I will illustrate this discussion with an analysis of the strategies employed by the multinational energy company BP plc (formally British Petroleum).
Firstly I shall introduce a tool by which cultural attributes and values pertinent to business can be measured and compared through the study of Geert Hofstede. Then I will introduce the firm BP plc, discussing the firm’s history and current competitive environment. BP plc’s recent and current strategic management actions will be outlined and I will analyse any correspondence between the firm’s strategy and cultural biases as revealed by Hofstede.
When considering the effect a firm’s home culture may have upon those firms’ operations we must first find a standard methodology that can be applied to measure the value of said culture or indeed all cultures because without comparison with another culture’s values then our measure becomes arbitrary. Measuring Cultural Values Fortunately the work of Hofstede has provided us with such a measure. He drew on analysis of data gathered from employees of one of the largest multinational companies at the time, IBM (1967 to 1973) these results have since been supported by several more independent studies.
Hofstede produced results that showed different culture’s values in the workplace in terms of four (initially) ‘cultural dimensions’ which was extended to five after a further study designed by Chinese academics: Power Distance Index (PDI) is the extent to which it is accepted in a society that there is an uneven spread of power distribution. Specifically as viewed by those with the least power in any given society. A culture with a high PDI shows that it is an accepted and even expected element of that society that a very few people will retain a large proportion of power influence and wealth.
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Mismanaging cultural differences can render otherwise successful managers and organisations ineffective when working across cultures. As stated byOsland (1990, p. 4) “The single greatest barrier to business success is the one erected by culture”. Hofstede (1983) defines culture as “the mental programming of the mind which distinguishes the members of one human group from ...
Individualism (IDV) which can be contrasted with collectivism. The inference being that individualistic societies have a less integrated group dynamics, the emphasis on looking after oneself and perhaps your own nuclear family. Whilst collectivist societies tend to be viewed as having tight group cohesion with the emphasis on the ties between members of extended families and those in one’s community. Masculinity (MAS) opposed to femininity. Best described as behavioural opposites, a masculine culture will be more assertive and domineering, a feminine culture more inclined to progression through discussion and mutual cooperation.
Uncertainty Avoidance Index (UAI) refers to a society’s ability to withstand levels of uncertainty and risk. A society with a low tolerance to uncertainty is more likely to favour structured situations with known and accepted boundaries. It is also less likely to be accepting of new ideas and methods, as these again may constitute an unknown risk. Long-Term Orientation (LTO) is the additional dimension. It refers to values derived from culture’s time perspective. Those with a long term orientation i. e. those who value perseverance and those with short term orientation who value more immediate results.
Viewing the combined results of these dimensions for each country goes towards establishing that there are indeed very different cultural biases in each society concerning attitudes in the workplace and in business. When the relative scores are viewed side by side we have a powerful visual tool for exploring how cultural biases may manifest themselves in firms and organisations based in those cultures. In Fig. 1 we see the results for the United Kingdom which can be contrasted against the average results fro all countries in the study.
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We can observe that British cultural dimensions reflect low power distance tolerance, high individuality, high masculinity, low tolerance to uncertainty and a short term orientation. BP plc. (British Petroleum) When considering which international firm to use as a case study I was curious to apply this discussion to an industry and firm which is a product of the greatest possible degree of globalisation. In a world society with a hydrocarbon economy I find it hard to conceive of an industry more global than that of energy production and thus a multinational oil company.
BP plc, unsurprisingly, is a British company. It was founded in 1908 and owes its early prosperity to exploitation of Iranian (formally Persian) oilfields, where it continued to operate until the revolution in Iran in 1979. Although having lost access to the Iranian oilfields, BP plc had expanded operations to the North Sea and Alaska during the 1960s and 1970s. During the 1980s the British government sold off its holdings in the company under the privatization drive. At the end of the decade the company underwent severe corporate restructuring and downsizing.
In the 1990s BP plc undertook several corporate acquisitions which resulted in BP becoming the second largest oil company at that time. Moving forward to the present day, according to the Forbes Global 2000 ranking of leading public companies in the world BP plc is ranked seventh as of 2008. It is one of the six ‘supermajor’ oil companies. This title referring to the six biggest energy companies in the world, these firms developed after oil companies began to merge in the 1990s following a period of low oil prices. The intent being to take advantage of the economies of scale such mergers would offer. Anon, 2008) This behavior is typical of the pressures created by increasing globalization; ‘Globalization, the internationalization of markets and corporations, has changed the way modern corporations do business. To reach the economies of scale necessary to achieve the low costs, and thus the new prices, needed to be competitive, companies are now thinking of a global (worldwide) market instead of a national market. ’ (Wheelen et al. 2002) Moving into this decade there have been several events in recent years that have had the potential for large scale negative effects on the firm.
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In March of 2005, a large explosion hit BP’s Texas City Refinery in the United States. Many people were injured in the accident some fatally. BP has admitted full liability for the accident. The following year, in March 2006, a leak in one of BP’s pipelines in Alaska caused a spill of oil onto the local environment. BP had to replace a large section of this pipeline. A few months later in July 2006, BP announced closure of its remaining oil wells in Alaska due to leaks into the local environment.
Additional leaks in Alaska occurred at various facilities in August 2006 and October 2007. (Anon, 2008) In terms of recent expansion of operations BP has pursued opportunities in Asia Pacific gas, Azerbaijan, Algeria, Angola, Trinidad, deepwater Gulf of Mexico and Russia. Whilst also managing the decline of their established oil developments Alaska, Egypt, Latin America, the Middle East, North America gas and the North Sea, by using new recovery techniques and technologies to improve the recovery from those developments. (BP Company Website www. bp. com 2008)
BP Alternative Energy was set up in 2005 to confirm BP’s commitment to alternative energy production; ‘In a short time, we’ve made a real difference – and over the next 10 years we aim to invest $8bn in solar, wind, hydrogen and natural gas power technology and projects that will help reduce carbon dioxide further’ (BP Company Website www. bp. com 2008) Eight billion dollars is a huge investment, and arguable has the dual purpose of improving BP’s public image in the short term and improving its long term competitive advantage as would occur if BP can become a market leader in hese emerging new technologies. Strategy What is strategy? In terms relative to our discussion, strategy and strategic management may be viewed a three part process for the firm in which strategic analysis is required to understand the current position of the firm, strategic choice is require to formulate and choose between of plans of action and strategic implementation is concerned with how strategic choices are delivered (Johnson et al 1989).
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Marketing Strategy for Wal-Mart Mission Statement The mission of this paper is to define the best management strategy for Wal-Mart Corporation. In order for us to come up with recommendation of how to increase Wal-Marts commercial effectiveness, we will have to analyze different aspects of companys operations. In its turn, this will require an understanding of what defines companys commercial ...
Failure in realising any part of this strategic process will result in inefficient strategy for the firm.
The importance of strategy in the increasingly globalised industries is explained by Wheelen et al; ‘As more industries become global, strategic management is becoming an increasingly important way to keep track of international developments and position the company for long-term competitive advantage. ’ (Wheelen et al. 2002) Essentially, intelligent and appropriate strategic decisions in response to internationally influentially events are necessary in order for a firm to position itself in the market and achieve long term competitive advantage. A concept further emphasised by Porter; A global industry is one in which the strategic positions of competitors in major geographic or national markets are fundamentally affected by their overall global positions. ’ (Porter 2004) Having established what ‘strategy’ entails for a multinational company in a competitive environment of globalisation we should examine Bp’s future strategy. BP’s Annual Review for 2007 contains the following statement about its strategic intent; ‘BP’s strategy for the future is robust. We have great positions in many of the major hydrocarbon basins of the world.
We also have great market positions in the key economies and are preparing for the future by building a new low-carbon energy business. Executing our strategy is where we must improve. In safety, we are significantly lowering the risk profile of our operations. We are working hard to ensure that we have the right people with the right skills in the right places. And we are addressing performance by reducing organizational complexity, improving operational consistency and changing individual behaviours. On the front lines of our business, we are moving this agenda forward. (BP Company Website www. bp. com 2008) Analysis of this statement, along with the information outlined in the previous section regarding recent activities and events in the past decade at BP reveals several key elements of strategy aimed at establishing competitive advantage; BP has identified which area of strategy it must improve upon, that of strategic implementation, as mentioned earlier. BP wishes to reduce the risk associated with their operations. BP is aggressively pursuing new opportunities to ensure its long term viability as an oil producer.
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BP’s strategy regarding performance includes changing individual behaviours and selecting the best individuals for the business. BP is investing in new and alternative sources of energy to ensure its long term viability as a energy producer and improve its public image BP had a strategy of acquisition and takeover in the late 1990s in order to improve its competitive advantage through economies of scale and also enter new markets. Does Home Culture Matter? Do BP plc’s strategic decisions reflect the cultural dimensions revealed by Hofstede’s study?
Reviewing again the British cultural dimensions, we find a culture of low power distance tolerance, high individuality, high masculinity, low tolerance to uncertainty and a short term orientation. Looking at the strategic points above, can be associate any of them with Hofstede’s cultural dimensions? BP wishes to reduce the risk associated with their operations, which would certainly fit the model of a culture of low uncertainty tolerance. BP’s emphasis on the value of the skilled individual and on individual behaviours reflects on this British cultural value of high individuality.
BP’s strategy of acquisition reflects the assertive qualities associated with high masculinity, as does the aggressive exploitation of new opportunities. However, when considering the cultural dimension of long-term orientation versus short-term orientation, one must conclude that BP adheres to strategy that suggest a very high long term orientation; its attention to strategic implementation as a means to improve market positioning and competitive advantage, heavy investment in oil exploration and development but also, and perhaps more importantly, heavy investment in the energy producing technologies of the long term future.
Both as a means to secure competitive advantage at that time and also to improve its public image. The latter reason suggests a commitment to relational sales strategies, a long term orientation strategy. Perhaps this is not especially surprising given the amount of negative press that was created by several oil spills and a huge industrial accident. BP of course displays many aspects of short term orientation, a drive for performance enhancement and maximisation of profits for example. However the predilection for long-term orientation is not described as being part of British culture by Hofstede’s study.
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Conclusion In considering the possibility that it is in some way old fashioned to consider the influence of the firm’s home country’s institutions and culture given globalisation’s supposedly homogenising effects we must first acknowledge that the use of one example to illustrate our discussion is hardly likely to be conclusive. With reference to BP plc’s strategic decisions and use of Hofstede’s cultural study I would conclude that in the main part, yes, there is a correlation and thus a suggestion of home culture influence.
I believe that the one anomalous result, that of evidence of a strong long-term orientation in BP’s strategy can be explained by the process of globalisation itself and the industry of the firm involved. A multinational firm dealing in a huge and vital industry as oil and energy production could simply not have survived without a tendency for long term orientation in strategy; it would have been consumed by another company by now, very much as BP and the other ‘supermajors’ consumed or merged with smaller companies in the 1990s.
Long-term competitive advantage and the necessity of achieving those economies of scale demanded it. In essence, short-term orientation in business strategy cannot endure on the scale that globalisation exists in. In conclusion, no, I do not believe it is old fashioned to consider the influence of the firm’s home country’s institutions and culture, but it must be acknowledged that globalisation itself creates its own normative values in the dimension of long term orientation.
