If I ask you to name a single company in the oil and gas industry that had a monopoly and dominated the entire market, the company you will name is probably Standard Oil.
The tales of Standard Oil’s domination are famous. It was the only major oil and gas company that produced, transported, marketed, and refined crude oil in the 19th century.
Since Standard Oil was the biggest American company in the oil and gas industry, in this article, we will conduct a Standard Oil PESTLE Analysis to see what external factors are used to impact the operations of Standard Oil.
However, before proceeding further, let’s discuss Standard Oil’s history and how it evolved with time.
Standard Oil was an American oil company. It was founded in 1870 by the famous Rockefeller brothers and other businessmen. The company was formed in Ohio, and the company’s basic purpose was to refine crude oil into kerosene for lighting lamps.
Standard Oil soon took control of the production, refining, and distribution processes. Due to this, Standard Oil created a monopoly.
Standard Oil soon began to make profits. To maintain these profits, the company started expanding its operations. It started acquiring small companies in the oil and gas industry to erase the competition.
Moreover, acquiring other companies in the industry helped the brand increase its market share. Furthermore, the brand made alliances with railway and shipping companies. This made it easier for Standard Oil to transport oil.
In the 1880s, Standard Oil owned almost 90% of the oil refining businesses in the US. This way, Standard Oil had complete power over the oil and gas industry. Moreover, in 1882, Standard Oil restructured itself to become an oil trust controlling different regional oil companies.
Standard Oil continued growing and expanding until the federal government, under the US President Roosevelt, launched antitrust actions against the oil company in 1906. In 1911, the court ordered that Standard Oil violated the Antitrust Act. As a result, Standard Oil was broken down into 34 small companies.
Although these 34 companies operated independently, they remained closely connected with Standard Oil and continued dominating the market.
Before the breakup, Standard Oil’s revenue was almost $1 trillion. Moreover, it owned 20,000 domestic oil wells and 5,000 transportation trucks. Besides that, Standard Oil provided employment to 100,000 people. This is the history of the most powerful American oil company.
Now that we have discussed the history of Standard Oil and looked at how the biggest American oil company got broken into 34 small companies let’s proceed further and conduct the PEST analysis of Standard Oil to see what external factors impacted the oil company.
Before proceeding towards the PESTLE Analysis, let’s discuss what a PESTLE analysis is. A PESTLE Analysis is a technique businesses use to find out what external factors impact the operations of a business.
A PESTLE Analysis examines how different political, social, economic, legal, technological, and environmental factors impact a business. Now that we have discussed the purpose of PESTLE analysis, let’s proceed further and see what political factors impacted the operations of Standard Oil.
Political factors are the factors that are linked with the domestic and international political scenario. Moreover, they also account for government policies. In this section, we will look at how different political factors affected the operations of Standard Oil.
Numerous regulations and laws affect Standard Oil. However, the development and implementation of antitrust legislation impacted Standard Oil the most.
As a result of this legislation, the company that had control of 90% of the oil business in the US was broken down into 34 small companies. Hence, the development and implementation of the Sherman Antitrust Act of 1890 impacted Standard Oil significantly.
Moreover, Presidential involvement also impacted Standard Oil. The Sherman Antitrust Act was indeed present in 1890. However, what caused the breakup of Standard Oil was the involvement of US President Roosevelt, who didn’t want monopolies to exist.
Besides that, since Standard Oil was transporting oil everywhere, it was impacted by the political stability of the US. There would have been difficulties in oil transportation in case of political instability.
Furthermore, Standard Oil provided employment to 100,000 people. Standard Oil would have been impacted significantly in case of protest by the workers.
Economic factors are the factors that are linked to the global and domestic economic environment. Economic conditions had a great impact on Standard Oil. Let’s proceed further and discuss how the economic conditions impacted Standard Oil.
Standard Oil was the biggest US company in the oil and gas industry. The oil demand had a great impact on the operations of Standard Oil.
The oil demand is dependent on economic conditions. For example, if the economic condition of a country is very good, then people in that country would have a high oil demand.
Hence, economic prosperity positively impacted Standard Oil since the demand for oil used to be high in periods of economic prosperity. On the contrary, during economic recessions, the demand for oil falls. Hence, economic recessions would impact Standard Oil negatively.
Moreover, inflation had a significant impact on the operations of Standard Oil. During periods of high inflation, the price of oil barrels would rise. In that case, the revenue produced by Standard Oil would also increase.
However, inflation also has a downside. During periods of high inflation, the demand for oil falls since people cannot afford oil at such high prices. Hence, inflation would impact Standard Oil both negatively and positively.
Social factors are the factors that are associated with the culture and social norms of a society. There were plenty of social factors that impacted Standard Oil. This section will examine how different social factors affected Standard Oil.
Standard Oil had aggressive expansionary thinking, due to which a negative sentiment started to gather among people regarding the oil company.
In modern business, increasing market share by acquiring competitors or pushing them out of the market is normal. However, back in the day, it was considered very ruthless. As a result, people started disliking Standard Oil.
The Standard Oil facilities were spread across the US. These facilities had a significant impact on the societies. A lot of jobs and infrastructure were created due to these facilities.
On the other hand, they were also responsible for air and noise pollution, due to which many people turned against the operations of Standard Oil.
Since negative sentiment kept on increasing against Standard Oil, John D. Rockefeller, who was associated with Standard Oil, got involved in philanthropy to improve the image of Standard Oil.
This helped Standard Oil improve its image. As a result, the sales of Standard Oil increased.
Technological factors are the factors that are related to technology and innovation. In this section of the PESTLE analysis, we will look at how different technological factors impacted the operations of Standard Oil.
Standard Oil was the first company to develop and adopt advanced refining technologies such as distilled fraction. This helped Standard Oil in separating different components from crude oil more efficiently.
Overall, adopting this technology increased the quality of Standard Oil products and decreased the cost of production. Besides that, Standard Oil adopted the continuous distillation process, which further improved the quality of Standard Oil’s products and reduced the need for labor.
Furthermore, as the pipelines for transporting oil developed, Standard Oil could transport oil more effectively and efficiently. Moreover, transportation trucks also helped Standard Oil to increase its transportation.
Besides that, Standard Oil adopted the latest marketing and advertising techniques, which improved Standard Oil’s brand recognition. Other than that, it also increased the customer base of Standard Oil.
Standard Oil also adopted more efficient and effective drilling techniques, such as rotary drilling. Such drilling techniques helped Standard Oil in extracting oil in less time.
Moreover, technological advancements in the chemical industry also impacted Standard Oil since, due to this innovation, Standard Oil could develop new petroleum products and optimize the old ones.
Legal factors in a PESTLE Analysis account for a society’s legal framework and laws. Various legal factors impacted Standard Oil. This section will look at the legal factors that impacted Standard Oil.
The law that impacted Standard Oil most significantly was the Sherman Antitrust Act of 1890. This act encouraged competition in markets and prohibited practices that led to monopolies.
Since Standard Oil didn’t comply with the Sherman Act, the Supreme Court ordered the breakup of Standard Oil.
Besides the Sherman Act, scrutiny and legal action against the South Improvement Company affair negatively impacted Standard Oil. This was a scheme in which Standard Oil was involved. The purpose of involvement in this scheme was to gain control over transportation rates for oil shipments.
However, Standard Oil couldn’t benefit from this scheme since the authorities took legal action against it.
Other than that, oil companies filed cases against Standard Oil due to its anti-competitive operations. They also used to accuse Standard Oil of predatory pricing and exclusionary agreements.
As a result, the reputation of Standard Oil kept on damaging. When the government pursued the final case against Standard Oil in 1906, there was already enough proof present against Standard Oil.
Environmental factors are the factors that represent factors related to the environment that impact the operations of a business. In this section of the PESTLE analysis, we will examine how different environmental factors impact Standard Oil.
Back then, there weren’t enough resources to properly manage waste, due to which Standard Oil used to dispose of its waste byproducts without treatment.
This used to create pollution in the areas where Standard Oil facilitations used to operate. Hence, due to the pollution, people were against the operations of Standard Oil.
Moreover, Standard Oil is used to transport oil through the sea. There were a couple of incidents of oil spills that damaged the aquatic ecosystems. Hence, this created a negative sentiment of people against Standard Oil.
Besides that, natural calamities used to impact the operations of Standard Oil significantly. For example, due to sea storms, Standard Oil’s oil transportation through the sea was disrupted. As a result, Standard Oil’s supply chain was affected.
Furthermore, due to storms, infrastructure gets damaged. Moreover, road blockades are common due to natural calamities. As a result of these roadblocks, oil transportation used to get affected. Hence, Standard Oil used to suffer.
Standard Oil was the biggest American company in the oil and gas industry. It was founded in 1870 by the Rockefeller brothers and other businessmen. Soon, it became the biggest oil and gas company.
Standard Oil became famous for producing, refining, and transporting oil in different parts of the world. By the 1880s, Standard Oil was controlling 90% of the businesses in the oil and gas industry.
Standard Oil kept on expanding by acquiring smaller companies. The company was operating as a monopoly in the entire market. In 1906, the US government decided to take action against Standard Oil for violating the Antitrust Act.
In 1911, the Supreme Court ordered the breakup of Standard Oil. As a result of this breakup, 34 small companies came into existence. In this article, we conducted a PESTLE analysis of Standard Oil.
The PESTLE analysis framework helped us highlight how various external factors impacted the operations of Standard Oil. If you enjoyed reading this article and want to read more about the PESTLE analysis, see more examples here.