Quentin Bell, the owner of a small oil extraction firm, BE Oil, owns the rights to drill on six different wells. Drilling requires substantial up-front costs, and each well has different drilling costs and production capability. Bell's challenge is to decide which wells to drill based on his expectation of the price of oil when it is extracted. The case was written for use in Darden's global economies and markets (GEM) core course during a class on the economics of competitive markets. The concepts of supply, demand, and equilibrium are often obscure to students at this early stage in the course, and this case provides a concrete example of how a firm in a competitive commodity market determines how much oil to produce. Students are asked to derive the firm's supply curve, relate that to the oil market supply curve, and ultimately recommend how much oil the firm should plan to produce. The plan pushes students to think about marginal cost/ marginal benefit analysis, implicitly at first and explicitly at the end of class. Students are also asked to consider how exogenous variables in the oil market affect the oil price and the firm's decision.
Swot Analysis of "BE Oil" written by Daniel Murphy, Marc Lipson includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Oil Drill facing as an external strategic factors. Some of the topics covered in BE Oil case study are - Strategic Management Strategies, and Global Business.
Some of the macro environment factors that can be used to understand the BE Oil casestudy better are - – competitive advantages are harder to sustain because of technology dispersion, central banks are concerned over increasing inflation, there is increasing trade war between United States & China, supply chains are disrupted by pandemic , banking and financial system is disrupted by Bitcoin and other crypto currencies, wage bills are increasing, increasing transportation and logistics costs,
increasing household debt because of falling income levels, cloud computing is disrupting traditional business models, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in BE Oil case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Oil Drill, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Oil Drill 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 BE Oil can be done for the following purposes –
1. Strategic planning using facts provided in BE Oil case study
2. Improving business portfolio management of Oil Drill
3. Assessing feasibility of the new initiative in Global Business field.
4. Making a Global Business topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Oil Drill
Strengths BE Oil | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Oil Drill in BE Oil Harvard Business Review case study are -
Superior customer experience
– The customer experience strategy of Oil Drill in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Highly skilled collaborators
– Oil Drill 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 BE Oil HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Operational resilience
– The operational resilience strategy in the BE Oil 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.
Learning organization
- Oil Drill 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 Oil Drill is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in BE Oil Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Ability to recruit top talent
– Oil Drill is one of the leading recruiters in the industry. Managers in the BE Oil are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Successful track record of launching new products
– Oil Drill has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Oil Drill 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.
Diverse revenue streams
– Oil Drill is present in almost all the verticals within the industry. This has provided firm in BE Oil 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 Oil Drill 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.
Sustainable margins compare to other players in Global Business industry
– BE Oil firm has clearly differentiated products in the market place. This has enabled Oil Drill to fetch slight price premium compare to the competitors in the Global Business industry. The sustainable margins have also helped Oil Drill to invest into research and development (R&D) and innovation.
Digital Transformation in Global Business segment
- digital transformation varies from industry to industry. For Oil Drill digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Oil Drill 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 Global Business field
– Oil Drill 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 Oil Drill in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Low bargaining power of suppliers
– Suppliers of Oil Drill in the sector have low bargaining power. BE Oil has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Oil Drill to manage not only supply disruptions but also source products at highly competitive prices.
Weaknesses BE Oil | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of BE Oil are -
No frontier risks strategy
– After analyzing the HBR case study BE Oil, it seems that company is thinking about the frontier risks that can impact Global Business 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 BE Oil 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 Oil Drill has relatively successful track record of launching new products.
Slow to strategic competitive environment developments
– As BE Oil HBR case study mentions - Oil Drill 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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study BE Oil, is just above the industry average. Oil Drill 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.
Need for greater diversity
– Oil Drill 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.
Workers concerns about automation
– As automation is fast increasing in the segment, Oil Drill 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.
High bargaining power of channel partners
– Because of the regulatory requirements, Daniel Murphy, Marc Lipson suggests that, Oil Drill 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study BE Oil, in the dynamic environment Oil Drill has struggled to respond to the nimble upstart competition. Oil Drill has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study BE Oil, it seems that the employees of Oil Drill don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Increasing silos among functional specialists
– The organizational structure of Oil Drill is dominated by functional specialists. It is not different from other players in the Global Business segment. Oil Drill needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Oil Drill to focus more on services rather than just following the product oriented approach.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Oil Drill supply chain. Even after few cautionary changes mentioned in the HBR case study - BE Oil, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Oil Drill vulnerable to further global disruptions in South East Asia.
Opportunities BE Oil | 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 BE Oil are -
Manufacturing automation
– Oil Drill can use the latest technology developments to improve its manufacturing and designing process in Global Business 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Oil Drill 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, BE Oil, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Buying journey improvements
– Oil Drill can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. BE Oil 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.
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 Oil Drill in the consumer business. Now Oil Drill can target international markets with far fewer capital restrictions requirements than the existing system.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Global Business industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Oil Drill 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. Oil Drill 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.
Creating value in data economy
– The success of analytics program of Oil Drill has opened avenues for new revenue streams for the organization in the industry. This can help Oil Drill to build a more holistic ecosystem as suggested in the BE Oil case study. Oil Drill can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
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. Oil Drill can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Global Business industry, but it has also influenced the consumer preferences. Oil Drill can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Leveraging digital technologies
– Oil Drill 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Oil Drill in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Global Business segment, and it will provide faster access to the consumers.
Building a culture of innovation
– managers at Oil Drill 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 Global Business segment.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Oil Drill 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 Oil Drill to hire the very best people irrespective of their geographical location.
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 Oil Drill 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.
Threats BE Oil External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study BE Oil are -
Easy access to finance
– Easy access to finance in Global Business field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Oil Drill can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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 Oil Drill in the Global Business sector and impact the bottomline of the organization.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Oil Drill business can come under increasing regulations regarding data privacy, data security, etc.
Increasing wage structure of Oil Drill
– 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 Oil Drill.
Environmental challenges
– Oil Drill 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. Oil Drill can take advantage of this fund but it will also bring new competitors in the Global Business industry.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Oil Drill with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Regulatory challenges
– Oil Drill 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 Global Business industry regulations.
Stagnating economy with rate increase
– Oil Drill 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.
Technology acceleration in Forth Industrial Revolution
– Oil Drill has witnessed rapid integration of technology during Covid-19 in the Global Business industry. As one of the leading players in the industry, Oil Drill needs to keep up with the evolution of technology in the Global Business 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 Oil Drill 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.
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. Oil Drill needs to understand the core reasons impacting the Global Business industry. This will help it in building a better workplace.
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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study BE Oil, Oil Drill may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Global Business .
Weighted SWOT Analysis of BE Oil 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 BE Oil 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 BE Oil 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 BE Oil 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 BE Oil 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 Oil Drill needs to make to build a sustainable competitive advantage.