Case Study Sample on The Over-Statement of Oil Reserves

The Over-Statement of Oil Reserves

 

Introduction

            In any type of business organizations, strategy is the main source of force and power of organization in terms of dealing an effective mobilization of tangible or intangible products. In the age of globalization, technology, knowledge, and strategy are necessary in establishing a competitive advantage and sustainable development. In this line of discussion, let us focus on one of the necessary element for competitive advantage and for sustainable development – strategy.

            Various strategies were made to solve problems within a business organization. It ranges from human resource, production, marketing, and etc. Each of these aspects has corresponding strategy that can be use. In this report, I would like to use Michael Porter’s Five Forces strategy as my instrument in analyzing the competitive standing of the Royal Dutch Shell group of companies (RDSGC). In this paper, the data for analysis was solely based on the collected annual report of RDSGC from 1999-2003 and the case study made by Christensen and Associates on 2001.

            Operating in almost 135 companies, the Royal Dutch/Shell Group of Companies shared a unified vision of bringing their product in a most competitive way to its customers. As defined in their annual report 2000, there objectives are “engage efficiently, responsibly, and profitably in the oil, gas, chemicals and other selected businesses and participate in the research and development of other sources of energy.” Indeed the results would always come after clear objectives and strategic plans are laid and observe.

Financial Impact

            According to Rob Arnott (2004), “oil company reserves disclosure are one of the most important pieces of information that the financial sector requires in order to analyze, compare and contrast the past and prospective operational performance of oil and gas exploration and production firms.” Indeed, all oil companies should manage to provide the exact inventory of its reserves for public knowledge. There are at least three important things in which the Royal Dutch/Shell in my own perspective are vital to consider in relation to its over-statement of reserves in oil. The financial effects of such over-statement of reserves of oil go in three different major aspects: production, sales and profit.

            On the level of production, the effect of over-statement runs so deep into generating and leveraging resources for the production and exploration purposes of the company. In one way or the other, with the after effect of the over-statement made by the company, the effects will go through from the lower level of the system going to the top level of the production. This means that with the unstable financial condition which was affected by the proclamation of an over-statement account, the movement that shaken the financial status will be greatly coming from human resource power and the unpredicted behavior of investors and customers.

            Hence, central to the attack of the aftermath of such proclamation will be the sales generating income of the company, wherein, due to the unethical conduct by the higher authorities of the company, consumers, investigators, and buyers may establish a notable negative image for the company. The company should understand that it has its moral and ethical code to be followed and the way they acted upon proclaiming their reserves which was over-stated was against the moral and ethical code they are implementing. Therefore, I for example am an investor and I have a share on the business which for almost 10 I have my confidence and trust to the company and I suddenly knew that it hoards the real scorecards; it can affect my established image of the company. Again, this could be resulted to holding back my investments and go to a trustful and honest company.

            Obviously, the declaration of such statement will affect the profitability status of the company. Given such misconduct among the managers and executives of the company, it can significantly and drastically drag the financial income into a state of depression. Such frustrating conduct may cause withdrawal of resources and ties from different investors and affiliated business firms that supports the exploration and business ventures of the company. On the other hand, if the financial status goes downward, definitely, it affects the other company’s operations like its exploration and production, oil ventures and other business works.

Stakeholder Impact

            The impact of such declaration of statement does not only affect the financial dimension of the company, but also the stakeholder. It can be construed that stakeholders comprise the financial structure in which without them no amount of resources and financial support can a company be able to utilize for its businesses. The important role of stakeholder in this case is to support the whole business ventures through funding and giving their resources in different means.

Now, since they can be composed of main investors, sellers, buyers, consumers, and affiliated firms, with the misconduct made by the executives themselves, it can be like a self-destruction on their part and a betrayal to the confidence and trust of the stakeholder. There is only one recourse in which if stakeholders are got deeply frustrated with the event happened, that is to withdraw there stakes and invest it to other companies. It should also be considered that stakeholders’ primary goal is to protect their own investments and it is also the goal of the company to establish the trust with them. Hence, the company should have to protect in whatever means the assets of the stakeholder, for they are part and parcel of the life of the business.

 

Operational Impact

            The impact of the controversy can be tremendous to the operations of the company. The company may not be able to operate well and generate its production effectively without the financial support. If the financial status is lame and weak, obviously the operations can be affected. No operations can work without any resources to fuel it. Hence, in order to have a smooth and effective operations, financial stability should be maintained. Now, the operational impact of the controversy is significant in this level. Once investors, stakeholders, buyers, and business partners are backing off due to the ineffective management of the company’s executive trying to fool and hoard the real scorecard of its reserves, definitely it will paralyzed their operations. Again, using the “domino effect”, if one is touched, it goes infinitely. The prime object being moved is the financial aspect and other aspects follow.

Strategic Impact

            Definitely, the impact on strategic is not that much visible. A company can work over the strategic options to amend its faults and failures without much resource to spend. In some aspect, the strategic impact can be understood as the company’s ineffective implementation and construction of strategy to gather and create a highly effective operation which is fundamental to investors and stakeholders.

            Given such scenario, the company should reinvent and assess its existing policies and platforms with regards to its business strategies. It is only through such manner in which it can bring back the company’s reputation and the trust of its investors. Looking into the controversy, it was quite clear that the company does not have a highly, concrete, and effective strategy that unable to protect the company from misconduct.

            With the impact on strategy, it is clear to see its weak management control and leadership. The ineffective strategic planning was weak and inefficient to support the whole structure from destruction and controversy. Therefore, it is important to look into details with a much clear vision of the missing points in which strategic managers had overlooked.