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All organizations operate in a very competitive environment. Therefore the success of each company depends on the strategies that each company adopts. Strategies are implemented in order to provide direction and to make sure that the organization in focusing on the right goals to become the market leader and achieve the long term objectives.
The assignment requires the case of Castrol using the sale of Burmah to be critically evaluated including the business environment, resources of the organization, organizational structure and corporate parenting. Also it will focus on the aspects that impacted the decision to sell Burmah Castrol to BP Amoco.
The theories used within the report will be explained in diagrams in the appendix. The theories used would be, the process on strategic management, Mckinsey's 7s model, triple loop learning and the cultural web.
The process undertaken by Castrol will be discussed in detail. This will be done by exploring the capabilities, business and organizational performance and also Castrol strategic factors.
Hence the gaps and inconsistencies used in the strategy formulation will be discussed in regard to the relevant theories.
Furthermore, the report will provide recommendations for the above mentioned gaps and inconsistencies.
Finally it will provide a short summary regarding Castrol's strategic management process.
General background to Castrol
The Burmah oil company was founded in 1886 by Scottish entrepreneurs interested in exploring found oil deposits in Burmah. In 1899, C.C Wakefield took over the company with greatest risk. In 1909, the company began production of a new automotive lubricant named "Castrol".
In 1966, Castrol was acquired by a British oil company Burmah, which was renamed as Burmah - Castrol. In year 2000, Burmah Castrol was taken over by BP Amoco .
Castrol offers lubricants for virtually all domestic, commercial and industrial applications.
General objectives of the assignment
The purpose of this case study is to analyze the different structures that Castrol has adopted and to identify the benefits and failures of the different structures. The structural design describes roles, responsibilities and lines of reporting in an organization. Structural design can deeply influence the sources of an organization's advantage, particularly with regard to knowledge management; failure to adjust structures appropriately can fatally undermine strategy implementation. But good structure alone is not enough for success. (Johnson, Scholes and Wittington, 2005)
The cultural web model
The cultural web model (Appendix 1) will provide information about how Castrol conducts its operations. The Cultural Web identifies six unified elements that aid to make up the "paradigm" - the pattern or model - of the work environment. By analyzing the factors in each, it is evitable to understand a bigger picture of the organizational culture: what is working, what isn't working, and what needs to be changed. (Martins & Terblanche, 2003) The six elements are:
Stories: Events and happenings that people currently talk about the organization.
Rituals and Routines: The daily behavior and actions of people that signal acceptable behavior.
Symbols: Company logos, formal and informal dress codes
Organizational Structure: How the company is structured in terms of the organizational chart.
Control systems: What process or procedure has the strongest controls or the weakest controls?
Power structures: The pockets of real power in the company. This may involve one or two key senior executives, a whole group of executives, or even a department.
Mckinsey's 7S model
The model (Apeendix 2) helps the management of Sony to address the difficulties of strategic change.
Strategy: A set of decisions and actions aimed at gaining a sustainable competitive advantage. (Ansoff, 1965)
Structure: The organizational chart and associated information that shows who reports to whom and how tasks are both divided and integrated.
Systems: The flow of activities involved in the daily operations of a business, including its core processors.
Style: How managers collectively spend their time and attention and how they use symbolic behavior.
Staff: How companies develop employees and shape basic values.
Shared values and goals: commonly held beliefs, mindsets and assumptions that shape how an organization behaves
Skills: These are the organization's dominant capabilities and competencies.
Source: Miller (1998)
The process of strategic management
The strategic management process (Appendix 3) involves an internal analysis as well as external analysis and then will move along to the formulation and implementation. There are different models used to understand the process such as Johnson & Scholes Model, Cetro & Peter Model and also Viljoen & Dann's Model.
Triple loop learning
As stated by (Bast, 2009), While change at the incremental and reframing levels is quite common. Transformational (Triple-Loop) Learning involves transforming the current status by creating a shift in the context (Appendix 4).
Process of Strategic Management followed by Castrol
In order to measure the strategic factors there are different methods. In the environment that Castrol operates there are external as well as internal factors that affect performance. The macro environment could be analyzed through a PESTEL analysis.
Key Opportunities for Castrol include:
The emergence in the container market in Europe and the ability of Castrol to match its demands due to market size, geographical proximity, needs for lubricant oil productsâ€¦etc.
Global increase in demand for performance improved oil
Key Threats identified for Castrol are:
Movement from a planned economy to a market economy means values regarding cost cutting are considered less prominent.
Significant decrease in the price times to time
Increase in competition and saturation in the market
Problems in changing the value system of employees when communicating value creation.
The internal factors that influence the organization could be done through the porter's five forces model. There was heavy competition within the market during the 1990s. Threat of new substitutes was not that possible in the market.
Each organization has internal competencies, skills, knowledge that can be appropriately used and applied to achieve success in a competitive environment. As stated by (Hubbard, 2008), the Analysis of the internal environment of an organization helps to understand its resources, capabilities, dynamics and strategic capabilities and it helps an organization to understand what its doing better than their competitors which is valuable to the customers and which is difficult for the competitors to imitate or replicate.
Producing efficient lubricant oil
Demand for the oil is continuing and increasing
Long time experience in the industry
Capability of handling the chemical industry which facilitates the supply chain.
Organization system for strategic management not completely established
Volume of oil dropped because of the improvement of the mechanical engines in the market.
Business strategy adopted by Castrol
The differentiation strategy, though having many benefits was significantly out weighed by disadvantages.
The process had gone through 3 major stages which included:
The process of divestment selling signal oil and gas
Overtime as the process of slimming down progressed there emerged the concept a two prongs Burmah Castrol consisting of related business. One prong the Castrol business which throughout this turmoil was continuing to develop.
The other prong was chemicals.
Organizational performance of Castrol
Improvement of functional performance at Castrol took place through focusing on dealing with areas of procurement and marketing which were found to be correlated to cost and financial performance.
Improvement of economic & financial performance at Castrol was achieved by lowering costs and instilling the idea of cost reduction in the employees' minds. In 1999 the turnover raised to 2,907.8M.
Even though Castrol believed that there sales would rise due to the factor that new engines were developed in a more advanced manner.
Facing continuous losses and low points meant a very low morale of the employees - and the provision of incentives does not necessarily mean an immediate change in attitude. There is no guarantee of harmony when working in cross-functional teams.
Inconsistencies with stakeholder expectations:
It is extremely important to involve stakeholders in all phases of your project for two reasons: Firstly, experience shows that their involvement in the project significantly increases your chances of success by building in a self-correcting feedback loop; secondly, involving them in your project builds confidence in your product and will greatly ease its acceptance in your target audience.
Traditionally Euro has always focused on cost-cutting strategies as a planned economy. However, with the transition to a market economy Castrol implemented a value creation strategy which focuses on the provision of value to customers. It is a difficult process to alter people's beliefs and attitudes; hence the value creation strategy may not immediately be widely accepted - as opposed to the cost cutting strategies.
Strategic options available to overcome the gaps
As stated by (Wheelen & Hunger, 2000), Directional strategies are called "grand strategies". It is composed of 3 general orientations: and (1) Growth strategies expand the company's activities. It can be identified Castrol has adopted growth strategies through horizontal growth. (Fletcher, 2003) explains that horizontal growth can be achieved by expanding the firm's products into other geographical locations and/or by increasing the range of products and services offered to current markets.
In 2003, Castrol had adopted a focus differentiation strategy. At present times however, they are focused on a best cost provider strategy where Castrol will give customers the best value for their money by combining differentiation and low costs.
Competitor and stakeholder effects
The stakeholders of Castrol can be identified as the government, management, suppliers, customers, employees and the community. The government played a large role in Castrol's activities. Management plays a large role in Castrol's activities as they are responsible for the implementation of strategies.
Customers are the key to any organization success. The customers of Castrol at the initial stage were disappointed are complained of low quality and various inefficiencies. Now Castrol has integrated its value chain with their customer consumption and are providing "Non-customized products" which are the by products in the customized products.
According to (David, 1999), implementing strategy affects an organization from top to bottom: it impacts all the functional and divisional areas of a business.
Strategies provide the organization with direction and therefore they must be long term in order to pave a correct path to success.
Furthermore, for the value creation strategy to be implemented successfully, it requires the coordination of factors such as shared values, structure, strategy, skills, staff, styles and systems (Hubbard, Rice & Beamish, 2008). There were many short comings in factors such as structure - as only the top level was involved in strategy formulation, and also staff - who initially lacked motivation and morale, which lead to it being difficult to alter any shared values.
Paradigms of operation
There was a mismatch between the strategy implemented and the paradigm used for Castrol initially. At the start when Castrol has a differentiation strategy they operated in a production-oriented paradigm. But with the implementation of the value creation strategy the paradigm had to be shifted to a market- oriented paradigm. The paradigm must encourage value creation for both employees and customers alike. As a result, changes need to be made to the elements of culture which are rituals & routines, stories, symbols, power, organization and controls (Johnson & Scholes, 1999).
Stories: Encouraging, motivating and inspirational stories of benefits where customers have been satisfied through value provision. Employees are also motivated to work towards maximizing market share.
Routines: Marketing is given a prominent place and much importance. Both technological and marketing aspects have been intertwined to get the maximum benefit.
Rituals: Training and development was aimed at all areas including sales, marketing, and production.
Symbols: Castrol is recognized as an industry leader and is very profitable.
Control Systems: Minimizing costs, developing various new products, maximizing profits and facilitating cross functional integration.
Power structure: Marketing is the star or the most important function while production is a key function.
Organizational structure: cross functional coordination must be emphasized.
The Paradigm: Market oriented, technology leadership, improving financial performance through the process of lowering costs and meeting customer needs and expectations.
The culture of the organization is being inclined towards a market oriented one. As such the environment Castrol is operating in is rapidly changing and it must find methods of achieving and maintaining its sustainable competitive advantage. Because it is insufficient to only change the strategy in order to maintain the competitive position of Castrol the triple loop learning must be implemented which would enable the company to change their entire paradigm. This change has also facilitated the recognition of marketing aspects and because of that the cultural web has also been changed.
Evaluation and control
This is where the company will measure four critical perspectives of performance (Hubbard, Rice & Beamish, 2008): financial, customer, internal and innovation and learning. According to (Rohm, 2009), It is a strategic planning and management system that is used to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. (Refer figure 8, Appendix).
Financial: Since the implementation of the value creation strategy Castrol showed a satisfactory level of profits. However, it was observed that growth slowed down in 1995 as a result of competitors also copying the same strategy. Since a cultural change is expected, the financial performance of Castrol post adopting a culture (to match the value creation strategy) will have to be assessed.
Customer: This involves evaluating customer satisfaction levels. Initially it had been recorded that customers had been dissatisfied with what they were receiving. However, Castrol has been able to guarantee satisfaction.
Internal: This is an evaluation of Castrol's internal environment and cross functional communication.
Innovation & learning: Innovation and learning is important because this involves amending mistakes and developing products that provide value for customers. Innovation can be either product innovation or process innovation
and these can provide value to customers directly or indirectly.
Though the Castrol focused on many aspects of giving a quality product that performs in the most efficient manner, it is important to focus on all other aspects of the organization. The company changed its old structure into a new structure where the employees were not that comfortable and could not pick up the market as planned.
The organization must therefore encourage further motivating employees and also providing the best quality and value to customers as customer retention is very important. Cross functional coordination and communication is also a very important aspect that should be considered.
Therefore the ultimate success of Castrol was so good as predicted within the organizational strategies developed.