Imperial Oil is a giant Oil and gas producing company based in Calgary, Canada. It is the second largest integrated petroleum company in Canada and has employed profitable strategies which stimulated its growth since its establishment in1880. Its operations include exploration and extraction of oil and gas, manufacture and distribution of petroleum products, production of chemicals for industrial and domestic use through innovative and sustainable technology. It has been paying dividends to its shareholders for 21 consecutive years. The success of IOL can be attributed to the efficient deployment of its resources, capitalizing on its strengths and using the opportunities to gain a competitive advantage in the industry.
This report tracks the progress of the company with reference to its missions, visions and goals to evaluate whether its advancement is consistent with the generic strategies or it has diverted from its professed goals. The internal and external factor analysis is also taken into consideration to determine whether the strategy being followed is adequate for the achievement of its objectives or it needs to be changed. The internal and external factors analysis is undertaken using tools like the SWOT and PESTEL respectively. Integrating the analysis with the objectives, the generic strategy can be analyzed and recommendations may be developed for strategic changes if any.
SWOT Analysis for Internal Environment
A SWOT (Strength, Weakness, Opportunities and Threats) analysis is a tool used for assessing the strengths or core competencies of an organization, the areas which need attention within the organization, certain developments that present the opportunities to grow and the situations that may pose a threat to the operations of an organization. A chart representing the SWOT analysis has been shown in Appendix 1.
Strengths. From previous assignments and Imperial Oil reports (2016), (2013) and (2010), it is obvious that Imperial Oil’s strength lies in its access to the vast reserves of oil sands, its influential and capable leadership and technological superiority in the industry. All these factors provide a competitive advantage to the company because of uninterrupted supply of crude that helps in integration of its three major operations, ensures cost efficiency and continuous supply of oil to the outlets in partnership with Exxon Mobil.
The capable leadership of its CEO has been successful in initiating projects that has provided an impetus to its expansion plans, won over the trust of all its stakeholders and has succeeded in discerning opportunities to steer the company towards profitable ventures.
Investments in R&D for technological innovations has resulted in patenting techniques for efficient recovery and refinement without damaging ecological environment, which has been useful for getting legal sanctions as well as cost efficiency in operations.
The present generic strategy is based on the best cost provider strategy that offers maximum value for the price paid by the customer. This strategy helps in getting customers who are willing to pay for high quality products.
Weakness. Retaining field employees pose a problem for the organization because of remoteness of locations of the oil sands. Exploration and recovery are strenuous operations and may demand many hours of work in severe weather conditions. This may have a negative effect on employee morale and affect work life balance adversely. Although adequate compensation may be used to deal with it, turnover rates may be considered a weakness.
Exploration and recovery of Oil and gas are costly operations and require huge investments which sometimes may prove fruitless. This is another weakness of the industry although technological innovations may facilitate accurate predictions about the possibility of striking reserves; it may still be far from the exact grade of crude required. However, Imperial has initiated substantial R&D in technology to innovate techniques for fast and effective predictions as well as recovery as a measure to address this issue.
In adequate vendor development may also give rise to problems like supply of poor up graders for refining the crude and could be considered a weakness for Imperial.
Opportunities. There are predictions that the world’s energy requirement will increase substantially in the coming years. This projection of demand offers a great opportunity for oil and gas industry in Canada and USA, who can plan their projects to meet the future demands.
Also, change in drilling technology which is significantly better computer-aided geologic modeling and up gradation in drilling, particularly through the invention of horizontal drilling has changed the oil and gas recovery scenario all over the world (Wamstead, 2008). According to the author, this new technology has facilitated the recovery of oil more easily than before and has offered an opportunity for the development of the U.S. oil and gas industry and elsewhere. Technological innovations have facilitated the discovery of new reserves, easy recovery and quality enrichment and have produced new avenues for development in the industry. Imperial Oil with its already advanced recovery techniques can make profitable use of these opportunities.
Threats. One of the major threats to Imperial Oil’s profitability is the economic recession the world is facing today. Donald, (2013) has identified several threats to the global O&G industry including IOL. These threats include a high degree of uncertainty around energy pricing, with the market influenced by several factors like recession in the Eurozone.
Secondly, there is also significant risk in energy policies across key markets by the government of different countries in the world. These comprise the growth of shale production in the US and Europe, oil sands in Canada, key pipelines across the US and Canada, and offshore exploration and production in the Arctic and the South China Sea. Such uncertainties make it difficult for companies to deal with the regulatory issues across the world.
Third, a high degree of security risk is present in the war torn areas of Kuwait, Iran, Syria and other countries which hinder the supply and drilling operations there and drive up the operation costs. There is also considerable loss to human capital because of security threats.
Opposition from social groups to drilling and exploration may also be perceived as a threat due to the growing concern over ecological damage caused by these operations. However the threat of spillovers has been reduced considerably by use of efficient technologies.
PESTEL Analysis of External Environment
The external factors that affect the operations are described as the PESTEL (political, economic, social, technological, environmental, and legal) factors. Imperial Oil has also felt the impact of these factors in its operations in the areas discussed below
Political Factor
Imperial Oil Company has been affected by the policies that are made by the government and with change in present regime. However, Canada’s political environment has been stable in the last years which positively influenced the performance of Imperial Oil Company. (Barrett, & Williams, 2014). The government has supported the activities of IOL by sanctioning the drilling operations in Cold Lake and Kearl.
Economical Factor
Economic factors that significantly influence the company are the fluctuation in the currency. In the year 2013, for example, there was a sharp drop in the Canadian dollar against US dollar and in early 2014 it reached as low as 90 US¢/C$ (Barrett, & Williams, 2014). However, demand from external markets such as India, China, and other developing countries are likely to go high, which will compensate the decreased demand in the United States.
Environmental Factors
There is considerable concern over the extraction operations as groundwater gets contaminated, dangerous gasses are emitted, a lot of waste is generated, excessive use of energy and water takes place. Although Imperial is committed to sustainable development and uses efficient, commercially and economically proven, and viable technologies with an aim of reducing emissions and greenhouse gases as much as possible,. Improving energy efficiency remains the most efficient way to reduce greenhouse gases, pipeline incidents such as leaks and rupture a remains a major concern for the company as they pose a significant risk to the public.
Social Factor
Imperial Oil Company has attracted numerous workers including immigrants who have temporary accommodations within the company like in Alberta or around the plant sites. The presence of these people makes it difficult for the supply of residential houses and shortage leads to greater cost (Barrett, & Williams, 2014). Through CSR activities, Imperial Oil Limited executes its obligation towards the stakeholders. (Social Responsibility, 2016). The company works hard to show it is responsible for all its activities and would want to see the environment least hurt by its operations.
Technological Factors
Innovation and technological advances have significantly led to increased competition in the oil and gas industry. Imperial Oil supports the development of reclamation and environmental technologies. The company has invested up to $78 million in research and technology to improve its efficiency and remain environmentally conscious.
Legal Factors
Imperial Oil being a company that deals in oil and gasses has multiple legal requirements that to see that the risks that are associated with the operations of the corporation are reduced. The operations at different locations can be initiated only after securing license and other legal sanctions.
Generic Strategy analysis
Initially the generic strategy was built around Imperial Oil’s competitive advantage in access to oil reserves, superior technology and best cost provider strategy. This strategy had worked very well until 2009. The company however felt a necessity to change its strategy after the economic recession hit oil prices and had a negative effect on the profitability of the recovery operations. Although its integrated chain of businesses could nullify the effect to a large extent, the need for cost efficient strategy was experienced by Imperial Oil.
Imperial Oil has many favorable factors that supported its strategy of using technology and value chain integration to build a competitive advantage in the industry and maintain its leadership in many aspects. However, economic fluctuations in the global market have made it imperative that it reformulate its strategy to suit the new developments in oil and gas industry.
Considering the opportunities that new technologies and demand of oil has produced, Imperial Oil must consider strategic partnerships to cater to the demand. It can also use the technology advantage to build more value into its operations to support its generic strategy of best cost provider. Expanding its operations to India and China to exploit the growing demand for oil and gas seems to be a feasible strategy to beat the increasing competition in the west.
The strategies should also incorporate plans to counter the uncertainty in oil prices due to security risks and Government policies. Although IOL’s focus has always been on long term gains, the price fluctuations must be weathered by incorporating strategies like value addition to maintain customer loyalty.
Although the mission, vision and goals of the company remain unchanged and still aims for responsible development and value addition to shareholders, the strategy should be more oriented towards achieving cost efficiency and giving the best value for costs to customers.
Appendix -1
Figure 1. SWOT analysis of Imperial Oil Limited
References
Annual Reports. (2009, 2013, 2016). Retrieved from: http://www.imperialoil.ca/Canada-English/Files/
Barrett, E., & Williams, B. (2014). Macroenvironmental Analysis for the Alberta Midstream Oil and Gas Sector. Applied Project. APRJ – 699. 1-46 Donald, Iain. (2013 February). The Top Risks and Opportunities Facing the Oil and Gas Industry in 2013.Oil Gas Monitor. Retrieved fromhttp://www.oilgasmonitor.com/the-top-risks-and-opportunities-facing-the-oil-and-gas-industry-in-2013/
Social Responsibility. (2016). Imperialoil.ca. Retrieved from http://www.imperialoil.ca/canada-english/products_chemical_sr.aspx
Wamsted, D. (2008). Oil and gas industry sees challenges, opportunities ahead. FORBES, 182(7), 121-+.
