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Today BP is one of the world's largest integrated oil groups with big competitors such as ExxonMobil, Royal Dutch Shell, Chevron and Total. BP's strategy is to grow out business organically as they transform into a truly world class marketing company.
The main strategy of BP is making them to fit for customers forever. Their strategy includes Market spaces, supply chain, fit for customers, innovation, brand and people.
The production was increased by 4% in 2009 compared with 2008 and the continuous ramp-up production following the start-up of major projects in 2008 and the start-up of further seven projects in 2009.
BP's main activities are exploring and production of natural gas and crude oil, refining, marketing, supply and transportation and also manufacturing & marketing of petrochemicals.
Marketing is the process of anticipating, identifying and to satisfy customer demand profitably. It is important to the long-term success of any organisation, including BP.
BP continues to grow across all business segments. It is emerging one of the largest organisation in the world. It has many product lines including petroleum, gas and fuel, filling stations, energy, biofuel etc. BP's priorities remained consistent which are safety, people and performance and acheived recordable improvement in safety of 20% over 2008. Its main marketing strategy is to create its market space and expand the supply chain, meet the customer's expectations and also increase in the production. It is planning to build a future energy industry which provides energy which is available, sustainable, affordable and secure. By close monitoring it can improve energy efficiency and also developing more efficient products such as BP Ultimate fuels and Castrol lubricants.
Promoting the great role for natural gas as a key part of the energy future. Gas is the easily flammable fuel but it is very efficient, versatile and abundantly available. And finally, BP is investing in low-carbon businesses. Since 2005 it had invested more than $4 billion in alternative energy and also in advanced biofuels, which are very low cost.
Refining and marketing business in BP is responsible for the trading and supply, manufacturing, refining, marketing and transportation of crude oil, petroleum and petrochemicals products and other related services to wholesale and retail customers. It has important operations in North America and Europe and also manufacture and market the products globally.
BP is managed by two main business groupings, Fuels Value Chains (FVC) and International Business (IB). The FVCs integrate the activities of refining, logistics, marketing and supply and trading on a regional basis which provides the opportunity to get the best of activities from purchasing crude oil to end-consumer sales through their physical assets (refineries, pipelines and retail stations). The IBs include the manufacturing, marketing and supplying of lubricants, petrochemicals, aviation fuels and liquefied petroleum gas.
BP aim to be excellent in the market that chose to be in and they beleive their key to the continual success in Refining and Marketing is holding a portfolio of quality, integrated, efficient positions and accessing available market growt in emerging markets.
Impact of the marketing strategy on the 4P's:Product:
BP offers wide range of products like BP Bio fuels, Gas and fuel cards, Gas and petrol stations, motor oil and lubricants LPG, Solar power energy, Air BP, ARCO Aluminium, Aromatics & Acetyls, Asphalt and bitumen, BP Crudes, BP Franchising, BP Shipping, Solar power, industrial lubricants, Gas and power and many more.
BP markets across Australia, China and other parts of Asia, Africa and Central and South America, it now extended the services to Iraq, Indonesia, Jordan, new acreage in US Gulf of Mexico and Egypt.
Gasoline prices go up and down all the time and everyone knows that. But, most of them don't know why these fluctuations happening and a lot of factors involving from taxes to politics to the weather. Refineries buy the crude oil at available best price based on supply and demand but supply may be affected by geopolitics events or weather. In hurricane seasons, oil productions might be interrupted for long periods. Demand can be affected by simple and predictable as season change or complicated as people reactions towards environmental challenges.
Taxes are included on the final price displayed on the pumps that are set by the local or national government. In some countries taxes are more than half of the price but where as in UK and other parts of Europe, taxes are about 70% of the total price charged at the pumps when compared to USA and Mexico which is closer to 20%.
Exchange rates also affect the price, all the products traded in US dollars. If any change in Pound or Australian dollar rises or falls against US dollar the price may vary.
BP has various ways of promoting its products and services; BP's slogan in 'Beyond Petroleum'. The Group also makes use of following medium to promote its brand awareness TV, Radio, Internet, Billboards, news papers, magazines and strategic corporate sponsorships. BP is proud sponsored of Ford Focus RS WRC cars that won 28 rallies, racked up a massive 1,157 points and clinched two World Rally Championship Manufacturers' titles.
RECOMENDATION FOR MARKETING ANALYSIS
The purpose of this part is to find some recommendations in relation with the BP marketing strategy to improve its performance and to achieve its objectives.
Important thing the company has to be vigilant is not to become the victim of its own success. BP being the world leading oil manufacturer has catered the need to most utilities, the following recommendations are necessary
Enhancement of brand awareness and image
The company should endeavour to improve on its brand image in places where it is not well known, for example BP is not a household name in the Africa and some Asian markets. The company equally lacks visibility and influence in America. This may change in the coming years though as it pursues market expansion.
Sustenance of affordable pricing strategy
In view of the global economic downturn which has lead to reduction of income this year in Europe and the fact that the period of rapid growth in much of Europe is over, the company needs to adjust its resources accordingly in order to make its products affordable in an increasingly competitive mark.
Slack and Lewis defines operations strategy as:
"Operations strategy is the total pattern of decisions which shape the long-term capabilities of any type of operations and their contribution to the overall strategy, through the reconciliation of market requirements with operations resources."
It is a tool that helps in defining the methods of producing goods or service offered to the customers, operation strategy is total pattern of decisions that shaped the long term capabilities of any operations and their contribution to the overall strategy through the reconciliation of the market requirements with operations recourses.
In the oil industry BP's strategic objectives of operations management is to be systematic and everything to achieve organizational goal of providing oil products in the global market. Operations management is the most important management techniques in oil industry.
The operational strategies used by BP management are the critical aspects for the success of the industry. Also, the power and capabilities that consider efficient operational management approach made the industry to be one of the most successful oil industry and establishment in the global market.
BP-Amoco is operating in more than 100 states in the 6 continental regions Worldwide. The primary aim and purpose of BP is to find and drill oil in different parts of the world. The main functions and operations of BP Amoco considers the exploration and production of crude oil and natural gas, decontamination or refining, marketing, supply and transportation and production of petrochemicals. Besides, the industry also considers operations for solar power. The strategic use technology and strategic operations management considered as a feature and cause for this achievement.
BP provides products and services which are divided into three criteria
- On the road
- BP Biofuels
- fuels and stations
- Motor oil and lubricants
- Gas and petrol stations
- Liquified Petroleum Gas (LPG),
- Gas and petrol station locator
- Gas and fuel cards
- Route & journey planner
- targetneutral - a non-profit carbon offsetting initiative
- For the home
- solar and renewable energy
- online store
- For Business or commercial
- Air BP
- ARCO Aluminium
- Solar power for your business
- BP Crudes
- Aromatics & Acetyls
- BP Franchising
- Asphalt and bitumen
- Gas and power energy
- Industrial lubricants
- BP Shipping
- Gas and fuel cards
- Invoice tracking system
- Marine fuels and lubricants
Being one of the biggest and largest oil & petrochemical industry and establishment BP is considering global operations in over 80 nations with 233 billion revenues and thousands of staff. BP not only concentrates on oil but also on gas exploration and production, petroleum products supply, manufacturing and marketing of different chemicals. As of now, BP owns five well-known brands that includes BP, am/pm, ARCO, Aral and Castrol. (BP, 2009)
Rapid changes in the external market made BP itself as a global, modern, high-tech and decentralised and learning corporation that need to be adaptive and responsive (Prokesch, 1997.) The management of BP is aware that to maintain the competitive edge of BP advantages they should rely on their technical potentials and political as well as operational knowledge as oil may be found in more challenging market environment and may be replaced by substitutes like solar and hydrogen. According to the management of the company, BP was able to use operations management to adopt change and to determine the opportunities, their rivals may not consider. BP needs to generate operational knowledge throughout the firms and enterprises that lead to learn faster and exploit faster than their rivals (Prokesch, 1997; Popper, 2000).
The business technique of BP is the efficient entry into global market which made them have full operations overseas. Besides, the industry is able to seek improvement in business operation and provide innovative and very useful products to target market. Aforementioned, the industry divided its own market into three categories which helps them in knowing what the needs of their client.
As British Petroleum (BP) is one of the biggest industry and establishment in the field of oil and allied products whose market value is considered be in 100 billions. However, the financial crisis faced and also other unpredictable phenomena that involves the enivornment and lead the company to face many challenges in their operations. The organisational performance of the company is based on its operation management approach.
The major operations of BP are the exploration and production of the crude oil and natural gas and also other aspects. Accordingly, operations management system of the company is cornerstone of their strategy. By operations management BP was able to deliver step-change in the efficiency of people they are able to handle and organise, the process and plant and how they follow through the protection of environment.
Recommended Operational Strategies
In companies like British Petroleum (BP) it is important that the industry should consider some of the operational strategies which need to sustain their competitive leadership. Even though the company was able to consider their own operations management system but there are still some other systems that the company can able to improve their operations in the global market like using e-commerce. This technological instruments keeps relationships and initiate new technologies in the products. The most important thing to success is building strong relationships with chain includes shareholders, local stakeholders and the management. Industry can benefit in various ways if it can able to sustain loyal clients. However, the stakeholder must benefit if the industry really need to make the relationship profitable. There are many techniques and methods that used in planning effective operational product and also in service delivery strategies. Other business organisations suggest different approaches that deal with market preferences, organisational structure, cost and internal capabilities. The internal capabilities consider elements of management method like environment and managerial characteristics and firms and enterprise configuration.
FINANCIAL ANALYSISFINANCIAL ANALYSISIntroduction
The most common way to analyze the financial data is to calculate ratios from the financial data and compare it with the historical data. Financial analysis is used to know whether a firm is in a profitable position and the performance of the firm is enough to allow the investors to show interest in the firm to invest. To analyze the financial performance we need to look into the firm's balance sheet, income statement, and cash flow statement.
To identify the major issues or problems, we must analyze and evaluate the situation, present alternatives, and make recommendations and develop implementation plans. The internal situation analysis normally requires financial analysis. Based on available financial information available to us from the BP Annual Reports we have assessed the firm's financial performance, its strengths and weaknesses, and provide suggestions for future planning. We have used a common approach to calculate various ratios using major items from the firm's balance sheet, income statement, and stock market data. Ratio analysis is a powerful means to evaluate the firm's financial position and help understand the overall picture of the firm. The information that the firm had released through its annual report is readily available for financial analysis. We have selected the relevant and pertinent data for critically analyzing and interpreting it to help the decision makers for taking decisions for increasing the efficiency and better performance of the Company
The financial analysis is made on a historical basis by comparing the firms past year performance. The focus of this section is the cross-sectional analysis and the evaluation of the firm based on its relative position in the industry.
As to calculate the four type of ratios to know the firm's financial standing we have used the Financial Statements published in the BP Annual Report 2009,
(See Appendix A)Ratio Analysis
In general ratio analysis is based on the evaluation of four types of ratios:: (1) current ratios, which measure the firm's ability to fulfill its short-term debt obligations, (2) leverage ratios, which measure the level of the firm's borrowing and its debt-serving ability based on its earnings prospect, (3) activity ratios, which measure the efficiency level of the firm in utilizing the assets for business operations, (4) profitability ratios, which measure the firm's earnings capacity.
The major ratios in these categories are as follows.
-------- = 1.14
Measures the extent to which the firm's short-term debts are covered by its cash and the assets that can be converted to cash in the near future.
67653 - 22605 45048
------------------- = --------- = 0.759
A measure of a firm's ability to pay its short-term debt without relying on the sales of its inventory
Debt to assets ratio
----------- = 0.19
An indication of the extent to which the business is financed by the borrowed funds.
Debt to equity ratio
----------- = 0.45
This is the alternative measure for the firm's debt using, comparing the fund financed by debts and that provided by the owner.
Time interest earned
26426 + 1110
------------------- = 81.46
A multiple of earnings available to pay interest costs and the interest cost, which measures the level of comfort for the firm to serve its interest obligations based on its earnings prospect.
Fixed charge coverage
An alternative measure with the purpose similar to Time Interest Earned, showing the firm's capacity to serve its debt obligations plus fixed obligation charges.
---------- = 10.58
Based on a comparison with the industry average, it shows whether the firm has excess inventory stock or inadequate inventory.
Total asset turnover
---------- = 1.01
It shows the relation between sales and the assets employed to generate the sales, which measures the efficiency of business operations.
Account receivable turnover
---------- = 8.10
Based on a comparison of sales with the credit granted to generate the sales, it shows the average length of time to collect the credit.
Profitability ratios are used to know how successful a firm is in terms of generating revenue on the investments made in the business. If the business is liquid and efficient it should be in a profitable position.
Gross profit margin
239272 - 190726
---------------------- = 0.20
This ratio is used to assess the firm's financial health showing proportion of profit left from the revenues generated after deducting the cost of goods sold, It also serves as a source of paying additional expenses and saving for the future such as reserves for unforeseen contingencies
Operating Profit = Operative Revenue - Operative Expenses
------------ = 0.11
Operating profit means Profit earned for firms normal core business operations and the above does not include any profits earned by way of Investments and the Interests and taxes Operating Profit Margin is the ratio of operating profit to sales. This ratio indicates how much of each dollar of sales is left over after operating expenses.
Net profit margin
----------- = 0.070
This ratio is a measure to express how much of each dollar is earned by the company it generates into profits . Profit margins vary by industry, If all is equal, the higher the company's profit margin, the better it is compared to its competitors
Return on total assets
----------- = 0.071
A ration which measures the firm's EBIT which is Earnings before interest and taxes against its total net assets. It is also considered as a indicator of highlighting the company effectiveness is using its assets so as to generate the earnings before all the contractual binding obligations to be paid out
The higher the company's revenues in proportion to its assets means the more effectively the company is using it assets.
Return on equity
----------- = 0.164
Return on Equity measures the company's profitability by calculating how much profit company is generating with investors/share holders money, it is also called as Return on Net Worth. In simple terms it is profit earned by the owner for each of his/her dollar invested in the business.
Return on capital employed/Return on investment (ROI)
--------------------- = 0.14
235968 - 59320
This ratio indicates the profitability and efficiency of the capital investments made by the company. Return on Capital Employed should always be higher than the rate at which the company borrows otherwise any increase in borrowing will reduce shareholders' earnings.
British Petroleum operates as the frontier of the energy industry but risk remains the key issue for any business. 2009 saw the continuation of difficult economic conditions and volatile energy market, with rising prices and lower demand for consumption, the Gas prices fell sharply and despite these difficult period BP has delivered considerable strong operating and financial results, the Profit margin had slightly reduced as compared to previous year, BP reported production grew by 4% and production costs were down by 12% as compared to last year figures. With good leadership and governance by the BP board it has delivered a consistent return on investment as total dividend paid per share in 2009 increased by 2% compared with 2008 and in sterling terms the dividend was 24% higher than in 2008 due to strengthening of dollar. The total share holder return in 2009 reflects BP improving competitive performance. With substantial investments in alternative energies and lower carbon fossil fuels such as natural gas and striking a best balance of the resources and working capital and investments to generate long term business while managing debt and steadily realizing rewards to shareholders therefore increasing its efficiency and performance globally.
Mills and Robertson,, (2004) “ Fundamentals of Managerial Accounting and Finance, 4th Edition.
British Petroleum (2009), British Petroleum p.l.c. Annual Reports and Accounts, 2008-2009, London.
Weston, Thomas E. Copeland (1992), Managerial Finance 9th Edtion, Jovanovich Publishers, Florida.
Mills and Roberston, (2004) “Fundamentals of Managerial accounting ad finance, 4th edition.
Appendix - A - British Petroleum
Group income statement
For the year ended 31 December $ million
2009 2008 2007
Sales & operating revenues 2,39,272 3,61,143 2,84,365
Earning from. jointly controlled entities - after I & T 1,286 3,023 3,135
Earning from associate - after I & T 2,615 798 697
Interest & Income Others 792 736 754
Gain on sales of business & fixed asset 2,173 1,353 2,487
Total revenue & income others 2,46,138 3,67,053 2,91,438
Purchase 1,63,772 2,66,982 2,00,766
Production & Manufacturing expense 23,202 26,756 24,225
Production & Similar tax 3,752 8,953 5,703
Depreciation, Depletion & Amortization 12,106 10,985 10,579
Impairment and losses on sale of businesses and fixed assets 2,333 1,733 1,679
Exploration & Expense 1,116 882 756
Distribution & Administration expense 14,038 15,412 15,371
Fairvalue losses on embedded derivative (607) 111 7
Profit before interest & taxation. 26,426 35,239 32,352
Finance costs. 1,110 1,547 1,393
Net finance expenses relating to pension &
other post-retirements benefit 192 (591) (652)
Profits before taxations 25,124 34,283 31,611
Taxation 8,365 12,617 10,442
Profit for the year, 16,759 21,666 21,169
BP Shareholders 16,578 21,157 20,845
Minority interests 181 509 324
16,759 21,666 21,169
Earnings Per Share - Cents
Profits for year attributable BP shareholders
Basic 88.49 112.59 108.76
Diluted 87.54 111.56 107.84
Group balance sheet
At 31 December $ million
Property plant, & equipment 108,275 103,200
Goodwill.. 8,620 9,878
Intangible asset 11,548 10,260
Investments jointly controlled entities 15,296 23,826
Investments Associates 12,963 4,000
Investments Other 1,567 855
Fixed asset 158,269 152,019
Loan 1,039 995
Other receivable 1,729 710
Derivatives financial instrument 3,965 5,054
Prepayment 1,407 1,338
Deferred taxes asset 516 -
Defined benefit pensions plan surplus 1,390 1,738
Loans 249 168
Inventory 22,605 16,821
Trade and other Receivable 29,531 29,261
Derivative Financial Instrument 4,967 8,510
Prepayments 1,753 3,050
Current taxes Receivables 209 377
Cash & cash Equivalents 8,339 8,197
Total Assets 235,968 228,238
Trade & other payables 35,204 33,644
Derivatives financials instruments 4,681 8,977
Accrual 6,202 6,743
Finance debt 9,109 15,740
Current Tax payable 2,464 3,144
Provisions. 1,660 1,545
Non Current Liabilities.
Other payable 3,198 3,080
Derivatives financial instrument 3,474 6,271
Accrual. 703 784
Finance Debts 25,518 17,464
Deferred Taxes Liability 18,662 16,198
Provisions 12,970 12,108
Defined Benefit Pensions plans
retirement benefit plans deficit 10,010 10,431
Total liabilities 133,855 136,129
Net Assets 102,113 92,109
Share capital. 5,179 5,176
Reserves. 96,434 86,127
BP shareholder Equity 101,613 91,303
Minority Interest 500 806
Total Equity. 102,113 92,109
Group cash flow statement
For the year ended 31 December $ million
2009 2008 2007
Profit before taxation 25,124 34,283 31,611
Adjustments for reconciling PBT to net
cash provided by Operating Activity.
Explorations expenditures written off 593 385 347
Depreciation, depletion and amortization 12,106 10,985 10,579
Impairment loss on sale of business and fixed asset 160 380 (808)
Earnings from jointly controlled entities and associates (3,901) (3,821) (3,832)
Dividend received from jointly controlled entitiy and associate 3,003 3,728 2,473
Interest receivable (258) (407) (489)
Interest received 203 385 500
Finance costs 1,110 1,547 1,393
Interest paid (909) (1,291) (1,363)
Net finance expense (income) relating to pension &
post-retirement benefit 192 (591) (652)
Share-based payments 450 459 420
Net operating charges for pension & post-retirement
benefits, less contributions
and for unfunded plans (887) (173) (404)
Net Charges for Provisions, & Less payments 650 (298) (92)
(Increase) decrease in inventories (5,363) 9,010 (7,255)
Decrease in other current & noncurrent asset 7,595 2,439 5,210
Decrease in other current & noncurrent liabilities (5,828) (6,101) (3,857)
Income taxes paid (6,324) (12,824) (9,072)
Net Cash Provided by Operating activity 27,716 38,095 24,709
Capital expenditure (20,650) (22,658) (17,830)
Acquisitions, net of cash acquired 1 (395) (1,225)
Investment in jointly controlled entities (578) (1,009) (428)
Investment in associates (164) (81) (187)
Proceed from disposal of Fixed asset 1,715 918 1,749
Proceed from Disposal of business, net cash disposed 966 11 2,518
Proceed from loan repayments 530 647 192
Other 47 (200) 374
Net cash used in investing activities (18,133) (22,767) (14,837)
Net issue (repurchase) of shares 207 (2,567) (7,113)
Proceeds from long-term financing 11,567 7,961 8,109
Repayments of long-term financing (6,021) (3,821) (3,192)
Net Increase in Short-term Debt (4,405) (1,315) 1,494
BP shareholders (10,483) (10,342) (8,106)
Minority interest (416) (425) (227)
Net cash used in financing activities (9,551) (10,509) (9,035)
Currency difference relating to cash a& cash equivalent 110 (184) 135
Increase in cash and cash equivalents 142 4,635 972
Cash & Cash Equivalent at Beginning of year 8,197 3,562 2,590
Cash & Cash Equivalent at End of year 8,339 8,197 3,562