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Borouge Petrochemical Company Strategic Management Essay

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Introduction

Change is a widespread feature in life of organizations and the capability to handle such changes is the core competence of success in organizations (Senge et al., 2004, p. 4). The main drivers of organizational changes over the last two decades have been globalization, advancement in technology and fluctuation in global economy.

This has led to distraught exploration of mechanisms for achieving competitive advantage through increased radical forms and new management styles (Stacey, 2003, p. 8).

The emergence of strategic management as a distinguished philosophy of management was facilitated by the increase in strategic thinking. Managers and the stakeholders were forced to reassess the structure and operations of the organizations and how to respond to the changing global business environment (Stacey, 2003, p. 8).

The new approach to management was attractive to organizational leaders who were experiencing numerous challenges and were faced by the need to adjust hastily and fundamentally.

Senge et al. (2004, p. 4) describe strategic Management as a striking option to management influenced by market forces necessitating enhanced quality, increases flexibility and unvarying innovations. Strategic management involves scheming, developing and realizing long term declarations that authorizes an organization to achieve a spirited benefit in the industrial scenery (Hubbard & Beamish, 2011, p. 5).

In view of the fact that the business landscape is gifted by a lot of perils and qualms, there are immense requirements for organizations to consider strategic management in a bid to alleviate the anticipated predicaments. This engrosses unrelenting assessment and implementation of business components of a particular business, gauging the potency of the rivals (Hubbard & Beamish, 2011, p. 6).

Most literatures on strategic management have paid a lot of attention on the formulation side of the strategy and little attention to the other side of the coin, namely implementation side of the strategy. Even though studies in strategic implementation are gaining momentum, they are still less in number compared to literatures on strategic formulation (Atkinson, 2006, p. 2).

In addition, a number of studies have noted that implementation is the most difficult aspect of strategic management (David, 1999, p. 13). This calls for more studies on implementation based strategies. As a result, this paper explores the persistent implementation challenges in a petrochemical company based in the United Arab Emirates.

There are a number of reasons for carrying out this study. The first reason is to identify persistent challenges in the petrochemical company and solutions that could give a hand in enhancing effectiveness and efficiency in the company with obvious benefits in the entire petrochemical industry.

Secondly, persistent implementation challenges may necessitate strategies that are easy to implement. Therefore, the study could help to identify means and solutions to strategic implementation. Lastly, the study could act as a guideline on how to manage implementation challenges especially in developing economies that are discovering petroleum resources.

Literature Review

Some of the most prominent literatures on strategy implementation include Alexander (1985) and Al-Ghamdi (1998). Alexander (1985) identified twenty two principle barriers to strategy implementation, of which ten were recognized as major obstacles by nearly half of the sampled companies.

Similarly, Al-Ghamdi (1998) identified fifteen strategy implementation challenges, of which six were cited as major obstacles by nearly three quarter of the sampled companies.

Based on these studies, Hansen, Boyd & Kryder (1998, p. 22) pinpointed further implementation challenges. These challenges include failure to adapt strategies to the prevailing conditions, deviation from the initial blue print, and lack of confidence among the project implementers.

Rutan (1999, p. 4) emphasizes on the significance of the entire implementation aspects for execution during planning stage since there is not time to do that in advanced stages. It is also important that everyone involved in strategic planning should understand and reach common ground on each and every aspect of the plan.

The management should stick to the plan and only make necessary amendments after careful considerations and consultations on the general impact and consequences of the amendments.

Companies should not ignore the operations because of new strategies. Most implementation problems normally occur when organizations focus too much on new strategies and give less attention to the ongoing business activities that are inline with the previous strategies (Rutan, 1999, p. 5).

Nickols (2000) argues that execution is the most important aspect of business strategy. He explains four dimensions of execution: defective strategy and defective execution, ideal strategy and defective execution, defective strategy and ideal execution, and ideal strategy and ideal execution.

According to Nickols (2000), an organization is more likely to be successful when strategy and execution are ideal despite of the external influences. He adds that execution of flawed strategy is one of the major causes of implementation problems.

Downes (2001) identified two major categories of implementation obstacles: internal and external factors. Both internal and external factors are influenced by the level of flexibility of the strategic initiatives. DeLisi (2001) studied the six principle obstacles of strategy implementation identified by Bear and Eisenstat (2000, p. 30).

DeLisi (2001) established that four of these obstacles were most serious and had considerable impact on the implementation process. They include futile administration, dictatorial leadership style, indistinct objectives and incoherent precedence, and miscommunication.

In addition, DeLisi (2001) revealed other probable obstacles to strategy implementation.

They include lack of knowledge on strategic management process, ineffective communication, lack of employee motivation, strategies that are excessively abstract, lack of accountability during the implementation process, less attention from the top management, type of management system in place, short-term ambitions by the employees, and fortifiers, such as organizational culture, structure and process (DeLisi, 2001, p. 3).

Johnson (2002, p.7) established five principled reasons behind implantation failures. These are employee motivation, individual ownership, communication strategies, management and leadership style, and lack of objective. Leffel (2003, p. 2) reveals that anticipation of future problems can also act as an obstacle during the implementation process.

Al-Ghamdi (2010, p. 5) identified a number of problems during strategy implementation and the benefits of tackling these problems. Al-Ghamdi (2010) explains numerous factors that cause improper implementation of strategies similar to those explained above.

Additional factors recognized by Al-Ghamdi (2010) that may hinder successful implementation of strategy include:

Feeling of isolation or lack of ownership by employees, lack of clear guidelines for the implementation process, misunderstanding on the role of organizational structure and design in the implementation process, inability to reach consensus on contentious issues or subjects during the implementation process, lack of incentives or unsuitable incentives to support implementation goals, and inadequate financial resources to implement the strategy (Al-Ghamdi, 2010, p. 6).

In his survey, Brannen (2005) also identified a number of obstacles to the implementation process. They include insufficient financial resources, communication breakdown, lack of accountability, and barriers resulting from organizational culture.

He also discovered a very important barrier to effective execution of strategy, “lack of employees’ empowerment and freedom to execute their mandate”. He adds that past habit and experience also affects the implementation process.

In general, approximately thirty obstacles have been identified by different authors that could slow down the strategy implementation. Half of these obstacles had been identified by the pioneer literatures on strategy implementation such as Alexander (1985) and Al Ghamdi (1998).

From these literatures principle obstacles to strategy implementation can be summarized as follows:

Spending more time than initially allocated, unanticipated problems, ineffective coordination, distraction from other competitive activities, lack of capacity from the employees, inadequate instructions, uncontrollable/ adverse external factors, poor information system, employee turnover, unclear objectives, changes in responsibility of key staff, deviation from the initial plan, lack of employee motivation or reward, lack of seriousness from the top management, insufficient fund to implement the strategy, and lack of understanding of organizational fortifiers in the implementation process.

Case Study: Borouge Petrochemical Company

Borouge is a petrochemical company offering state of the art plastic solutions for different sectors of the economy. The company was formed through partnership between Abu Dhabi National Oil Corporation and Borealis (Borouge, 2011). ADNOC deals in oil and gas, while Borealis deals in chemical and advanced plastic solutions.

Being a product of two global successful companies, Borouge is in the forefront of next generation plastic solutions. The company is based in Abu Dhabi and Singapore. The company also has subsidiaries in over fifty countries across Middle East, Asian Pacific, America, Europe, and Africa. At the moment, the company has employed approximately 1700 workers globally (Borouge, 2011).

Building from the success of its parents company’s, Borouge’s provides state of the art technology and products for different sectors of the economy. The company projects an output of about 6 million tones per annum in 2014 which will make it the largest single producer of polyolefins products. The company is also investing in more plants and subsidiaries both locally and internationally (Business Monitor, 2012).

Borouge is expected to finish the construction of its complex in Ruwais and Abu Dhabi by 2014. The two complexes are expected to add to the company’s capacity in the production of ethylene, polythene and polypropylene. Borouge’s planned Chemaweyaat complex, also in Abu Dhabi is expected to be the largest petrochemical unit in the world.

The complex will host olefins plant, aromatic complex and numerous chemical and polymer plants. The Chemaweyaat complex is expected to be completed by 2016. The complex will consume large quantities of heavy naphtha in their aromatic units and light naphtha to produce about two million tonnes of ethylene and 700,000 million tonnes of propylene per annum (Borouge, 2011).

The company also expect to increase its ethylene capacity from 3.5 million tonnes to 5 million tonnes by 2012. Generally, the company expect to increase their production capacity by 170 percent by the end of 2016. The driving force behind these expansions is the growth and strength of the Chinese market.

Heavy use of naphtha in the Borouge’s Abu Dhabi plants will enhance the position of UAE in the Asian market (ahead of Saudi Arabia and Qatar). According to BMI’s Middle East index, United Arab Emirates (UAE) has remained behind Kuwait and Saudi Arabia. Luckily, UAE is ahead of Qatar with a slim margin. Their position is also under threat from other regional states (Borealis, 2011).

Borouge is a major player in UAE’s petrochemical industry and is in fact an extension of the oil and gas industry. Borouge receives its raw material supplies mostly from numerous oil and gas companies owned by ADNOC (one of the parent company).

The contractual relationship between these two leading companies has helped to front UAE in the global stage and to protect the country’s energy sector. ADNOC’s direct control of Borouge’s raw material suppliers means that the company is guaranteed cheap and steady supply (Business Monitor, 2012).

Strategy Implementation Obstacles in Borouge Petrochemical Company

There are seven principle strategy implementation obstacles in Middle East’s petrochemical companies.

They include inadequate training and instructions, lack of motivation or reward, taking more time than initially allocated, changes in responsibilities among key members of the team, distraction from competing activities, and lack of consideration on the role of organizational structure and design during the implementation process (Al-Ghamdi, 2010, p.10).

Many literatures on strategy implementation problems show that human related elements play a huge role in the implementation process. No wonder the first two implementation problems mentioned above are related to human fault.

The types of strategic decisions that are being implemented by our company include introduction of new products in the market, regional and global expansion, opening or starting new plants and facilities, withdrawing/discontinuing certain products from the market, acquiring or merging with other companies, and changing operational strategy among others.

However, the top strategic decision included introduction of new products in the Asian market, opening of new plants in Abu Dhabi, and global expansion to gain access into new markets.

The most frequently occurring problem in these strategic decisions are inadequate training and instructions to the subordinate staff, lack of motivation or reward during the implementation process, spending more time than initially allocated, and workers transfer or change in responsibility of key members of the team.

It is important to note that the main problems are related to human resources. This shows that many times the company’s top management often fail to anticipate the required training and instructions for lowly ranked staff in order to endow them with essential skills for the implementation process.

The planners also normally fail to relate workers performance during the implementation process with the general system of reward in the company. In addition, there is disparity between the time allocated for implementation process and the actual time taken to complete the implementation of the strategy.

Excessive time wastage in attributed poor coordination during the implementation process, major unanticipated problem surfacing during the process which necessitates more time and analysis, lack of employees’ capacity, and passive role played by the advocates and supporters of the process.

United Arab Emirates is a member of the OPEC (Organization of the Petroleum Exporting Companies). OPEC dictates the policies of the member states and as a result limits their oil production capacity. This limits the production of the associated gases which are building blocks in petrochemical companies including Borouge.

The potential capacity of the petrochemical industry is additionally limited by the high ethane consumption in the power generation plants in the region.

These two factors have had massive impact on the company’s overall strategy. Therefore, is an additional obstacle to certain types of strategic decisions that are being implemented by the company including introduction of new products in the market, regional and global expansion, and opening or starting new plants and facilities.

Remedies to these strategy implementation obstacles

There are certain things company’s strategy formulators should emphasize on when drafting their plans since most of these obstacles are avoidable if transparency is maintained during the initial stages. The company’s top hierarchy must ensure that the supportive structures are in place to provide all the team members with necessary skills and instructions that are useful during the execution stage.

The company has increased investment in the development of human capital. UAE government (the company’s major shareholder) has expanded the Petroleum Institute in Abu Dhabi into a world class institution offering engineering courses and other research courses related to oil, gas and petrochemical industries (Business Monitor, 2012).

Petroleum Institute in Abu Dhabi is also affiliated with numerous Universities in Europe and Asia (for instance, University of Maryland and China University of Petroleum). Petroleum Institute in collaboration with Maryland University and Colorado School of Mines has direct research contracts with the company. This provides a great opportunity to improve the innovative capacity of the workers.

To supplement the government efforts Abu Dhabi National Oil and Borealis Company have set up a competency assurance management system among its affiliate companies including Borouge to develop new and existing man power. This is aimed at equipping the new and existing workers with skills necessary to tackle the current challenges (Business Monitor, 2012).

The company should employ systematic approach to training. This is a technique for managing training programs and entails coherent approach in determining the type of knowledge required for a specific job or profession (Wexley &Latham, 2002, p. 9). It starts by establishing staff’s work related requirements and delivering training properly.

This approach employs constant assessment of the training program and it ensures that it meets the demand of the specific job or profession. Systematic approach to training follows a specific training cycle.

These stages include identification of the training requirements, designing training solutions, delivering the solutions, application of training in the court surrounding, and lastly assessing the training solutions (Wexley &Latham, 2002, p. 10).

The work performed during the implementation process should also be equated to the company’s general system of incentive and reparation. This will enhance work commitment and job satisfaction, thus minimize employee turnover rate. Work commitment and job satisfaction are both beneficial to employers and employees (Clarke and Chen, 2007).

For individual employees, work commitment and job satisfaction signifies a positive relationship with the organization and attaches more meaning to life; whereas, for employers, committed and satisfied workers have the likelihood of enhancing organizational performance, reduce turnover and cases of absenteeism (Chon, Sung and Yu 1999, p. 12).

Work commitment and job satisfaction have also been associated with efficiency, productivity, creativity and innovativeness among employees (Chon, Sung and Yu 1999, p. 13).

The company should also develop and update its information system. Information system entails data storage and processing systems that assist in enhancing service delivery. Well developed and updated information system will ensure better coordination, minimising time wastage attributed to poor coordination, and enhance employee capacity.

The ability to relay information, for example the goals and objectives of the organization is viewed as the first step in achieving work commitment and job satisfaction. Effective communication thus motivates employees to own the goals of the company and relate with each other productively (Business Studies, 2008, p. 4).

In addition, the company’s structure and new strategies should be aligned to facilitate communication and coordination during this stage. This can only be achieved when the management are focused and involved in the implementation process. Lastly, the company’s strategy must be in line with local, regional and global policies.

Conclusion

Change is a common aspect in life of organizations and the ability to handle such changes is one of the core competencies of successfull organization. The main drivers of organizational changes over the recent past include globalization, advancement in technology and fluctuation in global economy. This has resulted to distressed exploration of mechanisms for achieving competitive advantage through strategic way of thinking.

Strategic management involves numerous processes including formulation and implementation process. There are numerous obstacles to strategy implementation. These obstacles vary from one company to another and are estimated to be approximately thirty in number. Our study focuses on strategy implementation obstacles of a petrochemical company based in Abu Dhabi, UAE.

These obstacles are inadequate training and instructions to the subordinate staff, lack of motivation or reward during the implementation process, spending more time than initially allocated, and workers transfer or change in responsibility of key members. These obstacles can be avoided if transparency is maintained during the initial stages.

References

Alexander, L. (1985). Successfully Implementing Strategic Decision. Long Range Planning, 18 (3), 91-97.

Al-Ghamdi, S. (1998). Obstacles to successful implementation of strategic decisions: The British experience. European Business Review, 98 (6), 322-327.

Al-Ghamdi, S. (2010). Obstacles to successful implementation of Strategic Decisions: The Saudi case. International Journal of Commerce & Management, 1, 5-25.

Atkinson, H. (2006).Strategy Implementation: A Role for the Balanced Card. Management Decision, 44 (10), 1-17.

Beer, M., & Eisenstat, R. (2000). The Silent Killers of Strategy Implementation and Learning. Sloan Management Review, 41 (4), 29-40.

Brannen, L. (2005). Upfront: The 33 1/3 Percent Strategy Solution. Web.

Borealis A. G. (2011). Annual Report. Web.

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Chon K. S., Sung K., & Yu, L. (1999). The International Hospitality Business: Management and Operations. New York: Routledge.

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DeLisi, P. (2001).Strategy Execution: An Oxymoron or a Powerful Formula for Corporate Success. Web.

Downes, L. (2001). Strategy can be deadly, Industry trend or event. Industry Standard (May 14, 2001).

Hansen, L., Boyd, M., & Kryder, A. (1998). Implementing Strategic Plans. Web.

Hubbard, G., & Beamish, P. (2011). Strategic management: Thinking, analysis and action (4th ed.). Australia: Pearson Education.

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Leffel, T. (2003). Execution: An Interview with Ram Charan. Journal of Business Strategy, 13, 1-25.

Nickols, F. (2000). Strategy Is… A Lot of Things. Web.

Rutan, S. (1999). Strategic Management: 3 Steps to the Cycle of Success. Southport, Connecticut: Centre for simplified strategic planning, Inc.

Senge, P., Scharmer, C. O., Jaworski, J., & Flowers, B. S. (2004). Presence: An Exploration of Profound Change in People, Organizations, and Society. New York: Doubleday.

Stacey, R. D. (2003) Strategic Management and Organizational Dynamics: The Challenge of Complexity. Harlow: Prentice-Hall.

Wexley, K., &Latham, G. (2002). Developing and training human resources in organization, 3rd Ed. New Jersey: Prentice Hall.

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