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This part of the project deals with the formulation of a business strategy that would drive ConocoPhillips’ next strategic investments in Alaska. The approach relies on the interpretation of the company’s mission and vision, in addition to the use of internal and external business analysis tools as summaries in the company strategy summation in the next section.
The plan analyses the potential of the company to triumph in particular circumstances, which leads to the recommendation of an appropriate generic, competitive business strategy that will serve ConocoPhillips’s growth and development intentions.
Business Strategy Summation
|Analysis||External Analysis||Internal Analysis|
|Analytical Framework|| || |
|Current Business Strategy||Differentiation||Differentiation|
|Proposed Business Strategy||Differentiation||Differentiation|
|Reasoning|| || |
The VRIO framework analysis of the business revealed that it sustains its competitiveness by tapping into its global network of partners and clients. It also uses its global capacities in oil drilling and exploration industry to drive up its expertise in the Alaska region.
The company is also relying on its partnership with the local business community and commitment to the support of job creation in its projects to be in good terms with the Alaska government interests. In addition, the investments in technology and purchase of licensing resources have ensured that ConocoPhillips Alaska can sustain its operations.
It happens amid the threats posed by new entrants and increased competition from the existing players in the oil and gas market in Alaska (Brehmer, 2014). The performance of the wells drilled by ConocoPhillips Alaska has been a critical source of competitive advantage for the company.
It is due to investment in management and research and development, as well as technology and financial partnerships with its parent company (Brehmer, 2014). The research-centered investments contribute to ConocoPhillips’ brand reputation and builds on its experience. This makes many partner organizations commit to long-term projects with ConocoPhillips Alaska.
ConocoPhillips Alaska is keen on using the tax credits provided by the government as a tool for mitigating high corporate taxes. However, a reduction in the benefits enjoyed by ConocoPhillips will likely hurt the cost of doing business, especially on employee compensation. Eventually, it can erode the company’s ability to retain critical talent for its Alaska projects.
Another important external factor to consider is the small population of Alaska, which is unlikely to drive local demand for gas. It forces ConocoPhillips to concentrate more on the export market (Caldwell, 2013). The company has been strategic with its investment in pipelines and other technologies to ensure that it can take advantage of any trade agreements that the United States or Alaska has with the external markets, which allow the export of oil and gas.
The company relies on its financial muscle and investment in technology to deal with the threat of competitive rivalry. Being financially secure allows the company to respond to the developments of its rivals in a way that allows it to sustain its market leadership position.
However, the need to invest in a project for long periods before they become competitive exposes the company to sunken costs when it makes wrong bets on an investment opportunity in Alaska (Cama, 2014). In this regard, the business has to consider being skeptical with many possibilities. Any delay in making a decision also poses a threat to its profitability, as other companies can take advantage and gain a foothold in the Alaska oil and gas investment sector.
Nevertheless, the use of licensure has ensured that ConocoPhillips still maintains a competitive edge by holding production licenses as assets, even before making commitments to invest in the exploration of specific geographical areas (Irwin, 2013). The business has also been embracing environmentally safe strategies that ensure it retains a cordial relationship with various environmental stakeholders that have the potential to stop its investments and cause it to suffer losses due to incompleteness.
It is evident that the company would be well protected against all the threats in its external environment by going for a product differentiation strategy. The conclusion is based on the concerns outlined in the internal and external analysis using Porter’s five forces analysis and PESTLE analysis.
While the product made by the players in the industry is identical, there are important differentiation strategies that can help ConocoPhillips Alaska retain its leadership position in the business in Alaska. Part of that differentiation would be to concentrate on developing long-term development commitments with the local population and government.
It would ensure that the company does not succumb to the threats posed by changes in the ordinary competitive environment. As the case of tax benefits shows, relationships with relevant stakeholders have the potential to give ConocoPhillips the opportunity to bypass other business hurdles that can affect its competitors.
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Besides, the relationship helps minimize the threats posed by buyers and sellers in the external environment of ConocoPhillips Alaska (ConocoPhillips, 2015). The opportunities for being a cost leader for ConocoPhillips are gaunt compared to the differentiation strategy. The commitments made by companies in the oil and gas industry in Alaska require assurances of future abilities for investments to have positive returns.
Going for a low-cost alternative will cause the business to limit its profit margin and expose itself to some threats affecting it externally. A narrow profit margin is also not sustainable because the oil and gas sector in Alaska does not allow easy scaling of a business. Therefore, pursuing such a strategy will cause the company to incur losses in the medium term when the projects only have a long-term perspective on their return on investment.
On the other hand, a big brand name and the current development in Alaska push the company towards differentiation. Its size, commitment to the state, and the ability to sustain attractive employment terms for Alaska residents remain its attractive core features for the Alaska government and business opportunity (DeMarban, 2015).
Also, the company’s chief weakness is in its nature of the enterprise, which exposes it to many pollution accusations. Unless the business comes up with policies, technologies, and operations that are cleaner for the environment, it will continue to face difficulties in justifying its investments.
In this regard, differentiation is the way to go as it allows the company the freedom to explore technologies, different work arrangements, and partnerships in its investments with other organizations that have the capabilities of handling its green investment and project sustainability concerns.
ConocoPhillips Alaska is moving to become differentiated from other oil and gas companies in Alaska. While its traditional competitors are still seeking deals, going for exploration, and drilling as different segments of the business, ConocoPhillips Alaska has increased its integration in the supply chain. It has obtained a distribution channel, ready with its pipeline investment.
The company is looking at developing sufficient export capacity for oil and gas. Also, the company is relying on technology to make cost savings in the transportation of petroleum. ConocoPhillips Alaska has been negotiating with the state and national agencies so that it can conduct business in the National Petroleum Reserve – Alaska.
Despite many regulatory hurdles, the company will finally be able to proceed with investments after meeting the many conditions set up by the relevant stakeholders (Dlouhy, 2014). It is another move towards differentiation, given the kind of deals that the company is concentrating on in the Alaska market and its approach to meeting its objective of becoming a leading player in the development of the oil and gas industry in Alaska.
Figure 1: An illustration showing the potential strategic paths for ConocoPhillips Alaska
ConocoPhillips Alaska cannot go for focused differentiation because of the uncertainty of its investments. The business incurs significant risks in every project, with its exposure to the external environment conditions, such as prices of oil and gas globally and demand being the major influencers of success.
Therefore, the company has to keep several diversified projects at hand to cope with any upheavals in its market. It has embraced a directive by the Alaska government to consider exporting gas (Caldwell, 2013). The increased demand for sustainable extraction of non-renewable fuel resources will continue to affect the capabilities of the company in the future as its biggest threat.
However, ConocoPhillips Alaska is in a favorable position compared to its peers. It can get sustainable returns from its drilled wells that perform well. The company is also using technology and business partnerships to manage its risks. Also, it does not have a current project that places it in a non-sustainable possible, which would affect the success of other current or planned projects (Koroknowski, 2013).
The attractive tax regime that oil and gas companies have in Alaska can end, as the government is not seeing immediate gains in employment and other expected developments. ConocoPhillips Alaska and other players have to consider finding other ways that will enable them to continue earning the same margins for their investment, even when the tax subsidies by the Alaska government end.
In this regard, the company should be going on with its research and developments. It should find ways to bring in new technologies that can help it cut significant recurrent expenditures in the process of drilling and managing wells.
In the end, differentiation is the best strategy for ConocoPhillips Alaska to pursue as it currently does. The market is becoming competitive as the current rivals continue to explore different integration ways for their investments. On the other hand, the strengths, competitive advantages, and external environment for ConocoPhillips Alaska points towards greater success when using a differentiation strategy.
The focus for the company should be on increasing efficiencies in the current projects and finding internal market and export supply deals that will sustain its profitability.
Brehmer, E. (2014). ConocoPhillips targeting 62,000 new barrels by 2017. Alaska Journal of Commerce (5). Web.
Caldwell, S. (2013). At state’s urging, ConocoPhillips applies for natural gas export license. Alaska Dispatch News. Web.
Cama, T. (2014). ConocoPhillips exports crude oil from Alaska. The Hill. Web.
ConocoPhillips. (2015). ConocoPhillips reports fourth-quarter and full-year 2014 results; Strong reserve replacement; further reduces 2015 capital. ConocoPhillips. Web.
DeMarban, A. (2015). Conoco moves ahead on North Slope even as layoffs proceed. Alaska Dispath News. Web.
Dlouhy, J. A. (2014). Feds set ground rules for ConocoPhillips project in Alaska. Fuel Fix. Web.
Irwin, C. (2013). ConocoPhillips mulls Alaska oil exports to Asia. CNBC. Web.
Koroknowski, R. (2013). FAA approves use of drones by ConocoPhillips to monitor oil drilling activities in Alaska. Climate Progress. Web.