Strategic Management of BHP Billitons

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Strategic Management of BHP Billiton

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Executive Summary

The whole world has currently been experiencing a global product boom, and BHP Billiton has formulated development plans and enhanced shareholder value during this time. The main motive behind conducting the strategic analysis of BHP Billiton is to identify key areas of the organization and give suggestions about the strategic issues related to the performance and operation of the organization. There are certain core competency areas that have been identified, namely, the ability of the company to develop growth plans and managing the organizational structure. It has been observed that the company needs to ensure that its customer service orientation stays intact along with its ability to effectively manage the company finances for better sustainability.

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1.0 Introduction

BHP Billiton is a mining, gas and oil organization which is headquartered in Melbourne, Australia. It is considered as the world’s largest organization measured by revenue. The main purpose of the paper is to conduct strategic analysis of BHP Billiton so that we can understand the future objectives and strategic initiatives of the organization. It was established in 2001 through the merger of Anglo-Dutch Billiton Plc. and the Broken Hill Proprietary Organization Limited (Limpitlaw et al, 2005). The strategy is known as a careful method or plan for obtaining a particular goal usually over a long period of time. Having a focused and clear strategy is critically necessary for the success of the organization. In the absence of well-defined strategy, the organization may fail in attaining its objectives. Importance of strategy is following: 

  1. Provides Action Plans and Directions: Strategy helps the organization in establishing a concise, clear and strategically sound path which provides direction to the organization. Strategy also proposes action plans to achieve predetermined goals of the organization.

  2. Aligns and Prioritizes Activities: Formulating strategy is about choices, allocating resources to strategic initiatives, establishing priorities and coordinating to fulfill desired outcomes.

  3. Define Accountabilities: Formulation of strategy helps the organization in defining clear lines of its accountability and timeliness for fulfilling desired outcomes on the prepared strategic initiatives.

  4. Provides a Framework for Ongoing Decision Making: Formulating a strategy helps the organization in decision making. It is necessary that all decisions should support strategy as the strategy is considered as an important point for decision making. 

It is necessary for the organization to have focused strategy which determine the success of the organization. In the absence of well-defined strategy, the organization is not able to move forward and gain competitive advantage in the market. Strategy is required because it provides direction to the management of the organization and also define the action plan which helps in achieving the predetermined strategic objectives. Formulation of strategy also helps the organization in retain their customers for a long time. 
BHP Billiton can easily achieve its strategic objectives by formulating efficient strategies for the success of its organization. On the basis of its strategic initiatives, it is known as the dual-listed organization in London Stock Exchange and Australian Securities Exchange. In this report, we will study the strategic management plan of the BHP Billiton. The report proceeds with formulating a baseline about the organization (Billiton, 2008). To understand the strategic management plan of BHP Billiton, it is necessary to develop knowledge about the strategic initiatives and goals of the organization. This will help us in preparing a better plan through which the organization can easily market itself and able to gain a competitive advantage in the market. 

2.0 PESTLE Analysis

The PESTLE analysis of BHP Billiton has been considered for strategic analysis. Strategic analysis of the organization is considered as an important part of formulating decisions because all decisions are formulated on the basis of available factors and resources. PESTLE analysis is mainly such an efficient tool which helps provides knowledge about the external factors in a significant manner. It is a straightforward and easy to understand tool which provide overall view on the business environment of the organization. But it also brings the issue of high cost for the organization because it should be done on regular basis which consume large amount. Conducting PESTLE analysis helps us in knowing more about the different factors influencing the functioning of an organization in a larger context. All factors in the PESTEL Analysis have a significant impact on the strategic drivers for BHP Billiton. The strategic drivers of the organization are with options, world-class assets, and financial strength and discipline. These are the important part of the organizational identity. They state that the way the organization performs and compete in the marketplace and is driven by the purpose and power of the mission, values, and goals.  PESTEL Analysis of BHP Billiton is following:

2.1 Political Factor

BHP Billiton is a wide resource organization that is vulnerable to all the factors of political risk in the market. Political factors influence the key drivers of an organization such as a license to operate world-class assets, growth options, and project pipeline. BHP has utilized its whole capital to development and exploration projects in other countries where there is the threat of political instability: Kazakhstan, Democratic Republic of Congo, Mongolia, and western Africa. The political risk factors for BHP Billiton are nationalization, civil unrest, and nullification of existing contracts, terrorism, changes in government policy and lease agreement or permits. All these factors prevent the organization in operating effectively in emerging markets of different countries (Billiton, 2004). The mining operation of BHP Billiton in South Africa has undergone different changes due to the establishment of Mineral and Petroleum Development Act of 2002. This means that due to the formation of new mining charter and act, BHP will be required to reformulate and ultimate 27 % of the possession rights in the mining properties. These affect the South Africans in a larger context.
The government has the power to enhance taxes which can influence the operations of an organization negatively. Chile brings up a new 6% mining tax "royalty" which applies to income of operating taxable from mining. BHP manages and owns the Escondido copper mine in Chile, which is considered the largest source of coopers in the whole world. The mandated tax of organization adds uncertainty to projections of profit which will reduce the overall profitability of the organization.

2.2 Economic Factor

BHP Billiton is considered liable to the different economic factors like exploration expenses, material costs, inflation in energy costs, operation costs, labor costs, and operations costs. Growth in these factors negatively influences the expansion plans, company profitability and development projects of the organization. The organization mainly depends on its current strength in prices of global products that are interlinked with the health of the whole economy. The organization is open to fluctuating valuations of currency and general economic risks in the industrial economy of the whole world (Billiton, 2005). Any major threats in the global economies could reduce the demand for products resulting in increased supply and reduced prices which could influence the profitability of the organization. BHP Billiton is highly dependent on the economy of China for 15.6% of organization profit.  Global demand of China for the products of the organization accounts for 40% of seaborne iron ore, 23 % of aluminum, 15 % of nickel and 21 % of copper demand. All these above mentioned economic factors influence the growth of the organization in a significant manner which will ultimately minimize the profitability level of organization. Economic factors involves following:

  • Taxation: The government introduced marginal tax rate of 37% start when income of people exceeds $88,000.

  • Interest Rate: Inflation rate is 8.76%.

2.3 Social Factor

BHP Billiton is liable to socio-cultural factors in stakeholder relationships and all operations. Socio-Cultural factors require the organization to provide financial help to different communities and also provide resources for infrastructures like roads, housing, and schools. Development and new mining projects often require social approvals from the society which can influence profitability and enhance development costs. BHP Billiton has taken various initiatives to create its reputation in the market of Chile by focusing more on improving employee conditions and the quality of life in the city of Antofagasta (Billiton, 2006). BHP Billiton established an advisory board known as Corporate Social responsibility in 2013, and it works as an external sounding board on a different range of corporate responsibilities factors. All this happened due to changes in the marketing environment and surrounding factors of the organization including water, valuation and reporting model, poverty, climate change and, transparency.

  • Unemployment Rate: Current unemployment rate is 5.7%.

  • Population Growth: Currently there were 24,051,400 people who are raising continuously.

2.4 Technological Factor

Evolving technology influences the business efficiency and productivity of the organization. However, there is always uncertainty involves in taking the decisions regarding the investment in new and innovative technologies. Technology plays an efficient role in the success of an organization. BHP mostly depends on the technical factors of exploration, efficient mining and energy assets and discovery of mining. The organization mostly depends on the utilization of technology for exploration. The investment in technology is considered as an important expenditure for the organization. All the technical factors mainly influence the two effective key strategic drivers for BHP Billiton world class assets and project pipeline. Avoiding all the technological factors could give rival companies the opportunity to grow itself in the existing market.

2.5 Environmental Factor

An organization exists in the environment, so it is the responsibility of the organization to take care all the natural aspects of the society. All the issues related to the pollution are considered ecological which demands sustainable, the eco-friendly system from the organization. As a natural resource organization, BHP Billiton is reliable to public policies and regulation regarding the environment containing the Kyoto Protocol of 1997, the Asia-Pacific partnership of Climate and Clean Development, the trading system of European Union Emissions, recycling and renewable energy, and clean emissions. NGOs and Environmental group exert regular pressure on the organization. BHP Billiton follows a practice known as sustainable development and zero harm. Following these practices helps the organization to discharge their environmental responsibilities towards the health of the society members.  BHP Billiton has committed to minimizing the operations of greenhouse gas by 6% during 2008.  BHP Billiton is responsible towards the current environmental conditions and former or drilling mining operations. Environmental responsibility of the organization is linked to the key strategic driver of license to operate. In 2007, the organization allocated over $ 1.8b for decommissioning, and reclamation costs and this amount was estimated increases by the other to 26%. BHP Billiton can follow the strategies of compliance leadership and utilize eco-friendly manufacturing process which enables the organization to incorporate itself in the changing trend of the environment. 

Legal factors are considered the important risk factors for the BHP Billiton. The organization has confronted lots of legal obligations in the decisions for producing environmental damage at the Southwest Cooper operations in Arizona which influences the earning capacity of the organization. BHP Billiton lost a vital Federal decision of Court of Australia relating to rail infrastructure access for two iron of Australia Western mines. The lawsuit was formulated in the Australian Competitive Tribunal by Fortescue Metals Group. It is the strongest competitor of the BHP Billiton and producing small iron to serve their customers efficiently. BHP Billiton concludes that the ruling has significant impact on the decisions regarding the future investment or production of iron ore (Billiton, 2012).  The ruling can minimize the growth opportunities for the organization by creating hurdles for the success of the organization. It was said that the Western Australia Pilbara Region could be the most important and critical areas for the growth of BHP Billiton and it provide an export income of $4.5b and also provide a various job for more than 6000 individuals.

2.7 Summary

PESTEL analysis helps the organization in understanding the impacts if various external factors so that planning in advance for minimizing the influence of these factors can be reduced in an effective manner. The PESTEL analysis has fulfilled the motive of identifying important factors that influence the organization as part of the external operations. All the identified factors have a time, and financial cost and in most of the cases they are being recognized and addressed by BHP Billiton as part of the goal of the organization to provide market focused and creative customer's solutions. PESTEL analysis is a simple framework which determines the success and failure aspects of the organization. On the basis of these factors, the organization is formulating strategies for their future. So, we can say that conducting PESTEL analysis helps us in encourages the development of strategic thinking within the BHP Billiton and also provides a mechanism that enforces the organization to recognize and exploit the available opportunities. 

3.0 Value Creation

Value creation refers to the way the companies create value to the customers and the associated stakeholders. The value refers to the benefits provided to the stakeholders through various organizational activities and the product and service development. The next two subsections discuss the applicable Porter’s value chain and the core competencies of BHP Billiton which is the key drivers in providing value to the customers and other associated stakeholders of the company. The core competencies relate the unique excellence company holds in comparison to its competitors. The core competencies allow the company to stay unique in the market and provide values that could not be provided by the other organizations in the market. 

3.1 Porter’s Value Chain

There are five areas in the Porter’s Value Chain which are effectively utilized by BHP Billiton. These five areas are inbound logistics, operation, outbound logistics, sales and marketing, and servicing. The inbound logistics of BHP Billiton has effectively considered quality control at various activities. The company has ensured that the receiving of raw materials should be under constant quality check. The productions of the materials at various sites are conducted within controlled environment to ensure that the elements unearthed are under environmental consideration and of good quality. 
The elements are then shipped to the customers under the proper sales funnel. The supply chain management of the company is the key driver and the way company manages inventory is also appreciable. The company is completely active in the bulk freights and the deliveries of the materials are achieved through right efficiency. It has been observed that in the recent times, the transportation cost has gone up and, therefore, more than 20 percent cost of the distribution is consumed here. The final commodities produced by the company are of bulky nature. The company has global presence and the most of the Southern Hemisphere are under the company’s range. 

3.2 Core Competencies

The core competencies of the company have made sure that the company stays ahead of the competition in the industry in which it is operating. The company has effectively developed the methods that can bring less negative impact on the environment in which it is operating. It has helped the company increase its foot prints to various countries as the environment conscious government of most of the countries has accepted the company. The company has various customer service groups. These groups are strategically given the responsibility to handle one of the key product lines. This effective organizational management has allowed the company to ensure that all the product lines are considered equally (Billiton, 2009). The focus of the company has always been on the customers and being customer centric in such a demanding industry, has made the company appreciably good. This can be attested as one of the core competencies, that is, the ability to fulfill the demand of the customers effectively. 
Evaluation of all the factors points out three main key success factors of the organization. The organization is mainly dependent on the achievement of these key success factors for the ongoing performance and success. These factors are following:

3.3 Summary

It can be stated that the company has effectively used the value chain and its core competencies to provide right value to the customers. The company has right set of individuals with the capabilities that can help it grow. Moreover, it has unique quality of development and exploration. The company has gone into far flung locations to explore various mining opportunities. This industriousness of the company has helped it secure right number of mining locations and grow its business appreciably well. The company’s strong supply chain network has allowed it to effectively transport bulky commodities well within time and cost, and meet the customer demands.

4.0 Sustain and Enhance Value Creation

The company can sustain and enhance its value creation through working on its strengths and continuously improving upon its weaknesses. It is well-known that the company has effectively managed in finances, despite the complex nature of the business, which if maintained effectively can help the company sustain for the longer period. The external environment is challenging and there are competitors who would prefer to move ahead of the company in many aspects. In such cases, it is important that the company creates and provides value to the customers so that it can sustain for longer period. Moreover, it has been identified that the internal strengths and core competencies are important aspect for the company to sustain for longer. The financial aspect within an organization is the backbone which needs proper management the entire time. Therefore, if the company stays strong on this aspect, then sustainability can be ensured. 
Moreover, it has been seen that the company has always focused towards its customers’ needs and tried to fulfill these. The company must keep this orientation intact so that it can have unique presence in the market against the competitors. The customer service can become the key success factor for BHP Billiton.

5.0 Conclusion

The paper has analyzed the strategic aspect of BHP Billiton and reached to the conclusion that the company is effectively using most of the strategic aspects. There are certain areas where the company needs improvement to ensure that the company sustains for the longer period. The company has ensured that the customer service stays at the top. However, this aspect can only stay strong if the company continuously strives to keep its financials strong along with the effective organizational structure. There are various external factors that have been discussed which impact the functioning of the company. In this area, it can be stated that if the company ensure continuous focus on the environmental issues, then it will be cheerfully welcomed in various countries. Moreover, it will add up to the longer sustainability of the company. 

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6.0 References

  • Billiton, B. H. P. (2004). BHP Billiton commits to residential workforce for Ravensthorpe Nickel Project.

  • Billiton, B. H. P. (2005). Fatal Risk Control Protocols (BHP Billiton).

  • Billiton, B. H. P. (2006). Sustainability report.

  • Billiton, B. H. P. (2008). BHP Billiton Our Businesses: Worsley Alumina. BHP Billiton.

  • Billiton, B. H. P. (2009). BHP Billiton Annual Report 2009.

  • Billiton, B. H. P. (2012). Working with integrity: Code of business conduct.

  • International Seminar on the comparative study of community development (Seoul)(1973), Dore, R., & Mars, Z. (1981). Community development. London: Croom Helm.

  • Limpitlaw, D., Aken, M., Lodewijks, H., Viljoen, J., Coal, A., & Billiton, B. H. P. (2005, July). Post-mining rehabilitation, land-use and pollution at collieries in South Africa. In Colloquium: Sustainable Development in the Life of Coal Mining, South African Institute of Mining and Metallurgy, Boksburg (Vol. 13).

  • Painter?Morland, M. (2006). Triple bottom?line reporting as social grammar: integrating corporate social responsibility and corporate codes of conduct. Business Ethics: A European Review, 15(4), 352-364.

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