Introduction
British Petroleum and shell are one of the six major oil companies in the world. The other competitors are Exxon Mobil, Chevron, Total and Conoco Phillips. In order to get to such positions, the former two companies have had to employ sound business strategies. However, these companies also have their fair share of challenges and mistakes. These shall be examined under the following criteria;
Question 1 – how the oil companies have addressed certain challenges
Corporate Governance Issues
In Shell, Corporate Governance challenges have been the order of the day. This was seen through a number of issues. Some twenty years ago, Shell was highly centralised in its exploration and production divisions which are also known as upstream sectors but very decentralised in its trading, marketing, chemicals and refining divisions; which are known as the downstream segments. However, with the passage of time, the company realised that they had to compete with other companies in the global arena. Oil companies such as Exxon were giving Shell a run for their money because they were globally managed. In order to respond to this trend, the company opted to change its corporate governance style. They opted to control almost all their downstream sectors through their headquarters in London and The Hague. (Shell, 2008)
Corporate governance within Shell had been carried down from almost a century of its existence. In certain scenarios, some critics have argued that this form of structure has cost the company in a number of ways. This is largely because shareholders in the company do not have as much clout as members of the board. The disadvantage of this structural approach can arise when the shareholders feel that their rights are in danger but can do very little to protect it.
Bp has been faced with a number of corporate governance challenges. First and foremost, the company grappled with accusations from critics who claimed that it was doing business with a group that had been responsible for human rights abuses in the Baku Ceyhan pipeline. To add insult onto injury, BP was also faced with huge problems in its pricing strategies. This was especially seen in the United Kingdom. In Colombia, the Company was confronted with a law suit where it had been accused of colluding with terrorists to protect their clients. It lost millions of pounds in paying off that settlement. This goes to show that when companies make miscalculations and fail to implement ethical codes, they are the ones who pay for it through expensive law suits and tarnished images.
Business ethics
Companies need to have specified code of conduct and ethics principles that will guide their day to day practices. Shell as a company has well written down rules that assist employees in sticking to the company’s goals and principles. Some of these codes of conduct include; honesty, trust and integrity. While stakeholders and employees may be well aware of rules, abiding by them is another issue altogether. (Zenobank, 2008)
The enormity of this matter came to fore during the 2004 business ethics disaster; at that time, the company announced that twenty percent of all the oil reserves that it claims to have a hold to were overestimated. The revelation of such a matter brought shock waves within the Oil trading sector and even resulted in the company’s poor performance. In response to this issue, the company changed its leadership structures. This business dismissed its managing Director - Sir Philip Watts and also changed their management structures. Besides this, the company also responded by providing opportunities for whistle blowers to report any irregularities through an official company website. (Beasnat & Cummins, 2005)
BP also has a valid code of ethics and its company purports to a sound code of conduct. However, much like its counterpart Shell, the company seems to have fallen short of these high expectations. An example of how the company did this was when it hired an expensive public relations manager to create an Image of an innovative, sustainable and responsible company. In their advertisements, BP asserted that they could offer the world the best alternatives because they were committed towards renewable energies. They even put forward the statement that most greenhouses gases are caused by petroleum based products. What this company had forgotten was that they were going against their core business competencies. It was eventually revealed that the company’s investments in green projects were not as serious or as intense as they had made it seem. Consequently, the company ruined their good name, they became targets for investigations by government sponsored institutions and their stock prices went down.
However, the company did not leave this matter to fall on the wayside. They stepped up their environmental campaigns even more with investments in solar energy reaching the tune of ninety megawatts per year. Additionally, the company has introduced low sulphur fuels into the market and it has also demonstrated its commitment to green solutions through creation of a plan for establishing hydrogen stations throughout the world. (The New York Times, 2006)
Another interesting aspect about BP’s corporate governance challenges is related to political contributions within the United States. The company has been an active participant in political campaigns but it had been established that this political contributions have not bee fruitful to the company and it therefore opted to stop making those contributions as of last year. The announcement was made their Chairman.
Corporate Social Responsibility
When it comes to corporate social responsibility, Gas or petroleum based companies are at a unique position to implement this. This is largely because their product type is a target for a number of environmental innovations and also because their revenue streams allow them to do this.
One of the ways in which Shell has demonstrated their commitment towards their corporate social responsibility is by introducing a program known as Livewire. This program was established with the purpose of assisting young people to create their own businesses. (Curtis, 2005)
Despite these endeavours, Shell has had a number of challenges to cope with over the past few years. On such issue is with regard to its African operations in Nigeria. Many critics have asserted that Shell is not a good corporate citizen because while Nigeria is one of the leading oil resources for the company, its people are getting minute returns for it. However, Shell management did not just leave this problem hanging, they responded to the challenges by improving internal processes in that region. Additionally, they also enhanced their external communication processes.
Besides this, Shell has been on the wrong side of the Corporate Social Responsibility meter because of its poor environmental record. During the 1990s, the company had been criticised for disposing Brent Spar in a manner that was not eco friendly. Also, it had been confirmed that Shell had left an association known as the Global Climate Coalition whose major aim was to control the amount of greenhouses gases emitted by companies such as Shell. In response to these environmental challenges, Shell opted to create another environmental association known as the World Business Council for Sustainable Development. Besides this, the company’s chairman in 2003 challenged the government to improve regulatory frameworks for boosting the environmental condition within the country. (Terry, 2007)
BP has faced numerous challenges in this arena. In 2005 fifteen workers had been killed in a tragic explosion at a BP site in the US at Texas. Corporate Social responsibility is founded upon the need for businesses to chip-in in the process of handling world challenges because political entities cannot manage on their own. Consequently, BP failed in their endeavour to protect the rights of their employees through poor safety measures. (Multinationalmonitor.org , 2005) Critics claim that this was a demonstration of their negligence. In close relation to this occurrence was a pipeline leak at Alaska that resulted in the loss of a quarter of a million barrels of oil. In response to this challenge the company set up new strategy measures to prevent hazards of such enormity from occurring again.
Recruitment and retaining skilled workforce
Shell has really tried their best in incorporating sound recruitment procedures with their practical applications. One such example is the company’s adherence to diversity endeavours. Shell firmly believes in a commitment towards people of different race, colour and gender. This is largely implemented by sourcing for employees from different parts of the world to work in separate regions from where they came from. It can therefore be said that the concept of globalisation really applies to Shell and that they have embraced it in their business practices. (Stanford, 2007)
It should also be noted that the company’s recruitment staff receive training on how they can do it the Shell way. In other words, they are expected to adhere to sound human resource principles and best practices. It should also be noted that the company has established certain workplace associations to assist in the promotion and recognition of diversity. For instance, in London, Dubai and Amsterdam, Shell has an association know as the Shell Women’s Network whose purpose of to inspire females within the company and to encourage them to grow with the organisation. However, the company’s human resource manager has asserted that there are certain challenges that present themselves during the recruitment process; for instance, in certain cultures such as Japan, people are more interested in relationships which then streamline their task performance. On the other hand, in other parts of the world such as the US or the UK, people are more interested in a task which then creates relationships. Given these behavioural differences, it can be difficult finding the right person for the organisation. To response to such a challenge, Shell has ensured that recruiting staff are well aware of these differences and that they account for them in process.
BP on the other hand has also been at the forefront of recruitment and staffing endeavours both in the United Kingdom and in the entire world. In fact in Canada, BP was ranked as one of the top one hundred employers within that country. It was therefore established that some of the reasons that could have earned BP such a position include
• Community Involvement
• Training and development
• Performance management
• Employee communications
• Financial benefits
• Family and health benefits
• Social and good work atmosphere
• Physical workplace
Question 2: Expansion in the Global arena
British petroleum Plc has always considered expansion as a crucial strategy in its success efforts. Even at the very beginning, British Petroleum grew to become what it is today through expansions and strategic alliances. However, the most outstanding one amongst these alliances is the acquisition of Amoco- an American based oil company. This acquisition was done at the price of forty eight billion dollars and went down in history as one of the biggest oil company mergers that the industry had ever recorded. At that time, the deal was also known as one the largest takeovers that a foreign company could make of an American one. (BBC, 2004)
The reason why BP opted to follow this path was that it realised some of the benefits that would arise out of such a deal. The company was bound to gain some immediate financial benefits because of the fact that the net income gained by Amoco would belong to a large organisation. These benefits could have a chance of trickling down to the consumer. However, before those benefits were realised the two companies need to have operated in the business arena for some time.
It should be note that this merger had benefits for both companies. British Petroleum is well recognised for it abilities in Oil exploration, however, analysts have asserted that the company is rather poor in the process of refining or in creating other petroleum based commodities out of crude oil. Amoco on the other hand is quite efficient in the process of refining and they have been known to excel in the distributive process of these commodities as well. It can therefore be asserted that the things that one company was lacking were the ones that were highly available in the other. The BP Amoco merger was therefore fertile ground for establishing a solid structure in which two major giants could work together to provide the best products and services to their clientele. (British Petroleum, 2008)
Through this merger, it was possible for British petroleum to consolidate some of the amounts of revenue that the company spends. This also means that the company is now at a positions where they are increasingly competitive in selected countries. Come of these countries include China, Latin America and the Soviet Union.
It should be noted that the choice to opt for merger was a shift from the norm because in the past, major oil companies opted to do joint ventures rather than conducting acquisitions. Consequently, British Petroleum realised that in order to stand out from the rest, the company ad to take expansion to the next level. (Bamberg, 2000) When one traces the history of BP, it is clearly visible that other than Amoco, joint ventures were the order of the day. For instance, in the year 2003, the company came into a joint venture with the Russian based Tyumen Oil abbreviated as TNK. Through a six point two billion deal with this company, BP formed what became to be called TNK-BP. In this agreement, the company agreed to a fifty percent hold of this company’s shares while the other fifty percent is divided among three former TNK owners.
As it can be seen from the example above, British Petroleum is highly interested in the process of harnessing new resources for its production processes and this forms an important part of their strategic direction. Russia is endowed with oil resources and would therefore be a good place to do business. In the past, BP had done the same with other companies that had invested in oil rich countries such as Russia. Also, after the signing of such joint ventures, BP is then faced with the challenge of making some of the companies that they have acquired operate under similar corporate governance structures as them. For instance after the formation of BP-TNK, many sceptics were not sure that BP had the ability to bring the Russian operator up to speed with the occurrences in corporate governance within the western world. However, BP responded to these criticisms in a positive way by bridging the gap between those standards.
In fact, the latter joint venture was also synonymous to what had occurred when the company acquired about ten percent of another Russian based organisation known as Sidanco. At that time, BP had a difficult time coping with the management and ownership structures existent in that company prior to their entry. However, they soon worked out a way in which they could benefit from the arrangement. They presented the new company with international standards on the oil business and the Russian based organisation also taught them about the dynamics of doing business in a country such as Russia.
Part of the reason why a number of strategic alliances in BP have been successful is that the company goes out of its way to research about the key competencies of the company that they are about to business with. The first thing they look for is whether that company has adequate assets to meet the demands of the global oil scene. This is normally ensured by an examination of a company’s physical locations and also rigorous inspections of other assets that the respective company claims it owns. Besides this, BP always transfers its governance systems to target country and rarely does it loose that grip upon arrival in another country. Part of the reason for this kind of performance is that without prior knowledge on corporate governance structures in those target countries then the company would not be where it is today. This goes a long way in protecting the interests of all stakeholders involved in the joint venture.
It should be noted that BP also considers other important factors before entry into a particular country. For instance, it has been asserted that there are huge investments opportunities in the Asian continent with particular emphasis on certain countries such as China. In response to this trend and challenge, BP along with other competitors such as Shell has entered into joint ventures with a series of Chinese based Oil corporations. For instance, as of 2007, it had been asserted that BP has over seven hundred joint venture petrol station outlets. Statistics show that BP has outdone its major rival Shell by four hundred gas stations in that respective country. (Dean, 2007)
From this statistics, it can be seen that competition is a major driver for strategic alliances and expansion in BP. If a particular region or country is showing a lot of promise among major oil companies, then that country is likely to attract BP’s attention. This is further solidified by the fact that other companies such as Total had entered in partnerships with Chinese companies. For instance, Total has over three thousand seven hundred petrol stations in China that are supported by a total of eight joint ventures with companies such as Sinopec, Sinochem and Petro China. Upon realising the benefits that other oil companies have harnessed from China, then BP decided to pursue such a direction too. (British Petroleum, 2008)
One interesting aspect about how BP has expanded into China is that the company does not work on its own. Even during the construction process, BP has gone out of its way to involve local partners. The same may said of its operating procedures regardless of the fact that there may be certain circumstances in which the percentage owned by that local partner is lower than BP’s overall share.
It should be noted that expansion strategies into different parts of the global arena have also paved the way or have provided the opportunity for creation of environmentally friendly solutions or solutions that fall in line with certain needs in these respective countries. For instance, in China, it has been asserted that the petroleum based companies are some of the biggest contributors to pollution in the environment. Consequently, in order to handle this problem correctly, then there is a need for any company that expands into such markets to look for greener solutions. BP has managed to encompass this need by introducing drive-ins within a number of their gas outlets.
It should not be assumed that these strategic alliances do not come with their own risks. For instance, the company has had to deal with a lot of internal restructuring and many employees may have to be released. For instance, during the merger between Amoco and BP, the company had to let go of close to six thousand jobs so as to accommodate the new internal structure created. This also meant that the two companies had to agree about the locations of some of their divisions. For instance, marketing and distribution were to be located in Chicago which was a different location from where Amoco was used to. These kinds of sacrifices are the price that must be paid by oil companies if they are to stay in the global arena. The company’s chief executive said that in the oil industry ‘if one does not pick partner, then they are bound to be last’. These partners are therefore an essential survival mechanism within this field. (Zenobank, 2008)
Question 3: BP as a simpler and more efficient organisation
The company Chief Executive Tony Hayward asserted that it was necessary to become much simpler and efficient. This assertion came in the wake of a new trend among various product and service providers. Such companies range from insurance providers, public sector agencies and even steelmakers. They are all interested in finding out how they can improve their company operations through the incorporation of smaller and more efficient production. A company such as Toyota has been very effective at doing this through three major approaches. The first one is the company’s move towards elimination of waste. The second is its enthusiasm for variability and the third is inflexibility.
BP’s Chief Executive plans on improving employee behaviour and creating high performance cultures within the organisation. In order to achieve these, he may have to borrow some ideas from other companies that successfully managed to launch such ideas.
Prior to making an organisation leaner and more efficient, it is essential for the company to be able to consider some of the internal and external processes that might come in the way of achieving this. For instance, it is always possible for employee mind sets to undermine the success of such an approach. Additionally, when tasks have been poorly assigned among employees towards meeting these new strategies, then chances are that the endeavour may not do very well. This means that companies must realise that certain employees may be technically endowed to implement such restructuring but may lack the authority to carry it out. (Marshall & Krebs, 2008)
After identification of some of the impediments, it is then essential to look at a number of leadership and management characteristics that will boost this endeavour. For BP, management should first set the gaols and aspirations that will govern the process of change in the company. These gaols and aspirations should then be communicated to employees within the organisation. Beside that, the company should go out of its way to first analyse the existing organisational culture. This means that the company can be able to set achievable or higher standards without straining employees while the same time challenging them. In other words, the leadership qualities required to make gaol setting successful are; good communication and perceptive skills. These allow the company’s managers to look for the gaps existent within the organisation and some of the challenges that need to be met with regard to overall management.
The other aspect that management and leaders within the company need to be equipped with is the ability to delegate duties. This is essential because the company needs to create a team of lean making experts. The latter experts will come from the organisation and they will go a long way in ensuring that the rest of the organisation actually benefits from the simplification process. In order to ensure the success of such a move, then such a group needs to meet on regular basis and look for ways in which they can implement the simplification process.
Performance tracking is also an essential determinant to whether a company can succeed or fail in the process of becoming more efficient and lean. This is largely because no process can have the hope of being successful when there are very minimal ways of ensuring that the methods chosen are actually working. The most important leadership quality in this regard is that of foresight. This is because upon realisation that a certain approach is not working for the company, then there ought to to be sure of another methodology and this can only be one through accurate analyses. (Meyer, 2008)
It should be noted that good communication skills will be a vital tool in ensuring the success of this approach. This is largely because it has been shown that adequate communication has the potential for boosting company performance in the best way possible. This is because employees are well aware of the needs of their organisation and what they must do to change it.
Conclusion
BP and Shell re world leaders in the oil industry. Their success has been made possible through their responses to a number of challenges. For instance Shell has learnt from its corporate governance mistakes by streamlining their leadership structures. BP has also learnt from their mistakes by creating realistic goals in advertising. Strategic alliances have been crucial to BP and are largely driven by competition and the need to embrace emerging markets. Lastly, in order for the company to boost employee behaviour, then management should possess sound communication skills, foresight and perception during implementation of the simplification process.
References
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The author of this article is a holder of Masters in Business Administration (MBA) from Harvard University and currently pursing PhD Program. He is also a professional academic writer. ResearchPapers247.Com>
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