Management Theory into Practice - Essay Example

Management Theory into Practice Introduction Montana and Charnov define management as working with and through other people to achieve the goals of both the organization and its members (2008). Emergency management deals with risks and how they can be avoided. Similarly, crisis management deals with risks and threats to the organization. However, it is more concerned with the management of an unpredictable event that poses a threat to the integrity of the organization and its stakeholders. This study is aimed at the translation of management theory into practice and uses the example of ExxonMobil for studying the management techniques employed by its managers. One of the most significant events that have occurred in the history of the company was the Exxon Valdez Oil Spill. This paper attempts to explore the managerial practices that were employed by the company to deal with the spill and makes an analysis of the effectiveness of these practices. ExxonMobil is one of the world’s largest publicly traded international oil and gas company (ExxonMobil, 2010a). Its main purpose is to provide energy to growing economies and to alleviate the quality of living throughout the world. The company has an extensive cache to global oil and gas resources that makes it one of the leading names in the energy industry. Not only is the company the world’s largest refiner and marketer of petroleum products but its chemical company is one of the largest in the world. The company prides itself for its continued emphasis on innovation and spends extensively on finding more energy-efficient methods of production and delivery. Being one of the most successful companies of the world is strongly indicative of good management. The ExxonMobil official website pays herald to its strong leadership by saying that the discipline and commitment of the leadership has “led to competitive advantages” (ExxonMobil, 2010b). According to the Chairman and CEO of ExxonMobil, in the current turbulent times, a company can only be successful if it considers business discipline and corporate citizenship to be interlinked (Schwartz, 2010). Drawing a SWOT analysis of ExxonMobil, one can see that the strength of the company lies in its technological advancement, and strong emphasis on research and development. The strong and stable financial performance of the company, coupled with its diversified revenue system, provides it with the leading market position. Weaknesses of the company can include the legal proceedings it has been involved in, especially after the Valdez oil spill. There are many opportunities available for the business, such as the increasing demand for refined products in China, capital investment, biofuels and greater demand for LNG. The threats to the company include tax changes, economic fluctuations and competitors (WikiSWOT, n.d.). The management of ExxonMobil is competent enough to make an effective SWOT analysis, and to take measures to tap the opportunities and to manage risks. PEST analysis is also important to the company in identifying the external factors that influence it. The management needs to be aware of these political, environmental, social and technological factors that influence the operations of the business. For instance in some countries, the company has to observe relatively stringent laws of trade and business, since non-compliance with them could result in the company being banned from operation in that country. Moreover, since the company has to deal with exploration of new reserves and location of refinery close by, the management has to keep the expenditure in mind, lowering the costs by keeping the refinery close to the site of extraction. Since the company deals with non-renewable resources, there is an increased responsibility on the company to not only prevent wastage of these resources, but also to use ways that contribute the least to environmental degradation. Therefore the management has to ensure that such steps are taken, and to project an image of the company that supports the view that it is concerned about the environment and its effects on the society. ExxonMobil operates in an environment in which its operating and financial results are exposed to many risks which are inherent in the oil and gas business globally. These risks may or may not be in the company’s control and their effect cannot be reduced by the company, which in turn may reflect in the company’s operating and financial activities. Thus, the company operates and manages all of its affairs in a way that they do not affect the proper working of the company. It is also a recognized fact that managers have to come up with the innovative ideas of managing their resources with respect to their environment, business models and objectives. Therefore, while looking into the managing techniques of the said company, it is evident that it has successfully managed its resources and has lead itself towards glory of being the premier company in the industry for more than five quarters of a century. Marcial observes, “Success, in fact, is what greases the wheels of Exxon Mobil” (2008). Best Practices in Procurement Award ExxonMobil has also been credited for its managerial practices. It was recognized by Hackett Best Practices, a division of Answerthink Inc., for its outstanding practices in procurement, the practices being excellent both in their operating efficiency and effectiveness. The management of the company was commended for developing an operating global model that truly enhances and boasts excellence. This model helps to deliver efficient service in the most cost-effective way. The company has been so successful in its procurement due to the global implementation of standardized procedures and practices. This enabled the company to leverage its size and expenditures, optimize the relationship they had with other suppliers and to provide overall advantage to the company, both in terms of lowered cost and value-added service (Irving, 2002). Such a style of management reflects Max Weber’s management theory. The Max Weber theory of management, also known as the bureaucratic management theory, is formulated on the Taylorian principles as proposed by Frederick Taylor in his scientific management theory. Weber supported the view of standardized procedures and a clear chain of command (Terry, 2010). One can therefore conclude that the organization has been successful in this aspect of management, demonstrating the effective translation of management theory into practice. Factors Affecting Management of ExxonMobil There are certain industry and economic factors that need to be taken into account since they can impact the acquisition of resources and the subsequent operation processes. These factors include supply disruptions, economic growth, recession in the economy, development of new supply sources etc. Moreover the competitiveness of the energy resources and the relations with third-party organizations can impact effective managerial practice. There are competitive factors that influence managerial decisions and practices. The company’s management deals with these factors by implementing strategies that reduce costs and enhance technology, which results in increased productivity. Risk management is integral to the long-term growth and sustainability of the organization. It is very effective in determining the operating effectiveness of the company. Failure to observe risk management can result in dire consequences. As a result, managers take a very good look at the workings of the finance of the company and every step is taken to ensure that the well-being of the company is maintained. Political and legal matters also come into play in countries where the political situation is unstable or due to the promulgation of laws and regulations relating to environmental or energy security matters. The management needs to be aware of these factors in order to mitigate the brunt of negative impact that they may have on the workings of the company. Further discussion of how the management operates as a whole and how it deals with these factors is presented in the following paragraphs. OIMS: Operations Integrity Management System ExxonMobil does not have management systems that are directly linked to macro corporate social responsibility; rather all their efforts are focused around the community (Skjærseth, 2003). In fact community awareness is a component of OIMS. Operations Integrity refers to Safety, Security, Health and Environmental (SSH&E) performance, and the company has shown unswerving commitment in this regard. It is important for every business to make an analysis of the risks that it poses and how it affects its stakeholders. OIMS has fabricated deeply into the management culture of the company such that it has become a daily routine of the company’s management and also the part of the way this company works; this is because OIMS is implemented over the complete life cycle of the company’s projects and operations. In addition to that the overall effectiveness of the system is reviewed and adjusted after the lapse of five years regularly which has resulted in the continuous improvement of the system through which it achieves its objectives. The company is able to be so firmly committed to the cause of SSH&E performance by clearly defining its policies and emphasizing upon the adherence to standardized procedures. This cannot be accomplished without the rigorous application of managerial practices in order to get the desired results. Being able to motivate the employees and to bring them together to work as a concerted whole in order to achieve the objectives of the company is the foremost principle of good management. The principles of management by objective include that the managers delegate specific objectives to employees and regularly evaluate the performance of the employees. Moreover, a good manager is one who is able to provide an environment that is conducive to the performance of the employees. The OIMS integrates these principles together and believes in the policy of continuous improvement, periodically updating its framework. Moreover, the revision of the framework is aimed to reinforce the shared goals of the company by reiterating the belief that all incidents that are related to the environment, health and safety can be averted as well as to promote an environment that employees take responsibility for their actions and work in concert with their colleagues to achieve shared goals (Operations Integrity Management System, 2009). The aim of the OIMS framework is to ensure that the management systems are implemented effectively and that the span, precedence and pace of the application of the management system are in line with the risks linked to the business. The first element, as highlighted in the OIMS framework brochure, deals with the management leadership, commitment and accountability. Management systems are implemented at all levels of the organization. Moreover managers are trained and their leadership skills and behavior are developed accordingly, resulting in the effective application of the tools of management. The managers are given the authority to set the span, precedence and pace of the management systems. Moreover, a practice that is stressed upon at the organization is that managers should be acutely aware of their roles and responsibilities and be accountable for their actions (Operations Integrity Management System, 2009). Effective management requires that there are clear goals and objectives for employees to achieve, and the role of managers in this regard is not only to make these goals as clear as possible but also instill their importance into the employees such that they are motivated to work for them. Management at ExxonMobil establishes clear goals and objectives and reviews its performance against them. Another important principle that constitutes the managerial policy of the organization is to convert expectations into procedures and practices. The managers attempt to engage the workforce effectively in the Operations Integrity process and ensure that relative learnings are shared across the organization (Operations Integrity Management System, 2009). This not only helps to enhance team work between the employees but also results in development of shared values and greater job satisfaction for them. Risk assessments are also made by the managers and assessed by appropriate levels of management depending on the nature and enormity of the risk (Operations Integrity Management System, 2009). In order to translate management theory into practice effectively, managers are required to comply with the rules and regulations of the company as well as to fulfill their roles and responsibilities to the best of their ability. The journey of management theory to practice is successful in its purpose because managers at the company demonstrate commitment and active engagement in the operations of the company (Operations Integrity Management System, 2009). This includes that they manage the resources in the most efficient way and ensure that the operations do not deviate from the expectations and functional guidelines. A pivotal aspect of good management is to acknowledge when employees perform well and to appreciate them for their work. Managers at ExxonMobil follow the same strategy by recognizing outstanding achievement as well as to communicate performance and improvement goals throughout the organization (Operations Integrity Management System, 2009). Another important aspect of management is that the workforce is adequately trained to perform their tasks. Managers at the company also make sure that the workforce meets the competency levels that are required to carry out the processes smoothly. Financial Management ExxonMobil has also commanded a reputation for its investment discipline. After the 1980s, Exxon management came to realize that good financial control was worth more than costs, and they gave safety and financial controls top level in the firm’s values structure. The Exxon management realized that those organizations who worked for excellent safety and financial audit results also attained best operating results. Exxon management recognized this relationship and, especially after the Valdez oil spill, put the accomplishment of good financial and safety control into effect to produce the intangibles that permitted organizations to be operationally excellent (Arbogast, 2008). Over the years, the high level of decision-making of the managers has made the company capable of making and executing large investment decisions. In 2007, ExxonMobil made over $40.6 billion in net income, with its businesses breaking previous earnings records (Exxon Mobil Corporation, 2007). When deciding upon the investments, only the projects that are expected to grow shareholder value are considered. An investment that surpasses the $50 million figure is referred to the management committee for evaluation. As reported in an article in the Business Week, “Exxon is a machine. It has been operating well for over hundred years” (Teece, 2009). The management of ExxonMobil is aware that in order to be the top supplier of petroleum, the company needs to keep identifying and pursuing exploration opportunities. ExxonMobil’s gross undeveloped exploration acreage totaled 118 million acres in thirty-one countries at the year-end 2007. The management in credited for supervising this geographically diverse, high-quality portfolio, which helps to balance risk and reward to provide both near-term production and long-term resource growth (Exxon Mobil Corporation, 2007). The management is competent enough to make to continue to seek an industry-leading portfolio of world-class investment opportunities. For instance, the company invested approximately $21 billion in capital and exploration projects (Exxon Mobil Corporation, 2007). Moreover the management makes decisions keeping in mind short-term market fluctuations and business cycle, which enables the company to achieve an edge over its competitors. Exxon’s competitors include BP PLC and Chevron Corporation New. The price/earnings of Exxon are 17.13 TTM compared to 10.84TTM of BP and 14.69TTM for Chevron. The gross profit margin of Exxon was 27.5%, much more than its competitor’s, BP, which was 16.33%. The revenue of the company was significantly greater than its competitors, averaging 275.56 billion whereas BP made a revenue of 241.02 billion and Chevron made 159.38 billion (Daily Finance, 2010). Exxon is known for its thorough and carefully planned protocols that make it very practical and cautious with its shareholder funds. This has resulted in many benefits for the organization as it has helped the organization avert many big mistakes. In times when it did not comply with the investment protocol it faced many problems such as the acquisition of the Reliance Electric (Teece, 2009). This is representative of the high level of management and leadership that is present in the organization and has helped it significantly to deal with any unforeseen challenges. Exxon’s management team is famous for being conservative with its balance sheet. From 2000 to 2005, cash on hand has risen to $18.5 billion from $7.1 billion; the debt-to-capital ratio has decreased to 7.3% from 15.4%. This has culminated in favorable debt rating and huge financial leverage (Walberg, 2005). According to Rex W. Tillerson, Chairman and CEO, the “outstanding and proven financial, managerial, technological, and operational capabilities” of the organization helps it meet the energy needs of the world “while achieving sustained, industry-leading returns and growing shareholder value” (Exxon Mobil Corporation, 2007). The efficient management systems of the company are able to produce more income from a highly efficient capital base, as shown by the superior return on capital employed; the industry-leading return of average capital employed was 32 percent (Exxon Mobil Corporation, 2007). Exxon Valdez Oil Spill One of the most significant in the history of Exxon was the Exxon Valdez oil spill. On 24 March 1989, an Exxon corporation tanker ran aground in the Prince William Sound in Alaska (Goel, 2009). The spill caused extensive damage to marine life and polluted hundreds of miles of coastline. The captain of the supertanker was Joseph Hazelwood, who was an alcoholic. He had taken treatment but had soon discontinued it. Exxon management was aware of the fact the Hazelwood had relapsed and often consumed alcohol when he was on board but still allowed him to commandeer the tanker. About 11 million gallons of crude oil leaked from the tanker and spread around the whole reef. Commercial fisheries were forced to shut down for the next whole year. Local fishermen and other shore-based businesses were not able to carry out their usual fishing routine. Exxon spent $2.1 billion to clean up the oil spill and paid an additional $303 million to people whose professions and lives have been affected by the spill. Moreover, there were thousands of claims levied against the organization and the jury awarded $5 billion in punitive damages against Exxon. The Court decided that Exxon was “intentionally malicious”, but decreased the punitive charges to $4.5 billion (Miller & Jentz, 2008). The oil spill is a good example of the outcomes of not taking proper measures to prevent or deal with a risk. Moreover the appointment of a relapsed alcoholic as the captain of the tanker was a wrong decision from the management. By keeping Hazelwood as the captain, the Exxon management posed several threats not only to the marine life and the scenic beauty of the place, but also disrupted the lives of thousands of claimants and their families for several years (Kvasnikoff, 2007). The oil spill is reflective of the poor risk management protocol exhibited by the company, which only exacerbated the problem (Abkowitz, 2008). The initial response to the Exxon Valdez oil spill shows the importance of juxtaposing justification with behaviors that are sensitive to the audience concerns. The spill was not an event that one could have predicted, but the poor initial response to the incident could have been managed in a better way. The lack of proper managerial practice in this regard is that the managers should have recognized the risk of an oil spill and should have had devised a response plan to deal with the situation in case a spill occurs. At the time of the oil spill, the company did not have any communication plan or communication team to manage the incident (Goel, 2009). The spokespersons of the company erred in their response to the event; instead of taking charge of the situation and initiating an immediate response to the spill, they wasted time denying the enormity of the spill and playing the blame game with local establishments as to who was responsible for it. As repeatedly emphasized in management textbooks, managers should accept their responsibilities and be accountable for their actions. However, Exxon’s failure to be sensitive to the concerns of the audience is a “textbook example of what not to do when an unexpected crisis thrusts a company into the limelight” (Elsbach, 2006). The oil spill and the response to it is representative of incompetent management. Exxon’s CEO, Lawrence Rawl, has been primarily held culpable for the insensitivity to the concerns of the public. He did not make any public appearance in the days immediately after the oils spill. Not only were their rumors rife of the oil spill being as large as slates and the lack of response to them by Rawl but also Rawl’s heedless remarks when he was interviewed led to a worsening of the crisis (Elsbach, 2006). The attitude of the management comes into conflict with the theoretical basis of management that emphasizes on having a top management attitude that maintains an ethical workplace and by appointing competent employees to undertake tasks, especially those requiring high levels of administration. The implications of management in the oil spill are obvious. According to Weiss, the lack of foresight, empathy and courage at the highest levels of managerial hierarchy was the true cause of the wreck of Exxon Valdez (2008). Since the crisis was inevitable, the management should have taken steps to deal with it accordingly. For good management, this means that a crisis management plan is devised and the company is prepared to refine and make the plan more effective. Another aspect where Exxon management differed with theory was at accepting responsibility. The management should have taken prompt responsibility for the incident instead of not making public appearances. In an article published in The New York Times, Fink observes that a Chief Executive should be someone who decides what messages are to be relayed across to the public, and should be able to take immediate charge of the crisis management (1989). In this aspect, the management of Exxon did not meet expectations and therefore deviated from textbook managerial practices. Good management entails that the company is able to meet its expected sales and achieve its earning objectives. The management of Exxon needs to be commended for consistently working its way to the top even during times when the oil prices were declining. Also, although the impact of the oil spill was huge, the management did not let the earnings suffer greatly. Despite the negative climate that it faced in the early 1990s due to the oil spill, the management was not deterred. From 2001 to the first quarter of 2006, ExxonMobil made a profit of about $118.2 billion (Butod, 2009). It followed its original investment objectives, which were all projects with high returns (Faerber, 2007). Such an approach enabled the company to regain its former position and repute and to recover from the financial impact of the oil spill. In conclusion, the management of the ExxonMobil has been exemplary in its performance over the past few years, as seen by the high profits of the company. The company is industry-leading in its production of petroleum and other products meant to satisfy the energy needs of the world. The PEST and the SWOT analysis are essential to structure an operating plan for the business, and the management formulates operational activities accordingly. Success is what greases the company and the company is credited for emphasizing on standardized procedures. There are many external factors that influence the workings of the company, e.g. economical and political factors and risk management. OIMS deals with the management systems of the company and has been structured to cater to the managerial practices that are required for the efficient operation of the company. The managers are committed and work for the progress of the company. The company’s financial management is also competent and effectively translates theory into practice, as seen by the revenue and profits of the company. 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