Oil and Gas business is an international trade with many competitors and therefore, having a corporate in the industry needs organization and management of highest level (Bogers et al., 2017). The leaders in oil and gas industry should be able to understand the current themes and issues surrounding the business (Salas and Martin, 2017). Understanding the present topics in the global market can help in making best decisions and strategic planning for the oil and gas business (Wieland, Handfield and Durach 2016). In the case study, there are some themes that McKinsey Global Institute has discussed which affect the present oil and gas business strategies and decision making, policies. The case study has addressed how technology is resourcing resources which include human resources and natural resources.
The report in the case study by McKinsey Global Institute states that the rapid technological adoption could cause a faster decline in demand for oil and that there is a constant decline of GDP growth for the resources worldwide. The themes include natural resources, the technological advancements, urbanization, labor markets, and evolution of global financial markets. Other important subjects that affect the strategic planning and decision making in the oil and gas industry include political environments, demographic changes, social trends and shifts, industry globalization, legal transformation and global economic issues (Jones et al., 2016). The report herein discusses the themes in detail and explains how the subjects’ impact on present decision making and strategic planning of oil and gas business and also the study shows how the emerging issues help in oil and gas industry management.
According to Kolk, (2016) resources can be grouped into two which include the human resources and natural resources. Human resources are the human labor in the oil and gas industry, and natural resources are assets that are not human-made and can be used by enterprises to manufacture products (Epstein and Buhovac, 2014). Oil and gas industries depend on natural resources that include crude oil and coal bed methane. Methane produces almost 85% of natural gas which in turn is used to manufacture gas for home use (McKenzie et al., 2014). Human resources are also crucial in the strategic planning of day to day activities in the energy industry. The management of the oil and gas industries needs to plan a strategy on how to pay and how to relate to the people working of them and right decisions should be made when employing the workers.
The energy industries usually look for the cheapest natural resource when manufacturing oil and gas that they can control their cost of production. The availability or insufficient natural resources can determine how the oil and gas industry make their decisions and plan their strategies. When the natural resources are lacking, the energy companies will be forced to decide whether increasing the price of the gas or oil products (Epstein and Buhovac, 2014). The companies will also be forced to make strategies that will help them sell their product when the cost is high. A natural resource is one of emerging issue in the business of oil and gas because there are many oil companies and it determines the decision making and strategic planning in the industry.
There have been technological improvements in the oil and gas industries over the years, and the improvements have been both positive and negative. Prompt developments in technology especially automation sector, for example, robotics, artificial intelligence, the Internet of Things and analytics have started to change how the oil and gas industry use and produce resources (Tomes, Lakshmanan and Songstad, 2011). The new technologies like robotics and artificial intelligence have changed how the industries use human resources. Some oil and gas industries have replaced the human labour to robotics hence some humans have lost their jobs in the oil and gas businesses. New methods of transports have been invented for example an electric train, self-driving Moto vehicles, and an invention of solar-powered cars is transforming the demand for oil and gas in the market. The technological advancements much determine how the industries make their new decisions and strategic planning (BRYNJOLFSSON and MCAFEE, 2014).
As technology is developing and people are converting to electric energy, the oil and gas business need to draw new strategic plans for marketing and advertising which will help the trade to get new customers so that they avoid running out of business. The management teams of respective oil and gas industries will also take into consideration the emerging issues technological advances when making decisions on how to employ human labour and use the robotics in the production of oil and gas (Permani, 2011). According to Dorn and Hanson, (2015)the demand for oil could reduce because people around the world are transforming to new modes of transport that include electric trains, autonomous cars and using renewable energy. The gas could also face competition from renewable energy that is run using new technology.
Urbanization is the practice where people locate from the villages or rural areas to urban centers. Shen, et al., (2015) also defines urbanization as the increase of population in the metropolitan cities and towns due to the movement of persons to downtown from the rural areas. Urbanization is highly caused by the notion that the capitals have the best political, economic, and social benefits and job opportunities paralleled to countryside areas. Urbanization has impacts in the oil and gas industries. First, the populations migrating to the cities are potential customers for the business thus urbanization can influence how the oil and gas companies’ management teams will draw a strategy to attract the consumers (Fritsch and Changoluisa, 2017). Second, urbanization is one of the factors to entrepreneurship as the oil and gas industries can locate the entrepreneurs who want to be the retail sellers of the energy products (Guo, He and Li, 2016). Shell Company relays in urbanization so that they can decide on whom to consider while looking for retailers.
Urbanization can also affect the energy industries negatively where for example, an oil and gas company has its activities in the rural areas, and the people who are supposed to provide human labour have moved to the urban areas. The situation will force the organization to make a quick decision on how to deal with the problem. The company will also need to draw strategy which will help prevent the persons from moving to the cities. Urbanization is an activity that happens every day because a human being will always look for a favorable location where he/she can survive hence, the theme affects strategic planning and decision making in oil and gas industries significantly. The table below shows how urbanization has increased over the years in some parts of the world and it has been forecast to be short.
Table 1 Proportion of world population living in cities areas from, 1980-2030 by (Guo, He and Li, 2016)
|
Regions |
1980 |
1990 |
2000 |
2010 |
2020 |
20130 |
|
Africa |
27.9 |
32.0 |
35.9 |
39.9 |
44.6 |
50.0 |
|
North America |
34.5 |
29.0 |
25.1 |
14.2 |
10.5 |
3.4 |
|
South America |
32.5 |
30.8 |
27.0 |
23.0 |
19.4 |
16,8 |
|
Europe |
33.4 |
27.3 |
22.0 |
18.3 |
10.3 |
3.2 |
|
Asia |
14.4 |
17.7 |
24.6 |
29.0 |
30.6 |
34.8 |
Lutter, (2015) Defines labour market has the demand and supply for labour in the marketplace where the employers offer request while the workers give supply. The labour market is a primary theme in any business it is complexly linked with marketplaces for goods, capital, and services. The amount and demand at the macroeconomic stage are inclined by global and local market changing aspects and other reasons like the population age, migration, and educational levels. Labour market can be weight using the following factors productivity, unemployment, total income, participation rates, and Gross Domestic Product. Individual firms in the oil and gas business interact with employees at a microeconomic level when employing them, sacking them, raising and decreasing salaries and working hours. The link between demand and supply affects the time the worker works and the payment he or she receives regarding salary wages and benefits.
The labour market is an everyday emerging issue in oil and gas companies because they need to employ human resources to work for them during the production of oil products. Therefore, labour market affects the strategic planning and decision making in oil and gas industries. An example is every day the companies may want to hire or fire a worker, increase or decrease the salary, or give the employee working hours and terms. According to Kolosova, (2011)the macroeconomic theory states that supply outpaces demand when the payroll growth delays productivity growth as shown in the figure below by (Kolosova, 2011).
The theme focuses on the approaches theoretically to the development of financial markets and international currencies and how they affect the oil and gas trade. There are two approaches to use when investigating the evolving of global market financially (Kolosova, 2011). First, “the building-block theory”, which breaks hybrid or complex monetary equipment into simple substances that are priced differently in the capital markets of the developed countries. The theory is the “functional method” that tries to clarify how the value of a hybrid or complex monetary substance shows a discrepancy with the prices of related economic variables (Giannetti, Risso and Cinquini, (2016).
The theory also tries to get how to foresee the values of emerging and new monetary liabilities and assets. The financial assessment of the global market is significant to any international company including the oil and gas industry. When a company understands the value of a commercial element in the international market and also understands how they can predict the benefits of new and emerging finances in the global market, they will be in a better position to make wise monetary decisions. An example is when to ask for a loan and which currency is friendly, and the interests are a bit low, the oil and gas industry will be able to strategies and make a decision on which money to use that will benefit the corporate.
Political environments are essential in building everyday activity decision and strategy planning in business (Ringen, 2017). The state of political contexts in a country can affect the company at a point that the industry suffers losses. The environment of politics can change any time depending on the policies the government make and the actions they take at every level of governance. Therefore, industries must draft strategies that will deal with any situation that has come from the political effects.
The economic environment in a given country is affected by the political atmosphere there. The performance of a business, for example, oil and gas are affected by the economic environment created by politics, for instance, the Republicans and Democrats in U.S.A have significant differences in policies (Kaplan, 2015). The differences, in turn, have consequences on government spending and taxes which affect the economy of the country eventually.
Most of the Middle East countries produce a lot of oil and gas, but these countries suffer much through political instability. A country like Nigeria depends on the production of oil and gas as the government first revenue producer (Zimmermann, 2009). However, the state on many occasions suffers from the hands of terrorist who kidnap and murder people ruthlessly. The institutions that have ventured into oil and gas business in such industries must always consider the political situation of the states when planning their strategies and make the decisions concerning the transaction. Politics change now and then thus companies should regularly be prepared to face the consequences of the government action.
Many developments in an economy are not easy to predict, for instance, economists foresee the uncertainty considerably surrounding inflation, output growth and unemployment one year from now. However, looking at demographic development in this context, they are different (Tang, and Huang, 2015). Some of the effects of demographic transformation have been discussed that include consequences of ageing on the population on the finances (Diepart, 2014). However, it is still unknown how demographical changes will affect them in the future. Demographic changes can affect the labour market. Therefore, the oil and gas management should include it on the emerging themes that affect an everyday decision of the industry. The industry must learn how the human beings have changed drastically and how the changes have altered the business. The changes include first, technological advancements. Technology might affect how the humans react to the oil and gas products. Second is the taste and preference (Holt Jensen, 2015). The oil and gas industry needs to understand the tendencies and choice of their customers because if they do not produce products that do not fit the clients’ tastes, then they will incur a big loss. The human beings are also part of the workforce for the oil and gas corporates hence the management involves should include demographic changes when designing strategies for the industries.
Social trends and shifts are the ever-changing behaviors of the market and the customers in the market (Zimmermann, 2009). The more business understands the shifts and social trends in the market they are operating in, the better the industry will improve the production of their products to fit the shifting market (Tang, and Huang, 2015). Some of the trends and shifts in new technology and have impacts on the target market’s demographics. Therefore, business especially oil and gas should always study their market and see how the demographic change will affect their decision making. Social trends might help an oil and gas organization to strategies on ways to advertise the product so that it can reach the target market. Nowadays most people love their smartphones hence the oil and gas industry should use the trend to launch the advertisement that will fit the shift.
In every country in the world there some legal policies that govern how the businesses are transacted (Kaplan, 2015). Oil and gas industries also have their policies on how to do their everyday activities. However, the policies also change in the similar way demographics change thus the institutions should have their policies ready to adopt those of the state. Legal transformations determine on a higher scale the decisions the oil and gas companies make (Ringen, 2017). The laws include terms of business, taxes, and other relevant regulations (Holt Jensen, 2015).
The global economic issues are the challenges facing economic growth in given business globally (Diepart, 2014). Challenges like political instability, insecurity and poverty affect the growth of the international market a great deal (Holt Jensen, 2015). When the target market is poor and cannot afford the price of the product in the marketplace, then the business’ sales will decrease. Oil and gas industry should study the global challenges affecting their market and include them in making important decisions like price naming and advertising channels (Ringen, 2017). In countries that cannot afford internet, then the industries should draw advertising strategy that can reach the market there. Oil and gas management should include understanding the global issues that affect the profit of the business like price fluctuation, tax raise, and government policies that affect the industries.
The productivity and growth is an emerging issue that decision making and strategic planning highly depend on in oil and gas companies. Any business’ dream is to be the highly productive and fast growing business hence the management should put this issue into consideration while making decisions. The strategies in the industry must be, to make the business fast growing and highly productive.
Conclusion
The emerging issues that have been highlighted in the case study are vital, and companies need to include them in decision making. Oil and gas companies have people in the market who study the target market’s everyday activity and then send the information to the management whom strategies using the issues raised. The emerging issues the organization is currently focusing are the ones that have been discussed above. If a company ignores the emerging themes, then it will be out of the market because the business will not be able to understand its market. Emerging issues help the human resource management, marketing department, and advertising department to know the person they are supplying their products.
References
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