History of British Petroleum takes us back to 1908 when group of geologists found large amount of oil in Iran. It was the first time when oil was discovered commercially somewhere in Middle East. Shah of Iran grant permission to drill the Iranian oil. In April 1909 a company with the name of Anglo-Persian oil was incorporated and Lord Strathcona became the first chairman of the company.

Immediately after Inception Company started construction of Abadan Refinery established in 1912. In 1916 APOC established its shipping subsidiary and acquired BP. In 1923 Winston Churchill lobbied the British government to allow APOC to exclusive rights to Persian oil resources.

In 1935 it became the Anglo-Iranian oil company and in 1954 became the British Petroleum. By 1959 company has expanded it influences stretching from Middle East to Alaska. It acquired the majority control of standard oil of Ohio in 1978.

British Petroleum got itself merged with Amoco in 1998 becoming BP Amoco plc acquiring ARCO and Burma Castrol in 2000. As of 31 December 2015 BP has operation in more 70 countries producing 3.3 million barrels per day. The company has service station of around 17,2oo including 7000 in the US.

BP has been in the limelight because of certain tragedies attached to its name. 2005 Texas City refinery explosion resulting in demise of 15 workers and resulted in record setting OSHA fine. British largest oil spill, the wreck of Torrey Canyon and in 2006the largest spill on Alaska’s North Slope resulting in US$25 million civil penalty, the largest one at that time for oil spilling.

In 2010 Deep water Horizon oil spill the largest accidental release of oil into marine waters in history having serious environmental, health and economic Aftermath. The company pleaded and agreed to pay $ 4.5 billion in fines and penalties.

In September 2014 the judge ruled out that BP committed serious negligence acts that could cost BP the $18 million additional penalties. They settled in July 2015 in the amount of $19 billion plus the original amount.

Vision Statement of British Petroleum:

“BP wants to be recognized as a great company in the world that is completely successful and a force for progress with a belief that they can really bring a change to the world, helping in growing need for heat, light and mobility.“

The world with rapid changes in technology over last few decades has also grown the needs for oil products which is connected to lots of resources as well. Every country is in desperate need of oil to keep its all operation in action. That’s why BP is in business to utilise all resources and cater the demand for oil in the market. That why they have introduced various products in the market such as bio fuels, Gas and Petrol stations, route and journey planner, target nature, Liquefied Petroleum Gas, Solar energy, etc.

They have come up with the various solution which can ease the growing needs and demands of the world in energy sector.

 Mission Statement of British Petroleum:

“Quest for available resources and keeping in view of no harm to people and the environment as well“

British Petroleum has always put an urge over healthier environment for which it has always taken safety measures in order to ensure safer environment both inside and outside the organization. BP has always endeavored to introduce those product which are not harmful to the people and the environment which people are living in.

Porter’s Five Force Framework:

Porter’s five forces is a framework that is used to analyses the level competition within the industry. It also derive the intensity of the competition an attractiveness of an industry. It ranges from attractiveness to unattractive and very unattractive. Unattractive industry would be that in which all these would act upon to drive the overall profit in the industry. Very unattractive industry would be in which available profit for all firms are driven to normal profit. Five forces are as under:

  1. Threat of new entrants
  2. Threat of substitute
  3. Bargaining power of buyers
  4. Bargaining power of suppliers
  5. Industry rivalry
  • Threat of New Entrants

Profitable market that yield greater profit will definitely attract new entrants. This results in new firms which ultimately decline the overall profit of all the firms in the market an increase the level of competition as well. Following factors can have an effect on how much of threat can new entrants face:

  • Government Policy

Government have certain regulation of those who wants to establish a new firm in market which may or may not be acceptable for all new aspirants. These regulation vary from country to country as well.

  • Capital Requirement

In order to establish a new firm and to penetrate in the market huge capital is required. Especially when we speak about the oil and gas business, certain amount of money is required to get started.

  • Economies of scale

British petroleum is a large company that is why its production is on large scale due to which per unit cost of product minimises where new entrant either don’t have the capacity to produce on large scale or cannot take the risk at a large production.

 

  • Product Differentiation

Firms which are already established in the industry can take the risk of product differentiation i-e they can bring a variety in their product in order to give their product a new look where as new entrants cannot have the risk of some innovation or change in their product because loyalty level of the customer will be low for new entrants.

  • Threat of Substitute

Substitute does not mean having the same line of product produces by competitors. It is like totally different product in competition of the present one. For example vinegar could be the substitute of salt. Pepsi could not be the substitute of coke. Increase in Pepsi consumption will only increase the competition, i-e consumption of drinks in the market.  Another example of substitute could be cellular phone in response of landline phone.

In oil and gas industry there many other companies which use advance technologies in order to produce new products in substitute of those existing ones. The substitute products of oil and gas energy are coal, solar energy, wind energy etc.

Threat of substitute is low in the industry in which BP is operating because of the increased cost of production of alternative energy solution which are not as cost effective. Moreover efficiency of the substitute products matters a lot. The products which are offered in alternatives are not up to the mark. However companies are investing higher amount of money to be spend on solar and coal projects to make more effective in terms of cost and efficiency in response to the oil and gas products. A disadvantages is that switching and maintenance cost is relatively high when dealing with these alternatives.

  • Bargaining Power of Buyers

Bargaining power of buyers is how much buyers have the power to bring down the price of commodity and bargain the higher quality or services. Usually buying power is increased when buyers go for bulk purchases. In the oil and gas industry bargaining power of buyer is at medium level. There are many buyers who can switch to other oil products present in the market. These factors can lead buyers to go in favour of low prices.

  • Bargaining Power of Suppliers

Bargaining power of suppliers is higher in this industry due to certain factors. The main suppliers in this industry are those who have the oil reserves such as Iran and Saudi Arabia. Suppliers needed a high level technical knowledge and competencies in this industry which enhances their bargaining power. Countries usually lower their production which certainly increases the price, and ultimately suppliers comes in a position to bargain for the price of their own choice.

  • Industry Rivalry

Intensity of competition in market depends upon the number of competitors and their level in the market. Competition among the existing players will be high because of product differentiation and high exit barriers. Whereas these are also other small competitors who lack product differentiation. The oil and gas industry is having lots of monster companies like shell, BP, Exxon Mobil, Total, Chevron and many more. That is why in this industry rivalry is high. In addition to higher level of rivalry and exit barriers, fixed cost is higher and the growth is minimized.

Industry Allurement:

With the expension of resources and globalized world. The need for oil has increased. Every country is shaping its policy to hunt for oil reserves. Countries those are rich in oil fields are consider to be more influential on the world’s economy. Oil is considered to be the most adamant need of the world after water. Specially developed countries in the world like USA are in desperate need of oil. It is surely considered to be the one of the useful weapon in the contemporary world. Growing demand for energy has open the market for new entrants and opportunities to expand the business for the existing giants in oil and gas industry.

Value Chain Analyses:

Value chain analyses brings out ream of activities that goes in business organization and their relation with the analysis of competitive strength of the business it consider. Michael porter’s activities explains two types of activities i-e primary activities and supportive activities. Primary activities are those which are directly related to the production and delivery of the product. Whereas supportive activities are those which are not directly involved in production are highly useful in terms of efficiency and effectiveness.

Value chain is way of identifying which activities are best undertaken by the business and which best practiced by the others.

  • Primary Activities
  • Inbound logistics includes warehousing, material handling, and the control of inventory.
  • Operation are the activities that transform raw form into finished goods. (e.g. machining, packaging, testing etc. )
  • Outbound are the activities that store and distribute the products to the buyers ( e.g. warehousing, delivery, order processing )
  • Marketing and sale are the activities that provide the means for the buyers to purchase the product. (e.g. advertising, sale force, distribution channels etc. )
  • Service activities includes which enhances or maintenance of the product such as installation, repair, supply etc.

 

BP’s primary activities are research and development in terms of innovation, product creation of different categories. Marketing activities includes distribution via service station. Supportive activities are the company infrastructure like building and equipment, human resource (skilled worker) and in terms of capital or cash.

 

  • Supportive Activities:

Procurement specially includes the process of purchasing not only the input material. Raw material is usually concentrated in the purchasing department, however other purchases are done by the company respective departments (temporary office staff, hotel and travel expenses, office equipment and strategic consulting)

Technology development is normally broader than R&D. Human resource include the recruitment, hiring, training, development and compensation.

Firm infrastructure broadly includes general management activities as well as finance, accounting, corporate affairs and quality management.

  • British Petroleum firm infrastructure includes investing on the activities such finance, accounting, legal etc. This increase the quality and decrease the production cost in return.
  • BP policy regarding HRM is to higher qualified skill worker, polish them according to the required demand, and to motivate them in order to achieve better desired results.
  • BP increases its value in term of production by keeping the technology up to the mark to boost the value of production. Technological development includes engineering and telecommunication.
  • By getting the product at a desirable price BP can improve the procurement process and increase the chances of profit margin.

 

Imparting Value:

Value for money probably is the demand of every customer and with this impartation of value loyalty is increased. Satisfaction level cannot be determined on the company side. Company can only try at its best level to meet up the expectation of customers. Concept of value is complex that it can be defined by the customer which varies from custom to customer. However there are certain steps by which BP can live up to the expectation of its customers.

  • BP should try it in a best possible manner to deliver the product and services according to the customer’s needs in order to increase the graph of demand and supply.
  • Warranty is best tool to satisfy the customer which can be opted by BP to meet it desired target in terms of market share.
  • BP should turn the expectation of buyers to its favour and try to achieve what really is good for company and the customers as well.

SWOT Analysis:

SWOT analysis is a handful tool for any company understands the market and the competitors in the best possible manner. This analysis could be done by the new entrants and the existing giants as well.

Strength of BP:

  • It is one of the leading company in the world having operation in more than 80 countries and having revenue of $375,765 million
  • It has diversified its business round the globe with high quality technology and operations and has the strong brand identity too. BP is also known as BP express and Amoco.
  • It is the largest producer in the Gulf of Mexico. They have strong footing USA having their own refinery and a broad infrastructure for distribution purpose.
  • It has superior list of technology which makes them leader in the concern industry. This allows the generation of more profit by achieving economy of scale as well as effectively improving the existing ones.
  • Quest for more resources gives BP an edge to fulfil the needs of fuel in near future.

Weaknesses of BP:

  • Different tragedies which happen to BP such as spills of Alaska and the explosion in Gulf of Mexico put a negative mark on BP’s image. Company had to settle themselves by paying the huge fine.
  • A fall in production of gas and crude oil will definitely increase the demand and along with this will give wings to the prices too.
  • Increased expenditure too meet the expectation of the customers and to remain green.
  • Cost of environmental hazards such as waste of leakage or spillage, dumping. This also raises the threat to demand from public and sometimes needs relocation.

Opportunities for BP:

  • The prices of oil and gas changes at rapid pace. Increased in the production of motor vehicle in different parts of the world will definitely increase the demand and the supply as well. This will raise the opportunity for the companies to quest for resources and increase the production and the prices too.
  • Market natural gas consumption is increasing in North America and other parts of the world too. Speculation shows that America natural gas consumption will increase from 24.4 trillion feet in 2011 to 29.5 cubic feet by 2040. This increase will surely disperse to rest of the world too.
  • Company should look for more resources to find out more gas and oil. More oil and gas reserves means it will ease the burden of supply temporarily.
  • BP can grab this opportunity to expand its export horizon because with the raise of population in china, India and rest of the world will increase the hunt for resources and demand. Companies would try to turn this opportunity in their favour.

Threats for BP:

Instability and uncertainty in the regions which are rich in oil and gas production. Political factor, and sudden changes in government and the policies certainly have an impact on production and productivity.

Increased environmental regulation will impose pressure on companies to design eco-friendly products which increase the production cost and lower the profit margin too.

Natural saturation in wells in another form of threats posed.

Sudden drift in government regulation gives a blow to company’s production and profitability.

Emergence of new companies and the rivalry among the existing one increase the competition and fluctuate the profit margin.

Natural disaster resulting in disruption of oil plants. For example Hurricane Katrina increase the prices of oil due to the lack of demand.

Strategic Moves for British Petroleum:

Strategic moves help any organization to build their image in the eyes of the market in a proper manner. BP could too have certain strategies which could strengthen its position for sustainable period of time.

Clear Priorities

  • To run reliable and complaint operation resulting in better performance in terms of production and safety.
  • Having clear vision about deliverance of project and as efficient as possible it could be.
  • Making discipline financial choice to lesser the dependencies and maximize the cash flow.

Portfolio Management

  • To take on those areas where BP can perform better at display its strengths.
  • Focus on high value assets in deep water, gas fields, and unconventional.
  • Focus on to leverage themselves in term of customer relationship, assets, technology, safety measurements, to enhance the free cash flows.

Diverse Capabilities

  • Building the right portfolio depends upon the distinctive capabilities. BP could use advance technology across the board from finding resources to developing energy efficient and high quality products for customers.
  • Work hard develop strong, lasting and cordial relationships with government, partners, suppliers, customers, civil society etc.
  • To enhance operation to as many as destinations in the world across the globe.
  • Proven expertise in terms of performance, reliability and strength.
  • Bring down the cost and increase efficiency