Strategic Management is one of an essential process that is adopted by every business concern in which plans and policies are formulated & necessary actions are taken in order to attain targeted goals of firm (Eden and Ackermann, 2013). It provides directions and helps in taking major decisions regarding future course of actions. In the present report, 2 case studies are given. One is related to BP which is largest oil and gas company and other is Steel Industry in which its significance & role play by it in different countries are defined. The assignment includes PESTLE analysis from which opportunities and threats for BP are describe. Apart from this, five force analysis of steel industry is also included in the project.
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PESTLE Analysis to offer significant opportunities & threats to BP
PESTLE analysis is an important tool which is user by firm in order to assess the forces that are exist in business environment and influence working of an organisation. Analysis of these factors assists company in taking major decisions regarding operations of firm. BP is a largest oil and gas industry which has approximately 21000 service stations located at worldwide. PESTLE analysis of BP is defined below:
BP have 18% of shares at the time when oil business of Russia was aligned with Rosneft in partnership. Under this, influence of government rules and legislations on policies of firm is included. BP is the largest petroleum company whose policies are influenced by this factor. Economics factors includes decisions related to prices of goods, inflation, economic growth, exchange rates etc. Several fluctuations in prices of oil are faced by BP between 2012 to 2020. As per the predicted reports of Forbes Magazine, economic growth between 2012 and 2020 is 7% for china, 1% for Europe and 2% for United States. It depicts about sustainable economic growth in market. To run operations smoothly, there are various social factors that should be considered by BP. Other favourable condition for firm is that oil prices is at peak in 2008, i.e., $120 a barrel.Some legislations should be introduced by BP regarding health and safety of employees who are working in firm (Gregorini, 2012). BP needs to consider various environmental factors in order to attain high market share. Various activities are performed by firm that includes oil and gas extraction from natural gas. Technology related aspects are included in it. It is necessary for firm to adopt high end technology in order to enhance business operations. New technologies are used by BP involves exploitation of “fire ice” & “fracking”.Adoption of these technologies assist to increase natural gas supply worldwide by year 2020. Use of these innovative technologies results in fall of gas price by 30% between 2011 to 2013. Legal factors involves various laws and regulations framed by government and necessary to be implemented by firms.It is required by firm to follow all the regulations and policies made by government of United Kingdom so that, operations can be carried out in an effective manner (Hill, Jones and Schilling, 2014).Complying with legislations and regulations formulated by legal authorities allow them to run their operations smoothly and effectively.
The incident of 2010, in which Deepwater Horizon oil rig was exploded of BP due to which 11 deaths took place and for this, $4 billion is charged by US government. Apart from this, there are many court cases which are still pending (Godoy and Naidich, 2012) The major threat that company was faced is recession of 2009 due to which prices of oil drop down from $120 to $30. Exchange rate of different countries is also one of the factor that should be considered by company. In European countries, car usage has been fall and have shifted towards train and motor vehicles to travel anywhere. Use of Fracking technology pollutes local water supplies and trigger small earthquakes. By this, about 8% of gas is extracted and released directly into atmosphere and it has high contribution in global warming. Oil rig explosion was the major threat face by company in year 2010 which leads to death of 11 people. Along with this, adoption of fracking technology proves harmful for environment as the gas is directly released into atmosphere and contributes highly in global warming. Water bodies are being polluted and small earthquakes are also generated due to this. Rules and regulations of each nation is different so, it is necessary for BP to follow these in appropriate way. Firm face major challenges in formulation of policies regarding health & safety of manpower who are working within company. These should be framed as per the guidelines given by government. Policy regarding tax rate of product must be frame. Deepwater horizon disaster has led company to design new safety regulations that has to be introduced in system (Hodgkinson and Healey, 2011).
Porter's five force analysis to determine attractiveness of steel industry
Porter's five force analysis is an essential tool that assists firm in evaluating competition that are existing in surroundings of business. Steel industry was seen as unprofitable and static one from longer period of time. These are many competitors of this sector are exist in market which pose high competition in front of steel industry. So, it is analysed by using five force model which is defined below:
Industry rivalry: In this, it is important to emphasize on competitive rivalries that takes place in business environment. As per the given case study, China is one of the major player of world in steel industry and they increase their producing capacity by seven times. It pose major competition in front of TATA and Mittal steel. They have fear that any slowdown in local demand would lead towards surge into international market.
Threat of substitutes: Substitutes are those goods which can be used by customers in place of any other commodity. When there are many substitutions available in market, it is a condition of increase in competition. As per the given case, there are 3 producers of iron ore i.e., BHP Billiton, Vale and Rio Tinto that controls around 70% of internationally traded ore market. This may lead to increasing competition in steel industry. Customers switch from one firm to other for buying steel. In similar way, car manufacturers substitute steel material from plastic & aluminium metal which can be use in packaging (Harrington and Ottenbacher, 2011).
Threat of new entrant: There are many firms that are working in same industry and are facing huge competition in market. A high threat is posed by China in front of other steel industries and is largest steel exporter of world. Other companies that exist in market are European steel Arcelor and Anglo Dutch steel company. There is a condition of overcapacity exist in European steel industry due to which they tried to close down its plant but, French government was threatened to nationalize it (Merkert and Hensher, 2011).
Bargaining power of buyers: If goods are purchased in bulk quantity by customers then it is observed that their bargaining power is high. In steel industry, major customers are packaging firm and car manufacturers. In North America, General Motors, Chrysler and Ford are the major car producer firms and if any decline takes place in one of them has meant various new domestic buyers with enterprises like Nissan, BMW, Honda and Toyota for establishing local plants of production.
Bargaining power of suppliers: Suppliers are considered as a vital part of organisation that provide raw materials to them which are utilized inn the process of manufacturing. So, it is necessary that a strong relationship is develop and keep maintain between suppliers and buyers so that raw materials can be supply in proper way and operations are run smoothly. For instance, 3 producers, that is, vale, BHP Billiton and Rio Tinto are the major suppliers of iron ore. They have about 70% of market share for internationally traded ore.
Conclusion: For steel industry there are many competitors who are there in market. There are many competitors such as TATA. There are different substitute such as Billiton and Vale. Etc. Hence steel industries have to create unique strategies to beat these substitutes. Many new entrants are entering in market as goods are purchase in bulk so hence customers that are packaging firm and car manufacturers have high bargaining power. Bargaining power of suppliers are high as they have 70% of market share. Strong relationship is to be maintained so that they can supply good quality of raw materials.
a) Analysis of market share by using BCG matrix
Apple Inc. is one of the well known company which is known for its advanced and innovative products that they offer to customers. The matrix, BCG is introduced by Bruce Henderson. It consists of 4 sections that depicts about interrelationship between growth & market share. Different components of BCG matrix are defined below:
Star: In this, both market share and growth are high. It depicts powerful market share but underlines high market expenditures (Moutinho and Vargas-Sanchez, 2018). Apple Inc is one of the most innovative company that offers products like I phone. Growth rate of this good is 27% and it is one of the famous & most demanded product of firm. This leads the company towards high revenues. If firm will continue to work in same product line, they become successful and keep creating excellent goodwill in market. They have a high market share and high growth rate should give high revenues so that they can be equal to investment but not more then investment.
Cash cows: In this, there is high market share & low growth rate. Mac Books are include in this section and contributes significantly in high revenues of firm but, there is lack of significant growth. The major reason behind low growth rate is that mobile is preferred by customers more than other gadgets. So, product is doing well but growth rate is low because of some reasons. As growth rate is low hence there is need of less investment. They can provide funds in question mark category.
Dogs: In this, both growth and market share are low. The product of Apple Inc. fall under this category is iPods. The major threat of company is its negative growth rate, that is, -5%. There are very few customers of this product due to which profits and revenues of firm are highly affected. So, company needs to take decisions over this (Pamfilie, Petcu and Draghici, 2012). Appropriate strategies should be formulate in order to increase its growth and market share to sustainable level. In this stage low market share and there is low investment. So hence BCG said that firm can close business.
Question mark: Under this, growth rate is high and market share is low. The product that comes in question mark category is Apple TV. Its growth is high but not reach to maximum. This product has relatively low, i.e., 1.05% of market share as compared to other goods of Apple Inc. Firm have that potential to convert this into star and cash cow by putting their whole efforts. If it has not increased market share upto higher level then company cannot survive in market. It give suggestions to corporate parents to nurture several in time.
b) Critical analysis of potential issues with BCG matrix
There are some limitations of BCG matrix that should be analysed in order to find out the required areas of improvements. This matrix depicts about the productivity and performance level of firm. 2 dimensions are considered in this matrix which are growth rate and market share. According to view point of Wilson, 2015, this matrix develops a framework for resources allocation among several business units & makes their comparison possible at a glance. There are some issues associated with BCG matrix are defined below:
- This matrix doesn't formulate any mission and vision available in market place.
- If firm depicts high market share on one direction, it doesn't mean that it earn high market gains.
- A clear and transparent information or data is not provide by BCG matrix which pose issues and challenges in front of business organisations.
- Profitability is not underlined by Boston Consultancy Group in relation to market share. So, the matrix ignores some other indicators of profitability (Travis and Rekhtman, 2011, February).
- Business are classified as low and high in this matrix, but they can be medium also. So, true nature of firm may not be reflected by this.
As per the above mentioned report, it has been concluded that strategic management is an important aspect for every business entity. It allows management to formulate appropriate plans and strategies that provides them direction for future course of action. Development of effective strategies leads to attainment of defined goals and objectives on time. PESTLE analysis is conducted in order to determine the influence of these factor and offer significant opportunities and threats to firm. BCG matrix is used by firm in order to analyse its growth and share in market
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