POG303 Strategic Management

Introduction: 

Corporate social responsibility can be referred as a social movement that focuses on addressing the responsibility of a business organization in the society through a proper institutional framework. In United Kingdom, business organizations have identified that sustainable practice is not only good for the local community and environment; it has positive impact on the bottom line of the business through driving innovation and efficient risk management in the supply chain (Department for Business, Innovation and Skills, 2014). Energy industry has been facing several environmental and social concerns raised by its stakeholders. It is crucial for the energy companies to enhance the efficiency in order to support a smooth transition to a lower carbon economy while addressing the increasing demand of energy. For the industry it is essential to ensure sustainable practice for the next generation through reduction in carbon emission (Yusuf et al. 2013).

British Petroleum (BP) is a multi-national company based in UK and has been operating for the more than 100 years (British Petroleum 2017). As a responsible corporate citizen, the principal aim of BP is to contribute in generating long term value for the shareholders by meeting the soaring energy demand in a safe and sustainable way (British Petroleum 2017). Business model of British Petroleum focuses on value creation through safe operations. The activities of the company aids in improving quality of life, generates employment opportunities and revenue for the local government.

Significance of Stakeholder Management in BP

BP concentrates on engaging with stakeholders including several organizations and individuals who are getting affected by the organizational activities. Since the organization considers each stakeholder (for e.g. Employer, local community, energy provider) as an important part of the business, feedback and inputs received by the stakeholders are reviewed and required changes are initiated. In 2015 few stakeholders raised an issue regarding the initiatives adopted by BP.  Hence, BP has appointed subject matter experts who are engaged in reviewing and scanning the horizon of the emerging issues regarding the safety, government affair, policy and operational risk ((British Petroleum 2015, p.10).

British Petroleum focuses on identification of the concerns raised by the stakeholders such as business ethics, accidents and oil spills during the operations, human rights and climate change. In the year 2015, the company has engaged several stakeholders in order to resolve various issues related to sustainable operations.

Contractors (Drilling Safety) - The key to ensure reliable operation is to maintain fair communication with its contractors. In order to improve safety at the drilling sites, BP conducted annual workshop on safety and discussed challenges with 25 drilling contractors. Thus the company capitalizes the outcome of the workshop for enhancing the safety approaches and reviews the actions taken in this regard (British Petroleum 2015, p.11).

Socially Responsible Investors (Climate Change Reporting) – The socially responsible investors of British Petroleum was engaged in the procedure of climate change reporting since it has received greater prominence after the conference on Climate Change conducted by UN at Paris. Shareholders of the company had shown interest to get a better exposure regarding the emission management, investment in sustainable practice in order to understand how the company is preparing for the lower carbon future. BP hosts annual meeting with socially responsible investors to brief them about the operational activities for minimizing emissions (British Petroleum 2015, p.13).

Industry Peers (Managing Methane Emissions) – Oil and gas industry is majorly responsible for polluting the environment with methane gas. BP has united with the government, NGOs and peers (8 oil and gas companies) for Climate and Clean Air Coalition’s Oil and Gas Methane partnership. Thus, along with its peers the company is trying to integrate corporate social activities through reduction in methane emission due to the operation of oil and gas industry (British Petroleum 2015, p.11).

NGOs (Human Rights) – BP has identified the importance of assessing the social initiatives adopted by the organization and as a result it got engaged with few NGOs of UK and US. The major aim of the association was to analyze non-commercial operations held at different locations. BP has given importance to the NGOs for highlighting challenges and limitations of the corporate social activities related to human rights and security issues (British Petroleum 2015, p.50 - 51).

                                                 

Stakeholders of British Petroleum

(Source: Created by Author)

Benefits of Implementing CSR Policies

British Petroleum significantly contributes to the society through the community investment along with the core business activity. Oil and gas industry generates tax revenue for the government, provides employment opportunity and prospect for the local suppliers. On the other hand, it has negative impact on the society and environment. The organization consults with the communities during the operation in order to prevent or minimize the negative impacts caused by the business activities (André, 2012). Here, the major benefits of implementing CSR policies of BP are discussed.

Positive Image in Community - Corporate social activities significantly aids in developing reputation of the organization.  British Petroleum focuses on investments that address the community needs while aligning with the major business activities of the organization (Brammer, Hoejmose and Marchant, 2011). The company has spent 85, 67.2 and 61.1 million USD in 2014, 2015 and 2016 respectively. BP has contributed 240,000 USD for the local relief to be conducted in the areas affected due to natural disasters (British Petroleum 2016, p.29). The organization runs a charitable trust, BP Foundation that aims to support communities through humanitarian relief and education system. In order to meet the challenges of the changing landscape of global energy demand, the organization focuses on ensuring lower carbon future. Additionally, it has supported the government by acknowledging that carbon pricing is the best way to reduce the emission of green house gases (British Petroleum 2015, p.15).

Ensures Smooth Operation – Oil and gas sector is responsible for generating lot of negative impact on the environment and society. Consequently, organizations face hindrance and challenge to continue its operations successfully. Hence, it is very important to engage the stakeholders and compensate them through several corporate social initiatives. British Petroleum has identified that organizational activities have negative impact on the local community. Before starting a new venture, it focuses on assessing the potential impacts on the livelihood, cultural heritage, air quality, health and safety of the local community. In 2016 BP received complaints regarding the noise pollution, property damage, less job opportunities for local people ((British Petroleum 2016, p.30). Hence, BP took an initiative to talk to its community and engaged them in identification as well as solving the concerns raised due to the operational activities. For example, in Azerbaijan the activities of the company had affected the local fishing industry. After conducting survey and consulting the local community, BP decided to compensate the temporary loss of the fishermen (British Petroleum 2016, p.30). Moreover, BP has initiated a procedure for assessing the effectiveness of the community complaints mechanism.

Attracts and Retains Talent - A wide variety of specialist skills are required for conducting the activities. Employee satisfaction is the key to achieve organizational goals. British Petroleum focuses on providing security to its human resource and respecting their rights. It has been working to identify the human right risk regarding recruitment and living conditions. BP encourages its workforce and contractors to report their grievances. It helps the organization to understand the reason behind the negative impact on human rights. Through implementation of labor policy the company is trying to satisfy its workforce. Even after the oil spill incident British Petroleum has been able to maintain high rank for employer branding (Sylvers 2011). Thus, it helps in attracting and retaining the talent pool (Skudiene and Auruskeviciene 2012).

Improves Relationship with Stakeholders

Stakeholders play a major role in determining success of a business organization (Brown and Foster, 2013). British Petroleum has taken a rational decision to involve its stakeholders in the sustainable reporting activities. In this manner engagement of the stakeholder increases as well as it indicates the notion of the stakeholders regarding the activities of the company (Servaes and Tamayo 2013). For example, community engagement has helped the organization in addressing the community grievances related to the negative impact of the projects run by BP. The organization has been working with its peers to ensure for developing and promoting integration of human rights into the management of concerns raised by the community. Local workforce is considered for employment and it helps in improving the economy through creation of employment opportunities (British Petroleum 2016, p.28). British Petroleum is focused to ensure safe workplace by elimination of risk associated with injury and fatality. As mentioned earlier, the partnership with the contractors for enhancing safety mechanism has significantly contributed in improving relationship with the stakeholders.

Innovation Management

It is evident that the renewable energy source is going to play a massive role in the lower carbon future. According to a report published by U.S Energy Information Administration Department, demand for renewable energy will rise over the next 20 years.

                             

World Energy Consumption by Energy Resource 1990 – 2040

(Source: U.S. Energy Information Administration 2016)

 In order to align the organizational activities with sustainable practices, British Petroleum has focused on reduction of green house gas emission. As a result, it has invested in production of renewable energy for the last 10 years. Bio fuels and wind energy are two renewable energies produced by BP (British Petroleum 2016, p.16). In order to address issues regarding climate change, BP has been working with several academic institutions such as Harvard University, Imperial College of London and University of Cambridge. Importance of technological innovation in improving efficiency as well as sustainable practice has been identified by the organization. It has invested 300 million USD in various start ups to find out a viable low carbon solution. Moreover, BP has taken an initiative to invest 1 billion USD for increasing the use of ‘Carbon Capture Use and Storage’ (CCUS) technology (British Petroleum 2016, p.30). Thus concern regarding the environmental impact has significantly helped the organization to invest in innovation for finding out efficient and sustainable alternatives (Rexhepi, Kurtishi and Bexheti, 2013).

Challenges of Implementing CSR Policies

Implementation of the CSR policies successfully throughout the operational procedure is not easy for an organization. It faces certain challenges in balancing between the business interest and corporate social responsibilities (Sharma and Ravi, 2013). In the above mentioned paragraphs, it has been discussed that British Petroleum has undertaken several initiatives to create long term value for its stakeholders through optimizing the negative impacts on environment and local community. However, certain issues are not resolved yet. For example, BP has been focusing on enhancing the safety measures at workplace through engagement of the contractors. From the report, it has been found that the company has been able to address the issue in an effective manner since there is no significant reduction in the fatalities at workplace and volume of oil spills. Inadequate monitoring and lack of proper guideline to prevent such operational hazards are the major challenges faced by the organization.

Strategic Direction and CSR Policy

Environmental Sustainability – Since British Petroleum significantly focuses on managing sustainable operation and minimizing negative impact on the community and environment, it has recognized the importance of investing in renewable sources. Over the last decade, the energy industry has observed rapid growth in the renewable energy sector.  Use of solar energy and hydroelectricity also leads to significant cost reduction for an organization. Moreover burden of carbon tax will be diminished if renewable sources are capitalized at large scale. Hence, in order to balance between the environmental need and organizational profitability, British Petroleum has invested in renewable sources (British Petroleum 2016, p.16).

Safety and Operational Risk - British petroleum has focused on better design and engineering principles in order to ensure process safety so that accidents can be avoided proactive approach has been adopted in order to identify the potential risks and hazards during deepwater drilling and other operational activities. Advanced technology is used for monitoring the condition of the wells. In order to identify the sand movement and the integrity issues within the wells, BP has been using fibre-optic sensing technology (British Petroleum 2015, p.36). Enhanced safety standards have significantly aided in reliability in improved operations.

Talent Management – Success of the organization is dependent on the skilled and highly motivated human resource (Edmans, 2012). In order to capitalize the talent of the workforce BP needs to ensure reliable and safe operations. The company respects human rights of the employees and offers simple reward programs. Apart from offering competitive remuneration package it also provides a wide range of opportunities to its employees such mentoring, on job training by initiating online and classroom programs. Remuneration package is aligned with the strategy as well as performance. Performance related pay measures the operational and safety risk along with the injury frequency and loss of primary containment. Thus, talent management strategy aligns with sustainable practice to deliver greater value to the stakeholders (British Petroleum 2015, p. 42).

Value to the Society -  British Petroleum aims to support the economic growth through its business operation along with improvement of the quality of life. The company focuses on creating positive impact on the local community through local workforce development and partnership with local suppliers. It has identified the importance of managing consumption of freshwater as well as water discharge during operation. Water performance of BP has improved over the past few years and 66% of the freshwater withdrawn from the environment is returned by undertaking suitable water treatment (British Petroleum 2015, p. 37).

                                   

(Source: British Petroleum 2016, p.27)

Recommendation:

British Petroleum has made significant investment in order to ensure sustainable practice. However few limitations have been identified and based on those recommendations has been provided in order to achieve the desired performance in the next few years.

Improvement in Safety Measures - The sustainability report published by British Petroleum shows that they need put greater focus on managing safety issues at the drilling site. The report shows the following figure:

                               

(Source: British Petroleum 2016, p.8)

From the above table it has been observed that the fatalities and oil spill incidents have increased over the years. However, injury frequency has dropped which shows few initiatives are helpful in reducing number of accidents at the drilling sites. BP should invest more strategically in this particular area in order to ensure better safety or the employees as well as contractors. Project planning should adopt a systematic approach in order to prevent oil spill due to equipment malfunction, operational mistakes and pipeline corrosion.

Reduction in Greenhouse Gas Emission – British Petroleum has supported carbon tax for ensuring environment friendly operation. However, the sustainability report shows that direct carbon emission and greenhouse gas intensity has increased in upstream operations.

                             

(Source: British Petroleum 2016, p.8)

Hence, British Petroleum should invest more in incorporating technologies that would help in reduction in green house gas emission. Moreover, it should enhance operational activities for producing more renewable energies that would reduce the negative impact of organizational activities on the air quality.  

Conclusion:

This report has provided a brief overview of the operational activity of British Petroleum that thrives to align with environmental and social needs. Since the organization has identified the importance of stakeholders in ensuring smooth business operation, they were engaged in designing the sustainable practice for the organization. In this procedure, NGOs, industry peers, contractors, academic institutions, responsible shareholders were invited to participate for delivering long term value to the stakeholder group of British Petroleum. Corporate social activities help BP in developing positive image, drive innovation, attract and retain talented workforce and improves its relationship with the stakeholders. However, few limitations have been identified in implementation of the CSR policies. BP should emphasize on improving safety and reducing green house gas emission. Thus, the oil and gas industry would be able to reduce the negative impact on the society by following sustainable footprint.

Reference:

André, R., 2012. Assessing the accountability of the benefit corporation: Will this new gray sector organization enhance corporate social responsibility?. Journal of business ethics, 110(1), pp.133-150.

Brammer, S., Hoejmose, S. and Marchant, K., 2012. Environmental management in SMEs in the UK: practices, pressures and perceived benefits. Business Strategy and the Environment, 21(7), pp.423-434.

British Petroleum, 2015. Sustainability Report. [online] United Kingdom: British Petroleum PLC. Available at: <https://www.bp.com/content/dam/bp/pdf/sustainability/group-reports/bp-sustainability-report-2015.pdf> [Accessed 12 Apr. 2017].

British Petroleum, 2016. Sustainability Report. [online] United Kingdom: British Petroleum PLC. Available at: <https://www.bp.com/content/dam/bp/en/corporate/pdf/sustainability-report/group-reports/bp-sustainability-report-2016.pdf> [Accessed 12 Apr. 2017].

British Petroleum, 2017. Sustainability. [online] bp.com. Available at: <http://www.bp.com/en_gb/united-kingdom/sustainability.html> [Accessed 12 Apr. 2017].

British Petroleum, 2017. Who we are. [online] bp.com. Available at: <http://www.bp.com/en_gb/united-kingdom/who-we-are.html> [Accessed 12 Apr. 2017].

Brown, J.A. and Forster, W.R., 2013. CSR and stakeholder theory: A tale of Adam Smith. Journal of business ethics, 112(2), pp.301-312.

Department for Business, Innovation and Skills, 2014. Good for Business & Society: government response to call for views on corporate responsibility. [online] www.gov.uk. Available at: <https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/300265/bis-14-651-good-for-business-and-society-government-response-to-call-for-views-on-corporate-responsibility.pdf> [Accessed 14 Apr. 2017].

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Rexhepi, G., Kurtishi, S. and Bexheti, G., 2013. Corporate social responsibility (CSR) and innovation–the drivers of business growth?. Procedia-Social and Behavioral Sciences, 75, pp.532-541.

Servaes, H. and Tamayo, A., 2013. The impact of corporate social responsibility on firm value: The role of customer awareness. Management Science, 59(5), pp.1045-1061.

Sharma, A. and Kiran, R., 2013. Corporate social responsibility: Driving forces and challenges. International Journal of Business Research and Development (IJBRD), 2(1).

Skudiene, V. and Auruskeviciene, V., 2012. The contribution of corporate social responsibility to internal employee motivation. Baltic journal of management, 7(1), pp.49-67.

Sylvers, E., 2011. BP ranked high for employer branding despite oil spill. [online] Telegraph.co.uk. Available at: <http://www.telegraph.co.uk/finance/jobs/hr-news/8163571/BP-ranked-high-for-employer-branding-despite-oil-spill.html> [Accessed 12 Apr. 2017].

U.S. Energy Information Administration, 2016. International Energy Outlook 2016-World energy demand and economc outlook - Energy Information Administration. [online] Eia.gov. Available at: <https://www.eia.gov/outlooks/ieo/world.cfm> [Accessed 12 Apr. 2017].

Yusuf, Y.Y., Gunasekaran, A., Musa, A., El-Berishy, N.M., Abubakar, T. and Ambursa, H.M., 2013. The UK oil and gas supply chains: An empirical analysis of adoption of sustainable measures and performance outcomes. International Journal of Production Economics, 146(2), pp.501-514.