Case Study Description of Sinopec: Refining its Strategy
China's oil industry, with majority ownership vested in the government, had engaged in an "equity oil" strategy for the past few years--acquiring equity interests in oil producing nations including Sudan, Angola, and Iran. Outside critics, however, suggested that the Chinese companies could buy oil in the highly fungible global marketplace. But Sinopec, the nations largest refiner, was one of the three companies (together with PetroChina and CNOOC) engaged in the equity oil play. With China's energy demands swelling--especially petroleum of which it had limited reserves--Sinopec was struggling to increase output rapidly enough to keep pace with the rapid growth of their automobile sector. And it had to make money soon.
Swot Analysis of "Sinopec: Refining its Strategy" written by Richard H.K. Vietor, Julia Galef includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Sinopec Oil facing as an external strategic factors. Some of the topics covered in Sinopec: Refining its Strategy case study are - Strategic Management Strategies, Policy and Strategy & Execution.
Some of the macro environment factors that can be used to understand the Sinopec: Refining its Strategy casestudy better are - – customer relationship management is fast transforming because of increasing concerns over data privacy, challanges to central banks by blockchain based private currencies, supply chains are disrupted by pandemic , increasing commodity prices, there is backlash against globalization, digital marketing is dominated by two big players Facebook and Google, banking and financial system is disrupted by Bitcoin and other crypto currencies,
competitive advantages are harder to sustain because of technology dispersion, talent flight as more people leaving formal jobs, etc
Introduction to SWOT Analysis of Sinopec: Refining its Strategy
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Sinopec: Refining its Strategy case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Sinopec Oil, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Sinopec Oil operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Sinopec: Refining its Strategy can be done for the following purposes –
1. Strategic planning using facts provided in Sinopec: Refining its Strategy case study
2. Improving business portfolio management of Sinopec Oil
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Sinopec Oil
Strengths Sinopec: Refining its Strategy | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Sinopec Oil in Sinopec: Refining its Strategy Harvard Business Review case study are -
Highly skilled collaborators
– Sinopec Oil has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Sinopec: Refining its Strategy HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Effective Research and Development (R&D)
– Sinopec Oil has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Sinopec: Refining its Strategy - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Strong track record of project management
– Sinopec Oil is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Ability to recruit top talent
– Sinopec Oil is one of the leading recruiters in the industry. Managers in the Sinopec: Refining its Strategy are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Digital Transformation in Strategy & Execution segment
- digital transformation varies from industry to industry. For Sinopec Oil digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Sinopec Oil has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Ability to lead change in Strategy & Execution field
– Sinopec Oil is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Sinopec Oil in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Training and development
– Sinopec Oil has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Sinopec: Refining its Strategy Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
High switching costs
– The high switching costs that Sinopec Oil has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Cross disciplinary teams
– Horizontal connected teams at the Sinopec Oil are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
High brand equity
– Sinopec Oil has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Sinopec Oil to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Successful track record of launching new products
– Sinopec Oil has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Sinopec Oil has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Operational resilience
– The operational resilience strategy in the Sinopec: Refining its Strategy Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Weaknesses Sinopec: Refining its Strategy | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Sinopec: Refining its Strategy are -
Lack of clear differentiation of Sinopec Oil products
– To increase the profitability and margins on the products, Sinopec Oil needs to provide more differentiated products than what it is currently offering in the marketplace.
Capital Spending Reduction
– Even during the low interest decade, Sinopec Oil has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Interest costs
– Compare to the competition, Sinopec Oil has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
High bargaining power of channel partners
– Because of the regulatory requirements, Richard H.K. Vietor, Julia Galef suggests that, Sinopec Oil is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Products dominated business model
– Even though Sinopec Oil has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Sinopec: Refining its Strategy should strive to include more intangible value offerings along with its core products and services.
High operating costs
– Compare to the competitors, firm in the HBR case study Sinopec: Refining its Strategy has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Sinopec Oil 's lucrative customers.
Need for greater diversity
– Sinopec Oil has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Sinopec: Refining its Strategy, is just above the industry average. Sinopec Oil needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Aligning sales with marketing
– It come across in the case study Sinopec: Refining its Strategy that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Sinopec: Refining its Strategy can leverage the sales team experience to cultivate customer relationships as Sinopec Oil is planning to shift buying processes online.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Sinopec: Refining its Strategy, in the dynamic environment Sinopec Oil has struggled to respond to the nimble upstart competition. Sinopec Oil has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Skills based hiring
– The stress on hiring functional specialists at Sinopec Oil has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Opportunities Sinopec: Refining its Strategy | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Sinopec: Refining its Strategy are -
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Sinopec Oil can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Building a culture of innovation
– managers at Sinopec Oil can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Strategy & Execution segment.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Sinopec Oil to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Sinopec Oil to hire the very best people irrespective of their geographical location.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Sinopec Oil in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Strategy & Execution segment, and it will provide faster access to the consumers.
Developing new processes and practices
– Sinopec Oil can develop new processes and procedures in Strategy & Execution industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Sinopec Oil can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Sinopec: Refining its Strategy, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Strategy & Execution industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Sinopec Oil can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Sinopec Oil can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Leveraging digital technologies
– Sinopec Oil can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Sinopec Oil to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Low interest rates
– Even though inflation is raising its head in most developed economies, Sinopec Oil can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Using analytics as competitive advantage
– Sinopec Oil has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Sinopec: Refining its Strategy - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Sinopec Oil to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Sinopec Oil can use these opportunities to build new business models that can help the communities that Sinopec Oil operates in. Secondly it can use opportunities from government spending in Strategy & Execution sector.
Better consumer reach
– The expansion of the 5G network will help Sinopec Oil to increase its market reach. Sinopec Oil will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Threats Sinopec: Refining its Strategy External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Sinopec: Refining its Strategy are -
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Sinopec Oil needs to understand the core reasons impacting the Strategy & Execution industry. This will help it in building a better workplace.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Sinopec Oil in the Strategy & Execution industry. The Strategy & Execution industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Shortening product life cycle
– it is one of the major threat that Sinopec Oil is facing in Strategy & Execution sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Environmental challenges
– Sinopec Oil needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Sinopec Oil can take advantage of this fund but it will also bring new competitors in the Strategy & Execution industry.
Easy access to finance
– Easy access to finance in Strategy & Execution field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Sinopec Oil can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Sinopec Oil in the Strategy & Execution sector and impact the bottomline of the organization.
Technology acceleration in Forth Industrial Revolution
– Sinopec Oil has witnessed rapid integration of technology during Covid-19 in the Strategy & Execution industry. As one of the leading players in the industry, Sinopec Oil needs to keep up with the evolution of technology in the Strategy & Execution sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Consumer confidence and its impact on Sinopec Oil demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Regulatory challenges
– Sinopec Oil needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Strategy & Execution industry regulations.
Increasing wage structure of Sinopec Oil
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Sinopec Oil.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Sinopec Oil with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Sinopec Oil.
Weighted SWOT Analysis of Sinopec: Refining its Strategy Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Sinopec: Refining its Strategy needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Sinopec: Refining its Strategy is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Sinopec: Refining its Strategy is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Sinopec: Refining its Strategy is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Sinopec Oil needs to make to build a sustainable competitive advantage.
