Anda di halaman 1dari 13

STRATEGIC PLANNING & THE BUSINESS ENVIRONMENT PRESENTED BY

ADAMS ERHUVWU

TABLE OF CONTENTS INTRODUCTION QUESTION 1 WHY SHELLS ACQUISITION OF BILLITON IS A RELATED DIVERSIFICATION QUESTION 2 COMPARING
AND

PAGES 3 4
4

5 CONTRASTING
THE

APPROACHES

OF

SHELL

AND

GENCOR

TO THE POST-

MERGER INTEGRATION OF BILLITON INTO THEIR RESPECTIVE ORGANISATIONS

QUESTION 3 COMPARING SHELLS PARENTING ADVANTAGE FOR BILLITON TO GENCORS QUESTION 4 EXPLAINING THE DIFFERENCES IN SUCCESS OF THE TWO MERGERS QUESTION 5 REASONS WHY BHP WILL BE A BETTER PARENT CONCLUSION REFERENCES

7
7

8
8

9
9

10 12

Adams Erhuvwu

Page 2

INTRODUCTION
The report is set to examine the mergers and acquisition that existed between Shell, Gencor and BHP on Billiton; the companys quest to be world class in terms of its mining and metallurgy will be critically ascertained. This will start by examining whether Shells acquisition of Billiton is related diversification and why it can be said to be a related type of diversification. At the same time the approaches of Shell and Gencor to the post-merger integration of Billiton into their respective organisations will be compared and contrasted in order to determine the best approaches from the two methods. On the other hand Shells parenting advantage for Billiton will be compared to that of Gencors, in order to determine the best company with the parenting advantage when compared to another organisation. The report will also examine the differences in success of the mergers of Shells and Gencor in order to be able to determine the companys that recorded the highest level of success when compared to another and the factors that led to their successes. Finally, the report will also examine the merger between BHP and Billiton by comparing its merger with that of its predecessors which includes Shell and Gencor. At the same time the ability of the BHPBilliton to be both responsive and its ability to realize significant synergies together with the ability of BHP to be a better parent will be critically examined.

Adams Erhuvwu

Page 3

QUESTION 1
Why Shells Acquisition of Billiton is a Related Diversification The acquisition of Billiton by Shell Company when put into Ansoff Matrix approach which includes product development, market development, market penetration and diversification; it can be said that the acquisition of Billiton by Shell is a type of related diversification. This is because the parent company which is Shell plc is into mining and oil exploration, so the acquisition of Billiton which was a Dutch firm active in mining, metallurgy and non-ferrous metals on a world-wide basis can be seen as a related type of diversification. The term related diversification on the other hand simply means the ability of a firm to go into partnership or business with a firm that is within its sector. It is important to note that one of the reasons for Shells diversification is for them to be able to manage its risk within the organisation and at the same time with the believe that diversification would guarantee long-term sustainable growth. As a result of this the metal sector under Billiton Company was regarded as a potentially enduring and stable source of income. The main reason why Shells Acquisition of Billiton is a related diversification are stated below and they include the following: The both industries which include Shell and Billiton employ geographical and geophysical methods; and at the same time processes the raw materials to products before they are ready to use. Both industries require high capital investments and at the same time require excellent relations with the governments of host countries and diplomacy skills. It is also important to note that the marketing and the sale of both industries often focus on the same clients; metal on its own is like oil, gas and chemical products which are used as raw materials for a wide range of companies and industries. The metal industry such as Billiton explores, exploits,
Adams Erhuvwu Page 4

processes, recycles, and sells non-ferrous metals, industry minerals, and related products, which are exactly the same activities Shell employs in oil, gas and chemicals. Finally, it is also important to note that Shells strives for more intensive use of its geological know-how, drilling, and technological knowledge, in field other than oil and gas.

QUESTION 2
Comparing and Contrasting the Approaches of Shell and Gencor to the post-merger integration of Billiton into their respective organisations The approaches of Shell and Gencor to the post-merger integration of Billiton into their irrespective organisations differ from one another. This is because in terms of Shell integration of Billiton into their organisation; the industry employed the use of its method which include its upstream and downstream activities. In terms of Shell the upstream and downstream oil activities within its organisation has proved to be a successful approach; and as a result of this made Shell to introduce the same approach of upstream activities which includes exploration and exploitation whereas the downstream activities includes processing, refining, transport, marketing and sales at Billiton which recorded a less success when compared to its success in the parent company. At the same time it is also important to note that Shell Company also went ahead to introduce the use of job rotation at Billiton which also proved to be unsuccessful. This was because of the fact that in the metal business it takes a long time before someone really feels settled in a particular branch, and so job rotation is an exception. Another approach introduced by Shell included the expansion of existing sectors, the development of an extensive world-wide exploration program to find ores and develop mines, and participation in many joint ventures. In the field of research new ideas were developed on ore processing and production of metals.
Adams Erhuvwu Page 5

As a way of introducing the metal company to the international market, Shell industry went into a lot of acquisitions and was able o cover the whole spectrum of non-ferrous metals. And at the same time it is also important to note that more money was invested in research and development of the firm, exploration, and promising new projects even while the metal industry was in a deep crisis with the hop of future growth. On the part of Gencor integration of Billiton into their organisation; the industry which specializes in mining activities unlike Shell Company allowed Billiton to operate with its own strategy. This allowed the company to come up with the best strategy that works well for the mining and metal industries. As a way of achieving this Gencor decided to focus on mining activities and unbundled its major industrial assets by distributing shares to its shareholders. The industry also allowed the Billiton metal company to achieve its aim of becoming a major mining group instead of a hug conglomerate. Gencor also introduced the use of merger and acquisition as a way of growth of growth for the company; which included the merging of Trans-Natal Coal with Rand Mines together with the 50-50 ownership of the RTZ of the UK and the discarding of any mineral assets that did not meet the companys definition of world-class. In this post merger of Gencor and Billiton managers for the first time are given more opportunities and powers to take more risks and at the same time to be more responsive to market opportunities when compared to Shells approach. Another approach used by Gencor industry in order to address the difficulties that a South African Company faces when it wishes to finance major international acquisitions was to relocate the base metals business to a market with less strict exchange controls. This was achieved by demerging the larger base metals business from the precious metals which includes gold and platinum operations and lists the base metals business on a stock exchange outside South Africa.
Adams Erhuvwu Page 6

QUESTION 3
Comparing Shells Parenting Advantage for Billiton to Gencors It is important to note that Shells parenting advantage for Billiton includes its financial strength, brand name and technological capabilities which will help to consolidate Billitons position and at the same time be able to strengthen its economies of scale. One of the main reasons behind Billitons decision to work with Shell is based on the realization that its intended further growth would require major financial resources and upgraded technological capabilities. It can also be said that Shells parenting advantage for Billiton is as a result of increasing scale economies in the metal industry, the political risks and the consequences of a mining project failure were getting too big to be carried by a firm of Billitons size. Another Shells parenting advantage for Billiton was its guaranteed independence and a key position within the group. This was based on the agreement that Billiton would become the core firm for all mining and processing of ores and non-ferrous metals and for the fact that Billiton would remain a separate division within the Royal Dutch/ Shell Group and was promised involvement in all important decisions. In addition, it is also important to note that Shell Company has the financial capability to finance any project and at the same time projects a stronger competitive position within the Big Six multinationals in aluminum. The Company also offers a stronger basis for research and development expenses, positive effects of mutual activities, increased political strength, especially important in developing economies, and entrance to Shells world-wide contacts in business and finance. On the part of Gencor, its parenting advantage for Billiton includes its technological capabilities and knowhow which will help to consolidate Billiton position in the international market. One of the important parenting advantages of Gencor for Billiton was the fact that the
Adams Erhuvwu Page 7

way of thinking between the two companies possibly corresponds better than that of Shell whose dominant direction was focused on oil and gas. Gencor also have a good management capability when compared to Shells management capability. The good management capability exhibited by Gencor on Billiton brought about a more focused and determined managers who are determined to take more risks by trying new ways of doing things within the organisation.

QUESTION 4
Explaining the differences in success of the two mergers The merger of Shell with Billiton and that of Gencor witnessed a lot of differences in terms of the successes recorded by the two organisations. In terms of Shell the new metal division was expected to grow until it counted for at least 10% of shells turnover but the new business was only able to account for only 2% of shells turnover throughout the merger period. On the part of shell the merger between the two companies allowed them to enter the metal industry quickly; it also helped the organisation to become an important producer of a variety of nonferrous metals, particularly tin. The vertical integrated structure of Billiton was big to Shell. In one swoop Shell bought competencies in exploration, processing, marketing, sales, and research of ore and metals. The merger also led to the expansion of the aluminum market which made Billiton one of the top six aluminum companies in the world. On the part of Gencor, its merger with Billiton recorded a lot of successes which includes helping the Gencor Company to record a 62.7% increase in attributable income for the year; and Billitons maiden contribution to income from operations represented 43% of the total. At the same time it is also important to note that the merger between Gencor and Billiton benefited from the sharp rise in the aluminum price, which increased by more than a 100%
Adams Erhuvwu Page 8

from its low US$1,109 to a high of US$ 2,147. The merger also contributed to the popularity of Gencor Company and its sudden emergence in the international market which led to its listing in the London stock exchange market.

QUESTION 5
Reasons why BHP will be a better parent It is important to note that the deal between Billiton and BHP will be a sensational fit and will be able to realize significant synergies because of the fact that Broken Hill Proprietary Company (BHP) is a mining, metals and oil conglomerate with its headquarters in Australia. On the other hand Billiton is a Dutch firm active in mining, metallurgy and non-ferrous metals on a world-wide basis. Looking at the two companies it can be said that the two companies operates under the same sector with huge interests in mining and metals unlike Shell that has its huge interest in oil and mining. BHP will be a better parent to Billiton because they have the same interest which includes mining and metals and at the same time will be able to help the organisation to gain more international recognition. At the same time it is also important to note that the both companies will enjoy a positive synergy because of the fact that Billiton will give BHP a better understanding of business in Africa, a broader portfolio to ride out cyclical movements in the commodities markets and advantages of scale shipping, marketing and purchasing. On the other hand BHP will give Billiton a better understanding of businesses in its European and western markets. In return, Billiton would have access to cheaper financing for new projects and existing debt, greater liquidity and better protection from political risks. Billitons merger with BHP also removes the UK groups high exposure to African-based operations and a reliance on aluminum as a major earnings driver. It is also important to note that the quality, size and
Adams Erhuvwu Page 9

diversity of the BHPBilliton will provide more options for responding to the present business environment. Finally; it is also important to note that BHP financial strength and technological capabilities together with its guaranteed independence makes the organisation a better parent when compared to Shell and Gencor. CONCLUSION Having examined the merger/ acquisition that existed between Shell, Gencor and BHP on Billiton; it can be said that Shells strategy proved to be unsuccessful because of the introduction of the upstream and downstream activities into the metal business. At the same time their frequent interference in the business activities of the company and their lack of management capability to control the activities of the organisation makes it difficult in the running of the organisation. At the same time it is also important to note that Shells merger with Billiton is a form of related diversification but at the same time differs on the core competencies of the two organisations. This is because of the fact that Shell Company is more focused on oil mining whereas Billiton company is more focused mining and metallurgy, the differences that existed in the companys interest brought about confusion and the inability of the merger to work out between the two companies. On the part of the Gencor, the merger between the two companies on a large extent proved successful but at the same time witnessed a lot of setbacks in the rate of its growth; but when compared to the merger of the former. There is the existence of a slight progress due to the fact that the two organisations has interest in mining and at the same time has the managerial capability on the part of it managers to take risks and try new things which was made possible by the independence granted to it managers within the organisation. Finally the BHP merger with Billiton promises to be both responsive and able to realize significant synergies a better understanding of business in Africa, a broader portfolio to ride out cyclical movements
Adams Erhuvwu Page 10

in the commodities markets and advantages of scale shipping, marketing and purchasing. On the other hand BHP will give Billiton a better understanding of businesses in its European and western markets. In return, Billiton would have access to cheaper financing for new projects and existing debt, greater liquidity and better protection from political risks. Billitons merger with BHP also removes the UK groups high exposure to African-based operations and a reliance on aluminum as a major earnings driver. It is also important to note that the quality, size and diversity of the BHPBilliton will provide more options for responding to the present business environment. Finally; it is also important to note that BHP financial strength and technological capabilities together with its guaranteed independence makes the organisation a better parent when compared to Shell and Gencor.

Adams Erhuvwu

Page 11

REFERENCES
Atkinson P.E (1990), 'Creating Cultural Change' Management services, Vol. 34, no 7 Ansoff (1957), Strategies for diversification, Harvard Business Review, Vol.35 Issue 5, pp 113 -124 Armstrong and Kotler (2006), Marketing, Published by Prentice Hall. London Brassington F and Pettitt S Principles of Marketing, Third Edition (FT Prentice Hall, 2002) ISBN: 0273657917

B. Nuseibeh and S. Easterbrook (2000), a roadmap, proceeding of international conference on Software Engineering (ICSE 2000)

Chaston I E- Marketing Strategy (McGraw- Hill, 2000) ISBN: 007709753X Doyle P Marketing Management and Strategy (FT Prentice Hall, 2001) ISBN: 027365501 Deal T.E and Kennedy A.A (2000), 'The New Corporate Cultures' Perseus Books Drucker (1954), Management by objectives, 2nd Edition, Prentice Hall Finlay, (2000), Strategic Management; an introduction to business and corporate strategy Trompenaars and Hampden-Turner, 1997, Pearson Education

Harrison, R. and Stokes, H (1992), 'Diagnosing Organizational Culture' Pfeiffer and Company

H. Mintzberg and Bryson et al (1990), the rise and fall of strategic planning, Basic Books

Johnson and Scholes, K. (1999), Exploring Corporate Strategy: Text and cases, Prentice Hall; Financial Times.

Johnson and Scholes (1999), Exploring corporate strategy, 5 th Ed, Prentice


Page 12

Adams Erhuvwu

Kotler P, Armstrong G, Saunders J (1999). Principle of marketing, 2 nd European ED, Prentice hall

Michael Johnson et al, (2005), 'Exploring Corporate Strategy' Seventh edition, Financial Times Prentice Hall

McDonald M Marketing Plans: How to Prepare Them, How to Use Them, Fifth Edition (Butterworth- Heinemann, 2002) ISBN: 0750656255

Porter M.E (1985), Competitive Advantage: Creating Advantage and Sustaining Superior Performance, Free Press Porter (1985), Competitive strategy, Free Press, New York, 1980 Sanders M (1997), Strategic Purchasing and Supply Chain Management, 2 nd Ed, Pitman London

Taylor and Francis (2004), Third World Quarterly, Routledge, London

Adams Erhuvwu

Page 13