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The organization I have chosen for this assignment Air Products was founded by the late Leonard P. Pool in 1940 in Detroit, Michigan, on the strength of a simple, but then revolutionary, idea: the "on-site" concept of producing and selling industrial gases, primarily oxygen., which will serve as the foundation for assessing strategic issues within a corporation, is the UK Corporation Air Products. We will primarily concentrate on their Air Products based operations, as there has been a dramatic increase of Air Products production here recently compared with other continents. Therefore it is likely to be of increased strategic importance to the longevity of Air Products.
There are a growing number of approaches/methodologies in order to aid firms in e-business strategy formulation Kalakota and Robinson, (1999); Hackbarth and Kettinger, (2000); Oliva, (2001); Huizingh, (2002); Rifkin and Kurtzman, (2002); Czuchry and Yasin, (2003); Bhandari et (2004). This section critically evaluated five of these approaches/methodologies and then recommends the use of one approach for the case company.
Air Products appears to be a vertically integrated business as they have a stake in all the major aspects of the production path such as the extraction of gas, transportation, marketing, and research and development. A company's environment is divided into two categories. These are called the external environment and the internal environment.
Businesses cannot control their external environment due to it being extremely unpredictable, especially in the Air Products industry. An industries speed of change and direction are never constant. For example, factors that are crucial to a business's success such as inflation, products price, and gas demands are always changing with varying degrees of speed. Therefore it is up to management to implement a strategy that gives a business operational flexibility and allows it to evolve with the environment in which it operates.
Mapping the environment helps to determine the strategic agenda via linking together both the external strategic factors and operational issues in a cohesive manner to gain a fuller insight into any potential risks, opportunities or threats.
Strategic / Tactical / Operational Hierarchy
Budget, financial and marketing managers deal with the short term planning of the business, such as current profits or staff to client ratio. Oversee the operational staff.
Managers and other operational staff deal with the day-to-day running of the business, such as the production of oxygen.
Chairman, directors and shareholders deal with the long term planning of the business. For instance should they merge with another Air Product company or increase investments.
Johnson, Scholes & Whittington (1997)
A strategic analysis is a two-part process that analyzes the demands from an evolving external environment and the corporation's operational capabilities. Strategic decisions are made in response to direct or anticipated issues within the company's environments. According to Johnson, Scholes & Whittington (1997), "Strategy is the direction and scope of an organization over the long term which achieves advantage in a changing environment through its configuration of resources and competencies with the aim of fulfilling stakeholder expectations".
A number of sources were at my disposal to help further the goal of achieving an understanding of strategic and operational issues within the context of a corporation's outlook. We will analytically comprehend the organisations past strategy dealing with their external environment and internal operational environment.
Analysis of External Strategic Issues
External Environmental Analysis
The external environment consists of the issues outside of an organization. An effective, coherent strategy that reduces uncertainty using analytical methods is thus crucial to the long-term prosperity of a business.
Air Products is a major oxygen gas, Food and Beverage,HYPERLINK "http://www.airproducts.co.uk/food/index.htm" HYPERLINK "http://www.airproducts.co.uk/balloon_gas/index.htm"Balloon Helium,HYPERLINK "http://www.airproducts.co.uk/balloon_gas/index.htm" HYPERLINK "http://www.airproducts.co.uk/welding_selector/index.htm"Welding Gas Selector company in the world, which consequently has to deal with a broad and extensive external environment when formulating a corporate strategy as their macro environment covers the entire place. Environmental conditions can lead to opportunities or potential threats to a corporation's competitiveness. The external environment is complex and therefore uncertain. In order to quantify Air Products external environment we will use the following methods:
Porters Five Forces
Companies use these corporate planning techniques as part of their systematic development of strategies. The aim of this is to enable the business to meet its goals.
A stakeholder map looks at the business from an external point of view and includes the macro and micro external environments. The macro stakeholders of Air Product play a prominent role in determining the corporation's strategy.
A stakeholder matrix is where the main stakeholder variables are plotted against each other. In this case the variables will relate to a stakeholders level of importance against the influence of a stakeholder.
Global Government and Indigenous Communities
British &Dutch Governments
United Nations and EU
Box A consists of stakeholders who are highly important to Air Product success but have a low degree of influence on the company. Their customers, employees, the local governments and communities where their gas Products is situated are highly important to the company's success, but do not have the company's interests at heart.
Box B is stakeholders who have a high amount of influence on Air Product, as well as being highly important to the corporation's success. Air Product must therefore prioritize these stakeholders via building strong working relationships to guarantee effective communication and include them on their board of directors. They are the most crucial to the business's success. Shareholders along with the British and Dutch governments both want Air Product to be successful as they are a major provider of jobs and corporate tax.
Box C has stakeholders with a low influence and low importance to Air Product, thus they are a low priority. Examples would include the oxygen gas distribution companies.
Box D contains stakeholders who do not have Air Product interests at heart, thus being of low importance to the company, but they still have a high degree of influence over them. Lenders, environmental groups, the media, trade unions are all powerful entities but have little regard for the business's success.
The PESTEL analysis will determine the key drivers of change within the external environment of Air Product, which will help to identify any potential factors that could influence its prosperity.
Environmental concerns have caused governments to legislate a limit to the areas where Gas Products companies Produce Air Product. New legislation has also been introduced to increase operational environmental efficiency to reduce the impact on the environment. New legal frameworks that regulate carbon emissions could reduce the demand for gas in favour of environmentally friendly energy alternatives. Governments also wish to reduce gas companies' high profits through taxation and legislation. Resource rich Latin America and the countries surrounding Mexico are politically unstable, causing operational and safety concerns.
the current economic world recession has caused a reduction in demand for gas, especially from the developing superpowers worldwide who consume a vast amount of Air Product. This has caused a drop in gas prices, which will consequently cause a drop in profits for Air Product. John McGlande chairman president and chief executive officer said "the beginning of our fiscal 2009 coincided with the start of the globally financial crisis driving the recession that resulted in demand for our products worldwide. The corporate tax of Air Product companies is likely to continue to rise as governments try to stem the large profits of Air Product markets such as in the gas industry, where their enterprises have a negative consequence on the global environment. It currently costs more to train and educate low paid indigenous recruits in Asia than it does to pay higher salaries to qualified and experienced personnel.
Over the past seven decades of supplying gas and technology solutions, we've developed a deep understanding of our customers' processes and needs. This enables us to continually bring our applications expertise to bear, not only in our traditional end markets, but through new applications in emerging markets. The solutions we provide enabling everything from unique food freezing applications, to oxygen solutions for combustion, to cost-competitive photovoltaic energy, to gasification and carbon capture projects, to a potential future hydrogen economy mean our customers can improve their energy efficiency, reduce their environmental footprint and produce products with improved quality and reliability. These benefits become even more critical in challenging economic times.
Air Products strategy of strengthening its base businesses. In Asia, the company took minority positions in industrial gas companies in Korea, Japan, Malaysia, Hong Kong, and the People's Republic of China, Thailand, and Taiwan. Air Product most of its prosperity to worldwide resources, thus it could be considered on a social-ethical basis that Air Products returns a proportion of its profit. This could be via investments in the local infrastructure and promotion of humanitarian issues that increases the standard of living, such as increasing local employee's wages. The consensus among world populations is that Air Products companies are socially unethical, through their harvesting and polluting of the environment, neglecting their responsibilities that come with being a large corporate power.
Highlighting Air Products environmental credentials and commitments through its continued innovation into clean renewable energy technology, such as their solar and wind energy business by advancing the technology they can distinguish themselves from their competitors as well as reducing their running costs, yet maintaining high quality. As crude oxygen, helium and hydrogen, synthesis gas, carbon monoxide and nitrogen will eventually be depleted; Air Product must think to the future environment and invent technologies that can give them independence from gas if it is to continue as one of the worlds leading energy companies. By doing this Air Products can respond to all the environments demands and therefore keep the stakeholders satisfied.
Global climate change is a clear and present danger to the corporation in the form of ethical persecution from environmental groups and real physical changes in the environment, which could disrupt gas extraction.
Employment laws are more relaxed in Asia and Africa compared to Europe and the USA, due to trade unions being weaker. Legislation concerning environmental restrictions and health and safety are also less extensive.
Porters Five Forces Analysis
Porters five forces model identifies threats from the rivalry between competitors, such as new entrants into the market, substitute products and the bargaining power of customers and suppliers.
Main Strategic Issues
In the macro environment of all Air Product companies, political factors are extremely important, as they need political support to produce gases. There are also concerns from anti-globalisation and environmental groups relating to conservationism. In the past Air Product has been (NYSE:APD) serves customers in industrial, energy, technology and healthcare markets worldwide with a unique portfolio of atmospheric gases. Air Product has invested a vast amount of its infrastructure in both Asia and South Africa due to the countries being rich in natural resources. Also they supply most merchant gas in liquid from to small and larger customers. Air Product signed a contract with Alcoa (a company engaged in the production and management of primary aluminium, fabricated aluminium, and alumina combined) in Russia, to supply nitrogen to Alcoa aluminium plant in samara the company in Warsaw.
Within economics lies the theory of globalisation, this is the growth of relations that has led to the connection of countries and individuals, on a world wide scale. One of the aims of globalisation is to reduce barriers to enable cross world trading. People are now more able to physically, legally, culturally, and psychologically connect with each other and trade in "one world". The era of global competition the economic geography of businesses causes some contradictions, fiord example some Third world countries economies are growing but only to the detriment of others. For example the percentage of poor relative to population total has increased in Africa. Although China and India still contain enormous numbers of the poor, they have embraced economic liberalisation and rapid growth (Porter, M 2000).
These accusations increase Air Product profile and could affect its competitive advantage. It is therefore an ethical and public relations issue, which needs to be addressed by Air Product corporate strategy. As Air Product is a public corporation it is liable only to its shareholders rather than any one individual, thus it is not accountable to any single individual or groups perspectives. Air Product determines its priorities from their stockholder's agendas. The most influential stakeholders are its shareholders, customers, the local governments in which it operates and the international or domestic legal frameworks.
Due to the business being currently registered as a joint venture with the Butterley Company it has to take into account the Governments of both countries and their regulatory environment. Pressure groups such as the environmental organization Greenpeace and to some extent the media, also greatly influence the corporations approach to their corporate strategy. Air Products licensed its processes and designs for manufacturing cryogenic equipment used in industrial gas production. The new venture was called Air Products (Great Britain), Ltd. Air Products later acquired a 100 percent interest in this business and expanded its operation into the supply of industrial gases as well as cryogenic equipment. By trying to accommodate their primary stakeholder's beliefs and agendas through their businesses actions, they can filter down a perceived positive representation to their customers, employees and other organizations. This helps to portray the company in a positive light, thus increasing their chances of having a competitive advantage over any rivals.
Evaluation of Resource Capabilities
The economic problems had inspired serious debate amongst politicians about the role of financial institutions and public policy. Parties on the left in Europe advocated controls and planning to prevent financial disaster. There are attempts to reduce taxation and government regulation on private enterprise, to allow them growth. This policy would increase profits for organisations, encourage investment, raise productivity, and kick start economic growth. These are central elements of supply-side economics (Sloman, J. 2003)
Some organisations openly promote globalisation for the benefit of all. Competition and free trade are essential to improve the world's economy for all nations, and the WTO's agenda has good intentions. However, critics argue that while globalisation has the potential to become a positive power for economic growth, too many of the benefits go to well off countries while the cost of adjusting markets and implementing agreements have to be endured by the already poor workers within developing countries. The fear is the rich nations will get richer, and leave the poor further behind on a global scale (Bove, J. 2001).
One of the greatest debates on globalisation is the inequality of power and poverty, over half the developing world is living in globalising economies. These economies have seen large increases in trade and a reduction in tariffs. There is an uneven balance of power with their economies. Negotiations are based on the principle of reciprocity, which for most part, only benefits the large and diversified economies. The majority of negotiations and tradeoffs take place between developed countries and some of the wealthier developing nations, excluding the world's poorest (Bove, J.2001).
Internal Environmental Analysis
The internal strategic capacity of Air Product consists of the operational functions within the company's infrastructure that are required for the organisation to prosper and maintain itself. We will use the following techniques in order to determine if Air Product resources and capabilities match critical success factors (CSF).
This method will provide an insight into both the internal and external environments. This type of analysis is highly subjective and is mainly used as a guideline. A SWOT analysis should be used together with other tools to give a better view of the state of the company.
Air Product resources are their foundation for a sustainable competitive advantage (SCA) therefore it is crucial that the business comprehends and utilizes their tangible and intangible assets.
Internal Origin (attributes of the organization)
Increased its endeavours in public relations, thus increased positive perception from the public.
Research into alternative energy sources may diversify market and deals with the longevity of fossil fuels.
Use of a scenario planning method designed to predict future scenarios, helping them to design contingency strategies.
Continued investment in exploration.
Air Product has a lot of its infrastructure in Asia which is a potential unstable country raising security concerns.
Their oilrigs still flare and burn the unwanted gases by-products, which raises environmental issues.
A high reliance on Air product means they have to constantly finance expensive exploration of new reserves.
Gases price have been unstable recently, reducing profit.
Global recession has caused a decrease in demand for fossil air product.
Recent strikes on tankers caused negative publicity and disrupted their supply operations.
Future opportunities to move into areas deemed too unstable in the past.
Gases reserves continue to be made.
Developing superpowers have a growing demand for gases.
Alternative energy sources and product diversification may open up new markets.
Build working relationship with environmental groups to decrease criticism.
Air Product seems well positioned operationally to utilize its core capabilities. Both its tangible and intangible resources have been tailored into an efficient and complex system that has evolved from a thorough and regular internal analysis. It is therefore able to meet its customer's perceived expectations and distinguish itself from its rivals, due to its well-developed, complex operational activities that are difficult for competitors to imitate.
Air Product's core competence is that it is able to manage a vertically integrated gases business, which covers the exploration of fossil gas, production (harvesting), transportation, refining, trading and marketing. All these core competencies and their economies of scale give them a competitive edge and act as a barrier for entry to potential competitors.
Air Product's operations, from extraction to the point of sale are relatively independent of other businesses. Their operations are divided into segments of global business clusters, which specialize in each aspect of the production line. The economies of scale are emphasised by their global network. They have a balanced approach between cost control and investing in new capabilities, ensuring they maximise their future competitiveness.
In essence, the arguments above reveal that global marketing is not necessarily an all or nothing proposition. Companies have the freedom to choose from many possibilities on the spectrum from total standardisation through to complete customisation. Clearly there are circumstances where multinationals can gain through increased standardisation of products and marketing, especially with respect to keeping costs down and building brand power. Air Product the world's largest supplier of hydrogen and helium and have built leading supply positions in growth markets such as refinery hydrogen, semiconductor and flat panel display materials, natural gas liquefaction equipment, home healthcare services, and advanced materials for high-performance, more environmentally friendly coatings and adhesives.
On the other hand, in conditions where national market differences are more marked, this strategy would harm the company and its reputation. By making standardisation decisions using target market conditions as its starting point, an organisation can ensure that, in the long-term, customers are being offered what they want.
Although Air Product can seemingly gain a great deal from a standardised agenda, its decision to combine global and local resources is ultimately more long-standing in a market where national customer differences are influential.
Air Product is often perceived by a large demographic as having a negative impact on the environment. Pressure groups, governments and the general public who constitute the consumer base, have increasing concerns relating to global warming.
In order to rectify the worldwide they should continue their external communications campaign to convince their stakeholders of their commitment to environmental issues by supporting sustainable development. This involves investing in alternative energy sources and innovating pioneering environmentally friendly technologies. Although at present this is only a niche market due to government's reluctance to regulate the energy mix.
If the polar icecaps continue to dissipate over the next five years as a direct or indirect result of an increase in carbon emissions, then this raises the future possibility of exploration in these regions where there are vast quantities of untapped gases. may provoke negative reactions from some of their stakeholders such as environmental groups and governments.
This in turn could result in condemnation from the international community and their customers, as it would be contradictory to their environmentally friendly public relations agenda. Customers could boycott their product due to a loss in consumer loyalty and may damage the corporation's self esteem. On the other hand, failure to take advantage of these vast natural resources could give their competitors an opportunity for a massive and possibly terminal competitive advantage if they were to capitalise on the new countries.
There is also growing anger from motorists regarding the correlation between, on the whole increasing Air product prices, whilst gases companies such as Butterley Company continue to see unprecedented rises in profits. Air Product must not alienate its main consumer base if it wishes to be seen as a progressive, ethical and socially responsibly corporation. In this era of environmental friendliness and corporate responsiveness, there could be a backlash from customers resulting in diminished profits. Shell must therefore consider reducing their prices in relation to operating costs or passing on a proportion of profit to fund new environmentally friendly technologies.
Air Product needs to increase its CSR (corporate social responsibility) by going beyond the primary economic and legal concerns, such as maximizing profits for shareholders and not just complying with existing ethical legislation, but endeavouring to exceed it. Its new sustainability report helps to indicate Air Product's ethical and discretionary concerns, which relate to its environmental responsibilities such as sustainability and reflects their consumer's variable concerns Carroll (1979). Indoctrinating their consumers with positive corporate statements helps to reduce the hostility towards the corporation and preserves the business's competitive advantage. Improving their CSR image they can increase their reputation, attract ethical investors and entice and keep reputable employees.
South Africa should be seen as a short-term strategy so it can meet the gases demands of the world powerhouses such as the USA and China via exploiting the country's resources. They should not however open their business in Asia by supplying them with gases, as the area is unstable and consequently so are market conditions.
Countries such as china may in the future be of strategic importance due to their vast resources, consumer demand and are monetarily much more stable than Mexico or South Africa. It should therefore be considered a priority for operational development over the next five years, if Air Product wishes to position itself for future longevity and prosperity by capitalising on the Asian market.
However in the short term Africa is still more prosperous and profitable than any other region. World Air Product has declined by 2.5% annually in the past five years, apart from in Africa, which saw an increase (Global Business Insights). Therefore Africa is strategically more important than Middle Eastern, European or USA production in the short-term strategy of Air Product (BLOBAL BUSINESS INSIGHTS, 2008 'The Top Ten Gas Companies').
Air Product can be confident that they are well positioned to address the challenges over the next five years, due to it having a strong exploration track record and a large monopoly on world resources. It also has an established, technologically advanced infrastructure. However a more thorough and far-reaching analysis is required in order to reach a conclusion regarding the long-term sustainability of the Air product industry. Air Products is headquartered in Trexler town, Pennsylvania, U.S.A. and conducts business in over 40 countries outside the United States. The company has majority or wholly-owned foreign subsidiaries that operate in Canada, 17 European countries (principal administrative offices in Hersham, UK and Hattingen, Germany), 10 Asian countries (principal administrative offices in Singapore and Hong Kong) and four Latin American countries. Air Products also has interests in entities operating in Europe, Asia, Africa, the Middle East and Latin America.