Sample Case Study of BHP Billiton

Case Study of BHP Billiton

Studies reveal that, BHP Billiton is an Australian multinational company headquartered in Melbourne, Australia (Allan, 2004). BHP Billiton is one of the world`s largest mining and resource companies with about a hundred thousand employees worldwide. Accordingly, BHP Billiton was fashioned in the year 2001 founded on the union between Broken Hill proprietary (BHP) and Billiton. After the merger, the resultant company has become one of the largest diversified resource companies. BHP Billiton yields several merchandises, which include ‘Aluminium,’ ‘copper,’ ‘manganese,’ ‘iron ore,’ ‘uranium,’ and ‘silver’ minerals (Ferry, 2012).

Why BHP is Successful

On the other hand, BHP Billiton is a successful organization based on numerous factors revealing the same. To start with, despite the current economic uncertainties and global financial crisis, the company has been little shaken. The organization engages in the manufacture of a range of products that include diamond, iron ore, manganese, petroleum, gold, copper, Aluminium, nickel, uranium, silver, and natural gases (Allan, 2004). These natural resources always have high demand thus leading to the success of the organization without the influence of the current global financial crisis and uncertainties. Furthermore, because the organization has been around for many years as separate organizations before the merger, it has been able to establish itself all over the world with strong financial circumstances (Ferry, 2012). The other reason behind the company`s success regards exploration and development, where the organization is continuously involved in research and development processes. This has helped the company to produce world-class products (Emelianova, 2006).

The Competitiveness of BHP`s Industry

Porter`s five competitive forces

Bargaining powers of Buyers

This is rated moderate to low as BHP passes along any price increases based on a strong demand with limited supply of natural resources. In essence, the company focuses on retaining long-term customer relationships thus diminishes the impact of price increase.

Bargaining power of supplies

            BHP Billiton is greatly influenced by the bargaining powers of suppliers in labor, materials, energy, shipping, and energy costs. Since the company ensures reduced capacity through advanced operations, it has led to increase in overall costs from suppliers at the same time.

Threat of New Entrants

There is relatively low threat of new entrants based on dearth of natural resources; there is limited capacity and supply available in the global market, a factor that restricts any new entrants. New entrants are faced with a number of barriers, for instance, the drop in commodity prices, the pace of demined of iron from China has slowed down by about half. Furthermore, BHP stands as the biggest mining company  and hence holds enhanced infrastructure, novel technologies and skilled  staff that offer better quality  products to the market. Additionally, BHP possesses the best natural resource locations than new entrants would find, hence this blocks new entrants from the industry.

Competitive rivalry within the industry

            Because BHP is the largest mining company, there are other competitors like RioTinto, which fall within the industry but have significantly less competition. This is because of BHP`s diverse mining activities and ownership of the best and quality mineral locations in the world. Moreover, BHP has a wealth of skilled labor adding to the many years of experience, which puts it at the top of the game.

Threat of substitute products

            Since there are scarce natural resources, there is minimal production of substitute commodities; hence, VBHP enjoys total control of the market demand. This is because very few available substitutes satisfy customers.

 

The Core Competency of BHP Billiton

Essentially, the core competency of BHP Billiton is based on sustainable development; this is because development of sustainability strategy is the most important priority for the company. The company has reduced harm to the natural environment where it carries out its operations and hence paints a good picture to clients as well as stakeholders. This has led it to become an employer of choice in the mining industry as it maintains healthier relationships with it stakeholders. Furthermore, based on its expansive research and development that BHP has carried out, this has become an important factor of development of globally accepted standard commodities (Allan, 2004). The company has developed strategies that have led to its increased success in extraction of minerals. (BHP Annual Report, 2010). Having a long period of mining experience has allowed the management of BHP to develop strong and reliable employees who are well equipped with relevant skills and capabilities to handle the global business of the company in varied environmental setups.

 

Product and service value addition of BHP Billiton

Furthermore, BHP adds value to its products to outperform its main competitors in value delivery to key stakeholders. All they hope to attain for their other investors; workers, host administrations, and societies is constructed on a stage of segment foremost monetary presentation. To enhance and achieve this great value addition, BHP aggressively pursues profitable growth opportunities by uplifting the performance of its existing long life asset base (Emelianova, 2006). This is essentially met through cost and productivity improvements while embedding a stronger performance culture in BHP and streamlining its management model (BHP Annual Report, 2010). In essence, the company maintains the same chain of distribution globally while developing and maintaining capable workforce that makes sure the production and processing takes the best shape always (EY, 2013). Moreover, through intensive research and development, the company has been able to adopt new and better ways of extracting minerals and transforming them into valuable products (Ferry, 2012; PWC, 2013). At the same time research and development has increased the company`s massive technological adoption, which allows it to offer world class products and services to its clients (Allan, 2004).

 

Strategic issues of BHP Billiton

            The first strategic issue regards BHP Billiton`s environmental impacts of uranium mine expansion plan at the Olympic dam open cut mine. Studies reveal that uranium sales represent less than one percent of BHP profits; however, since Olympic Dan may trade profitably as one of the world`s largest copper ventures and leave the uranium that makes up part of the ore on site. In addition, processing copper on site has the potential of boasting local jobs (Goerzen, 2003). Subsequently, this is a strategic issue because, BHP has designed the new Olympic dam mine in a way to leak an average of about three million liters of liquid radioactive wastes a day extending to 2050 (Ferry, 2012). In essence, BHP proposes to dump radioactive mine tailings on the surface and to leave them there forever rather than to dispose of their wastes. BHP does not propose to assimilate the planned open pit; it in its place anticipates leaving a poisonous brook as an active blemish on the Australian scenery. Therefore, there is need to prevent such leakage of liquid radioactive wastes from mines operations and isolate radioactive mines tailings from the environment (Allan, 2004). It is also important to note that, in this project, BHP has neglected efforts to reduce pollution since it does not regard the required assessment of the use of renewable energy to the proposed full increase in electricity supply (BHP Annual Report, 2010). In essence, such neglect will result into a possible twelve to fifteen percent increases in South Australia’s total greenhouse pollution. Another step that raises strategic concerns in regards to the Olympic dam mining activities revolves around the proposal of BHP to supply the mine with water from a desalination plant (Emelianova, 2006). This is alarming because the desalination plant is designed to discharge brine into the upper Spencer Gulf and to the unique breeding ground of the giant Australian cuttlefish (Perry and Simonsen, 2009). Thus, this will render the gulf susceptible to extreme damage as it has a low level of flushing with ocean water.

Subsequently, there is another strategic issue, which concerns lack of skilled workforce for BHP, which poses a danger of stalling the company as it struggles to recruit workers with specialist skills (PWC, 2013). This is because, soaring commodity prices and presence of untapped mineral resources in emerging economies (Allan, 2004). Despite the fact that some blue color workers in the company are continually enjoying unprecedented salaries, the company is desperate to recruit key specialized personnel such as mining engineers, resource geologists, and metallurgists. There is high need for experienced mine planning engineers (EY, 2013). Skilled metallurgists, mineral processing experts, rock mechanics engineers, and in addition to resource geologists are also in short supply;’ this is because such people must possess the necessary IT skills to perform detailed statistical analysis by carrying out delineation of ore reserves and production of a resource report. Furthermore, there is lack of long-term strategic investment in training of new generation skilled workers that are supposed to have replaced the post-World War 2 baby boomer workforce that is presently approaching or already past the retirement age.

The other strategic issue regards variation in product rates and influences of continuing universal financial instability (EY, 2013). In essence, values gotten for ‘oil,’ ‘gas, ‘and ‘minerals’ are all dogged and related to charges in the worldwide marketplaces, which have factually been substance to considerable instability (Allan, 2004). And since  BHP`s prevailing policy  mandates  the corporation to vend  its merchandises at the prevalent  marketplace rates,  the assortment  offered by its relatively broad portfolio of commodities offers no insulation  to the impacts of price changes (Goerzen, 2003). Subsequently, fluctuations in prices may occur based on sustained price shifts that replicate fundamental worldwide monetary and geo-dogmatic aspects, business burdens and source sequence balances (Perry and Simonsen, 2009). In addition to this, merchandise replacement and state rates have same effects. As a matter of fact, the continuing worldwide monetary instability has harmfully exaggerated product marketplace rates and demand at the same time (Ferry, 2012). In consequence, the current uncertainties and influence of worldwide   monetary growth in developed economies has adverse effects on future demand and prices of commodities (Emelianova, 2006).

Two strategic issues

The first and most important strategic issue regards global fluctuation commodity prices. This is essential as a strategic issue because the company`s assets and cash flows are highly prejudiced by a extensive diversity of exchanges based on the topographical assortment of the states in which BHP operates (Goerzen, 2003). Thus, variations in interchange charges of such cash will meaningfully influence the monetary consequences of BHP (Allan, 2004). Accordingly, the United States money is the exchange in which mainstream of BHP`s transactions are contained in and working expenses are openly influenced by the exchanges of those states in which the charge of “trade-in” apparatus and amenities are determined. Hence, any volatility in the major currencies according to the operation activities of BHP leads to uncertain financial performance of BHP (BHP Annual Report, 2010). The second most important strategic issue of BHP concerns environmental impacts that the company has in its operations especially in the extraction of copper as evidenced in the Olympic dam mining site in Australia (Ferry, 2012). This is an important strategic issue since it touches on the question of sustainability and accountability to the environment. All the proposals concerning this site and perceived activities fall short of the sustainable operation and accountability (Goerzen, 2003). The uranium ores and brine deposits that are carelessly handled  will result in serious environmental consequences that will affects many people, plants and animals included; this, this is  very important.

Strategic options and RACES framework

Concerning the first strategic issue, global fluctuation of commodity prices, and the first strategic option is the diversification of the company`s range of merchandises, topographies, and exchanges to reduce volatility (EY, 2013; Rowley, 2011). This calls for close engagement of BHP with governments, and other vital investors to ensure possible, influences of projected monetary levy, resource venture, and infrastructure access are understood and provide a possible mitigation (BHP Annual Report, 2010; Gordon, 2007). Essentially, optimization of functions offers authority and procedural control for mineral resource development and ore reserving (Allan, 2004). The company should ensure that its group project management works additionally to guarantee that finest outline and competences are put in place to offer safe and practicable competitive projects. RACES framework in this options vital, here the result or goal of is sales maximization through diversification, which is a long term outcome of BHP. The attitude of this option has been confidence in satisfying customers through various products while maintaining integrity. Such right attitude is set to show end users that the company has genuine motives in doing its business despite uncertainties. The competence element comes in here because this strategy offers a good option of overcoming price fluctuations. This will allow BHP to learn from customers by building more solid relationships. Again, this is the right effort of diversifying business to allow more long term stability financially

Subsequently, in regard to the second strategic issue of the environmental impact, BHP should devise vital ways of mitigating leakage of liquid radioactive wastes from mining operations by isolating mine tailings from the environment (EY, 2013). BHP should meet at least the same required minimum 10000-year regulatory standard as stipulated among commonwealth members (Allan, 2004). In essence, through the EIS process, BHP must assess the disposal of tailings into void of the open pit in line with the required standards at the ranger uranium mining (BHP Annual Report, 2010). Further, about the disposal of brine, BHP has to prevent adverse ecological impacts to the fragile marine environment by respecting the broad based fishing industry, scientists, and communities allied to keeping the gulf clean (Gordon, 2007). This will be achieved by relocating the proposed global scale desalination plant to a site with ocean flushing characteristics (Gordon, 2007). The RACES framework on this is that the result is the achieving of sustainable business through environmental protection. Accordingly, the right attitude in these options concerns the best choice of integrity of contacting business; integrity leads to better business operations. Having a sustained environment and business is the best commitment that BHP can have, thus it lead s to competence. In essence, this is the right effort towards a better word of business, as BHP goes on with its activities.

Strategic choice

Following the RACES framework, the first being environmental action of BHP, which is the mitigation of leakage of radioactive Uranium from the mining sites of copper. This would be achieved through assessing of the disposal of tailings into void of the open pit in line with the required standards at the ranger uranium mining. In addition, as an effort towards protection of the environment, BHP has to prevent adverse ecological impacts to the fragile marine environment by respecting the broad based fishing industry, scientists, and communities allied to keeping the gulf clean. This should be combined with the first strategic option, which is now a strategic choice concerning diversification of the company`s selection of merchandises, topographies, and exchanges to decrease unpredictability. Again, as stated earlier, this calls for close engagement of BHP with governments, and other vital investors to ensure possible, influences of projected monetary tariff, reserves investment, and infrastructure access are understood and provide a possible mitigation. Hence, these two strategic options are the best choices that BHP can use to turn out its operations to guarantee its financial might.

Conclusion

Evidently, the identification of strategic issues helps an organization like BHP to understand its weaknesses. This will be essential in allowing such an organization to draft strategic options fit to help it stand out against competition or disadvantages. Importantly, identifying strategic issues is essential because it reveals the position of an organization in term s of stability against rivalry. It also points out the integrity of the organization in regard to environmental sustainability. In essence, strategic options are vital since they help an organization reposition itself; for instance, it will allow BHP to generate options for a sustained business environment. It allows a business to maintain its sales at a high level enough to assure increased sales and profits at the same time. Evaluation of strategic options is crucial because it allows an organization to pick the best option that has the best impact. This helps in achieving the desired results in the best determined methods or way. This also limits back draws that they result from incorrect strategic options.

 

References

 

Allan, B. (2004). Strategic Planning for the Future. Retrieved on 20 May 2014 from: http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1122&context=coal

BHP Annual Report. (2010).Our Strategy Delivers. Retrieved on 20 May 2014 from: http://www.bhpbilliton.com/home/investors/reports/Documents/bhpBillitonAnnualReport2010.pdf

BHP Billiton. (2012). BHP Billiton Plc. Notice of Meeting 2012. Retrieved on 20 May 2014 from: http://www.bhpbilliton.com/home/investors/shareholderinfo/Documents/2012/BHPBillitonNoticeOfMeetingPlc.pdf

Emelianova, O. (2006). “A failed strategy of using voluntary codes of conduct by the global mining industry.” Corporate Governance 6(3): 226 – 238.

  1. (2013). Business risks facing mining and metals 2012 – 2013. Retrieved on 20 May 2014 from: http://www.ey.com/GL/en/Industries/Mining—Metals/Business-risks-facing-mining-and-metals-2012—2013

Ferry, D. (2012). Australian Miners Have Global Reach. Retrieved on 20 May 2014 from: http://beta.fool.com/catominor/2012/06/14/australian-miners-have-global-reach/5759/

Goerzen, A. (2003). “Geographic scope and multinational enterprise performance.” Strategic Management Journal 24: 1289-1306.

Gordon, J, (2007). BHP Billiton: Strategic Option. Retrieved on 20 May 2014 from:  http://pierre.benain.free.fr/MBA698%20BHP%20Billiton%20Report.pdf

Perry, J., & Simonsen, H. (2009). “Risk identification, assessment and management in the mining and metallurgical industries.” The Journal of South African Institute of Mining and Metallurgy 321 – 332.

PWC. (2013). Managing risk. Retrieved on 20 May from:  http://www.pwc.com/gx/en/mining/risk-management/index.jhtml

Radosavljević, M. (2009). “Risk assessment in mining industry: apply management” Serbian Journal of Management 4 (1): 91 – 104.

Rowley, E. (2011). BHP Billiton sees future in shale gas. Retrieved on 20 May 2014 from: http://www.telegraph.co.uk/finance/newsbysector/industry/mining/8889446/BHP-Billiton-sees-future-in-shale-gas.html