INTRODUCTION TO GLOBAL CORPORATE STRATEGY
Global Corporate Strategy refers to the strategies relating to global, multinational and international. The report will focus on studying the various issues related to the oil and gas industry in present era. For the study of report British Petroleum (BP) Public Limited Company has been chosen. BP is a giant in their sector, but due to the present condition in oil and gas industry, companies are facing various challenges (Fisher, 2004). In the first part report will focus on the challenges regarding corporate governance and corporate social responsibility by companies like BP and Shell Petroleum one of the other giant of this industry and BP’s competitor. In second part report will focus on statement which indicates the uncertainty and risk involved in the oil and gas industry after having threat of new entrants. In the last part repot will focus on various management and leadership styles that can be adopted by the chairman of BP in order to improve their future functioning.
TASK 1: Corporate Governance and Competitiveness
Petroleum sector governance includes indulging and making decisions regarding the utilization of nation’s oil and gas resources. It includes hierarchal and structural organization of the industry, its communication and decision making process, policies framing and objectives governing activities and rules and regulation of those activities (Carmeli and Tishler, 2006). Corporate governance refers to a system of rights; structure, duties and obligation through corporation are directed and managed. Moreover, governance structure assists in specifying the delegation of rights and responsibilities between various participants in the firm such as various stakeholders like owners, managers, customers, employees and regulators (Sirico, 2012).
BP and shell are the two major giants operating in oil, gas and petrochemical industry. They are the leading organizations which are involved in supplying of oil and gases around the world. In the recent time global oil and gas prices have recorded highs which has affected economies several countries (Rashid, Sambasivan and Rahman, 2010). Demand for oil and gas can be seen in both developing and developed countries like China and India. Energy companies such as BP and shell are making several efforts in diversifying their product mix as non-traditional fuel sources to become more price competitive in such oil and gas sector. Due to such changes companies have to face challenge regarding corporate governance, because while dealing with such changes BP and Shell companies have to indulge themselves with the changes in government policies, structure and function according to the rules and regulations (Lakatos, 2008).
BP prepares governance risk and compliances strategy in order to face corporate governance issue and with the help of this strategy several measures were taken are as follows:
- By clearly defining the risk and opportunity BP tries to improve their strategic business decisions.
- Indulging in adopting proactive and efficient monitoring in order to minimize uncertainty of risks and unexpected incidents.
- Dealing properly with factors of corporate governance BP can increase their efficiency in performing business operations.
- In order to make effective and efficient functioning roles and responsibilities of the employees should be clearly communicated.
- Should also concentrate on the governance and regulatory requirements such as combined code, industry regulations like FSA and specific legislation such as UK Bribery Act.
- Shell Petroleum Development Company also addresses challenges of corporate governance through:
- As company made sound risk management frameworks.
- Through effective Risk management frameworks firm clearly delegates the roles and responsibilities.
- Escalation system involved in order to resolve the cases related to breach of provisions and standards.
- Shell needs to encourage transparency, proper disclosure, control and accountability in the system.
- Several measures taken in order to improve internal control system so that rules and regulation made by government can be followed effectively and efficiently.
Corporate Social Responsibilities:
CSR refers to corporate initiative in order to assess and take responsibilities regarding company’s negative and positive effects on environment and social welfare. Corporate social responsibilities plays important role in the competitiveness of enterprises (Aristotelous, 2010). Oil and gas industry have highly competitive market which means the companies operating in such market needs to have better CSR because it can benefits in terms of risk management, cost savings, access to capital, customer relationship, human resource management and innovation capacity. Both the companies indulge in making several strategic plans for indulging CSR in the business operations so that they achieve the above mentioned benefits (Sisson and et. al., 2000).
Both the companies’ focuses on four different responsibilities in order to meet out the corporate social responsibilities, these are as follows: Economic, legal, ethical and philanthropic responsibilities.
Economical Responsibilities – economic responsibilities of the BP and Shell is to be profitable and through having corporate social responsibilities they can achieve by satisfying the needs and wants of shareholders.
Legal Responsibilities – Both the companies have to perform their task and operations according to the rules and regulations. By doing so companies can perform effectively and efficiently and also have positive impact on society.
Ethical Responsibilities – Ethical responsibilities will assist them follow ethical path in performing any activity regarding business operations (Hermosillo, 2008). Values and philosophies of both the company suggest that they operate in an ethical manner and create awareness amongst society.
Philanthropic Responsibilities – BP and Shell petroleum are focusing on maintaining good working environment which will provide them to build good corporate citizens and they can spread positive message to the society.
Improving performance and operational effectiveness, both BP and Shell should focus on improving their efficiency regarding the business operations. Organizations should focus on the areas of finance and supply chain because these are the major areas which can affect business operations from externally (Mohamed and Lashine, 2003). For improving performance companies should focus on making changes internally.
- Should indulge more and more people who are qualified and are able to perform efficiently
- Technological aspect of the firms should be changed as the change in working environment
- As BP and Shell deals in such a sensitive sector of oil and gas they should provide better working environment to the employee with securities regarding any accidents or incidents
- Both the firm should focus on having optimum utilization of available resources so that targets can be made accordingly (Koll, 2003). Short term targets should be prepared by the companies so that employees can focus on performing more effectively and efficiently
- Standardize at all the level of business operations, so that quality should be maintained
- Automation used should be enhanced periodically
- Encourage transparency
- Identify and evaluate the optimum operational goals
- By involving all the stakeholders in making decisions regarding business operations, it will motivate employees top perform more effectively in order to improve the operational performance.
Oil and gas companies have huge workforces with skills and ability to perform any task. On the other hand recruiting employees and relocating them and their families to those developing countries where working conditions are challenging creates more complexity in retaining workforce with such skills, abilities and experience (Hermosillo, 2008).
Recruitment refers to the process of attracting, selecting and appointing appropriate candidate for the specific job or task. Through recruitment process skilled and qualified personnel’s are identified and selected in order to perform business operations (Mohamed and Lashine, 2003). Recruitment can be done either internally or externally. BP and Shell have skilled workforce as per their working is concerned. For retaining skilled workforce companies have to offer more perks and policies such as:
Better working environment – Every employee working in an organization wants to work in better condition in which their physical as well as mental state can groom. BP and Shell being the giants of their industry should provide better working environment so that employees can be retained (Sun and Anderson, 2012).
Involvement in managerial activities – For making employee work more effectively and in order to retain them for longer period of time top level management of both BP and Shell should involve employees in providing their views and regarding the functioning they are the one who actually deals with the conditions and have to several issues (Aristotelous, 2010).
Health and welfare benefits – Performing such challenging task or duty employees of both companies should be facilitate with health care benefits so that without any fear they can perform their task or job, so that they can be retained for the longer period of duration to serve the company (Landy and Conte, 2010).
Rewards – On the basis of performance of an employee he or she should be rewarded, because doing so will motivate employees to work more effectively and efficiently and to remain in the company for longer period of time (Sisson and et. al., 2000).
TASK 2: Network level strategies and competitiveness
Critical Evaluation of Statement:
As the statement stats that competitive environment for companies like BP and Shell is changing because natural oil companies are seeking much higher participation around the globe (Dressler, 2012). Due to this oil and gas industry have higher amount of uncertainty and risk as compared past, in order to sustain companies have to focus sustainable future to ensure financial and operational success.
With the changing environment oil and gas companies have to frame strategies accordingly, in order to do so they need to analyze market first and on that basis makes decisions regarding their future functioning. Resources available to the companies should have optimum utilization so that they can face new challenges in existing market (Duffy, 2000).
Porters five forces analysis would be effective for BP as it will assist their management to identify and evaluate the forces which are affecting them in existing market. Porters five forces analysis is the framework of industry study and also assist in making future business strategies (Sun and Anderson, 2012). Porters five forces theory consist of five elements which could affect the functioning of an organization, these are as follows:
Threats of New Entrants – Industry like oil and gas which have profitable market and yield high returns will attract new firms, through which profitability margin of existing firm will be decreased. On the basis of statement new entrants of natural gas companies are affecting the future sustainability of companies like BP and Shell Petroleum (Sirico, 2012). On the basis of that manager should analyze the needs and wants of existing targeted market and according to that indulge new products and services, so that company can have financial and operational success.
Threats of substitute products – Natural gases are the substitute of oil and petroleum gases, having the substitute in existing market will affect the sales and revenue generation of the company. For example if natural gas companies indulging huge marketing strategic planning than it will affect BP and Shell Petroleum company negatively (Hermosillo, 2008).
Bargaining Power of Customers – Bargaining power of customer refer to the ability of targeted customers to put company under pressure, which directly impacts on the price of products and services.
Bargaining power of suppliers – Bargaining power of suppliers refers to the ability of suppliers to put company under pressure (Dressler, 2012). When company have few substitute of suppliers in the market than they can be affected by it. As suppliers switching cost could impact on the cost of products and services of the BP and Shell Petroleum.
Competitive rivalry – As the market is being profitable, entry of new companies are confirm which will increase the competitiveness of existing market and existing companies will have to suffer some changes as it will affect their price (Enderwick, 2009).
For these above strategic issue companies should involve strategic alliances or merger and acquisition in order to raise large amount for supplying their products and service or to expand into new market (Powell and Stewart, 2008).
Strategic Alliances – The term strategic alliances can be defined as the agreement between two or more parties or companies in order to share resources and knowledge which could be beneficial for both the parties involved (Wang, Jen and Ling, 2010). In other words strategic alliances can be two companies sharing their technological or marketing resources for manufacturing products and services together and promote collaboratively. It is a mutual relationship between two companies to bring together their available resources and produce a product which is highly demanded in the market or to decrease the competitiveness in the market (Valencia, Jimenez and Valle, 2012). There are several types of strategic alliance which are as follows:
Horizontal strategic alliances – This type of strategic alliance can be defined as the agreement of working together by the companies which operate in the same business areas. In other words, firm which were competitor earlier are now working together in order to improve their financial as well as market position as compared to others (Landy and Conte, 2010). BP and Shell petroleum, if they work together than they are the perfect example of horizontal strategic alliances.
Vertical strategic alliances – Strategic alliances of this type is an agreement between a company and its supplier or distributor. The main aim of vertical alliances is to intensify and improve the relationships between company and distributor in order to achieve the cost reduction (Dressler, 2012).
Intersectional alliances – This type of strategic alliances involves the firms which are neither connected by vertical chain nor operate in the same market (Craig and Campbell, 2012). This indicates that both the companies would not get in touch with each other and have totally different market.
Joint ventures – Joint venture is a type of strategic alliance in which two or more companies will come together and a new company. For example, British petroleum and natural gas Company decides to operate mutually than it can be beneficial for them because through this BP can solve its problem relating to threat of new entrant and substitute products, whereas making entry in such highly competitive market would be feasible for Natural gas company(Wang, Jen and Ling, 2010).
Equity alliances – This type of alliances are formed when one company takes over another company’s equity stakes. Through these shareholdings the company would become shareholder of another company (Craig and Campbell, 2012). Through equity alliances the power of making strategic decisions remains to the respective companies.
Non-equity alliances – Non-equity alliances can be term as association between two or more firms in order to develop contractual relationship of sharing their unique resources and capabilities to attain competitive advantage.
Merger and Acquisition are both aspects of strategic management. Acquisition refers to takeover or purchase the other company or business entity. Purchasing of business can be near by 100% or 100% fully. Whereas, merger can be term as amalgamation of more than two corporations to form a new company, in other words it can be termed as strategic alliances (Enderwick, 2009).
On the basis of present condition in oil and gas industry BP should use strategic alliances in order to increase the cash balance for access supply or expansion into new markets. A joint venture could be the best suitable option for BP in order to sustain in such competitive market or even to get competitive advantage over its competitors (Fisher, 2004). Joint venture with Natural Gas Company would allow BP to manufacture new product or service that can be offered in the targeted market to gain competitive advantage. Another benefit of joint venture with in order to form new company they can target new segment of market which would expand business for both the business enterprise. Through this companies can increase their efficiency in financial as well as operational activities (Hermosillo, 2008). joint venture for companies in such as competitive market can make space for growing faster, assist in increasing their productivity and generate high revenues.
If both the companies BP and Natural Gas Company have successful joint venture than:
- They can easily access in the new targeted market, with more efficient distribution network
- The capacity of manufacturing oil and natural gas will be increased
- Uncertainty and risk are concerned, they will be distributed according the agreed ratios
- Natural Gas Company can have optimum utilization of BP resources which will increase the efficiency in performing tasks or operations.
- Through joint venture companies will able to invest funds for the future functioning as they will not have to borrow funds outside investors.
- It can provide both BP and Natural Gas Company flexibility in performing their personal business operations comfortably.
Through strategic alliances BP can easily expand their business into new market with the support of Natural Gas Company they can manufacture new product in existing as well as new targeted market (Fisher, 2004).
TASK 3: Creating a High Performance Culture
For improving the efficiency of British Petroleum managers should indulge in having effective and efficient management and leadership style. There are several management and leadership style that could be beneficial for the company such as: autocratic, democratic and laissez-faire (Lakatos, 2008).
Autocratic Leadership Style – Authoritarian leadership style refers to keeping strict and close control over the business operations of an organization. Autocratic leadership style focus on giving responsibilities and authority to an individual regarding the decision making for future functioning of firm’s operations (Aristotelous, 2010). In other words, managers’ adopting this leadership style makes decision unilaterally, and without any discussion with subordinates. There are two types of autocratic leaders:
- Directive autocrat leader which makes decision unanimously, but closely analysis subordinates
- Permissive autocratic leader which makes decision on their own but gives leniency to its employees to carry out their work.
Democratic Leadership Style – Democratic leadership style refers in which manager allows it subordinates to take part in decision making process. Manger having democratic leadership style focus on helping their subordinates, so that they can present their views and reviews about the current position of the company and several ideas to solve the problems (Koll, O., 2003). Having democratic leadership style, manager influence their subordinate to work effectively and efficiently for achieving their desired goals and objectives. Several qualities that a democratic leaders possesses are honesty, competency, inspiring, influencing, innovativeness and courageous.
Laissez – faire – In this type of leadership style all the responsibility and authority is given to worker. Laissez faire leaders allows it subordinates to work freely and make decisions according to them, because they thinks actual situation is not faced by top level management its subordinate or workers who have to face challenges and problems (Valencia, Jimenez and Valle, 2012). This type of leadership style is used when:
- Worker or subordinates are highly skillful, experienced and educated.
- Staff members are self motivated and want to work on their own.
- Either company can use expertise in order to improve the efficiency of the employees.
- When recruited employees are trust worthy and experienced.
Improving the efficiency of operations or influence employees behavior for delivering high performance the chairman of BP Mr. Carl-Henric Svanberg should indulge management and leadership abilities that are democratic style (Barrell and et. al., 2008). Democratic leadership style refer to that type of leader which include their staff members of middle level management for making decisions regarding the future functioning of business operations (Sirico, 2012).
Indulging democratic leadership qualities BP Group Chairman would increase the interest of employees in performing their task or job. Through this style of leadership Chairman can encompasses discussion, debate and sharing of ideas and encouraging people to feel good about their involvement (Koll, 2003). Democratic leadership style focuses on encouraging other people to involve in important aspects of business operation in order to achieve overall organizational goals and objectives. British Petroleum public limited company has several departments which constantly focus on working together in order to achieve overall objectives of the company. Chairman through such management and leadership style can influence managers of each department to work accordingly and motivate them to encourage their employees so that they can increase their efficiency in performing task or job (Landy and Conte, 2010).
From the above study it can be concluded that oil and gas industry is one of the most competitive sector in present time. As per the changes in global prices of oil and gas companies like BP and Shell Petroleum have to face several challenges and having to diversify their product mix to gain competitive advantage. In the first part report focused on various challenges related to corporate governance and corporate social responsibility of BP and Shell Petroleum (Rashid, Sambasivan and Rahman, 2010). Various strategies used in improving their performance and operational effectiveness. In second part report focused on statement in which how BP uses strategic alliances in order to sustain in the existing market and as well as to target new market with new product through a joint venture. In the third part report discussed about the leadership and management style that should be adopted by Chairman of BP Mr. Carl-Henric Svanberg in order to improve efficiency of their business operations and improve employee’s behavior towards performing tasks or job.
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