BP Energy Crisis and Key Organizational Strategies - Essay Example

? BP ENERGY CRISIS Table of Contents Introduction 3 2. BP and energy crisis 5 2 BP Overview 5 2.2 Key organizational strategies 5 3. Recommendations 6 4. Conclusion 9 5. References 10 6. Appendices 11 1. Introduction The development of organizational activities worldwide needs to be carefully planned so that the turbulences in the international and the local markets to be effectively controlled. This need is emergent in current market where competition has been highly increased and the ability of the firms to achieve a stable growth has been limited. Current paper focuses on the examination of the effects of energy crisis on the strategic decisions of BP, one of the most powerful competitors in the oil industry. The company operates in many countries internationally, however its performance is not stabilized. In fact, it seems that severe gaps exist in existing organizational strategies; reference can be made to the last year’s accident in the firm’s operational unit in the Gulf of Mexico. The above event proved the actual aspects of crisis in the energy sector: firms operating in this industry focus on the increase of their production rather than on the effects of their activities on the environment. In the case of BP it is noted that ‘total industry production from the Gulf of Mexico provided the biggest single increase in world oil supplies last year -- of nearly 400,0000 barrels per day’ (Pagnamenta, 2010). Of course, the efforts for the increase of production in this sector are related to the energy crisis – the need for continuously higher amount of energy, as a result of the increase of the relevant human needs. However, the accident in the Gulf of Mexico proved the lack of appropriate hierarchy in regard to the firm’s goals, the global needs for energy and the environment; the existing mechanisms for the control of the firm’s operational activities have been quite ineffective The Competing Values Framework is suggested in this paper as an effective tool for the alteration of the firm’s strategies; the latter need to be based not only on profitability but also on the effects of the firm’s operations on the environment. The appropriateness of this framework for BP is evaluated using two additional theoretical models, the Porter’s Five Forces model and the SWOT analysis theoretical model (see Figures 2 and 3, Appendix). The Competing Values Framework (see Figure 1, Appendix) is based on the principle that organizational strategies need to be based on three different values – which compete each other: ‘the control versus flexibility, an internal versus the external focus and an emphasis on means versus end’ (Amos et al. 2009, 266). The concept of value on which the above framework is based is related to certain process. More specifically, Cameron (2006) notes that within modern organizations ‘value can be created whenever an organization develops competencies in Control, Compete, Create and Collaborate that collectively generate output that exceeds what individuals could do on their own’ (Cameron 2006, 29). Moreover, O’Connor et al. (2009) suggest that the use of the Competing Values Framework for the development of organizational strategies can help to the resolution of a common organizational problem: when organizational plans have to be designed and executed a series of conflicts is likely to appear mostly because within organizations there are different perceptions on priorities and ethics, i.e. there are different values (O’Connor et al. 2009, 57). In other words, O’Connor et al. (2009) note that conflicts in regard to the form and the content of organizational plans are inevitable in organizations of all sizes. However, through using appropriate strategic management tools, like the Competing Values Framework helps towards the identification of these values and their simultaneous promotion these conflicts can be minimized (O’Connor et al. 2009, 57). On the other hand, Amos et al (2009) make clear that the successful implementation of the Competing Values Framework in modern organizations is highly depended on the skills of their leaders – meaning probably the ability of the leaders to understand the actual context of the organizational problems and needs and suggest the practices that are most appropriate for the control of the problem (Amos et al 2009, 266); in any case, it is necessary that these practices are feasible. 2. BP and energy crisis 2.1 BP Overview BP is one of the most powerful firms in the global oil industry. The number of its employees worldwide is estimated to 80,300 people while its profits in 2009 reached the $239 billion (BP, corporate website). The firm’s advantage towards its competitors is related to its high production rate – referring both to the extraction and the refining of oil. In 2010, the accident in the firm’s operational unit in the Gulf of Mexico led to severe conflicts among politicians, academics and managers in regard to the ability of the firm to manage its activities worldwide. 2.2 Key organizational strategies – effects of energy crisis The strategic framework of BP is characterized by the emphasis on energy diversity; indeed, the firm emphasizes on the importance of promotion of different sources of energy in order to respond to the current energy crisis, a crisis related to the continuous increase of energy needs in countries worldwide; in accordance to a relevant statement included in the corporate website, the energy diversity could lead to energy security, a concept characterized by the firm as the energy mix (Corporate Website, Energy mix, 2011). As noted in the firm’s website, the activities of the firm are under continuous control which is developed by a board and five committees; moreover, it is made clear that emphasis is given on the management of risk and people across the organization (corporate website, 2011). In order to ensure safety and sustainability in all organizational activities, an appropriately customized operating management system is used for designing and executing all organizational plans (see Figure 4, Appendix). Through the above practices, the protection of the environment during all organizational activities is ensured – at the highest possible level. In practice, these strategies have been proved ineffective. It seems that the firm’s managers were not prepared to face the challenges of the energy crisis; up to a level, employees in BP could effectively handle this crisis; however, when the pressure for the increase of oil production made extremely strong, employees in BP failed in responding to the needs of the new plans which emphasized on the radical increase of daily production – at levels which were well above to those normally reached by the firm. 3. Recommendations The use of Competing Values Framework could help BP to re-structure its strategies; its strategic priorities would be changed taking into consideration not only the energy crisis but also the potentials risks for the environment. The development of an effective Competitive Values Framework for the above organization would require the examination and the evaluation of the firm’s external environment. This task could be developed using appropriate theoretical frameworks, such as the Porter’s five forces on industry competition and the SWOT analysis (Figures 2 and 3, Appendix). The use of the Porter’s five forces model (Figure 2, Appendix) for evaluating the firm’s external environment would lead to the following assumptions: Competition in the global oil industry is extremely high; moreover, the firm has to face the pressures of: a) potential entrants: the entrance of new competitors in the oil industry is always possible as the specific industry is crucial for economies worldwide; the financing of new firms in order to enter this sector would be a key strategic tool for governments or institutions in the private sector in order to enhance the financial status of countries or organizations accordingly, b) substitute products: the use of alternative sources of energy worldwide has been increased; in the next decades, it is possible that these sources of energy will replace oil – at least at a high level – leading to the reduction of profitability of firms operating in this sector, c) customers; the power of customers to influence the strategies of firms operating in this industry is limited. In fact, because of the energy crisis, the needs of customers in oil – and its products – seem to be continuously increased; therefore, they are the firms of the industry that have the advantage of setting the rules of production and trade (level of availability in the market, prices and so on) of oil and its products worldwide, d) suppliers; from a similar point of view, suppliers in the oil industry do not have much power on the firms operating in this industry; on the other hand, the machinery required for the development of these firms’ daily operations is not quite common; the production of the relevant mechanical parts requires high expertise. In this context, suppliers who are able to provide machinery of advanced technology for the extraction or the refinery of oil they would be able to press the industry’s firms when setting the rules of their cooperation (referring to the cooperation between firms in the oil industry and their suppliers). The evaluation of the firm’s strategies using the SWOT analysis framework (Figure 3) would lead to similar assumptions: a) Strengths: the current position of the firm in the global market, the existence of important strategic alliances, the support of the British government, Weaknesses: a) the failure of the firm to control its activities – the accident in the Gulf of Mexico caused severe damages to the firm’s image around the world (Gilbert, 2010); in fact, the accident in Mexico threatened not only the local natural environment but also the global economy and politics (Glover & Keogh 2010, Jarvis, 2010); moreover, it is not clear whether the firm is able to respond to the increased cost of research for alternative sources of energy (Bullis, 2008); c) Opportunities: the industry’s prospects for continuous growth, the lack of many – major – competitors in the specific industry and the continuous increase of energy needs worldwide (BP, 5 March 2010), d) Threats: the continuous expansion of alternative sources of energy and the increase of the number of severe accidents during the operations of oil firms worldwide. In accordance with the above, the Competing Values Framework adopted by the firm would have the following characteristics: a) the level of production should be decided by considering its effects on the environment; the relevant plan would be flexible without affecting the consistency of the firm’s strategies (Burton et a. 1998, 17), b) the strategy chosen for the firm’s activities should be based on the conditions of the internal (people, resources) and the external (risks for the natural environment) environment, c) a balance should be achieved between the measures taken and the benefits expected; if risks are higher than the expected benefits, then the relevant plans would be appropriately alternated; the values competing in this case would be: ‘flexibility and discretion versus control and stability’ (Holbeche 2005, 85). In any case, the key characteristics of the Competing Value Framework adopted by the firm’s managers would be the following ones: innovation which would be promoted using teamwork (Mumford 2008, 342), leadership decisions which should take into consideration the different behaviours and values across the organization (Marterns et al 2008, 170) and continuous search for identification of potential gaps and weaknesses in organizational practices (Davis, 2009, 131). 4. Conclusion The alteration of BP’s strategic framework – using the Competing Values Framework, as suggested above – could have a series of important benefits: the trust of the markets and the people on the particular industry would be increased. It should be noted that, for many people, the accident in Mexico was expected due to the lack of effective regulation of the activities in the oil industry (RT, 2010). On the other hand, the operations of oil firms are related to the current energy crisis; in other words, it is the continuous increase for energy worldwide that has led firms in this industry – including BP – to change their strategic priorities and values. A balance should be set in the energy sector between the energy needs and the environmental protection. The potential increase of the former should not lead to the increase of the oil production but rather to the introduction of measures for controlling energy use and developing alternative sources of energy. The Competing Values Framework could set the basis for such effort – at least at the level of strategy design – primarily for BP and potentially for the other oil firms worldwide. 5. References Amos, T., Ristow, A., Ristow, L., Pearse, N., Human Resource Management, Juta and Company Ltd, 2009 Boddy, D., Management: An Introduction, Pearson Education, 2007 Burton, R., Obel, B., Hunter, S., Sondergaard, M., Strategic organizational diagnosis and design: developing theory for application, Springer, 1998 Cameron, K., Competing values leadership: creating value in organizations, Edward Elgar Publishing, 2006 Davis, J., Competitive Success, How Branding Adds Value, John Wiley and Sons, 2009 Holbeche, L., The high performance organization: creating dynamic stability and sustainable success, Butterworth-Heinemann, 2005 Marterns, R., Heene, A., Sanchez, R., Competence building and leveraging in interorganizational relations, Emerald Group Publishing, 2008 Mumford, M., Multi-Level Issues in Creativity and Innovation, Emerald Group Publishing, 2008 O’Connor, M., Netting, E., Organization practice: a guide to understanding human services, John Wiley and Sons, 2009 Talbot, C., Theories of Performance: Organizational and Service Improvement in the Public Domain, Oxford University Press, 2010 Online Sources BP, 5 March 2010, Global Energy Post Crisis, available from http://www.bp.com/genericarticle.do?categoryId=9031315&contentId=7060388 [Last viewed on 16/1/2011] BP, 2011, Corporate Website, available from http://www.bp.com/sectiongenericarticle.do?categoryId=3&contentId=2006926 [Last viewed on 16/1/2011] Bullis, K., 26 September 2008, Strategies for the Energy Crisis, available from http://www.technologyreview.com/Energy/21423/ [Last viewed on 16/1/2011] Gilbert, S., 4 May 2010, BP Oil Crisis and Massey Coal Disaster Bring Blame Home, available from http://www.dailyfinance.com/story/bp-oil-crisis-and-massey-coal-disaster-bring-blame-home/19461901/ [Last viewed on 16/1/2011] Glover, J., Keogh, B., 14 June 2010, BP Crisis Wipes $19 Billion From Energy Bonds: Credit Markets, available from http://www.businessweek.com/news/2010-06-14/bp-crisis-wipes-19-billion-from-energy-bonds-credit-markets.html [Last viewed on 16/1/2011] Harrison, D., 16 June 2010, The Energy Crisis... The BP Oil Spill and Alternative Forms of Energy, available from http://www.associatedcontent.com/article/5494830/the_energy_crisis_the_bp_oil_spill.html [Last viewed on 16/1/2011] Jarvis, B., 23 August 2010, A crisis of democracy: Real solutions to the BP oil spill, available from http://www.energybulletin.net/stories/2010-08-24/crisis-democracy-real-solutions-bp-oil-spill [Last viewed on 16/1/2011] Pagnamenta, R., 11 June 2010, World's biggest energy companies held crisis talks over BP oil spill, available from http://www.theaustralian.com.au/business/news/worlds-biggest-energy-companies-held-crisis-talks-over-bp-oil-spill/story-e6frg90o-1225878274778 [Last viewed on 16/1/2011] RT, 16 November 2010, BP spill exposed looming US energy crisis, available from http://rt.com/news/bp-oil-spill-canvar/ [Last viewed on 16/1/2011] 6. Appendices Figure 1- Competing Values Framework - Cameron & Quinn, 2006 (Source: http://hubpages.com/hub/The-Competing-Values-Framework) Figure 2 – Five Forces Model of Porter (Source: http://blog.bootstrapbusiness.org/wp-content/uploads/2009/02/porters-five-forces-model09.jpg) Figure 3 –SWOT analysis – example (Source: http://courseware.finntrack.eu/images/SWOT_analysis_example.png) Figure 4 – Operating Management System in BP (Source: http://www.bp.com/sectiongenericarticle.do?categoryId=9032650&contentId=7059902) Read More

 

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