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Strategic Management Project

Group 7:

Abhas Garg 14P001

Aditya Menon 14P003

Akhil Agrawal 14P005

Anup Kumar 14P009

Sayoni Basak 14P044

Sunny Khanna 14P052

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Contents Acknowledgement .................................................................................................................................... 4

Executive Summary ................................................................................................................................... 5

Introduction .............................................................................................................................................. 6

Industry ..................................................................................................................................................... 7

Upstream .................................................................................................................................................. 8

Midstream ................................................................................................................................................. 9

Downstream .............................................................................................................................................. 9

External Audit ......................................................................................................................................... 11

Demographic Analysis ........................................................................................................................ 11

Economic Environment....................................................................................................................... 11

Political Factors ................................................................................................................................... 11

Social Environment ............................................................................................................................. 13

Technological Environment ................................................................................................................ 13

Legal Environment .............................................................................................................................. 13

Global Environment ............................................................................................................................ 14

Industry Environment ......................................................................................................................... 14

Competitive Environment ....................................................................................................................... 16

CPM Analysis ........................................................................................................................................... 17

Internal Audit .......................................................................................................................................... 18

SWOT Analysis ..................................................................................................................................... 18

Strengths ............................................................................................................................................. 18

Weaknesses ........................................................................................................................................ 19

Opportunities ...................................................................................................................................... 20

Threats ................................................................................................................................................ 21

Internal factor evaluation matrix (IFE Matrix) .................................................................................... 22

External factor evaluation matrix (EFE Matrix) ................................................................................... 23

Resources ............................................................................................................................................ 23

Tangible Resources ............................................................................................................................. 23

Intangible resources ............................................................................................................................ 25

Value Chain Analysis ............................................................................................................................... 27

Primary Activities ................................................................................................................................ 27

Secondary Activities ............................................................................................................................ 28

Value Chain ......................................................................................................................................... 28

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Present Business Strategy ....................................................................................................................... 29

Business definition & Mission ............................................................................................................. 29

Business Portfolio................................................................................................................................ 29

Corporate Strategy .............................................................................................................................. 29

Business Level Strategy ....................................................................................................................... 30

Core Competency.................................................................................................................................... 31

Recommendations .................................................................................................................................. 32

Conclusion ............................................................................................................................................... 33

References .............................................................................................................................................. 34

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Acknowledgement We would like to thank Prof. Veeresh Sharma for his continued guidance and advice during the course.

His classroom teachings and practical industrial examples have been instrumental in execution of this

report. We thank him for his guidance and encouragement at various stages of the project. Lastly, we

would like to thank our classmates for their support.

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Executive Summary Energy is the basic fuel that powers up the entire world. ExxonMobil being the market leader in this

industry has a significant impact on the entire oil and gas industrial ecosystem. With the recent slump in

crude oil prices, we see the global energy industry battling through erratic transitions. There are other

emerging concerns in the face of stringent compliance norms at the cost of environmental degradation and

the push for alternative green energy sources. These emerging shifts in the global energy market raise

various questions how do the falling crude prices affect the operations of the various energy firms, what are the strategies necessary to sustain competitive advantage in such erratic global scenarios and how can

the firms strategically reorient themselves to measure up to the challenges posited and ensure profitability

through earning above average return and creating value for its stakeholders. In the light of such

significant developments and to find an answer to the above dilemmas, a critical strategic overview of the

firm is warranted.

In the following report we have tried to examine the effectiveness of the existing strategy employed by

ExxonMobil which operates in the Energy sector. In the report, we first try to analyze the External

environment in which the organization operates. This external audit of the energy sector analyses the

industrial space through different environmental aspects such as the demographic environment, economic

environment, political and legal environment, technical environment, social environment, global

environment and the competitive landscape. The analysis of the various factors of the external

environment provide us with deeper insights into the competitive dynamics and the diverse aspects being

faced by an organization operating in the energy industry.

The report then critically examines the internal environment of ExxonMobil to understand the various

tangible and intangible resources deployed by the firm in tandem with the core competencies of the firm.

This knowledge helps us to better appreciate the chain of operations of the firm and process of utilization

of the resources and the competencies of the firm to create value for the various stakeholders involved.

After the internal audit of the firm and the external audit of the industry in which it operates, the report

combines the two to analyze the strengths and weaknesses of the firm through the internal factor

evaluation matrix and the threats faced by the firm and the opportunities that exist through the external

factor evaluation matrix. The report towards the end analyses the current strategic framework employed

by the firm and provides recommendations for the firm to maintain its competitive advantage.

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Introduction Exxon Mobil Corporation is an American Multinational operating as an integrated Oil & Gas company. It

is headquartered in Irving, Texas, US and was formed as a result of a merger between Exxon and Mobil.

The company has operations across the world in petroleum and petrochemicals. Exxon Mobil is

integrated both horizontally as well as vertically with operations ranging from Exploration & Production

of Oil & Gas, Coal, Minerals and Electric Power generation to refining and marketing fuels, lubricants

and chemicals.

Exxon Mobil is the second largest company by market capitalization and the fifth largest company by

revenues globally

Revenue breakdown for Exxon Mobil

While the upstream segment contributes only about 10% to the revenues, it is the single largest profit

driver for the company accounting for nearly 80 percent of net income. The upstream operations are well

balanced for Exxon Mobil with a fifty - fifty split between oil and gas production. The pie chart

containing geographical breakdown of revenues shows that more than half of its revenues come from

North America and UK combined. The company has been gradually increasing its share in the US shale

Production with 14% share in 2013 up from 5% in 2008.

Exxon Mobil has a huge resource base of nearly 90 Billion Barrels of Oil Equivalents. Asia Pacific holds

the maximum (31% of total) followed by United Stated (29%) and Canada (19%). For gas alone, United

States has the maximum reserves for Exxon Mobil at 37% largely due to its 2010 acquisition of XTO

Energy. While the overall reserve base is balanced between oil and gas, certain regions have skewed

resource bases. For instance, Canada reserves comprise primarily of oil (approx. 96%) while Europe

comprises of 86% in gas reserves and similar is the case with Australia with two huge LNG projects at

nearly 84% in gas reserves.

In the downstream segment, Exxon Mobil has established itself as the largest integrated refiner and

manufacturer of lubricant base stocks. Its total capacity for crude distillation stands at nearly 5200 kilo

barrels per day. Exxon Mobil has refineries spread across US, Europe, Asia, Canada and Middle East.

79.34%

10.47%

10.19%

Segmental Breakdown of Revenues

Refining & Marketing

Basic & Diversified Chemicals

Exploration & Production

37.73%

9.15%7.95%

45.17%

Geographical Breakdown of Revenues

US Canada

UK Others

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Supply chain for Exxon Mobil is shown below with top suppliers and customers

Industry

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Upstream (Exploration & Production) Refers to the Exploration & Production (E&P) and continues till any of the combinations (crude / gas /

gas + water / gas + water + crude) is transported to the refinery. Occurs first in the chain and sets an early

foundation for all the processes that will follow.

Upstream value chain

Exploration is the process of trying to find accumulations of oil and natural gas trapped under the

earths surface. The exploration phase begins with the leasing of acreage, either from government

auctions or from private land or mineral owners. Exploration relies on a combination of geological

and geophysical studies examining geographical structures and rock properties below the surface.

Appraisal is about risk assessment, whether the accumulation found by exploration is commercially

viable and worth developing for production. The discovery must cover the costs as well as generate

profits for the companies involved.

Development phase consists of drilling for full-scale production and building infrastructure to

connect the wells to transportation links or, potentially, local processing facilities. The decision to

develop a field is based on the information collected during the exploration and appraisal phases. The

production facilities are broadly classified as onshore, offshore and deep water based.

Production refers to ongoing extraction of oil and gas from the fields. The focus is maximizing the

field output. As a field matures, the effectiveness of natural recovery methods diminishes and the

production rates decline. Secondary techniques such as water flooding and tertiary techniques, also

known as Enhanced Oil Recovery (EOR), are used to increase the amount of oil that can be extracted

from a field. EOR techniques include injecting steam or certain gases into the well or flooding the

well with water mixed with certain chemicals. Using EOR, 30 to 60 percent of the reservoirs original

oil can be extracted (sometimes as much as 75 percent), compared with 20 to 40 percent using

primary and secondary recovery. However, these techniques are expensive and normally used when

market dynamics justify the costs.

Abandonment is the point at which it is no longer profitable to recover the remaining reserves. Every

field eventually reaches the end of its economic life. The producer temporarily or permanently plugs

and abandons the field

Companies Involved

India World

ONGC Chevron

Reliance BP

Cairn India Shell

HOEC Conoco Phillips

Oil India Ltd Exxon Mobil

Exploration Appraisal Development Production Abandonment

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Midstream (Transportation and Storage) Refers to the transportation of gas, crude oil and refined products (by pipeline, barge, tankers, rail or

truck). There are majorly three types of pipelines:

Gathering Pipeline Systems gather crude oil or raw natural gas from production wells.

Crude Oil/Gas Pipeline Systems transport crude oil from the gathering systems to refineries.

Refined Products Pipeline Systems transport refined products such as diesel, kerosene, petrol, LPG

etc. and petrochemicals from refineries to the end user or to storage and distribution terminals.

The pipe used in oil pipeline systems can range in size from 2 inches to 48 inches in diameter and in gas

systems can range from 2 inches to 60 inches in diameter. Oil and gas pipeline systems are owned and

operated by many different companies.

Natural gas is typically stored underground in large reservoirs. Three main types of underground storage

include: depleted gas reservoirs, aquifers, and salt caverns. Additionally, natural gas by cooling to -161

degree C can be stored in liquid formLNG, which takes up less space when distributed or shipped. (Reduction of volume by 600 times, similar to reducing a beach ball into a ping-pong ball)

Raw Natural Gas undergoes separation, dehydration, sweetening and removal of Natural Gas Liquids

processes. The NGLs are stored and are mainly used as an input for petrochemicals. Compression to LNG

has made it easier to transport natural gas which is then re-gasified at the arrival terminal.

Companies Involved

India

IOCL

GAIL

Downstream (Refining and Marketing) Refers to the refining of crude oil and processing of raw natural gas. It also refers to the marketing and

distribution of final products in the market. The companies involved are also known as Oil Marketing

Companies (OMCs). The downstream sector touches consumers through products such as jet fuel,

gasoline or petrol, diesel oil, kerosene, fuel oils, heating oil, waxes, lubricants, natural gas, asphalt and

liquefied petroleum gas (LPG) as well as hundreds of petrochemicals.

Downstream value chain

Crude Procurement is the phase in which refiners evaluate, select and procure the most appropriate

crude for their particular refinery setup and markets served.

Trading is an important aspect because countries that have greater demand for crude oil and refined

products may not have a supply to match the demand. This results in international trading of crude

oil. The US is the largest importer of oil. In recent years, India and China have seen increases in their

imports. Paper trading is also done as a means to assure price and availability of future oil supplies.

Refining processes crude oil and converts it into a wide range of customer and industrial products. A

refinerys configuration is measured using an industry benchmark known as the Nelson Complexity

Crude Procurement

Trading Refining Distribution Marketing

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Index (NCI). The broad categories of crude oil component hydrocarbons are gases, gas oils, middle

distillates, and residuum and light distillates.

Global economy entered a high growth phase with the turn of the millennium and oil prices followed suit

by gradually increasing throughout this period, except of course during the 2008 crisis. Oil producers

responded by hiking production to profit from high prices. Major portion of this increased production

came from Non-OPEC regions and the US Shale Gas revolution was at the forefront of this increased

activity. In 2013, the US net energy imports declined to the lowest levels in more than two decades, as the

country marched towards energy independence. Looking at EIA data, the global oil production increased

from 84.9 million barrels per day in 2009 to 90.1 million barrels per day in 2013. The corresponding

figures for US alone were 9.1 million barrels per day and 12.4 million barrels per day respectively.

Similarly, the Natural gas production in USA increased from 20.6 trillion cubic feet in 2009 to 24.3

trillion cubic feet in 2013. In essence, US along with Canada accounts for much of the growth in global

energy supply.

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External Audit

Demographic Analysis

The world population exceeds 7 billion at present and according to UN estimates, it is expected to grow in

future although at a reduced rate to reach between 8.3 billion and 10.9 billion by the year 2050. While

Asia will continue to hold the largest population, Africa is gradually expected to increase its share of the

world population. The growing population will have ever increasing energy needs and the Oil & Gas

industry looks poised to have ever greater influence. In the medium term though, we continue to see

weakness particularly in Europe and Asia. According to United States Energy Information Administration

(EIA) data, we can expect a 0.2 million barrels per day decline in OECD consumption in 2014. In fact,

the International Energy Agency (IEA) has reduced its forecast for global oil demand growth to 0.9

million barrels per day (m b/d) and 1.2 million barrels per day (m b/d) for 2014 and 2015 respectively.

On the workforce front, United States has been witnessing shortage of skilled professionals. The Oil &

Gas industry is optimistic on growth prospects but the skill gap needs to be filled to achieve the growth.

Retiring staff at senior levels, and a general demand for specialists at mid-career roles emphasizes the

need to attract, train and build a huge pool of new technical staff to maintain operations and performance.

To effectively overcome the problem, the oil and gas industry needs to take steps towards enhancing the

productivity of technical staff and the effectiveness of succession plans with respect to top leadership.

Also, an effective global approach can be adopted to improve recruitment mechanisms and to offer

flexible career rewards and opportunities.

Economic Environment

While falling crude prices are good news for households and allied industries around the world, the big

economic powerhouses of the world which depend on crude exports, stand to suffer. For instance, the US

shale boom helped revive economic growth and reduce unemployment across the country. Russia derives

more than 50 percent of its revenues from energy exports. The recent fall in crude prices have already

taken a toll on its economy with its stock market down by almost 20% and a similar beating taken by its

currency. Also, the falling crude prices bring with them renewed deflation worries for countries in Euro

zone. India, on the other hand, gains immensely from lower prices.

Production costs in most OPEC regions are under $10 per barrel and Saudi Arabia has the lowest

production cost at around $1-$2 per barrel. Government estimates suggest that Saudi Arabia can survive

fiscally with prices as low as $80 per barrel. The US, however, has high production costs for tight oil i.e.

shale oil at around $50-$70 per barrel. Falling crude prices will make the shale business unprofitable in

the long run.

The April 2014 World Economic Outlook (WEO) forecasts a 3.8% growth for the world economy in

2015, down 0.4% from the 2014 figure largely due to weaker than expected global output. As the Euro

zone struggles to get back on its feet and the Asian powerhouses slow down, it appears that the

resurgence in world economic output will take some time. Meanwhile, United States has started showing

signs of economic recovery. Recent surge in growth and inflation numbers coming out better than

expected have unleashed a new wave of hope for the US economy.

Political Factors

Exxon and its affiliates have some of the most extensive access to governments of all the companies in

the global oil and gas industry, with a number of divisions dedicated to administration affairs, particularly

in Europe and the US. Exxon operates in nearly 80 countries, encountering innumerable levels of

bureaucracy, regulations, and security-related issues, and has developed immense familiarity in dealing

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with national governments, which is of great importance when it comes to facilitating associations with

different governments.

Let us now evaluate the relations of ExxonMobil with select governments where Exxon has or had a stake

in large project.

US and North America

Around 45% of ExxonMobils resource base is in the American region, and it has a massive production, development, and retail presence in the US. The organization is part of to the US Council for International

Business (USCIB) and, along with the other 300 American corporations, is involved in lobbying the US

federal government. An example is the lobbying against the Obama administrations eventually futile climate change bill.

Though, Exxons role in the USCIB can put it in clash with the US government, the USCIB is extremely important to US organizations and their participation in the global trade. It is the US partner of the

International Chamber of Commerce (ICC) and the International Organization of Employers (IOE). More

importantly, the USCIB is also the US associate for the Business and Industry Advisory Committee

(BIAC) to the Organization for Economic Cooperation and Development (OECD).

Exxon has widespread upstream and downstream operations in several of the US states, including

offshore drilling ventures in the Gulf of Mexico. This vital role in US energy supply means that Exxon is

able to exert significant pressure on both federal and state governments.

Indonesia

Exxon has a rising presence in Indonesia, and is expected to play an increasingly important role in

meeting the countrys rising energy demands in the coming years. As a result, its repute with the government is quite favorable.

Indonesias energy demand is fully expected to increase in line with its economic progress and population growth, and among the G20 nations, it only lags behind China and India as the worlds fastest growing economy. Energy demand is growing at a rate of about 7% per year, and this increased appetite for natural

gas is where Exxon plans to make the biggest contribution. Moreover, with the very promising coal bed

methane forecasts in Indonesia, Exxon also has interests in extensive LNG projects.

Despite high levels of activity in Indonesia, Exxon asserts to be functioning in a responsible manner in

order to make its operations sustainable for the future. It works with the stakeholders to identify and fund

initiatives that reduce the obstructions in development in areas such as health, education, and

infrastructure. However, Exxon has faced widespread criticism over its human rights policies following

accusations that the company is in support of Indonesias notoriously vehement military. However, in view of the fact that Indonesia is a multiparty democracy, ExxonMobil can soundly claim that it is

working in accordance with the institutions that are under the control of an elected government.

Venezuela

Venezuelas role in the global energy market has evolved rapidly over recent years. The global economic downturn, highly volatile oil prices, political instability in the Middle East and African oil producing

states, and new buyers in Central and South East Asia have placed the worlds seventh-largest oil exporter in a rather advantageous position.

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In 2006, there was a turning point in relations between Venezuela and Exxon along with many other international oil companies (IOCs) with interests in the country due to the expropriation of its Venezuelan assets by the Chavez government. It was an ideologically driven attempt by Venezuela to

squeeze foreign multinationals working to develop oil and gas resources in Venezuela. All companies

operating in the country, including Royal Dutch Shell and Total, saw their potential drilling acreage

slashed by almost two-thirds. Exxon stood firm as the only challenger to Chavezs attempts was to freeze out IOCs, and stated that it had no plans to pull out.

Exxons resilience in the face of such hostility from the Chavez government can be attributed to the fact that IOCs are finding it increasingly difficult to gain or maintain access to major oil and gas possessions

around the world, and securities in countries such as Venezuela should not be given up carelessly.

Social Environment

Due to shrinking U.S. domestic supplies, oil companies had to look towards deep water drilling.

However, subsequent to the B.P. oil spill in the Gulf of Mexico, the U.S. Government put a ban on deep

sea drilling in the Gulf of Mexico. Since local oil businesses rely greatly on local oil production, this

shakes their capability to produce oil. Industry contributors are subjected to extensive federal, state and

local regulations and environmental laws that administer discharge of materials into the atmosphere

including the emission of air pollutants and the discharge of water pollutants. Industry participants are

also subject to rules governing the storage and disposal of toxic substances and waste materials.

Technological Environment

New shale gas mining technology enables oil and gas drilling establishments to get new expanses to

extract gas from. This has led to a U.S. shale gas production increase over 14times since the last decade,

with reserves triplicating over the last few years. Thirty percent domestic gas production growth has

outstripped the sixteen percent consumption growth, leading to falling imports and lessening prices of

natural gas in the short term. China has acquired a stake in Chesapeake in Texas, U.S. to gain access to

explore shale gas drilling technology. Natural gas price projections are significantly lower than past years

due to a widespread shale gas resource base. Technology will continue to evolve and play a key role in

increasing efficiency, expanding supplies and mitigating emissions. Since oil from conventional sources

is shrinking, oil companies need to look at alternative and hard-to-extract locations to get oil. This has

prompted technology innovations in the Arctic regions, as well as deep-water drilling technology. There

has been significant progress in safety measures taken as well to prevent oil spillage and corresponding

environmental damage.

Legal Environment

In US, the Oil Drilling and Gas Extraction Industry is highly regulated, with the federal and state

governments being involved in all stages of production. State governments determine which areas are

open to oil exploration and extraction, issue exploration and production leases, and enforce environmental

legislation. The federal government also maintains the Strategic Petroleum Reserve (SPR). This was

established in 1977 in response to upheaval in the Middle East. The purpose of the reserve is to provide a

stock of oil that can be drawn down in the event of a major upheaval in the market.

In 2007, Congress passed the Energy Independence and Security Act, which contains standards relating to

producing a certain amount of renewable fuel (the renewable fuel standard or RFS) and automotive

standards to increase fleet gas mileage to 35 mpg by the year 2020.

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Global Environment

Exxon Mobil is one of the largest companies of the world in terms of both revenue and market

capitalization. The company is also the largest refiner in the world. It is having a presence in 21 countries

across the globe. Due to its dominant position in the oil and gas industry, it is significantly impacted by

the global industry trends

The global environment of the oil and gas industry in general and Exxon Mobil in particular is dependent

upon the global crude oil prices, which are further dependent upon the balance of global supply and

demand. Until recently, the fluctuations in the supply of crude oil were the primary reason for volatility in

crude oil prices, while the demand being more or less constant. But the recent downward trend in crude

oil prices was caused by a slowing demand in the global economy.

Apart from the principal economic factors of demand and supply, the global geopolitical situation also

plays an important role in determining the dynamics of the oil and gas market. These include issues

ranging from the sanctions on trade of Russian goods to the political issues of the Middle East.

The global climate change is a major issue for all the non-renewable sources of energy. This has led the

world to evaluate the option of switching to renewable sources of energy. Exxon Mobil has deployed its

resources on research and development to reduce the emissions of greenhouse gases in a cost effective

manner. Exxon Mobil also contributes from its Corporate Social Responsibility budget for the cause of

climate change, for example, it provides financial support to organizations which work for the cause of

sustainable economic development.

The company also needs to formulate its strategy in the context of the changing macroeconomic

environment for the energy industry. Shale gas is one of the biggest threats for the petrochemical

products. The rise in the US shale gas production is a matter of concern for Exxon Mobil and it has

started with its shale gas production to counter the cannibalization effects in the oil and gas segment.

Industry Environment

The oil and gas industry is a very large industry. Out of USAs total energy consumption, fossil fuel account for more than 85%; these fossil fuels include coal, oil and natural gas. Oil accounts for 40% of

USA energy requirements. The oil and gas industry has two major sectors, which are called upstream and

downstream. The upstream sector involves the exploration and refining part, whereas the downstream

sector is the commercial side of the business which involves distribution and marketing. Also, the oil and

gas industry is quite consolidated. It had 7 major players in the mid-20th century, who were collectively

called The Seven Sisters. The Financial Times named a New Seven Sisters(most of them being state owned) on March 11th, 2007; these companies were Saudi Aramco, Gazprom, China National Petroleum

Company, National Iranian Oil Company, Petroleos DeVenenzuela SA, Petrobras and Petronas. The

major non-state players are Exxon Mobil, Total S.A., Royal Dutch Shell, BP, Chevron and

ConocoPhillips. Most of these companies are vertically integrated oil and gas companies. They are

involved in all the oil and gas related economic activities like exploration, extraction/production, refining,

trading and marketing.

The industry trends can be better understood by analyzing the industry with Porters Five Forces Analysis

The Porters Five Forces model analyzes an industry on the basis of five key factors:

Threat of new entrants

Bargaining Power of Buyers

Bargaining Power of Suppliers

Threat of Substitutes

Rivalry among existing competitors

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These five forces are discussed as follows:

Threat of new entrants

The oil and gas industry is highly specialized and capital intensive with huge annual funding

requirements. According to Mr. Porter, the threat of a new entrant is dependent on two factors, the first

one being the height of existing barriers and the second one being the incumbents reaction upon the entry of new players. For a new player to enter the industry, it needs to have high financial capabilities and an

expertise in the technical and operational aspects of the business. The industry also possesses economies

of scale, which means that any new entrant would definitely stand at a disadvantageous position initially.

Apart from this, there are many other barriers like government regulations; Cartelization; ownership of

resources and numerous patents filed by the existing players. This means that a likelihood of a new player

entering the industry is quite low. However, financial restrictions cannot be a binding factor for firms with

access to large pools of funds and the ones which involve big ticket mergers and acquisitions.

Bargaining Power of Buyers

The powerful buyers have a greater ability to command a high bargaining power and ask for better quality

services. Most of the major oil and gas companies usually outsource their filed operations to oil and gas

service companies. If the size of the buyer is relatively large and the volume of their orders is huge, they

can command a high bargaining power. There are various categories of buyers of Exxon Mobil. These

buyers are other major oil companies, oil refineries, retail consumers and commercial companies like

airlines, shipping companies, etc. This is a high degree of threat for Exxon Mobil as the buyers have a

high bargaining power due to their low switching costs and their ability to supply themselves with their

oil requirements as many of the buyers are themselves in the business of oil exploration. Moreover, the

mergers, acquisitions and joint ventures in the oil and gas industry allow the involved parties to negotiate

better terms with the buyers of their products and services.

Bargaining Power of Suppliers

The suppliers with high bargaining power can influence the market by creating an artificial supply glut,

charging higher prices and by integrating and acting like a union of suppliers. This kind of a situation

emerged in the 1970s when the oil producing companies imposed embargos, which reduced the global

production of oil, which, in turn led to the supply shortages and a horrendous rise in the prices of crude

oil. The suppliers for Exxon Mobil can be categorized into suppliers of oil extraction equipment and the

suppliers of crude oil for refineries. Since, the US oil and gas industry has low switching costs,

standardization in products and concentrated buyers. But the industry suppliers are not concentrated.

Hence, this threat is not very high for the industry i.e. the bargaining power of the suppliers is low. Also,

vertical integration further helps in reducing the risk of supplier power.

Threat of substitutes

Since oil is a fossil fuel, it will last for a limited period of time. This drives the energy industry to seek for

other alternatives to oil. There have been huge investments lately in solar energy, CleanTech products,

renewable sources of energy and hydro carbon energy. A few other substitutes include ethanol, biodiesel

and biogas. But one common issue with all these substitutes is that it is quite expensive to process and

transform these sources into energy. Although, some of these products may have the potential to replace

oil and gas as the primary fuels of energy, none of them pose an immediate threat as substitutes to oil and

gas. Recently, there has been one major development in the substitutes for oil and gas. Shale Gas is one of

the biggest threats for the oil and gas industry. This gas is extracted from sedimentary rocks and it has

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been discovered that the shale gas reserves are enough to replace oil and gas in the medium and long run.

There have been allegations that the recent boom in shale gas production in the US is the primary reason

behind the declining crude oil prices across the globe. Hence, shale gas poses as the single most important

threat to the oil and gas industry. Exxon Mobil, having realized the potential of shale gas in an early phase

of its development, has made some huge investments for the exploration and extraction of shale gas.

Rivalry among existing competitors

An intense rivalry in any industry can wipe off super normal profits from the industry and make the

industry unattractive to work in. Also, rivalry becomes more intense if the organizations have goals that

go beyond economic performance. In the 1990s, the oil and gas industry had a high degree of rivalry

among the existing players, which caused a major consolidation in the industry through numerous

mergers, acquisitions and joint ventures. One of the basic purpose of these joint ventures was to turn the

major competitors into allies, make use of the expertise and competencies of the other party and create

synergies by commanding a more dominating position in the industry. All the major oil and gas

companies are more or less equal in size. This means that none of them can influence the market price and

mostly all of them take prices as given. Although, the equality in terms of size and power increases the

intensity of competition, which can manifest itself into a price war if one of the competitors tries to

influence the prices. Since the product is standardized, the competitors cannot really adopt the strategy of

product differentiation to beat their competition. Also, the oil and gas industry is characterized by high

fixed costs and high exit barriers, which makes the threat of rivalry among existing competitors quite

high. The industry competitors of Exxon Mobil include Conoco Phillips, Chevron, Marathon Oil, Apache

and many other major players.

Competitive Environment The global oil market is primarily controlled by government owned entities, which constitute of a

majority of the total oil production as well as the total percentage of reserves. The companies in the oil

and natural gas industry can be categorized into three different sets. The first category includes the

nationalized oil and gas companies that function as corporate organizations, while having the managerial

autonomy to take independent decisions. These companies also enjoy support from their respective

national governments. Some of these companies are Petro bras of Brazil, Statoil of Norway, Petro China

of China and ONGC of India. The second category includes the companies that are the national oil

companies and they operate as an extension of the government. A few such companies are Saudi Aramco

of Saudi Arabia, Pemex of Mexico, and PDVSA of Venezuela. These companies support their respective

governments policies and programs like providing fuel subsidies to domestic consumers. The third category comprises of the companies which are privately held by Investors in the capital markets. Some

of these companies are ExxonMobil, Shell, and BP. These companies form a relatively smaller segment

of the global oil market and sell their output in competitive markets. ExxonMobil is the largest amongst

these six big privately owned, vertically integrated oil companies, better known as Big Oil (or super majors) companies; the other companies in this category are Royal Dutch Shell, BP, ConocoPhillips, Chevron, and Total S.A. In addition to these, there is increasingly high competition from national oil

companies such as Saudi Aramco, Gazprom and China National Petroleum Corporation (CNPC). Though

these large oil companies have the technological expertise and large assets at their disposal, they lack the

access to oil reserves, as OPEC controls the majority. Also, it is difficult for these companies to access the

high growth emerging markets as these markets are already controlled by the existing, local, state owned

companies like Petro China in China, Petro bras in Brazil and Oil and Natural Gas Corporation (ONGC)

in India.

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The Competitive Profile Matrix for Exxon Mobil is as follows:

CPM Analysis

Exxon

Mobil

Conoco

Phillips

Chevron

Critical

Success

Factors

Weight

Rating Score Rating Score Rating Score

Quality

Management

0.2 4 0.8 3 0.6 2 0.4

SPIRIT Values 0.1 4 0.4 4 0.4 3 0.3

Independent

Exploration and

Production

0.1 2 0.2 4 0.4 3 0.3

Human Rights 0.1 4 0.4 4 0.4 3 0.3

Financial

Strength

0.15 4 0.6 3 0.45 4 0.6

Technical

Capabilities

0.2 4 0.8 4 0.8 4 0.8

Asset Quality

and Scale

0.1 3 0.3 3 0.3 4 0.4

Global

Expansion

0.05 4 0.2 3 0.15 4 0.2

Total 1 3.7 3.5 3.3

4=Major Strength 3=Minor Strength 2=Minor Weakness 1=Major Weakness

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Internal Audit

SWOT Analysis

Strengths Well established brand with a strong reputation: One of the major strengths of Exxon Mobil is its

huge scale of operations. It currently is involved in exploration activities in six continents across the

globe. The companys existence in the energy and petrochemical business for over a century now

provides it with formidable economies of scale and scope in the space. It has the largest crude

capacity and the highest number of refineries in its peer group (Exhibit-1). As a result of all these

factors Exxon Mobil has been able to carve out a strong brand image for itself in the competitive

energy and petrochemicals landscape that provides a sense of security to its stakeholders. In the

natural gas industry through the acquisition of XTO which was the leading technology provider in

natural gas exploration, it has been further able to capitalize its stronghold in the industry.

Exhibit 1: Key operational information of major players in the Petrochemical Industry (2013)

Exxon

(XOM

)

Royal Dutch

Shell (RDS)

Chevron

Corp.

(CVX)

ConocoPhillip

s (COP)

BP

Crude Cap. (bn. barrels/day) 5.8 4.8 2.75 2.77 3.32

Natural Gas Reserves (1000s) 78.815 47.135 24.251 10.740 42.7

No. of Retail Outlets (1000s) 26 25 20 2.94 22.4

No. of Refineries 37 30 16 11 7

Revenues ($bn.) 438.26 451.235 200.5 52.5 353.57

Net Income ($ bn.) 32.52 14.87 19.24 6.869 3.78

(Source: Yahoo Finance)

Diversified operations across geographies: One of the major strengths of Exxon Mobil is the vast

scale of its diversified operations across geographies. Even though the main source of revenue stream

for the company comes from the US, the non US regions such as France, Belgium, Germany,

Singapore, Japan, Italy and many other countries are also a significant source of revenue (Exhibit -2).

The diversified geographic presence enjoyed by the company provides it with the discretion of

managing its global revenues in accordance with the varying economic and political conditions across

various geographies and therefore minimize risk with respect to its operations. Furthermore, it has

operations in a vast number of Non OECD countries, which is again a source of advantage as the

major growth in demand is expected from these countries in the near future. This vast scale of

operation across geographies therefore provides Exxon with a competitive advantage by providing it

with wider flexibility and scope in increasing its revenues through leveraging its global presence.

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Exhibit 2: Revenue breakup of Exxon Mobil region wise (2013)

(Source: Exxon Mobil)

Robust Research and Development: With its extensive experience in the energy and petrochemicals

business, Exxon Mobil has been able to garner strong R&D capabilities. The company focuses on

deriving a strong competitive advantage through continued investment in R&D (around $1bn in FY

2013) and explore more efficacious drilling and resource exploration techniques. Through a strong

focus on R&D activities the company looks for opportunities in new product development, improve

existing products and enhance customer service through optimization of existent manufacturing and

production capabilities. This therefore provides Exxon the advantage to establish itself at the forefront

of radical innovations associated with the industry in which it operates.

Vertically integrated operations: Being an integrated Oil and gas company provides Exxon with the

expertise to focus on all the aspects of the value chain of the business rather than focusing on a

particular compartmentalized activity such as refining or production. By exercising operational

discretion and control in each and every step of the oil and gas process, the company is able to

optimize the entire value chain to minimize costs and maximize process efficiencies.

Weaknesses Lawsuits and Contingencies: The conduct of Exxons business has led it to accumulate a number of

litigations and other legal proceedings leading to damages, penalties and fines on account of

environmental degradation. Recently, in January 2014, the company for its facility in Louisiana,

settled with the Louisiana Department of Environmental Quality which involved a fine of $300,000

and an agreement to undertake on-site improvement projects worth $1 million. The settlement also

included the firm to undertake beneficial environmental projects worth $1.029 million along with a

stipulated penalty to address future environmental non-compliances. Such lawsuits, penalties and

36%

9%

8%5%5%

4%

4%

4%

25%

Revenue (%)

US Canada UK Belgium Italy France Germany Singapore Other Countries

20 | P a g e

damages accrued at the cost of environmental degradation would adversely affect the strong brand

reputation that Exxon enjoys before its stakeholders.

Health and Safety: The employees of Exxon are one of the critical stakeholders for the company. It

is therefore the key responsibility of the company to ensure their health and safety given the

physically challenging and risky nature of the job they are involved in. However numerous safety

accidents with respect to employees reported across locations and sites indicate the fact that the health

and safety of its employees still remains to be an issue for Exxon. The failure to meet these

requirements could be detrimental to the company in several ways, the most important being the

renouncing of faith in the company by the employees.

Decline in Financial Performance: Recent years have shown declining financial performance by

Exxon. Company revenues declined by around 7% in the financial year 2013 as compared to the

previous year. The company also witnessed a decline of 27.4% in net profits and a 26.7% reduction in

its operating profits. Downstream business, which is the largest contributor of revenues for the

company also experienced a decline of 8.4% in revenues during the same period. Such kind of

sustained decline in financial performance would lead to concerns amongst shareholders regarding

the health of the company which is detrimental to the value of the firm.

Declining Oil Reserves: One of the key weaknesses facing Exxon is the declining oil reserves that it

owns. The issue is further aggravated by the low replacement rate of Exxon for oil reserves. It

generates around 12% of revenues from its downstream business which might be at risk because of

the issue of declining oil reserves. Coming to the natural gas industry where the depletion of reserves

occurs at a much faster rate compared to the oil industry, Exxon needs to ensure availability of

adequate level of reserves to meet the required demand. Low prices due to a large number of players

in the natural gas industry further puts pressure on margins for Exxon.

Opportunities

Increasing LNG demand: LNG global demand is expected to grow at a rate of 5% per year till 2025

resulting in an additional demand of 200 million tons per annum. Asia pacific is the largest LNG

market which accounts for around 67% of the global trade. Countries such as Japan, South Korea and

Taiwan have the major market for LNG with emerging nations such as India and China and new

markets such as Thailand, Singapore contributing to the increase in global LNG demand. ExxonMobil

can exploit this increase in global LNG demand through increasing its projects with respect to LNG

production globally and subsequently meeting this demand.

Rising demand of Global Energy: Following ExxonMobils energy outlook report (Exhibit 3),

global demand for natural energy is supposed to grow to 1.2 percent every year till 2030. This

demand is expected to be sustainable given the fact that natural energy burns clean. This would give

more room for exploration to Exxon since more than half of the natural energy reserves are outside

the control of OPEC. With the advent of fracking and other viable low cost drilling technologies, this

presents a huge opportunity for Exxon. The huge demand growth is also expected from Asian nations

such as China and India which present huge opportunities for the oil sector of Exxon as these nations

follow oil based products such as diesel & gasoline as the primary fuel.

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Exhibit 3: Global demand for fuel (ExxonMobils Energy Outlook)

Unconventional Energy Sources: With the increasing sensitivity of governments and the global

climate forums such as United National Framework convention on climate change (UNFCC) towards

cleaner unconventional energy sources, Exxon can leverage its strong existing R&D capabilities to

explore such energy sources and be at the forefront of this radical change. One such opportunity

exists in the form of Canadian oil sands with an estimated capacity of 175 bn. Barrels.

Delving into new projects: Addition of new projects would enable the company not only to increase

its resource portfolio but also enhance its business performance. The company in FY 2014, planned to

start numerous new projects with the goal of adding 300,000 net oil equivalent barrels per day.

Threats Economic Conditions: The demand for petrochemicals and energy correlates strongly with general

economic growth conditions. Major adverse fluctuations in the economic conditions such as a

sustained global recession could heavily impact the companys results. Other factors such as political

disturbances, exchange rate fluctuations, periods of public unrest etc. could also influence the demand

for petrochemicals. The recent downfall in the prices of crude oil are expected to put pressures on

margins for ExxonMobil especially in the Upstream and downstream business segment.

Natural disasters: Natural disasters can significantly impede ExxonMobils operations. For example,

Hurricanes could devastate oil production, gas pipelines, refineries and other equipment. One such

example is the loss of earnings in the fourth quarter of FY 2008, when the company lost around $570

million on account of reduced production and repair expenses due to Hurricane Gustavo.

0

50

100

150

200

Oil Coal Biomass Nuclear Hydro

ExxonMobil's Energy Outlook - Global Energy Demand

2005 2030

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Stricter Environmental Compliance Norms: Exxons business is subject to various rules and

regulations pertaining to disrupt environmental sanctity. Regulatory institutions have become

increasingly concerned about the operations of petrochemical firms in the light of increasing

awareness among the public regarding the damage caused to environment by these firms through

recent horrid incidents such as the 2010 BP oil-spill in the Gulf of Mexico. This increased concern

would inevitably translate into stringent environmental norms and compliances. These imposed

guidelines may require higher expenses from Exxon and thereby affect its financial and commercial

flexibility.

Natural gas as a Substitute for Oil: In addition to declining replacement ratios being faced by oil

companies such as Exxon, most of the reserves are situated in politically unstable nations with

majority falling under the control of OPEC. As a cleaner substitute, natural gas seems a more

promising alternative to Oil and is therefore set to grab market share from Oil. However, in the

natural gas space, large players like Exxon are unable to enjoy economies of scale and scope due to

the relatively shorter life of the gas wells. This in turn could lead to lower profitability for the

company.

Internal factor evaluation matrix (IFE Matrix)

Key Internal Factors Weight Rating Wtd. Score

STRENGTHS

Leading market position & strong brand reputation in oil industry 0.20 4 0.80

Diversified operations across geographies 0.10 4 0.40

Robust research & development capabilities 0.15 3 0.45

Vertically integrated operations 0.10 3 0.30

WEAKNESSES

Lawsuits & Litigations 0.20 1 0.20

Declining financial performance 0.10 2 0.30

Decline in Oil reserves 0.10 3 0.30

Health & safety issues of employees 0.05 2 0.10

TOTAL 1.00 2.95

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External factor evaluation matrix (EFE Matrix)

Key External Factors Weight Rating Wtd. Score

OPPORTUNITIES

Rise in global energy demand 0.20 4 0.80

Increased LNG demand 0.15 3 0.45

New projects 0.10 4 0.40

Alternate energy sources 0.05 2 0.10

THREATS

Economic conditions 0.20 2 0.40

Natural disasters 0.05 2 0.10

Stricter environmental compliance norms 0.10 1 0.10

Increasing emergence of substitutes for Oil 0.15 3 0.45

TOTAL 1.00 2.80

Resources

Resources are the source of the firms capabilities. Resources are bundled to create organizational capabilities. Some of a firms resources are tangible and intangible. Tangible resources are assets that can be seen and quantified. Intangible resources include assets that typically are rooted deeply in the firms history and have accumulated over time. Intangible resources are relatively difficult for competitors to

analyze and imitate. The four types of tangible resources are financial, organizational, physical and

technological. And the three types of intangible resources are human, innovation and reputational

(Hanson, D., Hitt, M., Ireland, R. D., & Hoskisson, R. E., 2011, pp. 75-78).

Tangible Resources

Financial Resources

Operating cycle(average over last 5 years): 42 Cash conversion cycle: 1.2 Receivable collection period: 22.2 Payable payment period: 40.8 Return on Asset: 9.34 (decrease from a 19.24% of 2008-12) Revenue: 411,939 mill $ ( a 6 point decrease from previous year) Operating income: 51,630 mil $(10.54 point decrease from previous year) Net income: 32,520 mil $( a mere .18 point decrease from previous year) Total asset: 349,493 mil $ Total equity: 174,399 mil $

Organizational Resources

Exxon follows a functional organizational division. At the helm is the CEO (Rex E Tillerson) However, each business line has its president holding the reign 11 subsidiaries who work as a separate global business unit

24 | P a g e

5 global upstream companies Exploration Development Production Gas Marketing Upstream Research

4 downstream companies-

Fuels Marketing

Lubricants & Petroleum Specialties

Refining & Supply

Research and Engineering

Chemical Company

Coal and Minerals Company

ExxonMobil Global services act as a centre of procurement, information services and facilities.

19 members in the board

6 employee as senior manager`

13 Non- Employee with a breakup of 9 for Exxon Board and 4 for Mobil board

Physical Resources

Firm headquarter: Irving, Texas

Presence in 200 countries

Production in 50 countries

Markets fuels and chemicals in 120 and lubes in 200

Major market- Houston, Dallas, California, Florida and New York

Manufacturing facilities in 24 countries mainly of USA, Europe and South- east Asia

Major products:

Fuels

Lubricants

Petrochemical

Refining

Technological Resources

Exxon has an R&D of $1Billion dollar against an optimal of $135 billion

Exxon 2nd largest R&D firms in USA

Technology advancement to reach targets at a depth of 5,000 feet for offshore oil production

Technological advancement to reduce environment impact by allowing more production through

less number of wells

Full wave field inversion technique

Use of natural gas as transportation fuel

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Exxon Mobil exceeds the industry standard because of its low friction formula increasing energy

efficiency and fuel economy

Intangible resources

Human resource

Exxon employs more than 80,000 employees

26.5% of employees are women

24.3% are minorities

Innovation Resources

Global leader in technology, product quality and customer service

Incremental as well as radical innovation

Innovation in ever empowering technologies which are environmentally more acceptable

Focus on more production through innovation

Invention of new alternate source like shale gas

New technology and proven techniques are the key to unblocking abundant sources of energy

Reputational Resources

Worlds largest oil and gas corporation

25th rank IN FORTUNES MOST REPUTED 50 COMPANIES

However bottom at the Social Responsibility Ranking for Gas station, Money magazines worst

10 list

1989 Exxon Valdez tragedy worst spill in history with bird population declining equivalent to

almost 20-70 years

Centre of criticism for support of drilling in Arctic National Wildlife Refuge

Made money when everyone was failing in recession

Addressed as The brute we love to hate

Capabilities

Actually, capabilities are the firms capacity to deploy resources that have been purposely integrated to achieve a desired end state. Capabilities are often based on developing, carrying and exchanging

information and knowledge through the firms human capital and also often developed in specific functional areas, such as R&D, marketing, manufacturing, management and so on. In this section, I

briefly evaluate Exxons capabilities (Hanson, D., Hitt, M., Ireland, R. D., &Hoskisson, R. E., 2011, p.79).

Human resources:

Employed over 80,000 personnel in 200 countries

Well trained resources from competitors to optimize process

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Safety ensured through flawless execution of Operations Integrity Management System

(OIMS).

Focus on production quality, teamwork as well as innovation for appraisal

R & D:

Ground breaking technology

23% reduction in gas flaring

Next generation electricity through gasification: A process of converting feedstock into

synthetic gas

CO2 capture techniques to extract oil from depleted wells

Management/ Administration:

CEO at the helm with president for each country

Emphasis on environmental safety and thus more and more CSR activities

Life insurance and safety standards for employees

Joint Venture/ Alliances:

Oil drilling is a risky business and takes a long time before actual exploration starts.

ExxonMobil and Chevron operate in an alliance in North Sea to mitigate that risk

Foreign partners to bypass import and tariff barriers and to fit into the local culture which

aid to local labor force engagement

Sharing of unused refining capacity to minimize loss

Marketing and growth:

Market penetration strategy in both upstream and downstream

Petroleum products standardized and widely used so no new market growth strategy

More focus on product development in chemical industry for radical innovation

More focus on resource acquisition

Financial

Largest company in terms of revenue

Capital intensive industry and thus have a huge amount of working capital invested

Manufacturing and Operational efficiency

Largest integrated refiner and manufacturer of lube base

Economies of scale achieved through using the largest machinery at full load capacity

Alliances with partners like Chevron, McKenzie Truck line for pooling resources and

optimizing process

Valuable Brand name

Build a brand of trust and superior quality over the years

Several disasters could not malign its brand

Market presence across the seven continent

Too big to fail

Frank vision and mission based on wealth maximization

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Value Chain Analysis The value chain analysis is a template that firms use to understand their cost position and to identify the

multiple means that might be used to facilitate implementation of a chosen business-level strategy. A

firms values chain is segmented into primary and support activities. Primary activities are involved with a products physical creation, its sale and distribution to buyers and its service after sale. Support activities

provide the assistance necessary for the primary activities to take place (Hanson, D., Hitt, M., Ireland, R.

D., &Hoskisson, R. E., 2011, p.84).

Primary Activities

Upstream or Exploration and production ( E & P):

Focused on searching and exploring oil and natural gases around the world.

Economies of scale to integrate business through alliances

Partners to help in exploration, marketing, production and R&D

End production of crude oil and natural gas

Operation in countries like US, the Asia-Pacific, the Middle East, Europe, Australia,

South America, Russia, the Caspian region, Canada, and Africa

Revenue: $29,895 billion

Downstream:

Services include refining, supply and fuels marketing

End products of fuel products and feed stock

Global network of manufacturing plant, transportation units and distribution centers

As of FY2013, the company had interests in 31 refineries across 17 countries, with

distillation capacity of 5.3 million barrels per day and lubricant base stock manufacturing

capacity of 126 thousand barrels per day

In FY2013, Exxon Mobil's refinery throughput was 4.5 million barrels per day

Revenue: $ 13,190 billion

Chemicals:

Geographically diverse to cater the geographic differences

Radical and incremental innovation

Low cost substitute for general products

Supply chain:

Business to business model which ensure steady sales volume

Distribution through both direct and indirect channels

Has its own 32,000 service station

Partnership with local car dealers, garages, fuel whole seller etc. who provides marketing

and other support in regions where Exxon is not directly present

Marketing and Sales

Three brands of fuels Exxon, Mobil and Esso marketed throughout the world

More emphasis on clean energy as the need of the hour

Exploration of opportunity in Asia and Africa

Market leader in marketing of petroleum products

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Secondary Activities

Technology

New radical innovation to increase efficiency

Exploration of new technologies to promote better energy sources

Technology like controlled freeze zone, Carbon capture and storage and hydrogen cell

Human Resource Management

Culture of excellence

Comprehensive management system

New intensive training to increase the depth and breadth of their knowledge

Employee strength of almost 80,000

Safety measure and life insurance to facilitate employees

Firm Infrastructure

Superior machinery working at full load to achieve economies of scale

Vertical integration to achieve operational efficiency

Leverage common infrastructure to reduce cost

Total assets of $333,795 million

Value Chain

Source: http://www.academia.edu/9651877/Exxon_Mobil_Term_Paper

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Present Business Strategy

Business definition & Mission

ExxonMobil is operating in the business of production and exploration of oil and natural gas. It is also

involved in the sale of crude oil, natural gas and other different petroleum products. It also deals in the

refining and manufacturing of petroleum products. Its mission is Meeting the rising demand for energy safely and with minimal environmental impact. The companys slogan speaks of Energy lives here and therefore communicates a strong message of positioning itself at the heart of the global energy

business and ready to take on the worlds toughest energy challenges.

Business Portfolio

ExxonMobils business portfolio comprises geographically diverse upstream and downstream business along with a chemicals business. This portfolio of assets provides it a distinctive advantage in establishing

economies of scale and avoid business risks which arise out of changes in margins, business cycles and

fierce competition. The amalgamation of globally diversified operations along with integration across

business units provides Exxon a competitive advantage. The upstream and the downstream businesses are

both essentially commodity businesses which are subject to changes in the prices of oil and gas. The

Upstream business is a capital intensive business involving huge costs associated with the exploration and

development of natural gas and crude oil. The downstream business on the other hand deals with the

refining and marketing of the products. The downstream business therefore is more concerned with

operational efficiency to achieve cost reduction unlike the upstream business. The chemicals business

unlike the petroleum and energy business has relatively lesser cyclical fluctuations and therefore helps the

company to reduce volatility in the overall portfolio and deliver results consistently.

Corporate Strategy

ExxonMobil operates in a global context with a narrowly diversified business portfolio. It employs related

business diversification at the core of its corporate strategy which is clear from the current business

portfolio f the company. The major driver of business for the company is the Upstream business that more

than 70% of the earnings alone. The chemicals business is at 16% and the downstream business at 12% in

generation of earnings for the company. The upstream business being extensively capital intensive in

nature employs four to six times the average capital employed by the other segments and is therefore at

the center of ExxonMobils operations.

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Business Level Strategy

Given the multiple business operations Exxon is engaged in, it employs a multi-business strategy. Exhibit

4 provides a detailed insight into the strategies adopted by Exxon for its various business segments.

Exhibit 4: Business Strategy (Adopted from ExxonMobils Financial and Operating review 2013)

Upstream Business Strategies Identifying and selectively pursuing the highest quality exploration opportunities

Investing in projects that deliver superior returns, maximizing profitability of existing oil and gas production

Capitalizing on growing natural gas and power markets, using Joint-venture to

mitigate exploration cost and risk, integrating the supply chain of

Upstream and Downstream businesses

Downstream Business Strategies Maintaining best-in-class operations in all aspects of the business

Maximizing value from leading-edge technologies

Capitalizing on integration across ExxonMobil businesses

Selectively investing for resilient, advantaged returns

Leading the industry in efficiency and effectiveness

Providing quality, valued products and services to customers

Chemical Business Strategies Capitalizing core competencies to build proprietary technology positions, Capture full benefits of integration

across ExxonMobil operations

Consistently deliver best-in-class performance

Selectively invest in advantageous projects

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Core Competency

Core competencies are the combination of pooled knowledge and technical capacities that allow a

business to be competitive in the marketplace. Theoretically, a core competency should allow a company

to expand into new end markets as well as provide a significant benefit to customers. (Investopedia)

Core competency in an integrated oil company depends on many things. They have to produce oil with

the best of the technology at a surprisingly low margin and yet the stakes are very high.

The point of parity comes from being good at the basic business of upstream and downstream. The

investment in assets is quite high and so is in R&D but the return on R&D is quite high. But however the

IOCs ultimate aim is to vertical integrate and optimize every process from raw material to the finished

product. However, the core competency of a company lies in what it does the best and unlike anyone else.

Exxon is one of the major oil giant in the world with daily production of 3.921 million BOE. Their main

focus has always been on optimizing functions, generating cash flow and maximizing shareholders value.

However to define its success the core competency of Exxon has been more than one. To start off, Exxon

has always gone for superior machinery not only in size but also in quality. They made sure they work at

full capacity. To achieve that economy of scale they formed joint alliances with companies like Chevron

for extraction.

Secondly, the ground breaking technology research in Exxon has prompted them to further strengthen

their efficiency. They have better facility through which they can explore and extract more effectively and

in a more environment friendly manner. For example their technical knowhow has enabled them to

extract oil with lesser number of wells. In the wake of Gulf Oil spill they have shifted their focus to

cleaner energy and have contributed significantly to shale gas use.

Thirdly, the giant that Exxon is has enabled it to be present all throughout the world. Though their

emphasis for Arctic drills did raised some concern, it cannot be ignored that Exxon has huge bargaining

power due to its size. Exxon is to oil industry like Wal-Mart is to retail. The superior bargaining power

has enabled Exxon to have penetration pricing in oil market and premium price in chemical industry each

to the best of the abilities of the industry.

Lastly, the most important core competency of Exxon is its ability to manage risk. If Exxon has been able

to get over its hard times is due to its ability to survive large losses. Being one of the largest profit makers

in industry however this has never been an issue with them. Actuarial techniques and bigger cash reserve

has made Exxon what it is today.

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Recommendations Reorganize Capital spending from exploration to R&D (ST/Mini-Maxi Strategy): With the

recent slump in global oil prices, due to a demand supply mismatch, we recommend Exxon to

reorganize its capital spending structure. Until recently, Exxon has been focusing on huge capital

investments in the exploration and development of new oil reserves to stay ahead of its competitors,

however with the recent changes in the global energy space, the company could utilize a ST strategy

to meet this threat and stay competitive. Having one of the most advanced and robust R&D

capabilities in the industry, Exxon can neutralize the threat caused by the slump in crude oil prices

through cutting its capital expenditures in exploration for new oil reserves and reinvesting the cash

saved into exploration of alternative greener energy sources such as natural gas and oil sands. The

slump of oil prices would soon put pressures on margins for the company and therefore cost cutting to

stay profitable is imperative. The company could achieve that through cutting down its extensive

capital expenditures required for exploration of reserves and reinvest a portion of the same into R&D

for exploring efficient extraction of alternative energy sources such as heavy oil.

Expanding Chemical operations globally (SO/Maxi-Maxi Strategy): The chemicals business of

ExxonMobil stands at the first position in terms of return on capital invested and second in terms of

earnings. In a fragmented market with a large number of small players Exxon has the opportunity of

leveraging its strong brand value and marketing expertise to reach out and address rising global

chemical demand especially in emerging markets. Also, taking into account the relative lower

sensitivity of chemicals market with respect to the oil and natural gas business, this recommendation

would further aid the company in reducing cost and improving value drivers. Chemicals business also

takes supplies from the downstream business and therefore would allow Exxon to use this synergy to

improve intersegment revenue.

Invest in renewable energy sources and unconventional oil sources (SO/Maxi-Maxi Strategy):

As conventional crude markets face volatility and eternal shrinking reserves, the unconventional oil

and renewable energy sources are the future of the energy industry. The technology with respect to

the commercial extraction of these resources have yet not been fully developed and therefore this

presents Exxon with an opportunity to establish itself at the forefront of developing the necessary

ecosystem by exploring the technological possibilities in this field through its robust R&D facilities.

With investment in technology for renewable energy sources, Exxon could ensure not being left

behind and blindsided by radical innovations in the space of alternative fuel sources.

Improving ethical operating standards (ST/Maxi-Mini Strategy): Exxon has established a strong

position and brand reputation for itself in the market through its operation in the energy sector for

over a century. With investments in establishing relationships with civil institutions and social groups

to establish a strong and comprehensive set of ethical operating procedures, Exxon can ensure that it

continues to fortify the strong brand reputation that it enjoys in the industry. It can also invest in

creating awareness and establish a strategic corporate social responsibility program around this

initiative through integrated cause related social marketing campaigns.

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Conclusion Exxon has a strong market reputation and places itself at the center of the global energy business as is

communicated by its corporate slogan. It enjoys a strong brand reputation in the energy industry and is

one of the largest publicly traded companies in the world. With the recent turmoil in the oil industry at the

backdrop of a global slump in crude oil prices, Exxon needs to reorient its strategic intent in order to

sustain its competitive advantage over its competitors.

34 | P a g e

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investment-declines

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