Case Study Description of Lyondell Petrochemical Co.
In August 1994, Lyondell Petrochemical Co.'s corporate parent and largest single shareholder effectively shed its stock, resulting in the resignation of 5 of its 11 directors. The remaining outside directors immediately acted to overhaul the executive compensation plan used to pay the CEO and other top officers. This case examines the role played by the compensation committee of the board of directors in this initiative. Also addresses several important aspects of the compensation process, including the role played by outside consultants, appropriate ways of measuring performance, and the motivational impact of pay plans on management.
Swot Analysis of "Lyondell Petrochemical Co." written by Jay W. Lorsch, Daniel P. Erikson includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Lyondell Petrochemical facing as an external strategic factors. Some of the topics covered in Lyondell Petrochemical Co. case study are - Strategic Management Strategies, Executive compensation, Motivating people and Leadership & Managing People.
Some of the macro environment factors that can be used to understand the Lyondell Petrochemical Co. casestudy better are - – supply chains are disrupted by pandemic , increasing inequality as vast percentage of new income is going to the top 1%, challanges to central banks by blockchain based private currencies, talent flight as more people leaving formal jobs, customer relationship management is fast transforming because of increasing concerns over data privacy, there is increasing trade war between United States & China, there is backlash against globalization,
increasing energy prices, geopolitical disruptions, etc
Introduction to SWOT Analysis of Lyondell Petrochemical Co.
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Lyondell Petrochemical Co. case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Lyondell Petrochemical, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Lyondell Petrochemical 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 Lyondell Petrochemical Co. can be done for the following purposes –
1. Strategic planning using facts provided in Lyondell Petrochemical Co. case study
2. Improving business portfolio management of Lyondell Petrochemical
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 Lyondell Petrochemical
Strengths Lyondell Petrochemical Co. | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Lyondell Petrochemical in Lyondell Petrochemical Co. Harvard Business Review case study are -
Ability to lead change in Leadership & Managing People field
– Lyondell Petrochemical 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 Lyondell Petrochemical in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
High switching costs
– The high switching costs that Lyondell Petrochemical 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.
Superior customer experience
– The customer experience strategy of Lyondell Petrochemical in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Low bargaining power of suppliers
– Suppliers of Lyondell Petrochemical in the sector have low bargaining power. Lyondell Petrochemical Co. has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Lyondell Petrochemical to manage not only supply disruptions but also source products at highly competitive prices.
Training and development
– Lyondell Petrochemical has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Lyondell Petrochemical Co. 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.
Analytics focus
– Lyondell Petrochemical 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 Jay W. Lorsch, Daniel P. Erikson 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.
Digital Transformation in Leadership & Managing People segment
- digital transformation varies from industry to industry. For Lyondell Petrochemical digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Lyondell Petrochemical 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 recruit top talent
– Lyondell Petrochemical is one of the leading recruiters in the industry. Managers in the Lyondell Petrochemical Co. 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
– Lyondell Petrochemical is present in almost all the verticals within the industry. This has provided firm in Lyondell Petrochemical Co. 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.
Sustainable margins compare to other players in Leadership & Managing People industry
– Lyondell Petrochemical Co. firm has clearly differentiated products in the market place. This has enabled Lyondell Petrochemical to fetch slight price premium compare to the competitors in the Leadership & Managing People industry. The sustainable margins have also helped Lyondell Petrochemical to invest into research and development (R&D) and innovation.
Operational resilience
– The operational resilience strategy in the Lyondell Petrochemical Co. 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.
High brand equity
– Lyondell Petrochemical has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Lyondell Petrochemical to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Weaknesses Lyondell Petrochemical Co. | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Lyondell Petrochemical Co. are -
Workers concerns about automation
– As automation is fast increasing in the segment, Lyondell Petrochemical 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 cash cycle compare to competitors
Lyondell Petrochemical 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 star products
– The top 2 products and services of the firm as mentioned in the Lyondell Petrochemical Co. 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 Lyondell Petrochemical has relatively successful track record of launching new products.
Need for greater diversity
– Lyondell Petrochemical has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Lyondell Petrochemical Co., is just above the industry average. Lyondell Petrochemical 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.
Low market penetration in new markets
– Outside its home market of Lyondell Petrochemical, firm in the HBR case study Lyondell Petrochemical Co. needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Lyondell Petrochemical Co., it seems that the employees of Lyondell Petrochemical 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.
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 Lyondell Petrochemical supply chain. Even after few cautionary changes mentioned in the HBR case study - Lyondell Petrochemical Co., it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Lyondell Petrochemical vulnerable to further global disruptions in South East Asia.
Products dominated business model
– Even though Lyondell Petrochemical 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 - Lyondell Petrochemical Co. should strive to include more intangible value offerings along with its core products and services.
Slow decision making process
– As mentioned earlier in the report, Lyondell Petrochemical 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. Lyondell Petrochemical 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.
Increasing silos among functional specialists
– The organizational structure of Lyondell Petrochemical is dominated by functional specialists. It is not different from other players in the Leadership & Managing People segment. Lyondell Petrochemical needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Lyondell Petrochemical to focus more on services rather than just following the product oriented approach.
Opportunities Lyondell Petrochemical Co. | 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 Lyondell Petrochemical Co. are -
Low interest rates
– Even though inflation is raising its head in most developed economies, Lyondell Petrochemical 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.
Leveraging digital technologies
– Lyondell Petrochemical 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
– Lyondell Petrochemical 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 Lyondell Petrochemical Co. - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Lyondell Petrochemical to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Leadership & Managing People industry, but it has also influenced the consumer preferences. Lyondell Petrochemical can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Lyondell Petrochemical can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
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 Lyondell Petrochemical in the consumer business. Now Lyondell Petrochemical can target international markets with far fewer capital restrictions requirements than the existing system.
Creating value in data economy
– The success of analytics program of Lyondell Petrochemical has opened avenues for new revenue streams for the organization in the industry. This can help Lyondell Petrochemical to build a more holistic ecosystem as suggested in the Lyondell Petrochemical Co. case study. Lyondell Petrochemical can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Lyondell Petrochemical 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Lyondell Petrochemical 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 Lyondell Petrochemical to hire the very best people irrespective of their geographical location.
Learning at scale
– Online learning technologies has now opened space for Lyondell Petrochemical 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.
Better consumer reach
– The expansion of the 5G network will help Lyondell Petrochemical to increase its market reach. Lyondell Petrochemical 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.
Manufacturing automation
– Lyondell Petrochemical 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.
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 Lyondell Petrochemical 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 Lyondell Petrochemical Co. External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Lyondell Petrochemical Co. are -
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Lyondell Petrochemical Co., Lyondell Petrochemical 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 .
Increasing wage structure of Lyondell Petrochemical
– 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 Lyondell Petrochemical.
Consumer confidence and its impact on Lyondell Petrochemical 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.
Shortening product life cycle
– it is one of the major threat that Lyondell Petrochemical is facing in Leadership & Managing People sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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. Lyondell Petrochemical needs to understand the core reasons impacting the Leadership & Managing People industry. This will help it in building a better workplace.
High dependence on third party suppliers
– Lyondell Petrochemical 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.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Lyondell Petrochemical can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Lyondell Petrochemical Co. .
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.
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 Lyondell Petrochemical business can come under increasing regulations regarding data privacy, data security, etc.
Environmental challenges
– Lyondell Petrochemical 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. Lyondell Petrochemical can take advantage of this fund but it will also bring new competitors in the Leadership & Managing People industry.
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 Lyondell Petrochemical.
Technology acceleration in Forth Industrial Revolution
– Lyondell Petrochemical has witnessed rapid integration of technology during Covid-19 in the Leadership & Managing People industry. As one of the leading players in the industry, Lyondell Petrochemical 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.
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. Lyondell Petrochemical can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Weighted SWOT Analysis of Lyondell Petrochemical Co. 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 Lyondell Petrochemical Co. 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 Lyondell Petrochemical Co. 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 Lyondell Petrochemical Co. 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 Lyondell Petrochemical Co. 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 Lyondell Petrochemical needs to make to build a sustainable competitive advantage.