Mgt302 Strategic Management: Corporate Analysis Assessment Answer


Answer:

Introduction 

Headquartered in Melbourne, Australia, BHP is one of the leading Global resource companies, run by a unified framework of Board and Management, involved in the extraction and processing of oil and gas along with minerals. It primarily operates in Australia and Americas under the structure of a Dual Listed Company: BHP Billiton Limited and BHP Billiton Plc, with an employee strength of about 60,000 (BHP, 2018). It supplies its products and services through sales leads of Singapore and Houston, USA. The organisation’s primary objective is to utilize its capital discipline to obtain maximum beneficial returns from its assets and establish long term relationships with its shareholders by way of creating values and enforcing future growth options. BHP aims to achieve this purpose through exploration, procurement, enhancement and market propagation of natural resources by means of geographic expansion, diversification of tier one assets, cost-effective economic strategies, emphasizing on safety and by implementing updated technology.  These means have led BHP to position itself as one of the top producers of iron ore, metallurgical coal, copper, oil and gas across the world.

Discussion: Successful Strategies of BHP deployed in the past 

BHP Billiton had prioritized 3 strategic approaches with a view to ensure maximum output with optimized level of inputs. These included:

Productivity: The primary focus of the strategy subscribing to productivity is ensuring the safe maintenance of quality assets that guarantee stronger cash flow. Through productivity gains, the company was able to generate a free flow of cash over US$10 billion (BHP, 2018).

Simplification of Portfolio: In order to gain an upper-hand in the volatile economic environment, BHP strives to utilise the opportunities associated with the diverse range of portfolios to increase the per share value. The company had reached the heights of financial strength and flexibility that led to its prosperity at all points in the economic cycle. A significant example includes the demerger of South32 (the Guardian., 2018).

Capital Discipline: This particular strategy works on the principle of asset-integrity which is based on the framework of capital allocation. The framework also caters to the maintenance of balance-sheet strength. By paying minimum dividend under the pay-out policy, the company reinvests the surplus cash flow or resell it to the shareholders through additional dividends. By doing so, BHP had been able to achieve an overall reduction of 70 per cent in its capital expenses (Financial Review, 2018).

Operational Endeavours of BHP that were criticised

On 5th November, 2015, a fine waste dam at the iron ore mine of Samarco, Barazil had devastatingly collapsed. This construction was a partially owned BHP venture. It had polluted a large portion of Doce River Basin and its adjoining sea and killed around 20 people (Financial Review, 2018).

The second catastrophe in which BHP got involved was linked to the coal mines of Cerrejón in Columbia. As per the information brought into the limelight by an associate of the Organisation of Indigenous Women, the coal mines of Cerrejón had led to unacceptable impacts and deliberate violation of the fundamental rights of La Guajira Community (Ford, Steen and Verreynne, 2014). To condemn these impacts, the human rights activists and the land defenders participate in the BHP held Annual General Meetings, every year. Although the company had assured them of proper examination of the situation in order to change it for better, their promises did not get reflected in the official agreements with La Guajira Community.

Restructuration of its Current Priorities

With a view to overcome the effects of casualties and disasters, BHP had substantially restructured its priorities:

  • Physical Safety of the Workers
  • Evaluation of the Existing Portfolios to Estimate the Values and Returns
  • Capital Allocation Policies
  • Reformation within the Organisational Culture
  • Focussing on the Employee Capabilities
  • Acquiring Social License for Operation in Volatile Environment (Jupp et al., 2016).

Current Strategies adopted by BHP: SWOT Analysis 

Strengths

Growth and Development: BHP follows a cost-effective expandable strategy. It aims to recruit from different communities so that it can readily meet their changing needs and accordingly plan better strategies for future (Datta et al., 2014).

Powerful Market Position: BHP is an established organisation and involved in the marketing of coal energy along with oil and gas. This is one of its biggest strengths as it is the leading player in the global market (Mayes, McDonald and Pini, 2014).

Diversification: Unlike other refineries, BHP has been able to expand its base in various commodities such as Uranium, Copper, Manganese, Copper, Aluminium, Iron Ore, Silver and Nickel along with Petroleum, Potash and natural oil and gas (the Guardian., 2018).

Weakness

Economy: BHP’s profitability is largely dependent on the market demand of coal and its price in the global market. Depending on its surge and dip respectively, BHP’s booming market with large cash flow or heavy losses will operate (Bice 2014).

Trading of Community: The commodity that BHP trades in is a volatile one which makes financial decisions a tough call under circumstances when market does not do well (Datta et al., 2014).

Opportunities

Locational Advantage: Due to abundance of natural resource, BHP has a huge opportunity in exploring such areas for the purpose of mining, throughout the year. This fact has also lend the company an advantage with respect to cost leadership strategy (Sykes, 2015).

Energy Efficiency: The main product of BHP consist of Energy. Going by recent statistics, the demand for energy has been rising steadily as it is an integral part of all functional operations for all industries (Richardson, 2016).

Availability and Cost Efficiency of Coal: BHP has established itself as the largest producer of coal, worldwide. This stability has delivered it a huge opportunity to increase capital in this industry (Mayes, McDonald and Pini, 2014).

Economic Trends: The number of developing nations across the world has been growing steadily and so has the demand for coal energy since it is the cheapest form of energy. This fact gives BHP a huge opportunity (Ft.com., 2018).

Maximum Benefits from Potential Assets: Through discovery of new resources and effective means to extract it, BHP has been able to obtain around 2300 billion tons of coal (Fish and Wood, 2017).

Threats

Alternative Sources of Energy: Researches are being conducted to explore the alternative sources of energy in order to preserve and safeguard the exhaustible resources such as coal and natural gas. This is one of the major potential threats (Londonminingnetwork.org., 2018).

Health Hazards from Mining: A large number of BHP employees suffer from the health hazards posed by mining. There are also risks of chemical hazard and hazards from air or water bourn pollution (Ft.com., 2018).

Government Regulations: A new regulation with respect to the EPA can substantially disrupt BHP’s profit making strategies as such restriction or rules imposed would lead the company to spend additional amounts on safety and clean-up measures (Grant et al., 2014).

PESTEL Analysis

The components of the determinants in the PESTEL Analysis tend to influence on the strategic drivers for BHP Billiton Australia.

Political factors

  • BHP Billiton is identified as a global resources organization which is vulnerable towards political risk factors in all markets. BHP Billiton PLC has been executing its operations in Basic resources in over 10 nations and intends to expose itself to various forms of political environment as well as political system risks (BHP 2018).
  • The organization must comprehensively analyse the political constancy and value of basic resources in Australia’s economy and further focus on its legal framework in terms of contract enforcement (Bice 2014).

Economic factors

  • BHP Billiton to evaluate the economic conditions must use Australia’s economic factors associated to its growth rate, customer spending mechanisms in order to anticipate the growth trajectory of the country as well as the company (Jupp et al. 2016).
  • The organization is greatly dependent on the current strength in international commodities prices which are correlated with the condition of global economy (Bice 2014). BHP is further exposed to the shifting currency valuations along with the overall economic risk factors in the Australian industrial economies.

Social factors

  • It has been observed that mutual beliefs and attitudes of the Australian populace serve a vital role in the way marketers at BHP Billiton will comprehend the stakeholders of a specific market and is highly susceptible in all business operations (Epstein 2018).
  • These vital factors necessitate the organization to support the local communities through financial aids and further offer resources for infrastructure facilities such as educational institutions, roadways and housings.
  • New mining as well as development deals or projects typically require ‘social agreement’ that can facilitate to the development expenses and influence profitability level (Jupp et al. 2016).

Technology Factors

  • BHP Billiton relies greatly on technical determinants related to proficient mining, exploration as well as discovery of mining and resource assets (Bice 2014).
  • The organization to a great extent depends on the usage of technology for its process of exploration (BHP 2018). The financial investment in technical areas is identified as a critical expenditure for the organization.
  • Furthermore, wide ranging technical determinants impact the two vital essential strategic drivers for BHP Billiton project pipeline along with its supreme assets (Jupp et al. 2016).

Environment Factors

  • BHP Billiton being a natural resources company is highly prone towards parameters, guidelines and public policies in regards to environment sustainability (Epstein 2018).
  • Environmental associations along with Non-Government Organizations tend to exert persistent pressure on the organization. Consequentially BHP Billiton endeavours to adapt the practices of ‘zero harm’ as well as sustainable growth and progress. The company further has been committed in condensing greenhouse gas emissions in the execution of its operations by over 10% in 2013 (Bice 2014).

Legal factors

  • Legal factors of Australia is identified as critical risk factors for BHP Billiton, resulting the company to encounter certain legal liabilities in the decisions for causing environmental disruption in Arizona which has further affected the company’s financial performance and growth (Bice 2014).
  • Reports claim that BHP has lost a vital Federal Court Judgement in Australia related to rail transportation infrastructure convenience for two Western Australia iron ore mines (Jupp et al. 2016). The Pilbara region in Australia has been identified as one of the major regions for the company and thus provides export profits of around $ 7 billion dollars and employment for over 10,000 Australians (Bice 2014).

Leadership Style within the Organisation 

BHP attempts to maintain a well-versed leadership ethos within its framework by emphasizing and improving the core relationship and communication between the leaders and the subordinates. It focuses on achieving the most refined skill in leadership by addressing the management needs and making the team operations effectual. BHP has already curved a niche as the leading coal producer, competing with three major industries namely, Alcoa Inc, Vale S/A and Rio Tinto Hill (Hill and Seabrook, 2013). In its effort to keep a fair competition, BHP has been able to exercise about 40% control in the market (Jupp et al., 2016).

Conclusion 

To conclude the above report it can be said that BHP has been able to establish itself as a market leader in coal, natural gas and oil production across the world. With the help of effective strategies in corporate governance and market operations, the organisation has been able to gain competitive advantage over other industries in similar domain. Being in the extraction and marketing of coal which is the cheapest source of energy, BHP strives to make its business as cost effective as possible by optimizing its resources to maximise the production. Apart from few restrictive measures addressed by the pollution control board, BHP has mostly opportunities to help it carry forward its operation with the intended vigour. BHP also takes care of the hazardous effects of mining that its employees have to face. Another advantage in the form of public policies has facilitated its agenda to spread its market across the globe at reasonable price. By maintain effective measures against the popularity of the alternative renewable sources of energy, it can be said that BHP has a good prospect in creating a sustainable market in the years to come.

References

AREAS, E.S.S. 2018, Document Title Monitoring Program–Flora. Available at: < https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.731.9906&rep=rep1&type=pdf>

BHP. 2018. BHP | Leadership Team. [online] Available at: https://www.bhp.com/our-approach/our-company/leadership-team [Accessed 6 Sep. 2018].

BHP. 2018. BHP | Structure and strategy. [online] Available at: https://www.bhp.com/our-approach/our-company/strategy [Accessed 6 Sep. 2018].

BHP. 2018. BHP | About us. [online] Available at: https://www.bhp.com/our-approach/our-company/about-us [Accessed 6 Sep. 2018].

Bice, S., 2014. What gives you a social licence? An exploration of the social licence to operate in the Australian mining industry. Resources, 3(1), pp.62-80.

Datta, K., Bunning, J., Green, J. and Hargroves, K., 2014. Review of the Strengths, Weaknesses, Opportunities, and Threats of Manufactured Buildings for the Sustainable Built Environment National Research Centre. Available at: < https://sbenrc.com.au/app/uploads/2018/02/Strengths-Weaknesses-Opportunities-and-Threats-of-Manufactured-Buildings.pdf>

Financial Review. 2018. Beaven brings new focus to BHP strategy. [online] Available at: https://www.afr.com/business/mining/peter-beaven-brings-a-new-focus-to-bhp-billiton-strategy-20160707-gq17cp [Accessed 6 Sep. 2018].

Fish, A.J. and Wood, J., 2017. Promoting a strategic business focus to balance competitive advantage and corporate social responsibility–missing elements. Social Responsibility Journal, 13(1), pp.78-94. Available at: < https://www.emeraldinsight.com/doi/abs/10.1108/SRJ-04-2016-0054>

Ford, J.A., Steen, J. and Verreynne, M.L., 2014. How environmental regulations affect innovation in the Australian oil and gas industry: going beyond the Porter Hypothesis. Journal of Cleaner Production, 84, pp.204-213. Available at: < https://doi.org/10.1016/j.jclepro.2013.12.062>

Ft.com. 2018. BHP Bows To Activist Pressure To Exit US Shale | Financial Times. [online] Available at: <https://www.ft.com/content/f78550c8-86d1-11e7-8bb1-5ba57d47eff7> [Accessed 6 September 2018].

Grant, R., Butler, B., Orr, S. and Murray, P.A., 2014. Contemporary strategic management: An Australasian perspective. John Wiley & Sons Australia, Ltd.. Available at: <https://www.wiley.com/en-au/Contemporary+Strategic+Management%3A+An+Australasian+Perspective%2C+2nd+Edition-p-9781118362556>

Hill, D.C. and Seabrook, K.A., 2013. Safety& Sustainability: Understanding the Business Value. Professional Safety, 58(06), pp.81-92. Available at: < https://www.onepetro.org/journal-paper/ASSE-13-06-81>

Jupp, T., Fitzsimons, J., Carr, B. and See, P., 2016. New partnerships for managing large desert landscapes: experiences from the Martu Living Deserts Project. The Rangeland Journal, 37(6), pp.571-582.

Londonminingnetwork.org. 2018. “A Terrible Tragedy… We Are Desperately Sorry…” The BHP Billiton Plc AGM 19 October 2017. [online] Available at: <https://londonminingnetwork.org/2017/11/a-terrible-tragedy-we-are-desperately-sorry-the-bhp-billiton-plc-agm-19-october-2017/> [Accessed 6 September 2018].

Mayes, R., McDonald, P. and Pini, B., 2014. ‘Our’community: corporate social responsibility, neoliberalisation, and mining industry community engagement in rural Australia. Environment and Planning A, 46(2), pp.398-413. Available at: <https://doi.org/10.1068/a45676>

Richardson, B.J., 2016. Resourcing ecological restoration: the legal context for commercial initiatives. Restoration Ecology, 24(5), pp.686-691. Available at: < https://onlinelibrary.wiley.com/doi/abs/10.1111/rec.12390>

Sykes, J.P., 2015, September. Using the Oxford Scenarios deductive methodology to understand the long-term future of copper mining and guide minerals exploration targeting strategies. In Curtin Business School Higher Degree by Research Students’ Colloquium, Perth, Australia (Vol. 30). Available at: < https://www.researchgate.net/profile/John_Sykes4/publication/299583980_Using_the_Oxford_Scenarios_deductive_methodology_to_understand_the_long-term_future_of_copper_mining_and_guide_minerals_exploration_targeting_strategies/links/5700b78a08aee995dde82294/Using-the-Oxford-Scenarios-deductive-methodology-to-understand-the-long-term-future-of-copper-mining-and-guide-minerals-exploration-targeting-strategies.pdf>

the Guardian. 2018. BHP Billiton: Climate Change Leader Or Laggard?. [online] Available at: <https://www.theguardian.com/sustainable-business/blog/bhp-billiton-climate-change-leader-laggard> [Accessed 6 September 2018].

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