Strategic Management Project

Group 7:

1|Page

Abhas Garg

14P001

Aditya Menon

14P003

Akhil Agrawal

14P005

Anup Kumar

14P009

Sayoni Basak

14P044

Sunny Khanna

14P052

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
2|Page

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

3|Page

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.

4|Page

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.

5|Page

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

Segmental Breakdown of
Revenues

Geographical Breakdown of
Revenues

10.19%
10.47%
37.73%

45.17%

79.34%

Refining & Marketing

Basic & Diversified Chemicals

Exploration & Production

7.95% 9.15%

US

Canada

UK

Others

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.
6|Page

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

Industry

7|Page

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

Appraisal

Development

Production

Abandonment

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

8|Page

ONGC

Chevron

Reliance

BP

Cairn India

Shell

HOEC

Conoco Phillips

Oil India Ltd

Exxon Mobil

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

Trading

Refining

Distribution

Marketing

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

9|Page

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.

10 | P a g e

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
11 | P a g e

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.
12 | P a g e

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.

13 | P a g e

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

14 | P a g e

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
15 | P a g e

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.

16 | P a g e

The Competitive Profile Matrix for Exxon Mobil is as follows:

CPM Analysis
Exxon
Mobil
Critical
Success
Factors
Quality
Management
SPIRIT Values
Independent
Exploration and
Production
Human Rights
Financial
Strength
Technical
Capabilities
Asset Quality
and Scale
Global
Expansion
Total

Weight

Chevron

Score

Rating

Score

Rating

Score

0.2

0.8

0.6

0.4

0.1

0.4

0.4

0.3

0.1

0.2

0.4

0.3

0.1
0.15

4
4

0.4
0.6

4
3

0.4
0.45

3
4

0.3
0.6

0.2

0.8

0.8

0.8

0.1

0.3

0.3

0.4

0.05

0.2

0.15

0.2

4=Major Strength

17 | P a g e

Rating

Conoco
Phillips

3.7
3=Minor Strength

3.5
2=Minor Weakness

3.3
1=Major Weakness

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 Royal Dutch
Chevron
ConocoPhillip
BP
(XOM Shell (RDS)
Corp.
s (COP)
)
(CVX)
4.8
2.75
2.77
3.32
Crude Cap. (bn. barrels/day)
5.8
47.135
24.251
10.740
42.7
Natural Gas Reserves (1000s)
78.815
25
20
2.94
22.4
No. of Retail Outlets (1000s)
26
30
16
11
7
No. of Refineries
37
451.235
200.5
52.5
353.57
Revenues ($bn.)
438.26
14.87
19.24
6.869
3.78
Net Income ($ bn.)
32.52
(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.

18 | P a g e

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

Revenue (%)
25%
36%

4%
4%
4%
5%
5%
US

Canada

UK

Belgium

Italy

9%
8%
France

Germany

Singapore

Other Countries

(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

19 | 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.

20 | P a g e

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

ExxonMobil's Energy Outlook - Global Energy Demand

200

150

100

50

0
Oil

Coal

Biomass
2005

Nuclear

Hydro

2030

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.

21 | P a g e

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

STRENGTHS
Leading market position & strong brand reputation in oil industry
Diversified operations across geographies
Robust research & development capabilities
Vertically integrated operations
WEAKNESSES
Lawsuits & Litigations
Declining financial performance
Decline in Oil reserves
Health & safety issues of employees
TOTAL

22 | P a g e

Weight

Rating Wtd. Score

0.20
0.10
0.15
0.10

4
4
3
3

0.80
0.40
0.45
0.30

0.20
0.10
0.10
0.05
1.00

1
2
3
2

0.20
0.30
0.30
0.10
2.95

External factor evaluation matrix (EFE Matrix)

Key External Factors

OPPORTUNITIES
Rise in global energy demand
Increased LNG demand
New projects
Alternate energy sources
THREATS
Economic conditions
Natural disasters
Stricter environmental compliance norms
Increasing emergence of substitutes for Oil
TOTAL

Weight

Rating Wtd. Score

0.20
0.15
0.10
0.05

4
3
4
2

0.80
0.45
0.40
0.10

0.20
0.05
0.10
0.15
1.00

2
2
1
3

0.40
0.10
0.10
0.45
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
23 | 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
24 | P a g e

 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

25 | P a g e

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

26 | P a g e

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

27 | P a g e

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

28 | P a g e

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.

29 | P a g e

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

Downstream Business Strategies

Chemical Business Strategies

30 | P a g e

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
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
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

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.

31 | P a g e

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.

32 | P a g e

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.

33 | P a g e

References
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.

http://nasdaqomx.mobular.net/nasdaqomx/7/3395/4842/
http://en.wikipedia.org/wiki/ExxonMobil
http://corporate.exxonmobil.com/
http://marketplace.publicradio.org/display/web/2007/12/12/oil_sands/
http://finance.yahoo.com/q/bs?s=BP+Balance+Sheet&annual
http://finance.yahoo.com/q/bs?s=CVX+Balance+Sheet&annual
http://finance.yahoo.com/q/bs?s=COP+Balance+Sheet&annual.
http://finance.yahoo.com/q/bs?s=RDS+Balance+Sheet&annual.
http://financials.morningstar.com/balance-sheet/bs.html?t=XOM&region=usa&culture=en-US
https://www.stock-analysis-on.net/NYSE/Company/Exxon-Mobil-Corp/Ratios/Short-termOperating-Activity#Cash-Conversion-Cycle
http://www.prnewswire.com/news-releases/exxon-mobil-corporation-announces-new-globalstructure-updated-forecast-by-mid-december-77397052.html
https://www.stock-analysis-on.net/NYSE/Company/Exxon-Mobil-Corp/Ratios/Short-termOperating-Activity#Cash-Conversion-Cycle
http://corporate.exxonmobil.com/
http://alisterpaine.com/2009/05/11/exxon-reputation-is-everything/
http://rusteel.blogspot.in/2012/03/research-paper-on-exxon-mobil.html
http://www.slideshare.net/fimportado/exxonmobil-25701728
http://bulktransporter.com/archive/exxonmobil-works-revolutionize-refined-petroleumdistribution-process
http://www.academia.edu/9651877/Exxon_Mobil_Term_Paper
http://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=1008&context=ageconugensc
https://acoronamx.files.wordpress.com/2011/12/exxon-sustainability2.pdf
http://www.bloomberg.com/news/articles/2014-10-15/oil-slump-means-canceled-projects-asinvestment-declines
http://www.ft.com/intl/cms/s/0/20fda1f8-c285-11e4-bd9f-00144feab7de.html#axzz3U5PnWDyi

34 | P a g e