BP should embed risk management culture in its operations. Much of the oil-fields its operates are prone to various risks as environment risk related to contravening local laws and other international laws as the Kyoto, there are also other natural risk as hurricane in the gulf of Mexico and North American oil-fields, political instability in oil extraction countries particularly in the middle-east and African countries. There have already been human errors as the 2005 Texas Refinery Disasters, Alaska Prudhoe Bay environment accident which significantly dented BP image and its operation throughout its North American Operation.
These could have been prevented if there was a proper risk management structure has been place. BP now have to put recommendation of former US Secretary of United State James A Baker, III of safety culture in refineries which could have been avoided. Such risk management structure should be prevalent in its global operation. However such decision should take in to factor the financial cost involved and the benefit it would bring as compared to billions lost in accidents.
Risk management would require identifying risk early, mitigating risk, and giving importance to those risks which would have significant impact on the company’s operation. Alternative Source of Revenues BP should also bank on its strength of growing demand for Gas and Petro-Chemicals market particularly in Asian Markets where there are high-margin and markets are still in early stage of growth. This would entail more strategic thinking from top level management and more shifting of resources.
BP should also invest more in alternative sources of energy and other growing and stable energy sector like hydro-electric power, wind power, solar power , fuel from renewable bio-crops. This strategy would certainly require a shift away from company’s core activities, but however such actions are required for the long term survival of the company. The oil-platforms are depleting every year and soon BP would be out of business if it doesn’t find other viable products and market and it should invest more and early in such products. Linking Financial Performance with Operational Performance
BP could also manage the challenges by managing its operational performance vis-i?? -vis its financial performance. These would certainly imply taking harsh decision but would certainly give favorable financial position and more investment opportunity as more capital is available. Projects with favorable financial outcomes should be accepted while that of delayed and negative outcomes should not be taken. This would imply trading future gains for present immediate results but this would be a good strategy in the current times of economic crises where only the best current productive asset are valued most.
The recommended strategy cannot be implement if the organization cannot put into practice for lack of money or skills, or that will be rejected by powerful stakeholders. (Haberberg & Rieple,2001). The RACES framework could be applied in choosing best strategy namely: Resources needed to implement the option must be available It must be Acceptable to powerful internal and external stakeholders. It must be consistent with other proposals and existing strategies. It must be Effective in resolving the issues that it is intended to address.
Also the strategic option should contribute to the Sustainability of the organization’s competitive advantage, by contributing some element of uniqueness to its future strategy. All of the recommended ways of tackling the challenges have their own advantages and disadvantages. However what BP should incorporate is a mix of these depending upon the situation. Price of Oil is a major factor for level of production of oil and investment in oil technology. Now there has never been a time of more fluctuation in oil price than never and BP no longer can afford to bet on the price of oil as it has always done.
It should cut out those parts of business which no longer serves its strategic need and consider outsourcing its non-core activities which might save cost and focus on main activities like exploration and production and developing alternative sources of energy and penetrating other growing markets. It has a global operation and would require different approach in different situation; however risk-management should be part of all the decisions considering the dire consequences BP have already been through.
Plan and control the implementation of the changes required to achieve the recommended strategy. One important criterion for implementing the recommended strategy is to plan the changes properly. Also, control of the strategy is an important element for the success of the recommended strategy. Most strategic decisions imply major changes in direction, values and changes in organizational structure and organizational competencies. The recommended strategy is very rare and as such the plan should also incorporate all the changes that will affect.
Implementing new strategy requires a detail change management. The forces which influence an organization change would be: Forces for Change: Forces Against the Change: New Management Organization’s cultural Web Declining Performance Organization Capabilities Legislation Power Structure Social Changes Complacency Economy Change of New Competition Change Fatigue Threat of Takeover External Stakeholders Changes to Markets Internal Stakeholders with deemed interest. BP Should first has a detailed change management program so that it could deal with the obstacles confronted with the changes.
The recommended strategy involves change in organizational structure and as such implementing that change involves huge change in use of resources of BP. The role of leadership is of outmost significant to properly implement the plan. The instigator of significant change is usually Chief executive or the managing director, but in organization as large and complex as BP, there ought to be many ‘change agents’ at all level and in all countries adapted locally. Such ‘champions of change are known to share many of the characteristics of ‘transformational leaders’ (Howell and Higgins, 1990).
As such for implementation, strategic development methods could be used in view of the obstacles in change and that method which would contribute most to the fulfilling of the strategic needs. Such Strategic methods could be internal development as bringing in newer and better technology to extract more oil from oil platform. Innovation in product and exploring newer growing market like China and India. Strategic alliances with partners in those countries where proper control could not maintained over operation and there is much uncertainty over the business like in the Middle East countries and some African countries .
Such alliances would maintain the business and transferring much of the local risk to the local partners. Merger and acquisitions could also be done in those countries where newer exploration activity is localized and entails significant higher investment costs. To control the implementation phase, a detail information system should be in place so that the people who are in charge on the change are regularly informed about the developments and any deviation from the plan can be monitored and rectified as soon as possible.
Such information system should also have quality monitoring phase and information and feedback and ideas should be flowing in all directions. Review system should also be place locally and at strategic level so that the change is complying with plan. Such information and review system will bring the plan near to the strategic need and would generate evidence for further action as to divestment or trade-offs between strategic development methods.
Adrian Haberberg, Alison Rieple ‘The strategic management of Organisations,, FT/Prentice Hall, 2001.BP Press Releases http://www. bp. com/article BP remains bullish as it hints that the worst may be over, Dino Mahtani, Financial Times Published: October 24 2007 BP settles TNK dispute with Russian partners Carola Hoyos & Catherine Belton, Financial Times, Published: September 4 2008 BP seeks to refine its performance, Ed Crooks, Financial Times, Published: April 28 2008 BP Statistical Review of World Energy June 2008, http://www. bp. com (Accessed 17 August 2008)