Running head: Uber Case Study
2
Uber Case Study
Uber Case Study
XXX Student Name
June 30, 2018
I. Overview of Uber
Uber is a ride sharing company that was launched in San Francisco in 2010 when UberCab connected its first rider with a town car for a ride across the city (Uber.com). The company was designed to allow consumers to hail a ride from local drivers with the simple push of a button (using an app), and has since disrupted the taxi cab industry. The inception of Uber brought new technology and ideas into a transportation sector historically lacking in innovation and customer service. The company’s founders saw an opportunity to use technologies such as smartphones, GPS and Google Maps to improve transportation and the result has been a more convenient, faster and cheaper service.
Uber is headquartered in San Francisco, California and operates by charging consumers for rides. This is primarily how the company generates revenue (although they do participate in some advertising on their website). The Uber app facilitates the location of a driver and the transfer of funds. The fare is then charged to the consumer’s credit card (Investopedia.com, 2018). Uber quickly raised money and launched operations in hundreds of cities; it is now in over 65 countries and cities worldwide. Last year, Uber announced it had completed 4 billion trips (15 million trips are completed each day) (Uber.com).
Since 2010, Uber’s service offerings have become quite expansive. Although they initially offered only full service luxury vehicles, now when hailing a ride consumers have choices such as Uber Pool, Uber X, Uber XL and Uber Black. These choices were non-existent previously with taxi cab companies. More recently, Uber has entered other markets such as the food delivery business. They now offer services such as UberEATs which delivers food from local restaurants (Ubereats.com, 2018).
To understand Uber’s main competitors and market structure, it is important to understand some of the history behind taxi companies, especially in major cities. Taxi cab drivers had a monopoly prior to Uber entering in many cities such as New York. In 1937, New York City passed the Haas Act which established a licensing system to influence supply. The system required taxi drivers to purchase a medallion in order to operate. The government sells limited numbers of medallions which allows them to control competition and entry into the market. This is at the expense of consumers since it restricts supply and keeps costs high. Despite a growing population, the number of available medallions has remained partially fixed, only increasing marginally. Taxi drivers with a medallion enjoy high profits and have fewer incentives to ensure satisfaction. Today, the number of medallions in New York City remains capped, maintaining a barrier to entry.
After Uber launched in New York City, the prices of medallions dropped significantly; this has be.
1. Running head: Uber Case Study
2
Uber Case Study
Uber Case Study
XXX Student Name
June 30, 2018
2. I. Overview of Uber
Uber is a ride sharing company that was launched in San
Francisco in 2010 when UberCab connected its first rider with a
town car for a ride across the city (Uber.com). The company
was designed to allow consumers to hail a ride from local
drivers with the simple push of a button (using an app), and has
since disrupted the taxi cab industry. The inception of Uber
brought new technology and ideas into a transportation sector
historically lacking in innovation and customer service. The
company’s founders saw an opportunity to use technologies
such as smartphones, GPS and Google Maps to improve
transportation and the result has been a more convenient, faster
and cheaper service.
Uber is headquartered in San Francisco, California and operates
by charging consumers for rides. This is primarily how the
company generates revenue (although they do participate in
some advertising on their website). The Uber app facilitates the
location of a driver and the transfer of funds. The fare is then
charged to the consumer’s credit card (Investopedia.com, 2018).
Uber quickly raised money and launched operations in hundreds
of cities; it is now in over 65 countries and cities worldwide.
Last year, Uber announced it had completed 4 billion trips (15
million trips are completed each day) (Uber.com).
Since 2010, Uber’s service offerings have become quite
expansive. Although they initially offered only full service
3. luxury vehicles, now when hailing a ride consumers have
choices such as Uber Pool, Uber X, Uber XL and Uber Black.
These choices were non-existent previously with taxi cab
companies. More recently, Uber has entered other markets such
as the food delivery business. They now offer services such as
UberEATs which delivers food from local restaurants
(Ubereats.com, 2018).
To understand Uber’s main competitors and market structure, it
is important to understand some of the history behind taxi
companies, especially in major cities. Taxi cab drivers had a
monopoly prior to Uber entering in many cities such as New
York. In 1937, New York City passed the Haas Act which
established a licensing system to influence supply. The system
required taxi drivers to purchase a medallion in order to
operate. The government sells limited numbers of medallions
which allows them to control competition and entry into the
market. This is at the expense of consumers since it restricts
supply and keeps costs high. Despite a growing population, the
number of available medallions has remained partially fixed,
only increasing marginally. Taxi drivers with a medallion enjoy
high profits and have fewer incentives to ensure satisfaction.
Today, the number of medallions in New York City remains
capped, maintaining a barrier to entry.
After Uber launched in New York City, the prices of medallions
dropped significantly; this has been coined the “Uber effect”
(AE Ideas, 2016). Without the same regulations the taxi
companies have, it has been able to provide significant value for
consumers including faster service, cleaner cars and lower
prices. There is concern, however, that its aggressive pricing
will not generate enough revenue to adequately compensate
drivers and ensure adequate profits to shareholders (Sherman,
2017).
Uber drivers are needed to provide the labor and
equipment for the service. Drivers with Uber are attracted to the
flexibility it offers and the fact that earnings per hour remain
steady regardless of the number of hours worked. Uber drivers
4. have diverse backgrounds and tend to vary their hours from
week to week. Uber provides an option for educated individuals
not working full time or in between jobs. It has been stated that
Uber driver-partners earn “at least as much as taxi drivers and
chauffeurs” so they are attracted to Uber because the entry
barriers are lower and hours are more flexible (Hall & Krueger,
2016). Not surprisingly, UberX drivers spend more of their
time and miles with a customer in the car than do taxi drivers
(Cramer & Krueger, Disruptive Change in the Taxi Business:
The Case of Uber).
II. Demand Analysis
As a concept, demand is based on the theory of consumer choice
(McGuigan, Moyer, & deB. Harris, 2017). There are several
alternatives to ride sharing that consumers can chose from.
Consumers have the choice to get from point A to point B via
taxi cabs, buses, personal cars, bikes, foot travel and the
subway, just to name a few. In thinking about the demand for
Uber, factors such as the price of gasoline come to mind. When
gas prices are high, consumers may be more likely to walk or
take a more efficient form of travel, such as a bus or a train
(assuming Uber has to raise its prices to cover the cost of gas).
Another factor is events or location. For example, demand for
Uber services are likely to spike after a sold-out concert.
Since Uber typically charges lower prices than taxi cabs,
consumers who have historically taken cabs have more
purchasing power with Uber. This means they have more money
in their wallets to spend on transportation which may result in
more frequent trips using the ride sharing service or possibly
even opting to upgrade to one of Uber’s higher end services
such as UberX or UberBlack. As Uber has become more
competitive in most cities, people have been substituting cabs
with Uber. This is known as the substitution effect. Uber could
be considered an income-superior good, therefore, because of
the combined impact of the purchasing power and substitution
effects, there will be more demand (McGuigan, Moyer, & deB.
Harris, 2017).
5. Uber has implemented surge pricing for ride sharing in times
when the demand is higher than the supply of cars. The demand
for Uber is elastic; this means that an increase in price often
results in a decrease in consumer utilization (McGuigan, Moyer,
& deB. Harris, 2017). With surge pricing in times of high
demand, people who can wait for a ride often wait until the
price drops. Meanwhile drivers working go to the area of high
demand to pick up customers who are unable to wait until the
price drops, or are otherwise willing to pay an increased price.
As these actions occur, wait times begin to come back down.
A customer’s desire to purchase a product or utilize a service
like Uber can be impacted by factors other than pricing, such as
marketing, targeting the most likely customers and establishing
loyalty programs. Uber has done a fantastic job marketing (so
much so that Uber is now used as a verb!). While actual
switching costs to use a competitor service such as Lyft are low,
many customers, once they have downloaded the Uber app,
uploaded their payment information, etc., are unlikely to shift to
another service. This means that users already familiar with and
using the Uber app have effectively reduced the number of
substitutes under consideration in the short term. Also, loyalty
programs that provide Uber credits (such as when a customer
refers a friend), helps keep customers loyal to the company.
Another concept I want to touch on in this paper is the concept
of price discrimination. Since its inception, Uber has changed
the way it calculates fares several times and has embraced the
economic concept of price discrimination. A recent article
mentioned that Uber has moved to a system that price
discriminates and “charges what customers are willing to pay
based on factors like whether you are traveling to a wealthy
suburb” (McKenzie, 2017).
III. What Uber Got Right
Uber has gotten a lot of things right. One is that they secured
first mover advantages in the development of ride-sharing
technology. Other companies, such as Lyft, engaged in a pattern
of quick imitation. (Uber is also the first to begin integrating
6. into applications from a number of other large companies such
as Starbucks.) Furthermore, Uber timed their expansion well.
Around the time they were expanding, there was a large pool of
unemployed individuals coming out of the recession. Uber was
able to tap into this workforce and provide a lot of labor supply.
They have tapped into what has been coined the Gig Economy,
the labor force of new entrepreneurs.
In addition to securing the first mover advantage, Uber secured
brand name reputation. Branding is an investment for companies
and they become capital assets that “provide future net cash
flows from repeat-purchase customers as long as the brand
reputation holds up”. As mentioned previously, Uber is now
used widely as a verb and is known for quick and reliable
service.
Something else that Uber has gotten right is eliminating some
asymmetric information for the consumer. In competitive
markets, under ideal information conditions, you get what you
pay for (McGuigan, Moyer, & deB. Harris, 2017). For this
reason, I appreciate the fact that with Uber, I know exactly
where I am going and I am allowed to select the algorithm that
takes me from point A to point B by way of the shortest route.
Also, with Uber I am able to rate the drive and the driver is able
to rate me. This provides us each with information about the
quality of the other and helps us both make informed decision
about whether to use/provide the service. I would also say that
in my personal opinion, Uber has responded quickly and
effectively to criticism and fears that they are a dangerous
service and have been able to maintain positive associations
with their brand name.
There are several pricing decisions that Uber has gotten right.
Along the demand curve one will find people who are more
price sensitive and people who are less price sensitive. A
company’s goal is to differentiate these groups enough to get
the less price sensitive customers to pay more. Uber has gotten
the concept of price discrimination right, since they charge
different prices to different consumers to ensure they are getting
7. the highest price. Economic theory shows that everyone can
benefit from this under the right conditions. For example, if
Uber makes more money it can enter new markets or attract
more drivers, which decreases customer wait times.
Uber is very efficient; in fact, it has been demonstrated that
Uber drivers spend less time than cabs driving around and
looking for someone to pick up than do taxi cab companies. A
recent paper by Judd Cramer and Alan B. Krueger demonstrated
that Uber drivers have more passengers per mile driven or hour
worked than taxi drivers. “On average, the capacity utilization
rate is 30 percent higher for UberX drivers than taxi drivers
when measured by time, and 50 percent higher when measured
by miles” (Cramer & Krueger, Disruptive Change in the Taxi
Business: The Case of Uber). The authors describe the
following four factors that are thought to contribute to the
higher utilization rate of UberX drivers: 1) Uber’s more
efficient driver-passenger matching technology; 2) Uber’s
larger scale, which supports faster matches; 3) inefficient taxi
regulations; and 4) Uber’s flexible labor supply model and
surge pricing, which more closely match with supply throughout
the day.
Finally, Uber has mastered the networking effect. The more
people that use Uber the more drivers are likely to drive for
Uber. More drivers equals more access and everyone benefits.
Uber has become an industry standard and it simply becomes
more valuable the more widely it is embraced.
IV. What Uber Got Wrong
Uber has gotten several things wrong in their short time in
business. One thing they may have gotten wrong is the
implementation of their surge pricing strategies. Uber raises the
price to induce more supply in times of high demand. The more
sensitive the drives are to prices, the more effective the surge
pricing is. While economically this makes sense, anecdotally,
people began switching to Lyft because they were not happy
about the surge pricing and it has hurt the company brand.
Furthermore, Uber has recently come under fire for price
8. discrimination. Consumers have been up in arms since learning
that Uber participates in price discrimination by charging a
customer what they calculate the customer is willing to pay
based on information such as whether the customer was
traveling within a wealthy neighborhood. One article
interestingly points out that while this seems wrong on some
levels, at least from an economic standpoint it is beneficial to
all. The author states that "while this sounds like it comes at the
expense of consumers, economic theory shows that society as a
whole can benefit if certain conditions are met. For example, if
Uber’s new pricing means it can enter new markets or reduce
customer waiting times, price discrimination could increase
society’s overall welfare." (McKenzie, 2017). All that said,
from an HR and customer standpoint, Uber got this wrong, since
the perception and negative press further hurt their brand.
Uber has also dealt with a principal agent problem over the past
few years. In fact, their former CEO, Travis Kalanick, was
recently forced out at the request of shareholders/major
investors. Managers, or agents, are hired to act in the best
interest of the company, and when they don’t the company has a
principal agent problem. In the case of Travis Kalanick, the
company dealt with a fair amount of HR issues during his
tenure. The Uber workplace culture was alleged to be fraught
with sexual harassment and discrimination. Additionally, Uber
had many assault scandals, was under fire for safety concerns
with its self-driving cars (as well as in a legal battle with
Google over the technology), and all with Travis Kalanick at the
helm.
It has also been suggested that Uber drivers (agents) do not
always have their incentives aligned with those of the company
(principal). Gratuities are a way to overcome such slightly
diverging interests as they incentivize the agent to act in the
company’s overall success. Uber drivers would like to see a
prompt for tips on credit card receipts (currently tips are not the
norm for Uber). This may help drivers earn more income,
making them likely to provide better service and spend more
9. time driving (Gail, 2017).
Finally, Uber has been banned in several large cities because
they failed to comply with local rules and regulations. Uber
became well known for entering into a city and then afterwards
trying to make amends with the local government. Perhaps a
better strategy would have been to work with them upfront.
V. Conclusion
At this time, Uber remains one of the most valuable private
companies in the world.
Uber has recently restructured and has replaced the founder
with a new CEO. They have also replaced some members of the
board as well. This means they are positioning themselves to
become a more mature company with greater governance in the
future. They have survived numerous scandals are more in tune
and responsive to investor concerns and to public opinion.
Uber has made clear its aspirations to become a publically
traded company, which will subject them to even more oversight
and controls. The requirement to publically report their
financials and other important company information will reduce
asymmetrical information for key stakeholders when this
happens.
Uber is smart as they are beginning to think about the future.
Strategically, it will help them in the long run to create
alternative sources of revenue. For example, in the future, it
may not be necessary for all households to have 1-2 cars that sit
idle the majority of the day. Since self-driving cars may very
well become a reality, Uber has taken this potential threat to
them and is already working in this space to turn the threat into
an opportunity. Because of their brand awareness, people will
be more likely to use Uber self-driving cars in the future if they
are offered. Uber is also trying to make use of their driver
resources by aggressively diversifying their portfolio of
products and services.
Uber should continue to be self-aware of possible threats like
Lyft and other companies in the ride hailing business as well as
other companies pursuing self-driving cars (such as Google and
10. all the major car companies). With strong leadership, I believe
Uber can continue its successful business as well as continue its
revenue growth and expansion into new markets at a rapid rate.
References:
(n.d.). Retrieved June 16, 2018, from Uber.com:
https://www.uber.com/newsroom/history/
(2018). Retrieved June 16, 2018, from Ubereats.com:
https://www.ubereats.com/
(2018). Retrieved June 16, 2018, from Investopedia.com:
https://www.investopedia.com/ask/answers/013015/how-do-
ridesharing-companies-uber-make-money.asp
AE Ideas. (2016, June 6). Retrieved June 16, 2018, from
AEI.org: https://www.aei.org/publication/monday-evening-
links-7/
Cramer, J., & Krueger, A. B. (2016, March). DISRUPTIVE
CHANGE IN THE TAXI BUSINESS: The Case of Uber. NBER
WORKING PAPER SERIES.
Cramer, J., & Krueger, A. B. (n.d.). Disruptive Change in the
Taxi Business: The Case of Uber. American Economic REview,
177-82.
Gail, A. (2017, April 24). Retrieved June 30, 2018, from
fortune.com: http://fortune.com/2017/04/24/uber-should-let-
11. passengers-tip-drivers/
Hall, J. V., & Krueger, A. B. (2016, November). AN
ANALYSIS OF THE LABOR MARKET FOR UBER’S
DRIVER-PARTNERS. Retrieved June 16, 2018, from nber.org:
http://www.nber.org/papers/w22843.pdf
McGuigan, J. R., Moyer, R. C., & deB. Harris, F. H. (2017).
Managerial Economics Applications, Strategy, and Tactics.
Boston: Cengage Learning.
McKenzie, J. (2017, May 24). The economics behind Uber's
new pricing model. Retrieved June 24, 2018, from The
Conversation: https://theconversation.com/the-economics-
behind-ubers-new-pricing-model-78180
Sherman, L. (2017, December 14). Why Can't Uber Make
Money. Retrieved June 16, 2018, from
https://www.forbes.com/sites/lensherman/2017/12/14/why-cant-
uber-make-money/2/#131157eb4a24
Uber. (2017). Retrieved September 23, 2017, from Uber:
https://www.uber.com/
MG5615: Organizational Economics
Final Case Study Instructions
Choose a company to research. The company can be either a
publicly-traded company or privately-owned, perhaps a
company you are familiar with (but not your current employer).
The key elements in choosing a good company for your case
study are:
1) Is the company relatively easy to research? Is there plenty of
available information on the inner-workings of the firm?
2) Is it a company you’re interested in and/or do you like their
product or service? (This will make it more fun.)
3) Is the company newsworthy? (Perhaps they’ve had a stunning
failure, legal issue or maybe they recently created a killer
12. product everyone wants.)
Once you have picked a company, post your company to the
final case study paper assignment – week 4. No two students
can pick the same company and approval will be given on a first
come-first assigned basis.
Note that for a large, multi-line or multi-product company, you
may want to choose a single business line within the firm for
your analysis. For example, if you choose Apple, you might
want to concentrate on their iPhone business only or if you
choose Google/Alphabet, you might want to concentrate on just
their driverless car project. Students will find it much easier to
focus their business analysis on one business line within a large
diversified company.
Your final case study paper should be 6-8 pages and will consist
of 4 sections (each about 1.5-2.0 pages).
The first section should be an overview of the company. What
does the company do? What product or service does it offer?
Where is it located? Who are its main competitors and what is
the market structure (e.g. pure competition, monopoly,
oligopoly, etc.)? How is it regulated? This first section should
provide a background or base-line understanding of the
company in support of the rest of the paper.
For the remaining sections, pick any threefrom the following:
· A demand analysis illustrating the most applicable terms,
concepts, or ideas in Chapter 3.
· A production and cost analysis illustrating the most applicable
terms, concepts, or ideas in Chapters 7-8.
· A pricing analysis illustrating the most applicable terms,
concepts, or ideas in Chapter 14.
· A “What they got wrong” analysis detailing a strategy mistake
using the course concepts.
13. · A “What they got right” analysis detailing a strategy win using
the course concepts.
· Any other analysis that illustrates the terms, concepts, or ideas
in the course (must be approved by the instructor in advance).
If you are having trouble addressing or finding enough
information for any of the sections above, you can augment
your analysis by articulating what you think the company
should do. For example, if you can’t find any information on
your company’s pricing strategy, explain how you would price
the product or service and why. This is Organizational
(managerial) Economics; make some decisions on behalf of your
company and support them using concepts and ideas from the
class!
The goal of this paper is to illustrate that you understand the
concepts covered in this course and that you can apply them to a
real company.
Remember to document or source borrowed research using the
standard APA citation style. Extensive quoting is not necessary
(and not additive to your grade). Reference the source, but, to
the extent possible, explain the concept or strategy in your own
words. For example, if you find a great article on your
company’s pricing strategy, explain the article and concepts in
your own words and source it. Do not cut and paste long
passages of text.
The paper should be 6-8 pages (or more) double-spaced, size 12
font Times New Roman, Calibri, or Cambria. The final paper is
due on Sunday of Week 15.
Running head: EXXON MOBIL CORPORATION 1
14. Exxon Mobil Corporation (XOM)
Organizational Economics
Abstract
Exxon Mobil Corporation (XOM) is an American Multinational
Company in the energy and petroleum. It engages in
exploration, production, sale and marketing of the crude oil and
natural gas. It has exploration and development activities in the
USA, Europe, Canada, Australia, Africa and Asia. Oil and
petroleum products are consumer commodities whose demand is
increasing exponentially. In the event of the material decline in
oil or gas, company operations could be adversely affected.
Production activities at XOM is more capital intensive than
labour-intensive and therefore, it is expected that variable and
fixed cost to be fluctuating depending on the nature of machines
and also changing in the prices of other variable factors.
Business level strategies-cost leadership and skilled workforce
have been established to greatly influence the success of the
XOM and Corporate strategies that is integrated business
model-upstream, downstream and chemical segments together
with fundamental annual management process to be main
corporate strategies that influence the success of XOM.
Keywords: cost leadership, skilled workforce, upstream,
15. downstream, chemical, fundamental annual management, vision,
mission and operating expenses.
Introduction
Exxon Mobil Corporation was incorporated in 1882
headquartered in the State of the New Jersey. It operates in the
USA market and also in most of the countries in the World. It
performs 4 main activities which are exploration, production,
transportation and sales of the crude oil and natural gas.
Further, it engages in the manufacturing of petrochemicals. It
has exploration and development activities in the USA, Europe,
Canada, Australia, Africa and Asia. One of the factors that
position XOM above its competitors is its long-standing
commitment to the development of the f proprietary technology.
This is demonstrated by the multiple of the research programs
company where by the end of the last financial year-2018, it had
13,000 active patents worldwide. Through the use of the
technology and research programs, XOM is always in the
mission of identifying consumer preferences and producing
high-quality energy and petroleum products which meets and
surpasses the expectation of the consumers. To reiterate the
significance of the technology to XOM, in the last fiscal year, a
technology that was licensed to the third parties generated total
revenue of $119 million (Exxon Mobil Corporation, 2018).
XOM is committed to its vision of being premier petroleum &
petrochemical company in the world to be achieved by strict
adherence to the business code of the conduct with the ultimate
goal of realizing operational efficiency and strong financial
results. Further, its mission statement is aligned to vision the
firm where it commits itself to the production of the safe,
affordable and reliable energy in its effort to improve standards
16. of the people globally. The firm depends on its mission and
vision statement to develop business and corporate strategies
which are a continuum of the success to the firm (Braun et al…,
2012).
In alignment with the vision and mission of the firm, it has
established basic tenets on how to create value and better use of
customers, employees, stakeholders and communities in which
it operates. For stakeholders, it concerned with creating high
value to them through engaging in profitable business activities
that will lead to a high return to stakeholders. For employees,
the firm creates a conducive working environment, hires
qualified workers and offers training and development to its
employees which lead to low employee turnover. For the case of
the customers, it provides petroleum and energy product that
meet preferences of the customers, a strength made possible by
great use technology to produce innovate petroleum at
affordable prices. Lastly, for the case of the communities, XOM
carries its business activities ethically and socially respecting
local communities, their values and cultures and adhering to
clean environment standards and guidelines (Exxon Mobil
Corporation, 201i8).
XOM has two main strategies which competitively position the
firm above its rivals. First, it has business-level strategies with
a focus on cost leadership through the production of high valued
petroleum products at affordable prices, optimal use of the
technology to produce innovative products that meet the
preferences of the customers and well trained and skilled
employees (Exxon Mobil, 2018). Second, XOM depends on the
corporate strategies which significantly influence its operation
in the energy and oil market. Some of the corporate strategies
include; an integrated business model which is classified into 3
segments-upstream, downstream and chemical segments which
contributes to the long-term success of the firm (Exxon Mobil,
2018). Lastly, fundamental annual management process which is
used to critically evaluate the viability of the investment project
in the frame of the short-term and long-term longevity (Exxon
17. Mobil Corporation, 2018).
XOM faces stiff competition in the energy and petroleum
industry with its main competitors being Chevron Corp,
ConocoPhillips, Shell and Total. XOM operates in the
oligopolistic market structure. This means that it is one of the
key players in the market and it progressively carries out
exploration and research programs so that it can continue
adding to its market share to have greater influence in the
market and industry at large.
Section 1: Demand Analysis Concepts:
The oil, gas, and petrochemical businesses are fundamentally
commodity businesses. This means that they are consumed on a
daily basis. Additionally, it is good to note that population is
one the increase rate and also a number of the people owning
vehicles and motors are on the increase. Further,
industrialization is progressively growing which means the
demand for petroleum products is on the continuous increase. In
the event of the material decline in oil or gas, company
operations could be adversely affected.
There are demand-related factors which affect the demand for
petroleum products. Some of these factors include change of the
consumer preferences to alternative sources of energy such as
electric vehicle and wind energy could really affect the demand
for petroleum products.
XOM has devised strategic advertising activities which are
aimed to create a presence in the world. The firm leverage use
of social media to strategically advertise its product. Second,
they sponsor sports events which attract a large number of
spectators and viewers. Lastly, they have corporate social
responsibility activities which they use as a stepping ladder for
them to reach to a larger customer base.
Section 2: Production and Cost Analysis Concepts
In the process of the XOM undertaking four main business
activities- exploration, production, transportation and sales of
the crude oil and natural gas, there are fixed and variable cost
which is incurred. Operating expenses for 12 months ending
18. 30th of June 2019 was 64.459B which had declined by 3.78%
when compared with that of the previous year (Macrotrends.
(2019). Majority of the production activities in XOM are capital
intensive. This is because the majority require services of the
machines. For example, exploration activities require machines
and technological devices to identify potential reservoirs.
Similarly, drilling is done by the use of the machines and
human capital is only required to command machines to work.
Therefore, capital (machines) takes a substantial portion of the
operational activities in XOM.
Section 3: Strategy Analysis Concepts:
XOM capitalizes on two types of strategies to create
competitive advantages. Business level strategies are cost
leadership and a skilled workforce. Demand is sensitive to price
and that is why XOM focuses on the various areas to take the
cost down. Some of the areas of focus in cost leadership are
technology to produce innovative products at affordable prices,
investing in research and scalable technology to meet growing
demand cost-effectively. On part of the skilled workforce, XOM
recruits talented employees and expose them to series of the
combined work assignments, focused training and education
which are aimed to equip its employees with necessary skills
and competencies that prepared employees to take higher
responsibilities and also applies the cross-cultural model to
develop employees sensitive to cultural diversity.
On the other part, XOM uses corporate strategies. First uses an
integrated business model which contribute to the long-term
success of the firm. Its integrate business model is divided into
3 segments which are: Upstream that deals with exploration,
production and marketing of hydrocarbon resources;
downstream that handles refining and marketing of the fuels and
lubricants where it is operating in 25 countries and lastly
chemical segment with 13 facilities marked to meet the growing
demand where already 7 are operating. (Exxon Mobil, 2018).
Lastly, the fundamental annual management process is used in
the process of evaluation of the investment projects. Projects
19. that are the firm would like to invest into, are evaluated on the
basis of the prevailing market conditions which help the firm to
invest in an advantaged project which promise to deliver higher
returns and also, they are going to serve for a long time.
Alignment of the vision and mission to the success of XOM
Vision and mission of the firm have been used to explore on
development of the objectives. In line with the vision and
mission of the XOM, the firm invests heavily in the research
and development and also in the scalable technology which
leads to the production of the innovative and affordable energy
and petroleum products. This has helped the firm to continually
meet the growing demand and also produce a product that meets
the preferences of the consumers. Finally, XOM has been
making global presence by signing agreements with various
government for an establishment which continually lead to
exponential growth physically and financially.
Conclusion
XOM has experienced exponential growth both physically and
financially. This success is attributable to business-level
strategies and corporate level strategies employed by the firm.
The firm has taken deliberate efforts to invest in technology,
research and developments which have significantly has
contributed to an increase in the revenue. Investment in the
recruiting talented workforce and investing in the programs that
develop employees’ capacity to take more challenging task has
been paying to the firm towards producing high-quality products
that lead to increase in demand noted through an increase in the
sales.
References
Braun, S., Wesche, J. S., Frey, D., Weisweiler, S., & Peus, C.
(2012). Effectiveness of mission statements in organizations–A
review. Journal of Management & Organization, 18(4), 430-444.
https://www.cambridge.org/core/journals/journal-of-
management-and organization/article/effectiveness-of-mission-
