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Management Principles Essay

Summary of the article by David Forman “BHP REVITALISES ITS GLOBAL MANAGEMENT,” Business Review Weekly, April 17, 1995, page 24-26. BHP is setting up the required management to handle a rapid global expansion. They have done this by appointing a network of regional corporate representatives and a corporate general manager, international. Representing BHP across the world, these managers will facilitate new developments, and assist global expansion. This overseas focus of expansion requires new systems and processes, to take on projects in different countries around the world.

BHP has taken advice from other companies, that have expanded outside their home countries, also background advice from consulting firms. BHP has taken this advice and created a management model to suit their operations. By providing regional representatives to deal with governments, bureaucracies, and coordinators of cross-divisional activities, this model expects BHP to be able to find expansion opportunities. Particularly where opportunities exist that involve more than one divisional group. An example of this is BHP Power, which develops power stations using the most appropriate energy source for the circumstances.

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Power is an independent group, drawing on the skills of the Mining and Petroleum divisions where necessary. The company is looking at other possible new businesses, that are natural developments of the company’s existing businesses, in the same way, Power has evolved from Petroleum and Mining. One of these is Manufacturing, using the skills developed in the Steel division. In 15 years BHP has gone from being a domestic steel producer with small petroleum and mining operations to have a significant international presence in the steel, oil, and mining industries. (Forman, D. 1995, pp. 24-26) MANAGEMENT PRINCIPLES. After a six-month review of their business position into the next century, BHP has developed a strategic plan. (Forman, D. 1995) The strategic management process uses nine steps to create a strategic plan.

  1. Identify the organization’s current mission, objectives, and strategies. BHP operates steel, mining, and petroleum businesses.
  2. Analyze the environment. They have recognized that many areas that they operate in are suitable for expanding existing operations.
  3. Identify opportunities and threats. The opportunities are to develop businesses that are not yet operating in a particular area. The threats are competitors who move in quicker, and a lack of understanding of the specific environment.
  4. Analyze the organization’s resources. BHP has recognized that they have many skilled people within the steel, mining, and petroleum operating divisions.
  5. Identifying strengths and weaknesses. The strength of BHP is in its traditional steel, mining, and petroleum operations. The weaknesses are the lack of a cooperative link between the divisions.
  6. Reassessing the organization’s mission and objectives. Merging the organizations’ resources with the opportunities in the environment shows the organization’s opportunities. FIGURE: 1. ORGANISATIONS. OPPORTUNITIES (Robbins, S & Murkeji, D.1994 page 142) The opportunities are to develop new businesses using the skills of the steel, mining, and petroleum people. The organization’s objectives were to operate these divisions as separate businesses. New objectives will be needed to direct the organization into these opportunities.
  7. Formulating strategies. Using the eight-step decision-making process, a strategic plan was formulated. The objective of this plan is worldwide growth, through diversification and direct expansion.
  8. Implementing strategies. Once the strategic plan was decided, the process was implemented to develop an operational plan to achieve the objectives.
  9. Evaluating results. The performance results of this plan, measured by the international growth of the organization, will show whether the plan requires adjustments or not. (Robbins, S & Murkeji, D.1994. pp 141-143) BHP has then used the eight steps of decision-making to develop the operational plan.
  • Formulating a problem. The problem was to find a management model that will help achieve the goal of global expansion and diversification.
  • Identifying decision criteria. BHP wanted a stronger presence overseas, to be able to recognize and develop opportunities for new projects, with greater co-operation between the steel, petroleum, and mining divisions.
  • Allocating weights to the criteria. Weighting these criteria, divisional co-operation would have scored highest, then the need to have people that can develop new opportunities, followed by the need for regional representatives. All of these criteria would have scored highly.
  • Developing alternatives. BHP studied other successful global companies, as well as seeking advice from consulting firms, looking for alternative management systems.
  • Analyzing alternatives. Studying the management systems of other international companies, BHP could then select certain systems that would meet the criteria.
  • Selecting an alternative. Using the selected systems BHP developed a management model that is suitable for their own operations.
  • Implementing the alternative. An operational plan was then developed to implement this new management model.
  • Evaluation of decision effectiveness. The decision’s effectiveness will be gauged by how well the company develops new international business. (Robbins, S & Murkeji, D.1994. pp 79-83) Part of BHP’s operational plan was to make changes to its organizational structure by appointing regional corporate representatives, these representatives are positioned alongside existing operating divisions. The new structure looks like this; New positions

FIGURE: 2. As this diagram shows, the new positions, (circled), provide a link between the steel, petroleum, and mining operations. These additions to the divisional structure are designed to enable the co-operation between the divisions enabling cross-divisional expansion developments, such as BHP Power. By adding geographic departmentalization to the original product departmentalization, BHP is able to monitor regional environments more closely, by liaising with local governments, bureaucracies, and BHP’s divisional managers. (Robbins, S & Mukerji, D. 1994, page 208.) By understanding the specific environment better BHP’s managers can recognize opportunities within that environment for new projects and businesses. They can also make quicker, and more informed decisions when running operations in that environment as well as making the needs and timing for expansion clearer. All of these changes are designed to facilitate international growth, in an entrepreneurial way, without jeopardizing the traditional operating divisions, or cash cows as in the BCG matrix shown in figure 3.

  • HIGHLOW
  • MARKET SHARE
  • STARS *BHP POWER QUESTION MARKS NEW BUSINESSES SUCH AS MANUFACTURING
  • CASH COWS STEELMINING& PETROLEUMDOGS (Robbins,S & Murkeji, D.1994 page 145)

FIGURE: 3. Using this matrix shows that if BHP converts its new businesses from question marks to stars, without creating dogs, this will lead to rapid growth. To control profitability and cash flow, they must also keep maintaining and expanding their cash cows which are the steel, mining, and petroleum divisions, these are the backbone of the organization. BHP is planning this by developing new businesses using the resources of the cash cows and then adding value to the products that they produce, creating new customers for their own products. An example of this is that BHP Power is building power stations using the skills and resources of the mining and petroleum operations, and in turn, these power stations use either coal, produced by the mining division, or gas, produced by the petroleum division. Forman, D. 1995, BHP revitalizes its global management?, Business review weekly, April 17, 1995, pp. 24-26. Robbins, S & Mukerji, D. 1994, Managing Organisations, 2nd and, Prentice-Hall, Englewood Cliffs, NJ.

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