NATIONAL LAW UNIVERSITY ODISHA

CASE ANALYSIS OF

EXXONMOBIL CORPORATION

SUBMITTED TO :-

SUBMITTED BY:-

Goresh patra (15/BBA/021)

Krishan pratap singh parmar(15/BBA/031)

Sanket
 TABLE OF CONTENTS

Introduction .............................................................................................................................. 4
I. Vision, Mission Statement and Core Values ................................................................... 5
A. Vision:.......................................................................................................................... 5
B. Mission Statement:...................................................................................................... 6
C. Core Values:................................................................................................................ 6
Competitor Analysis .............................................................................................................7
I. Oil
A. Royal Dutch Shell ......................................................................................................7
B. British Petroleum ......................................................................................................8
C. Chevron .....................................................................................................................8
SWOT analysis of Exxon Mobil...........................................................................................9
I. Strengths .........................................................................................................................10
II. Weakness of Exxon Mobil ............................................................................................. 10
III. Opportunities .................................................................................................................. 10
IV. Threats ............................................................................................................................ 11
General Environmental Analysis......................................................................................... 11
I. Demographic ................................................................................................................... 11
II. Political, Governmental, Legal ....................................................................................... 12
III. Technological ................................................................................................................. 13
Industry Environmental Analysis ....................................................................................... 13
I. Profitability of the Industry............................................................................................. 13
PORTERS FIVE FORCES ANALYSIS ...........................................................................14
I. Threat of New Entrants: Low ........................................................................................14
II. Intensity of Rivalry amongst The Competitors: High ....................................................14
III. Threat of Substitutes: Low ............................................................................................14
CAPABILITY ANALYSIS ..................................................................................................15
 I. Primary Activities ..........................................................................................................15
A. Supply Chain Management: ......................................................................................16
B. Research and Development Activities ......................................................................16
II. Secondary Activities .....................................................................................................17
A. Product Research and Development, Technology and Systems Development: ........18
B. Human Resource Management ........................................................................................19
Analysis of the Effectiveness of Strategy ............................................................................19
I. Competitive Advantage Test .........................................................................................20
II. Performance Test ..........................................................................................................21
A. Short-term recommendations: ...................................................................................22
Dynamic Capabilities ............................................................................................................23
I. Distinctive competencies ...............................................................................................24

Conclusion ..............................................................................................................................25
 INTRODUCTION

Exxon Mobil Corp., or ExxonMobil, is an American multinational oil and gas corporation
headquartered in Irving, Texas, United States.1 It is a direct descendant of John D. Rockefeller's
Standard Oil company,and was formed on November 30, 1999, by the merging of Exxon and
Mobil (formerly Standard Oil of New Jersey and Standard Oil of New York). It is affiliated with
Imperial Oil which is based in Canada.

The world's 5th largest company by revenue, ExxonMobil is also the second largest publicly
traded company by market capitalization.The company was ranked No. 6 globally in Forbes
Global 2000 list in 2014. With 37 oil refineries in 21 countries constituting a combined daily
refining capacity of 6.3 million barrels (1,000,000 m3),2 ExxonMobil is the largest refiner in the
world,a title that was also associated with Standard Oil since its incorporation in 1870.

These divisions are grouped into three categories for reference purposes, though the company also
has several ancillary divisions, such as Coal & Minerals, which are stand alone. It also owns
hundreds of smaller subsidiaries such as Imperial Oil Limited (69.6 percent ownership) in Canada,
and Sea River Maritime, a petroleum shipping company.3

Upstream (oil exploration, extraction, shipping, and wholesale operations) based in Houston,
Texas
Downstream (marketing, refining, and retail operations) based in Fairfax, Virginia

VISION, MISSION STATEMENT AND CORE VALUES

1
"ExxonMobil, Our History". Exxon Mobil Corp. Retrieved April 20, 2015.
2
ibid
3
http://corporate.exxonmobil.com.au
ExxonMobil Corporation carries with itself an outlook which is mostly based on securing an
evolved financial standard. Besides the urge to become the worlds premier petrochemical
concern.

VISION:

Exxon Mobil Corporation is committed to being the world's premier petroleum and

petrochemical company.12

MISSION STATEMENT:

To that end, we must continuously achieve superior financial and operating results while

simultaneously adhering to high ethical standards.13

CORE VALUES:

The Core Values of ExxonMobil Corporation lie firmly embedded in the Ethics section in their
online Prospectus, under the overhead of Corporate Governance.

Performing with the highest ethical standards of business conduct is a key competitive

Strength critical to maintaining our global license to operate.

Our presence in nearly every country of the world requires training on international trade laws,
including U.S. anti-corruption and anti-trust laws, as well as those in other countries where we
do business.4 All employees are expected to uphold the highest ethical standards of business
integrity. Each must comply with all applicable laws and accurately record and track all business
transactions.

Standards of Business Conduct

Our Standards of Business Conduct define the global ethical conduct of the Corporation and its
majority-owned subsidiaries. These Standards, adopted and administered by the board of directors,
uphold the values of human rights, labor, the environment and anti-corruption.5

Internal Audits

Regular internal audits and self-assessments help ensure the rigorous implementation of our
control systems and Standards of Business Conduct. ExxonMobils internal team of more than 200
auditors annually audits

Bribery and Corruption

Anti-corruption practices are an essential component of our compliance program, given that we
operate globally and in many challenging environments. The Anti-Corruption Legal Compliance
Summary outlines ExxonMobils commitment to comply with the U.S. Foreign

Corrupt Practices Act (FCPA), the United Kingdom Bribery Act and global anticorruption
standards in all business relationships.

Training

Oil and gas exploration and production often take us to remote parts of the world, with changing
political and regulatory climates. In 2012, approximately 31,000 employees took part in anti-
corruption training. This training covers the basics of the FCPA, the United Kingdom Bribery Act,

4
DeCarlo, Scott. "ExxonMobil - In Photos: Global 2000: The World's Top 25 Companies - Forbes". Forbes.
5
http://www.marketwatch.com/story/exxon-mobil-corporation-announces-2013-reserves-replacement-totaled- 103-
percent-2014-02-21
global anti-corruption standards, recent developments in enforcement, and compliance with our
internal anti-corruption policy, guidelines and processes.6

Reporting violations

We reinforce our commitment to ethics and high standards of business conduct with the
expectation that all employees will report suspected violations of laws and company policies.

Control systems

ExxonMobils System of Management Control Basic Standards defines essential principles and
concepts that drive our business controls. Our Controls Integrity Management System is designed
to assess and measure financial control risks, including procedures for mitigating concerns,
monitoring compliance with standards and reporting results to the appropriate operations and
management groups within ExxonMobil.14

COMPETITOR ANALYSIS

ExxonMobil operates in three major industries: oil, natural gas, and chemicals. Since the dynamics,
opportunities, and challenges in each are very different, the competitors in each industry are
analyzed separately.

OIL
The primary competitors for ExxonMobil in the oil industry are the other Big Oil companies:

ROYAL DUTCH SHELL

Headquartered in The Hague, The Netherlands. Operates in more than 70 countries with an average
of 87,000 employees and 44,000 Shell service stations worldwide. A good 50% of production is
natural gas where 20.2 million tons of equity LNG are sold during the year.

6
ExxonMobil Refining and supply". Exxon Mobil Corp. Retrieved April 18, 2015.
 BRITISH PETROLEUM

Headquartered at London, UK. Operates in more than 80 countries with 20,700 sites and 85,900
employees. It produces 2.3 million barrels of oil equivalent every day. Total Sales and other
operating revenue as of 2013 amounted to $376 billion.

CHEVRON

Headquartered in the US at San Ramon, California. The average net production was 2.61 million
barrels of oil equivalent every day. With 61,900 employees, its Sales and other operating revenues
amounted to $231 billion for the year of 2013.

CONOCO PHILLIPS

Based in Houston, Texas. Operates in 30 countries worldwide with over 17,000 employees. Crude
oil production in 2013 totalled to 618 billion tonnes and natural gas at 4245 billion tonnes. Total
revenues amounted to $63 billion.

TOTAL S.A

French multinational integrated oil and gas company and one of the five "Super major" oil
companies in the world. Its businesses cover the entire oil and gas chain, from crude oil and natural
gas exploration and production to power generation, transportation, refining, petroleum product
marketing, and international crude oil and product trading

NATURAL GAS

The primary competitors for ExxonMobil are:

Chesapeake Energy
Anadarko
 Devon

CHEMICALS
ExxonMobil Chemical ranks first or second in the production of many petrochemicals. It is
active in all aspects of hydrocarbon industry, has integrated plants with its refineries and has
high-level joint ventures making it highly competitive. Its other competitors are.

BASF

The worlds largest chemical company. In addition to a wide variety of chemical products, BASF
also has interests in oil and gas through its subsidiary Wintershall AG and joint ventures with
Gazprom. Dow Chemical is the second largest chemical company worldwide.

INEOS

U.K.s largest chemicals company, is formed from divested assets from BP, Dow Chemical,
BASF, and Unilever.

SAUDI BASIC INDUSTRIES

Corporation (SABIC) is owned 70 percent by the Saudi government and processes the huge
amount of Saudi Arabian oil byproducts into chemicals.

CHEVRON PHILLIPS CHEMICAL COMPANY LLC (CPCHEM)

This corporation is owned 50/50 by ConocoPhillips and Chevron and is one of the worlds top
producers of specialty chemicals.
 SWOT ANALYSIS OF EXXON MOBIL

A business analysis of Exxon Mobil Corporation engage in exploring and producing oil and natural
gas. Every Corporation or corporation has its own strengths, weakness. Corporations always try to
makes profit by exploring its opportunities and reducing threats15.

STRENGTHS

The high quality of the directors, officers and employees of Exxon Mobil Corporation is the
Corporation's greatest strength7

Exxon Mobil earned profit around $32.5 billion across the world, and out of that Company gets
profit about $9.6 billion in the United States. Whereas company earned around $412 billion as
revenues worldwide. Company spending around $38.5 billion worth of capital and exploration
expenditures to find and produce future supplies of energy.8 A major portion of that investment
more than $12 billion took place in the United States. Company $82.9 billion around the world in
income taxes, sales taxes, and other levies. Exxon Mobils current global tax rate in 2014 worked
out to 41 percent. Those are big numbers, of course, a reflection of the sheer size of the global
energy industry and the billions of people it serves.

Exxon Mobil was established long back ago and one of the oldest and biggest petroleum producing
Corporation. It diversified himself into various areas of the energy industry and it has many strong
brands. Branding is important point for a product because it gives reliability, sense of security to
the customers. 9There are many reasons like proper check in balance between customer-employees

7
SWOT Analysis http://www.wikiwealth.com/swot-analysis:Com
8
http://www.sersc.org
9
Hill, Charles W.L., and Gareth R, Jones. Strategic Management - An Integrated Approach. 10th ed.
and employees-employers which helps the Corporation the correct and appropriate crisis
management and crisis communication management strategy.

WEAKNESS OF EXXON MOBIL

The important drawback in the Exxon Mobil is exploiting the environment, polluting and
destroying environment despite of that it does not focus on conservation of environment. Because
of this it creates negative publicity of the Exxon Valdez spill in the eyes of the

International Community and also the human rights violation or rather the employees rights
records of the organization has been under a cloud, which is a significant weakness of the
organization. Wrongly handling of the environmental interest is a very big weakness of the
organization and it can be unfavorable to it in the future. Company has earned excessive profits in
the last few years as energy prices were increasing, even though the company did not handling the
environment pollution which gave it a lot of negative publicity. Many of us as public, consider the
company is becoming rich at the expense of the poor consumer.

OPPORTUNITIES

Opportunities for Exxon abound in its industry. Global demand is rising, especially from emerging
markets and China, unconventional oil resources (e.g. oil sands) pose a big potential for increasing
the energy resource base, and there are opportunities for exploring remote areas to discover and
develop new sources of supply. In addition, through 2030, oil and gas are expected to maintain
60% share of the energy market. There is also an opportunity to purchase and refine lower quality
crude for companies that have the technology and capabilities to do so. The US monetary policy
will also likely cause the dollar to weaken which benefits Exxon. In 2007, Exxon profited $1.8
billion from the decline in the dollar. Finally, continued solid demand growth for petrochemicals
is expected.
 THREATS

A threat of increased regulation stems from concerns about global warming and environmental
degradation. Further, concern about greenhouse gas emissions has the potential to alter global
energy consumption patterns in the future.10 In addition, hydroelectricity and renewable energy is
projected to increase at an annual rate of 1.9% between now and 2030 compared to a 1.4% annual
growth rate over that same period for petroleum liquids. According to Standard & Poors, Most
of the super majors (Exxons peer group), such as BP, Chevron, Royal Dutch Shell, and Total, are
building renewable energy business with a long term view. Recently, there has been public
concern over windfall profits among oil and gas companies caused by sharp increases in the
price of oil. There is no clear permanent organization to determine the rate of Petroleum & Gas
like OPEC

GENERAL ENVIRONMENTAL ANALYSIS

`It speeds assimilation and builds confidence. Our company culture embraces diversity and
encourages networking, which builds breadth, depth and relationships.'

DEMOGRAPHIC

Exxon Mobil promotes leadership opportunities for women and works to improve the gender
balance within company through all aspects of the employment relationship, including recruitment,
hiring, promotions, transfers and wage and salary administration. In 2014, 28% women work force
worldwide, 39 percent of management and professional new hires were women, significantly
higher than the percentage of women in our broader employee population. In the United States, 30

10
Dess, Gregory G., G.T. Lumpkin and Marilyn L. Taylor. Strategic Management. 2 ed. New York: McGraw-Hill Irwin,
2005
percent of our newly hired engineers were female, higher than the U.S. percentage of female
engineering students. Approximately 16 percent of executive employees worldwide are women
an increase of 60 percent over the past decade. To increase the representation of minorities in our
U.S. operations, our hiring programs include outreach to identify diverse candidates. For example,
through our technical scholarship program, we award scholarships to ExxonMobil minority interns
to assist them in completing their college degree.

POLITICAL, GOVERNMENTAL, LEGAL

The daily global supply of oil is threatened since many oil-producing countries are concentrated
in areas of heightened political tensions such as the Middle East and parts of Africa. An ongoing
threat is that oil-producing countries will not adhere to OPECs quotas.

Specifically, the collective influence of OPEC with highly unstable members such as Iran, Iraq,
Libya, and Venezuela could lead to increases or decreases in short term crude oil supply.

TECHNOLOGICAL

Technological innovations are an opportunity to gain competitive advantage since crude oil and
natural gas exploration are becoming increasingly difficult. To maintain our competitive position,
especially in light of the technological nature of our businesses and the need for continuous
efficiency improvement, ExxonMobils research and development organizations must be
successful and able to adapt to a changing market and policy environment.11 Safety, business
controls, and environmental risk management. Our results depend on managements ability to
minimize the inherent risks of oil, gas, and petrochemical operations and to control effectively our
business activities.

INDUSTRY ENVIRONMENTAL ANALYSIS

Exxon participates in three very profitable industries: Mining/Crude-Oil industry, Petroleum

Refining, and Chemicals. First, the profitability of the industry is determined by comparing the
three industries profitability with the S&P 500 medians profitability. Second, Porters five forces
are examined to determine the attractiveness of the industry with a focus on super majors (i.e.,
companies that integrate upstream and downstream activities).

11
Wernerfelt, B., 1984. A resource-based view of the firm, Strategic Management Journal, 171-180
PROFITABILITY OF THE INDUSTRY

All three of the industries Exxon participates in are more profitable than the S&P 500 median (see
Appendix A). Specifically, the Mining/Crude-Oil industry (i.e., Exxons upstream activities) is
ranked first with a 26.6% return on revenues (i.e., most efficient operations), ranked eleventh with
an 8.2% return on assets, and ranked tenth with a 21.8% return on equity.12 The Petroleum Refining
industry (i.e., Exxons downstream activities) is ranked twentieth with a 7.3% return on revenues,
ranked second with a 13.2% return on assets (i.e., second best productivity of assets), and ranked
third with a 30.7% return on equity (i.e., third greatest power of equity).13 The Chemicals industry
(i.e., Exxons Chemical businesses) is ranked twenty-sixth with a 6.6% return on revenues, ranked
seventeenth with a 6.6% return on assets, and ranked twelfth with a 20.9% return on equity.

ECONOMIC CONDITIONS

The demand for energy and petrochemicals correlates closely with general economic growth rates.
The occurrence of recessions or other periods of low or negative economic growth will typically
have a direct adverse impact on our results. Other factors that affect general economic conditions
in the world or in a major region, such as changes in population growth rates or periods of civil
unrest, also impact the demand for energy and petrochemicals.14 Economic conditions that impair
the functioning of financial markets and institutions also pose risks to ExxonMobil, including risks
to the safety of our financial assets and to the ability of our partners and customers to fulfill their
commitments to ExxonMobil.

12
https://businessays.net
13
http://seekingalpha.com/article/3059786-exxon-mobil-vs-bp
14
http://corporate.exxonmobil.com/en/company/about-us/guiding-principles
PREPAREDNESS

Our operations may be disrupted by severe weather events, natural disasters, human error, and
similar events. For example, hurricanes may damage our offshore production facilities or coastal
refining and petrochemical plants in vulnerable areas. Our ability to mitigate the adverse impacts
of these events depends in part upon the effectiveness of our rigorous disaster preparedness and
response planning, as well as business continuity planning.

EXPLORATION AND DEVELOPMENT PROGRAM

Our ability to maintain and grow our oil and gas production depends on the success of our
exploration and development efforts. Among other factors, we must continuously improve our
ability to identify the most promising resource prospects and apply our project management
expertise to bring discovered resources on line on schedule.

PROJECT MANAGEMENT

The success of ExxonMobils Upstream, Downstream, and Chemical businesses depends on

complex, long-term, capital intensive projects. These projects in turn require a high degree of
project management expertise to maximize efficiency.15 Specific factors that can affect the
performance of major projects include our ability to: negotiate successfully with joint ventures,
partners, governments, suppliers, customers, or others; model and optimize reservoir performance;
develop markets for project outputs.

OPERATIONAL EFFICIENCY
An important component of ExxonMobils competitive performance, especially given the
commodity-based nature of many of our businesses, is our ability to operate efficiently,including
our ability to manage expenses and improve production yields on an ongoing basis.

15
Default probabilities http://www.investopedia.com/terms/d/defaultprobability.asp
 PORTERS FIVE FORCES ANALYSIS

THREAT OF NEW ENTRANTS: LOW

In the oil and natural gas industry, it is not easy for the new entrants to make an entry into the
industry and setting up its business. According to Michael E. Porter new entrants bring with them
new capability and the aspiration of gaining market share.16 According to him, threat of entry
depends on two factors: the degree or the extent of entry barriers and the existing Players reaction
to new entrants.

THE MAJOR BARRIERS TO ENTRY IN THE OIL AND GAS INDUSTRY ARE AS
FOLLOWS:

Patents

Large capital requirements

Economies of scale

Governments regulations

The threat of new entities entering the oil industry is trivial, despite the attractiveness of the
industry. This is explained by the high barriers to entry that exist. First, there are huge investments
and risks associated with the activities performed by major oil companies, most

of which are vertically positioned in almost all upstream, midstream and downstream activities of
the industry. Massive amount of fixed up-front investments are required for the development of
oil fields or setting-up production facilities. Not everyone is capable enough of sustaining
themselves or making high-ended investments in this field.

16
Default probabilities http://www.investopedia.com/terms/d/defaultprobability.asp
 INTENSITY OF RIVALRY AMONGST THE COMPETITORS: HIGH

In the oil and natural gas industry, the degree or level of competition among the competitors is
generally high because of the ever rising demands of the market and scarcity of resources. Every
company aims its policies in a manner in which it can effectively stay ahead or even surpass its
competitor in the existing market position prevalent.

Intensity of Rivalry among Competitors occurs when competitors feel the urge to take action or
act promptly on an opportunity to improve their position in an industry. Intensity of rivalry is high
because of the commodity-based nature of the business.17 In addition, there is competition with
other industries that supply chemical, energy, and fuel for both industrial and individual
consumers.

In spite of below average or negative rates of return. High exit barriers are present in the refinery
business, but are much lower in the upstream segment of the industry, where relinquishment of
field-concession-rights is easily done due to the interest of competitors to always strengthen their
portfolios with new fields.

ARGAINING POWER OF SUPPLIERS: HIGH

While there are plenty of oil companies in the world, much of the oil and gas business is dominated
by a small handful of powerful companies. The large amounts of capital investment tend to weed
out a lot of the suppliers of rigs, pipeline, refining, etc. There isn't a lot of cut-throat competition
between them, but they do have significant power over smaller drilling and support companies.

THERE ARE MAINLY THREE KINDS OF SUPPLIERS:

Suppliers are mining and drilling equipment manufacturers. They provide support services on a
fee or contract basis. The demand for oil drilling rises as the price of crude oil rises. As the demand

17
Default probabilities http://www.investopedia.com/terms/d/defaultprobability.asp
rises, suppliers can charge a higher price per hour; hence, supplier power is cyclical. In an up cycle,
the suppliers have power; in a down cycle, suppliers see their power lesson.

Pipe and tube supplier for oil and gas transportation: New oil and gas drilling requires new
pipelines for transporting oil and gas. However, since domestic and international competition is
high and the industry is heavily regulated, pipe manufacturers do not exert any pricing pressure on
the oil and gas drilling companies. Pumping equipment: Pumping equipment is used to extract oil
from the ground. Compressors are used to prepare gas for storage and transportation exerts pricing
power on the drilling companies due to high competition and fluctuating demand.

Thus, it can be concluded that there is a higher bargaining power among the suppliers in the oil
and gas industry drying up of reserves and the fact that there is an existence of a high level of
competitiveness among the players who shape up their policies according to that of the existing
competitors. Thus suppliers play an important role in the concerned industry.

BARGAINING POWER OF BUYERS: LOW

The bargaining power of the buyers is generally low in this industry though it can change according
to the situation prevalent. This is mainly characterized by the fact that the OPEC regulates a
majority of oil production in this world, and there is not much scope for the buyers to change the
product. However, situations may arise when the bargaining power can be high due to the fact that
the suppliers may have tendency of reducing the prices whenever needed to suit needs of buyers.

Buyer Power: About 65 percent of output goes to refiners and 14 percent goes to the natural gas
distribution industry, making refiners the key buyers of crude oil.

Oil Refiners: Since crude oil is a globally traded commodity, buyers favor the provider which is
closest since they have to bear the shipping costs. The buyer cannot force the upstream supplier of
crude oil to reduce the price unless the global demand for oil and gas goes down. A lower level of
impurities translates into the lower operating costs for petroleum refiners and also makes
complying with environmental regulations easier. Refiners have fixed capacity and are cost-wise
better off running their plants at fixed capacity than by keeping the plant idle and not buying crude
in a high business cycle much pressure on drilling companies. As such, refiners cannot put too
much pressure on drilling companies.

Cyclical demand: If the price is high to the extent that demand goes down, then price goes down.
During a down cycle, the buyer has power and vice versa.

Natural Gas Distributors: The firms in the Natural Gas Distribution industry provide transport
(via pipelines). They have to buy gas from the drilling companies at the market price. Competition
in the industry is moderate and does not give these distributors any bargaining power.
Cyclical demand: If the price is high to the extent that demand goes down, then price goes down.
During a down cycle, the buyer has power; during an up cycle, the buyer experiences less power.
Currently, supply is up, bringing prices down.

Buyers are both industrial consumers and individual consumers. Industrial buyer power is low
because upstream suppliers have an incentive to limit supply and keep prices high as is evidenced
by the shrinking downstream margins. Individual buyer power is low because of the high volume
of demand as is evidenced by the fact that energy prices are continuing to rise despite slowing
economic growth worldwide.

THREAT OF SUBSTITUTES: LOW

There really is no substitute for refineries. Although large refiners have operations overseas,
domestic production is processed in local refineries. In 2009, nuclear energy accounted for about
9 percent of energy supply and renewable energies accounted for 8 percent of the supply. In 2035,
the nuclear energy use is expected to go down to 8 percent, and renewable energies are expected
to provide 10 percent of the total energy consumption. As fossil fuels still make up the vast
majority of energy supply, the threat of substitutes to fossil fuels is low. Besides that solar power
and wind power are not practically feasible sources of energy i.e. they have not been commercially
viable. Nuclear and hydroelectric energy sources are not a threat within the next decade because
of government regulation, environmental concerns, and a high barrier to entry

CAPABILITY ANALYSIS

ExxonMobil through its years of operation in the Oil and gas industry have accumulated a number
of resources and capabilities that enable it to be operationally and financially effective.
 PRIMARY ACTIVITIES

SUPPLY CHAIN MANAGEMENT:

ExxonMobil places its reliance on more than 175,000 suppliers of goods and services, which
includes over 85,000 third party contractors. As ExxonMobil is a globally operating organization
it tries to maintain a healthy relationship with all its suppliers so as to ensure that its operations
continue in a smooth manner.

RESEARCH AND DEVELOPMENT ACTIVITIES

Exxon Mobil gives high degree of importance to Research and Development Activities. It applies
a Consistent management approach for its operations. It has engaged experts on the fields
pertaining to bio-fuels to nano-technology to provide valuable inputs as to finding out a particular
technology requiring a particular investment in the future. In collaboration with the researchers,
the company formulates its policies for determining the benefits of a technology, establishing goals
and authorizes project funding.

OPERATIONS

ExxonMobil is the largest refiner in the world with 37 oil refineries in 21 countries and having a
daily refining capacity of 6.3 million barrels. Many of these fields are operated by Shell U.K.
Exploration and Production as part of a joint operation. They are responsible for approximately
5% of UK oil and gas production.

SECONDARY ACTIVITIES

DEVELOPMENT

ExxonMobil uses advanced motor technology for its operations. Besides that it uses hydrogen fuel
cells to do its work. It tries to capture carbon and store it and in addition to that it maintains a
controlled freeze zone.

HUMAN RESOURCE MANAGEMENT

The Human Resources mission within ExxonMobil is to create competitive advantage through
people. HR has a crucial role to play in supporting the development of strategies and people related
initiatives, policies and programmes that mean that ExxonMobil is regarded as the employee of
choice by its employers which in turn help them to ensure long-term success of its business and
long-term association of the employees with the company.

HR FUNCTIONS ARE DIVIDED INTO TWO MAIN AREAS:

Business Line HR

Roles in this area are both strategic and operational, and involve working closely with managers
and supervisors to implement HR strategies, effect organizational changes, and ensure a productive
work environment.

Services HR

Executing and continually improving core HR processes that are essential to the smooth operation
of the business, including recruitment, compensation and benefits, policy development and vendor
management. Roles in this area involve.

ANALYSIS OF THE EFFECTIVENESS OF STRATEGY

Oil is the number one energy source and expected to remain that way for years to come. Oil prices
have been on the rise recently and projected to stay high due to increasing demand. ExxonMobil
increasing the investment in oil in the next five years is a sound choice. ExxonMobil has a number
of proven conventional basins with high-quality, low-risk oil and a number of moderate-risk new
plays and unconventional oil sources, such as oil sands.18 It also has the resources and capabilities,
such as the technological prowess and the years of exploration and production experience and

18
Private Empire: ExxonMobil and American Power
expertise in exploring for oil in demanding terrains, to successfully execute on this strategy. The
proven operational excellence and a well-integrated value chain will further help ExxonMobil
achieve the industry-leading cost efficiency needed to generate profits.

COMPETITIVE ADVANTAGE TEST

As a part of executing the strategic move, ExxonMobil will need to invest not just in conventional
oil but also in unconventional oil. There is an estimated three trillion barrels of heavy oil in the
world, equalling 100 years of global consumption at current levels. Only a fraction of it (400 billion
barrels) can efficiently be recovered using current technology.

To capitalize on this vast source of energy, ExxonMobil will need to invest in infrastructure and
technology needed to explore and process unconventional oil. The technological development,
learning and the exploration rights that it would acquire in the process would provide a sustainable
competitive advantage to ExxonMobil for years to come.
ExxonMobil should seize this opportunity to increase its competitive edge against its nearest
competitors; BP, with large reserves, is still reeling under pressure due to the massive oil spill;
Chevron has been taking significant risks to increase its limited reserves; and Shell is staking out
a leadership position in natural gas, driven by its low oil reserves.

PERFORMANCE TEST

ExxonMobil spent $32 billion in exploration and production in 2010. The company has planned
to spend $34 billion to $37 billion in capital spending in the next five years, according to the
companys 2010 Annual Report. The scenario analysis described above suggests that with a
conservative one percent increase in capital expenditure and a one percent additional revenue
growth improvement projection, ExxonMobil would have an additional cash flow of $14.2 billion
discounted to present value.

The following paragraphs provide a description of short-term and long-term recommendations.

The impact of these recommendations on the value-cost profile is outlined here:

SHORT-TERM RECOMMENDATIONS

Increase investments in oil exploration, production and refining.

Rationale:
Oil is the number one energy source and expected to remain that way for years to come. In 2010,
the revenue per unit of sale of oil is $71 versus $4 for natural gas.89 ExxonMobil spent $32 billion
in exploration and production in 2010. By increasing the capital expenditure by 3 to 5 percent to
invest in oil, ExxonMobil stands to gain competitively and financially, extending its leadership in
the industry.
EXECUTION STRATEGY

To successfully execute this recommendation, ExxonMobil should step up its investment in

conventional oil from both proven fields and new oil plays. The production from low-risk proven
fields will help increase the near-term revenue. The exploration and production activities
associated with moderate-risk new plays would propel the growth subsequently. On the domestic
front, ExxonMobil should pursue opportunities in conventional basins with high quality prospects
with low to moderate risk exposure. ExxonMobil has nearly 2.1 million net acres in the Gulf. The
company also discovered a large oil reserve at the Hadrian complex. These would be good
opportunities to invest in oil near-term. On the international front, ExxonMobil should expand
activities on the basin where the company was successful in the past e.g. Indonesia, Gulf of
Mexico, and Angola, Africa. ExxonMobil recently discovered new basins in the Black Sea where
it now holds nearly 6.3 million net acres. ExxonMobil should step up investments in these
attractive opportunities that have a moderate risk profile.
IMPLEMENTATION:

A key determinant of implementation is the technology and expertise to discover and develop oil
in unproven fields. Investing in developing the know-how and technology will reduce the risks
associated with these activities and can extend the companys lead, as it can turn its core
competencies into distinctive competencies.
SHAREHOLDER IMPACT:

Investors would likely welcome this strategic move; however, some investors might be concerned
about the impact that it might have on dividends. ExxonMobil should continue to maintain its
current dividend payout ratio and should instead consider reducing the size of the share buy-back
and perhaps slightly increase the leverage (debt-equity ratio) to capitalize on a low-interest
environment and the companys strong credit rating.
DYNAMIC CAPABILITIES
The Dynamic Capabilities Framework was developed to enhance strategic agility in high-tech
firms operating in high-velocity markets. A dynamic capability is a meta-process that orchestrates
a number of processes, and goes beyond best practices to manage the firms strategic imperatives.
For businesses in high-velocity markets, strategizing cannot be long-term because market and
technological uncertainty require constant refocusing for the firm to remain relevant. Leaders
create competitive advantage by rapidly transforming their companies with dynamic capabilities
that support technological, organizational, operational, and business model innovations.

TO EXPLORE THE CONTRIBUTION OF THE DYNAMIC CAPABILITIES FRAMEWORK

FOR E&P STRATEGY

Describe the weaknesses of textbook strategic methodologies for Upstream

Strategy.

Explicate the Dynamic Capabilities Framework.

Demonstrate how the Dynamic Capabilities Framework is relevant to today's

Upstream strategic context.

DISTINCTIVE COMPETENCIES

In order to explain long run superior performance, some scholars have focused on what they call
distinctive competences. A key foundation for distinctive competence is top management itself.
Top management sets strategy, shapes culture, and makes the key resource allocation decisions.
The framework underscores the importance of quality management, but without specifying the
desirable traits of top management and what leaders are supposed to do, other than adhere to a
good long-run vision, be good leaders and be change agents effectuating transformation .

A single-minded emphasis on the role of management as an explanation for superior performance

ignores a variety of other factors important for understanding longer run firm performance. The
firm may be lacking key assets, may have a poor balance sheet, and may be ossified in its decision
making. Its not just the quality of management; it is the assets (tangible and intangible) that
managers get to (or choose to) manage, both inside the firm and external to it.

Strong dynamic capabilities are unlikely, on their own, to result in competitive advantage. As
discussed below, strategy must be matched to capabilities in order to predict when and how
dynamic capabilities will impact the firms performance. Strong dynamic capabilities and good
strategy have combined to sustain competitive advantage in firms that have endured for decades,
even as they shifted the focus of their activities.

CONCLUSION

ExxonMobil has a long-standing reputation as the industry leader with a long-term orientation.
Disciplined management, a globally well-integrated value chain, and operational excellence are
the hallmarks of ExxonMobil.

As the industry leader, ExxonMobil is poised to take on the challenges of the world energy needs
for decades to come. The magnitude of its reserves, strong technology orientation, and its financial
strength gives it a commanding position in the industry.

For ExxonMobil to extend the competitive advantage, a well-balanced strategy that caters to the
short-term as well the long-term is critical. ExxonMobils recent move of focusing on oil for next
five years is well aligned with its energy outlook and long-term investments in relatively high-
growth area of energy (i.e. natural gas).

The oil & gas industry is cyclical and its profits are highly correlated to global supply and demand
dynamics and political stability in major oil producing nations. Nevertheless, improving global
economic growth prospects and ever increasing energy demand bodes well for the industrys profit
outlook. With an internationally diversified business portfolio, industry leading oil & gas reserves,
envious financial strength and solid dividend yields, ExxonMobil is one of the best long-term
investment plays in the energy sector and integrated oil & gas industry. We rate ExxonMobil as a
BUY for long-term investors.