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Executive summery

The purpose of this report is to analyse and discuss using BHP Billiton as a company example whether CSR activities are increasing strategic in that it affects that core business of the firm and its growth, profitability and survival. BHP Billiton was analysed Using Michael Porters value chain and 5 forces framework along with other supportive relevant literature. It was found based on the approaches taken by Porter BHP Billitons CSR activities have high centrality and high specificity. The high specificity means that most of the CSR activities do relate highly to the core business , BHP Billitons CSR activities related to education, health, the environment and others. Regarding the high centrality , the analysis shows that BHP Billitons CSR activities are specific to BHP Billitions characteristics, which ultimately contribute to their competitive advantage. By linking their CSR activates to their core business they are gaining a competitive edge. However it was also identified using Porters 5 Forces framework, that BHP could improve by entering markets like China or India where the industry is booming, minimising environmental impact with legal regulations and assessing different ways of settling disputes or as recommended focusing on their employees by increasing their motivation levels as this will positively affect their CSR activities and in turn contribute to their success. Nevertheless BHP Billiton is an example of a company that is using strategic CSR, linking it to their core business and in turn gaining a competitive advantage.

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Table of Contents Page

1. Introduction

2.

The value chain and the link with Strategic CSR and Competitive advantage

3-4

3.

Analysis on BHP with Porters 5 Forces

4-5

4.

Recommendations

5.

Conclusion

6.

Reference List

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1.

Introduction

Waddock, S, Bo-dwell C & Graves, S. (2002), emphasise that in order for a organastion to stay in competition they are now more than ever required to balance the social, economic and environmental components of their business, and at the same time build shareholder value (p. 137). Further to support this strong link between CSR and competitive advantage Porter, M, & Kramer, M. (2006) believe that there is a link between cooperate social responsibility strategies and a firms competitive advantage, such as attracting valuable employees as well as enhancing the company image, reputation and overall triple bottom line (p.4). Issues concerning corporate social responsibility are now being integrated into all aspects of business operations and definite commitment to CSR is made in the visions, missions and value of statements of a large number of companies all over the world (Porter & Kramer 2006, p 5). In particular this report will focus on BHP Billition and present a theoretical analysis that will demonstrate through the use of Porters Value chain, other relevant literatures and examples from BHP Billoitin the association between cooperate social strategy activities and the positive contribution it has on the overall performance of a company. Furthermore the second part of the report will critically evaluate BHPs position in the market by using Porters 5 Force framework model and recommend with the support of relevant literature what aspects of their strategy need improvement.

2.

The value chain and the link with Strategic CSR and Competitive advantage

BHP Billiton corporate social responsibility overall is to be green, and promote the triple bottom line; Planet, People, Profit. Their CSR activities contribute to their success by combining one of their biggest CSR activities which is to be environmentally conscious and health and safety first to their core values. Sharma, A. & Talwar, B. (2005), state that CSR is currently a source of competitive advantage, that companies should employ in the quest for greater competitiveness and better results ( p37). Further to support this point Porter & Kramer (2006) argue that the creation of competitive advantage occurs through the implementation of strategies that add value and create benefits for the society at large (p7).It is important that organisations understand their relationship with their societies , how their actions impact their shareholders and at the same time anchor their activities which best utilize their strengths and opportunities to meet the needs of the society whilst adding value .This will not only produce the most value to the society however in turn it will create maximum gains for the business (Porter & Kramer 2006, p 8). BHP support activities such as its customer service groups are organised on a standardised basis, to maximise the effectiveness and any possible negative impact to the communities around their equipment/machinery and eliminate high emission of greenhouse gases (BHP 2013). BHP Billion put health and safety first whilst being environmentally responsible and supporting their communities through community incentive programs ( BHP 2013). BHP measure the success of their community development programs by improvements in the quality-of-life of people in their host communities. This clearly shows that BHP is going above and beyond their legal requirements as a company and is linking CSR to their core values. By investing in programs that empower communities and advance local education,

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health and environmental standards. Like in Zululand, South Africa, BHP Billiton in partnership with The Wildlands Conservation Trust funded the establishment of the Indigenous Trees for Life Program to create livelihoods for disadvantaged community members, while also establishing lasting environmental benefits ( BHP 2013) Murray, B. and Montanari, R.(2001) state that by investing in social aspects of the community and taking a interest is more than just creating value it is the establishment of strategic CSR, This strategic investment consists of the creation of well-being and positive advantages to society and the local community. It also consists of additional benefits to the company, such as an enhanced reputation, better and more qualified labour, the differentiation of products and extraction of a premium price (p.817). A company can add value and obtain competitive advantage through socially responsible activities, but it must act strategically and CSR should be connected with the core strategies, actions should be seen as adding value to products in the eyes of the public and should also improve the local business environment (Porter & Kramer, 2006, p2). BHP defiantly has had no problem adding value to their products and improving their local business environment. Given that the program positively impacted 1,600 people, their families and environmentally the program has resulted in 100,000 new trees being planted in a 48-hectare area of forest degraded through local grazing and logging (BHP, 2013). This is just one of the many support activities that BHP offer to their disadvantage communities, in the quest to improve their life, add value and create a better operating environment. Through practising strategic CSR and linking it to its core strategies BHP Billiton has gained a competitive advantage, which has ranked them as the leading global resource company in the world (BHP, 2013).

3.

Analysis on BHP with Porters 5 Forces

According to Finch C, (2013) BHP Billiton has a much disciplined approach, which has been to be a proven strategy (p.5). There strategy is founded on diversification by commodity, geography and the market. To succeed, they need a workforce which reflects their core values and the communities in which they operate ( Finch, C, 2013 p. 8). With diversification, BHP have looked at the possible restraints of market penetration, by looking at the retaliation of competitors, such as Rio Tinto and the legal and economic constraints of the communities they wish to operate in. BHP Billiton have also implemented a strategy which companies such as Optus/Sintel have introduced, a graduate program. This program trains and develops potential employees into certain areas of the business where BHP need trained and skilled employees. The forces which affect BHP Billitons ability to serve its customers and make a profit would consist o f the threat of possible new entrants, substitute services, bargaining power of buyers and suppliers, and the intensity of competitive rivalry (Finch, C, 2013 p. 8-10). BHP Billiton and competitors such as Rio Tinto and Alcoa (AA), all produce profits each year however BHP need to gain the competitive edge by looking for more international demand, possibly in China or India as they are both two large economies going through the industrialisation boom but need to be careful with government regulations and what impact their work will have on the communities (Finch, C, 2013 p. 15). Wallace (2007) explains the impact of BHP and the government had on the restructure of the Great Artesian Basin for the Olympic Dam expansion, how many aboriginals suffered and the government did not act on providing new housing, water, power, sewerage and they felt they were excluded to citizenship rights (p.138). Cubby (2010) also reports the mining operation in the south western area of Sydney was set to continue even with the loss of endangered wild-life if these eight swamps were to be destroyed by BHPs production, this to

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affected BHPs image and they learnt from this mistake. Continuing on with the threat of substitutes, it is quite low for this kind of industry, it is not a significant challenge posed by BHP Billiton because there are not many substitutes for raw material products (Finch, C, 2013 p. 17). BHP has a broad, diversified portfolio of natural resources assets and it is one of the largest natural resource companies in the world. BHP has the power to set and standardise prices for all buyers as there is a low supply and a strong demand for natural resources (Finch, C, 2013 p. 118). BHP is dependent on long term relationships with customers and even with the impact of increased prices has had no effect due to BHPs strong focus on customer service. Overall the point of Porters five forces approach shows that when BHP focuses on their core value of CSR, it gives them the competitive edge against its competitors and builds greater reputation with its customers, and the strategy of Corporate social responsibility is important when it yields substantial business- related benefits to the firm, in particular by supporting core business activities and thus contributing to the firm's effectiveness in accomplishing its mission (Mintzberg, H.1983 p. 17).

4.

Recommendations

Furthermore BHP (2013) annual report from 2012-2013, showed that their Net Tangible asset backing was US$10.52 at 30 June 2012, and US$11.59 as at 30 June 2013, with a revenue of $71,739 million dollars (up 0.7%) and with profits from operations down 25.3% gives a clear indication some areas need vast improvement. BHP should focus on its relationship with its employees and unions within BHP. According to Mintzberg, H. (1983), they have the potential in increasing CSR activities by the employee motivation levels and pride in working for the company (p.3). Possible ways BHP could improve this would be looking at remuneration, employee development, work-life balance, diversity, consistency and dealing with redundancies if mines close down (Mintzberg, H 1983, p 6). Manning & West (2012) report that BHP Billiton would close the Gregory open-cut project which will affect up to 300 employees losing their jobs, this being the fifth mine closure in. A strategy BHP Billiton could implement or improve on their current strategies is to ensure all employees understand the value of their work in terms of the bigger picture. BHP Billiton should promote its ethical business behaviour with offering a guide to business conduct published in several languages in hard copy and on their intranet which is accompanied by a facilitators handbook and a multilingual ethics telephone help-line across four world time zones , the point of this is that communication is necessary throughout the organisation to remind employees what BHP Billitons values are and how to behave ethically in BHP. Also by boosting morale and not letting the redundancies of fellow employees bring the rest of the employees down (Barney, J. 1986, p 658).

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5. Conclusion

Porter & Kramer (2006) argue that having a strong CSR image will enhance loyalty and generate repeat sales, it contributes to the image of a companies in the world today and has become a large competitive edge for many organisations. Furthermore CSR issues can reduce costs, whilst generating new product opportunities and BHP Billiton are addressing the needs of becoming the most sustainable mining organisation in the market . Firm performance comes down to whether the company has applied the correct business strategy, in BHP Billitons case, they have applied diversification and have linked their CSR activities to the core business. Which gives them a an competitive edge, however in order to sustain this competitive advantage BHP needs to consider porters 5 forces, such as finding more markets to enter, like China or India where the industry is booming, minimising environmental impact with legal regulations and assessing different ways of settling disputes or as recommended focusing on their employees by increasing their motivation levels as this will positively affect their CSR activities. Overall based on Porters value chain and 5 forces framework BHP Billitons has shown that it has gained a competitive advantage by incorporating CSR to the core values of their business. None the less BHP Billiton should definitely keep promoting its core strategies and values around CSR, by becoming more sustainable, environmentally friendly, community based and promoting diversification but should possibly look into vertical, backward and forward integration for future expansion and also should focus on porters five forces to find respective markets to enter and possibly grow and increase their revenue.

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6.

Reference List Barney, J. (1986). Organizational culture: can it be a source of sustained competitive advantage? Academy of Management Review, Vol.11, No.3,pp 656-665. Business Source Complete, EBSCOhost, viewed 25 th August 2013 BHP 2012, BHP Billitons Homepage, Annual Report 2012 & About Us, <http://www.bhpbilliton.com/home/aboutus/Pages/default.aspx> <http://www.bhpbilliton.com/home/investors/reports/Documents/2012/2013AnnualReport.pdf> viewed 25 August 2013 Cubby, B 2010, BHP mines set to damage life-giving swamps, The Sydney Morning Herald, < http://www.smh.com.au/environment/bhp-mines-set-to-damage-lifegiving-swamps-20100217odzf.html> viewed 25th August 2013

Finch, C, 2013, Mining in Australia, IBS World, Report B, pp. 1-33, viewed 25 th August 2013 Manning, P & West, M 2012, More Jobs go as coalmines shut down The Sydney Morning Herald, <http://www.smh.com.au/business/more-jobs-go-as-coalmines-shut-down-20120910-25oeq.html> viewed 25 August 2013

Murray, K.B. and Montanari, J.R. (2001), "Strategic management of the socially responsible firm: integrating management and marketing theory", Academy of Management Review, Vol. 11 No. 4, pp. 815-827. Business Source Complete, EBSCOhost, viewed 25 th August 2013 Mintzberg, H. (1983). The case for corporate social responsibility. Journal of Business Strategy,Vol. 4, No.2, pp.3-15. Business Source Complete, EBSCOhost, viewed 25 th August 2013 Porter, M. E., & Kramer, M. (2006). Strategy and society: the link between competitive advantage and corporate social responsibility, Harvard Business Review, pp 1-13. Business Source Complete, EBSCOhost, viewed 25 th August 2013

Sharma, A. K. & Talwar, B. (2005), ''Corporate Social Responsibility: Modern Vis-a-Vis Vedic approach'', Measuring Business excellence Vol. 9, No.1, pp.35-45; Business Source Complete, EBSCOhost, viewed 25 th August 2013

Waddock, S.A., Bo dwell, C. And Graves, S. B. (2002), ''Responsibility: the new business imperative'', Academy of Management executive, Vol. 16, No. 2, pp.132-148; Business Source Complete, EBSCOhost, viewed 25 th August 2013