BHP Billiton, Australia
Proper management of international businesses has become a major challenge in the current global business environment. Uncertainty arising from prevailing economic conditions in the global platform have brought with them management difficulties in numerous industries. This cases study will analyze the challenges faced by BHP Billiton, an Australian Multinational and mining company that has its headquarters in Melbourne (BHP Billiton, 2012). BHP Billiton is a mining company and is a main producer of different commodities which include aluminum, copper, iron, coal, silver, manganese and uranium among other commodities. In addition, the company is involved in the production of gas and oil. Through its activities, BHP Billiton endeavors to produce high quality commodities that provide opportunities for growth of the company while at the same time ensuring that they continue to meet growing and ever-changing customer needs characterized by an increase in demand in emerging economies (BHP Billiton, 2012).
In the last five years, the firm has faced numerous challenges that range from cost containment issues, environmental challenges resulting from poor leadership and poor decision making which in turn contributes to the problem of climate change. In addition, the company has also been experiencing issues on employee wage harmonization.
Two major strategic issues affect the operations of the company, are the cost containment issue and the fact that poor leadership on key issues such as the environment has diminished the corporate structure of the company. These issues are strategic since they are essential in determining the overall success of the company (Bansal, 2005). For any company to be successful there is need for harmonization of its financial aspects in terms of cost and benefits. This will enable the company to harmonize its operations in terms of understanding its trends in finances. In addition, for any company to succeed, its leadership must act according to its corporate structure to ensure that decisions made on essential matters such as the environment are beneficial in mitigating global environmental challenges which include climate change and global warming (BHP Billiton, 2013).
Cost containment involves the process of instituting control measures on the expenses that are considered as necessary in the operations of the company especially in the performance of projects within pre-planned budgetary limitations. This is considered as a strategic issue due to its essence in the management of a company since it helps in lowering the cost to necessary and intended expenses as a way of satisfying financial targets. BHP is currently facing challenges in its coal market (Ferry, 2012). This is attributable to the fact that being the largest coking coal exporter globally, it faces the challenges of high fuel prices for the making of steel. This is caused by the muted demand in particular markets and surplus supply from its competitors. The failing prices of coal and the high cost involved in the making of steel have prompted BHP to shut down its operations and reduce the number of employees. A report by the Australian Banking Group Limited showed that the prices of coking coal for the period between June and August for the year 2013 were an average of $145 per metric ton, compared to $172 in 2009 for the same period. Coal business for BHP is a major pillar in terms of profitability alongside petroleum and iron ore (Goerzen & Beamish, 2003).
Poor leadership especially on key issues such as the environment has increasingly declined BHP Billiton’s corporate structure. In the forum for corporate responsibility, BHP formed an advisory committee through representatives in the civil society to engage with the company’s executive committee on the possible ways to develop sustainability issues (Goerzen & Beamish, 2003). This forum has been a major contributor in the development of environmental security standards. The conception of this forum was due to the rising environmental concerns of Ok Tedi Mining Limited (OTML), a copper mining company in Papua New Guinea. BHP owns about 53% of the company (BHP Billiton, 2012). There were growing concerns about the actions of this company especially on the impact of its activities on the environment of New Papua Guinea. The company had been accruing profits but did not channel most of its resources on techniques that could be used in mitigating environmental challenges that were being experienced by the country. Through its leadership, BHP Billiton sought to close the company amid rising scrutiny (BHP Billiton, 2013).
To be able to protect the company from issues such as cost containment, BHP Billiton can devise ways of improving on its sales the company may to expand its areas of operation. This can be through the sale of oil and natural gas properties (Rowley, 2011). Making such initiatives, the company will be able to generate many finances which can either be channeled towards reinvestments in its initiatives (Gordon, 2007). Alternatively, the company may decide to save such finances to be used in the future for acquisitions if the valuations of the market are attractive. In addition, BHP Billiton may decide to take its oil and gas properties into the public domain as a way of setting a separate category of stock since such a class may help the company in garnering high amount of profits in times of the company’s valuation (Gordon, 2007). Such stock can also be used as a medium for other acquisitions or as a way of generating high returns for shareholders. The high prices of fuel are attributable to the fact that the cost properties of petroleum and gas are relatively higher (Gordon, 2007). Another strategic option that the company can exploit to solve the problem of containment cost is to enter into some form of partnership with an energy company to enhance cost sharing in the production of steel. BHP stands as a potential winner in this scenario (EY, 2013).
The corporate structure of the company is considered as relatively weak due to poor corporate leadership especially on factors that touch on the environment. This can be a challenge since the company does not have proper mechanisms upon which proper public relations strategy can be built (Rowley, 2011). In an event, that such a powerful public relations strategy is developed, senior managers at the corporate level and other members in leadership will have powers to speak out in different media platforms where they are able to create public associations with different stakeholders (Gordon, 2007). Through the development of a public relations strategy, the leadership will initiate a visibility campaign that merges with specific corporate objectives as a way of increasing mind share in the marketplace, in the company and on the global platform. This should also be based on the realization that the corporate structure plays an essential role in changing BHP Billiton’s mission, vision and strategy drivers (Gordon, 2007). The strategic drivers that are developed must be a reflection of the cost while focusing on value creation through the achievement of quality level of business. Another strategic option is to ensure that the company implements strategies that will reduce greenhouse gas emissions by about 5%. This will only be realized when the company develops goals that are specific, measurable, based on time and have a relationship with every individual in the society (Gordon, 2007).
The other strategy option the company can initiate is to put more focus on quality objectives. This is based on the assumption that profits have a tendency of experiencing some level of increase whenever a company puts much focus on quality matters. Any form of decrease in waste will be essential in empowering workers to make some form of change which translates into better financial results (Gordon, 2007).
Analysis of strategic options using RACES Framework
Resource aspect of the RACES framework demands that a company must understand the resources available and how best they can be used in satisfying business objectives. The strategic options developed in this case demands that resources are used in making the cost structure and are for competitive advantage to solve the issue of cost containment. The resources must be used in setting SMART objectives for the success of the company in environmental issues (Radosavljević & Radosavljević, 2009).
The initiatives put in place must be those considered as objective in the fulfillment of stakeholders initiates to some form of general acknowledgement. The strategic option must involve all the relevant stakeholders. They must understand their role in the execution of value chains at a relatively lower cost. In terms of corporate leadership and environmental issues, the framework demands the strategic option that aims at setting a workable public relations strategy does so with the permission of the stakeholders (Radosavljević & Radosavljević, 2009).
The strategic options arrived at must be in line with the company’s vision, mission and value statement. This will ensure that there is a rationale for the implementation of any of the strategic options. If the company desires to handle cost containment issues and the environmental challenges arising from the corporate leadership, then the low priced value chain activities and the development of public relations strategy must be defined by the purpose of existence.
The strategic options must be sufficient as the best possible in the provision of solutions to existing organizational challenges. This means that the options must be developed with the view of improving the efficiency of BHP Billiton (Radosavljević & Radosavljević, 2009).
The need to operate on options that are beneficial to the company on a long-term basis forms the basis of the RACES framework. The main question that organizations must ask is the level of assistance that a given option will give to the company on long-term basis in terms of cost and benefits. Cost containment strategy making the cost structure a competitive advantage will help the business gain ground in relation to its competitors and this will inform the essence of building a public relations strategy (Radosavljević & Radosavljević, 2009).
Best Strategy option
BHP does not need to make any substantial changes in its structure to be able to implement any of its strategy options. Compensation of its managers stands out as the best possible strategy options. This is because it lays emphasis on the production quality products as a technique of eliminating wastes in the process of executing its value chain activities (Peter, 2012). For the leadership of the company to be adequately compensated, it is important for all leaders, starting from the Chief Executive Officer (CEO) and the governance of the organization to ensure that each member plays an active role in the implementation of all the value chain activities. The company must assess different techniques that can be used in the formulating of the strategy option, its design and implementation. It is important to note that the involvement of all stakeholders will serve a major purpose in creating a sense of ownership of the project among the stakeholders (Peter, 2012).
There is need for BHP to find a point of intersection between the initiating value chain activities and the development of cost structures that will act as competitive advantage strategies. Cost containment requires that BHP uses the minimal amounts of resources in its operations. The rise in its operations cost especially in the fuel prices for the production of steel may at times render the company less competitive in its market (Rowley, 2011). However, the implementation of a strategy that focuses on devising other methodologies of producing steel at low fuel prices may increase the company’s potential in the mining industry (PWC, 2013). A market flooded with steel and coking coal products may prove to be less competitive for an international export company such as BHP Billiton. A less competitive market may not yield the necessary profits for the company and there is risk of BHP using many resources in the production process. When the cost of production is high, there is a high chance that the company will sell its products at a relatively high price (BHP Billiton, 2013). This means that the company will be compelled to sell its products at relatively high prices. Such prices may fail to attract customers making it difficult for the company to ensure future financial stability. However, if the company ensures that its cost structure are areas of competitive advantage then such a strategy will define the amount to be used in production and the amount to expect from sales (PWC, 2013).
In terms of finding a lasting solution to its declining corporate structure, the strategy option of setting up a public relations plan and a stakeholder outreach initiative serves as the best option. This can be realized through the development of a matrix management structure where the corporate communication and the human resources department are united to ensure that leaders undergo effective training on how best to implement new environmental strategies (Rowley, 2011). This will demand some form of synchronization with company operations through stakeholders’ involvement. It is crucial for stakeholders to be seen implementing quality initiatives with the help of the company’s leadership. This will help in the development of quality objectives that are in agreement with those of the company (Rowley, 2011). Public relations strategy enhances the association that is between the management and the public. This means that for the management to be able to undertake any initiative successfully, it must involve the public for their support (Rowley, 2011).
Public relations and stakeholders’ outreach strategy options operate on the assumption that for any effective change to occur there must be a high level of commitment from all stakeholders as this will ensure the development of a high-level program implementation technique. It is necessary that the company, through public relations, to make the employees aware of the company’s intentions. This will help in empowering them to assist the company in reaching important quality goals as these are considered essential in the operation of a competitive value chain (Rowley, 2011).
As a leading mining company on the global platform, there is need for the management at BHP to recognize that there is an increase in demand for mining products. However, the prevailing economic conditions on the global platform have had devastating effects on the industry at a greater extent. These challenges arise from cost containment issues and the issue of the declining corporate structure in the company because of poor leadership especially on matters around environmental sustainability (BHP Billiton, 2013). To be able to solve these challenges, it is important that the company generate strategic options (Rowley, 2011). The best out of all the strategic options are those that focus on the execution of value chain activities at lower costs; making cost structures an area of competitive advantage; and setting up public relations strategies and stakeholder outreach initiatives. Through these strategy options, BHP will be able to exercise corporate leadership in the marketplace while focusing on stakeholder demands especially on the implementation of core issues. Furthermore, an improved relationship among different members of the organization is a guarantee for the eventual success of the business (BHP Billiton, 2013).
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