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Chevron Corporation 2009 Case Solution

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606 9935 Words (37 Pages) Banger Chatta Harvard Business School
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Chevron is an American based multinational energy company, established in 1879. After various mergers and acquisition, in 1984, the company was named Chevron Corporation. Since then, it has acquired two major companies Texaco and NGDC Corporation. Chevron Corporation is recognized as a one of the big five oil companies in the world mainly because of its global presence and strong financial condition. Other companies included in big five include Exxon Mobil, British Petroleum, Royal Dutch Shell, and ConocoPhillips. Except ConocoPhillips, all the remaining four companies have their presence in nearly hundred companies worldwide. In addition to this, they have resources in almost every continent of the world. Each of these companies has their own competitive position in the market.  

This write-up is written from the perspective of Chevron Corporation for the purpose of analyzing its competitive position, its current strategies, and objectives. The core vision of the company is to become the most admired company with respect to its people, partners, and performance. Chevron has established various objectives to achieve this long term vision. For the purpose of analyzing the competitive position of Chevron Corporation, various matrices have been used, which include Internal Factor Evaluation, External Factor Evaluation, SWOT matrix etc. Based on input from these matrices, Grand Strategy matrix is formed for formulating a strategy. Finally, matrices like Strategic Positioning and Action Evaluation Matrix (SPACE) and Quantitative Strategic Planning Matrix (QSPM) is used for determining the most favorable strategy. From the result of all these matrices, some strategies have been shortlisted depending upon the competitive position and growth of the company. Few of these strategies include expansion in Iraq as it has no OPEC quota for producing oil; exploring a new area for resources such as Gulf of Mexico, Gulf of Thailand, Western Africa, Australia etc. as the company has the lowest cost among all immediate competitors for replacing resources; increased investment in CSR activities, in order to avoid geopolitical risks and improve brand image in the mind of consumers; and to explore alternative energy sources so as to decrease carbon emission and operate as an environmentally friendly company. 

Following questions are answered in this case study solution:

  1. Executive Summary

  2. Introduction

  3. Existing Vision, Mission, Objectives, Strategies

  4. Frameworks

  5. Advantages and Disadvantages of Alternative Strategies

  6. Recommendations

  7. Comparison Of Recommendation And Company’s Planned Strategies

  8. Conclusion

  9. Appendix

Chevron Corporation 2009 Case Analysis

Existing Vision, Mission, Objectives, Strategies

1. Vision and Objectives

“The Chevron vision is to be global energy company most admired for its people, partnership, and performance.”

This vision means Chevron will strive to:

  • Provide energy products vital to sustainable economic progress and human development throughout the world;

  • Have superior capabilities and commitment both at the individual employee level, as well as the organizational level;

  • Become partners of choice;

  • Deliver world class performance;

  • Earn the admiration of all our stakeholders – investors, customers, host government, local communities and chevron employees – not only for the goals but how they are achieved.

The above mentioned lines are basically the long term objectives of Chevron, which the top management has outlined for the achievement of the company’s vision. The successful accomplishment of these objectives would make sure automatically the achievement of the vision.

Chevron aims to achieve this vision by being socially and ethically responsible for which it has incorporated a set of values in it organizational culture so as to make clear to each and every stakeholder that what is expected of them. Chevron believes that integrity, trust, diversity, ingenuity, partnerships, protecting people and environment, and high performance are some of the ways of getting its work done while staying in ethical parameters of the society. 

2. Chevron Strategy

For more than hundred years, Chevron has been recognized as one of the key players in the global oil industry. The main reason behind this huge success is the strategy and actions taken by its top management who are ensuring that the company moves forward. The top management has over the years made considerable changes to its core strategy so as to cope with rapidly changing times and competition around. Current top management believes that it is necessary to invest in employees in order to derive the right value from them; otherwise, the desired organizational performance can never be achieved. In addition to this, at Chevron employees are trained to execute all their tasks with operational excellence, which is made possible through sophisticated cost management system and capital steward systems. At Chevron, operational excellence is based on five different objectives i.e. achieve an injury and incident free workplace, promote a healthy workforce and mitigate significant workplace related health risks, efficiently use natural resources  and assets, operate with industry leading asset integrity and reliability, and identify and mitigate environmental and process safety risks (Chevron Corporation, 2013).

Moreover, the top management at present is moving forward with an aggressive strategy by ensuring that the company derives maximum benefit from its competitive position and generate acceptable return on assets and stockholder’s equity. Apart from this organizational strategy, Chevron has also developed a business strategy for each of its business wings, which include upstream, downstream and chemicals, gas and midstream, renewable energy, and technology. Successful implementation of business strategy is essential for the company to produce good financial results. Moreover, business and organizational strategy should be aligned so as to give a clear direction to not only employees, but also to stakeholders of the company. Furthermore, for successful implementation and success of strategy, it is crucial for the company to understand the importance of discipline and standardization. The workforce has been dedicated to complete every task the right way, every time, so that an example can be created in not only the industry, but in the entire society. Last, but not the least, employees and the top management of Chevron highly respect the element of diversity in their culture and workforce. A global workforce of 66,000 people cannot work together in unity unless diversity is not only understood, but also lived by each and every member of the company; the inclusive work environment where not only the diversity of people, but also of ideas, talents and experience has been the key to the success of Chevron.

Frameworks

1. SWOT Matrix

SWOT analysis is primarily used for the purpose of carrying out planning for a particular business based on internal and external situation of the company (Hill & Westbrook, 1997). In a SWOT Matrix, four quadrants are available. Two of these quadrants represent an internal dimension; whereas, the remaining two represent an external dimension. The SWOT analysis assists a company in analyzing its current situation and then formulates a business strategy for the future. 

Strengths

At the end of 2008, Chevron had a negative debt ratio i.e. as the company had a debt of $7 billion; whereas, the cash in hand was $11 billion. Apart from this, in 2008, Chevron invested nearly $3 billion in exploring alternative energy sources so as to diversify its risks and cope up with the industry trend of exploring new options. Chevron was among the first few oil companies in the world to explore alternative energy sources. The main reason behind this strategy was the availability of strong financial support as without it, the company would not have been able to invest in these areas. In addition to this, Chevron is recognized as the largest and most powerful gasoline brand in the United States of America. Apart from this, its presence in more than 100 countries, worldwide has been the core reason behind its significant market share. Furthermore, ExtraMile, one of the convenience store of Chevron has been regarded as the number one store in the region. Lastly, Chevron’s biggest strength that was unearthed recently is its ability to explore and replace resources at the lowest cost among top five oil companies. During the four year period from 2003 to 2007, Chevron managed to replace 106 percent of its resources, which is 40% higher than the nearest competitor, British Petroleum.

Weaknesses

Chevron had a hard time making a profit in 2007 when the oil prices fell drastically. The company’s inability to respond to volatile market situation is one of the major weaknesses of the company. An ideal way of overcoming this weakness is to diversify its portfolio and introduce new products so as decrease dependence on a single product. In addition to this, Chevron has also been losing money in its refining and marketing business in various states despite the reinstated oil prices in those regions. Chevron needs to reassess its business strategy for refining and marketing side, and introduce a business process reengineering throughout so as to take proper control of various cost components.

Opportunities

Chevron is looking forward to exploit the opportunity presented by Iraq. It had absolutely no quota assigned by OPEC, which means that the country is free to produce as much oil as possible. But with this attractive opportunity comes the threat of working during a civil war situation in the country, which can be dangerous for any company in the world. In addition to this, Chevron is also planning to focus its attention on four new regions, which include Northwest Australia, Gulf of Mexico, Gulf of Thailand, and West Africa. These regions are known for their vast hidden reserves of oil and related product. If Chevron can succeed in exploring resources in these regions, then it will assist the company in the long run. Moreover, given the financial strength of the company, Chevron has the potential to acquire small regional companies so as to strengthen its position in those areas or to enter a new region. Such acquisitions can be trickier as companies are stuck in between a dilemma of whether to rebrand the acquired company or to let it operate as a separate subsidiary. Chevron should assess its long term business strategy for that region and business wing so as to come up with the right plan; otherwise, the opportunity would easily become a weakness. Lastly, in 2008, Chevron has left more than twenty different regions and it has similar plans for the next year. This strategy provides a great opportunity to for the company to restructure its financial side and decrease its total workforce so as to regain its lost competitive grounds. 

Threats

Volatility of oil prices I a major concern for not only Chevron, but the entire oil industry. All of the top five oil companies lost a considerable profit share when the oil prices came down to $70 per barrel. In addition to this, the second threat is related to Chevron only and not the entire industry. During the last few years, and the considering the current focus of exploration, Chevron has increased its dependence on non-North American areas for resources, which can create geopolitical risks for the company. Chevron has to be prudent in this regard as not all countries around the world are business friendly like the United States; therefore, all related stakeholder should be look-after properly.

2. Competitive Profile Matrix (CPM)

The competitive profile matrix is a tool used for the identification of strengths and weaknesses of the competitor based on his strategic positioning (David, 2011). In this matrix, critical success factors are identified for the overall industry, and then analysis is carried out for major players of the industry. Each critical success factor is assigned a weight based on its importance and then individual company-wise rating is done. A product of weight and rating provides a weighted score and sum of all weighted score provides the position of that particular firm.

In this case, Competitive Profile Matrix (CPM) is used for the purpose of analyzing the big five global oil companies, which include Chevron, Exxon Mobil, British petroleum, Shell, and ConocoPhillips.  In an oil industry, financial position of the firm plays a major role in its success. Factors like return on assets, return on capital employed, net income, return on stockholder’s equity, debt to asset ratio etc. play a crucial role. In addition to this, resources are the basic success factor for any firm, in the oil sector. All oil companies are involved in drilling and other exploring activities so as to unearth valuable oil and other related products. Any oil reserve determines the competitive position of the particular firm; therefore, the company with most natural resources at hand will be at an advantage over other players. Moreover, since, this particular case deals with top five oil companies only; therefore, their global presence is an important assessment tool for identifying their competitive position, in the market. Furthermore, there are various other success factors like number of employees, market share, advertising expense, success in delivering the key communication message etc. For the simplicity of analysis, only six critical success factors are used; however, in actual, a company should use somewhere around a dozen key factors so as to determine the actual position. Because of higher significance of financial position, resources, and the market share of a company, all three of these critical success factors are assigned 20% weight-age whereas, the remaining three factors i.e. number of employees, global presence, and advertising have been assigned 15, 15, and 10% respectively.

According to the Competitive Profile Matrix (CPM) of big five global companies of the oil industry, (refer Exhibit 2), Exxon Mobil and Shell have the best competitive position i.e. 4.0 and 3.9 respectively. The main reason behind their competitive strength is their presence in the most number of countries and their strong financial strength. Both of these companies have the most number of employees and also have the highest advertising expenditure making them the most re-known among the big five companies. Apart from these two, Chevron and British petroleum both have a close competition as well as they both are around 3.5 mark. However, the fifth company i.e. ConocoPhillips falls behind by a significant margin. It should be noted that a difference of 0.35 in competitive positioning of Chevron and Exxon Mobil does not mean that Exxon Mobil is 10% better than Chevron. This matrix only exhibits the relative strength of a company over its competitor; therefore, it is hard to infer the implied precision.

3. Strategic Positioning and Action Evaluation Matrix (SPACE)

Strategic positioning and action evaluation matrix is basically a strategic planning tool used for the formulation of a strategy based on the competitive positioning of the company. The four quadrants of the matrix show different strategies that a firm can select for achieving its long term objectives. Strategies basically include aggressive, conservative, defensive, and competitive. The shape of the final matrix determines which strategy a company is using at the moment. Four strategic dimensions of the matrix are financial strength, competitive advantage, environmental stability, and industry strength (Gurbuz, 2013)(Ghochani, Kazami, & Kari, 2012).

In each of these four dimensions, multiple factors have been identified and are rated on a scale of 1 to 6. The scale varies for each quadrant and is mentioned in the chart, refer exhibit 3a. Factors outlined for competitive advantage include market share, brand image of the company in the mind of the consumer, ability to explore and replace resources at a low cost, refining capacity at a global level, and success rate for all drilling or exploring activities. For analyzing the financial strength of Chevron, factors like return on capital employed, return on assets, net income, and return of shareholder’s equity have been used. Apart from this, for both the external dimensions i.e. industry strength and environmental stability, factors used are barriers to entry in the industry, acquisition of smaller regional companies, growth potential, volatility of oil and its related products, the new industry trend of exploring alternative energy sources, taxation, demand elasticity etc. The rating for each of the above mentioned factor is done on the basis of the information available from the case. Since, in 2008, company produced above average financial results; therefore, financial strength is very much evident in the chart whereas, increasing instability in the environmental factors has shown slightly unexpected figure. Based on these values, which are mentioned in the chart Exhibit 3a, the Space Matrix is formed.

As evident from the Strategic Positioning and Action Evaluation matrix that the company is pursuing an aggressive strategy to achieve its long term goals. If the SPACE matrix is scrutinized then it would be evident that Chevron not only uses an aggressive strategy, but plays based on the situation; therefore, the matrix is tilted towards aggressive side very slightly. From the current situation, Chevron can also pursue a competitive strategy if resources and situation are in favor. One query that roots from the SPACE matrix is that there are multiple factors and strategies mentioned in the aggressive side so how can the top management determine, which strategy to employ. For this purpose, SPACE matrix is only used for identifying the strategy, and another tool like Quantitative Strategic Planning Matrix (QSPM) is used in combination so as to come up with an ideal strategy based on the company’s current position.

4. Boston Consulting Group Matrix (BCG)

In 1968, Boston Consulting Group introduced a growth-share matrix for the purpose of categorizing various product or companies based on their market share and potential growth rate. It is one of the most popular tools for identifying the competitive position of the company and has been used for last four decades, all around the world (The Boston Consulting Group, 1968).

In the BCG matrix (refer exhibit 4), all five of the big five oil companies are placed based on their market share and potential to grow. Interestingly, four out of five companies are placed in the ‘star’ quadrant as they all have a significant market share and reasonable potential to grow. Star category basically denotes companies that have a high market share and also show promising signs of market growth. Companies involved in STAR category usually require high investment mainly to fight the competition and to keep up with the fast changing trends of the industry. Once the growth stage is over for these companies, either they become a cash cow or a dog based on their market share. On the other hand, ConocoPhillips is the only company categorized as a ‘Dog’ mainly because of its low market share as compared to other four companies. Though, it is operating in the same industry as the other four, yet it has failed to grab a significant market share. It is only present in 30 companies across the globe whereas, the remaining four have maintained their presence in or around 100 countries worldwide. Though, a company categorized as a ‘dog’ not makes a big profit and in most cases just break-evens, but ConocoPhillips had a reasonable profit margin and revenue. As apparent from the case study and from the BCG matrix, that ConocoPhillips is having a hard time in competing with remaining four companies of the big five and it would not be surprising if during the upcoming years, it is stripped off from the elite league. ConocoPhillips’ return on assets and profit is nowhere near a comparable state to other four companies. In addition, its global presence is nearly quarter as compared to Chevron, which makes it a weak competitor.

The main competition as evident from the BCG matrix is among Exxon Mobil, Shell, British petroleum, and Chevron. All of them are in a single quadrant within a close range. A slight difference in their market share and their potential to grow has been the major difference in their placement. Chevron’s recent exit from over twenty international markets has affected its placement in the matrix to a great extent. The future of all these four companies depend heavily on their current strategies as once their growth stage is over, either they will be categorized as a dog or a cash cow. At present, all the four companies are demanding high investment from their stakeholders so as not only to fight their competitors, but also to cope up with rapidly changing trends of the industry. 

5. Grand Strategy Matrix

Grand Strategic Matrix is a strategic planning tool used for the purpose of setting a business direction based on current strategic positioning, which is defined by strengths and weaknesses of a company (Pearce, 2004). Similar to many other strategic planning matrices, the Grand Strategy Matrix has four quadrants. Each of these quadrants represents a different extreme of competitive positioning and growth rate. Ideally, this matrix should be designed at the initial phase of the business as it outlines strategies for various circumstances, which a business is bound to face as it will travel through various stages of life.

For the first quadrant where the company has a strong competitive position, and the growth rate is also high, the company can use four different strategies, which include concentrated growth, market development, product development, and innovation. All these are business expansion strategy, which the company can use for increasing its revenue. Often companies in a strong strategic position with a high growth potential select concentrated growth strategy i.e. focusing on markets that are similar to the current ones. Second most feasible strategy under this situation would be to target non-buying customers in the existing market. The cost of acquiring these customers is comparatively lower than the cost of acquiring a customer from a new market; therefore, many companies also prefer this strategy over concentrated growth strategy. In addition to this, the risk for the top management is minimal in market development strategy as compared to product development or concentrated growth strategy. Chevron has recently exited more than twenty countries around the world; therefore, at this moment, expanding into a new market would not be a good idea; however, market development could be a feasible option.

In a situation where the competitive position of the company is not so strong, but the industry show signs of growth, then a company can pursue strategies like joint venture for entering the new market, horizontal integration to minimize the competition, development of product portfolio so as to diversify risk etc. Recently, Chevron has shown interest in investing a huge amount in exploring alternative energy sources, which seems to be a good strategy as many social and political groups have increased their pressure on big five oil companies to reduce their carbon emission and continue their business in a more environment friendly situation. Apart from this, Chevron’s strategy of exiting from markets that have not been profitable during the last decade is also a feasible strategy. It would not only allow minimizing the work force quantity, but will allow the top management to restructure its business and develop a new strategy for the global operation. Chevron should continue to exit markets with low profit rate as there is no reason to maintain high global presence of the financial situation of the company is not good. Once Chevron is able to strengthen is competitive positioning then it can pursue all those strategies, which are suggested in the first two quadrants of the Grand Strategy Matrix.

6. External Factor Evaluation (EFE) Matrix

An External Factor Evaluation (EFE) matrix is usually used to outline the key external factors that can affect the performance of the strategy of the company. For example, cultural, social, legal, environmental, political, technological etc. can severely influence the performance of the company (David, 2011). Often matrices like External factor Evaluation (EFE) and Internal Factor Evaluation (IFE) are used for the purpose of identifying internal and external factors and then a strategic planning tool is used to formulate a long term strategy based on the information derived from these matrices. Therefore, it is essential to effectively outline all possible factors so that the final strategy can be used for the long term without the element of doubt.

In External Factor Evaluation Matrix (EFE), (refer exhibit 6) all possible opportunities and threats have been outlined. Based on the importance of each of the factor, a certain weight is provided to each factor. In this case, outlined opportunities include Chevron’s ability to explore and replace new resources at the lowest cost in the industry, attractive option of investing in Iraq as it has no OPEC quota and can produce as much oil as possible, new areas in focus that are known to have rich reserves of oil and related products, industry trend of investing in alternate energy sources, and the opportunity available to Chevron to restructure its financial side of the company after exiting from nearly two dozen international markets. Among these five opportunities, Chevron’s ability to explore and replace resources is of greatest benefit for the company; therefore, it is assigned the highest weight whereas, the ability to restructure based on exits from various  markets is of the lowest importance and will have a minimum effect on the overall company; therefore, it is assigned only a 5% weight. Similarly, four threats have also been outlined considering the current situation of the company, which include volatile nature of the oil industry, negative image of oil companies in the mind of consumers, ageing workforce, and the increasing geopolitical risks of increasing dependence on non-North American regions for resource exploration. After assigning weights to each of these factors, a rating is done based on Chevron’s ability to respond to that external factor. Based on these ratings, a product score is obtained, which is basically the weighted score. Sum of all weighted score would provide a figure, which basically reflects Chevron’s ability to respond to all of its external factor.

It is apparent from the External Factor Evaluation Matrix (EFE) that a score of 3.15 is achieved after evaluating all external factors; a score higher than 2.80 shows that the company is in a reasonable position to deal with all external factors. One major drawback of this matrix is its inability to project the respond in individual cases, which means the final score of 3.15 is just a projection and not the exact result. It is crucial to keep this element of projection in mind while formulating a strategy; otherwise, the company could face a hard time in dealing with external threats, and might also fail to derive full value from its opportunities.

7. Internal Factor Evaluation (IFE) Matrix

Similar to External Factor Evaluation (EFE) matrix there is an Internal Factor Evaluation Matrix (IFE), which basically outlines the internal factors of the company. Internal Factor Evaluation Matrix (IFE) is a first step for a strategy formulation tool in which strengths and weaknesses of a company are explored so that the strategy can be formed so as to overcome those weaknesses and to use strengths to the utmost level. In addition to this, Internal Factor Evaluation (IFE) Matrix also allows the company to identify the relationship between various internal factors. One drawback of this technique is assigning weights and rating based on the intuition of the manager. If two different managers are carrying out the same activity with similar factors, even then there is a high probability of a difference in the final score for both of them as the criteria is judged from an individual’s perspective (David, 2011).

Similar to steps carried out in External Factor Evaluation Matrix will be carried out here, as well i.e. identifying factors, assigning weights, and rating each factor based on the company’s ability to respond to them. Internal factors outlined as strength of Chevron include its financial muscle and its ability to invest in renewable energy sources, ability to replace resources at the lowest cost in the entire industry, increasing upstream earnings for the company, second largest integrated energy company in United States, its presence in more than hundred countries around the world, its negative debt position i.e. having access cash at the end of 2008, and number one ranking of its convenience store, ExtraMile. All these factors are the major sources of strength for Chevron and can be used to its advantage while strategy formulation. Among all these factors, Chevron’s ability to replace resources at a 40% lost cost then the next competitor holds the highest importance; therefore, it is weighted as 20% whereas, all the remaining ones are assigned a weight of 5 to 15% based on their degree of importance. In the weakness side, four factors have been identified and were all considered being of equal importance for the company; therefore, 10% weight was assigned to each of them. The four weaknesses of Chevron include its inability to operate in markets where the national oil companies have a strong presence, its inability to derive profits from over two dozen regions; hence, it was forced to exit those areas, its poor response to volatility of the industry, and its poor effort in capitalizing on its refining and marketing business even after the increase in oil prices in many western states. The final score of 2.90 > 2.50 indicates that Chevron is in a strong internal position and has the ability to derive maximum benefits from its strengths.

8. Quantitative Strategic Planning Matrix (QSPM)

Quantitative Strategic Planning Matrix (QSPM) is primarily a strategic planning tool for evaluating the best possible alternative from all available options. This step is usually carried out after a company has outlined its internal and external factors and formulated some strategies. This tool will assist the top management in selecting the best option for the future based on the current situation (Miaxi-Pedia, 2010).

In Quantitative Strategic Planning Matrix (QSPM), first of all, all factors outlined in Internal Factor Evaluation (IFE) Matrix and External Factor Evaluation (EFE) Matrix are written down in the matrix with exactly the same weights as assigned in the earlier matrices. Then in the second step, a couple of favorable alternatives are evaluated based on these internal and external factors. These strategies can be taken from the Grand Strategy Matrix or other similar strategy identification tools, which are popularly used in the strategic management. In this case, (refer exhibit 8) two strategies are shortlisted for the purpose of simplification; otherwise, all possible strategies can also be evaluated. Two strategies used for evaluation are expansion in Iraq and diversifying the company’s portfolio by including new products. Both of these strategies are taken from a different quadrant in the Grand Strategy Matrix, which shows that they will be used under varying circumstances. Though, Chevron can pursue both of these strategies together at a time, but it will always be favoring one over the other for achieving the desired result. Now, once the strategies are shortlisted for evaluation, and attractiveness score is given to each of the outlined factors based on its response to the strategy. In many cases, the selected strategy would have no relation with the outlined factor; in that case, a score of zero will be given to that factor so as to negate any effect on the final score. A product of the weight and the attractiveness score will provide the total attractiveness score whose sum will indicate the attractiveness of that strategy, in the current circumstances.

As apparent from the Quantitative Strategic Planning Matrix (QSPM) that strategy one is more attractive than strategy two based on their final score of 5.05 and 4.65. If the final figure is greater than 3.80 then the strategy is a feasible one and can be implemented if the desired resources are available; however, if the company is willing to minimize its risk by implementing only one strategy then the strategy with highest final score should be selected. It should be noted that a difference in the final score of 0.40 does not mean that strategy one will produce 8% better result than strategy two. It just depicts the favorability of a strategy based on company current circumstances. So for Chevron, the first priority should be the expansion in Iraq as it would allow the company to not only tap on new oil reserves, but will also provide an opportunity to produce as much oil as possible because of absolute no OPEC based quota system.

9. Internal External Matrix (IE)

Internal External Matrix (IE) is one of many strategic management tools that a company can use to identify its current competitive position and situation of the industry. Internal External Matrix derives result from two basic competitive position analysis matrices i.e. Internal Factor Evaluation (IFE) Matrix, and External Factor Evaluation (EFE) Matrix. The score from these two matrices will be plotted on X and Y axis respectively so as to come up with a final score (Maxi-Pedia, 2012). Though Internal External Matrix (IE) takes input from two matrices, but it is more similar to Boston Consulting Group Matrix (BCG) as finally a company’s position is plotted on one of the various cells.

There are total nice cells in an Internal External Matrix (refer exhibit 9). The first three cells exhibit that if a company like in these cells then it pursue a Grow and Build strategy. The second three cells show that the company should Hold and Maintain its current position if it lies in here whereas, the bottom three cells show that a company should either Harvest or Divest if it lies in such a competitive position. Based on the score achieved from Internal Factor Evaluation Matrix (IFE) and External Factor Evaluation Matrix (EFE) of 2.90 and 3.15 respectively, the competitive position of Chevron lies in the top three cells; therefore, it should pursue Grow and Build Strategy. Grow and Build Strategy usually means pursuing aggressive tactical strategies i.e. Chevron can focus on market development, product development, concentrated growth, market penetration etc. In such a scenario, the company can also consider horizontal or vertical integration so as to achieve operational excellence.  

Because of the broader definition of Internal External Matrix (IE), strategists around the world use Boston Consulting Group Matrix (BCG) along with Internal External (IE) matrix to determine current strategic positioning and future possible options. This strategic management tool can serve as an important input for stage three models like Quantitative Strategic Planning Matrix (QSPM) or Strategic Positioning and Action Evaluation Matrix (SPACE).

Advantages and Disadvantages of Alternative Strategies

1. Advantages

First of all, expanding in Iraq would provide Chevron with an opportunity to replace its natural resource as Iraq has a huge pool of oil and gas resources. Secondly, there is no quota allotted to Iraq by the Organization of the Petroleum Exporting Countries (OPEC). This provides Chevron an opportunity to produce as much oil as possible without any restriction. This oil can be exported to South Asian countries as it is expected that the demand will increase in this region, during the next two decades.

Advantage for exploring renewable energy sources like geothermal, bio-fuel, solar power, hydrogen etc. is that it is estimated by the year 2070, human will exhaust all fossil fuel and will need alternative sources for energy. Considering the increasing stake of all oil companies in the energy industry, it would be a wise decision to gradually invest resources towards alternative energy sources so that once the trend changes, they are in a good position to cope up with the new trend. Apart from this, oil companies are usually black listed in the mind of consumers because of their exploitation of various natural resources and irresponsible behavior on various occasions like oil spills in oceans etc. Investing in renewable energy sources would create a soft image of these companies in the mind of consumers, which will attract non-buying customers, as well.

2. Disadvantages

A major disadvantage of expansion in Iraq would be to operate in a national condition of war. Iraq has been the target of the terrorist organization for a couple of years, and investment from an American based multinational organization would not be considered a positive step. In fact, many locals would see it as a strategy to encroach local resources. Apart from this, because of on-going global economic recession, the top management would be skeptical about investing in new regions. Investment in Iraq would cost huge financial resources to Chevron, and in case the company fails to derive value from this investment, it would hurt the cash flow and profit margin for many years to come.

Disadvantage in case of investment in renewable energy source is that each source is considerably expensive, and Chevron cannot invest in multiple sources, at once. Therefore, it will have to identify one or two sources and then invest in them only. This strategy would involve a huge risk because if the industry trend shifts towards other renewable energy sources i.e. other than those identified by Chevron, then the entire investment would go in vain, and the company would have to start all over again. 

Recommendations

1. Specific Strategies and Long Term Objectives

Chevron needs to form strategies and objectives based on current global issues so that it can look towards future with confidence and hope rather than with fear. The major issue at hand is the increasing demand for crude oil and other energy sources. The population of the world is expected to increase by 25% during the next two decades, which would increase the consumption of oil and related products by 40%. For this purpose, it is essential that Chevrons invests a considerable time and effort in exploring new oil and gas resources in areas other than North American region because the major increase in demand for oil related products will be rooted in emerging economies of South Asia like China, India, Pakistan etc. These three countries combined have a population of more than 2.5 billion, and it is going to increase at an alarming rate; therefore, it is important to have new oil and gas resources near these countries. The initial idea of exploring Gulf of Thailand seems a good option to overcome the demand of this region.

Secondly, though the pressure for renewable energy is increasing, but giving a pragmatic look at the current situation, the world will continue its reliance on fossil fuels for the next couple of decades; therefore, it is crucial to maintain a balance between exploring fossil resources as well as alternate energy sources and not get carried away with the new idea.

Third, since Chevron has increased its dependence on non-North American region for exploration of resources; therefore, it should take special care of the geopolitical risk involved in those regions. An ideal way of moving forward would be to start corporate social responsibility (CSR) initiatives in those countries so as to earn the goodwill of all stakeholders. Apart from this, it is essential to use energy wisely in those areas and not just make an all-out effort for exporting the oil; otherwise, the negative image of an oil producing company would become a concern for Chevron.

2. Timetable and Cost of Strategies

Based on the increasing demand for fossil fuel, Chevron should initiate its exploration activities in maximum two areas in 2009. The most feasible location would be Gulf of Mexico and Gulf of Thailand. Thailand is located near South Asian region where the demand is expected to increase considerably, and Mexico is in the North American region, which will play a major role in minimizing the geopolitical risk of exploring globally. Based on the current expenditure of exploration plus the inflation, it is estimated that the cost for exploring in these two regions would be somewhere around $20 to 25 billion.

For reducing carbon emission and increasing dependence on alternative energy sources, Chevron has planned to invest nearly $2.7 billion during the period of 2009 – 2011. This figure will have to increase significantly during the near future, in order to have a considerable share in renewable energy sources like geothermal, solar, bio-fuel, hydrogen etc.

3. Annual Objectives
2009 – 2010
  • Start exploration in Gulf of Mexico by early 2009.

  • Start the production of oil from Gulf of Mexico by 2010.

  • Make investment in one of the alternative energy sources and make the project go live within two years.

  • Increase CSR activities in countries with higher geopolitical risks.

2010 - 2011
  • Increase crude oil production by 1.1 billion barrels by 2011.

  • Increase the weight of LNG and other renewable energy products up to 45% in total product offering.

  • Enter 5 new markets by 2011.

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