Strategic Management - BHP Billiton - Case Study Example

Strategic Management al Affiliation) Introduction BHP Billiton is an organization formed through the merging of U.Ks Mining Group Billiton and Australia’s Mining and Oil Billiton. Through this merging, it created worlds most diversified resource company that operates in 20 countries covering minerals like copper, iron, nickel, silver, and diamond. Merging of the two companies has brought out benefits to the market capitalization. BHP Billiton is aimed to perform significantly and achieve certain goals. This led the company to come up with certain strategies. The main strategy of the company is to be able to operate a wide market in the world. This is possible through owning and operating diversified commodities. This strategy has never changed for period and has enabled the company in many years to be productive and deliver greater margins in both economic and commodity sets. Some of the strategies are like commitment to keeping environment safe, support local communities and ensure safety of its people (Williams, 2009). External analysis External analysis involves the manager identifying risks and opportunity in the business. Identification of these risks and opportunities will provide a base for the business to achieve corporate purpose and create a long-term shareholder value (Warner, 2010). Risks in an organization can be of different kind’s e.g. environmental risks, health and safety risk, community risks, market and financial performance risk thus achievement of the set corporate purposes. Management of this risk builds courage and confidence in the customers, suppliers, employees, and shareholders. It is of benefit and a source of competition advantage when these risks are managed in a successful way. The key elements in the approach of managing risks and uncertainties are diversification in commodities, currencies, geographies liabilities, and assists. Through strategic managements this risks are identified, analyzed, and assessed in a consistent manner. The risks are assessed in using materials and criteria that is approved by the institution to be tolerable. The degree of severity of the risks are analyzed and assessed. Implementation of risk control method is then incorporated. The risk control is assessed and a tolerable residual risk that will have less impact is to be produced (Cukierman & Lippi, 2000). Business risk These risks arise in the production of commodity, their demand, supply, and resources (Tourangeau, 2001). In BHP Billiton, company the demand of commodities for production purposes leads to depletion of the minerals. BHP Billiton obtains its revenue and profit through supplying of minerals, oils, and gases. In order for the company to acquire good results in their sells, it has to put more efforts in exploring and acquiring of the minerals. It also has to be able to generate more reserves that have minerals to meet the required production level thus meeting the set strategies and goals. However, these may lead to increased land tenure and infrastructure risk as land is exploited. Inability of the company to discover and acquire new resources, maintaining of reserves will lead to negative effect in the result and financial forecasts of the business. Estimating of reserves has various integral uncertainties. Change in information about reserves make assumption of mineral quite challenging. This affects the companies result and financial forecast because the final economic assumption at times needs to be restated due to uncertainties that are inherent with estimation of mineral reserves (David, 2003). Changes that occur in our portfolio assets have effects on the company’s financial condition and future results. The regular review in the composition of the company’s asset portfolio will lead to either addition or diversion of assets to the portfolio (Treverton & Ghez, 2012). This changes leads to risks in the market that include adverse reaction, not meeting set expectations, not achieving commercial objectives, inability to retaining key staff and delayed cost saving . All these risks will lead have effect to the company’s reputation thus affecting result and financial condition of the business. This risk should be managed appropriately to ensure that the strategies of the company is well managed. The strategy of the BHP Billiton is also affected by increasing the cost and scheduling delays in time. The projects and operations of the company are underestimated in the basis of the time and money needed for completion. The projects are complex and rely on factors like time that are out of our control. This causes delay in the market making a project not achieve the expected profit. Mismanage of projects also cause delay in completion of projects and increase in cost thus affecting the results and prospects of the business. Sustainability risk This includes risk of employees and personnel in the industry are faced with. The workers should be in a safe working environment. Cases like explosion, fires, gas leak, and failure in equipment should be well addressed. Workers safety has direct impact on the companies operation. Health of worker and employees should be properly checked. Workers sometimes are faced with hazardous materials that lead to long term health problems. This risk should be managed to prevent financial compensation of workers (Frey, 2002). Environmental risk due to releasing pollutants to the environment should be addressed. The environment should be kept safe always and release of hydrocarbons should be controlled, this directly links to the strategy of the company where change of climate is a priority to them. Mining has adverse impact on the environment. Its effect is felt on water resources as well as to the other ecosystems. Some local community is opposed to the operations of BHP Billiton Company. They file petitions to courts that they are not satisfied with the operation of mining in their areas. They view this practice to be more risky thus delaying of development projects that were set up (Jeffs, 2008). Internal analysis Internal analysis is a practice where the company analyses its competence through identifying its strength and weakness. The company should expand and exploit its strength and try to eliminate its weakness (Schermerhorn, 2005). The strength of the company is the diversified products it is focused on. BHP Billiton is focused in numerous minerals. This is strength as compared to other competing companies. BHP Billiton is focused at cutting the production cost and improves its productivity. The company’s strength will remain that it is the biggest exporter of metallurgical coal. This company is the global top four producers of copper concentrates not forgetting it produces iron ore and is the third largest producer. BHP Billiton owns various companies around the world. An example is Cannington Company, which is the world’s largest producer and exporter of silver and lead. BHP (Zanoni, 2012). The company’s strength is the disciplined nature in management of capitals. The company is different from others through its adherence to strategies, performance, and maximizing shareholder returns through allocating of capitals in a well-disciplined manner. The company’s diversified portfolio has high margins and delivers more high capital return that is lower in vitality as compared to other companies. This is proofed where in the past ten years the company has paid up to 64 billion US dollars to its shareholders (Hussey & Ong, 2012). Before allocation of capital to different areas, we first test each decision against both long term and short-term criteria across several scenarios. After testing is done will be sure that no single entity will have potential to create and imbalance the investments of a shareholder. The portfolio is the main difference between BHP Billiton and other companies because it is rich in opportunities and is more disciplined in capital allocation. This has helped reduce the company’s annual expenditure and created more competition for capitals thus creating and focusing on certain commodities and the company’s high margin. This leads to low cost of production as per the strategy management. A productive organization that is aimed at achieving sustainable improvement in productivity. The organization comprises of systems, structures, people, culture and portfolio that is able to create a competitive advantage through working smart in order to deliver equipment and at lower cost keeping in mind their safety and health (Saloner, Shepard & Podolny, 2001). Operating model in the company has helped guide workers on how to work, how organized one should be in line of duty and measuring financial and operational performance of workers across the group. This helps achieve the set goal of the company and manage the set strategies. Strategies implemented Commitment to ensure the safety and health of employees and workers are sustainable. This safety of workers is kept and incase of any personal injury is recorded in per million hour worked. In the recent years, the number of injuries had significantly reduced and there were no fatalities during the operations. The health and safety of workers comes first and directly affects operation in the company. Employees are thus trained appropriately on how to manage and eliminate the risks that may arise in the operation. Through engineering, we try to eliminate of hazards that may occur. This plays a role in the safety of workers. As per the FY2014, there were no fatalities recorded and the cases of injury frequency reduced by nine percent as compared to the year 2013. In the recent year the number of illness, i.e. musculoskeletal and hearing loss has increased. This case has made the company to provide protective equipment that will help safeguard against this illnesses (Sadler, 2003). Commitment to ensure that change in climate is a priority to the company and is a basic to our strategic decision making that regulates the amount of Greenhouse gas (GHG) emitted. World Resource Institute measures the amount of gas emitted. The company tries to contribute to the enduring benefits to biodiversity, environment, and the whole ecosystem. The commitments ensure the company identifies, evaluate and implement projects that prevent or reduces the emission of greenhouse gas. This commitment has reduced the amount of GHG emitted to the atmosphere. In the year 2014, the company released only 45 million tons of Carbon dioxide, which was reduction from 2013 where 46.7 million tons of Carbon dioxide was released. The company will keep the trend of further reducing the emission of greenhouse gas (Robbins & Coulter, 2005). Commitment in supporting and invest to the community. The company is committed to channel cash voluntarily to support the community. The company values its host communities thus; they strive to come up with meaningful long-term relationship. The company provides employment to the locals. It supports the local, regional, and national economy of the state. The company also develops infrastructure like roads, which is a benefit to the whole community. The community has benefited a lot through investments. In the recent year, BHP Billiton channeled 241.7 million US dollars to the community. 141.7 dollars of these cash was in cash while the rest of the cash was contributed to BHP Billiton Foundation (Nykiel, 2005). Splitting the company into two BHP Billiton is set to restructure the company even though the previous CEO failed to achieve it. The company will demerger and be split into two companies. The restructuring will comprise a commitment to cut 2.6 US dollars in a year. This cost will be used to initiate other productivity gains a trend that has been going around the company where miners search for new ways of preserving profits when the price of the commodities continue to decrease. It is argued that through splitting of the company, the companies will focus on small range of commodities i.e. copper, iron, petroleum, coal, and potash as a potential commodity. Focusing in this small range of commodities will produce more income and great profits (Birkinshaw, 2004). Splitting up of the company is a way of making the company more valuable and attractive in the eyes of the investors. Splitting up will reduce the cost of production of the company and increase productivity. This will cause the company to great margin profits, better return on capitals invested, and a more strong growth in free cash flow (Ansoff, 2009). Conclusion The company’s strategy on keeping the environment safe should be of more concern and exploitation of land when searching and mining minerals should be put in mind. The company should find ways of ensuring that even after mining the land is maintained in a well shape and other practices can still be carried on it effectively e.g. farming, constructions of infrastructure and houses References Ansoff, H. (2009). Strategic management. New York: Wiley. Birkinshaw, J. (2004). Strategic management. Cheltenham, UK: Edward Elgar Pub. Cukierman, A., & Lippi, F. (2000). Labor markets and monetary union. [Roma]: Banca dItalia. David, F. 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