Category: Petroleum

Introduction

British Petroleum Company (BP) is the third largest energy supplying company in the world based in London and with operations in over 80 countries around the world. The company supplies over 22,400 stations with 3.8 million barrels of oil in one day.

It also provides petrochemical products and retails services to over 100 countries around the world. Before the company came to be known as BP in 1954, it operated under the name of Anglo-Persian Oil Company after it was founded in 1909. The company’s total revenues for the 2009 amounted to $246.1 billion dollars while its total assets for the same year amounted to $ 236 billion dollars (BP PLC 2010).

BP products include Castrol motor oil, Bp service stations, Air BP aviation fuels, ARCO gas stations, Aral service stations solar panels and BP petroleum products.

The corporate brands that fall under the company’s logo include BP, ampm which is a convenience store chain located in several countries, ARCO which is the company’s retail brand in US west coast states such as Oregon, Washington, Nevada, Ohio and Arizona and Castrol oil. Apart from these corporate brands, the company is involved in the provision of safer energy fuels to its customers (BP Global 2010).

The company is committed to providing suitable energy alternatives within the oil industry and it has demonstrated this by investing $80 million dollars in energy alternatives such as wind, solar power, natural gas and biofuels. The investment has also been used in developing energy technology that is used in locating new energy sources.

An example is the BrightWater technology which is designed to increase the recovery of oil in the oil fields. Other technologies used by BP include carbon capture and storage technology (CCS) that is used in dealing with carbon emissions into the atmosphere (BP Global 2010).

The exploration and production segment makes up the upstream activities of BP while transportation of oil through pipelines, shipping and railroad makes up the midstream activities. Marketing activities conducted by BP include the advertising and selling of natural gas and oil products (Company and Markets 2010).

Evaluation of BP’S Competitive Environment

Potential Industry Entrants

According to Porter’s Five Forces analysis, the company’s competitive environment is made up of potential industry entrants, power of buyers, and competitive rivalry from companies such as Exxon Mobile, Chevron, Shell and Total, power of suppliers and substitute products.

An analysis of BP’s potential industry entrants will involve assessing the barriers to entry which are economies of scale, capital expenditure requirements, and access to industry distribution channels, government policies, high taxation and low switching costs (Grunig and Kuhn 2008).

The economies of scale in the petroleum industry are very high because of the capital intensive nature of the industry’s operations which make it difficult for any oil producing company to enter the industry. The high government taxes as well as government policies when it comes to the petroleum industry also create a barrier to entry (Research and Markets 2010).

Capital expenditure requirements are very high in the oil industry because of the nature of operations that require a huge amount of investment in oil exploration, refinery and transportation activities. Governments require companies wishing to enter the market to have the appropriate capital to finance these activities. These high expenditure requirements make it difficult for new companies to enter into the industry.

The switching costs also pose a barrier to entry within the industry as they increase rivalry between companies in the same industry. When customers have the option of switching to much cheaper petroleum products, companies within the industry usually struggle to capture customers and maintain their existing customers.

The access to industry distribution channels creates a barrier to entry into the oil industry given the high costs that are incurred while transporting and supplying oil to the various distribution stations around the world (Hill and Jones 2008).

Threat of Substitutes

Porter’s five forces model identifies the threat of substitutes in any industry as the products or services that pose a threat to the company’s products or services. The model describes the demand for substitute products as: “Substitute products in the oil industry will exist if the demand for petroleum products is affected by price changes in the industry” (Porter, 2004).

The increasing environmental awareness and conservation activities have created a demand for substitute products other than oil. Companies are now looking for products that do not emit any dangerous gases or chemicals into the atmosphere while at the same time ensuring that the natural resources available in the environment are conserved (Research and Markets 2010)

The substitutes for oil that are available in the current market include wind generated power, hydro electricity, nuclear power, bio fuels, solar power and coal. These have been considered by most environmentalists to be safer alternatives to oil. The performance of these substitute products in the BP and petroleum industry has therefore been of no threat whatsoever during periods of high oil prices.

The cost of switching to these alternative products is also substantial which makes it difficult for industry players to switch from selling oil to coal, bio fuels, of hydro electric power. (World Energy Research 2009).

Competitor’s Rivalry

Competitor’s rivalry in the five forces model involves aspects such as diversity of rivals, industry concentration, high fixed costs, high exit barriers, low switching costs and brand differentiation. Such factors affect oil industries as well as other industries in the economic market as every company strives to achieve a competitive advantage.

The intensity and diversity of rivalry that exists between firms usually depends on the type of industry or economic market. The main rivals of BP in the oil and gas industry include Chevron, Shell, Exxon Mobile, Conoco Phillips and Total (World Energy Research 2009).

In pursuing a competitive advantage, BP has been involved in various competitive moves such as adjusting its oil and petroleum prices to be different from those of its major competitors (Exxon Mobile and Shell), improving its product differentiation activities by improving its retail brands to reflect the BP logo( BP 2go, BP connect and BP Travel Centre) and creating channels of distributions that are different from those that exist in the oil industry such as oil pipelines and transportation trucks.

High fixed costs increase rivalry in the petroleum industry when the total costs become the fixed costs of a company, forcing the production unit of the company to manufacture more goods to achieve lower unit costs. Because the firm has to sell these large amounts of products, high levels of production lead to rivalry in market shares increasing the level of competition within the industry (Grant 2005).

Low switching costs in the petroleum industry have allowed customers to freely switch to the competitor products. This has increased rivalry within the industry as BP struggles to be the number one supplier of petroleum products and services.

High exit barriers have also contributed to competitive rivalry in the oil and gas industry as the high costs placed by the government in abandoning the product prevent most companies from leaving the industry. High exit barriers imposed by most governments around the world on the oil industry have prevented most oil companies such as BP from leaving the industry.

The type of assets a company possesses has been viewed to be the most common exit barrier especially in the oil industry. The equipment used in manufacturing and producing oil are highly specialised making it difficult for them to be sold to other buyers in other industries (Porter 2004).

Power of Buyers and Suppliers

Porter (2004) described the power of buyers as “the impact that consumers have in products produced by a company or an industry”. The impact that consumers have over a company’s products usually increases when the industry’s market has many suppliers and only one buyer.

In such a scenario, the consumer of the product sets the price of the commodity creating a market known as a monopsony but in reality these markets rarely exist especially in the oil industry. The power of buyers in the oil industry is relatively low as the oil prices are determined by substitutes, barrel prices, oil availability, low product differentiation and few oil suppliers.

The power of suppliers is relatively high in the oil industry. Oil suppliers determine the prices of oil and petroleum products based on the availability of the oil raw materials. Supplier power in the oil industry is evidenced when oil and oil based products are sold at a higher price than their original retail price so as to capture industry profits.

The power of suppliers has been increased by factors such as high demands for natural gas and oil, few oil suppliers, the low switching costs that exist in the petroleum industry and the uniqueness of the oil raw materials (Porter 2004). The major oil suppliers in the world include Nigeria, Kazakhstan and Azerbaijan.

Industry Life Cycle of BP

The industry life cycle of the oil and gas industry is similar to that of other industries but it is different from the product life cycle as it represents the supply side of the product’s life cycle. The industry life cycle is made up of four stages that are used in determining the extent that an industry produces a range of products.

These stages include the introduction/emergence stage, the growth stage, the industry maturity stage and the decline stage. The two factors that determine the life cycle of an industry include demand growth and production. The growth rate of an industry defines the changes that will take place within that industry.

The production factor determines whether the company’s products will improve the life cycle of the industry through sales and promotion activities (Grant 2005).

In the introduction stage, the sales of the product and the rate of market penetration is usually low. This is because the industry’s products are not that well known and the customers are few. The small scale production of the products is usually low as the products are introduced into the market.

The second stage of the industry life cycle is the growth phase where the company launches into full scale marketing and promotion activities to take advantage of the emerging industry and market.

The value of the industry increases during this stage as customers begin to take notice of the company’s products and services. The industry experiences an upward growth during this stage as sales continue to pick up (Baum and McGahan 2004).

The maturity stage is usually marked by a flat growth curve that demonstrates the slowed growth of the company. The maturity stage is also marked with aggressive competition especially from late entrants into the market. The marketing effort during this stage is relatively strong as companies strive to create unique and differentiated products.

In the maturity stage, there are fewer firms that exist in the industry as the weak firms are eliminated from the industry while the strong firms become even stronger. The decline stage which is the last industry life cycle stage is inevitable in any industry as companies that have been unable to maintain their profits and product sales become obsolete.

This phase is usually characterised by declining sales that are demonstrated by a downward curve. The industry experiences a huge shakeout as those competitors who did not leave during the maturity stage exit the industry (Baum and McGahan 2004).

Key Business Strategies

According to Porter’s generic strategies, companies within a particular industry usually position themselves for profitability and competition in that industry by leveraging their strengths to achieve cost advantage and product differentiation. The three generic strategies developed by Porter include differentiation, focus and cost leadership.

For a company to achieve differentiation, it has to develop products and services that are unique and novel into the industry. These products have to be viewed by the target market to be more superior and higher in quality when compared to those of the competitors (Griffin 2008).

BP has successfully achieved differentiation in its product development strategies as it incorporates the use of scientific research during the exploration and production of oil.

It has also achieved differentiation through the use of its marketing and refining segment that promotes its products to the various markets around the world. The company has also invested in research and development in alternative energy sources as well as alternative energy technology (BP Strategy 2010).

The cost leadership strategy according to Porter requires that the producing company should be the one to offer average or low product prices within its industry. This is usually done to achieve higher profits and also to gain a higher market share within the industry.

The approaches that are normally used by companies that want to achieve cost leadership within an industry include gaining access to cheaper raw materials and suppliers, cost cutting, improving business process operations and incorporating the vertical integration decision making method (Griffin 2008).

BP has been able to achieve the cost leadership strategy as it has efficient distribution channels used to transport crude and refined oil to various destinations.

The company has also incorporated the strategy of energy production that is less harmful to the environment as part of its cost leadership activities. This has seen the amount of gas emissions emitted by its facilities decreasing considerably. It also has low production costs when compared to those of its competitors in the oil industry (BP Strategy 2010).

The focus strategy involves a company focusing its business efforts and activities on a particular market or production segment. The focus strategy is usually incorporated into a company’s business operations so that it can achieve either differentiation or cost leadership within an industry (Griffin 2008).

BP has not incorporated the focus strategy into its key business strategies as they have mostly focused on providing oil and petroleum based products to BP stakeholders and clientele in the various segments of the oil market (BP Strategy 2010).

Resources and Capabilities of BP

The strategies that are used by a company in achieving its goals, objectives and mission are usually formulated from matching the company’s resources and capabilities to the opportunities in the external environment.

A company’s resources and capabilities therefore play an important role in formulating the business strategies that will be used by the company. Since the external environment of a business is usually unstable and uncertain, the internal resources and capabilities of a company are usually considered when formulating business strategies.

The resources of a company are different from the capabilities of a company in that resources are the productive assets owned by the company while the capabilities of a company are what the company can be able to do. The resources of a company are divided into three categories which include the tangible resources, intangible resources and human resources (Johnson and Scholes 2002).

Tangible resources include financial assets such as cash securities, capital, and borrowing capacities as well as physical assets that include equipment, land, and mineral resources. Intangible resources include aspects such as brands, corporate logos, patents, trade secrets, trademarks while human resources refer to the skills and knowledge needed to perform business operations.

The capabilities of an organization are the capacity and ability of the organization to use its tangible, intangible and human resources to achieve a desired outcome.

“The approaches that are used in knowing a company’s capabilities include practical analysis where ability are identified according to the principal functional areas of the business and the value chain analysis where the activities of the firm are divided into a sequential chain” (Helfat 2003).

The resources of BP have been divided into the threshold resources and the unique resources. The threshold resources that are owned by the company include its strong financial resources which include its ordinary shares that have a value of $136.20 as of 2008 and its American depositary shares which have a value of $8.17 as of 2008.

The company also has strong financial resources as a result of its profits and revenues which have been increasing since 2005. As 2009 the company had made revenue of $246.1 billion dollars with the net income amounting to $ 16.58 billion for the same year.

Such high earnings enabled the company to acquire equity resources that amounted to $101.6 billion for 2009 as well as company assets that amounted to $236 billion for the same year (BP Financial 2010).

Other threshold resources that are held by the company include its many oil rigs and oil fields that are scattered in 100 countries around the world. These rigs are managed by the company’s drilling corporation which is known as BP Drilling Corporation. The company has various oil fields and deepwater oil rigs that are based in the Gulf of Mexico and the Plutonio region in Angola.

Other deepwater oil and natural gas well that the Company owns include Atlantis Phase 2, Tiber deep water oil rig and Dorado (BP Financial 2010). Apart from owning various oil wells and deep water oil rigs the company also owns several gas and service stations around the world.

Such service stations include BP gas stations, BP express service stations, Aral gas stations which are the operating chains of BP in Germany and other parts of Europe, ARCO service and gas stations which are found in the western parts of the United States and BP Connect service stations which have operations in various continents around the world such as Europe, Australia and the UK (BP Global 2010).

The company also has threshold resources in the form of renewable energy that are used as alternative energy resources to oil. These renewable resources include solar energy and photovoltaic energy. The company has established a solar power company known as BP Solar that mostly deals with production of solar energy in the form of solar panels and solar cells.

The photovoltaic division of the company deals with the production of solar cells that are used to convert natural light into electricity. This division was developed as part of the company’s activities to practice green technology (BP Global 2010).

BP’s unique resources which are also the intangible resources of the company include intellectual capital and property. The company’s intellectual capital and property includes its patents and trademarks, its copyrights, product formulas (petrochemical ingredients and photovoltaic cell formulas) and business strategies as well as business ideas and proposals that are used in the development of the company’s products (BP Web 2010).

The human resources of the company are the skilled employees who work in the various divisions of the company. As at 2009, the company had a worldwide employee base of 80,300 in its various offices around the world after the restructuring of the company’s personnel (BP.Com 2010).

Half of the company’s employees work in the deepwater drilling oil rigs that are owned by BP. These workers are highly skilled and trained in the management and maintenance of deepwater drilling sites as well as the various oil wells and fields found in various parts of the world.

These skills have been acquired through the various exploration and production programs that the company has for its employees working in these sectors.

The company has established a state of the art learning centre for its employees involved in the deepwater exploration and production of oil and natural gas in Houston, Texas so that they can receive additional training on natural gas and oil exploration, extraction and production (BP. Com 2010).

The capabilities of the company include threshold competencies such as research and development into renewable energy, oil exploration and production equipment and technology, refining and distribution of oil through distribution channels such as the oil pipelines and the implementation of renewable energy strategies.

The company also the capability and technical know-how to implement renewable energy strategies in the oil industry. It has the technical capability of storing carbon gases and particles through the use of its carbon capture and storage technology (BP PLC 2010).

BP has the core capability of designing thin film photovoltaic cells that are important in reducing manufacturing costs incurred by the company during oil extraction and refinery. The company has distribution capabilities which are in the form of in-field flow lines, oil pipelines, oil gathering centres and offshore oil platforms.

The company also owns a shipping company, BP Shipping, which is used in the shipment of oil and petrochemical products to various destinations around the world (BP PLC 2010). The company has the capability to provide a safe working environment for its employees.

The number of injuries and spills has reduced considerably over a ten year period in the company’s operations. 2009 noted two fatalities only in the various oil rigs and wells operated by the company which is an indication of the company’s ability to provide a healthy and safe environment for its workers (BP Personal Safety 2010).

BP Value Chain Analysis and Strategic Fit

The value chain of the company involves analysing the company’s activities that lead to the production and manufacture of oil and oil based products and what value has been added the chain. The activities are performed by BP based on the company’s value chain include the primary and the support activities.

The primary activities of the company include oil exploration and production which involves the extraction of natural gas and crude oil from the oil fields, inbound logistics which involves the shipment of the crude oil through pipelines, transit lines or by transportation (road, rail or ship).

Operation refining involves the refining of crude oil into refined oil which is then transported and distributed through the use of outbound logistical processes such as pipeline and transportation networks (Reuters 2010).

The support activities are the elements that are used to carryout the primary activities.

The support activities of the company include its experienced employees who work in the various divisions of the company, the infrastructure which involves the distribution and logistical networks that are used to transport crude or refined oil such as the oil pipelines and the shipping division of BP, technology that is mostly used in the research and development division of the company which includes purified terephthalic acid technology, BP Solar, carbon capture and storage technology (CSS) and BrightWater Technology.

The company’s financial resources have also been important in its value chain as they support the primary activities and supporting technology which is used in oil, natural gas production and exploration as well as the refining and marketing of the company’s products and related services (Reuters 2010).

The strategic fit of an organization deals with how the company’s resources and operations complement the goals, objectives and strategies of the company. An organization that has a good strategic fit will be successful in achieving its goals and objectives through the optimal use of its resources (Scott 2001). BP has achieved a strategic fit that has seen most of its strategies meeting the company’s goals and objectives.

The company has been able to achieve strategic fits that have seen it minimizing its production and manufacture costs through the use of thin film photovoltaic cells and better operational safety.

BP has also been able to achieve a strategic fit through the minimization of corporate overheads and investing in alternative energy research and development activities. These activities have seen the company gaining a competitive advantage over other oil companies within the industry.

Alignment of the Resources to Business Strategies

Once the resources and capabilities are identified, the key task is usually to formulate a strategy that will ensure the resources and capabilities are deployed for the greatest benefit. The value chain analysis of BP identifies the primary activities of BP to involve oil extraction, inbound logistics (crude oil shipment), oil refining, outbound logistics (distribution of refined oil) and marketing of oil, petroleum products.

The resources and capabilities of BP have been aligned to reflect the business strategies of the company which are to explore and produce oil to facilitate growth of the company, produce energy for consumption, marketing and refining products and providing alternative energy sources to oil (BP Strategy 2010).

Conclusion

BP has been viewed to be one of the major oil producers in the world. The company’s strong financial, physical and human resources enable it to earning high profits and revenues. The company’s revenues margins have continued to increase over the years as a result of industry analysis activities and environmental scanning activities.

The analysis of the industry has also enabled the company to develop business strategies that have enabled it to maintain its growth over the years. Though it is still the third largest producer of oil and natural gas, the company is gearing itself to be the dominant player as it continues to invest heavily in safer energy alternatives and renewable energy technology.

References

Baum, J. A. and McGahan, A. M., (2004) Business strategy over the industry lifecycle. New York: Elsevier.

BP.Com (2010) BP Sustainability reporting 2009: our people. Web.

BP Personal Safety (2010) BP aims to create a safe working environment for its workforce. Web.

BP PLC (2010) Group results: fourth quarter and full year 2009. Web.

BP Financial (2010) Financial and operating information 2005-2009. Web.

BP Global (2010) Products and services. Web.

BP Strategy (2010) BP outlines plan to improve financial performance while growing production through 2010. Web.

BP Web (2010) Company assets and financial integrity. Web.

Company and Markets (2010) BP p.l.c.: financial and strategic analysis review (global data). Web.

Grant, R. M., (2005) Contemporary strategy analysis. 5^th Edition. Oxford, UK: Blackwell Publishing.

Griffin, R. W., (2008) Fundamentals of management. Boston, US: Cengage Learning.

Grunig, R., and Kuhn, R., (2008) Process-based strategic planning. Berlin, Germany: Springer-Verlag Heidelberg.

Helfat, C. E., (2003) Organizational capabilities: emergence, development and change. Oxford, UK: Blackwell Publishing.

Hill, C. W., and Jones, G. R. (2008) Strategic Management Theory: An Integrated Approach. 8th Edition. Boston, US: College Permissions.

Johnson, G. & Scholes, K., (2002) Exploring Corporate Strategy. 6th Edition, New Jersey: Pearson Education Limited.

Porter, M. E., (2004) Competitive strategy. Oxford, UK: Free Press.

Research and Markets (2010) British Petroleum Company: company analysis. Web.

Reuters (2010) Profile: BP Plc (BP.N). Web.

Scott, B., (2001) Partnering in Europe: incentive based alliancing for projects. London: Thomas Telford Publishing Limited.

World Energy Research (2009) Oil and natural gas. Web.

BP, with a tagline “Beyond Petroleum”, is a company that centers its primary goals in terms of meeting the incessantly heightening demand for fossil fuels, product advancement and transitioning to a lower carbon future. BP learnt some indispensable lessons from the Gulf War when its expansive strategies were undermined.

The lessons have since resulted into spectacular success through efficient investments, which have proved worthy, both in short and long term while also ensuring that the company has access to growth markets while being able to maximize value chains and reduce costs.

In reference to cost cutting and efficient investment, BP in order to reduce costs which was greatly being incurred in wood burning and the use of electricity, BP has resorted to using solar power. Notably, it is always encouraged that financial leadership goals must be in line with company values which in this case are mutual advantage, environmental care and constructive engagement when a company wants to cut costs.

In order to achieve these, long and short term goals such as maximization of value chains flexibility and judgments are essential as a result of imposed external events. BP is also in the process of developing a technology to capture and store carbon dioxide.

The company officials believe that carbon capture and storage is an overly pertinent contribution in light of the growing need to tackle carbon emission. Also notable is the BP’s 10 point plan which can be viewed as a unique aspect of the financial strategies used by BP.

BP’s 10 point plan to increase value in transparency for its shareholders is in measure to its strengths which include gas value chains, technology, relationships, giant fields and deep water. The 10-point plan also strives to build a stronger and safer company which will in turn guarantee a sustainable value for the company.

These strategies measure active portfolio management of investors, they also give insight to whether there is strong balance sheet with gearing which refers to the groups net debt plus equity in the lower half of the 10-20% range, for re-investment purposes half of incremental operating cash to be used while the other half for other purposes, new upstream projects on-stream with unit operating cash margins double the 2011 average (constant oil price $100 per barrel) and lastly generate around 50% more annually in operating cash (Dudley 1).

Statements of directors’ responsibilities, consolidated financial statements and notes on the same, unaudited supplementary information on oil and natural gas, board performance reports whose primary focus is to provide guidance, resources and support required by the organization are all clear proofs that the company has been able to manage its finances effectively.

Nonetheless, the annual reports on management, shareholders, directors and senior management as well as competent and skilled employees and management also prove this (BP 1). The proof can be further extracted from emphasis on creating value in a harsh environment which underlines all of BPs activities.

However, there is a need for the company to make some adjustment to the statement of the directors’ responsibilities. It can be noted that the statements of the accounts which give an impartial view to state of affairs.

In the same light, the relevant notes on accounts, independent auditors report which provides evidence against inadequate representation of fact through fraud or any other errors, adherence to accounting policies and standards and procedures (BP 1).

References

BP. “Performance For All Our Futures.” BP. n.d. Web.

BP. “BPs Business Strategy.” BP. n.d. Web.

Dudley, B. “Refining & Marketing: Delivering a world class downstream business”. Web.

Post-1945, there emerged an international oil establishment named the postwar petroleum order. Before 1939, the output of petroleum in the Middle Eastern countries was not high and the region contributed only a marginal share to the world petroleum production.

Before the postwar years, British Petroleum (BP) was the dominant player in the petroleum market however, after the war, five American companies broke BP’s monopoly.

This postwar order was characterized by a corporate consolidation of the major oil companies in the Middle East. The primary aim of the order was to maximize the production of petroleum in the Persian Gulf and supply the increased postwar energy requirement of the Europe (Citino 137).

By 1948, United States had become one of the major importers of petroleum from the Middle Eastern countries. The era of Cold War diplomacy saw a rise in the energy requirement of the country, which made the rich oil resources of the Gulf indispensable to the endeavor (Painter “Oil, Resources, and the Cold War” 489).

The oil from the gulf was important as this provided a cheap source to help reconstructing the damage World War II had done on Europe. Further, defending the tattered Europe after the war was essential to guarantee development in the US.

The postwar petroleum order consisted of a tangible infrastructure resource to deliver oil to the European countries. The only infrastructure that supported the petroleum order then was the Suez Canal, and two other pipelines in the Middle East (Citino 137).

The political volatility of the Middle East in the postwar years only created greater problems for the petroleum order. Further, the creation of Israel in 1948 only added to the problems of the order as the Arab League members were skeptical of the Jewish nation and created a state embargo on supplying petroleum to the Western countries.

Thus, the postwar petroleum order, marred by volatility in oil supply due to regional conflict and political condition of the Gulf, was annihilated. Thus, post 1970s the United States under the administration of President Bush started diversifying the oil sources. This ended the postwar petroleum order to bring forth a new order.

This paper probes into the postwar petroleum order. Initially the paper will concentrate on delineating the reasons behind rise of the post petroleum order and the reasons that contributed to their downfall.

The paper will then discuss what the new petroleum order was and the reasons why this order came into being. Then drawing from the reasons of rise and demise of postwar petroleum order, the paper will try to intuitively understand the probable fate of the new order.

Rise and Fall of the Postwar Petroleum Order

One of the key outcomes of the World War II was postwar control over natural resources (Painter, “Oil, Resources, and the Cold War” 486). The prewar and postwar petroleum order saw a marked coalition between the United States and Great Britain to control the production and supply of oil in the market in order maintain stability in the oil market.

In 1944, the two countries were signatories of the Petroleum Agreement, which formally established the joint control over the oil resources of the Gulf. Thus, the emergence of an Anglo-American collaboration created a postwar oil order (Citino 139).

As early as 1933, Standard Oil of California had signed agreement with the King of Saudi Arabia, as the US oil companies were skeptical of the influence of the United Kingdom over the Saudi oil reserves due to the financial constraints of the Arab king.

In 1943, the US government survey pointed out that the Middle East had become the “center of gravity” and the “world oil production” was “shifting from the Gulf-Caribbean region to the Middle East” (Painter, “Oil, Resources, and the Cold War” 493).

Before World War II, the US government provided diplomatic support to the private US companies like Standard Oil Company of California and Texas Company, to receive concession in foreign countries. However, with the end of the war, the US government entered into an agreement with Britain to collaborate and not compete in pursuing the oil resources in Middle East.

However, this Anglo-American oil agreement was opposed by private US companies, who feared would reduce oil prices, due to cheap imports from Gulf due to government intervention (Painter, “Oil, Resources, and the Cold War” 493).

These issues were believed to be strong by a few members of the Congress, which resulted in a return to the Open Door diplomacy where private companies would operate in security, and profitably as government, initiative was limited to indirect involvement with oil matters in the Gulf. However, the US government had to take an active interest in the volatile political situation in the Middle East due to rise in Islamic nations.

During the World War II, Iran was occupied by the erstwhile USSR and the UK. Strategic analysts believed Iran to be vital for both the US and the USSR due to the critical geopolitical location of the country and its abundant oil resources. Right after the war, in the early forties, Iran too wanted to attract US oil companies in order ease the influence of the USSR and Britain.

US on the other hand, wanted to remove foreign influence and military occupancy in Iran, sought to influence the Iranian government to recover the natural resources.

The Truman Doctrine helped the US established its control over the northern region of Iran, Turkey, and Greece, therefore, establishing control over the eastern parts of the Mediterranean and Middle East (Painter, “Oil, Resources, and the Cold War” 495). This helped the country to retain control over the oil resources in the Middle East and prevented the entry of the USSR in the region.

The reason for this political move of the US was vested with two intent – first was to ease off the balance of payment problems of the country through increasing business of oil through US companies in the US, and second, keeping the Soviet out of Middle East thus, establishing control, in order to establish a military base, which can launch an attack on Soviet Russia in the event of a war (Citino 140).

This was the time when there occurred all the “great oil deals” in order to secure the expansion of the oil supply in Middle and Near East.

The result of this was the formation of the private system of an international production management that helped in oil production in Middle East and its incorporation with the global market. The US government strategically gained control over half of the oil share in Middle East by coordinating with the large private oil companies and the oil rich Arab nations.

The postwar petroleum order was a profitable venture for the US oil companies and a political and strategic success for the US until the formation of Palestine in 1947. President Truman supported the UN plan to partition Palestine into two parts and recognize the state of Israel was the first step to offend the Arab partners.

This created an opening for the USSR to enter the Middle Eastern oil industry in 1950 and 1960s. This helped in the expansion of the automobile industry in Western Europe and Japan in between 1950 and 1970 (Painter, “Oil, Resources, and the Cold War” 498).

The main issue with the arrangement of the west with the Middle East arose with the rise of the question of limiting western military capability in the Middle East and the declining power of Britain. The main issue that the US faced strategically was not military threat from the USSR, rather the growth of anti-Western feeling and Islamic nationalism in the Middle East.

This instilled a fear among the US policymakers that this rise of Arab nationalism could facilitate the expansion of the Soviet in the region. Both Britain and the US wanted retain control over the Middle Eastern oil resources for strategic reasons, but disagreed on the nature of diplomacy to be used to counter the rise of nationalism in the region (Painter, “Oil, Resources, and the Cold War” 499).

The US was in favor of meeting the demand of the nationalists of higher share in profits from the oil industry as long as they did not post a threat to the US strategic control and the operations of the private corporate in the Middle East. On the other hand, Britain’s balance of payment was more dependent on the oil revenues from the Gulf and therefore, was reluctant to give into the demand of the nationalists.

The Anglo-Iranian oil venture was critical for Britain as this was its most important overseas investment and the country’s balance of payment was largely dependent on it (Painter, “Oil, Resources, and the Cold War” 499).

United States too shared similar apprehensions regarding the rising Arab nationalism but it was more concerned with the effect the forceful reverse-nationalization in Gulf by Britain would have on the emerging turmoil in Iran (Painter, “Oil, Resources, and the Cold War” 499).

The US believed any adverse move by the British would undermine the position of the Iranian shah enhancing the position of the pro-Soviet Tudeh party, and may result in an intervention from within the region. The nationalization of the Suez Canal by the Egyptian nationalist leader, Gamal Abdel Nasser, created problems for the passage of oil from the Gulf to the West, as the canal was the chief passage for the western companies.

To worsen the situation, Britain along with France and Israel developed a plan to gain control over the canal and avenge Nasser’s action through military retaliation. Due to this, Syria and Saudi Arabia stopped their supply of oil to these countries.

Britain and France believed that the US would help them by supplying oil during the war torn years. However, President Eisenhower refused to provide petroleum to Britain and France and threatened to cut away all aid to Israel if they did not refrain from the attack. This strong pressure from the US government helped to stop the impending war, and major oil companies supplied Europe with oil as long as the canal did not open.

The Suez crisis was a burning example to the western world the rising Arab nationalism posed to the western world. Thus, it altogether was a threat to US plans to rebuild Western Europe with the oil from the Gulf. Nasser pushed the cause of Arab nationalism to gain control of their oil resources and use to further political agenda of the Middle East.

The main aim was to reduce western dominance in their oil resources, economic development of the Arab nations who were not rich in natural resources, and annihilation of Israel (Painter, “Oil, Resources, and the Cold War” 501). The fear was surmounted due the mutual distrust between the USSR and the US.

The latter constantly feared that turmoil in the Middle East would open the doors for the Soviet and their allies to take control over the oil rich region, adding to their military and economic position.

The US was always skeptical of the Soviet influence in the region, and therefore, Eisenhower helped the rise of the conservative Islamists in the region to drive away communism and nationalism from the region (Painter, “Oil, Resources, and the Cold War” 500).

The key rout through which oil was marketed to the Western Europe was through Egypt, Syria, Lebanon, and Jordan (Painter, “Oil, Resources, and the Cold War” 501). For formation of the United Arab Republic through the joining of Syria and Egypt in 1958 only created additional problem to the oil route.

Further, a coup on the pro-west monarchy of Iraq through a nationalist revolution in July 1958 created additional problems. US assumed Nasser’s interference in the coup but refrained from any military retaliation, as it would have destabilized the situation further.

However, the leaders of the nationalist party who helped the coup, agreed to respect the agreement with US and Britain regarding oil supply from the country (Painter, “Oil, Resources, and the Cold War” 502).

Both the western countries sent army to Lebanon and Jordan, to reestablish control over the region (Painter, “Oil, Resources, and the Cold War” 502). However, the possibility of communist control of Iraq and other Middle Eastern countries posed a special problem, especially during the Cold War era.

Iraq posed a threat to the Arab nationalism and garnered support from Britain who viewed Nasser of Egypt as a greater threat. However, the US believed that communist inclination of the Iraqis could pose a greater threat to the volatile condition of the Middle East and by extension to the oil issue of the west.

With the disassociation of General Abd aI-Karim Qasim from the Baghdad Pact and his increasing association with the Iraqi Communist Party created further drift between Nasser and Qasim (Painter, “Oil, Resources, and the Cold War” 502). In 1961, after Kuwait gained sovereignty, Qasim declared that Kuwait was a part of Iraq.

Kuwait being the fourth largest oil producing country was the largest supplier to Britain (Painter, “Oil, Resources, and the Cold War” 503). If Kuwait was to become a part of Iraq, it would be an unprofitable situation for Britain and US, and so they sent troops to Kuwait to safeguard the country from Iraqi attack (Painter, “Oil, Resources, and the Cold War” 503).

The Arab League quickly followed suit with troops from Saudi Arabia, Jordan, and United Arab Emirates, thus helping in successful evacuation of troops from Kuwait, yet maintain control over their stakes in Kuwait’s oil resoruces (Painter, “Oil, Resources, and the Cold War” 503). The US along with Britain aimed to annihilate the rising power of Qasim and the communist party in Iraq, and therefore brought forth the Bath Party in 1963.

With the formation of the Organization of Petroleum Producing Countries (OPEC) consisting of the major oil producing and exporting countries like Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela in Baghdad in 1960 (Painter “Oil, Resources, and the Cold War” 504).

OPEC gained power over the prices of oil in the international market, reducing the dominance of the western oil companies to control the international oil prices; it was greatly detrimental to the goals of Arab nationalism.

Further, the breaking up of the United Arab Republic and the building of super tanks that could bypass the Suez Canal created further impediment on the nationalist agenda. Thus, it was in the 1960s that the fears of any further soviet take over of the Middle Eastern oil, almost subsided.

The New Oil Order

The postwar petroleum order thus, emerged through a continuous process of political diplomacy in the Middle East which primarily aimed at gaining control over the oil resources by the US and Britain. The US employed soft diplomacy to control the oil resources of the Middle East and their desire to keep communism away from the region led to various event, which eventually led to the demise of the order.

The aim of the US and Britain was simply to establish themselves as the leaders in oil production in the world during the postwar era (Painter, “Oil and the American Century” 24-26).

Some critics of American policy believe that the soft political approach of America to intervene in the Middle Eastern issues and the creation of the postwar oil order was simply a vehicle to establish American hegemony in the world (Kubursi and Mansur 8).

Britain was completely out of the political scenario by 1979, when after the gradual fall of the appeal of the Arab nationalists, there arose a wave of Islamist allegiance in the Middle East.

The Suez crisis in 1957 clearly demonstrated that the US would not deter from using force on Middle East if there was a need for it, as was pointed out by President Eisenhower in 1957: “I think you have, in the analysis presented in the letter, proved that should a crisis arise threatening to cut the Western world off from the Mid East oil, we would have to use force.” (Kubursi and Mansur 8).

This point of view came into effect almost two decades later in the conflict between the USSR and US on Afghan soil, after the fall of the shah of Iran to the rising Islamic forces. Many believe that hegemonic control over the Middle Eastern oil remains the source of global power for the US (Kubursi and Mansur 9).

Thus, the picture became clearer in 1973 when OPEC quadrupled the prices of oil in the wake of Israel-Arab conflict (Kubursi and Mansur 9).

Critics of American hegemony in Middle East have pointed out that the Gulf War orchestrated against Iraq in the nineties was aimed at establishing democracy in an authoritarian rule of Saddam Hussein and the western intervention aimed to safeguard Kuwait from the autocratic, illegal, invasion but the a means to control over the Kuwaiti oil resources (Frank 268).

Had the intentions of the western allies and champions of democracy been pure they would have waged similar war against South Africa for continued apartheid policy, or Iraq’s invasion of Iran, or the USSR’s invasion in Afghanistan (Frank 268).

Thus, evidently the reason was oil and managing some other domestic economic problems (Frank 271). Iraq was also trying to handle the economic pressure that oil industry had posed on its economy due to the recession (Billion 691).

The oil politics shaped the foreign policy of the US in the postwar era. The petroleum order then created was through soft politics, which established the private, oil companies from the US to have control over petroleum from the world’s oil rich regions.

However, with the Gulf War, political and military volatility, and increasing dependence of the US on the oil resources of the Middle East created major economic problems for US. Further, the rise of OPEC as a monopolistic controller of the oil supplies globally also posed a major problem to the hegemonic control of the US over the oil resources.

This led to the establishment of the new oil order by the Bush administration to maintain their supremacy and continue the flow of oil to the western hemisphere. The aim of the US was to look for new oil rich regions that would become sources of cheap oil.

However, the lessons from the past history of the control over oil has led to believe that even if initial control can be established over the poor, but oil rich regions, eventually they emerge as a force in the world politics undermining the hegemony of the west.

Works Cited

Billion, Phhillipe Le. “Corruption, Reconstruction and Oil Governance in Iraq.” Third World Quarterly 26.4-5 (2005): 685 – 703. Print.

Citino, Nathan J. “Defending the ‘postwar petroleum order’: The US, Britain and the 1954 Saudi‐Onassis Tanker deal.” Diplomacy and Statecraft 11.2 (2000): 137-160. Print.

Frank, Andre Gunder. “Third World War: A political economy of the Gulf War and the new world order.” Third World Quarterly 13.2 (1992): 267-282. Print.

Kubursi, Atif A. and Salim Mansur. “Oil and the Gulf War: An” American Century” or A” New World Order”.” Arab Studies Quarterly 15.4 (1993): 1-17. Print.

Painter, David S. “”Oil, Resources, and the Cold War.” T (2010):.” Leffler, Melvyn P. and Odd Arne Westad. The Cambridge History of the Cold War 1. Cambridge: Cambridge University Press, 2010. 486-506. Print.

—. “Oil and the American Century.” The Journal of American History 99.1 (2012): 24-39. Print.

Introduction

British Petroleum (BP Plc) is a multinational firm that deals in the exploration, production, as well as marketing of fuel. The company was founded in 1909 as Anglo-Persian Oil Company with the main aim of exploring the Persian oilfields, the present day Iran.

The firm’s production and marketing activities spread over several countries in the world, including Angola, Australia, Azerbaijan, Egypt, Canada, the United Kingdom, and in the United States of America, particularly in the Gulf of Mexico.

BP also owns several facilities involved in the production and processing of crude oil, including pipelines and refineries.

During the year 2012, BP’s production averaged more than 2.31 million barrels of oil per day, with the leading production being from the USA at 34%, Trinidad at 19%, and the UK at 8% (Reuters para 1).

The BP Crisis

In April 2010, one of BP’s production points located in the Gulf of Mexico exploded from deep within the sea, causing a huge fire and killing up to 11 workers who were operating the production site at the time.

The resultant explosion saw oil spill from the site into the Gulf of Mexico, occasioning a huge environmental disaster. This is so far considered to be the greatest oil spill in the USA and the third largest in the global history of oil spills (Reuters para 3).

Source: BBC news

Initial communication released by BP immediately after the explosion indicated that the leak was approximately at 1000 barrels each day. However, it later emerged that the initial estimation by the company was erroneous as the actual oil spill was at 5000 barrels a day.

Before the leaking well was eventually capped, it is estimated that 4.9 million barrels of crude oil leaked into the water, causing a huge environmental disaster to the marine life.

The firm equally suffered business losses as its shares dropped by a massive 17% just in a day. This was estimated to have cost the firm about $23 billion in terms of market value (BBC news para 4).

Underlying Causations

BP was blamed for using poor quality materials in its efforts to save costs at the drilling point. A report detailing findings by the US government particularly mentioned the use of defective cement that the contractor company Halliburton was using for construction at the well.

A separate finding blamed the US government for lacking direct policies that would have been critical in directing BP’s operations in the US (Goldenberg para 1). The report further accused BP of lacking proper safety mechanisms for handling its exploration and production exercises.

BP’s idea of drilling the well more than a mile below the surface of the ocean was also blamed for the accident. This was particularly because it was more dangerous to drill an oil well that deep below the ocean bed despite the fact that the company had serious safety deficiencies (Aym para 8).

The US Minerals Management Service, which is a government agency involved in ascertaining such activities, was equally to blame for its insufficient efforts in overseeing the whole drilling process.

Impact on Stakeholders

Stakeholders of the company were hard hit by the crisis immediately news spread across the world. Groups of environmentalists and other interested persons organized street protests that sought to dissuade consumers of oil from buying the product from BP.

This saw the company’s stock reduce in price and value by up to 17% within one day (BBC news para 4).

During the entire period that BP struggled to plug the leaking well, up to $23 billion of the company’s market value were lost, further spelling a difficult future for the company’s stakeholders (Honnungar 2).

Britain’s pensioners were particularly affected by the BP crisis. It is worth noting that quite a significant number of pension funds in Britain have invested BP stock by virtue of the company’s high profitability and stability (Honnungar 2).

Thus, the pension funds suffered declined value because of the crisis. The result was a poorer community of pensioners in the whole of Britain as their funds grappled with the negative effects of the crisis. The diagram below shows total payments by BP to US states following the oil spill.

Source: BP

Response of the Organization to the Crisis

While the explosion of the drilling rig at the deepwater horizon in the Gulf of Mexico occurred in April 20 2010, the first communication by BP was in April 24 2010. In its communiqué, BP indicated that the leak occasioned by the accident was at 1,000 barrels a day.

Three days later, on April 27 2010, BP communicated Twitter that the company pledged its full support to Deepwater Horizon, which was BP’s contract partner in the drilling exploration of the well.

On April 28 2010, BP announced that its initial communication about the leak was an underestimation. The company indicated that the actual amount of oil that had been spilling from the well was actually 5,000 barrels.

BP’s CEO, Tony Hayward, spoke for the first time on April 30 2010, to the global news firm Reuters. Hayward told Reuters that the accident was not BP’s fault (Reuters para 5).

BP set up a web page, BP.com Gulf of Mexico response, on which it indicated on May 1 2010 about the relief efforts that it was undertaking. It issued contact numbers on which details about the relief efforts could be acquired.

May 3 2010, three days after his initial interview with Reuters, CEO Hayward changed stance and admitted that BP was liable for the incident. Hayward also announced that the firm would meet all legitimate legal claims, as well as pay to have the ocean cleaned up.

On May 15 2010, CEO Hayward told Sky News that the spill would have a modest impact because of the large ocean size.

In May 24 2010, BP spokesman Toby Odone disclosed that people have their own views about the company’s response to the disaster and there was little the company could do to change it.

He was responding to questions about a parody account on Twitter, @BpGlobalPR, which had indicated in May 16 2010 that the company regretted and fully admitted the occurrences at the Gulf Coast.

On May 31 2010, CEO Hayward proclaimed that he wanted his life back, responding to too much pressure concerning the disaster.

On June 2 2010, CEO Hayward admitted that the company did not have any preparations concerning the leak. A day after, June 3 2010, Hayward regretted having made a thoughtless and hurtful comment by declaring that he wanted his life back.

He apologized particularly to the families of the 11 workers who died following the explosion. A press release by BP in May 6 2011 indicated that the firm had devised a new approach in which 10,500 barrels of the spilt oil were being captured after every 24 hours.

Evaluation of the Response

BP did not have a policy on crisis management in place. This is evidenced by CEO Hayward’s admission that BP was not prepared for the oil leak. The response given by the firm also lacked any consistence in terms of the individual responses and press releases that were being issued.

CEO Hayward being the face of the firm issued conflicting statements every time he spoke about the incident. This also highlights the fact that he was not honest in his numerous communications.

At one point, he told Sky News that the oil leak would have a modest impact because the ocean was very big and the leak was comparatively too tiny.

The lack of preparedness to handle crises at BP was also highlighted by the poor public relations practice at the firm. BP spokesperson, Tony Odone, only spoke for the first time in May 24 2010 more than a month after the accident had taken place.

Tony’s response was not satisfactory as it only served to indicate the lack of answers to the crisis that was being faced by the firm.

Every individual from BP who spoke on the behalf of the firm appeared to be speaking from a personal point of view and not as the true and informed position of the firm.

For instance, while the official Twitter account of the company announced on April 27 2010 that it would offer full support to Deepwater Horizon, CEO Hayward spoke on April 30 2010 declaring that BP was not liable for the accident.

An efficient crisis communication requires that contact information is open to everyone throughout as the crisis is being sorted out. This was not the case with BP.

The first response from the company about its relief efforts were given out on May 1, which was more than ten days after the disaster had occurred. It was on this date that BP also issued the contact numbers for the first time following the disaster.

The individual communications by representatives from the firm indicate very little concern about the audiences and their feelings.

At one point, CEO Hayward proclaims that he wanted his life back. This was his reaction after what appeared to him as too much grilling from every quarter concerning the crisis.

The CEO’s response was in total disregard of the pain and suffering of the friends and family members of the 11 workers who died out of the explosion. Equally, BP was not sharing information at its disposal in a timely manner.

The first communication from the firm, for instance, was made on April 24, which was the fourth day after the disaster had taken place. The company’s CEO did not say anything until ten days later, on April 30, when he spoke to the media and absolved his company from any blame.

The different media outlets set up their own special segments that consistently reported the matter as opposed to BP itself. BP did not have any such segments that offered the much needed expertise and explanations.

For instance, the New York Times created its own ‘Oil Spill Tracker’ in an effort to view as well as make predictions and determine the actual spread of the spilling oil.

Much of the discussions about the crisis were being done by reporters and the press. This was a mistake that mainly highlighted BP’s inefficiency to handle the crisis.

CEO Hayward was particularly guilty of this mistake as he, more than often, appeared to discuss issues without any preparations. His first communiqué about the crisis was incidentally after a discussion he had held with Reuters.

Hayward’s lack of preparedness to discuss the matter showed when he declared that BP was after all not to blame for the incident. Hayward also spoke on Sky News where he downplayed the impact of the crisis that had been caused by his company.

From his lack of preparedness, he noted that the crisis would after all have a modest implication because the oil spill was very small compared to the large size of the ocean.

The photograph below displays angry protestors outside the CNN building in June 2010 expressing their dissatisfaction in the manner in which CEO Hayward was attempting to cover crimes by his company.

Source: Greengarden

In general, BP failed to act professionally in the face of the crisis. The too many voices speaking on behalf of the firm spoke from contradictory points of view and definitely did not have any prior discussions before issuing statements.

The company’s CEO appeared to mainly protect and absolve his firm from any blame. This was unprofessional of him because the actual information was already in the public domain and he did not help matters by appearing to feign BP’s innocence.

His remorsefulness later on after appearing to get the true picture of the crisis highlights the casual manner in which he was handling the issue.

Possible Alternative Responses

BP should have issued its official communication immediately after the incident by informing the public that it regretted the incident that had also caused loss of life to 11 of its workers.

In its initial communication, response contacts should have been issued and an announcement issued to the effect that it was still estimating the amount of the spillage before it could issue the actual figures.

This communication should have been issued on either the very day the incident occurred, April 20 2010, or the following day.

An internal meeting should have been held involving the CEO and the company’s spokesperson among other senior officials prior to issuing the information.

A resolution should have been arrived at during the meeting to declare the persons who would officially issue statements on behalf of the company.

The company should have arranged media briefings prior to inviting the different media houses. All briefings should have been written and thorough preparations done by the officer in charge on the possible questions and answers that could have arisen.

On the variation between the initial and actual spillage amount, BP should have began by expressing its regrets following the difference.

A message should have been included to highlight the fact that BP had conducted repeated analyses and determined that the information indicating a leakage of 1,000 barrels a day was erroneous and that the actual figure stood at 5,000.

It was important that BP’s chief executive officer Tony Hayward speak about the incident early enough. However, his communiqué should have waited for preliminary results concerning the crisis.

He should have begun by expressing his condolences to the families and friends of the 11 workers whose lives were claimed in the accident.

The CEO needed to have reassured the public that though the accident had occurred and losses were being counted, BP was working extra hard to contain it from worsening.

He should have taken time to accept liability early on but reassure the public and the world at large that his company had learnt important lessons from the crisis on how to prevent any such happenings from occurring in the future.

Conclusion

The BP crisis occurred in April 2010 when a BP exploration well in the Gulf of Mexico exploded and spilled out an estimated 4.9 million barrels of crude oil into the ocean. The disaster also left 11 of the firm’s workers dead following the explosion.

BP failed to handle the crisis professionally, particularly on the manner in which it handled its communication. The company’s CEO Tony Hayward was quick to speak about the crisis, but never prepared himself before speaking out.

His responses were always given out to the media and were never in written form. Internally, BP also lacked any tangible preparations on how to handle such crises. The firm took more than three days to officially respond about the crisis after it had occurred.

CEO Hayward was particularly keen on absolving BP from any wrongdoing and watered down the implications of the crisis. Although he later changed stance and admitted full liability, his initial talk and the general lack of preparedness of the firm did more harm to its corporate reputation.

Works Cited

Aym, Terrence. “Doomsday Methane Bubble Rupture? How the BP Gulf Disaster May Have Triggered a ‘World-Killing’ Event.” Global Research. 2010. Web.

BBC News. “Experts Double Estimate of BP Oil Spill Size.” BBC US & Canada. 2010. Web.

BP. Gulf of Mexico: Progress of Restoration Efforts. Web.

Goldenberg, Suzzane. “BP Oil Spill Blamed on Management and Communication Failures.” Guardian [London] 2010. Web.

Greengarden. Seize BP Protest at CNN Building. 2010. Web.

Honnungar, Vijayakumar. British Petroleum Oil Spill Crisis and Aftermath: Corporate Governance and Communication at BP During the Disaster. Munich: GRIN Verlag, 2011. Print.

Reuters. “BP PLC.” Reuters. Web.

Introduction

British Petroleum (BP) is one of the largest oil companies in the world. Its mainly involved in the exploration (of crude oil and related products), refinement and selling final products in the global market. BP mainly operates in America, Europe, Africa, and Australia. It employs more than 220, 000 people both in the United States and other countries and has more than half a million shareholders. The purpose of this business report is to analyze and evaluate the BP’s strategic position through using several technical business models. The analysis and evaluation should explain how the business has achieved its phenomenal growth and outline whether the current strategies used are appropriate to help the organization continue with its future strategy. It’s essential to understand the current intentional position of the company before appropriate strategies can be recommended and implemented.

Economic Theories

BP has integrated into the international market in terms of technology, trade, capital flows or investments. This is called economic globalization; it refers to the increase in national interdependence of economies through an increment in international trade. This is the process of promoting economic integration between economies of different countries with the aim of establishing a global market. According to Stiglitz (4), economic integration makes international trade easier through the removal of trade barriers and tariffs.

This can be through protection of investors in order to promote their capital investments. With economic integration, goods and services, labor and capital find their way in the country where they are be put into maximum use. This results in economic growth and development. Increase in the mobility of factors of production faces some negative challenges because of the economic pressures in the global market. Today, the global economy has increased to significant levels and all this has been facilitated by trade agreements. The following table shows the number of retail sites operated under BP brand.

Foreign Exchange Rates and Global Economic Conditions

Financial markets look into international capital flows, deficits in trade and international projects. International finance can be said to be a branch in international economics that studies the currency changes and the future of international trade. In recent years the international financial market has been experiencing increases brought about by globalization. In the early 1990s the international capital flows changed from 2 to 6 % of world gross domestic product. It later increased to 14.8% of gross domestic product in 2006 (Stiglitz, 23).

Nations with advanced economies have benefited from these increases and some from the developed countries have benefited from financial integration. The foreign exchange market is a worldwide financial market that is used in trading currencies. It aids international trade by allowing businesses to change their currencies into a foreign currency. Two exchange rates are used in the financial market; the fixed exchange rate and floating exchange rate. Countries using fixed exchange rates face limitations in using their monetary policy for macroeconomic stability. This is because if a country experiences a trade deficit it becomes very difficult to counteract it under the fixed rate as opposed to the floating rate.

Critical Success Factors for BP

The British Petroleum Company, most commonly known throughout the world simply as BP, has strong brand name. This is their upper hand, positioning itself in the world market. Other than the BP Company itself, the companies BP has acquired are also doing well. With these aforementioned facts alone, after entering into a new market, it will be easier for it to sell. The expertise that the company boasts of most often comes from the companies it has acquired and the positive developments made over the years (British Petroleum. “Annual reports and accounts 2009” 6). The company should come up with measures that are aimed at countering competition by offering quality to the clients. Other key issues include.

1. Strong marketing operations- through vertical & horizontal integrations
2. Technology development
3. Global brand- reputation & reliability
4. Has expanded its markets in the social and cultural contexts and this has contributed to its success
5. An effective procedure is followed in order to establish new and attractive ideas for the success of the organization (Wong, 5).

Internal Analysis

Strengths

1. Vertical and horizontal integration chain– effective distribution channels that reduces costs & improves cash flows.
2. Effective management– training, motivating & reviewing staff. Also outsourcing
3. Marketing power & growth- strong brand creation through cross-promotion.
4. Strong balance sheet- stable liquidity & average debtor/creditor days reduced.
5. Tax advantage in different countries- lower corporate taxes
6. strong financial base

The following table shows dividends announced and paid by the company per ADS for each of the past five years

Weaknesses

1. Disappointing financial returns– asset, investment & equity returns
2. Debt to Equity financing– future risks of high borrowing & cumulative interest
3. Geographical revenue decline- Saturated US markets.
4. Inconsistent growth & income revenue- cyclical results.

BP’s HRM Strategy

The diversified organizational culture establishes an effective team of highly qualified and skilled people through;

• Effective training & development- ensures smooth business operations
• Management & motivation- extrinsic & intrinsic motivation.
• Teamwork- selection and combination of people to solve corporate problems

BP’s strategic position within the industry has strengthened through its resources and competencies. BP’s most important strength is the developed vertical & horizontal integration links between the experienced HRM, operations and marketing areas. These provide the company with unique resources/competencies which create a competitive advantage. The distinct competencies such as growing economies of scale, experienced work force and effective supply & distribution links all contribute to cost efficient (Environmental Economic 6). Managing a proficient workforce enables the firm to exceed objectives. Training & development investment benefits the business as employees drive the firm to future success. Outsourcing HR developing countries is also a cost saving. The following table shows employee share options granted (British Petroleum. “Annual reports and accounts 2009” 5)

External Analysis

This section investigates external factors that could affect the organization

PESTEL analysis

Political

• Political relationships boost company’s success
• Government decisions to turnaround corporations tax strategy
• Government restrictions on monopolistic control of foreign markets (Wong, 6).

Economical

• Factors affecting GDP – employment, inflation, government spending
• More disposable income –profitable countries amplify service demand
• High investment from foreign shareholders
• Interest & exchange rates –Inexpensive Set-up costs due to low rates

Sociological

• Change in consumer tastes/preferences alter market forces–technology change to suit customer busy lifestyles
• Cultural sensitivity –high demand from acceptable business ethics

Technological

• Reviewed technology
• Implementing efficient technology– that reduce Co2 emissions (British Petroleum, “BP recognizes the risk posed to the environment from spills and takes a range of measures to prevent any loss of hydrocarbon” 4).

Environmental

• Kyoto Agreement changes businesses operations
• Tough environmental laws (waste disposal, clean air, first environmental acts) leading to higher investment costs in efficient technology

Legal

• Competition commission restrictions
• Government restrictions on multinational control of foreign markets

The external environment influences the decisions and strategy of an organization, thus BP has to consider external forces in order to achieve its objectives. The company’s technological developments have helped the environment through the efficient use of energy. This has also had an impact on the sociological & cultural differences since consumers want firms to be more socially responsible. BP’s business operates in many developing countries, which bring economic stability, however, government & legal issues restrict the firm’s monopolistic behavior.

Threat (oil spill)

With the current status at the Gulf region in Mexico, most of the oil companies (such as BP) that depend on oil from the region will have to incur economic cost while seeking for alternatives. They have already incurred a lot of financial losses from reduced sales due to lack of sufficient supply of oil. This problem is going to continue until other wells are drilled since it will take a long time before the Mexican Gulf oil can be harvested (Mouawad 10).

The global petroleum industry is also expected to incur huge losses which are deemed to result in increased oil prices. As we all know, oil and gas are the major sources of energy in most manufacturing industries. Oil shortage has already led to a decline in production (in the short-term) consequently resulting in increased prices of goods. However, in this long-term, this problem will be solved by substituting Gulf oil by other global sources (Environmental Economics 5).

According to BP CEO Bob Dudley, BP mobilized hundreds of people, vessels and protective boom to work on the spilt oil. Many people volunteered to help BP in its bid to clean up the mess caused by the oil and prevent further loss of marine life and other animals (Wong 4). BP has injected a lot of money in setting up investment to help the economies that were affected to recover. This money has gone to the tourism and fishing industries as these were hit the most by the disaster. It has held close relationships with the American community, fish and wildlife service, NOAA, the EPA among other agencies.

Dudley notes that BP has already learnt from the deepwater horizon disaster and it is in the process of putting tighter security measures to ensure that such a tragedy does not happen again (Wong 5). This is not the only oil spill that the company has experienced. There have been other oil spills although the volume of spilt oil has been on the decline since 1999 before the big disaster occurred (British Petroleum, “BP recognizes the risk posed to the environment from spills and takes a range of measures to prevent any loss of hydrocarbon” 3). The following charts show the volume of oil that has been spilt since 2000 and the volume that has been covered out of the spilt oil.

Other threats that influence the expansion of BP into other foreign markets includes Policy/regulations, for instance Government laws in Asia which prevents future operations and Global competition from Globalization. The threat from competition due to globalization can be reduced through the horizontal integration, as BP has done. The expansion into growing economies through the use of existing unique resources and core competencies would benefit BP and continue its expansion. Further need to invest in more sophisticated technology would ensure that services are protected, reliable and efficient. This would also overcome new environmental laws to reduce carbon emissions.

A line chart representing the number of BP’s oil spills equal to or greater than one barrel of oil (1 barrel = 159 liters = 42 US gallons). It covers the period 2001 to 2009. In 2001 it was 810, in 2002 it was 742, in 2003 it was 635, in 2004 it was 578, in 2005 it was 541, in 2006 it was 417, in 2007 it was 340, in 2008 it was 355 and in 2009 it was 234.

Volume of oil spills recovered / not recovered

Opportunities

The oil and gas industry is known as one of the major industries that earns nations a lot of income. For a long time it has been considered as the best industry to raise a nation’s economic status in the global market. People have become dependent on this industry as a major source of energy for cooking, and driving automobiles, among others. With the level of industrialization all over the world, oil and natural gas will remain the leading source of energy. There is a lot of natural gas that has not been harvested because many companies are not able to produce it at a profit. This leaves BP as the only company that is able to produce and market natural gas at a profit (Wong 6). Also there are many areas in the world with many tons of oil which have not been harvested and BP will continue exploring oil in these areas as long the strong demand for oil remains.

Works Cited

British Petroleum. Annual reports and accounts, 2009. Web.

British Petroleum. BP recognizes the risk posed to the environment from spills and takes a range of measures to prevent any loss of hydrocarbons, 2010. Web.

Environmental Economic. “Political impacts of Deepwater Horizon.” Economists on Environmental and Natural Resources 2010. Web.

Mouawad, Jad. “BP has a history of spills and safety lapses.” New York Times. 2010. Web.

Stiglitz, Joseph E. Globalization and Its Discontents. New York: W.W. Norton & Company, 2003.

Wong, Amy. “BP (NYSE:BP), Deepwater drilling will remain in Gulf, and everywhere”, International business times. 2010. Web.

As a process, strategic management focuses on an organization’s planning and policy development with the purpose of achieving specifically stated objectives, allocation of resources (Raduan et al. 406). Strategic management mainly deals with such aspects as the development of strategy, planning and implementation. Moreover, strategic management evaluates and adjusts its plans and policies based on their success level. This paper discusses strategic decisions and responses of British Petroleum (BP) to a major accident known as Deepwater Horizon oil spill.

British Petroleum is a public limited company recognized as one of the largest oil and gas corporations. The accident referred to as Deepwater Horizon oil spill occurred on the 20^th of April of 2010 at a BP oil rig called Deepwater Horizon that was situated in the Gulf of Mexico (Deepwater Horizon accident and response par. 1). The accident happened because of the release of gas and the following explosion that led to the death of 11 workers and destruction of the rig.

Deepwater Horizon sank and this resulted in the leakage of oil into the Gulf of Mexico. This accident was accompanied by a variety of errors and failures such as the loss of hydrostatic control over the oil flow within the well, the failure to seal the well which made possible the ignition of the leaking hydrocarbons. The oil spill was massive and caused a dramatic damage to the environment.

Prior to the Accident

As showed by the investigation that followed the oil spill, the explosion happened because natural gas destroyed the concrete core set to seal the oil well, clearly the materials composing the core were not strong enough to prevent the gas from blasting through. Another accident of similar type occurred at another BP’s rig in 2008, the cause was the same – weak sealing concrete core (Pallardy par. 2). BP leaders characterized this accident as integrity failure, and in their report admitted that they missed a number of warning signs before the explosion at the rig, yet they emphasized that the other companies involved in the work of the well (Halliburton and Transocean) are more at fault.

The tragedy could have been avoided if only the managers addressed the signs of upcoming core breach such as unusual pressure results of pressure test (Goldenberg par 3.) At the same time, Halliburton and Transocean pointed out that BP failed to report some of its other mistakes such as flawed design of the well and insufficiency of safety procedures (Goldenberg par. 6). This way, the key factors underlying the disaster at Deepwater Horizon rig can be characterized as the company’s focus on profit-maximization and competition – based as well as resource – based theories (Raduan et al. 406). In other words, the BP leaders were driven by the belief that a company’s competitive advantage comes from their access to resources. To maximize their revenues and resources they targeted the increased acquisition of resources disregarding safety procedures for the sake of efficiency.

After the Accident

The damage caused by Deepwater Horizon disaster affected the environment, the lives of rig employees and the financial performance of British Petroleum. After the explosion the company has lost a lot of income due to the downfall of their shared at the London Stock Exchange. In June BP’s performance showed the lowest results since 14 years, and in the beginning of July the company has lost half of its market capitalization (Mejri and De Wolf 68). It is needless to mention that the reputation of British Petroleum has suffered similar damage as its products were boycotted and it was attacked by multiple environmental organizations.

According to three-phase crisis management model, BP was supposed to address the possibility of a crisis at the Pre-Crisis stage – eliminate the risks potentially leading to a disaster, establish strict rules and procedures of safety, ensure that they are followed carefully and all the time. Since BP failed it this stage, they faced the Response phase were a company was required to address the negative outcomes. As a crisis response BP immediately provided financial support to the families of workers killed and injured by the accident, and to all the legitimate victims of the oil spill (Barrett 1-2). Besides, the organization reacted to the environment pollution and established facilities helping to clean up the oil and to help the nature and tourism of the affected region recover from the disaster.

Around 48 thousand of people and 65 hundred vessels were mobilized to address the consequences of the spill (Deepwater Horizon accident and response par. 8). The company leaders’ and the public perspectives on the outcomes of the tragedy do not match. The managers of BP state that the size of payouts is huge and that the money often goes to people who were not affected by the spill. At the same time, the public insists that the payouts are insufficient compared to the level of damage caused by the disaster. BP is also accused of an attempt to shift the public attention from its fault as a part of legal strategy. Besides, the series of job slashes in the UK following the company’s need to cutback served as massive source of public dissatisfaction.

Finally, British Petroleum was frequently accused of providing false numbers in their reports concerning the level of damage in the Gulf of Mexico and of an attempt to assure the public that the environment is recovering and the damage is not as big in order to restore the brand image.

Deepwater Horizon oil spill was definitely a dramatic reminder that BP is in a dangerous business with a lot of risks in the spheres of planning, assessment and operations. The lessons learnt by the company after the disaster emphasized the importance of Pre-crisis phase and safety procedures namely. One of the integrity errors of the company was its self-promotion as environmentally conscious brand, even their label is made in green and yellow. The clash of the external image and the actual practices led to negative perception after the disaster. In the future the company will have to ensure that its environmental awareness and operations are in tune, that their planning does not focus on income disregarding safety and thoroughness of the workflow.

Conclusion

To conclude, BP’s negative experience could have been viewed as a valuable lesson, yet the amount of damage caused by the spill cannot be justified. Overall, the oil and gas giant neglected the safety procedures and thus exposed to extreme risk thousands of people and animals, polluted the Gulf of Mexico and the coastline. Even now, five years after the disaster, the area continues to suffer from environmental problems.

Works Cited

Barrett, Paul. M. BP’s Robert Dudley on the Gulf Oil Spill’s Legal Aftermath. 2013. Web.

Deepwater Horizon accident and response. BP. 2015. Web.

Goldenberg, Susanne. Management Theories and The Linkage With Organizational Competitive Advantage. Web.

Mejri, Mohamed, and Daniel De Wolf. “Crisis Management: Lessons Learnt From The BP Deepwater Horizon Spill Oil.” BMS 4.2 (2013): 67-90. Print.

Pallardy, Richard. Deepwater Horizon oil spill of 2010. 2015. Web.

Raduan, C. R., Jegak, U., Haslinda, A., Amilin, I. I. “Management, Strategic Management Theories and The Linkage With Organizational Competitive Advantage From The Resource-Based View.” European Journal of Social Sciences 11.3 (2009): 402-417. Print.

Background

British Petroleum, also known as BP, is one of the key players in the energy sector in the United States. The importance of this sector to the country’s economy is very clear, given that all other sectors of the economy depend on it for energy. According to Cuthbert (65), British Petroleum is one of the most important companies in the United States economy. However, it is raising a lot of concern how this company has been conducting its operations over the last twenty years.

The company has been accused of a series of crimes that involve its operations within the country. For instance, Texas City Refinery explosion and the Deepwater Horizon Oil Spillage are some of the worst accidents in this industry that the country has ever experienced in history. What is worrying is that the management of this firm does not seem to be concerned. The mistakes that this firm committed five years ago are still the same mistakes it is committing today, leading to massive negative environmental impact. The environment is delicate, and how we treat it today will determine its sustainability tomorrow. In some instances, the environmental pollution may be irreversible (Lyon and Maxwell 56)

Every human life is precious and must be treated as such. Lives being lost in avoidable accidents, in this firm’s plants within the country can never be replaced. Socially, those families whose loved ones die in such accidents will spend the rest of their lives moaning. In other families, breadwinners will be lost. Environmental and human rights activists have been asking how long this will continue. They have been concerned of how this firm can be made to appreciate that the environment defines the very existence of the future generation. Fines paid by this firm may not be enough to reverse some of the negative effects that its activities has on the environment and to families that lose their loved ones (Zoltan and Laszlo 53).

The United States government, through the United States Environmental Protection Agency, must act now in order to protect the environment. The action must go beyond fines because this firm has proven beyond any doubt that it can pay these fines without its operations being significantly affected.

Analysis

It is important to analyze the trend that this firm has taken in violating the law and paying fines as a result of this. In 1999, British Petroleum was found guilty of irresponsible waste disposals in Alaska North slopes. The company paid $ 22 million in fine for this criminal offence. The Texas City Refinery explosion in 2005 remains one of the worst industrial accidents in the United States in the recent times. It left 15 people dead, and over 170 others seriously injured. The environmental impact of this was devastating. The company paid over $ 65 million in fine for violation of rules set by various environmental agencies, including the regulations set by the United States Environmental Protection Agency.

In 2006, the company was accused of polluting farmlands in Columbia, and millions of dollars were paid because of this. In 2006, a BP exploration in Alaska led to a massive oil spillage at Prudhoe Bay. The company was found guilty of a number of offences, and had to pay a fine of $ 45 million. In 2008, one of the company’s plants in Caspian Sea experienced a serious gas leak that lead to blowout (Commander and Svejnar 23).

The 2010 Texas City Chemical leak is another act of negligence on the side of this company that led to massive environmental pollution (Kamieniecki, and Kraft 67). However, the recent Deepwater Horizon Oil Spillage is one of the most memorable accidents involving this firm that had a massive impact to the environment. Many aquatic plants and animals in this region were destroyed, tourism in various states was affected, agriculture on many farms along the shore interfered with, and fishing stopped in many regions. Once again a series of fines were paid by the firm after it became clear that it contravened a series of regulations. The table below is a summary of fines that this company has paid based on the readily available data discussed above.

Table 1: Fines Paid by BP since 1999

This information is best presented using the following graph. It shows a consistent increase in payment of fines by this firm since 1999.

From the above graphical presentation, it is clear that BP has been paying high fines in several occasions. In 1999, the firm paid 22 million in fine for its violation of environmental policies and safety regulation. This amount of fine has been consistently rising for the same mistakes, and in 2010, the firm had to pay a record of $ 42.2 billion dollars. According to Kew, and Stredwick (87), fines should not be considered as sources of income to the country. They are supposed to deter a given undesirable behavior among players in various sectors of the economy. If this fine fails to correct a given behavior, then it is a clear indication that such fines are not effective enough.

The United States Environmental Protection Agency’s expenditure has been on the rise over the last ten years, a clear indication that environmental degradation is one the rise. The similarity in the pattern of this agency’s expenditure and the fines paid BP demonstrates that this firm’s operations have significantly large negative impact on the environment. The graph below shows the expenditure of this agency from 2001 to 2011 as a percentage of the country’s GPD.

Some recent reports have indicated that the irresponsible behavior by some of the leading firms in the energy sectors has brought a negative impact on other industries. According to Peng and Dominici (34), the Deepwater Horizon oil spillage had series negative consequences on the tourism sector, the fishing and farming industries. The figure below shows sea bird that was affected by this high sea oil spillage. This is a clear indication of how terrible the sea was affected by this oil spillage.

This is a clear indication that things are not getting any better despite the fines that this firm has been paying over the years. Its high profits make this firm ignore all the laid down procedures and codes of conduct because it can pay the fines if there is a need.

Options

The United States Environmental Protection Agency has a number of options that it can take to address the issue of pollution caused by British Petroleum in this country. As Fernando (45) says, we owe the future generation a sustainable environment where they will be able to conduct various development projects befitting their survival. One of the best options that would be available for this agency would be a suspension of the operating license of this firm. Suspending the license for some time will mean that the firm will have to halt its operations for some time. This option will help send a message, but the problem is that it may meet resistance from several stakeholders who may view it as an attempt to scare away investors (Nijsen 67).

Another alternative that this agency can take to curb the increasing negative impact that this firm has on the environment would be to hire experts to monitor the firm’s operations at all its facilities in the United States at its own expense. This means that the agency will hire these experts who will make regular inspection of the facility to ensure that they adhere to the rules. The company will pay the agency the equivalent of all the expenses of maintaining these experts. If this fails to yield the desired result, then the last option would be to cancel the operating license of this firm, and stop it from operating in the United States.

Recommendation

The options given above have their advantages and disadvantages. It is important to understand the strategy that would yield the best results in managing BP’s negative impact on the environment. I believe that the best approach would be to hire external experts to inspect operations of this firm in the country. Cancelling or suspending its license may meet resistance from many stakeholders, especially due to the economic significance of the firm in the country. This will ensure that all the operations within the firm comply with the regulation of the industry. The external experts will also advise the management of the firm of necessary changes in their operations that will improve safety to the environment and their employees.

Works Cited

Cuthbert, Daniel. Applications of Statistics to Industrial Experimentation. New York: Wiley, 1976. Print.

Commander, Simon, and James Svejnar. “Business Environment, Exports, Ownership, and Firm Performance.” The Review of Economics and Statistics 93.1 (2011): 309-337. Print.

Fernando, Charles. Business Environment. New Delhi: Pearson, 2011. Print.

Kamieniecki, Sheldon, and Michael Kraft. Business and Environmental Policy: Corporate Interests in the American Political System. Cambridge: MIT Press, 2007. Print.

Kew, John, and John Stredwick. Business Environment: Managing in a Strategic Context. London: Chartered Inst. of Personnel and Development, 2005. Print.

Lyon, Thomas, and John Maxwell. Corporate Environmentalism and Public Policy. Cambridge: Cambridge University Press, 2004. Print.

Nijsen, André. Business Regulation and Public Policy: The Costs and Benefits of Compliance. New York: Springer, 2009. Print.

Peng, Roger, and Francesca Dominici. Statistical Methods for Environmental Epidemiology with R: A Case Study in Air Pollution and Health. New York: Springer, 2008. Print.

Prasad, Vishwajeet. Business Environment. Delhia: Gennext, 2010. Print.

Zoltan, Acs, and Laszlo Szerb. “Entrepreneurship, Economic Growth and Public Policy.” Small Business Economics 28.3 (2007): 109-122. Print.

Introduction

Companies need to practice strong business ethics and good corporate social responsibility. These aspects have a great impact on the operations of the business. In essence, these two concepts are critical for the company in its attempt to foster good relations, both the internal and the external, within the communities in which they operate (McWilliams & Siegel, 2000). Studies indicate that companies with strong business ethics and social responsibility have increased their efficiency hence improved their performance as well. In addition, business organizations with high ethical and socially responsible practices have enhanced customer satisfaction, which has, in turn, added more value to the company’s shareholders. As a result, socially responsible behaviors include relationships practiced within the firm. The two concepts encompass all those practices that the firms undertake to increase efficiency in the management of resources as well as enhance good relations with customers, employees, and shareholders (Rushton, 2002).

This case presents circumstances where companies disregard their ethical and social responsibilities. BP studied, in this case, is a global multinational corporation that does not understand the importance of being ethical and socially responsible. In many instances, the company has flouted the ethical standards and neglected its social responsibility, not only to its shareholders but also to the communities and other parties involved. BP should understand that practicing social responsibility and putting in place strong business ethics have a direct influence on the company’s efficiency, reputation, as well as the employees’ relationships (Rushton, 2002). In addition, these practices are critical to their long-term growth and development (McWilliams & Siegel, 2000).

Aspects of BP ethical culture that could have contributed to the Gulf Coast oil spill disaster

One of the cultural aspects that could have contributed to the spill is the negligence of the regulations that have been put in place. BP has a history of flouting environmental and other legal regulations, as well as some questionable issues that could have contributed to the spill. The company has been involved in various criminal activities, particularly those that endanger the environment and communities in which the firm operates. Actually, these actions have been practiced for a long period despite the fact that they have contributed to the cause of other disasters. Practical negligence is a culture that the company has adopted to cut on the expenses and increase the total revenue. In this case, BP has paid no attention to several legal procedures. The regulations in the acts ensure perfunctory integrity and safety of the operations as well as the environmental well-being.

Negligence of the environmental concerns as well as moral misbehaviors indicates that the company has a long history of failing to take into consideration the well-being of the stakeholders. While the company markets itself as the one upholding ethical standards and greatly concerned with the well-being of its stakeholders, the violations of the legal procedures have contributed to such disasters as the Gulf Coast oil spill.

Coming up with moral organizational culture, the need of assessment to the possible hazards should be taken into consideration. In this case, the company did not succeed in putting in place measures that could ensure the well-being and proper protection from negative factors of its workers, neighboring communities, and contractors. In addition, the company failed to develop measures that could have protected other supportive industries including fishing and tourism thriving in the Mexican gulf. Moreover, the necessary measures could have contributed to its sustainability. Moral organization culture includes examining the following issues, such as workers’ and environmental protection. Important aspects, such as caring for the natural environment, are what the company failed to address.

Further, the company’s set of laws did not succeed to put in place measures that could have prevented one of the most horrible environmental disasters, such as the gulf oil spill. In spite of the company has a code of conduct in face of danger, it did not address the most important aspects of environmental management. Even the management compliance to the stated rules and regulations was not reflected. Moreover, the code itself became questionable. The set of rules that the company uses to protect its image and environment should have gone through the legal processes to examine the most important areas of risk management. In fact, the code was purported to serve in dealing with public relations rather than addressing ethical and legal issues the company might have encountered in its daily operations.

Even though the code did not address the major issues, the company management dealing with moral predicaments found in high-risk areas has applied those set of rules and prescriptions. The code stipulates the required activities as well as limits some specific actions. Nevertheless, it has not been proved that the company ensured compliance to the set regulations in order to avert major disasters.

BP failure in the management of risks

Throughout the disaster period, the company was accused of the failure to manage its risks. In most instances, the company claimed that its crisis management was applied as expected. However, the gaps in the company’s risk management could not be explained. It has been indicated that the company ignored some of the most important risks measures in order to cut the costs meant to be spent on environment protection. In addition, the gulf oil spill was not the only disaster that the company has encountered. In fact, most of the crises the company has faced are blamed on the company’s poor risks management. Therefore, this crisis aroused as a result of the same poor risks management strategies.

There were various investigations to indicate that safety measures had been put in place to avert the crisis. However, the company had a responsibility to ensure that such major disasters as the oil spill would have never occurred. Given the fact that such disasters had happened before, they should have been the lessons for the company to learn from and be able to prevent further accidents. Nevertheless, the company ignored most of risks management measures, particularly those in the use of equipments and flouting mechanical regulations. If the disaster resulted from intractable carelessness, it could be deduced that the company’s systems were inadequate in the management of such magnanimous disaster. Apparently, the company risk management was inefficient, and its inability to manage the risks has resulted in affecting its brand image (Miller, 2011).

Ways through which BP could improve its image and manage risks associated with offshore drilling activities

Many suggest that the company should rebrand and portray its image as socially responsible and caring for its stakeholders and all the parties involved in business. While this claim is true, it is not an easy task for the company given its already tainted image. For the company to improve its image, all its business processes should also be changed. The company’s contracting procedures, the production processes as well as its interactions with the consumers and other stakeholders should undergo a huge transformation. The company has blamed its contracting firms for the failure of some of the processes, which led to the crisis. Nevertheless, the company acknowledges that contracting processes are complex and encompassing, covering almost every stage of the business activities. Therefore, effectiveness and efficient manner in which the contracts are handled are critical for the success of the business (Starcher, 2009).

Besides, the company has claimed that faulty equipments were the major cause of many disasters the company faced. In this sense, procurements of the equipment have become critical in the company’s business processes. Generally, the effective procurements help the organization reduce the costs as well as manage the risks. In other words, those components directly affecting the quality and safety production processes originate from implementation of appropriate procurement process (Starcher, 2010). Contracting managers have the responsibility of identifying the best supplier that would provide quality components to ensure safety and risks management. Besides, the purchasing and supply department should focus on finding less costly source of quality material components and ensure safety not only to the workers but also to the environment (Starcher, 2010). In other words, effective purchasing of supplies and distribution of products and services will enable the firm to minimize costs, maintain quality and reduce risks.

Conclusion

Within the oil and gas industry, efficient chain management is critical in ensuring that the companies follow the safety rules, implement proper waste management and uphold ethical standards. The company has focused on the improvement of its brand image due to being socially responsible for environment preservation through investments in the production of the green energy. However, the company should improve its risks management and put in place measures that would prevent future disasters. The improvements of qualities in the production, contracting and procurement of equipments will improve the business competitiveness by ensuring that the products and the services provided by the company gain benefits to the stakeholders. Besides, it will improve the company image presenting itself as socially responsible organization.

References

McWilliams, A & Siegel, D 2000, “Corporate social responsibility and financial performance: Correlation or misspecifications?” Strategic Management Journal, vol.21 no.5, pp.603-609.

Miller, L 2011, “The high-performance organization,” European Business Forum, vol.6 no.2, pp.73-79.

Rushton, K 2002, “Business ethics: A sustainable approach,” European Review, vol.11 no.2, pp.137-139.

Starcher, G 2009, “Socially responsible enterprise restructuring,” European Business Forum, vol.16 no.2, pp.213-246.

Starcher, G 2010, “Towards a new paradigm of management,” European Business Forum, vol.32 no.6, pp.23-46.

Executive Summary

This project seeks to examine the resistance of change in organizations based on the actual evaluation of a recent case in Kuwait’s Petroleum Industries Company (PIC) where employees resisted a proposed change to adopt paperless technology. The company also wishes to adopt a new hierarchy and promotional system that has received profound resistance from the employees.

This report bases its arguments on a theoretical model to derive the reasons for the resistance of change and resolutions to such challenges in future change processes. The focus of the research is on the resistance to the implementation of change at PIC. Also, the research attempts to find causative agents and solutions for three hypotheses that our team has developed to facilitate the objective of the project.

Mainly, the method of research involves the use of unstructured interviews and focus groups on soliciting information from the study groups. Next, the paper provides a discussion of the research findings based on the theoretical model. The project also provides several recommendations that PIC should embrace to alleviate resistance to organizational change in the future.

Lastly, the project concludes that organizations should seek better ways of managing resistance to change in the future using tactics that are more apt to change the behavior of employees towards change resistance.

Introduction

Today’s information age, advancement of technology, and nature of the global ecthe onomy have necessitated the need for change in businesses and institutions. As a result, change has become an inevitable practice in almost all types of organizations. However, the conformity to new knowledge, ideas, and techniques does not always feature an easy undertaking for virtually all organizations.

The objective of change is to transform or modify the existing structurthe es of an organization in an attempt to improve the overall performance. Consequently, the processes of change have crucial implications on the role, position, and general functionalities of the various kinds of workers who are deployed to serve the organization.

Normally, change in organizations is met with substantial resistance from stakeholders such as the workforce, business executives, and even directors due to a vast range of whys and wherefores that each of them wants to be addressed. The management of resistance to change is crucial for the accomplishment of organizational goals in any business.

Nonetheless, the success of change is largely attributed to the managers’ readiness to examine the probable issues that may trigger resistance of change from various stakeholder groups. This project explores the resistance of change in organizations by examining the causes of resistance and the possible solutions to such challenges in the Petroleum Industries Company (KPC) in Kuwait.

Problem Statement

The purpose of this research is to examine the resistance of change amongst employees of PIC organization in Kuwait and the feasible measures that can address the issue. The company executives and directors have decided to implement a new strategy that is designed to automate the production process.

The main purpose of automating the production process in PIC organization is to minimize cases of bureaucracy by adopting a paperless manufacturing technology. This strategy will not only reduce paper writing but also improve the overall operational efficiency whilst offering superior products with heightened sensitivity and minimization of waste.

Just like most companies, PIC is aware that there is a need to match its organization with the widespread paperless evolution to be effective and systematic.

In addition, PIC wishes to establish a new promotional system in an attempt to boost the overall productivity at both individual and organizational levels. Finally, the organization desires to downsize its structure by putting in place a new system of hierarchy alongside the development of new job descriptions for workers.

The major challenge that PIC has encountered is that employees have become adamant to the implementation of change owing to numerous claims that suit individual interests in the organization. At the outset, employees have claimed that the implementation of an automatic paperless system will result in change of roles and elimination of some jobs from the company.

Secondly, the establishment of a different system of hierarchy has encountered great resistance since the company’s old-fashioned managers and employees have blatantly refused to embrace the proposed organizational structure. There are claims that the newly developed structure will lead to reshuffling of responsibilities and/or elimination of some jobs from the company.

Moreover, these employees feel that the structure will compel the top management team to carry out regular performance appraisals. Altogether, several managers and a number of employees have also failed to embrace the paperless technology and the anticipated promotional system.

This project seeks to establish the crucial factors that have engineered the resistance of change in PIC and the necessary preparations that the company should have made to prevent change resistance before the presentation of the change strategy.

The process of change is complex and takes the efforts of the organization leaders to acquaint employees and managers with adequate information about the nature, importance, and implications of the change before the implementation of the change. The author posits that many change processes are unfavorable to the target groups. Therefore, change resistance is predictable feedback from employees, managers, and even business executives.

These groups vary differently in terms of thinking and conceptualization of the significance of change in an organization. As a result, the stakeholder groups may engage in faultfinding activities to pin down the proposed change plan.

In the context of PIC, factors such as short-term focused employees, cognitive rigidity, inadequate training, and lack of information regarding the change of action courses are the most likely causes of change resistance.

Hypotheses

The research topic for this project is based on the resistance of change in organizations, which is an unavoidable phenomenon in the contemporary business world. The study focuses on the resistance of change in PIC, a subsidiary company of Kuwait Petroleum Company (KPC). From the study topic, we derived the following hypotheses.

H1: Following the proposed implementation of paperless technology coupled with inadequate training and technology awareness, the old-fashioned managers and employees resist the execution of the automated system in PIC.

H2: Fear of job elimination, reshuffling, and the reassignment of duties have resulted in resistance to the new organizational hierarchy.

H3: Several employees have resisted the new promotional system that seeks to boost productivity because it does not meet their interests.

Methodology of Research

We used several research methodologies to gain access to the organization. At the outset, personal interviews served as dominant tools for collecting information about the resistance of change from PIC. We used unstructured interviews to solicit general information about the perception of change in the organization. The methodology that was deployed involved an informal plan that generated ideas randomly.

These ideas were sorted out later to fit the exact purpose of this project. The group suggested the use of unstructured questionnaires since the employees resisted the implementation of change in PIC. As a result, we gathered adequate information regarding the challenge that the organization was facing since employees tend to offer sufficient and voluntary information in relaxed environments.

Secondly, our team used focus groups to obtain appropriate information on why PIC employees resisted the proposed change. The distinctiveness of the focus groups enabled our team to explore the crucial issues that affect PIC at the time of change execution.

The purpose of the team was to conduct specific information concerning the cause of change resistance. Our team chose focus groups to conduct effective research and facilitate the sharing of information with the company. The group retrieved the rest of the information from recent surveys and direct observations.

Findings

Petrochemical Industries Company (PIC) is a leading chemical fertilizer producer in Kuwait. The company operates as a subsidiary of the Kuwait Petroleum Corporation since the 1980s (Al Ateeqi 2009). Its top management comprises the strategy manager and the human resource manager who has recently conceded to take the company through a technological change to adopt paperless technology.

Their major role is to bridge the organization with the external business environment at both local and international arenas. Alongside the paperless technology, the company wishes to implement a new hierarchy and promotional system to enable the organization to achieve its strategic goals.

In an attempt to ensure the success of the implementation process, the strategy manager and the human resource manager have brought on board representatives from all departments of the organization. However, the team that was selected for the implementation of the change has inadequate knowledge about the suitable processes that lead to a successful organizational change.

This report reveals that the senior leaders have generally overestimated the implication that the planned change can have on the organizational structure and working relationships.

The effectiveness of the change process will entirely depend on change preparedness and the expression of the significance of change while weighing the costs and benefits to balance between employee interests and the achievement of strategic plans in the company. This situation led to different reactions by junior managers and employees of PIC.

This report reveals a variety of reasons that have led to resistance to change in the petrochemical company. These reasons have emerged from the step taken by the company to embrace paperless technology, execute a new hierarchy system, and establish an improved promotional strategy for PIC employees. In the beginning, some PIC employees have resisted the adoption of paperless expertise.

Regardless of the benefits that come with such technology such as increased efficiency and sustainable production processes, 14-percent of the respondents felt that the paperless system would be an expensive undertaking that would inflate the overall operational cost for the company while 58-percent feared to lose their jobs to the automated systems.

The integration of software solution in the organization might lead to the replacement of some staff members with computers. Some of the managers still hold that the usage of paper has many irreplaceable benefits that the automated paperless technology cannot substitute easily.

However, about 59-percent of the employees suggested that automated technology could not significantly reduce paper usage unless the company offered them adequate training to foster their knowledge about information systems. The remaining percentage resisted the technology in claims that the paperless technology would not eliminate the usage of paper because of the rapidly changing accounting technology and inadequacy of knowledge.

The employees dreaded the loss of status and general job insecurity. Battilana and Casciaro (2012) affirm that individuals fail to embrace change that poses harmful implications to their status quo. In this context, employees, peers, managers, and other stakeholders can offer significant resistance to both executive and technological developments that endanger their jobs.

The anticipated change at PIC will lead to the demotion of employees or elimination of others in the various subsections of the company. Technology has the capability to replace human efforts whilst ensuring high efficiency and time-effectiveness.

As for the company, there is a need to change from paperwork to automated accounting and other data recording systems to avoid piling huge chunks of paper material in offices. The human resource manager attests that the execution of the paperless technology will ultimately lead to retrenchment of employees and change of roles.

The study has also responded to the second hypothesis of this project. Indeed, PIC employees have resisted the change of the organizational hierarchy due to the fear of job elimination, reshuffling, and the reassignment of duties. Perhaps, the workers lack the knowledge about the professionalism that is required in different organizational levels.

The research reveals that most workers in the organization are experts in distinctive departments of the petrochemical company. Therefore, the introduction of new technology and reorganization of the operational structure might imply the termination of some activities, an event that will cost the jobs of several employees. As a result, most managers and employees have resisted the move to change the hierarchy.

Furthermore, PIC employees have refused to surrender to the company’s demands, concerning the anticipated promotional strategy owing to hierarchy-based dissimilarities amongst different levels of the organizational chain of command. The managers and employees fear reassignment and reorganization of duties within the organization as a way of promotion.

The company has structured its present hierarchy to have multiple professional groups and work units. During the research, we examined the perceptions of different groups of employees to establish how they conceptualized the change at both personal and organizational levels.

The results revealed that many employees did not only resist change due to interpersonal worry and hesitation, but also intergroup forces and influence at different hierarchy levels.

The study has also unveiled that most managers and employees have a short-term focus for the organization. Hence, according to them, there is no need to adopt new changes that will result in organizational disarray.

This situation is attributed to employee turnover rate in the organization. Owing to the prevailing employee turnover rate in the organization, workers tend to focus more on short-term objectives more than the long-term agenda of the organization. The organizational structure of PIC exhibits a poor representation of employee needs, a situation that has led to the declination of workforce confidence in the organization.

According to some of the repelling groups, the design and the planned execution of the organizational change have not accounted for the views of employees before the final implementation decision. They have also claimed that the design team should have sought opinions from all stakeholders before presentation of the action plan to preserve stakeholder interest.

According to Bovey and Hede (2001), ignorance of the views of stakeholder groups is an instance of poor leadership. In the context of PIC, the top management has failed to follow a practical strategy to convince employees that there is a dire need for organizational change in an attempt to improve the achievability of both personal and organizational goals.

Furthermore, the research has proved that some PIC employees are just too conservative, inflexible, and hesitant to relinquish the old job tricks. They have developed a general difficulty to adopt new production systems and organizational structures.

In an interview with the employees who have spent over 10 to 15 years in the organization, about 65-percent revealed that they would prefer the current managerial structure as well as the existing paper-based bookkeeping methods. This finding is an indication of disengagement from the historically valued operational structures, production techniques, and organizational principles.

However, the consideration of the preservation of obsolete organizational structure and policies will imply the insignificance of executing a change process in a conservative organization. Such inferences to change processes have no significance in the contemporary world where organizations have to maintain efficient and cost-effective production standards to satisfy the changing consumer patterns and unpredictable market trends.

Discussion

The nature of a major change such as that of PIC has a profound impact on the structural and social facets of an organization. Organizational change influences a variety of organizational aspects such as working relationships, reporting lines, personal and intergroup boundaries, employee status, and social distinctiveness with reference to different levels of workers in the organizational hierarchy (Meier, Ben, & Schuppan 2013).

The desire to fit in the changing business climates and urge to gain a competitive advantage in dynamic markets compels organizations to design and execute change in an attempt to improve their efficiency in the various operational units. Nonetheless, researches have revealed that employees have a noticeable tendency of countering change regardless of its implications on the organization.

Although many factors lead to resistance of change in modern organizations, researchers have provided unclear reasons for the exact cause that compels employees to resist change. However, Mariana, Daniela, and Nadina (2013) posit that employees are more likely to resist change because of the foreseeable outcomes of the change rather than opposing the change itself.

In the PIC context, the implementation of new technology has a myriad of advantages such as automated accounting, efficiency, time-effectiveness, and conservation of the environment. However, employees seem worried about the aftermaths of implementing technology in the production process.

Indeed, there is a likelihood that paperless technology will replace some of the accounting jobs as well as other bookkeeping jobs in the organization. Employees have defied the change owing to the lose of employment and reassignment of tasks. The research proves that employees focus on the negative effects of the change to favor self-interests rather than the positive implications that come with change (Allen et al. 2013).

Generally, PIC employees revealed similar reasons for resisting changes as exposed to other change resistance studies. This report has identified several issues that have led to the development of resistance amongst PIC employees. The company follows an old managerial system that comprises old-fashioned staff members. As a result, there is a practice of conservatism amongst managers to preserve the historical structure of the company.

In this context, leadership behavior has led to the development of conservatives within the petrochemical company. Nevertheless, the process of change requires the support of employees. Consequently, the organization’s leaders should provide adequate support to the employees by the use of appropriate change management models to influence their actions towards change (Mariana & Violeta 2011).

The authors posit that employees hypothesize the concept of change variably based on group or individual differences. Previous researches on the resistance of change have failed to feature the feedback of different groups of employees who have been deployed in the organizational structures.

The work environment has a lot to do with the perceptions of work units more than it does with individual perceptions. Therefore, the nature of workforce units will become a threat to the execution of change if change strategists and managers fail to take account of employee needs adequately.

Attitudes and Feelings

Also, PIC employees exposed various attitudes and feelings towards the anticipated change. According to the research, 40-percent of the respondents seemed to understand the implications of change on the accomplishment of organizational goals. This group of respondents reported long-term benefits of change that outweighed the few challenges that the workforce experienced immediately after the execution of change.

Nevertheless, 60-percent of the respondents perceived change as an obstacle to the fulfillment of personal goals in the organization. Indeed, Burchell (2011) reveals that many employees conceive change as a threat to the progression of employment. A majority of the workers dreaded retrenchment or demotion in case the management accomplished the change process.

Also, the restructuring of the organizational hierarchy will result in downsizing and undesirable modifications of roles and statuses. However, these negative anticipations are born out of intrinsic speculation due to the fear of the unknown. For instance, some of the employees fear the introduction of new managers in their work sections.

Furthermore, workers exhibit uncertainty of the new structure and the kind of technology that will guarantee them job security. The change of organizational structures implies the adaptation of new values as employees expect different job obligations and abilities.

Therefore, change managers bear the challenge of merging old organizational values with new values during the implementation of change to preserve the prevailing work environment. Conservation of organizational values serves as facilitation for affirmative reactions to organizational change in the future (Jones et al. 2013).

Impact of Hierarchy Change

PIC employees had developed anxieties over the distraction of intergroup relationships that could emerge because of the implementation of the new hierarchy in the organization. Generally, employees dread top-down strategies towards the restructuring of the organization. Jones et al. (2013) reveal that top-down restructuring strategies entail minimization of costs. The implication of this situation is a reduction of the workforce.

Under such circumstances, employees resist change in two different ways. First, they fear retrenchment that may befall them in case of hierarchy change. New managers tend to maintain the active performance of supervision and appraisal roles. Employees fear instances of reappraisals that may lead to termination of employment.

Secondly, the likeness of remaining in the job raises the risk of performing additional tasks to maintain the same operational efficiency and level of production. Burchell (2011) asserts that downsizing an organization’s workforce usually presents distressing effects on the residual groups.

Eventually, such employees develop the paranoia of failure owing to lack of confidence in task performance. However, workers develop reservations because they worry about their abilities to cope with new work environments and responsibilities.

Communication

Poor communication of change has significantly contributed to change resistance among the various work units in the organization. As revealed in the study, approximately 43-percent of the total number of respondents was unaware of the impending change process, a situation that strengthened resistance amongst the members of this population.

The management of the company has failed to develop a sound communication channel to circulate information among its employee groups. Among the interviewed employees, about 51-percent neither understood the reasons nor the objectives and benefits of the change. Failure of proper communication has inhibited the flow of information between the various stakeholder groups of PIC.

Consequently, some employees have resisted change since the management has deprived them of the necessary information and significance of the impending change process.

According to Mariana, Daniela, and Nadina (2013), the breakage of communication amongst interacting groups within an organization results in organizational chaos that in turn fuel misunderstanding and decrement of confidence amongst them. In the context of this report, PIC management has led to the disengagement of employees from the change even before its actual execution process.

Inadequate Training to Support Change

The training levels of employees determine their self-confidence during their performance of tasks (Jones et al. 2013). The research has revealed that most of the employees at PIC have insufficient knowledge about the paperless technology that the company desires to implement. The study has exposed that the management has failed to train the employees to foster change preparedness.

As a result, the employees have developed fear and doubt about their capacities to undertake new roles in the organization. Mariana, Daniela, and Nadina (2013) attest that knowledge inadequacy becomes a source of misunderstanding during the implementation of change.

Unprepared employees resist change based on worthless reasons that reveal their fear of the unknown. Likewise, inadequate training deters the flow of information from the top management to the lower organizational levels.

Recommendations

Based on the research, our team has come up with numerous recommendations that PIC can adopt to resolve the issue of resistance to change. At the start, the management should ensure that all employees actively take part in the process of executing the change (Mariana & Violeta 2011). The authors suggest that such workers should participate in all decision-making processes concerning changes that have a direct influence on their roles as employees.

Indeed, it is hard for employees to defy a change process because of their own decisions. Before the implementation of change, change strategists and managers should bring probable opponents of change in the decision-making process.

However, the involvement of the employees in the decision-making process is based on an assumption that they possess the necessary expertise to generate a worthwhile contribution that enables the change managers to reduce resistance, gain more dedication to change, and augment the superiority of the change choice.

Nonetheless, regardless of whether the employees have the expertise or not, their involvement in decision-making processes heightens the conceptualization of the change in terms of its objectives and the benefits to both the employees and the entire organization.

Jones et al. (2013) posit that with the presence of employees, decision-makers can easily manipulate the change decisions in an attempt to make them desirable whilst suppressing the undesirable information. Therefore, PIC should consider the participation of employees in the formulation of decisions with reference to the implementation of change to curtail instances of blatant resistance.

The purpose of involving employees in the decision-making process does not necessarily imply that leaders seek improved decisions from them. Rather, they seek ratification of their decisions by the employees as a way of making them accept change, which they would have otherwise resisted (Mariana, Daniela, & Nadina 2013).

Secondly, PIC executives, directors, and the human resource manager should initiate an effective communication process to ensure that all employees gain access to information and understanding of the organizational needs that drive it to embrace change strategies. There is a need to increase individual and intergroup communication and relationships to change the behavior and attitudes of the employees towards organizational change.

According to Mariana and Violeta (2011), improvement of individual and group interactions results in amplified affirmative sentiments. The overall result of communicating to employees is the validation of socially shared ideologies within organizations, which enhance a common understanding of the significance of embracing change to meet the needs of an organization.

Moreover, communication serves as a powerful tool for empowerment, negotiation, and manipulation of employee decisions to promote change. Jones et al. (2013) posit that effective communication can relieve employees from unsettling behavior that comes with change processes.

The time of communication and articulation of change concepts to keep employees fully engaged to the change process is crucial. Sufficient discussions that involve the contribution of employees minimize the chances of resistance to change.

As per the research, PIC rarely conducts capacity building and training programs to facilitate the acquisition of knowledge about change by the employees.

Therefore, our team recommends that the organization should initiate capacity building and training programs to enable managers and employees gain requisite knowledge and skills concerning the new changes. The training should focus on developing staff members who can initiate and manage change by shifting their roles and workloads where applicable to accommodate adjustments in the organization.

The organization should develop workshop programs to accomplish and foster skills and knowledge improvements concerning change management practices and resistance to change. The purpose of workshops is to acquaint managers with the requisite framework, information, and suitable tools that are necessary for piloting and management of employee groups during the implementation of change (Burchell 2011).

The author emphasizes that change management training using workshops has successfully facilitated the management of change resistance at times of change execution. Indeed, workshops equip both managers with a vivid knowledge of the workability of change processes at both individual and organizational levels.

Managers also get to understand the different reactions of employees towards change. Consequently, they can curtail change distress on employees, hence reducing hesitation and increasing the likelihood of change adoption.

Finally, this project recommends the use of incentives, motivation, and comprehensive reward programs that PIC can associate with the implementation of changes in an attempt to minimize the chances of resistance. Managers at PIC can use motivation, rewards, and incentives to manage change in the company (Meier, Ben, & Schuppan 2013). The authors stress that incentives create a correlation between people and change.

The achievement of improved performance in an organization through the development of motivational and reward systems increases the chances of affirmative response for change processes. Incentives, whether monetary or non-monetary, form a strong foundation for human resource managers to accomplish change.

A study conducted by Jones et al. (2013) showed that the most successful managers of change used the appropriate incentives to maintain their employees motivated as a way of minimizing the resistance of change in their organizations. Therefore, we recommend PIC to start a reward and incentive-based program to maintain a highly motivated staff that will accept any future change in the

Conclusion

The project has discussed the causes and probable solutions to change resistance based on a study of Kuwait’s Petroleum Industries Company (PIC), which has experienced resistive forces to change from the employees. Modern organizations require a change to fit in the ever-changing consumer demands and dynamic markets. Therefore, the need for change is inevitable for organizations.

Despite the negative reactions that many employees exhibit at times of change, managers of change have to stand their grounds to seek holistic approaches to change management. Stakeholder participation, communication, training, and capacity building, and the use of incentives, and motivational programs are universal techniques that any organization can deploy to counter resistance to change from employees.

These processes prepare employees for the adoption of change without inherent confrontation. Researchers have confirmed that the necessity of change in organizations continues to elevate, as the business processes become more complex. Nonetheless, researchers have to provide more insights into future inferences regarding resistance and the best ways to eliminate such challenges.

Reference List

Al Ateeqi, Y. 2009, Kuwait Petrochemical Industry: Vision, Growth Strategy and Integration Drivers. Web.

Allen, M., Brown, A., Karanasios, S., & Norman, A. 2013, ‘How should Technology-Mediated Organizational Change be explained? A Comparison of the Contributions of Critical Realism and Activity Theory’, MIS Quarterly, vol. 37 no. 3, pp.835-854.

Battilana, J. & Casciaro, T. 2012, ‘Change Agents, Networks, and Institutions: A Contingency Theory of Organizational Change’, Academy of Management Journal, vol. 55 no. 2, pp. 381-398.

Bovey, W. & Hede, A. 2001, Resistance to Organizational Change: The Role of Cognitive and Affective Processes. Web.

Burchell, J. 2011, ‘Anticipating and Managing Resistance in Organizational Information Technology (IT) Change Initiatives’, International Journal of the Academic Business World, vol. 5 no. 1, pp. 19-28.

Jones, L., Watson, B., Hobman, E., Bordia, P., Gallois, C. & Callan, J. 2008, ‘Employee perceptions of organizational change: impact of hierarchical level’, Leadership & Organization Development Journal, vol. 29 no. 4, pp. 294-316.

Mariana, P., Daniela, B. & Nadina, R. 2013, ‘Forces That Enhance or Reduce Employee Resistance to Change’, Annals of the University of Oradea, Economic Science Series, vol. 22 no. 1, pp.1606-1612.

Mariana, P. & Violeta, S. 2011, ‘Opportunity to Reduce Resistance to Change in a Process of Organizational Change’, Annals of the University of Oradea, Economic Science Series, vol. 20 no. 2, pp. 698-702.

Meier, R., Ben, R. & Schuppan, T. 2013, ‘ICT-enabled public sector organizational transformation: Factors constituting resistance to change’, Information Polity: The International Journal of Government & Democracy in the Information Age, vol. 18 no. 4, pp. 315-329.

Understanding the operations of an organization calls for an analysis of its internal and external environments. Internal environment refers to the internal forces shaping the strategy and the operations of the company while external environment refers to forces outside the control of the organization that affect its strategy development and implementation processes (Porter, 1980). This project concerns itself with the quality service profile of Crescent Petroleum. This is a multinational oil company based in the United Arabs Emirates (UAE). The objective of this phase of the project is to examine the internal and external operating environment of Crescent Petroleum. The examination will address the organization’s Quality Service profile by the analysis of its mission, strategic objectives, its environment and competitive landscape, and its current structure and formal design.

Crescent Petroleum started operations forty years ago as an oil and gas exploration and marketing company. The company’s headquarters is in Sharjah in the UAE (Crescent Petroleum, 2012). However, it has international offices in the UK, Iran, and Iraq, with liaison offices in Canada and Egypt (Crescent Petroleum, 2012). In addition to its oil interests, Crescent Petroleum is also the largest shareholder of Dana Gas Company. Dana Gas is the largest traded gas company in the UAE.

Current Mission

The website of Crescent Petroleum does not provide a specific mission statement. Rather it describes the issues the company prioritizes in its business interests. As such, it is possible to derive the organizations current mission based on its current business focus. In its website, Crescent Petroleum (2012) states that its “current focus is upon energy opportunities in the Middle East, specifically within the Gulf region, but more widely also encompassing North Africa, the Caspian Sea region and South Asia.” From this statement, Crescent Petroleum seems set to develop its energy interests in the wider oil belt of the Arab countries in the Middle East, North Africa, and South Asia (MENASA). The mission of the company is to develop the oil and gas resources in these regions. It has a strong foothold in these countries because of the extensive concessions it holds for oil exploration and development (Crescent Petroleum, 2012).

Strategic Objectives

The company’s website lists four “business objectives” which forms the basis for the discussion of its strategic objectives (Crescent Petroleum, 2012). The first strategic objective of the company is the “exploration and development of existing acreage and the acquisition of additional exploration and producing properties in the MENASA region” (Crescent Petroleum, 2012). This objective demonstrates the company’s business focus in terms of geographical presence. The company already holds several concessions from several oilfields in the MENASA region that require development. As such, the development of the existing acreage is an important element of the company’s current strategy. In addition to this, it also wants to acquire more acreage covering the MENASA regions to bolster its business position. If it manages to expand its acreage, then it will remain in a competitive position as an oil giant in the region.

The second stated objective of Crescent Petroleum is, “expanding upon the existing arrangements to facilitate the development and expansion of the gas market in the MENASA region, with a view to becoming the largest private gas player in the market along with its affiliated companies” (Crescent Petroleum, 2012). Gas is becoming more important in the global energy mix. The attention that Crescent Petroleum is giving its gas interests demonstrates the company’s realization that its profitability may depend on gas. Crescent Petroleum is not new in the gas sector. It maintains its interests in the gas sector through Dana Gas Company, where it is the majority shareholder. The company intends to expand its gas interests beyond the UAE.

The development of oil markets depend on the reliable transport of oil and oil products. Crescent Petroleum realizes that it needs to have a presence in the oil transport business. Based on this realization, the third objective of the company is, “investment in pipeline interests” (Crescent Petroleum, 2012). Pipelines are the fastest and safest way to transport oil. They have lower maintenance costs and can deliver larger volumes compared to other modes of transport. However, oil markets span the whole world making the development of pipelines to cover the all the supply routes unfeasible. Nonetheless, there are many opportunities where the construction of pipelines increases the supply chain efficiency of petroleum. Crescent Petroleum will improve its competitive position by investing in oil pipelines.

The fourth strategic objective of Crescent Petroleum is, “participation in and development of oil and gas projects, utilizing the Company’s strong relationships in the MENASA region” (Crescent Petroleum, 2012). Crescent Petroleum understands the value of reducing competition and increasing cooperation with other players in the MENASA region. In addition, the company knows its unique strengths based on its oil exploration history. It is in a position to offer specialized services to other oil players in the region. Apart from the MENASA region, the global offices of the company are the avenues used to access global markets. They give Crescent Petroleum a strong negotiating position both in MENASA and in the other global oil markets.

Environmental and Competitive Landscape

The environmental and competitive landscape of Crescent Petroleum has several aspects. First, the oil industry is a capital-intensive industry. The capital required to set up prospecting operations is very high. In addition, developing oil wells requires very large sums of money. A large time gap exists between the discovery of oil from prospecting operations and profiting from sales of crude oil. This makes it very difficult to enter the oil and gas exploration and development industry. Expanding acreage is also very risky because it requires exploratory work. The process of locating potential deposits of oil and gas, and proving the commercial viability of deposits takes a lot of time and money. Finding an oil deposit does not guarantee its commercial viability.

Competitive advantage in the oil sector does not depend on the quality of the product, because oil does not have a significant quality differentiation (Mongay, 2011). The products derived from oil refining are similar regardless of the type of oil. Therefore, consumers do not make their decision to purchase based on the quality of oil. As such, oil companies compete on price, and on the efficiency of their supply chains. The industry requires a long-term view and normally features long-term contracts.

The MEDASA region is home to some of the largest oil deposits hence there is a large concentration of oil companies in the region competing for markets. On the other hand, the Organization of Petroleum Exporting Countries (OPEC) controls the prices of the commodity and sets export quotas for the member countries (Mongay, 2011). The result is that the oil industry is under a lot of regulation from the governments in the region.

Current Structure and Formal Design

Crescent Petroleum Company is part of a wide consortium with interests in various sectors. The holding company of the Crescent Group is the “Crescent Group Company International Limited”. The holding company has three wings, the Gas Cities Limited BVI, the Crescent Investments LLC, and the Crescent Petroleum Company International Limited, as indicated in the Table 1. The focus of this phase is the Crescent Petroleum Company International.

The organizational structure of the company has two levels. The Chairman’s office has three members of the Jafar family. The Group Chairman of the company is Mr. Hamid Jafar (Crescent Petroleum, 2012). He is also the Chairman of Dana Gas Company. The President of the company is Mr. Badr Jafar (Crescent Petroleum, 2012). He also serves as the company’s Vice Chairman. The company’s CEO is Mr. Majid Jafar (Crescent Petroleum, 2012). The President and the CEO run the company on a day-to-day basis. In the UAE, it is common to find large companies run by a close-knit family. This structure is popular in the Arab world because of its strong cultural system of inheritance (Walker, Walker, & Schmitz, 2003). In the political scene, the Arab world tends to get rulers from the same family such as the Saudi family in Saudi Arabia, while in business, children grow up to take leadership in family businesses.

Apart from this line of officials, the company has fourteen executives in charge of various functions. They include a Senior Legal Counsel, Iraqi Country Manager who is also the Baghdad Branch Manager, and a Group Senior Adviser (Crescent Petroleum, 2012). In addition, the company has a Head of Accounts, Head of Supply Chain and Contracts, a Senior Finance Manager, and an External Communications Manager for Iraq (Crescent Petroleum, 2012). Other important officials of the company are Head of HR and Operational Development, Head of Insurance, Reservoir Development Manager, Projects Manager, Head of IT, Branch Manager of the Irbil Office and the General Manager of the Tehran Office (Crescent Petroleum, 2012).

The second phase of this project builds on the organizational profile of Crescent Petroleum to evaluate its competitive advantage based on its current Quality Service profile. The oil sector depends on the efficiency of the supply chain because competition based on price is uneconomical. In addition, the option of competing on product quality is not viable because of the uniform nature of oil. Differences in the quality of the crude oil do not constitute a significant competitive advantage. The particular issue this phase will address includes the relationship between organizational design, organizational culture, and organizational performance. Secondly, this phase will cover the analysis of the current organizational culture, and the opportunities for improvement. The final section of this phase will examine the need for changes and offer recommendations. Current Quality Service Sources of Competitive Advantage

The current Quality Service sources of competitive advantage for Crescent Petroleum include the benefits derived from its diversified portfolio, its competent staff, and its focus on supply chain efficiency. The diversity of its portfolio makes it an attractive business partner and supplier because of its ability to offer end-to-end services. This portfolio also protects the company from shocks in oil prices caused by international forces. As a result, the clients of the company can rely on it to provide them with its services with minimal disruptions. Another benefit the company derives from its diversified portfolio is that it is able to export the best practices of one field to improve the processes in another field.

The second Quality Service source of competitive advantage is the staff of the company at senior levels. The executives come from very diverse backgrounds, which demonstrate a desire to offer the best possible services to clients. Diversity in the backgrounds of senior executives ensures that a company benefits from different views and opinions relating to the issues the company faces. This staff portfolio also gives the company an international image. This image is necessary for it to survive the fierce competition for oil markets. Finally, having competent staff improves service delivery in terms of offering consistency in strategy implementation (BCG, 2010).

The oil sector does not present viable options for developing competitive advantage based on the quality of products on offer. One of the essential features of quality service in the oil sector is uninterrupted supply. Therefore, Crescent Petroleum is on the right track by focusing on supply chain efficiency (Kopezak & Lee, 1994). Its goal of investing in pipelines will improve product delivery and reduce the risk of supply disruption. If Crescent Petroleum achieves this goal, it will increase the certainty of supply of its products. This will increase the quality of their services in the perspective of their clients.

The sustainability of these sources of competitive advantage is in the control of the company. On diversification of the company’s portfolio, it is not easy to match the portfolio the company currently controls. Therefore, it is hard for any competitor to rob Crescent of this Quality Service source of competitive advantage. Secondly, it is impossible to match the human resource at Crescent petroleum. The mix is unique and it took time to achieve it. This source of competitive advantage is fragile because a rival firm can make offers to these employees leading to loss of critical staff. The only way to maintain this source of advantage is by ensuring that there are incentives for them to remain at Crescent Petroleum (BCG, 2010). Thirdly, Crescent Petroleum’s desire to invest in the pipeline sector will give it a very important source of competitive advantage because of improvements in supply chain efficiency (Kopezak & Lee, 1994). Once implemented, it will be very difficult for a competitor to match Crescent Petroleum’s service delivery.

The current structure of Crescent Petroleum features two levels of top leadership. The company has the office of the Chairman and the company executives. The office of the Chairman has three positions, the company Chairman, the company President who also serves as group Vice Chairman, and the company CEO. The executives are in charge of various businesses and business functions within the group. Three members of the Jafar family fill all the top slots. While this is ok, it is better to have an appointed CEO in order to have better accountability. The business world views positions attained by virtue of family with suspicion. This does not mean that members of the Jafar family should not hold those positions. It only means diversity at this level is desirable.

According to InfoGrokEnergy, Crescent Petroleum is at position 14 out of 12062 energy companies in the InfoGrokEnergy Company Index (InfoGrokEnergy, 2010). This makes it one of the top 0.12% energy companies in the InfoGrok Company Index (InfoGrokEnergy, 2010). In addition, the company holds position 19 out of 35419 companies in the InfoGrokEnergy Index (InfoGrokEnergy, 2010). This position makes Crescent Petroleum one of the top 0.05% in the InfoGrokEnergy Index for all the companies (InfoGrokEnergy, 2010). These rankings show the strength of Crescent Petroleum. The user perception of the company is 50%, which is similar to the company’s overall rating by various factors measured by InfoGrokEnergy (InfoGrokEnergy, 2010). While the positions are commendable, there is need for the company to work harder towards increasing the value consumers attach to it.

The organizational culture of the company includes elements of inclusion and cultural diversity. In addition, the company believes in strong family control, which also informs its transition planning. In terms of its plans, it is clear that Crescent Petroleum has strong growth prospects. It is in the process of increasing its acreage in order to attain a stronger market position.

Change Proposals

Crescent Petroleum can improve on its Quality Service sources of competitive advantage. The proposals below come from the general understanding of the company and its operations. They deal with issues affecting customer perception of Quality Service.

The first issue the company needs to consider is the composition of its top-level management. Currently, there are three members of the Jafer family holding the top positions in the company. It is understandable why the top management has people from one country based on the business environment. However, this composition may compromise the perceptions of the clients of the company from other parts of the world. Merit is very important to many of the client markets. If the company wants to have an international image, then it is imperative for it to consider reducing the number of members of the Jafer family in the top level of leadership.

The second issues that can help improve Quality Service perception would be structural change to the leadership model. Currently, the company’s top leadership is composed of three members of the Jafer family. All these officials have a lot of say in the day-to-day running of the company. In order to increase the Quality Service levels of the company, there is need to institute a Board composed of people removed from the daily undertakings of the organization (Mongay, 2011). This Board can also help the company to reduce the potential negative impact of its family image on non-Arab clients.

It is instructive to note that there is no explicit mention of the physical environment in the goals of the organization. As an oil company, there is an implied responsibility to support the sustainable use of the natural environment. Oil mining and distribution processes form one of the largest environmental hazards today. The list of environmental disasters caused by oil-related operations is worrying. Therefore, there is need for Crescent Petroleum to consider its involvement with environmental conservation. As an oil company, clients want to see efforts in place to mitigate environmental disasters. If the company implements this recommendation, then its perception as a company with quality services will improve.

The final proposal for the company is in line with its diversification program. As a player in the energy industry, the company needs to consider its involvement with renewable energy development. The company has a strong brand name and a strong presence in the energy industry. If the company takes on the challenge of developing renewable energy solutions, then it will increase the perceived quality that clients expect in the area of energy services.

References

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InfoGrokEnergy. (2010). Crescent Petroleum. Web.

Kopezak, L., & Lee, H. (1994). Coordinated Product and Supply Chain Design. Case Study , 331-404.

Mongay, J. (2011). Business and Investments in Asia. Madrid: ESIC Editorial.

Porter, M. E. (1980). Competitive Advantage: Techniques for Analyzing Industries and Competitors. New York, NY: Simon and Schuster.

Walker, D. M., Walker, T. D., & Schmitz, J. T. (2003). Doing Business Internationally: The Guide to Cross-Cultural Success. New York, NY: McGraw-Hill Professional.