Term Paper on "Business - Case Studies -- Exxon Strategic"

Term Paper 15 pages (3816 words) Sources: 15 Style: APA

[EXCERPT] . . . .

Business - Case Studies -- Exxon

Strategic Analysis of Exxon Mobil Corporation

Everyone seems to talk about it, but few companies actually engage in strategic planning sufficiently well enough to brag about it. One major company that enjoys some serious bragging rights in this regard is Exxon Mobil Corporation, one of the major leaders in the global oil and gas industry today. While the experts continue to debate the fine points, it is reasonable to suggest that any type of strategy requires a careful assessment of the environment in which a company competes, as well as informed forecasts about what can be expected to occur in the marketplace in the future. Beyond these commonalties, though, a wide range of alternatives are available to help corporate leaders in their strategy formulation process, including (a) strategy as rational thought, strategic planning and decision making; (b) strategy as revolution (i.e., "disruptive innovation"); - strategy as resource allocation and accumulation in the firm (i.e., the "resource-based view"); and, (d) strategy as technology leadership (viewed as a unique competitive advantage). These four strategic approaches are discussed further below as they apply to Exxon Mobil Corporation, one of the world's leading producers of oil and gas today. A review of the organizational and peer-reviewed literature to this end is followed by a summary of the research and important findings in the conclusion.

Review and Discussion

Background.

Today, Exxon Mobil Corporation (hereinafter "Exxon" or alternatively, "the company") engages in the exploration, production, transportation, and sale of crude oil and natural gas; the company also engages in the manufacture, transportation, and sale of petroleum products and petrochemicals, as well as participates in electric power generation (Exxon, 2007). Originally named "Exxon Corporation," Exxon Mobil Corporation was incorporated in the State of New Jersey in 1882; Mobil Corporation became a wholly-owned subsidiary of Exxon Corporation on November 30, 1999 and changed its name to Exxon Mobil Corporation (Exxon Form 10-K, 2006). The various business divisions and affiliated companies of ExxonMobil operate or market products in the U.S. As well as most of the other countries of the world; the company's primary business is energy (including exploration and production of crude oil and natural gas, manufacture of petroleum products and transportation and sale of crude oil, natural gas and petroleum products) (Exxon Form 10-K, 2006). The company is also a major manufacturer and marketer of commodity petrochemicals (including olefins, aromatics, polyethylene and polypropylene plastics) as well as a wide range of specialty products (Exxon Form 10-K, 2006). In addition, the company maintains interests in electric power generation facilities and affiliates of ExxonMobil conduct extensive research programs in support of these businesses (Exxon Form 10-K, 2006). Besides these interests, the company also holds license to explore gas in the Gorgon liquefied natural gas project for domestic supply. Today, Exxon operates in the United States, Canada, Europe, Africa, Asia-Pacific, the Middle East, Russia/Caspian region, and South America (Exxon, 2007). Today, the company is headquartered in Irving, Texas (Exxon, 2007) and the company notes that it has numerous business divisions and hundreds of affiliates, many of which also feature names that include ExxonMobil, Exxon, Esso or Mobil (Exxon Form 10-K, 2006).

A comparison of Exxon's stock performance with that of two of its top competitors, British Petroleum and Chevron, is shown in Figure 1 below.

Figure 1. Stock Performance of Exxon vs. BP & Chevron - Past 5 Years to Date.

Key:

XOM = Exxon

BP = British Petroleum

CVX = Chevron

Source: Yahoo! Finance, 2007.

Strategy as Rational Thought, Strategic Planning and Decision-Making.

Strategic planning, like any type of planning, involves establishes goals and identifying quantifiable objectives that can help an organization reach them. What perhaps best differentiates strategic planning from "seat-of-the-pants" or intuitive planning initiatives concerns how informed the decision-makers are concerning the environment in which the company competes. In some cases, strategic alliances with others may represent the best course of action for various reasons, while acquiring competitors also represents a viable alternative in many cases. Because every organization is unique, there cannot of course be a one-size-fits-all strategic approach that can be applied across the board to achieve successful outcomes to such planning processes, but there are some general guidelines that can be used to help companies recognize when one alternative is superior to another. For example -- and generally speaking --, the reasons for mergers and acquisitions include:

Achieving competitive advantages through market power,

Overcoming barriers to entry;

Increasing the speed of market entry;

The significant costs involved in developing new products;

Avoiding the risk of new product development;

Achieving diversification, and,

Avoiding competition (Culpan, 2002).

While small and medium-size firms that already enjoy product and market niches continue to compete in their respective domestic and global markets, these smaller enterprises will likely experience some difficult periods when competing with enormous concerns such as Exxon. In this regard, Culpan emphasizes, "Under the pressure of global competition, the next decade will more likely see the continuation of mergers and acquisitions across nations in a variety of industries" (Culpan, 2002, p. 45). The impact of more and more consolidations in the marketplace does not, of course, mean that there will not be any opportunities for growth for SMEs; however, it does suggest that giant companies such as Exxon will make it exceedingly difficult for smaller companies to compete in the global marketplace unless those companies already enjoy product and market niches or have strategic alliances with those that do (Culpan, 2002). According to this author, "This situation has been true for years; however, there would be more pressure on medium and small-size companies even threatening their existence. The incredible expansion of giant retailer Wal-Mart and the mergers of Exxon and Mobile, British Petroleum and Amoco, and Mercedes-Benz and DaimlerChrysler are examples of the results of such rational decision-making processes in action" (Culpan, 2002, p. 45). While the company may excel in some ways through its use of strategy in action, it remains weaker in others and these issues are discussed further below.

Strategy as Revolution (Disruptive Innovation)

The unforeseeable and unexpected always challenge corporate leaders, but the unfortunate reality of doing business in the 21st century is that disruptive innovations will continue to influence how, why and when companies take action or fail to act. The importance of the Internet and innovations in transportation are well documented and are part and parcel of this process as well, but it means that things are changing faster and larger companies such as Exxon may not be well situated to adapt as well as their smaller counterparts. For example, in his essay, "The Innovator's Dilemma," Lewis (2001) asks, "Why do leading companies fail when confronted with disruptive technologies?" (p. 61). Citing Christensen's book of the same name, Lewis explains that traditionally sound management techniques such as listening to the customer, investing in new technologies, studying market trends, and allocating resources to the most promising innovations are all are strategies that are only situationally successful: "The ability of a company to successfully innovate depends, to a great extent, on the organization's understanding of the type of innovation it is creating. While certain management techniques are still useful for sustaining technologies, these same management techniques are disastrous if applied to the marketing of more disruptive technologies" (Lewis, 2001, p. 61). This author suggests that the key to understanding the principles involved in successfully applying these techniques in a dynamic business environment is to distinguish between sustaining and disruptive technologies as described further in Table 1 below.

Table 1.

Five principles of disruptive innovation.

Principle

Description

Customers and Investors

The first principle, that companies depend on customers and investors for resources, seems very obvious, especially to those who are familiar with the wide range of reengineering books and writings on customer-focused organizations. Christensen emphasizes this point, however, to remind managers that they have less control over organizational resources than they think. While a customer-focused organization is usually a positive one, Christensen shows that major customers can inhibit a company's ability to deploy a useful, disruptive technology. The company management may see the benefit of a disruptive innovation, but if the customers and investors do not see its added value, then the chances of that technology being successfully introduced into the marketplace are vastly diminished.

Small Markets and Large Companies

The second principle, that small markets don't solve the growth needs of large companies, is actually about three things: (a) disruptive technologies thrive in new, small markets before they thrive in new, large markets; (b) larger, more successful companies find it very difficult to invest in small, emerging markets because the return on investment does not help large companies maintain their growth rate; and - most successful companies focus on selling to large markets. These observations led Christensen to research those few large companies that had succeeded at marketing a disruptive innovation. He found that large companies were best able to promote disruptive innovations by giving responsibility for the development and "commercialization" of those innovations to spin-off organizations… READ MORE

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