Oil and gas company “Rosneft” in the Russian Federation

MBA-2 (Finance)   Strategic Management                             Liudmila Umarbeva B0297MAMA0411      

 

 

 

Strategic Management

 

Oil and gas company “Rosneft”

 in the Russian Federation.

 

Name	LIUDMILA UMARBAEVA
Student ID	B0297MAMA0411
Semester	MBA2 Finance
College	London School of Business and Law
Subject	Strategic Management
Due Date	21st June 2012
Words	6170

 

 

 

 

 

 

 

Table of Contents

 

Executive Summary 3

1.About oil and gas company “Rosneft”. 4

2.Theoretical aspects of the Strategic Management 6

3.PESTanalyse 12

4.Porter’s Five Forces Model 15

5.Strategic Group Analysis  17

6.Porter’s Value Chain 21

7.Straegic resorces analysis 21

8.Portfolio analyse. Boston Matrix (BCG BOX) 23

9.SWOT-analyse 25

Conlusion. 28

References 29

 

 

 

 

 

 

 

 

 

Executive Summary

Actions of the organisations and their managers can not be reduced to simple response to occurring changes. It is wider recognise as necessary to use the conscious management of changes based on scientifically grounded procedure of their prediction, regulation, adaptation to the organization purposes, and to changing external conditions. In the same way the organization should react to changes in environment (including its customers). The modern instrument of management of organization development in the conditions of increasing changes in environment it is the methodology of strategic management.

 

The purpose of this work – to define and consider strategic management of the Rosneft petroleum company which led it to success and to popularity not only in Russia, but also in other countries.  In this work in aim to show the process of strategic planning we suggest this scheme: to determine goals and objectives, to determine the characteristics of environment, SWOT analyse, BKG Matrix, to determine strategy.

 

The modern oil company is something more, than the most difficult high technologies at all stages from exploration of oilfields to transportation and in addition not less difficult control system and decision-making. One of the most important tasks of Rosneft the careful using underground riches, their effective transformation into the final product necessary for the consumer and its timely delivery to destination.

Requirements and principles of the sustained development of the industrial companies, including the oil companies became now more topical for the majority of the countries of the world. Moreover, company in the list GLSEO (Government’s List of Strategic Enterprises and Organizations of Russia) therefore in my opinion consideration of this company is the most interesting.

1. About oil and gas company “Rosneft”

 

Rosneft is open joint stock oil Company it is owned by the state and is one of the leading enterprises of fuel and energy complex of Russia. Rosneft is formed in accordance with the government decree of the Russian Federation on September 29, 1995 N 971. The main activities of Rosneft are: search and exploration of hydrocarbons, oil and gas production and processing of raw materials, sale of oil, gas and implementation of products in Russia and other countries.

 

Rosneft is a vertically integrated company. The structure of the company includes all technological chain process: from search and exploration oil and gas to the processing and marketing of final products.

 

The head office of Rosneft is in Moscow, while its main assets are located in Western Siberia, Timan-Pechora oil province, in southern Russia and on Sakhalin Island.

 

The main competitive advantage of Rosneft is a dimension and also company has very good quality base of recourses. Rosneft, for example has reserves of hydrocarbon about 30 bln. barrels of oil equivalent that is the best characteristic among international publicly traded in this industry companies. Rosneft is leader in liquid hydrocarbon reserves. Company operates mainly conventional reserves that give opportunity to increase production of hydrocarbon. Also, Rosneft has a good base of two types of reserves: probable about 13.0 bln. barrels and possible about 11.0 bln. barrels that will be the most important resource of filling in proved reserve expansion in the prospect.

 

Rosneft was formed in 1993 as a governmental company. In 1995 government has transformed its decision Rosneft in a public company. In the period 1995-1998 was constantly changing direction of the company, as the result its assets were virtually without controls. In this period was dramatically decrease of oil production and petroleum extraction declined up to one third of producing capacity. To make Rosneft one of the key players in the Russian energy market, the Russian government in October 1998 decided to change the company management. The new team of managers eventually brought Rosneft out of the crisis and the company has become successful and beneficial. From 2000 it was a new period of growth of the company. The annual average increase in oil output exceeded 11%.

 

Enhanced management, consolidation acquired assets (new assets and existing), intensified financial control and also integration of improved science and techniques all led to a considerable increase in the rational use of resources and let Rosneft to increase and expand volume of their production. See Table 1 (www.rosneft.ru)

Table 1. Petroleum production, (mln tons) and refinery throughputs (mln tons)

 

It was a timely and proper change of the company strategic management that allowed reaching results such Rosneft has today. Therefore strategic management makes necessary decisions about the future plans of the company such as principles, resources and also how to make organisation more flexible in the interaction with the countries and spheres in which Rosneft operates.

 

 

 

2. Theoretical aspects of the Strategic Management

 

Strategic management has many different approaches and theoretical concepts which are classified.

 

But one of the most popular, in my opinion, classification is Henry Mintzberg, Bruce Ahlstrand and Joseph Lampel which describe ten different "schools of strategy", that contain the main ideas about strategic management of the company: (Henry Mintzberg, 1994 P.3)

1) Prescriptive school: design, planning, positioning;

2) Descriptive schools: entrepreneurial, cognitive, learning, political, cultural, environmental, configurational.

 

The first three schools are peculiar strategies of the development organisation. They are prescriptive - their followers are interested in how to form the strategy, rather than how they actually were developed.

 

Rosneft uses prescriptive strategy. As were noticed Rosneft has several operational systems and the plan of each operational group is a part of common annual plan prepared. Each plan has to address how it confirmed with the Rosneft mission statement and objective with regard to market share capital investment also return on capital e.g. Plans are gathered together and presented by operating group to the Rosneft. (Henry Mintzberg, 1994 P.5, 6 , 10)

 

Design School: strategy formation as the construction and elaboration, as well as a conscious modelling. Primary sources of this school are from the end of the 1950s - 1960s. The most intensively the school began to develop after the publication of a basic textbook, "Business Policy", prepared by a group of general management of Harvard University and most popular known in writings of Kenneth Andrews in his book. The basic ideas can be traced back to Philip Selznick’s influential little book, Leadership in Administration. (Henry Mintzberg, 1994 P.5, 6 , 10)

 

School of design (design, construction, modelling) considers strategy as a model of correspondence between internal and external opportunities of organisation. The basic point of the school is to develop a strategy based on the results of the study of Strengths, Weaknesses, Opportunities, Threats or the assessment of the company and environment through a well-known SWOT-analysis, which within the school is the main method used in the formation of strategies. Also this takes into account such things as the distinctive competence, key factors of company success, value management and social responsibility of strategy, and the process of creating the strategy design school is considering how to achieve an optimal balance between internal strengths and weaknesses of organisation and external threats and opportunities for company that is, it needs to find correspondence between the characteristics of the firm and the opportunities that define its position in the external environment.

 

The model of strategic planning was presented by H. Igor Ansoff in his book "Corporate Strategy" (1965). This model supposes a consequential and unbelievably detailed planning program of objectives of the company, strategy development, product market position and allocation of resources. The plan is formed based on a colossal amount of analyzes, which usually should be combined for decision making.

Overall, strategic planning school adheres to the concept, based on the assumption that the process of developing a strategy this is a set of formalized procedures for designing, programming and planning. The strategic plan is formed as a result of forecasting, situational and scenario analysis of internal and external environment. The strategic planning process involves outlining the goals and objectives of the company, developing strategic and operational plans for the levels of the organisational structure. Since the school encourages the development of strategic planning objectives (tasks) of the organisation in a quantitative form that can be conveniently represented as graphs and tables, a special emphasis in this school is placed on the quantitative interpretation of the organization's objectives and the development of a sequence of steps and procedures (decomposition, generate various tables etc.). The only main difference between the school plan to the school of design is that a simple model of an informal school of design becomes part of the school planning in a well defined sequence of steps, almost automatically: a strategy here is the result of controlled, conscious process of formal planning is divided into separate steps, as shown schematically depicted in the form of checklists and supported by appropriate models. That is why the main tools of this school are called as growth vector (matrix "product - the market" by I. Ansoff) and the corresponding model based on the diversification of portfolio analysis. The leading role here is about professional "planners, strategists," the most important tools in this are called "scenario planning" software such as «Project Management» etc. After determining the objectives of moving to an external audit (or the analysis of external opportunities and threats), which are made in the various projections of the future state of the environment, and developed scenarios to predict the possible course of events, allowing to be prepared for any unexpected development of the past and reveal new perspectives. In parallel with the internal audit is conducted external audit of the organisation, including an examination of its strengths and weaknesses.

 

The founders of positioning school were military strategists, Sun Tzu, Clausewitz, and others (the first stage of position school, absorbing early writings about military strategy). Achievement of consulting firms Boston Consulting Group – BCG belong to this school (create and develop matrix "Market Growth / Market Share") and Mc Kinsey (second stage of positioning school, based on the imperatives of consulting).

 

However, the intensive development the positioning school has got since the publication the book (1980) one of the founders of the third stage of positioning school (dedicated to the development of empirical doctrines) Michael Porter's "Competitive Strategy", when the school of design and planning is gradually began to lose its meaning. School of positioning is largely uses achievements of these two schools. Michael Porter proposed and detailed three interrelated concepts, bringing them to the level of practical techniques:

1) Competitive Analysis (Industry analysis);

2) Competitive advantage and build on the its basis the competitive strategy.

3) Value chain

 

School of positioning, in contrast to the schools of design and planning, proposes to limit to each organization, operating in a particular industry standard number of strategies that can give the desired results, allowing the company to provide competitive position in the industry, in other words this are specific advantages, which the company receives in the market. Initially, for each organization within a particular industry has a limited number of generic (or competitive) strategy, and further school of positioning narrows the most appropriate of them to several key positions in the aggregate is just representing the typical strategy of competition, selected through a formal (industry or competitive) analysis of the situation in the industry. This methodological approach for the design and choice of strategy involves using of such models, as already mentioned above, the model of "growth - share," or model of BCG (Boston Consulting Group); impact of market strategy to profit (model PIMS) (Profit Impact of Market Strategies); competitive analysis model of Michael Porter.

 

There are three core areas which are taken the view of the prescriptive approach: strategic analysis, strategic development and strategy implementation. According to prescriptive approach they are linked together sequentially. Therefore it could be used the analysis area to develop a strategy and then the strategy is implemented. So, by this approach the strategy is prescribed.

Strategic analysis of prescriptive approach divided into three elements:

1. Analysis of the environment

2. Analysis of resources

3. Identification of vision, mission and objectives. Some strategists argue that this element should be before the other two elements.

 

The objective function begins with the establishment mission of organisation, which expresses the philosophy and meaning of his existence. Mission - a conceptual intention to move in a certain direction.

“A mission statement describes the organisation’s basic function in society, in terms of the products and services it produces for its customers” (Henry Mintzberg and Quinn, 1997),(http://www.scribd.com/doc/22539717/Mission-statement)

Rosneft’s mission is “To answer society’s needs for energy resources through innovative, environmentally safe, and feasible solutions. Thanks to its unique resource base, high level of technology and team of committed professionals, the Company ensures stable growth of its business and an increase in shareholder profits. Our activities promote social stability, prosperity and progress wherever we are located”. (www.rosneft.ru)

Rosneft’s vision of the future is “Rosneft as a leading global oil and gas company”.

Goal - specification of mission in of the organisation in a form accessible to manage of their implementation. Main characteristics of goal are as follows: a clear focus on a certain time interval; specific and measurable; consistency and coherence with other missions and resources; targeting and accountability.

Rosneft’s goals

-“strengthening company’s position among leading global energy corporations”;

-“maintaining prime positions by operating indicators”;

-“entering the top group by financial indicators and level of capitalization”.

Based on the organization mission and goals the strategy is formulated and the policy of organisation is determined.

 

The next step is analysis of environment. This work has exploratory features and often performed by outside organisations. The obtained results of the environmental analysis are often forced to once again clarify the mission and goals of the company, so that the planning process again returns to the initial stage. (Lynch, R 2009, P.37)

The strategic analysis is one of the key elements of the procedure of forming a strategic plan for the development of any socio-economic system. In its content it is a pre-planning research, which systematically analyses the factors of environment and resource potential (internal opportunities) of the organisation to determine the "current (initial) state," or "situation" and to identify the conditions for further successful functioning and development.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3. PEST analyse

It is important to study environment which in strategy is everyone and everything outside of company. There are two main techniques that can be used make analyse of general environment: PEST (Political, Economic, Socio-Cultural and Technological) and scenarios.

PEST - the environment analysis

Policy		P	Economy			E
1.	Change of the national and international laws of the  Russian Federation		1.	General characteristic of an economic situation
2.	The legislation on environmental protection		2.	Investment activity
3.	Implementation of federal and regional programs and projects		3.	Dynamics of a rate of the Russian Ruble to US dollar and euro
4.	Tax regulation		4.	Availability of credit resources
5.	The government influence on industry		5.	Export policy of industry production
6.	Government  regulation of the competition in industry		6.	Unemployment rate
7.	Regulation of export activity		7.	The forecast of  inflation rate
Society		S	Technology		T
1.	System of values, changing of basic values		1.	Assessment of the speed changing  and adaptation of new technologies
2.	Relationship to work and rest		2.	Significant tendencies in the field of research and development
3.	Relationship to education		3.	Government technological policy
4.	Change of a standard of living and education		4.	Rates of development of new products and services
5.	Change of structure of the income		5.	New products
6.	Ecological factor		6.	New patents
7.	Demographic changes

 

Scenarios: