The Absheron Project: BP's Production Sharing Agreement in Azerbaijan SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Finance & Accounting
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of The Absheron Project: BP's Production Sharing Agreement in Azerbaijan
This case is used in a Darden second-year elective in corporate finance, "Corporate Financial Policies." It asks students to analyze the cash flows estimated for a production sharing agreement (PSA) between BP and the Azerbaijan government targeted for signing by year-end 2014. The primary relationship is a joint venture (JV) between BP and the State Oil Company of the Azerbaijan Republic (SOCAR). The JV is entitled to recover operating costs and capital costs from the proceeds of sales of the early production of the project and share profits earned from production, called the profit petroleum (PP), with Azerbaijan after the cost recoveries. Students are provided a detailed cash flow model for the project and for BP's equity investment and are asked to explain how the value estimates correlate with the risks assumed by the respective parties. This case is appropriate for students who have studied the principles of discounted cash flow and cost of capital. It is best positioned as part of a first-year MBA finance course as the last case in a module related to cash flow analysis. The case can also be taught in an MBA elective containing advanced corporate finance topics. It would be of special interest to students planning for a career related to energy, banking, or consulting, and also relevant for students interested in international business.
Authors :: Kenneth Eades, Sam Weitkemper, Emily Rees Kasradze
Swot Analysis of "The Absheron Project: BP's Production Sharing Agreement in Azerbaijan" written by Kenneth Eades, Sam Weitkemper, Emily Rees Kasradze includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Azerbaijan Cash facing as an external strategic factors. Some of the topics covered in The Absheron Project: BP's Production Sharing Agreement in Azerbaijan case study are - Strategic Management Strategies, Financial management, Joint ventures and Finance & Accounting.
Some of the macro environment factors that can be used to understand the The Absheron Project: BP's Production Sharing Agreement in Azerbaijan casestudy better are - – increasing transportation and logistics costs, cloud computing is disrupting traditional business models, increasing household debt because of falling income levels, increasing inequality as vast percentage of new income is going to the top 1%, increasing commodity prices, digital marketing is dominated by two big players Facebook and Google, talent flight as more people leaving formal jobs,
banking and financial system is disrupted by Bitcoin and other crypto currencies, challanges to central banks by blockchain based private currencies, etc
Introduction to SWOT Analysis of The Absheron Project: BP's Production Sharing Agreement in Azerbaijan
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in The Absheron Project: BP's Production Sharing Agreement in Azerbaijan case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Azerbaijan Cash, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Azerbaijan Cash 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 The Absheron Project: BP's Production Sharing Agreement in Azerbaijan can be done for the following purposes –
1. Strategic planning using facts provided in The Absheron Project: BP's Production Sharing Agreement in Azerbaijan case study
2. Improving business portfolio management of Azerbaijan Cash
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Azerbaijan Cash
Strengths The Absheron Project: BP's Production Sharing Agreement in Azerbaijan | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Azerbaijan Cash in The Absheron Project: BP's Production Sharing Agreement in Azerbaijan Harvard Business Review case study are -
Low bargaining power of suppliers
– Suppliers of Azerbaijan Cash in the sector have low bargaining power. The Absheron Project: BP's Production Sharing Agreement in Azerbaijan has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Azerbaijan Cash to manage not only supply disruptions but also source products at highly competitive prices.
Cross disciplinary teams
– Horizontal connected teams at the Azerbaijan Cash 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.
Highly skilled collaborators
– Azerbaijan Cash 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 The Absheron Project: BP's Production Sharing Agreement in Azerbaijan HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Ability to recruit top talent
– Azerbaijan Cash is one of the leading recruiters in the industry. Managers in the The Absheron Project: BP's Production Sharing Agreement in Azerbaijan are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Training and development
– Azerbaijan Cash has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in The Absheron Project: BP's Production Sharing Agreement in Azerbaijan 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.
Diverse revenue streams
– Azerbaijan Cash is present in almost all the verticals within the industry. This has provided firm in The Absheron Project: BP's Production Sharing Agreement in Azerbaijan case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
High switching costs
– The high switching costs that Azerbaijan Cash 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.
Strong track record of project management
– Azerbaijan Cash is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Organizational Resilience of Azerbaijan Cash
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Azerbaijan Cash does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Effective Research and Development (R&D)
– Azerbaijan Cash 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 The Absheron Project: BP's Production Sharing Agreement in Azerbaijan - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Learning organization
- Azerbaijan Cash is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Azerbaijan Cash is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in The Absheron Project: BP's Production Sharing Agreement in Azerbaijan Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Sustainable margins compare to other players in Finance & Accounting industry
– The Absheron Project: BP's Production Sharing Agreement in Azerbaijan firm has clearly differentiated products in the market place. This has enabled Azerbaijan Cash to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Azerbaijan Cash to invest into research and development (R&D) and innovation.
Weaknesses The Absheron Project: BP's Production Sharing Agreement in Azerbaijan | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of The Absheron Project: BP's Production Sharing Agreement in Azerbaijan are -
High operating costs
– Compare to the competitors, firm in the HBR case study The Absheron Project: BP's Production Sharing Agreement in Azerbaijan 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 Azerbaijan Cash 's lucrative customers.
Slow to strategic competitive environment developments
– As The Absheron Project: BP's Production Sharing Agreement in Azerbaijan HBR case study mentions - Azerbaijan Cash takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Slow decision making process
– As mentioned earlier in the report, Azerbaijan Cash has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Azerbaijan Cash even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Azerbaijan Cash is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study The Absheron Project: BP's Production Sharing Agreement in Azerbaijan can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Skills based hiring
– The stress on hiring functional specialists at Azerbaijan Cash 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.
Need for greater diversity
– Azerbaijan Cash 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.
Aligning sales with marketing
– It come across in the case study The Absheron Project: BP's Production Sharing Agreement in Azerbaijan 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 The Absheron Project: BP's Production Sharing Agreement in Azerbaijan can leverage the sales team experience to cultivate customer relationships as Azerbaijan Cash is planning to shift buying processes online.
No frontier risks strategy
– After analyzing the HBR case study The Absheron Project: BP's Production Sharing Agreement in Azerbaijan, it seems that company is thinking about the frontier risks that can impact Finance & Accounting strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the The Absheron Project: BP's Production Sharing Agreement in Azerbaijan HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Azerbaijan Cash has relatively successful track record of launching new products.
Workers concerns about automation
– As automation is fast increasing in the segment, Azerbaijan Cash needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study The Absheron Project: BP's Production Sharing Agreement in Azerbaijan, in the dynamic environment Azerbaijan Cash has struggled to respond to the nimble upstart competition. Azerbaijan Cash has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Opportunities The Absheron Project: BP's Production Sharing Agreement in Azerbaijan | 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 The Absheron Project: BP's Production Sharing Agreement in Azerbaijan are -
Building a culture of innovation
– managers at Azerbaijan Cash 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 Finance & Accounting segment.
Leveraging digital technologies
– Azerbaijan Cash 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.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Azerbaijan Cash in the consumer business. Now Azerbaijan Cash can target international markets with far fewer capital restrictions requirements than the existing system.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Azerbaijan Cash can use these opportunities to build new business models that can help the communities that Azerbaijan Cash operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Azerbaijan Cash is facing challenges because of the dominance of functional experts in the organization. The Absheron Project: BP's Production Sharing Agreement in Azerbaijan case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Azerbaijan Cash 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. Azerbaijan Cash 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.
Manufacturing automation
– Azerbaijan Cash can use the latest technology developments to improve its manufacturing and designing process in Finance & Accounting segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Buying journey improvements
– Azerbaijan Cash can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. The Absheron Project: BP's Production Sharing Agreement in Azerbaijan suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Low interest rates
– Even though inflation is raising its head in most developed economies, Azerbaijan Cash 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.
Loyalty marketing
– Azerbaijan Cash has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Azerbaijan Cash 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, The Absheron Project: BP's Production Sharing Agreement in Azerbaijan, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Azerbaijan Cash can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Azerbaijan Cash 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 Azerbaijan Cash to hire the very best people irrespective of their geographical location.
Threats The Absheron Project: BP's Production Sharing Agreement in Azerbaijan External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study The Absheron Project: BP's Production Sharing Agreement in Azerbaijan are -
Increasing wage structure of Azerbaijan Cash
– 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 Azerbaijan Cash.
Technology acceleration in Forth Industrial Revolution
– Azerbaijan Cash has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Azerbaijan Cash needs to keep up with the evolution of technology in the Finance & Accounting 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.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Azerbaijan Cash will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Consumer confidence and its impact on Azerbaijan Cash 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.
Stagnating economy with rate increase
– Azerbaijan Cash can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Regulatory challenges
– Azerbaijan Cash 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 Finance & Accounting industry regulations.
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. Azerbaijan Cash needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Azerbaijan Cash in the Finance & Accounting industry. The Finance & Accounting 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.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Azerbaijan Cash can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study The Absheron Project: BP's Production Sharing Agreement in Azerbaijan, Azerbaijan Cash may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Environmental challenges
– Azerbaijan Cash 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. Azerbaijan Cash can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Weighted SWOT Analysis of The Absheron Project: BP's Production Sharing Agreement in Azerbaijan 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 The Absheron Project: BP's Production Sharing Agreement in Azerbaijan 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 The Absheron Project: BP's Production Sharing Agreement in Azerbaijan 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 The Absheron Project: BP's Production Sharing Agreement in Azerbaijan 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 The Absheron Project: BP's Production Sharing Agreement in Azerbaijan 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 Azerbaijan Cash needs to make to build a sustainable competitive advantage.
