013. The factors that provide the most important opportunities as well as threats to this company are analyzed in this paper using PESTLE. The second section of the report reflects on the analysis of the consolidated steel industry using the Porter’s Five Forces. The market share of this steel industry is also analyzed by using BCG matrix. The study also discusses about the potential problems that is integrated with the BCG matrix.

British petroleum (BP) is a British multinational gas and oil corporation that is headquartered in England and UK. It is one of the world’s biggest corporations, which has been ranked sixth in terms of market capitalization. It is the vertically integrated enterprise that operates in every area that includes exploration, manufacturing, refining, distribution and marketing. Their biggest sources of their oil production are USA and Russia. This company has also energy business that is active in windpower a well as biofuels. This corporation has been involved in various environmental as well as safety incidents. The Deepwater Horizon Oil spill that occurred in the year 2010 is the biggest accidental oil release into the marine waters. This resulted in major health, economic and environmental outcome.

There are several factors that contributed to opportunities and threats to BP, which has been explained by applying PESTLE (Yüksel, 2012). It is an acronym of Political, economic, social, technological, legal and environmental. PESTLE is basically an analytical instrument that is used for making strategic business planning. This strategic framework is used for analyzing external influences on BP.

Political-The big issue of Deepwater Horizon disaster caused by spill of oil crates threats to BP as they was under huge pressure owing to other oil sectors. As a result, there was huge fluctuation in the price of oil(Ho, 2014) This is reflected by the fact that the oil prices hiked to about $120 barrel during the year 2008, declined to about $30 during the recession period and then recovered to about $100 in the year 2012. Owing to this price of oil, the industry also faced huge challenges from their rivalries.

Opportunities and Threats for BP

Economic-Historical evidences reflect that political instability in US and rise in demand of oil from India as well as China lead to increase in prices of oil. This in turn provided them opportunity to stabilize the company. However, they strategized to invest huge amount of money on oil as well as gas manufacturing and in infrastructure (Kapferer,  2012).  Moreover, the inflation rate and exchange rate also influences the BP enterprise.

Social- The marketing strategies of BP also gets influenced by the increase in factor in the domestic gas as well as oil price. In addition, variation in climate has been considered as another factor that influences the BP business. Income distribution is one of the social factors that influence the organization.  This creates opportunity to BP as the increase in income distribution increases the demand for oil since middle class people uses more energy (Ho,  2014). Moreover, rise in total population of the national also leads to increase in demand for oil despite there is less improvement in distribution in income. Hence, this lowers the risk of this company.

Technological- This is one of the major factors that contributes to competition in this energy market. This poses threat to BP as they had to invest huge amount of money for reducing the greenhouse gas emission. In fact, they also invested in new technology for oil production process in order to improve sub-sea oil technology (Eden & Ackermann, 2013). Additionally, another threat posing BP is to provide employees skills training for helping them adapt with technologies.

Legal- Fuel duty as well as taxation of the government acts impacts the oil price. In fact, the Renewable transport Fuel obligation act pressures the customers for using the bio-fuels, which might deteriorate sales in the oil sector. However, the EU emission scheme for trading poses threats to this particular company. In addition, as all these laws impacts the operation, product demand and pricing of this company. Therefore, this organization is required to consider acquiring monopolies from legislation and also from the offshore regulation of trade.

Environmental- It has been stated by () that, the change in climate also impacts the oil sector of the country. This factor creates huge threat to the company as they have to reduce greenhouse emission with huge effort. In addition to this, for cutting the greenhouse gas emission by near about 40%, this company has adopted new strategy by promoting utilization of the nuclear power. However, maintaining proper infrastructure and avoiding further damage in the pipelines as well as oil well, the company faces threat in making proper sustainable management.

Porter’s Five Forces Analysis of Consolidated Steel Industry

Recent evidences reflect that the consolidated steel industry has been static as well as unprofitable for over the last few years. In this present century, the global steel industry has seen huge revolution. The porter’s five forces facilitate to analyze the varying attractiveness of this industry, which is described below:

• Power of buyers-Some of the major buyers of this steel involves global car producers such as Toyota, Ford etc and leading producers of can including Crown Holdings that makes near about one-third of the food cans manufactured in the Europe as well as North America. These enterprises purchases in huge volume and thus coordinating purchases across the globe (Dälken, 2014). However, these car producers are the sophisticated users that lead to technological development of their materials.
• Power of suppliers-The vital material for the steel manufacturers is iron ore. Some of the major ore producers that control 70% of the world market involve- CVRD, BHP Billiton and Rio Tinto. In the year 2005, the producers of iron ore has exploited surging huge demand by enhancing prices by near about 72 %. Even in the year 2006, these manufacturers also enhanced prices by about 19%.
• Threats of new entrants- The two most powerful groups entered the global steel market in the past 10 years (D’Costa, 2013). Firstly, after the period of privatization, Russian manufacturers including Severstal entered the export market and exported steel by near about 30 million tonnes by the year 2005. During the period 2003-2005, the Chinese manufacturers also invested in some of the new manufacturing facilities at the rate of 30% per year. Furthermore, the share of Chinese of global capacity has enhanced by more than about two times that is 25% in the year 2006. However, the Chinese manufacturers have become one of the third biggest exporters in the world behind Russia.
• Threats of substitutes- Steel being the technology of 19^th century has been increasingly substituted by some other materials that includes aluminum in plastics, packaging, ceramics, cars and in several other high technology applications (Hill, Jones & Schilling, 2014). Advancement of technology of Steel works to decline requirement and hence steel cans became thinner for the past few decades.
• Competitive rivalry- Recent study reflects that this sector has been highly fragmented for the last few years. The global top five manufacturers mainly accounted for about 14% of the total production. Steels are basically sold in account of commodity basis thereby by tonne. In fact, the growth of demand for steel averaged to about 2% per annum in the late 20^th In the beginning of the 21^st century, this industry faced boom in demand that is especially driven by the Chinese growth. Some of the enterprises involving Nucor, Thyssen-Krupp, Mittal usually responded by purchasing weaker players of this industry. Historical evidences also reflect that Mittal mainly accounted for 10% of the global production in the year 2007. They actually decreased the total capacity in some of their production centers.

BCG matrix is basically a framework that is created by Boston Consulting Group for evaluating strategic position of brand portfolio in business and its potentiality (BCG Matrix for Apple Inc.. 2018). This matrix classifies the business portfolio into four different categories including- stars, question mark, cash cows and Dogs based on the growth rate of industry and its relative share in market. However, these two dimensions generally reveal probability of business portfolio as accounted by cash required to support this unit and the amount generated by it. This analysis also helps the business to understand which brands they should make their investment.

Apple Inc is one of the biggest manufacturers of the electronic devices, which has market share in global sector. The products of Apple Inc that are selected for this analysis involve- iPod, iphone, Apple TV and Mac Book.

Stars-The products that are considered in this category have higher market share and have huge growth potential in the respective industry. The star products have the potential to become cash cows for the firms in future. iphone has been considered as star products as it has huge demand in market and high market share as well as growth rate.

Cash Cows-This category in this matrix signifies those products which generate higher income for the firms owing to bigger market share of products (BCG Matrix for Apple Inc.. 2018). Nevertheless, the products lying in this category have the ability to bring more capital to firms as they have high demand in market. Mac Books are regarded as cash cows for this enterprise as this product generates large profit and its market share is also high. But they are kept under this category since they lose their growth in market.

Question Mark- This category is mainly used for identifying the products that have the potential of becoming star products for the enterprise. These products have lower market share and low growth rate in the industry. Apple TV lies in this category as it could not capture good market as compared to others. As a result, the sales of this product declined at high rate over the last few years and thus it has been one of the vital areas of their concern.

BCG Matrix Analysis of Apple Inc’s Products

Dogs-This category indicates the products that are expected to have huge growth potential. These products fail to deliver expected results and thus become makes loss for the respective firm. Apple’s iPod has been classified in this category as its growth rate in the market has been continuously falling over the years. Moreover, its market share and growth rate also declined as it could not bring in higher profit for the firms.

Some of the potential problems of this BCG matrix are given below-

• The market cannot be clearly defined under this framework
• This framework ignores other indicators of probability apart from market share and growth rate
• There are times when products lying under dog category might help to gain competitive advantage against other rivalries
• Higher market share does not always indicate higher profit as high cost is also involved in it. However, this model does not consider high cost of product.

Conclusion

It is evident from the above study that strategic management is extremely important for every enterprise as it helps them to attain higher profit margin and improve the performance of business.  As the companies in the present world face huge challenges from their competitors, the management of these companies should adopt proper strategy in order to mitigate these challenges.  The above study also highlights that both BP and the world steel industry has been facing several difficulties in the competitive marketplace. However, strategic management helps them to maintain stable business growth and attain good reputation in the marketplace.

References

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