Why Exxon Is Doomed in the 21St Century … Case Study
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SWOT and TOWS: Recommendations
Both SWOT and TOWS analyses are important tools for assessing a business's strategic matrix. The difference between the two is that the former places a focus and emphasis on internal factors (the strengths and weaknesses) while the latter emphasizes the external environment (the threats and opportunities).
For the best companies in the world, a strategic mission is influential in establishing a corporate guideline -- and the shorter and more concise that mission statement, the more impactful it can be (Collis, Rukstad, 2008). As far as Exxon Mobil is concerned, a SWOT and TOWS analysis can be the first step in providing the latest set of recommendations that can facilitate its aim to act as a cohesive, cogent, purposeful and goal-oriented organization.
While the mission of Exxon Mobil is to be the "world's premier petroleum and petrochemical company," it faces a number of internal and external challenges even as internal and external positives present themselves (ExxonMobil, 2015). But before proceeding to assess these challenges and positives, it is essential to define the terms that will be used.
The term "upstream" refers to the exploration activities that the company engages in to identify potential sources of oil and gas reserves. The term "downstream" refers to the process of refining crude oil and natural gas into products that can be distributed and marketed.
A number of factors should also be considered in order to provide the proper context for understanding the SWOT assessment of ExxonMobil today. That context consists of economical, political, and social factors. From today's shifting economy, in terms of the re-structuring of debts by businesses, financial institutions, and multinationals alike on a global scale (Weber, 2016), to the shift in political balances from a uni-polar world order to a multi-polar world order (Escobar, 2014), to the swings in social consciousness regarding clean energy consumption and a "green" future (Keramitsoglou, Mellon, Tsagkaraki, Tsagarakis, 2016) -- each of these impacts the organization and orientation of ExxonMobil. Even as gas, oil and energy consumption remains solidly high, the number of competitors in the market and the challenge not only to obtain but also to keep market share are consistent obstacles to downstream growth. On the upside, upstream profitability remains a core strength of Exxon (Financial and Strategic Analysis Review, 2015).
SWOT Analysis -- Overview
Exxon has consolidated its position as an oil and gas provider by integrating its operational structure with sound market principles. This is its predominant strength looking forward. Its predominant weakness remains its decline in performance. Opportunities continue to present themselves in terms of growth potential (increasing demand for oil and gas around the world) as well as new fields in Alaska. Threats continue to present themselves in terms of technologically innovative vehicles (Tesla's electric car, for instance), the collapse in oil prices, and exploration risks (Financial and Strategic Analysis Review, 2015).
Exxon has remained at the forefront of its competitors in terms of maintaining upstream profitability. Its exploratory missions have resulted in phenomenal growth potential. Moreover, its increase in earnings year-over-year is reflected in its upstream margin, supported by a strategy to limit exposure/risk related to operating costs and fiscal responsibility. Part of this ability to best competitors like Royal Dutch Shell and Chevron Corp. stems from Exxon's strategic recycling program, which in conjunction with the limited exposure of operating costs to deflationary onset around the world, has helped Exxon to achieve over $1 per barrel of oil equivalent (unit of energy) more than its competitors per year (Financial and Strategic Analysis Review, 2015).
Leading Refinery in North America
As one of the premier and most expansive integrated refiners in the world, Exxon is dominating on a number of fronts -- from the manufacturing of lube base stocks to the marketing of fuels. It continues to maintain the highest capacity in refining in the Gulf Coast and its refining throughput in the U.S. alone makes up more than 40% of Exxon's throughput around the world. Thus its base of operations in North America consists of the bulk of the company's distributive weight.
Efficient Use of Capital
Exxon's capital use has been the best in the market year-over-year once again, with an annual return of more than 16% on capital employed, nearly 50% more than its competitors. This is a major strength of Exxon as it shows a balanced and regimented approach to maintaining a low-risk portfolio (Financial and Strategic Analysis Review, 2015).
Revenue has been down year-over-year with loss of sales attributed to diminishing market share as competitors increase volume production and a lessening in throughput production. The past two years have seen declines in sales of 12% and 7% and there is no indication that the slide is coming to a stop, with Iran now poised to begin production and exporting of crude and now slowdown in Saudi production. Russian production also remains at a high, thus contributing to the global stock surplus of oil. This surplus means that less throughput is more than likely in the foreseeable future, as storage capacity is simply at its limits.
Litigation continues to be a burden and drain on the company, as climate litigation and groundwater contamination among other matters bear a strain on the company's finances (Exxon Lawsuit, 2016).
Loss in Working Capital
Cash in reserves has suffered reductions year-over-year, which has put a significant strain on operations. Asset values have declined and with global deflation setting in, the foreseeable future does not suggest any short-term upswing (Financial and Strategic Analysis Review, 2015).
Employee management and satisfaction ratings are in decline as the global organizational structure faces new implementation of policies designed to bolster weakening structural foundations. New ethical guidelines have not been effective in alleviating the strain and boosting employee morale. The state of the global economy, the collapse in oil prices, and the state of job security all pose the main problems.
Oil and Gas Demand on the Rise
The demand for oil and gas around the world is on the rise and this presents an opportunity for ExxonMobil to gain market share by meeting this demand. The demand is most significant in the Asian-Pacific, with growth in this part of the world projected to rise considerably in coming years.
The Alaska Gas Inducement Act (2012) has paved the way for production to begin and soon Exxon plans to be exporting 20 million tons of liquefied natural gas per annum for up to 30 years once the administrative work is finished and the necessary approvals are in place (Financial and Strategic Analysis Review, 2015).
Natural Gas Reserves
Exxon has focused on exploiting natural gas reserves as part of its strategy to grow and the exploration of gas fields in several countries around the world shows that natural gas is still in abundance and could mark a lucrative shift in focus for the company over the coming years.
Initiatives: Upstream and Downstream
Exxon not only has plans to bolster upstream growth but also to reverse its downstream trends by establishing sound investments in new projects in the coming years. A refinery in Belgium is currently undergoing construction, which will serve European markets, which are available due to political friction between Eastern Europe's historical provider (Russia) and the EU over conflict in the Ukraine.
China seeks to expand its power in the Asian market and its recent agreement with Gazprom of Russia appears to be a maneuver around Western oil and gas interests. The U.S. is currently in a political deadlock with China over the South China Seas and there is the potential for conflict as other Asian countries take issue with Chinese expansion. This could disrupt the Asian-pacific market and limit Exxon's entry and maintaining of market share.
Advancements in the automotive industry have made the electric car more appealing to consumers and their efficiency in terms of performance and upkeep as well as innovation have put names like Tesla on the map with the promise of even further innovation down the road. These innovations could also be embraced in the public sector, which could put a serious damper on oil and gas production.
Green movements and environmental concerns, including the recent UN convention on environmental health is a continuing threat to oil and gas production as any governmental controls to limit production will more than likely cut into costs and operational ability for the foreseeable future.
The collapse of oil prices around the world mainly due to a surge in oil production by Saudi Arabia is a major going concern. With Iran set to unleash its reserves onto the market this year and with Russia and OPEC promising no let-up the oversupply of oil is a problem that does not appear to be abating. WTI is now trading below $30 per barrel and analysts see no climb from this trench within the next five years.
Strategy Recommendations with TOWS Analysis
Exxon finds itself in the… [END OF PREVIEW]
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