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 household debt because of falling income levels, banking and financial system is disrupted by Bitcoin and other crypto currencies, wage bills are increasing, competitive advantages are harder to sustain because of technology dispersion, digital marketing is dominated by two big players Facebook and Google, increasing energy prices, challanges to central banks by blockchain based private currencies,
cloud computing is disrupting traditional business models, there is backlash against globalization, 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 -
Strong track record of project management
– Petrobras Ecuador's is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
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.
Low bargaining power of suppliers
– Suppliers of Petrobras Ecuador's in the sector have low bargaining power. Petrobras in Ecuador (A) has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Petrobras Ecuador's to manage not only supply disruptions but also source products at highly competitive prices.
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.
Ability to lead change in Leadership & Managing People field
– Petrobras Ecuador's 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 Petrobras Ecuador's in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
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.
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.
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.
Effective Research and Development (R&D)
– Petrobras Ecuador's 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 Petrobras in Ecuador (A) - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
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 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.
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 -
Lack of clear differentiation of Petrobras Ecuador's products
– To increase the profitability and margins on the products, Petrobras Ecuador's needs to provide more differentiated products than what it is currently offering in the marketplace.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Petrobras in Ecuador (A), it seems that the employees of Petrobras Ecuador's 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.
Products dominated business model
– Even though Petrobras Ecuador's 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 - Petrobras in Ecuador (A) should strive to include more intangible value offerings along with its core products and services.
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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Petrobras Ecuador's is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Petrobras in Ecuador (A) can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
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 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.
Interest costs
– Compare to the competition, Petrobras Ecuador's 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.
Need for greater diversity
– Petrobras Ecuador's 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.
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.
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 -
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.
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.
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.
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.
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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Petrobras Ecuador's can use these opportunities to build new business models that can help the communities that Petrobras Ecuador's operates in. Secondly it can use opportunities from government spending in Leadership & Managing People sector.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Leadership & Managing People industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Petrobras Ecuador's 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. Petrobras Ecuador's 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.
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.
Manufacturing automation
– Petrobras Ecuador's can use the latest technology developments to improve its manufacturing and designing process in Leadership & Managing People 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.
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.
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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Petrobras Ecuador's 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, Petrobras in Ecuador (A), to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Learning at scale
– Online learning technologies has now opened space for Petrobras Ecuador's to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
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 -
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.
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.
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.
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.
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 Petrobras Ecuador's in the Leadership & Managing People sector and impact the bottomline of the organization.
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.
Easy access to finance
– Easy access to finance in Leadership & Managing People field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Petrobras Ecuador's can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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.
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.
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.
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.
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 Petrobras Ecuador's.
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. Petrobras Ecuador's 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.
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.
