Global Business Strategy of British Petroleum (BP)


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Global Business Strategy of British Petroleum (BP)

  1. 1. 1.0 Globalization Globalization is becoming an irresistibly stream in this age. People believe that globalization will bring tremendous for turn and benefit for them. However, as the deepening of globalization, it has revealed a lot of problem, especially for developing countries. Globalization is the tendency of investment funds and businesses to move beyond domestic and national markets to other markets around the globe, thereby increasing the interconnectedness of different markets. Globalization has had the effect of markedly increasing not only international trade, but also cultural exchange. The worldwide movement toward economic, financial, trade, and communications integration. Globalization implies the opening of local and nationalistic perspectives to a broader outlook of an interconnected and interdependent world with free transfer of capital, goods, and services across national frontiers. However, it does not include unhindered movement of labor and, as suggested by some economists, may hurt smaller or fragile economies if applied indiscriminately. 1.1 Features of Globalization The main features of globalization are stated below. 1. Liberalization: The freedom of the industrialist/businessman to establish industry, trade or commerce either in his country or abroad; free exchange of capital, goods, service and technologies between countries; 2. Free Trade: Free trade between countries; absence of excessive governmental control over trade; 3. Globalization of Economic Activities: Control of economic activities by domestic market and international market; coordination of national economy and world economy; 4. Connectivity: Localities being connected with the world by breaking national boundaries; forging of links between one society and another, and between one country and another through international transmission of knowledge, literature, technology, culture and information. 5. Borderless Globe: Breaking of national barriers and creation of interconnectedness; the ideal of 'borderless globe' articulated by Kenichi Ohmae. 1
  2. 2. 6. A Composite Process: Integration of nation-states across the world by common economic, commercial, political, cultural and technological ties; creation of a new world order with no national boundaries; 7. A Multi-dimensional Process: Economically, it means opening up of national market, free trade and commerce among nations, and integration of national economies with the world economy. Politically, it means limited powers and functions of state, more rights and freedoms granted to the individual and empowerment of private sector; culturally, it means exchange of cultural values between societies and between nations; and ideologically, it means the spread of liberalism and capitalism. 8. A Top-Down process: Globalization originates from developed countries and the MNCs (multinational corporations) based in them. Technologies, capital, products and services come from them to developing countries. It is for developing countries to accept these things, adapt themselves to them and to be influenced by them. 9. Global State vs. Global Civil Society: In protest against the harmful effects of globalization on the vast multitude of people all over the world, particularly in developing countries, protest marches, demonstrations and meetings have been organized in different countries. These protests have taken militant forms in the last decade. Protest groups have tried to disturb and paralyze the meetings of WTO, World Bank and IMF. 1.2 Advantages of Globalization: Integrations of markets: Markets are interlinked- European Union Cheaper Products for Consumer: Trainers are Cheap Leads to Outsourcing in some cases which can lead to job losses: Moving call centers to India. Lowering of international Barriers: Now European Union can Trade with ASEAN and NAFTA. Providing jobs in LEDC's and help develop economy (less Economically Developed Countries) 2
  3. 3. Helps prevent market Saturation in a specific market: stops there being too much competitors in one place e.g too much call centers in UK, so move to India Standardizations of product: the same products can be seen in some many places - e.g coke and McDonalds 1.3 Disadvantages of Globalization Intense Competition Widening of Gap between rich and poor countries Harder for Smaller businesses to establish themselves Exploitation of workers: Paying the workers in LEDC's a fraction of what would be paid in to workers in LEDCs. 3
  4. 4. 2.0 BP BP is one of the world's leading international oil and gas companies. Through our work we provide customers with fuel for transportation, energy for heat and light, lubricants to keep engines moving, and the petrochemicals products used to make everyday items as diverse as paints, clothes and packaging. 2.1 Brief History, Mission and Vision 1909: Anglo-Persian Oil Company formed. 1914: Deal with UK government to help Royal Navy switch coal to fuel. 1912-1918: Increase in oil production in Iran. 1917: Acquires BP co. from the marketing subsidiary of the European Petroleum Union. 1935: Company renamed Anglo-Iranian Oil Co. 1951: Iranian oil industry was formally nationalized. 1960-1970: Major oil discoveries in Alaska & North Sea. 1969: Signed agreement with Standard Oil Co. of Ohio which aided BP‘s transportation of the fuel in the biggest oil field in the U.S. 1982: Adopted present corporate name ―BP‖. 1987: BP acquired Standard outright and merged with BP‘s other interests in the United States to form BP America. Mission Statement: Long term commitment to prosper as an integrated, international company with strong technology base and a focused marketing effort. Vision Statement: ―To improve our performance and have a steady disciplined growth.‖ Strategic Culture: BP‘s culture rest heavily on their employees. They are the key to BP‘s future growth. Technology is key to both up and downstream operations. HSE- raises health standards, no damage to environment or people. Better relationships with countries where operations already exist. 4
  5. 5. 2.2 Organization Structure CEO CFO COB HSE Chief Exec. Oil BP Exp/Prod BP Mark/Refining BP Chemical N & S America Europe Asia Africa USA Europe S.E. Asia Australia S. America 5
  6. 6. 2.3 BP’s Facts and figures (as at, or for the year ended, 31 December 2012, updated for IFRS 11 and IAS19 where relevant) Countries of operation :Over 80 Number of employees :85,900 Sales and other operating revenues :$375,765 million Cash flow :$20.5 billion Replacement cost profit :$11.4 billion Proved reserves :17,000 million barrels of oil equivalent Retail sites :20,700 Refineries (wholly or partly owned) :15 Refining throughputs :2,354 thousand barrels per day 2.4 BP’s Four Core Values BP specifies four core values to express the way the organization does business and help translate the mission into practical action: Progressive: BP is always looking for new and better ways to conduct business. It has developed a relationship with Ford to build hydrogen vehicles and fueling stations in California, Michigan, and elsewhere. BP also has reformulated its BP Amoco Ultimate fuel to reduce air pollutants. Innovative: Through the creative approaches of employees, and the development and application of cutting-edge drilling technology, BP seeks breakthrough solutions for its customers. Green: BP is committed to environmental leadership—the proactive and responsible treatment of the planet‘s natural resources and developing lower carbon emission energy sources. As a result, BP now stores its gasoline in double-skinned tanks to prevent spills and leaks. 6
  7. 7. Performance-driven: BP sets the global standards of performance on financial and environmental dimensions, as well as safety, growth, and customer and employee satisfaction. 2.5 List of Products and Services Each of BP‘s brands has its own heritage and personality, but they all have one thing in common - they all symbolize, embody or provide tremendous energy. BP BP is our main global brand. It is the name that appears on production platforms, refineries, ships and corporate offices as well as on wind farms, research facilities and at retail service stations. Since ‗BP‘ petrol first went on sale in Britain in the 1920s, the brand has grown to become recognized worldwide for quality gasoline, transport fuels, chemicals and alternative sources of energy such as wind and bio fuels. We are committed to making a real difference in providing better energy that is needed today and in the changing world of tomorrow. BP is committed to safety, respect, excellence, courage and One Team. They make us the company we are. Everything we do has to live up to these values Our logo - the Helios - symbolizes these values. Named after the Greek sun god, the Helios represents energy in its many forms. Of all the forms of energy that make up BP and its services, perhaps the most vital is the human energy our people bring to everything we do. This is what fuels our brand. 7
  8. 8. Aral The blue Aral diamond is a trusted and familiar symbol on the German roadside. Aral is one of the most trusted brands in Germany. It has been associated with quality automotive fuels since the 1920s. Today people also associate Aral with good food and excellent service on the go. Every day more than 2.5 million customers visit an Aral station to fill up on petrol, use an on-site car wash or purchase a beverage or snack. In fact, some 40% of Aral customers stop by just to shop in the sleekly designed retail spaces, which stock a range of convenience items and Aral branded motor oils, along with coffee and food. So in addition to being Germany‘s leading fuel brand marketer Aral is also the country‘s third largest fast food retailer, after McDonald‘s and Burger King. ―Alles Super‖ is the Aral slogan. ―Everything‘s super.‖ So in Petit Bistros, Aral‘s onsite cafés, you‘ll find Crossinos, which are made with select ingredients to be super tasty. It may be no coincidence then that Aral is a Super brand, one of 73 brands in Germany to be awarded this designation by an independent organization. Or that for several years in a row Reader‘s Digest readers have named Aral Germany‘s most trusted brand in fuel. 8
  9. 9. Castrol: Castrol is widely seen as the world‘s truly global lubricants specialist You have probably heard of Castrol, the lubricants brand BP acquired in 2002. Castrol‘s motor oils for automobiles and motorbikes are particularly well known. But did you know that Castrol also makes lubricants for every conceivable application on Land Sea and in the air. Castrol‘s founder, C.C. Wakefield, believed in working with manufacturers and other businesses to develop lubricants to meet their specific needs, especially where new lubricants could ease the way for advances in engine or industrial design. Castrol continues to work collaboratively like this today as the preferred lubricants partner to VW, Audi, BMW, Komatsu and others. Castrol‘s brand is about passion, excitement and performance. For many, that means speed. Castrol has been actively engaged with motorsport teams and Castrolsponsored drivers have broken the land speed record more than 20 times. Such relationships have been a proving ground for Castrol's products and central to building Castrol‘s reputation as the world's most advanced engine oils and fluids. Today you will find a wide range of technologically advanced Castrol lubricants for your vehicles at a local BP station or automotive supply shop. Castrol products are sold in more than 150 countries. 9
  10. 10. ampm Back in 1978, the thought of fueling-up more than your car at a service station was unheard of. But the folks at ampm always saw things differently. The very first ampm store opened its doors in Southern California, as a value-add-on to select gas stations. From packaged beverages, grab-n-go sandwiches, treats or fountain drinks - the recipe at ampm has always been simple: provide a great value and variety to conquer the snack and thirst cravings of our customers. Thirty-plus years later, ampm has grown to approximately 950 covering California, Oregon, Washington, Nevada and Arizona as part of select BP fueling stations. Wild Bean Cafe Good food and quality coffee can be hard to come by on the road, but Wild Bean Cafe is an exception to the rule. Tucked into many BP Connect stations, these on-the-go cafés offer inventive sandwiches, fresh baked goods and delicious, fresh-ground coffee. Conceived as a brand that would take convenience food to a new level, Wild Bean offers the speed and affordability of more typical service station shops plus one more thing. Everything‘s made with quality ingredients and served fresh. You can enjoy your food, coffee or cappuccino in the coffee shop space or take it with you to enjoy on the move. Wild Bean Cafe operates in several continents around the world. You‘ll find it in parts of Europe, Australia and South Africa. We also have a presence in China and Russia, and new branches are opening all the time. 10
  11. 11. 3.0 BP’s SWOT Analysis Strengths: BP is ranked at the world‘s 3rd largest energy company and is positioned as a multinational oil company headquartered in London that: Operates petrochemical businesses worldwide through the network of its subsidiaries and retail brands(Amoco; ARCO; BP Express, BP Connect; BP Travel Centre; ampm; Burmah Castrol etc) Participates in London Stock Exchange, IPO in New York Stock Exchange. and is listed in the FTSE 100 Index; BP Amoco strong brand loyalty for oil; Strong brand management driven by the ‗Beyond Petroleum‘ slogan. BO Q3 net profit increase by 83% due to record oil and gas prices. The indicator amounts to $53.43 per share compared to $21.27 during the same period in 2007. Weaknesses: Launch of controversial business with the Baku-Tbilisi-Ceyhan pipeline; Increase in petrol prices in the UK; Explosion of BP refinery in Texas that caused 100 injuries and 15 deaths in 2005; Criminal charges due to the spread of 270.000 gallons of crude oil in the Alaskan tundra in 2006; Toxic spill of 2,000 gallons of methanol in the oil field (Prudhoe Bay) managed by BP. Closing of Alaskan oil wells. Opportunities: 8 b. USD investment in the research of alternative fuel methods, including hydrogen, natural gas, wind and solar over the forthcoming decade; Expansion of frontier areas suitable for BP‘s future reserves (post-Soviet Union territories); Extension of strategic oil and gas acquisitions in North Sea area; Launch of more flexible price policy to compete main rivals; 11
  12. 12. Threats: Environmentally unsound policies due to oil and toxic spills; Occasional refinery explosions; Corrosion in pipelines; Competition from Shell and Chevron Ceasing operations in a number of potential locations with their further re-branding (Conoco); Sale of corporate-owned stations; More than 5.000 shortages within coming months; $66,71 per barrel creates considerable tensions for running oil business; Further lawsuits considering the company‘s ecological activities; SWOT analysis At a Glance: Strengths Opportunities Human Resources Technological Advances Technology Emerging Markets (Asia/Pacific) ―Mutual Advantage‖ Oil remains main source of energy Upgrading Refineries Formation of European Union Infrastructure/Leadership Introduction of ―euro‖ Fuels in Europe Improving Operational Efficiencies Weaknesses Threats Recovering from large debt Environmental Regulations Weak market outside of Europe Substitute Products Less upstream investment to replace Power of OPEC production in long run Overcapacity in mature markets Dependent on small no of gas fields Supermarkets gaining market share Producing more than it needs for its European Economic woes operations Commoditization – no brand equity in Europe Tight oligopoly, mature market, cutthroat competition 12
  13. 13. 4.0 PESTEL Analysis Political Wоrld enеrgy markets arе bеcomіng mоrе volаtile due tо thе thrеаt оf geopolіtical іnstabilіty. Grеаtеr climate de-stabilizаtiоns frоm CO2 emіssiоns arе leadіng govеrnments tо encourage mоrе sustaіnable fоrms оf enеrgy. Wоrld enеrgy markets arе bеcomіng mоrе volаtile due tо thе grоwіng oil rеquirеments оf а buoyаnt Chіnese ecоnоmy, crеаtіng tensiоn bеtween nаtiоns. Economic Ecоnоmy іs undеrpіnned bу іts enеrgy supply. Enеrgy markets will see demаnd іncrеаsіng bу almost 60 pеrcent, wіth fоssil fuels meetіng most оf thіs, аnd nuclear аnd rеnewable enеrgy markets havіng limіted rеlаtive cоntributiоn. Altеrnаtive enеrgy sоurces аs а pеrcentage оf tоtal enеrgy supply arе іncrеаsіng аnd arе expected tо cоntіnue tо do sо, triplіng frоm 2 pеr cent іn 2002 tоwards 6 pеr cent іn 2030. (Brоadhurst, А. 2002, p87) Social Kyotо Agrеement, signed іn 1992, hаs led tо carbоn funds аnd emіssiоn tradіng іn Eurоpe аnd around the world, which іs bеcomіng а legal rеquirеment. People‘s wоrldview іs startіng tо chаnge tо а cоncеrn ovеr thе sustaіnabilіty оf thе futurе, although thіs іs nоt expected tо chаnge dramatically to justify widespread changes to energy use for some time. 13
  14. 14. Technology The Іntеrnаtiоnal Energy Agency states that alternative energy markets will be underpinned by technological breakthroughs. Research shows technology is the key to competitiveness in the alternative energy industry; whilst alternative energy technologies (AETs) are underpinned by 48 critical success factors across technological, commercial, sоcio-polіtical and оrgаnizаtiоnal categories. Environmental and Legal The Kyoto Agreement, signed in 1992, has led to carbon funds and emission trading in Europe and around the world, which is become a legal requirement. New laws from government. Higher EU pollution standards. International Environment Organizations. More attention has been drawn towards the concern about sustainability of the future, other forms of alternative energy such as solar and wind energy. 14
  15. 15. 5.0 BP’s Global Exploration Zone 15
  16. 16. 6.0 Political Economy & International Business In response to the mentioned political influences, BP's strategy has been changed the following way. Generally, it is possible to observe two main tendencies. First, BP attempts to hedge political risks in the oil producing countries by means of partnership and deals with the governments. For instance, BP signed a contract with the Russian state-run oil company Rosneft in 2009 (Hernandez, 2011:1). Second, the company evacuated its personnel from northern Africa because of growing political instability in Tunisia, Egypt and Libya. Simultaneously, BP develops its cooperation with emerging economies in Asia, which are more politically stable, namely India (Hernandez, 2011:1). These changes were necessary in order to avoid political risks in the countries, which prove to be the leading producers of oil. It is reported that the company started producing solar panels after the acquisitions of Lucas Energy Systems (1980) and Amoco (1998). At the present moment, the company proves to be the largest manufacturer of solar panels in the world. BP has launched two main types of solar energy products, namely products for individual consumers and products for organizations. For instance, the firm is planning to run a new solar energy project aimed at energy supply for Wal-Mart stores (BP, 2011:1). Furthermore, it is reported that BP invested more than $6 billion in wind and biofuel energy projects during the period from 2005 to 2010 (BP, 2010:61). These changes were necessary because the PB attempted to attract customers by cheaper and 'green' energy. Economic Opportunity:  Oil prices increased this year.  Benefit integrated oil companies overall.  Specifically help Exploration & Production companies.  Hurt Refining & Marketing companies.  Some signs of modest economic upturn in European Union:  GDP increased 0.5% in 1st Qtr. 1996.  Exports have grown larger than imports over the last five years.  European International Conference held this year; two main concerns:  Expansion of EU to the east and south.  Review of the Maastricht Treaty. 16
  17. 17. Economic Threats:  Continued slow growth throughout EU  Growth rate down from 4% to 2.5% per year over last two decades  GDP of 15 EU states down to 6.91 billion  GDP/PPS (purchasing power standards) per head is only 18,446  Consistently high unemployment  Average of 15 EU states is 10.8%  Average of 11 ―euro-zone‖ states is 11.5%  Country-specific inflation problems across Europe.  Productivity growth is steadily declining.  Difficulty financing new projects. Global Opportunity:  North American SUV‘s becoming more popular.  Once restructuring and deregulation happen in Japan greater competition will occur stimulating more consumption  Relaxation of control over markets in China and Asia will boost demand for oil. Global Threats:  North American economy becoming more efficient, moving from manufacturing to services.  Russian economy in shambles, many people jobless, energy consumption falling (energy inefficient).  Africa‘s & Mid East political turmoil blocking economic growth. Both resource rich.  Potential threat of conflicts with oil-rich countries. 17
  18. 18. 7.0 International Business Strategy of BP In analyzing the business strategy being adopted by BP, the use of porter‘s generic strategies can be used to analyze Bp. BP over the years has been trying to differentiate itself amongst various competitors in a way that makes them appeal to customers compared to their other competitors, and this differentiation approach is achieved via quality, innovations and responsiveness to customers. BP has different brands such as BP, Ampm, Arco, Castrol, Aral and Wild bean cafe (, and also diversification into development and production of alternative sources of energy which differentiate the company, makes Bp flexible and also able to respond to the demands of the market. Differentiation strategy involves Identifying possibilities based on competences by adding benefits, new features (product innovation) etc. BP has used it various brands and involvement in many segments and other capabilities of the company to develop the differentiated strategy. Factor input in the BP plc is innovative and involves technological creativity in nature, the processes involved in the company is flexible and of quality which gives rise to products differentiations and uniqueness in their productivity i.e. output to final consumers both individual and industrial consumers. The competitive scope is of broad target because Bp does not only produce fuel for the marine, aviation and automotive industry, they also have plans for alternative energy source by engaging in the development of the alternative sources of energy and by so doing this makes by to stand out in the industry. Bp has been identified as an organization that adopts differentiation strategy over the years due to the proper utilization of the company‘s competences or capabilities in terms of having brands and also technical creativity or innovation in terms of the development and production of alternative energy source such as bio-fuels, wind and solar energy. 18
  19. 19. 7.1 Global Competitive Environment of BP In analyzing the competitive environment of the BP, as earlier stated, a very useful tool to consider is the five forces model of competition which was developed by Professor Michael Porter of the Harvard Business School in 1980, this model shows the organization‘s competitiveness in the industry and also how attractive the industry in question is. The five forces identified by porter include: Threat of entrants – from organizations currently outside the ‗industry‘ Power of suppliers i.e. providers of inputs or materials for production Power of buyers i.e. recipients of products/services Threat of substitutes i.e. things customers might buy instead Competitors/rivalry – competition within the ‗industry‘ THREAT OF NEW ENTRANCE: The threat of entrance into the oil and gas industry is Low due to the fact that there is high barrier of entrance into the industry. Investment requirements; Some of the companies that constitutes the oil and gas industry like BP uses heavy and very expensive equipments at well sites For example, pumping trucks and other huge equipments, huge capital investment expenses is involved, such as High infrastructure cost i.e. pipeline, road access in fields, land acquisition and wells for drilling in which Bp alone has 274 worldwide (company monitor) the cost of Bp‘s assets is $236.0 billion ( balance sheet of Bp plc from Economics of scale of the industry is also a factor to be considered and also the availability of human resources in terms of scarcity of subsurface reservoir engineer and geologist all this contribute to the high barrier of entrance into the industry. POWER OF THE SUPPLIER: The bargaining power of suppliers is Medium and this is because there is the suppliers according to oil and gas statistics ( show that there are quite a number of suppliers and also the buyers as well such as Bp and some other companies that constitute the industry are quite a number as well Although in the case of Bp it is vertical integrated 19
  20. 20. in operation just like some of the other major players in the industry and this means that they can afford to provide some of their supplies due to their operation and at the same time the industry is mainly the key customers to most of the suppliers Considering all this, the power of the suppliers is Medium. POWER OF BUYERS: The balance of power shifts toward buyers. Oil is a commodity and one company's oil is not that much different from another company‘s and this leads buyers to go in favor of lower prices and or better contract terms. The power of the buyer will be regarded has being Medium because buyers are many and can switch from the consumption of Bp products to another oil and gas company‘s product and at the same time an individual buyer‘s decision does not necessarily have an impact on the company and the industry is the key supplying group to the many buyers. THREAT OF SUBSTITUTES: Threat of substitutes is Low and the Substitutes for the oil and gas industry includes alternative fuels such as coal, gas, solar power, wind power, hydroelectricity and nuclear energy which is still in the developing phase as in the case of Bp ( and also involves high cost of production. Oil is of great importance; it is not only used in fuelling cars alone, it is also used to produce plastics and other materials, majority of the means of transportation still relies heavily on oil and Oil is needed in order to generate electricity and the usage of the alternative sources of energy is not that much as regards the use of oil which implies that oil and gas would be depended on rather than the alternative due to its level of development and high cost of production. COMPETITIVE RIVALRY: The level of competitive rivalry is high; the industry is characterized by big companies which produce low differentiated products and there is low threat of substitute and also low threat of new entrance into the oil and gas industry. Another tool that can also be used in the analysis of the competitive environment of the BP is the strategy group framework by Porter, According to porter, a strategic group is defined as a set of companies within an industry pursuing strategies that are similar to each other and different from firms outside the group on one or more key dimensions of their strategy. 20
  21. 21. In terms of the oil and gas industry which BP belongs to, the level of competition is very high because major players in the industry such as Royal Dutch shell, Bp, Exxon Mobil, Total, chevron, and Conoco Phillips all adopt similar strategy and competing on similar bases which is adaptation of a vertical integration to an extent (integrated oil and gas companies and they also produces similar range of products to an extent which brings about differentiation. Royal Dutch shell, Bp, Exxon Mobil, Total, chevron, and Conoco Phillips all have a wider geographical coverage. Although there are other companies too in this industry as well adopting separate strategy such specialization in drilling oil but there is high mobility barrier in the strategic groups such as movement of being national boundaries to a multinational boundaries and also trying to get a wider geographical coverage and this can be a barrier for this other strategic groups to move from one strategic group to another. Using both frameworks, porter‘s five forces and porter‘s strategic groups, we can observe that the industry‘s major players are the giant companies in the industry, and the level of rivalry is high and the industry is somewhat attractive to an extent although the powers of both the suppliers and buyers is medium but the threat of new entrance and substitute is low which means that profitability is not reduced by substitute and the industry is attractive. 21
  22. 22. 7.2 BP’s Global Operating Management System 7.3 BP’s Strategic Priorities Our aim is to be an oil and gas company that grows over the long term. We will seek to continually enhance safety and risk management, earn and keep people‘s trust, and create value for shareholders. We will continue to simplify our organization and fine tune the portfolio. We will focus on efficient execution in our operations and our use of capital. We will build capability through the pursuit of greater standardization and increased functional expertise. 7.4 BP’s Financial Framework We expect our organic capital expenditure to be in the range of $24-27 billion per year through to the end of the decade, with investment prioritized towards the Upstream segment. All investments will continue to be subject to a rigorous capital allocation review process. We expect to make around $2-3 billion of divestments per year in order to constantly optimize our portfolio. We will target gearing in the 10-20% range while 22
  23. 23. uncertainties remain. Our intention is to increase shareholder distributions in line with BP‘s improving circumstances. 7.5 BP’s 10-Point Plan In 2011 BP put forward a 10-point plan that outlined what could be expected from BP over the next three years. During 2012 we worked towards the milestones we had set out for 2014. We refined our plans and communicated further information on our longer-term strategic objectives beyond 2014. Through this work and the actions taken to strengthen the group, BP enters 2013 a more focused oil and gas company with promising opportunities and a clear plan for the future. BP‘s strengthened position; distinctive capabilities, strong financial framework and vision for the future provide the foundation for our long-term strategy. This strategy is intended to ensure BP is well positioned for the world we see ahead. What you can expect: 1. A relentless focus on safety and managing risk through the systematic application of global standards. 2. We will play to our strengths in exploration, deep water, giant fields and gas value chains. 3. Stronger and more focused with an asset base that is high graded and higher performing. 4. Simpler and more standardized with fewer assets and operations in fewer countries; more streamlined internal reward and performance management processes. 5. Improved transparency through reporting TNK-BP as a separate segment and breaking out the numbers for the three downstream businesses. What you can measure 6. Active portfolio management to continue by completing $38 billion of disposals over the four years to the end of 2013, in order to focus on our strengths. 7. We expect to bring new upstream projects on-stream with unit operating cash margins around double the 2011 average by 2014. 23
  24. 24. 8. We are aiming to generate an increase of around 50% in net cash provided by operating activities by 2014 compared with 2011. 9. We intend to use half our incremental operating cash for reinvestment, half for other purposes. 10. Strong balance sheet with intention to target our level of gearing in the lower half of the 10-20% range over time. Longer-term Objectives Maintain momentum on safety and risk reduction. Develop and apply new technologies that access new hydrocarbons or extract and process them more efficiently Upstream Generate strong returns within a disciplined financial framework. Deliver growth through increased reinvestment in higher return opportunities. Maintain our strong incumbent positions and a diversified portfolio of deep water, giant fields and gas value chains. Build material new positions for the long term Downstream Grow free cash flow Reduce our exposure to refining when not part of an integrated value chain. Re-orientate the geographic mix of our downstream footprint to growth markets. 24
  25. 25. 8.0 Entry Strategy and Strategic Alliance Among from several entry modes, BP chooses licensing to expand its foreign operation. Their strategies for licensing are: Proprietary technology: BP is the first company to identify the need to invest into development of new ways to produce energy; it has invested 8 billion dollars to develop and posses the new technologies in production. Access to raw materials and other inputs: Though the tendency of this particular barrier might not seem appropriate to BP‘s production as they are freely and abundantly available in nature however BP still can gain competitive advantage by reserving the copy rights of the technology that is being/will be used to convert the alternative resources into energy. Thus generating revenue Risk: Traditionally established companies are often not the first to be in the new emerging industry due to technological advancement even having the ability and obvious strengths, but climb the band wagon latter, and tries to establish by placing high higher opportunity cost, in this case BP has some relatively obvious strengths like knowledge of the customers and brand strength, so it is advisable that BP continue to press by investing into research of alternative fuels Strategic Alliance: In a move characterized as the "largest ever industrial merger," BP Co. plc and Amoco Corp. have agreed to unite their businesses on a global and comprehensive basis. The combined firm, to be based in London, will be the U.K.'s biggest company. BP will hold a 60% equity interest, and Amoco 40%. Called BP Amoco plc, the firm will be "one of the most comprehensive and competitive energy and petrochemical enterprises in the world," according to Amoco. The merger shoots BP and Amoco into the ranks of the top three energy majors, along with Royal Dutch/Shell and Exxon Corp. 25
  26. 26. 9.0 Value Chain Analysis Value Chain Analysis explains the activities that goes on in business organization and relates them into an analysis of the competitive strength of the business it considers. According to Michael Porter business activities could be grouped into Primary Activities which are activities that are directly concerned with creating and delivering products and also Support Activities which are activities not directly involved in production, but they are activities that increase effectiveness or efficiency. It is rare for a business to undertake all primary and support activities. Value Chain Analysis is a way of identifying which activities are best undertaken by a business and which are best provided by others. Linking Value Chain Analysis to Competitive Advantage it points out what activities of the business directly linked to achieving competitive advantage amongst various competitors. Fig: Petroleum Value chain Model 26
  27. 27. 9.1 Primary Activities Inbound Logistics includes warehousing, materials handling, inventory control, etc. Operations are the activities that transform inputs into finished products (e.g. machining, testing, packaging, equipment maintenance, etc.). Outbound Logistics includes the activities that store and distribute products to buyers (e.g. warehousing, delivery vehicle operations, order processing, etc.). Marketing and Sales are the activities that provide the means for the buyer to purchase (e.g. advertising, sales force operations, selection and management of distribution channels, etc.). Service includes activities which enhance or maintain the value such as installation, repair, parts supply, etc.). BP‘s primary activities include research and development in terms of technological innovations, production creation of fuels and other products, marketing and sales in terms of distribution via service stations and lastly services to the customers and the supportive activities include the company infrastructure like buildings and equipments, information system, human resources (skill employers) and finance in terms of cash. 9.2 Support Activities Procurement specifically refers to the function of purchasing not to the purchased inputs themselves. While raw materials procurement is usually concentrated in a purchasing department, other purchasing is often dispersed throughout a firm (temporary office staff, hotel and travel expenses, office equipment and even strategic consulting). Technology Development as Porter defines it is wider than R&D. It includes engineering and process development and, while usually associated with an engineering or development function, is also dispersed (office automation, telecommunications, etc.). 27
  28. 28. Human Resource Management includes the recruitment, hiring, training, development and compensation of all personnel. Partly centralized but increasingly dispersed Porter points out that the skills and motivation of employees and the costs involved may be critical to competitive advantage. Firm Infrastructure broadly encompasses general management activities, as well as finance, accounting, legal, corporate affairs and quality management. Often viewed as an overhead, these can be a considerable source of advantage (e.g. skillful negotiations with regulatory bodies). An organization can outperform its various competitors through differentiating itself by trying to produce products with higher quality and will also have to perform its value chain activities better than the opposition. BP has the potential of adding value via marketing and sale of its products which is the way the company handles it marketing and sales of products to the diverse consumers or market through the company‘s various brands where it markets diversified alternative energy sources as well as oil and gas. The good marketing and sales or distribution flow of BP, outstanding performances in relations to its competitors, various brands and also diversification into alternative energy sources are all competence of the company which the company has used through it marketing and sales activities in adding value. Fig: Value Chain of BP 28
  29. 29. 10.0 BP’s Global Marketing Multinational corporations operating in complex and diverse political, economic, social and cultural environments have to improve, adjust and develop their marketing strategies on a regular basis. Changing environmental factors create new conditions for their operating, which often require considerable and serious changes in strategic decision-making and positioning of companies. Inflexible and rigid firms will cease to be competitive in the market every time changes occur. The aim of the present report is to identify the past and present changes in marketing strategy of BP, which have occurred under the pressure of environmental factors. 10.1 BP’s 4P BP has some unique characteristics that influence how we follow the 4Ps of marketing – product, price, place and promotion. 1. Product: Fuel is a commodity product offered by all the oil companies in all over the world. It is difficult to offer customers a point of difference with fuels. However, BP does so by selling petrol and diesel that is better for the environment. BP is the only oil company in world to sell superior fuels that are kinder to the environment. BP‘s Products Line is: Fuels & stations Motor Oils& Lubricants Convenience Shop 2. Price: With common products in the oil industry, prices between competitors are easily matched, which means it‘s difficult to differentiate our product based on price. If BP‘s competitors undercut us on price, BP see significant losses in volumes sold. A one cent per liter price reduction requires retailers to achieve a 25% increase in volume to break even on site. Pricing Strategy is: Competition Based Profit Oriented for Extremely Inelastic demand Invigorate 29
  30. 30. 3. Place: BP‘s network of service stations is a vital strength in marketing strategy – we have some of the best locations for the service they provide. And research shows customers mainly choose fuel retailers based on their location. They have a significant investment in ensuring right number and quality of locations for our customers. Strategy is: Direct and Indirect Marketing Worldwide Retail Network Distribution Channel 4. Promotion: Research shows that customers respond well to our promotion campaigns, such as the AA Rewards programme. Our loyalty programmes are a valuable point of differentiation; we use them to drive sales volumes and counter our competitors‘ activity. BP‘s main promotional focus is on: Commercials Out of Home advertizing Pumps reward program CSR Activity 10.2 Market Segments This consists of a group of customers who share a common need or want. The task was to identity the different segments in the target market in order to target them. With segment marketing, the company offers a better design, price, delivers the product better and is able to fine-tune the marketing program. The segment marketing was divided into geographic segmentation and demographic segmentation. Geographic segmentation Population Density Territory Weather Demographics segmentation Income 30
  31. 31. Occupation Age Behavioral and Psychographic Segmentation Green Revolution and environment consciousness Luxury of Travel 10.3 Market Promotion BP‘s strategy was a promotional campaign to transform BP‘s retail brand image at its locations in the United States. Buying gasoline is a low involvement purchase and consumers have low expectations regarding their purchase experiences. Armed with that consumer insight, BP created and executed the $45 million Helios Power advertising and brand-building campaign, which is an extension of BP‘s ―Beyond Petroleum‖ corporate campaign that began in the early 2000s. The Helios Power campaign consisted of the following marketing tactics: “A little better” tagline. BP customers can expect to receive ―a little better‖ experience at its service stations and other retail outlets compared to those of its competitors. Hand elaborates, ―In this market, a little better means a lot. People see refueling as a necessary and unpleasant chore. However, BP can be cleaner and friendlier, and that‘s why people will choose us rather than our competitors.‖ And this choice will be made on an emotional basis because customers ―like what we stand for.‖ Animated TV ads. These feature a family of characters (the Lighthouse family, the Babies, and the Beeps) and a catchy tune designed to reinforce the emotional appeal of the BP brand. The TV ads aired during some of the top U.S. TV shows (American Idol, Ugly Betty) and also had exposure on YouTube. The purposes of the ads were to generate awareness of and an emotional connection to the BP brand and its offerings. In-store give-aways. At the launch in April 2007, environmentally friendly paper bags, T-shirts with a fun new look from the campaign, kid‘s activity books and trading cards featuring the campaign characters, and sunflower 31
  32. 32. seed packets were handed out to customers throughout the entire network of BP stations. Unique Web site. The Web site features the ―Gas Mania‖ interactive game, selected animations, ringtones, screensavers, a sweepstakes, and the TV ads. Street teams. BP and Ford teamed up to promote the use of BP‘s Ultimate gasoline in Ford‘s new Edge automobile. Videos featuring groups of collegeaged students were created to showcase the BP brand in Florida and the ARCO brand in California. 10.4 Branding Branding is all about creating alignment of company‘s business processes with its corporate culture. BP (BP) provides a case in point of a brand that got way out front of its business process and culture to produce tremendous exposure to risk. Back in 2000, BP announced a major change in posture from "BP" to "Beyond Petroleum" and spent hundreds of millions of dollars promoting their new position. Only BP is the only global energy company moving to new sources of energy that includes solar power. BP Three Branding Themes: BP Progressive and Profitable – (appeals to Investors Archetype) Moving to new and profitable sources of energy for the future. BP Business Alternative Energy Sources – (appeals to Business Archetype) Developing more efficient and alternative forms of energy to move you ahead. BP Beyond Petroleum – (appeals to Public Perception Archetype) Investing for a Greener future BP Brand attributes supporting being only: BP Green – BP is the only energy company investing in and pursuing alternative energy sources; namely solar power 32
  33. 33. BP Progressive – BP is striving to find more efficient ways to produce energy with proven leadership in solar power BP Quality – BP focuses on safety and operational excellence BP’s Brand Archetypes: BP Investors Archetype: Investors are looking for profitable companies with less investment risk. BP is the only company vs. its direct competition coming up with unique and profitable alternative energy sources. BP Business Archetype: BP helps businesses be more energy efficient and green through partnering. BP provides multiple energy alternatives. BP Public Perception Archetype: The lesser evil of oil companies, BP is the greenest energy company with demonstrated leadership in solar power. 10.5 BCG Matrix 33
  34. 34. Cash Cows: BP has a big market share in oil and gas industry with its wings extended in 80 different countries, however these SBU are with high market share with less room for the growth as it is a mature market, these SBU need to be managed well with right strategy to maintain the profits Stars: BP is presently well established in most of its operating countries however, there is still room to grow to stars as it the fourth largest in terms of revenue making followed by royal Dutch and Exxon Mobil (cnn, 2010) Question Marks: BP is trying to venture into new markets by investing into sustainable and renewable energy resources, since it has small share in high growth market as it is predicted that market for these renewable energies were likely to rise rapidly Also BPs CNG products c,n be another question mark as it has high growth which can be replaced by petrol in the developed nations Dogs: BP business can be effected by electrification of rail transport in the third world countries, Wherever BP is operating in. Due to the market for supplying diesel to locomotives are at the dog‘s state, because it has relatively low growth and small share, and this market might sooner vanish. However BP can continue with this present SBU, as it cannot affect the other SBUs BP has a stable market share in an unstable market, despite the facing allegations from recent gulf of Mexico disaster. 34
  35. 35. 10.6 Product Life Cycle 35
  36. 36. 11.0 BP’s Global Human Resources Management BP is progressive, responsible, innovative and performance driven.‖ They have further defined this statement as: Progressive – They are restless in the research and development and improvement in exploration and refinery of oil, gas and fuels. They believe they have the principle of mutual advantage and can build productive relationships between themselves, their clients and partners. Responsible – It is committed to the safety and development of its people and the communities in the societies in which they operate. They aim for no accidents, no harm to people and protecting the natural environment. Innovate – we push boundaries today and create tomorrow‘s breakthroughs through our people and technology Performance Driven – BP is committed to deliver on their promises through continuous improvement and safe, reliable operations, by learning from their mistakes. 11.1 Recruitment Policy An organization‘s overall strategies and HR policies need to be closely integrated with chosen recruitment strategies in order to achieve desirable outcomes. Organizations seeking culture change may favor external recruitment options while those which desire commitment and high quality may favor largely internal recruitment or an appropriate blend of both options. The choices may change from time to time, reflecting the needs of organizations at different stages. Strategies BP use are: Internal Talent Pool BP largely favors internal recruitment of senior managers by focusing on the internal talent pool which exists within. This is evident with senior management appointments from within the company over the years. The strength and experience 36
  37. 37. of its management team has allowed promotion of internal candidates to important more senior roles and created continuing growth opportunities within the company‖. E-recruitment BP is making increased use of e-recruitment techniques through internet and intranet. Professional networking sites (PNS) such as LinkedIn where senior management jobs are posted, has been frequently used as well as BP‘s corporate career website. Also increasingly being used as part of the recruitment process are partner websites which specify the required competencies. Competency-based recruitment methods provides a unique opportunity to create and shape a recruitment system based on competencies that have been identified within the organization as being critical for success in the targeted job or role. External recruitment services When recruiting externally, BP makes use of external recruitment partners to assist with recruitment of senior management staff. These partners offer BP a range of services - attracting candidates, managing candidate responses, screening and short listing, or running assessment centers on the BP‘s behalf. BP has systems in place to ensure its recruitment partners develop a good understanding of BP and its requirements. This is essential because employers and agencies that are committed to collaborative partnerships are more likely to achieve positive results. Employer Branding Employer brand is the image of your organization as an employer and place to work as perceived internally and externally while reinforcing why talented people would want to join and stay with an organization. The employer brand is part of building an identity and employees are defined nowadays by the company they work for. BP has consistently focused on projecting its brand as an environmentally friendly company looking to the future and alternative fuel sources. When BP in 2001 renamed itself BP, they also adopted the tagline ―Beyond Petroleum to signal a focus outside the oil business. This is a visionary and inspiring way of moving the brand in 37
  38. 38. a positive direction, creating purpose and adding value. This attracts top talent in many different fields, sharing that vision and outlook. 11.2 Workforce Diversity Despite having operations around the globe, spanning diverse culture, the nationality of BP plc has been reflected in the make-up of the workforce in general and senior management in particular. BP faces the challenge of operating in a globalised world where this model is no longer sustainable. HR managers have to tackle national and cultural diversity issues, while still promoting the overall corporate strategy. In response, BP has launched a ―Global Path to Diversity and Inclusion‖ strategy. Among its three main directives are: as a global company, its leaders should reflect the local communities in which it operates; while diversity and inclusion must be viewed as a business imperative. This is both a welcome and challenging initiative in order to meet its changing business needs. As a global company of around 80,000 people, BP has a naturally diverse workforce in terms of gender, race, nationality and culture. BP actively embeds diversity and inclusion across the organization through our global diversity council, the establishment of diversity plans tailored to each Strategic Performance Unit (SPU) and support for affinity groups for networking and sharing experiences. Mandatory training in diversity and inclusion for 6,000 senior leaders also began in 2010. HR managers are increasingly faced with the management of employees in a global businesses operating across national boundaries. Therefore, comparing HR activities and policies across different societies becomes a major issue. At the same time being a strategic partner by promoting the overall corporate strategy. Coordination of HR activities on a global scale- e.g. comparative pay rates, performance assessments, management employment policies, employee relocation and expatriation etc have to be considered 38
  39. 39. 11.3 BP’s Health & safety Policy Everybody who works for BP Lubricants Americas is responsible for getting Health, Safety and Environment (HSE) right. Good HSE performance and the health, safety and security of everyone who works for BP are critical to the success of our business. BP‘s goals are simply stated – no accidents, no harm to people, and no damage to the environment. We will continue to drive down the environmental and health impact of our operations by pollution prevention, reducing waste, emissions and discharges, and using energy efficiently. BP will produce quality products that can be used safely by our customers. BP will: consult, listen and respond openly to our customers, employees, neighbors, public interest groups and those who work with us work with others – our partners, suppliers, competitors and regulators – to raise the standards of our industry as a minimum, comply with all applicable laws and regulations and any other requirements to which the company subscribes openly report our performance, good and bad recognize those who contribute to improved HSE performance BP is committed to continual improvement of our HSE performance and management systems. BP‘s business plans include measurable HSE targets. BP is committed to meeting them. There are thirteen elements to the BP Health, Safety and Environmental Management Systems Framework. 1. Leadership and accountability 8. Information and documentation 2. Risk assessment and management 9. Customers and products 3. People, training and behaviors 10. Community and stakeholder awareness 4. Working with contractors and others 11. Crisis and emergency management 5. Facilities, design and construction 12. Incidents, analysis and prevention 6. Operations and maintenance 13. Assessment, assurance and improvement 7. Management of change 39
  40. 40. 11.4 Career Development Interventions It is generally agreed that increasing emphasis on human resources development provides for increases in productivity, enhances competitiveness and supports organizational growth. BP has a set of systematic and planned activities designed to provide its senior managers with the necessary skills to meet current and future job demands. BP has a global approach to developing its leaders that is focused on the main behaviors that are critical to achieving high performance. The company adheres to a single, common leadership framework, with a clear and focused set of expectations. This model is used throughout BP to help select, assess, develop and reward leaders. Continuous Professional Development BP runs a series of development programmes called Managing Essentials to help managers apply the leadership framework in their own teams; in both the US and the UK, BP continues to work closely with around 20 core pursuing continuous improvement in performance. CPD in BP comprise a balanced mix of activities which include work based activities, courses, seminars, and conferences, as well as selfdirected informal learning. BP runs three specialist development programmes designed to build excellence in the 3 important functional areas of operations, finance and human resources. The Operations Academy, set up in partnership with MIT, provides BP‘s senior managers with a systematic and rigorous approach to managing safe and efficient operations. Senior Leadership/Management Development Programmes The Executive Operations Programme enables senior leaders to support the changes made by operations-level management, reflect on their own contributions to the process and commit to systematic and verifiable change across the organization. To date, the group chief executive, his executive team and approximately 90 group leaders, including the strategic performance unit leaders, have participated in this programme. 40
  41. 41. Coaching BP also utilizes coaching for senior leadership development. For instance, BP Angola has worked closely with i-coach academy to design and deliver a coaching programme to work alongside a leadership development initiative aimed to support Angolan Leaders. A large number of coaches are intentionally selected in order to offer a diversity of style and approach whereby each participant can be matched with the most appropriate coach. Participants are also afforded the opportunity available to develop a learning community within their cohort which would offer peer support and challenge during the programme and beyond. Thus far, positive outcomes have been recorded regarding BP‘s coaching program. Most participants acknowledge it provided the necessary learning interventions which fulfill the needs for effective transition into more senior leadership positions including stakeholder management, influencing skills, performance management, and feedback skills. E-learning BP has also developed e-learning initiatives as a HRD method for its senior managers. Since 2006, BP embarked on one of its largest global safety and operations e-learning training initiatives. An e-learning solution provider, Kineo was selected in 2007 at the start of the curriculum development to lead the blended design of the technical modules. The programme- Operating Essentials, driven by the Health, Safety and Operations team, is designed to enhance operations and maintenance Leaders to manage teams and operations effectively, across BP‘s global business. 41
  42. 42. 12.0 BP’s Financial Analysis 12.1 Income Statement and Balance Sheet Income Statement: Revenue: Operating Profit / (Loss): Net Interest: Profit Before Tax: Profit after tax from continuing operations: Discontinued Operations: Profit after tax from discontinuing operations: Profit for the period: Attributable to: Equity holders of parent company: Minority Interests / Other Equity: Total Dividend Paid: Retained Profit / (Loss) for the Financial Year: Earnings per Share: Basic: Diluted: Adjusted: Dividend per Share: 31/12/2012 (Millions) 375,580.00 13,724.00 465.00 18,809.00 11,816.00 31/12/2011 (Millions) 375,517.00 33,001.00 (650.00) 38,834.00 26,097.00 31/12/2010 (Millions) 297,107.00 (9,140.00) (489.00) (4,825.00) (3,324.00) 31/12/2009 (Millions) 239,272.00 21,733.00 (318.00) 25,124.00 16,759.00 31/12/2008 (Millions) 361,143.00 30,682.00 (220.00) 34,283.00 21,666.00 n/a n/a n/a n/a n/a 11,816.00 26,097.00 (3,324.00) 16,759.00 21,666.00 11,582.00 25,700.00 (3,719.00) 16,578.00 21,157.00 234.00 397.00 395.00 183.00 509.00 34.00 n/a 29.00 n/a 21.00 n/a 56.00 n/a 55.05 n/a $0.61 $0.60 $0.61 $0.34 $1.36 $1.34 $1.36 $0.29 $-0.20 $-0.20 $-0.20 $0.21 $0.88 $0.88 $0.88 $0.56 $1.13 $1.12 $1.13 $0.55 42
  43. 43. Balance Sheet: Assets: Non-Current Assets: Property, Plant & Equipment: Intangible Assets: Investment Properties: Investments: Other Financial Assets: Other Non-Current Assets: Current Assets: Inventories: Trade and Other Receivables: Cash at Bank & In Hand: Current Asset Investments: Other Current Assets: Other Assets: Total Assets: Liabilities: Current Liabilities: Borrowings: Other Current Liabilities: Net Current Assets: Non-Current Liabilities: Borrowings: Provisions: Other Non-Current Liabilities: Other Liabilities: Total Liabilities: Net Assets: Capital & reserves: Share Capital: Share Premium Account: Other Reserves: Retained Earnings: Shareholders’ Funds: Minority Interests / Other Equity: Total Equity: 31/12/2012 31/12/2011 31/12/2010 31/12/2009 31/12/2008 (Millions) (Millions) (Millions) (Millions) (Millions) 120,448.00 35,902.00 n/a 21,424.00 4,989.00 6,449.00 189,212.00 119,214.00 33,202.00 n/a 31,442.00 5,922.00 5,704.00 195,484.00 110,163.00 22,896.00 n/a 29,453.00 5,104.00 10,434.00 178,050.00 108,275.00 20,168.00 n/a 29,826.00 5,004.00 5,042.00 168,315.00 103,200.00 20,138.00 n/a 28,681.00 6,049.00 3,786.00 161,854.00 27,867.00 39,178.00 19,548.00 319.00 24,069.00 110,981.00 n/a 300,193.00 25,661.00 45,047.00 14,067.00 288.00 12,521.00 97,584.00 n/a 293,068.00 26,218.00 38,816.00 18,556.00 1,532.00 9,090.00 94,212.00 n/a 272,262.00 22,605.00 31,493.00 8,339.00 n/a 5,216.00 67,653.00 n/a 235,968.00 16,821.00 32,688.00 8,197.00 n/a 8,678.00 66,384.00 n/a 228,238.00 10,030.00 67,556.00 77,586.00 n/a 9,044.00 75,274.00 84,318.00 n/a 14,626.00 69,253.00 83,879.00 n/a 9,109.00 50,211.00 59,320.00 n/a 15,740.00 54,053.00 69,793.00 n/a 38,767.00 45,398.00 18,822.00 102,987.00 n/a 180,573.00 119,620.00 35,169.00 41,482.00 19,617.00 96,268.00 n/a 180,586.00 112,482.00 30,710.00 33,326.00 28,456.00 92,492.00 n/a 176,371.00 95,891.00 25,518.00 31,632.00 17,385.00 74,535.00 n/a 133,855.00 102,113.00 17,464.00 28,306.00 20,566.00 66,336.00 n/a 136,129.00 92,109.00 5,261.00 9,974.00 15,694.00 87,485.00 118,414.00 1,206.00 5,224.00 9,952.00 13,226.00 83,063.00 111,465.00 1,017.00 5,183.00 9,987.00 14,059.00 65,758.00 94,987.00 904.00 5,179.00 9,847.00 13,932.00 72,655.00 101,613.00 500.00 5,176.00 9,763.00 9,284.00 67,080.00 91,303.00 806.00 119,620.00 112,482.00 95,891.00 102,113.00 92,109.00 43
  44. 44. 12.2 Ratio Analysis Dec 31, 2012 Turnover Ratios Inventory turnover Receivables turnover Payables turnover Working capital turnover Average No. of Days Average inventory processing period Add: Average receivable collection period Operating cycle Less: Average payables payment period Cash conversion cycle Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008 13.48 14.46 12.64 11.25 14.63 13.45 12.59 28.31 11.33 12.25 10.80 22.90 10.58 10.59 10.45 28.71 21.47 15.79 17.94 – 27 25 32 34 17 25 27 30 34 23 52 52 62 69 40 29 29 34 35 20 23 23 28 34 20 *Source: Based on data from BP Annual Reports Ratio Description The company Inventory turnover An activity ratio calculated as revenue divided by inventory. Receivables turnover An activity ratio equal to revenue divided by receivables. An activity ratio calculated as revenue divided by payables. BP PLC's inventory turnover improved from 2010 to 2011 but then slightly deteriorated from 2011 to 2012. BP PLC's receivables turnover improved from 2010 to 2011 and from 2011 to 2012. BP PLC's payables turnover increased from 2010 to 2011 and from 2011 to 2012. BP PLC's working capital turnover improved from 2010 to 2011 but then deteriorated significantly from 2011 to 2012. BP PLC's average inventory processing period improved from 2010 to 2011 but then slightly deteriorated from 2011 Payables turnover Working capital turnover An activity ratio calculated as revenue divided by working capital. Average inventory processing period An activity ratio equal to the number of days in the period divided by inventory turnover over the period. 44
  45. 45. Average receivable collection period Operating cycle Average payables payment period Cash conversion cycle An activity ratio equal to the number of days in the period divided by receivables turnover. Equal to average inventory processing period plus average receivables collection period. An estimate of the average number of days it takes a company to pay its suppliers; equal to the number of days in the period divided by payables turnover ratio for the period. A financial metric that measures the length of time required for a company to convert cash invested in its operations to cash received as a result of its operations; equal to average inventory processing period plus average receivables collection period minus average payables payment period. to 2012. BP PLC's average receivable collection period improved from 2010 to 2011 and from 2011 to 2012. BP PLC's operating cycle improved from 2010 to 2011 but then slightly deteriorated from 2011 to 2012. BP PLC's average payables payment period declined from 2010 to 2011 and from 2011 to 2012. BP PLC's cash conversion cycle improved from 2010 to 2011 but then slightly deteriorated from 2011 to 2012. 45
  46. 46. 13.0 Recommendation BP Company‘s project, is a significant step toward the growth of the company, but the Chief Executive officer should ensure that the established Centralized Developments organization enhance the integrity in the project implementation process. The strategy should also establish a body of expertise in greenhouse gases in order to reduce emissions that may hinder the attainment of the project goal. The other recommendation is that BP should invest much on renewable energy sources like wind power, solar panel and bio-fuels because they present little or fewer risks on people health and environment. In the transport area, the CEO should ensure more investments in the pipeline because this would ensure safety on the environment. Road transport can cause danger to the people for instance if a transits explode. Another recommendation is that, though BP Company has assigned a treaty with the World Bank to allow it access funds through loans, the Company should not rely more on the loans because, its payment may contribute to the downfall of the company if misappropriated. There is also a need for the BP Company to consider reorganize its 4 P‘s of marketing viz. product, price, promotion and placement so as to secure a competitive advantage over the other six competitors in the industry. With this regard, the company may employ competitive strategies like benchmarking against the competitors. It is recommended that BP should use the diversification strategy as a future strategic option in order to continue responding to the environmental challenges. The company should diversify its product range associated with the production of solar and wind energy for individual and corporate customers. It is expected that these products will be popular in the emerging markets such as India and China where incomes are not high, but energy consumption patterns are growing very fast. Furthermore, it is recommended that the company should increase expenditures on infrastructure maintenance and employee safety. Together with alternative energy production, this will positively influence corporate reputation after the recent safety scandals and 'green washing'. Finally, it is recommended that BP should continue popularizing efficient use of energy by individual consumers and industrial enterprises. 46
  47. 47. 14.0 Conclusion BP is back in business in the deep waters of the Gulf of Mexico, having recently received its first permit to drill since the explosion on their Deepwater Horizon rig last year that killed 11 people and ruptured the Macondo well hemorrhaging millions of barrels of oil into the Gulf — the largest offshore oil spill in U.S. history. That explosion destroyed ten years of green marketing for BP — which adopted ―Beyond Petroleum‖ tagline and cheery green and yellow sunburst logo in 2000 — as the ensuing environmental disaster plunged the brand into a nightmare as deep as the waters it drills. The ―meet our people‖ and storytelling strategy is ―one small step‖ in BP‘s post-Gulf branding, focused on its human resources rather than product or promises. It may be concluded that the main strategic changes undertaken by BP in response to the turbulent and dynamic environment are contracts with the governments to avoid political risks, moving to more stable countries such as India from the northern Africa, acquisition of the solar panel manufacturers, investment in wind and solar projects, moving manufacturing facilities to China, investment in energy efficiency, reduction of carbon content in fuels, participation in 'green' activities an 'green washing'. The company had to transform its generic strategy from cost leadership to differentiation since cost reducing practices had led to oil spills and leaks. It may be summarized that the identified changes were necessary. Nevertheless, the company could have been more honest and open in its CSR projects. 47
  48. 48. Bibliography US Department of Labour (2011) 'BP History Fact Sheet', [online] Available at: Aulds, T. (2010) 'BP: 500,000 pounds of emissions released', The Daily News, [online] Available at: Bamberg, J. (2009) The History of the British Petroleum Company, Cambridge: Cambridge University Press. BP (2001) 'Technology and business - a progress report', [online] Available at: BP (2012) 'Annual Report', [online] available at: nloads/I/BP_Annual_Report_and_Form_20F.pdf BP (2011) 'Strategy', [online] Available at: Jens Trulsson (2010) Universum Quarterly: The future of BP‘s brand, Universum US Department of Labour (2011) 'BP History Fact Sheet', [online] Available at: 48