The origins of British Petroleum can be traced back from 1908 when petroleum was discovered at Masjid-i-Suleiman in southwest Persia. This was the first time that oil was discovered in the Middle East. In April 1909, the Anglo Persian Oil Company was launched. The company experienced many difficulties in the first few years of its existence. It thrived as an independent business under the leadership of Greenway, who is termed as one of the founders of the company. Anglo-Persian Oil Company survived through many hostile takeovers from bigger oil dealer companies such as Shell (Morris & Goldsworthy 2012).
The company changed its name in 1935 to Anglo Iranian Company, following a change of the country’s name from Persia to Iran. In 1951, the company was nationalized. What followed was a coup in which the United States and the British government overthrew Mussadegh. After an agreement, the Anglo Iranian Company was again privatized and this time, it was renamed as British Petroleum (BP), which held a 40% stake. The company was forced to diversify from over-reliance on a single crude oil source and in 1960s the company’s future was set from the discovery of oil in North Sea and Alaska (Freudenburg & Gramling 2011).
The company was badly affected by the oil crisis in the 1970s, which led to its corporate restructuring, and focused on its major businesses that were primarily exploring and producing oil, refining and distributing oil as well as chemical manufacturing. In the 1990s, BP underwent a complete restructuring, which was aimed at reducing the complexity in the company, reshaping its organization, cost reduction and overall company repositioning. The company became successful thereafter, especially in cost reduction, where the company managed to cut down costs by $750 million (Great Britain Parliament 2011).
Public Relation Issues
The 2010 oil spill had a great impact on the company’s image. There were criticisms that the company invested huge amounts of money on public awareness such as advertising and other promotional measures but it disregarded other matters that were crucial to the business’ operations. Many people associated the oil spill along the Gulf of Mexico with laxity in the company’s management. The people attribute the spill with poor public relations, especially with the CEO Tony Hayward. Critics argued that the company is faced with cultural and management issues that largely contributed to the disaster (Morris & Goldsworthy 2012).
Public relations can be explained as the flow of information that is aimed at enhancing the relation of organization and its products and services with its audience through various channels of communication. In other words, it is building a favorable reputation of an organization through particular stories that are posted in the broadcast and print media (Biagi 2010). The aim of public relations is to set and maintain a particular perspective about an organization, its products, leadership or political decisions and improve its image to its stakeholders.
Public relations today take a broader perspective. It is charged with a mandate of dealing with crisis that may face an organization. For example, it is the role of the public relations in the British Petroleum company to reposition again and restore its initial reputation to its corporation and overall corporate image. The public relations department in an organization is charged with building corporate goodwill in its target audience. This is done through philanthropic, community and special programs among other events that could lead a company to enhancing a good relationship with its internal and external stakeholders (Biagi 2010).
Porter’s Five Forces Model
In order to discuss the various personal relations strategies that British Petroleum needs to put in place, it is important to analyze the company in order to determine its best strategies. This would help in taking the necessary and best steps that would be both effective and cost saving. It would minimize taking unnecessary steps that would not lead to any value to the company’s image. Proper analysis would pave way to restore the company’s tainted image due to the oil spill at the Mexican gulf. This paper would present an analysis of the company using Porter’s five forces model (Fitzgerald & Reed 2011).
Threats of New Entrants
In order to enter into a petroleum business and compete in the same field with British Petroleum, businessmen need to have a large amount of capital in order to sail in the same level as BP. This makes the threat low. Since BP works in an oligopoly industry, the high costs pose a big barrier to entry. A new entrant also needs to consider the economies of scale after its entry into the market. It might be extremely difficult for a company to compete with the BP especially in terms of price leadership because British Petroleum strikes the best deal (Fitzgerald & Reed 2011).
There are other aspects that create a bigger barrier to new entrants such as access to distribution channels and subsidies that are offered to existing oil players. These are big barriers that impede new entrants. Knowhow and raw materials could also be a big threat to new entrants. This is because running a petroleum firm and all the processes that are involved in making a finished oil product i.e. extraction from oil deposits to refining and distribution, requires a pool of knowledge (Heath 2010). These barriers make it hard for new firms to come up in the market, which is an advantage to BP.
Threat of Substitute Products or Services
Oil is still in its developing stages. This is to say that the threat of substitutes is low. Other sources of energy are still in their developing stages and therefore it might take sometime before these sources are fully developed to an extent that they would be a threat to the oil industry. In addition, if these sources are developed, the switching costs to these sources would be very high because the equipment that are designed to use oil products have to be changed altogether, which is not an easy task especially in today’s hard economic times (Heath 2010).
One challenge that is facing the oil industry is the environmental issues. The industry is always challenged with hard government regulations making it necessary to invest heavily in research and development. There are alternative sources of oil products. Research and development is all about these alternatives to come up with innovative ideas and energy sources that could be in line with government’s regulations and that could be more environment friendly than natural oil. The available alternative sources of energy are priced almost the same as British Petroleum products and therefore they do not pose a major challenge to the company’s products (Cheremisinoff & Davletshin 2011).
Supplier’s bargaining power is low. This is because the company sources their own oil and keeps a good track of oil to oil filling stations. There are complex and sophisticated methods that are used to find oil deposits and natural gas. This reduces the threat of suppliers as BP supplies for its own. The company uses advanced technologies and methods to excavate oil and to coordinate all the processes of production from the excavation to consumers. This reduces the costs and inconveniences that come with the different suppliers (Cheremisinoff & Davletshin 2011).
Bargaining Power of Buyers
The bargaining power of buyers is very low as there are few alternatives that could be substituted with oil and natural gas. This leaves the buyers with little bargaining power as they have to use oil products in one way or another. Switching to other non-oil products is easy but in order to make such decision, buyers must be ready to incur heavy costs, which involve even purchasing new equipment and systems that use other energy sources. Also, modification of their current machines and equipment in order to use other sources of energy is costly and full of uncertainties on their efficiency (Fingas 2011).
The company’s rivalry is very high. As initially mentioned, British Petroleum operates in an oligopoly industry. This means that prices of the companies tend to be similar. Competition from other oil producing and distributing companies is stiff and therefore BP invests much money in advertising, product development and promotion as well as strong public relations programs to safeguard and maintain the company’s image. In the competition, price is the major basis. In an oligopoly market, prices are normally regulated through pricing decisions and parallelism but there exists a small difference in prices (Fingas 2011). This means that the major tool to remain standing in an oligopoly industry is the reputation of the company, which is strengthened through public relations.
Strategies of Public Relations
Public relations are generally focused on enhancing the image of the corporation. The image could be enhanced by observing and treating stakeholders in the best manner possible. Stakeholders’ satisfaction is the main objective of public relations. The company is committed to enhance its relationship with its stakeholders. Media and other channels that are used in public relations all aim at improving and maintaining the corporate’s reputation (Juhasz 2011).
The company uses formal one on one relationship with its employees. The managers of the company are always in close contact with their employees. The company engages in constant improvement of the environment where the employees work. This reduces the rate of turnover in the organization and makes more people to have a will to work in the organization. The organization always shows great concern to issues that employees raise and sort them out in a way that would satisfy the employees (Juhasz 2011). The senior managers always conduct meetings with employees and engage in interactive question and answer sessions.
An example of such meetings was when the leakage at the Gulf of Mexico took place. The senior managers always held meetings with their subordinates to keep them informed on the progress and developments. Also, to improve the relationship between the employees and the senior management, the company prints internal magazines that are distributed to the employees with information on the progress and future plans of the company. The information keeps employees updated on the transformations and allows them to give feedback on the plans (Sherlock 2010). This interaction not only enhances the relationship of the management with employees, but also helps to make informed plans from the feedback given.
Another public relations strategy is focused on social responsibility. The company is committed to improve the welfare of the community around. In 2010, the company decided to involve all interested stakeholders in its future projects. The local stakeholders include all individuals who are affected by the project, people who are around the vicinity of the project and community-based organizations. In order to reach these locals, there are some channels that need to be followed so that the local people could be aware of the project before any activities begin (Sherlock 2010).
Public relations focus on customers because they are the reason why the company exists. British Petroleum employs several methods such as web-based programs, surveys, interviews, online communications and marketing programs to find ways of improving the customer relations and creating value to customers. During the deep water horizon accident, the company conducted a survey that was aimed at establishing customers’ reactions. The response from the company’s customers helped to shape its retail programs and advertising used in order to keep the public informed on the progress in the gulf (Farrell 2011).
Shareholders and Analysts
Investors in a company are important because they are the company’s sources of funds. The company aims at keeping its operations as transparent as possible, especially after the gulf accident, in order to restore and retain the former trust from the investors. Regular meetings with the shareholders and the industrial analysts are conducted. The country goes beyond the statutory framework in commitment to disclose the financial information that is of interest to shareholders and industrial analysts (Farrell 2011).
Government and Regulators
Since the British Petroleum is an international company, it is committed to enhance its relationship with the different countries’ governments. The company operates within the legal framework of the oil industry in the country where it operates. The company’s senior officials always meet with the other officials of the company to discuss the projects that the company has at stake and those that it has in the future. Some channels used are face to face meetings, lobbying reports and collaborative projects (Landau 2011). This ensures that there is a constant and smooth flow of information between the company and the various governments.
Stakeholders are important to every business. In the company’s case, it is important to distinguish the role played by each stakeholder in the success of the business. Different stakeholders also have different interests in the organization. The company has to use various channels of communication that are tailored to each stakeholder to ensure that all the stakeholders get the required information that they are interested in. There are other communication channels that are general to all stakeholders and are used to channel general information about the company (Landau 2011).
The company’s stakeholders can be classified into two groups. The first group consists of governments and other regulators, analysts and shareholders. This group has the power to influence the decisions of the company. Their interest is mainly on the financial information disclosure. They monitor the business activities such that there would be no activities that result to cutoffs in job and share prices. The other group of stakeholders consists of customers, local communities and the NGOs. This group also has a high power and interest in the decisions of the company. The company has to make sure that the interest of this group is closely managed. Regular meetings and mass media form the main channel of communication with this group (Ramseur 2011).
The company is faced with many public relations challenges. This is due to the 2010 deep water horizon accident at the Gulf of Mexico. The accident led to a massive loss of trust in the company and tainted its reputation tremendously. The company needs to take steps that would restrain such accidents from occurring in the future. Though the company faced criticisms from the United States on how it handled the accident, it did not lose trust in America. A majority of the US population believes that BP should continue with its project at the gulf (Ramseur 2011).
The company should install and strengthen its risk management. The risk management should be a top priority for the company to ensure that it screens all the possible and potential risks in order to put in place the necessary measures should risks occur. The company should be aware that the world population is slightly over seven billion and according to statistics, the demand for oil would be about 40% more than it is today. This poses a wake up call to the company to continue moving with the constantly growing demand for oil and its products (McCarthy 2010).
Furthermore, the company should be aware of the increasing demand for renewable energy sources such as solar energy, which grew by 73% in 2010. This shows that the company has to invest in innovations to compete with such energy sources. The company should invest in sources such as solar energy and biofuels, which are recyclable and more environment friendly than oil. Since the company is at the recovery stage from its tainted reputation, it should demonstrate high levels of innovativeness and get more concerned with the global energy challenges (McCarthy 2010).
Strategies of the Company’s Future
Due to the disaster at the Gulf of Mexico, trust in the company was dramatically lost therefore it is fighting back to regain the initial trust. Through media coverage, the company was able to rebuild its customers’ trust. It also aspires to fully restore the customers’ trust in 2013. This would not come about easily. It will take dedication and strong public relations in order to restore the company into its initial state in terms of customer trust (McCoy& Salern 2010).
The tragedy also led to loss of shareholder confidence. As a result, the company has to sustain long-term shareholder confidence and value. Restoration of shareholder confidence should be full at the end of the year 2012. The company is also committed to address environmental concerns. Lastly, the company is committed to source alternative forms of energy by 2020, which are environment friendly through its continued innovations (McCoy& Salern 2010).
The company has a strong belief that in the next 5 years, it will have made its dream of obtaining oil from deep water. This is after the company found that people were still backing their decision to continue drilling water in the gulf of Mexico. This strategy will see the company progress and meet its growing demand for the commodity. The company will use kits improved technology and its high experience to make realize this strategy (McCarthy 2010).
The company has also a strategy to avail unconventional gas. The company has realized that companies are almost exploiting the natural gas deposits. This has led to British petroleum company to look into the situation and as a response they are suggesting to manufacture unconventional gas to substitute the product. This will add more profit to the company due to addition of this product into its product line (McCarthy 2010).
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