Strategic Management Essay: A 3 Year Strategy For Bp

BS0845: Strategic Management End-of-Term Essay Referring to the position, resource, relational and/or flow perspectives on strategy, describe a strategy for BP over the next three years. In writing this proposal for a near-term, three year strategy for BP I will be using looking at the field through the lens of a position-based strategic perspective, of the style perpetuated by prominent strategist, Michael Porter. Subsequently, a strategy following the resource-based perspective as described by Jay Barney in his article "Firm resources and sustained competitive advantage" for the HBR will be outlined.

Resource-Based View The Deep Water Horizon disaster of 2010 in the Gulf of Mexico was unquestionably a tremendous setback for BP. The company reported a loss of $3.7 billion in 2010, compared to a profit of $26.4 billion in 2009. Finances aside, the BP brand itself was adversely affected by the disaster. The company was culpable in the largest oil spill in recorded history, responsible for widespread damage to the region's flora and fauna, and to its fishing and tourism industries. But just as the lotus flower grows out of the mud and blossoms, so too does a distinct capability arise from the murky waters of the Gulf. This distinct capability, is deepwater erudition. The key constituents of this erudition are: . Proactivity . Crisis Mitigation . Technical Expertise In dealing with Deep Water Horizon disaster, BP gained an invaluable lesson in the merits of proactivity. BP now understands very deeply that near misses should ring alarm bells and initiate investigations. Leading up to the disaster, many Gulf of Mexico wells had been affected by minor blowouts, but serendipity meant that calamities were avoided. Knowledge now permeates the company that resting on its historical luck is no substitute for a proactive response when faced with early indicators of difficulty and near misses. BP has also developed the capacity to handle deepwater oil spills. During peak response, tens of thousands of people were mobilised along with 6500 vessels to carry out a coordinated response in dealing with the spill. It had to collaborate with the US government in mitigating the adverse effects of the leaked oil. This massive organizational effort has left its mark, in that future setbacks can be dealt with swiftly, without getting out of control. Finally, BP's deepwater erudition comes in the form of advanced technical expertise. The crisis forced engineers and scientists to use all their wits in order to brainstorm a way to seal the oil well. The new technology and know-how arising from this experience has remained in-house and is likely to give BP an upper hand in execution of deepwater projects compared to its rivals. This capability has all the indications of satisfying the VRIO criteria. It is valuable because it has conferred the virtues of proactivity, crisis mitigation and deepwater technical expertise. Secondly it, is a rare capability in the long term as major oil spills such as this one are few and far between. Similarly, there is long term inimitability due to the capability being an intangible asset, distributed amongst the company's human capital. To conclude my resource-based strategic argument, BP should focus all of its attention on deepwater projects, because the VRIO capability it has developed will provide it with sustained competitive advantage. Position-Based View The beginnings of a strategy with a positional perspective can be synthesised with the aid of the Five Forces analysis, in conjunction with consideration of PEST factors. Granted, this framework has its limitations, especially in the way that it only provides a snapshot of the industry landscape at the present moment. However, for the purposes of deliberation, the framework can bear fruit in allowing for the conception of potential strategies to push back against the five forces. In analysing the five forces, one can see that BP's intra-industry rivalry is indeed palpable. Although there are only a few major oil and gas companies, namely Chevron, ExxonMobil and Shell with whom there is direct competition, rivalry is intensified by the downturn in the industry's revenue growth and the inexistent switching cost for consumers. The technological factor of advances in shale gas extraction has led to incumbents seeking to exploit this energy source, further intensifying rivalry. The threat of entry facing BP is quite low. There are huge capital requirements involved in sourcing the physical assets required for oil and gas extraction. Costs of a modern deepwater offshore drilling unit approach $1 bn. Economies of scale are an important factor in that standardisation and duplication of projects can reduce overall costs. Furthermore, government policy is such that exploration and extraction are only permitted to firms with years of experience under their belts. New players are inherently deterred by this high barrier to entry. Petrol is undeniably the normative way in which most consumers fulfil their energy needs. However, advancements in renewable energy technologies have led to growth in their adoption as an alternative to fulfil these needs. In tandem with the price/performance improvement in photovoltaics, the threat of substitutes should be present in BP's consciousness. Perhaps the plummet in the price of oil acts to soften the threat of substitutes, but of course this only a temporary reprieve. Socio-cultural factors mean that this force is strengthened by the public's increasingly negative perception of the oil and gas industry due to climate change. Let us consider the magnitude of the force arising from supplier power. Countries' governments can choose which firm is given exploratory rights to oil fields. Thus, governments have very high bargaining power. After political factors are taken into account, we can see that the magnitude of this force is increased by the EU's and USA's banning of BP's rights to explore Russian oil reserves. The worsening relations between these countries begs the question of whether BP's dealings with Rosneft are of any benefit for the company in the long term. The final force to be discussed is buyer power. There are millions of individuals who purchase BP products in order to fulfil their energy needs. However, in general, there is not much distinction between the value propositions of BP and its rivals. This lack of differentiation means that buyer power is strong - it is arbitrary for consumers to pick and choose between the industry's competitors to fulfil their energy needs. Strategy to be followed by BP from the position-based perspective: 1. Purchase incumbent shale gas extraction businesses, while the sector is still young. This will reduce inherent rivalry. 2. Invest in renewable energy to improve brand image and to facilitate inevitable transition into this sector. 3. Sell 19.75% stake in Rosneft due to re-ignition of long-term hostilities between the West and Russia. Seek to diversify suppliers such that supplier power is reduced. 4. Differentiate BP products such that their value proposition is stronger than that of rivals. Conclusion In contrast to what has been insinuated, the two strategic views (resource-based and position-based) outlined in this essay are not mutually exclusive. In order to generate a holistic strategy for BP, one must look through multiple strategic lenses individually, but also simultaneously, thereby creating a hybrid view. I have purposefully separated these views in order to highlight the distinct concepts they each entail. Future work could involve creating one strategy by analysing both perspectives together. Finally, a significant problem with these two perspectives is that, although they provide a framework for analysing the current strategic situation, they are statically limited. The method by which a company moves from its current strategic situation to the theorised improved situation, is elusive. That is where strategic perspectives other than those discussed, shine.