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Strategic Management

1. Introduction:
In 1998-2001, the structure of the industry has changed dramatically with the emergence
of a wave of merger activity. Set at the end of 2001, BP chief executive, Lord John Browne,
looks to the future of the company. BP went merger activity in 1998, with its combination
with Amoco. Other major oil concerns quickly followed suit. Several large and dominant
firms, called “supermajors”, separated from the other competitors. Despite the large
number of independent firms, there are also a specialty, super major firms do not consider
them direct competitors.
Key Person: Lord Browne, BP’s Group Chief Executive; John Buchanan CFO of BP

2. Analysis

Strengths Opportunities
Human Resources Technological Advances
Entry
Technology Emerging Markets Threat
“Mutual Advantage” (Asia/Pacific) LOW
Upgrading Refineries Oil remains main source
Infrastructure/Leadership of energy
Fuels in Europe
Improving Operational
Efficiencies
Weaknesses Threats
Supplier
Power
Rival Buyer
Recovering from large Environmental MODERAT
ry Power
LOW
debt Regulations E HIGH
Weak market outside of Substitute Products
Europe Power of OPEC
Less upstream investment Overcapacity in mature
to replace production in markets
long run Supermarkets gaining Substitute
Dependent on small no of market share s
gas fields European Economic woes MODERAT
Producing more than it Commoditization – no E
needs for its operations brand equity in Europe
Tight oligopoly, mature
market, cutthroat
competition

Upstream Midstream DownStream

Finding Developing And Transportation Marketing and
Manufacturing
Exploration Extracting and Trading Sales

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large oil trucks. middle distillates including heating oil and diesel fuel. (ii) Avoidance of new entrants: Since the supply chain of oil is quite complex and requires big companies to be vertically integrated. Now.  Inclination towards sustainable energy sources is demanding technological advances. but also increase revenue manifold times. residual fuel oil and asphalts. (iv) Upstream and downstream integration helped to take network advantage of oil supplies and distribution channel which not only increase capital through acquisitions. At the production unit. Strategy for a bigger firm involves striking a balance between the exploitation of existing resources and the development of new ones.Strategic Management  The upstream sector involves the processes of oil exploration4 and drilling.  Both the upstream and downstream sectors are subject to stringent operating criteria such as environmental and safety regulations. it is processed and refined into different products that include liquefied petroleum gas (LPG). it takes a great financial effort to enter the market to compete o n a same level. transporting and marketing of oil and oil products. we will directly try to find out key points required for strategy formulation through balanced score card. Key Challenges  Increasing government regulations. Such pipelines are huge projects. Risk associated with this business is getting higher. 3. Solution evaluation Why did BP integrate? (i) Higher dependencies on oil suppliers led to price fluctuations. Exploration of oil is conducted both on land and on the continental shelves across the world. 1 | Page . (iii) Increase of profitability: Improvement of coordination of upstream (production) and downstream (di stribution) will lead to synergies and an increase of profitability. often running across different countries and of high economic and political relevance to these countries. tighter emission standards. Upstream integration helped to control quantity and quality of oil. So. BP is struggling to formulate its strategy based upon the challenges it is facing. and product specifications Midstream – Efficient Bridges from Production to Refining  To connect the production locations of gas and oil with the refineries. train cars. it is in matured stage. kerosene. it is transported to the production units through pipelines.  The downstream sector involves refining. After the crude oil is extracted from oil wells. gasoline. etc.  Limited capacities can be increased by increasing existing refineries. 4. Considering the life cycle of the product and industry. efficiency gains and potential ban on additive is increasing costs. jet fuel. often pipelines. the hydrocarbons need to be transported. This is done via different transport mechanisms. requirement for cleaner burning gasoline and rules for underground storage tanks is having significant impact on downstream business.

Strategic Management Financial: M ergers and Acquisitions has he lped B P to sustain. C ustom er Internal perspectiv e : Business D em and for sustainable e nergy Strategy processes: H igher inertia sources is increa sing. joint with its industry based areas ventures and cross-licensingown finances upon lower profitability Technology Technology can be acquired Time consuming Not Applicable Technology can be through acquisitions factor through this acquired though route unrelated diversifications Cost Deep pockets can extend Stringent targets Not Applicable Deep pockets can economies of scale further must be taken to extend economies of reduce cost scale further Profits Deep pockets can extend Not much Increased profits Not applicable economies of scale further effective through this strategy Regulations Would still be a hindrance Would still be a Would still be a Can help in corporate hindrance hindrance governance Operational Concerned area A focussed area A focussed area Depends on business Efficiency Operational Increased Same Same Reduced Risk Management Profitability May or may not improve Will improve Will improve Will improve in long term Networks and Global presence will be beneficial Supply chain 2 | Page . due to its' size Learning an d G row th: B P can grow if it has ability to apply innovative te chnology. Divestiture Diversification strategy growth-based based strategybased strategy strategy Definition Agreements among firms in By growing its Decision to Diversify Business into the same industry including existing business withdraw from therelated and unrelated supply agreements.s urvive and prosper in the business b ut Ne eds to focus on operational e ffi ciencies to re du ce cost . Criteria Acquisition-based Internal.

Strategic Management 5. Transportations. (ii) Divestiture Strategy can be chosen to maintain its deep pockets. ******************************************************************************* Back-Up RIVALRY: BUYER SUPPLIER ENTRY SUBSTITUTE High POWER: POWER: THREAT: S: • Saudi Arabian Low Moderate Low Moderate Oil: $345B • Gas Refining • License to • Top 4 = 45% • Nuclear • National & Marketing explore of revenue • Coal Iranian Oil : • Petrochem • Government • Regulations • Hydropower $154B Manufacturing regulations • Investment in • Solar Energy • PetroChina: • Gas Utilities finding • Wind $300B • Electric resource • Biofuels • Exxon Mobil: Utilities • License : $467B • Consumers explore & • Gazprom: produce $231B • Downstream: • Shell: $451B refining • BP: $379B /marketing 3 | Page . Research and Development and diversify into Alternative sources of energy due to its deep pockets. (iii) Internal Growth Strategy: Focus upon operational efficiencies and strengthen its core processes and invest in technology to maintain its running business. Recommendation (i) Diversification based Strategy: It can opt this strategy to take leverage of its human resources and global supply chain and can diversify its business into related like Trading other goods.