Strategic Analysis Of BHP Billiton
Part 1: External Analysis
The Australian business landscape has become very competitive in nature and due to this reason it is very important for all the businesses to ensure that they are successful in forming policies. The strategies for the benefit of the business cannot be formed adequately without ensuring that the organization is able to conduct a thorough external as well as internal analysis (Frynas and Mellahi 2015). The objective of the report is to strategically analyse the business environment of a company present in Australia named BHP Billiton. The first part of the report will analyse the external business environment after throwing light on the background of the company. The next part of the given report will be discussing the different factors of the internal environment and propose an information system solution for the same.
Business background
The BHP Billiton is an Anglo Australian multinational organization which is engaged in the business of petroleum, metals and mining and is list as a public company with its headquarters in Melbourne. The company was established in 1885, following which it expanded substantially and became the world`s largest, mining enterprise in relations to market value in the year 2015 (Bhp.com. 2018). The two companies Australian Broken hill Property Company and the Billiton which is an Anglo firm joined together and formed the chosen organization (Williamson et al. 2013). The company is one of those few companies which are engaged in fossil fuel business. It is also a major contributor of the greenhouse gas and the 19th largest polluter around the globe.
The firm belongs to the mining and fossil industry of Australia. This industry is considered to be one of the most important industries in the globe and more than $260 billion has been invested into these projects. Australia is also considered to be the largest exporter of iron ore, coal, alumina, lead and zinc. Moreover, it is also considered to be a leader in diamonds, gold, copper, liquid natural gas and nickel (Bhp.com. 2018). Earnings in this industry have been increasing considerably from $210 billion in 2014 to 350 $ billion in 2017. This can be described as a result of the price recovery since the last Global financial crisis. For the industry more than 40% of the resources are generated in WA and the next is Queensland’s which contributes to around 30 % of the total earnings.
The general environmental analysis is considered to be an important analysis for the organization and forms the basis of the primary strategic analysis. The strategic analysis usually begins with the examination of various factors as present in the external business environment and comprises of factors like the Political, Economical, Socio-cultural, Technological, Legal and Environmental (Ginter, Duncan and Swayne 2018). The tool used to analyse these factors is known as PESTEL Analysis.
Political factors
The Political factors are considered to be one of the most important factors in a business environment and have a large impact on the firm, BHP Billiton. As the firm is involved in the business of basic resources, it is exposed to public opinion and a large number of political risks. Moreover, the corruption in the public sector is also considered to be very high in the domain of basic resources. In addition to the stated factors, the tariffs and trade regulations are also considered to have a wide impact on the business. Recently, for the BHP Company, there were various issues related to the use of land in its Arizona branch which led to troubles for the firm.
Industry background
Economic factors
The economic factors can be rightfully defined as those factors which have an impact on the general functioning and financial operations of the business. As BHP is involved in international operations, various factors like exchange rates, activities and other interest rates of host and foreign countries (Londonminingnetwork.org. 2018).
Social factors
The social factors can be described as the factors such as cultural roles, demographics, the spirit of the society, the behavioural patterns of the people and their leisure interests. Very often also has a relation to attitudes of the different people on the society (Seekingalpha.com. 2018). The social factors control the demands of resources from the customer’s point of view.
Technological factors
The technology tends to play a major role in the domain of the company due to the advancements which take place and due to the nature of the sector. The mining and shale extraction activities require extensive use of technology and hence, the company needs to look out for the impact of the technology on the business, the cost structure involved and the rate of diffusion of technology.
Environmental factors
The environmental factors can be defined as the factors which are faced by the organization from different perspectives, norms and standards which have a huge effect on the profitability of the organization (Rothaermel 2015). Moreover, they have become even stricter due to the perishable nature of the resources which BHP Billiton deals in. Hence, BHP Billiton needs to be careful of the different environmental aspects in this respect.
Legal
The last critical factor in this regard is the legal factors which comprise of various laws and regulations which cover areas like employment laws, data protection, antitrust laws, environmental standards and policies and even includes health and safety laws (Wheelen et al. 2017).
Out of these given factors of the general environment, the political factors, technological factors and the environmental factors are those factors which are considered to be most relevant.
The industry environment can be rightfully described as the different forces which tend to operate in the industry in which the company BHP Billiton operates in (Telegraph.co.uk. 2018). The industry environment of the business is usually analysed by using the strategic tool of porter’s five forces which comprises of five different relevant components of the industry. It helps in examining of the effect of these forces on the firm`s operations.
The Bargaining Power of the Buyers
The bargaining power of the buyers can be rightfully described as the weightage of the purchasers of the goods or services as provided by the organization. If the buyers have a high power then it is not considered to be good for the firm. However, in the case of BHP Billiton, there are not many substitutes available for the products being offered by the firm and hence, the company has the price control in its hand. This means that the power of the buyers is considered to be low.
Bargaining Power of Suppliers
A high power, puts the company in a compromising position (Slack 2015). The bargaining power of the suppliers in the industry of BHP Billiton is very high with respect to factors like the materials, labour, shippings and other energy costs. Moreover, as there are no other substitutes available for the firm, the bargaining power of the suppliers can be stated to be quite high.
General environmental analysis
The threat of the new entrants
As there exists a limited capacity with respect to the resources in which the company deals in and the investments which are required to be made are quite high, the threat of entrants is very low. If the threat of entrants are high then the competition in the industry becomes even fiercer in nature (Barrons.com. 2018).
The threat of substitutes
In case the threat of substitutes is considered to be high then, there are chances that the firm would be in danger. However, in the case of BHP Billiton, the threat of substitutes is very low as there does not exist an availability of the various raw materials in the market.
Intensity of Existing Competitive Rivalry
Competition tends to drive the business and those industries which have a higher level of competition, tend to be more successful than those without. The competition and rivalry existing in the resource and mining industry is very high because of the large profits and limited resources.
The sector comprises of a large number of companies inclusive of the global giants like BHP Billiton and Rio Tinto. Rio Tinto is the major competition of BHP Billiton with its headquarters in Melbourne and London. The firm has expanded the operations into various parts of the world and follows a similar strategy of ensuring that by looking out for health and safety measures, the company is successfully able to inculcate and grow its operations (Lasserre 2017). The other companies in the same sector are the Newcrest Mining, Fortescue Metals Group, Lihir Gold and OneSteel among others. The companies follow extreme differentiation strategy as well as pricing strategies. The capabilities which can be stated to be possessed by the firm comprise of their global roots and experienced management, especially in the case of Rio Tinto.
The opportunities and threat analysis can be rightfully described as a useful tool which can be used to determine the correct strategy for BHP Billiton.
Opportunities
- The company needs to ensure that it improves the image of the firm in the eyes of its customers and in a similar manner is able to improve its brand positioning.
- The next opportunity to which BHP Billiton is exposed to is the reduction in the emission of greenhouse gasses.
- Moreover, there exists a feasibility phase of 29 projects for BHP.
Threats
- The rising cost of suppliers in the different fields of suppliers. Energy, contract labours and shipping have bought about a huge threat for the firm.
- Secondly, the firm needs to ensure that it combats against competition and deals in a better manner with its different customers (Stead and Stead 2013).
The internal environment of the organization is also very crucial in order to understand the strengths, capabilities, resources as well as the weaknesses of the business. This assists the business to reposition itself and even look out for various capabilities. Hence, this section shall conduct an internal analysis of the business and set an information solutions system for the same.
Tangible
- Access to various mines and grounds: The organization has an access to a large number of mines and grounds which makes it helpful in their daily operations (Rogers et al.2015).
- Political connections: The organization has an access to certain political connections which tend to come in useful for the different operations of the organization.
- Human resources: The organization has a good human resource base which assists it in carrying out the daily operations (Hubbard, Rice and Galvin 2014).
- Technology: BHP Billiton also has an access to adequate technology which further goes a long way in assisting them to gain a competitive advantage in the long run.
- Finances: BHP Billiton has been performing well since the last few years which further assist the firm in ensuring success.
Intangible
- Good will of the firm: The firm is one of the largest companies in Australia and for this reason, it has a good name in the industry at large.
- Good relations with suppliers: The firm has cordial relations with its different suppliers which tends to serve as a useful resource for the firm (Johnson 2016).
- Intellectual rights: Moreover, the organization also has an access to a large number intellectual rights and resources which makes it easier for them to carry out the businesses.
The capabilities of the organization are as follows:
- Ability to provide the necessary solutions: The firm is largely successful in its operations and has them widespread in various parts of the world.
- Ability to manage a larger asset portfolio: The firm has the ability to manage a large portfolio base. It makes a large number of investments and this allows them to gain natural resources (Harrison and John 2013).
- Ability to ensure safety and maintain ethicality in its resources: It conducts safe operations to build the trust of the public and the employees.
The core competencies of the firm will be measured using VRIO Analysis (Zott and Amit 2013).
|
Resource or capability |
Valuable |
Rare |
Imitable or Non-substitutable |
Organized to Exploit |
Competitive Implication |
|
|
Ability to provide solutions |
Yes |
No |
No |
Yes |
Competitive advantage |
|
|
Large asset portfolio |
Yes |
Yes |
No |
Yes |
Sustained Competitive advantage |
|
|
Safety and ethicality |
Yes |
No |
Yes |
No |
Parity |
Hence, the primary core competency of the organization is its wide Asset portfolio which helps it to gain a competitive advantage over its competitors.
After analysing the internal as well as the external forces of the enterprise, BHP Billiton, it can be stated that the information solutions system which can be used for them is a Management Information system. Any business which is functioning in the competitive business environment is required to check that it gets industry specific management information and assess its performance successfully (Hahn 2013). Hence, the installation of the management information systems will not only assist BHP Billiton in ensuring that it will be able to create and manage reports to be used in the tactical as well as strategic operations but shall also ensure the collection of the information at a single source which can be easily used by all. Hence, using this business solution, will assist the company to gain a competitive edge in the market
Conclusion
Therefore, from analysis given it can be stated that, BHP Billiton has been performing considerably well in the market domain and has an access to an adequate number of resources which shall allow the firm to gain an advantage. However, after conducting the different analysis reflected that the firm was in a need of a management information system solutions which has been suggested to be implemented and accessed to. The following section, shall provide certain recommendations based on the use of the system in the firm.
After considering the various advantages of the Management information system and its application in BHP Billiton, it can be stated that the system will be beneficial to the organization and the given recommendations have been provided:
- Provide adequate training to the different employees: The different employees need to be provided with adequate training so as to ensure that the organization is successfully able to implement the different operations and that there exists no errors with respect to the same.
- Align business activities with the different system solutions: The business needs to ensure that it successfully aligns all the business activities with the system solutions to ensure successful implementation.
References
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