Strategic Management: BHP Billiton - Essay Example

Executive Summary In the process of aging, the firm heavily structures and restructures its corporate governance to advance the profitability metrics. The strategic management concepts improve productivity amidst a challenging business environment. The strategic management approach ensures that the business minimizes losses by bettering operations. Such an approach guarantees increased shareholders confidence with time. A strategic management step is merging or diversification. The incoming research will explore the effect of strategic management principles on key operations of a firm. The research will invite BHP Billiton as a case study. The report will explore, core strategic management concepts, external environment factors, internal environment factors, strategies implemented by BHP Billiton. The report will terminate with a justification that the BHP Billiton 2014 split will improve the firm future competitiveness. 1. Background BHP Billiton is a British – Australian Multinational mining company. The company is headquartered in Melbourne Australia, Perth Australia, Johannesburg South Africa and London United Kingdom. The company merged from Australian based Broken Hill Propriety Company Limited (BHP) and English based Billiton plc. As a result, the company is dual listed. The Australian half is listed on Australian Stock Exchange while the London-based is listed at London Stock Exchange. The firm’s market capitalization is at 70 billion dollars. However, last year, the company decided to split into two with one segment controlling non-core assets. With time, the company has been experiencing the need for quality strategic management a vital focus of the incoming research. 2. Core strategic management concepts BHP Billiton has been facing a number of strategic management concerns. In particular, the company has been faced by negative impacts caused by previous decisions. The list of strategic management issues include. Firstly, the company has had unclear priorities, which lead to loss of focus. The company has merged with other companies, which has not made a significant impact on its long-run objectives. The merger is BHP and Billiton 2001. Likewise, the company has failed to leap from the fruits of diversification. Its involvement in Ok Tedi copper mine in Papua New Guinea has led the company being sued by indigenous inhabitants over environmental degradation (Human Rights Org, 2014). The company has failed to assess the impact of external changes, to formulate a better plan. As a result, the company has faced challenges in attempting to harmonize backyard issues. Likewise, the company has encountered difficulties in tracking wasted time (Kantardjieva, 2015, p. 538). Besides, the company has suffered a significant challenge given that it has continuously invested in non-fruitful projects. The company has also suffered significant setbacks in attempting to increase drift from an established strategic location for its raw materials. Moreover, the company has continuously invested in strategic less important projects. Similarly, Ding et al, (2014, p. 33) believes that the company has been facing challenges in defining its clear priorities and making sure it achieve important issues at hand. Finally, the company has not been capable of tracing its past challenges in order to reflect on future strategies. Based the above strategic issues, the company has not been aware of commodities which have had a run during the 2000 as well as, those which are truly over. Kamperman et al, (2003, p. 16) argues that, in the last decade prices had been driven by the rapid increase in demand by China coupled with the global industry’s inability to expand production quickly. As China’s growth rate falls into mid-single digital and the nature of the economy has began to change from infrastructure oriented to consumer-oriented, there has been a drastic fall in prices for raw material, hence rendering BHP irrelevant. For that reason, BHP chief market might end up changing given if the firm does not change its strategies. As noted from the PNG case, there have been environmental issues, which challenge the development of new mining strategies. As well, the Green Tape policy (Stroup, 2000) has been impeding the firm’s operation. In developed countries for instance, Australia, nationalism in some part of South America and Africa, corruption in China, Russia, and Africa, accelerated with global warming concerns Sweet (2006, p. 34), carbon emission have had an impact on the quality of strategic management. In this case, BHP has failed to engage the appropriate strategic management issues, leading to low social responsibility. The massive influence of large mines on land and communities, as well as the different degrees of corporate ethics has led to the negative impacts on national attitudes. The question of growth has posed problems for a very large organization like BHP Billiton. Essentially, the small growth and the percentage of an organization with close 100,000 employees. The strategic management issues in this case include poor standardization, simplicity, efficiency, and effectiveness of operations, which are important for the future growth of the firm. 3. External environmental factors As noted from the strategic management list of concerns, the company has been involved in a number of external environmental factors. BHP is the world’s largest marketer for iron ore; as well, it drives 16 percent of revenue from metallurgical coal and 13 percent from steam coal (Lawcock, 2000, Thompson and Macklin, 2009). The company has diversified its business to ensure that it meets it immediate business concerns. As well, the company sells new equipment and provides aftermarket parts and services. Largely, half of its revenue comes from new equipment and the other half from the after-market services. BHP Strength Weaknesses Opportunities and Threats (SWOT) can evaluated as such. For strengths, the company has diversified its revenue streams making it a global competitor. The company has created a strong international brand name. As well, the company has created a strong workforce with over 45,000 employees globally. Likewise, the company has one of the largest petroleum mining companies. As well, the company has developed a number of CSR activities that enhances the brand image further. Finally, the company has with time built its market position against close European and American competitors. For weaknesses, the Australian government has continued intervening with its operation. The company has been unable to control the list of industrial accidents. Likewise, the company has continued to enjoy a number of opportunities. Chiefly, the company related smaller companies. As well, the company has expanded its operations in coal and copper. Equally, the company has significant set-backs while associating with other companies. In addition, the company has continued challenges in reducing its export demand to other countries. As well, the company has faced intense competition. Likewise, the number of competitors has increased over time. Competitors include Anglo American plc, ExxonMobile Corporation, Chevron Corporation, Total S.A, Royal Dutch Shell PLC, and ThyssenKrupp AG. The worst challenge facing the company is the ever-increasing natural environmental concerns. The company has been involved in both indirect and direct attacks on its business. Hartman (2009, p. 49) believes that besides, CO2, and other harmful emissions such as mercury, and sulphur, the company has been forced to deal with mountain-topping concerns as well as mine accidents. In particular, there have been concerns that why more miners have continued suffering from the black lung disease that killed in the better-publicized mine incidents. As well, environmentalists have continued accusing the company of the cause of acidic rainfall. The company has been blamed for decimated the black forest in Europe and many of eastern America’s forests including the smog. Withgott and Brennan (2011, p. 43) believe that given the existing forms of coal mining, which is shaft or open pit, there are have been monstrous offspring, mountain leveling. The mining has continued to produce damage to groundwater as well as, the most obvious damage to surface water quality and flow patterns. There have also been concerns whether the quality and flow patterns have impacted negatively on the natural environment. . 4. Evaluation of BHP Billiton’s internal environment The company has faced with a number of internal environmental problems. Over time, the company has been undergoing restructuring, discarding product lines and trimming workforces. The internal environment is composed of current employee behavior, in the external environment. As well, it advisable to investigate how well organization will adapt to the external environment. The internal environment can be defragmented into two principle measures, this includes task environment and general environment Brink and Ruys (2014, p. 24). The task environment, include clients, competitors, suppliers and the labor market. Likewise, the general environment includes technological, natural, social-cultural, economic, legal/ political and international. 4.1 Resources The company has with time created diversified resources. The firm operates in close to twenty countries with key operations including spanning aluminum, coal, copper, ferroalloys, iron ore, diamond, nickel, oil and gas, as well as, silver. The resources include time to invest in these countries, a large financial base, high technology equipment, a presentable corporate business, skilled and dedicated staff members, and facilities Underwood (2002, p. 49). These resources have ensured that the allocation function of the manager involves assigning these key assets to individual and units within the organization in a manner most closely suited to advancing the mission, objectives, and goals. Although there has been a great deal of competition, the company has managed to utilize scarce resources for its favor. 4.2 Capabilities The company has been involved in the mining business for a quite a long time. As well, the company’s corporate presentation places it competitively better than close rivals do. Redmond and Crisafulli (2010, p. 33) establishe that BHP Billiton, was set up in 2003 as a multiphase expansion project to help handle the increased demand for iron ore globally. The RGP is expected to increase iron ore handling capacity Mt/yr through the development of different port berths. The RGP 3 mine and part expansion, has been a projecting at a cost of 1.3 billion. The project has a handling capacity of 129 Mt/year. The company has well managed to expand its capacity from 20 Mt/ yr to 42 Mt/yr. 4.3 Core Competencies As part of its competitive advantages, BHP Billiton has been involved in a number specialist’s skills and technologies that have expanded its market eligibility. Core competencies are those, which enable the firm to maintain the firm’s pipeline of a new product from those, which are short-lived especially in fast-moving markets. The firm has more plants, hence more outputs increasing the volume ratio for its products. As well, Tullow (2010, p. 34) notes that the firm has an ability to add value to the products before reaching the final customer. Likewise, Kamperman et al., (2003, p. 17) factors that the firm has been able to edge out rival by ensuring that its product enlists a number of a portfolio of competencies. As a result, rival companies are not capable of imitating the product. The company identifies its key resources and competencies at present. For that reason, the company assesses technologies and skills that are strong and weaker. In fact, the firm builds its expertise is a relevant aspect of its product development and operations. 4.4 Strategies implemented by BHP Billiton Decisively, Billiton has streamlined its business, thus expanding its overall output. Lord et al, (2015, p. 263) argues that as part of the success of the merger, the group adopted a new charter for the organization. With time, the group decided to make fundamental changes to the Charter, even though the cultures of the two organizations were different and strategies were complemented with each other. Bouchentouf (2011, p. 45) further establishes that the merger reviewed the company performance in the 2011. A few wording was changed, even though the concept was still the same. The wording read. We are BHP Billiton, a mining global resources company. Our purpose is to create a long-term shareholders value through the discovery, acquisition, development and marketing or resources. The strategy read that the company operated large profits, at long-life, low cost, expandable, and diversified assets. The company values were sustainability, integrity, respect, performance, simplicity, and accountability. For commitment purpose, the company stated that our people start each day with a sense of purpose and end the day with a sense of accomplishment. Our communities, customer and suppliers value the relationship with us. Our assets portfolio is ensured excellent and sustainably developed. Our operational discipline and financial strengths enable our future growth. Our shareholders receive a superior return on their investment. From the above portfolio, the company has been in a position to engage the right corporate growth strategies. As such, the company has engaged internal development. BHP merged with Billiton. The merger has continued operating joint ventures. The firm has engaged a number of strategic alliances. As a result, the firm has been able to realize business growth strategies; this includes horizontal integration, vertical integration, geographic expansion and diversification. Bartrop (2010, p. 345) argues that soon after merging the firm engaged in a responsive horizontal integration. The most common strategy included early stage development to pursue growth in sales and market share for existing products and services in their existing geographic market. As well, the firm’s profitability can be affected by important suppliers that demand higher prices and by powerful distributors that demand lower purchase prices. Likewise, Godfrey (2012, p. 49) contends that distributors have motivated the firm by putting sales growth and creating negative perceptions among consumers. Given that firm reduced its supplier’s power merging, the company has with time been capable of achieving a better bargaining power. Additionally, the firm has been capable of integrating distribution channels into the firm’s value chain, which gives firms greater control over the distribution of activities. 5.0 An assessment of BHP Billiton’s 2014 The company has confirmed splitting in a statement made at Australian Securities Exchange (Verrender, 2014). The new company will be headquartered in Perth where it will invite South African business as well. The company wants to retain a steadfast of key mining. This includes iron ore, coal, copper and petroleum. The investors have approved the concept of BHP shares, lifting it by a further 2.3%. The new company will have assets worth $ 20 billion hence making it one of the largest Australian mining groups. Given that the 2001 merging generated assets for the company, the splitting will improve management of these assets. The current enjoys profits, meaning the split factor will allow the Research and Development department to focus more on the return of the firm (Broken Hill Proprietary Company, 2001). The company encourages abnormal performance of experiences of relatively post-event stock price. As well, the managers will recognize if they are likely to be willing to delay the moment of the split factor. However, there are concerns whether the stocks splits signals negatively. Decisively, analysts should respond to future earnings performance with a greater upwards cast of revisions. As well, will be scrutinized by investors panel, which expand the investors’ confidence. Likewise, the split will encourage favorable permanent earnings performance given that disclosed earnings (Roth, 2014). This surpass the long-term pre-split analysis that forecasts and the signals appears to be positive since the market will react positively to the announcement and the analysts adjusting to their prior earnings forecasts upward as a response to the announcement (Roth, 2011, Pottenger and Leigh, 2013, p. 45). 5. Conclusion As noted, it is important for a firm to engage the right strategic management steps. Such an approach improves productivity and expands the firm productivity in a competitive environment. The report has further justified that BHP Billiton strategic steps are responsive to the nature of the business. The report has coined the importance of considering stakeholders’ productivity the firm’s productivity. In summary, future strategists should investigate strategists to improve the firm’s competitive position both the short-run and the long run. References BHP Billiton. (2003). Yesterdaytodaytomorrow: BHP Billiton community programs. Melbourne: BHP Billiton. Bartrop, S. (2010). Acquisitions may add value to resource companies. Bouchentouf, A. (2011). Commodities for dummies (2nd ed.). Hoboken, NJ: Wiley Pub. Brink, R., & Ruys, P. (1996). The internal organization of the firm and its external environment. Tilburg, Netherlands: Center for Economic Research, Tilburg University. Broken Hill Proprietary Company. (2001). BHP Billiton proposed DLC merger: Explanatory memorandum. Melbourne: BHP Limited. Ding, F., Li, D., & George, J. (2014). Investigating the effects of IS strategic leadership on organizational benefits from the perspective of CIO strategic roles. Information & Management, 13-39. Godfrey, K. (2012). Can pairs trading act like arbitrage to enforce the law of one price? Hartman, L. (2009). The global corporation: Sustainable, effective and ethical practices : A case book. New York: Routledge. Human Rights Org. (2014, April 13). BHP lawsuit (re Papua New Guinea) | Business & Human Rights Resource Centre. Retrieved April 18, 2015, from http://business-humanrights.org/en/bhp-lawsuit-re-papua-new-guinea?page=2 Kamperman, M., Howard, T., & Everett, J. (2003). Controlling product quality at high production rates as applied to BHP Billiton Iron Ore Yandi fines operation. Mineral Processing and Extractive Metallurgy: Transactions of the Institute of Mining and Metallurgy, Section C, 13-18. Kamperman, M., Howard, T., & Everett, J. (2003). Controlling product quality at high production rates as applied to BHP Billiton Iron Ore Yandi fines operation. Mineral Processing and Extractive Metallurgy: Transactions of the Institute of Mining and Metallurgy, Section C, 13-18. Kantardjieva, M. (2015). The Relationship between Total Quality Management (TQM) and Strategic Management. Journal of Economics, Business and Management, 537-541. Lawcock, G. (2000). Broken Hill Proprietary (BHP). Melbourne: Warburg Dillon Read. Lord, R., Dinh, J., & Hoffman, E. (2015). A Quantum Approach to Time and Organizational Change. Academy of Management Review, 263-290. Pottenger, M., & Leigh, A. (2013). Long Run Trends in Australian Executive Remuneration BHP 1887-2012. Bonn: IZA. Redmond, A., & Crisafulli, P. (2010). Comebacks powerful lessons from leaders who endured setbacks and recaptured success on their terms. San Francisco: Jossey-Bass. Roth, M. (2011). Top Stocks 2008 a Sharebuyer's Guide to Leading Australian Companies. Milton, QLD: Wiley. Roth, M. (2014). Top Stocks 2015 A Sharebuyer's Guide to Leading Australian Companies. (21th ed.). Hoboken: Wiley. Stroup, R. (2000). Cutting green tape: Toxic pollutants, environmental regulation, and the law. New Brunswick [N.J.: Transaction. Sweet, W. (2006). Kicking the carbon habit: Global warming and the case for renewable and nuclear energy. New York: Columbia University Press. Thompson, P., & Macklin, R. (2009). The big fella: The rise and rise of BHP Billiton. North Sydney, N.S.W.: Random House. Tullo, A. (2010). Potashcorp Snubs Bhp Billiton. Chemical & Engineering News, 8-8. Underwood, J. (2002). The new corporate strategy. Oxford, U.K.: Capstone Pub. Verrender, I. (2014, August 15). Mining giant BHP to split, spin off assets. Retrieved April 18, 2015, from http://www.abc.net.au/news/2014-08-15/bhp-billiton-confirms-it-will-split-the-company/5674346 Withgott, J., & Brennan, S. (2011). Environment: The science behind the stories (4th ed.). San Francisco, CA: Pearson Benjamin Cummings. Read More