Case Study Description of Petrobras in Ecuador (A)
On October 18, 2007, Ecuador's President Rafael Correa announced his intention to migrate Petrobras' existing participation contracts to exploit oil reserves in Ecuador's Blocks 18 and 31 to servicing agreements under which Petrobras would be paid a production fee and reimbursed for investment costs but all recovered oil would belong to the government. Correa also announced a dramatic increase in corporate taxes and changes to other contracts to which Petrobras was a party. All foreign oil companies operating In Ecuador would be similarly affected and any company refusing to "renegotiate" its contracts would face a 100% tax on profits. How should Petrobras respond to Ecuador's riding roughshod over its contracts? Should Petrobras take the Ecuadorian government to arbitration? Or would it be better to pursue a negotiated solution similar to that reached in Bolivia a year earlier? How should Petrobras balance its fiduciary duties to and the best Interests of its shareholders with the interests of the Brazilian government? How should it communicate with its various constituencies?
Authors :: Aldo Musacchio, Lena G. Goldberg, Ricardo Reisen de Pinho
Swot Analysis of "Petrobras in Ecuador (A)" written by Aldo Musacchio, Lena G. Goldberg, Ricardo Reisen de Pinho includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Petrobras Ecuador's facing as an external strategic factors. Some of the topics covered in Petrobras in Ecuador (A) case study are - Strategic Management Strategies, Corporate governance, International business, Negotiations, Policy and Leadership & Managing People.
Some of the macro environment factors that can be used to understand the Petrobras in Ecuador (A) casestudy better are - – increasing energy prices, technology disruption, increasing transportation and logistics costs, competitive advantages are harder to sustain because of technology dispersion, digital marketing is dominated by two big players Facebook and Google, geopolitical disruptions, wage bills are increasing,
increasing commodity prices, cloud computing is disrupting traditional business models, etc
Introduction to SWOT Analysis of Petrobras in Ecuador (A)
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Petrobras in Ecuador (A) case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Petrobras Ecuador's, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Petrobras Ecuador's 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 Petrobras in Ecuador (A) can be done for the following purposes –
1. Strategic planning using facts provided in Petrobras in Ecuador (A) case study
2. Improving business portfolio management of Petrobras Ecuador's
3. Assessing feasibility of the new initiative in Leadership & Managing People field.
4. Making a Leadership & Managing People topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Petrobras Ecuador's
Strengths Petrobras in Ecuador (A) | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Petrobras Ecuador's in Petrobras in Ecuador (A) Harvard Business Review case study are -
Sustainable margins compare to other players in Leadership & Managing People industry
– Petrobras in Ecuador (A) firm has clearly differentiated products in the market place. This has enabled Petrobras Ecuador's to fetch slight price premium compare to the competitors in the Leadership & Managing People industry. The sustainable margins have also helped Petrobras Ecuador's to invest into research and development (R&D) and innovation.
High brand equity
– Petrobras Ecuador's has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Petrobras Ecuador's to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Training and development
– Petrobras Ecuador's has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Petrobras in Ecuador (A) 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.
Highly skilled collaborators
– Petrobras Ecuador's 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 Petrobras in Ecuador (A) HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Analytics focus
– Petrobras Ecuador's is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Aldo Musacchio, Lena G. Goldberg, Ricardo Reisen de Pinho can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Ability to recruit top talent
– Petrobras Ecuador's is one of the leading recruiters in the industry. Managers in the Petrobras in Ecuador (A) are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Diverse revenue streams
– Petrobras Ecuador's is present in almost all the verticals within the industry. This has provided firm in Petrobras in Ecuador (A) 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 Petrobras Ecuador's 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.
Digital Transformation in Leadership & Managing People segment
- digital transformation varies from industry to industry. For Petrobras Ecuador's digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Petrobras Ecuador's 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.
Superior customer experience
– The customer experience strategy of Petrobras Ecuador's in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Learning organization
- Petrobras Ecuador's 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 Petrobras Ecuador's is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Petrobras in Ecuador (A) Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Organizational Resilience of Petrobras Ecuador's
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Petrobras Ecuador's does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Weaknesses Petrobras in Ecuador (A) | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Petrobras in Ecuador (A) are -
High operating costs
– Compare to the competitors, firm in the HBR case study Petrobras in Ecuador (A) 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 Petrobras Ecuador's 's lucrative customers.
Increasing silos among functional specialists
– The organizational structure of Petrobras Ecuador's is dominated by functional specialists. It is not different from other players in the Leadership & Managing People segment. Petrobras Ecuador's needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Petrobras Ecuador's to focus more on services rather than just following the product oriented approach.
Capital Spending Reduction
– Even during the low interest decade, Petrobras Ecuador's 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.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Petrobras in Ecuador (A) 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 Petrobras Ecuador's has relatively successful track record of launching new products.
High cash cycle compare to competitors
Petrobras Ecuador's has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
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 Petrobras Ecuador's supply chain. Even after few cautionary changes mentioned in the HBR case study - Petrobras in Ecuador (A), it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Petrobras Ecuador's vulnerable to further global disruptions in South East Asia.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Petrobras in Ecuador (A), in the dynamic environment Petrobras Ecuador's has struggled to respond to the nimble upstart competition. Petrobras Ecuador's has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Slow to strategic competitive environment developments
– As Petrobras in Ecuador (A) HBR case study mentions - Petrobras Ecuador's 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.
No frontier risks strategy
– After analyzing the HBR case study Petrobras in Ecuador (A), it seems that company is thinking about the frontier risks that can impact Leadership & Managing People 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.
Aligning sales with marketing
– It come across in the case study Petrobras in Ecuador (A) 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 Petrobras in Ecuador (A) can leverage the sales team experience to cultivate customer relationships as Petrobras Ecuador's is planning to shift buying processes online.
High bargaining power of channel partners
– Because of the regulatory requirements, Aldo Musacchio, Lena G. Goldberg, Ricardo Reisen de Pinho suggests that, Petrobras Ecuador's 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.
Opportunities Petrobras in Ecuador (A) | 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 Petrobras in Ecuador (A) are -
Lowering marketing communication costs
– 5G expansion will open new opportunities for Petrobras Ecuador's in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Leadership & Managing People segment, and it will provide faster access to the consumers.
Developing new processes and practices
– Petrobras Ecuador's can develop new processes and procedures in Leadership & Managing People 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.
Leveraging digital technologies
– Petrobras Ecuador's 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.
Better consumer reach
– The expansion of the 5G network will help Petrobras Ecuador's to increase its market reach. Petrobras Ecuador's 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.
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. Petrobras Ecuador's can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Petrobras Ecuador's is facing challenges because of the dominance of functional experts in the organization. Petrobras in Ecuador (A) 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.
Loyalty marketing
– Petrobras Ecuador's 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.
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 Petrobras Ecuador's 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.
Buying journey improvements
– Petrobras Ecuador's can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Petrobras in Ecuador (A) 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.
Using analytics as competitive advantage
– Petrobras Ecuador's 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 Petrobras in Ecuador (A) - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Petrobras Ecuador's to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Petrobras Ecuador's 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 Petrobras Ecuador's to hire the very best people irrespective of their geographical location.
Low interest rates
– Even though inflation is raising its head in most developed economies, Petrobras Ecuador's 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.
Building a culture of innovation
– managers at Petrobras Ecuador's 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 Leadership & Managing People segment.
Threats Petrobras in Ecuador (A) External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Petrobras in Ecuador (A) are -
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 Petrobras Ecuador's business can come under increasing regulations regarding data privacy, data security, etc.
Shortening product life cycle
– it is one of the major threat that Petrobras Ecuador's is facing in Leadership & Managing People sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Environmental challenges
– Petrobras Ecuador's 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. Petrobras Ecuador's can take advantage of this fund but it will also bring new competitors in the Leadership & Managing People industry.
Stagnating economy with rate increase
– Petrobras Ecuador's 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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Petrobras Ecuador's in the Leadership & Managing People industry. The Leadership & Managing People 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.
Consumer confidence and its impact on Petrobras Ecuador's 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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Petrobras Ecuador's with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Regulatory challenges
– Petrobras Ecuador's 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 Leadership & Managing People industry regulations.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Petrobras in Ecuador (A), Petrobras Ecuador's may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Leadership & Managing People .
High dependence on third party suppliers
– Petrobras Ecuador's high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
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. Petrobras Ecuador's needs to understand the core reasons impacting the Leadership & Managing People industry. This will help it in building a better workplace.
Increasing wage structure of Petrobras Ecuador's
– 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 Petrobras Ecuador's.
Technology acceleration in Forth Industrial Revolution
– Petrobras Ecuador's has witnessed rapid integration of technology during Covid-19 in the Leadership & Managing People industry. As one of the leading players in the industry, Petrobras Ecuador's needs to keep up with the evolution of technology in the Leadership & Managing People 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.
Weighted SWOT Analysis of Petrobras in Ecuador (A) 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 Petrobras in Ecuador (A) 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 Petrobras in Ecuador (A) 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 Petrobras in Ecuador (A) 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 Petrobras in Ecuador (A) 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 Petrobras Ecuador's needs to make to build a sustainable competitive advantage.