1. A.Critically evaluate the factors an organisation needs to consider when implementing a change process. Your answer must include three examples from the oil and gas sector.
B. Critically analyse and apply McKinsey 7S framework to a change process in the oil and gas sector.
2. A. Conduct a Five Forces analysis of the oil and gas industry in 2014.
The Porter’s five forces are buyers, suppliers, substitutes, new entrants, and rivalry.
B . In relation to Question 4A above, which forces are becoming more negative or positive for the major International Oil Companies (IOCs)?
In the present dynamic business environment, changes in the operational process have become an integral part for the growth of the organizations. As per the article by Kelland (2014), leaders play a significant role in handling the changes procedure so that the organization can able to achieve objective and vision. However, identifying ideal change management model is generally very challenging for the leaders, as each has distinct limitations and advantages. It is important for the organization to understand the way to utilize knowledge in change management process in order to produce better outcomes for the organizations. Based on the thinking procedure of the leaders several change management model has been utilized by organizations so that it can able to maintain its position in the market.
As per Lewin’s change management model, organizations have to utilize three steps including unfreeze, change and refreeze for implementing effective change management process (McCollum et al. 2016). In the first step, managers have to influence organization to believe that changes are necessary for maintaining its position in the market. In the Lewin model, unfreeze is probably the most difficult step at the time of implementing any change in the process. Thereafter, organizations have to implement change that is necessary for the organization. Finally, managers have to refreeze its process so that employees can able to adjust with the changes. For instance, President of Nigeria has utilized the Lewin’s change management model to implement change in the processes of oil industry (Bohi and Russell 2013). Several policies and culture has been changed in unfreeze and change process. However, senior authority of Nigeria has ensured that the major players in the oil and gas industry in Nigeria will accept the changes. In the refreezing step, senior authority of Nigeria has internalized new regulations and policies as a part of their culture. At the time of introducing geographical information system (GIS) in the operational process, Sinopec has also utilized Lewin’s change management model. In order to unfreeze and change the operational process, Sinopec provided employees the knowledge regarding the significance of GIS to reduce the possibility of any economic disaster. As a result, Sinopec does not have to face too much difficulty in implementing change in the process.
Kotter’s 8-step change model is also very popular at the time of implementing change in the organizational process. It consist 8 steps including developing higher urgency toward change, creating a strong coalition, constructing share-vision towards change, communicating and sharing vision in organization, empowering employees to develop ability to manage change, creating short term objectives, maintaining persistence towards change and finally internalized the change in the organizational culture. Former CEO of Lord John Browne of British Petroleum has utilized this model in order to implement change in the operational process (Tordo et al. 2013). In order to implement change, BP has highlighted three major issues namely climate change, human rights and transparency in the oil and gas industry. Thereafter, BP has highlighted its mission and vision for implementing change in the operational process. The changes implemented by the British Petroleum are more focused towards protecting the human rights, support transparency and prevent climate change. BP also has communicated the information regarding the changes in process in the recruitment process. This has helped the organization to gain benefit from the implemented changes process much effectively. At the time of introducing risk based process safety (RBSF) technique, Petrobras have utilized Kotter’s 8-step change model. In present business environment, health and safety of the employees has come up as a major issue for the oil and gas organizations. For that reason, Petrobras have highlighted the significance of introducing RBSF techniques in maintaining the image of the organization. Management of Petrobras has made sure that organization follows all the 8 steps of Kotler’s change management model in order to reduce the risk of change in process to a great extent.
As per the article by Yusuf et al. (2014), logistic operation is critical for the success of the organization dealing in the oil and gas sector. Specifically, in the present business environment logistic operation in the oil sector has deal with factors like environment, safety, legal in order to fulfil organizational objectives. For that reason, organizations like BHP Billiton and ExxonMobil has made lot of changes in its logistic operational process so that it can able to reach its desire destination with creating any difficulties for the organization. For that reason, the companies have changed the process by which they transfer the raw materials to its desire destination. Therefore, organizations have provided training facilities to their employees so that they can able to adjust to the changes in the organizational process in a much effective way.
Strategy:
As per the article by Finšgar and Jackson (2014), strategy refers to the plan of actions that companies develop for facing the organizational challenges in a much more effective way. Strategies play a crucial role in continues development procedure of the organizations. Oil and gas sector is probably has to perform the most complex business process for maintaining its position in the market. Therefore, it has to construct strategy for making effective change in the process.
Structure:
In order to implement effective change in the process, organizations in the oil and gas sector has to focus on the structure. Since, proper utilization of organizational structure can actually help the employees to adjust with the changes of the process in a much more effective way. Furthermore, proper organizational structure also allows the oil sector organization to develop an effective communicational process.
System:
Oil and gas organizations have to implement different complex systems so that it can able to manage its internal process in a much effective way. For instance, oil sector organizations will have to keep in track the changes in order to assess its effectiveness. Therefore, it is necessary for the organizations to implement effective systems so that it can able to manage the new process in an appropriate way.
Style:
As per the article by Saad, Mohamed Udin and Hasnan (2014) organizational style or culture plays a significant role in implementing successful process change. Well-developed culture in the oil and gas sector can actually able to motivate the employees to adjust with the changes in the operational procedure. It will also be beneficial for the management of oil and gas industry, as they can able to initiate changes without facing any difficulties.
Staff:
Staff maintenance is crucial for implementing any plan effectively regardless of the industry. In addition, oil and gas sector have deal with staff that possess different types of knowledge. Therefore, it is expected that the oil sector will face more challenges from managing the staff at the time of implementing any change in the operational process.
Skills:
As per the article by Coday, Almaraz and Cath (2015) required amount of skill is necessary for utilizing any change in the operational process. Thus, organizations dealing in oil and gas sector will have to provide sufficient training to all its employees so that they can able to adjust with the changes appropriately.
Shared value:
In the oil and gas industry, it is important maintain safety and environmental criteria so that it can able to develop a popular image in the market. Thus, organizations have to implement a common goal so that employees can able to work coherently.
Figure 1: McKinsey 7S framework
(Source: Singh 2013)
According to Beyer et al. (2015) Porter’s five force analysis identifies the state of competition in a particular industry. The analysis focuses on five separate factors that help to evaluate all the factors related to the competitiveness of the industry. The five forces analysis of oil and gas industry is described as follows:
Threat from potential new entrants:
New entrants emerge with new capacity in order to gain majority of the market share. However, new entrants also have to deal with several market entry barriers in order to fulfil its objectives. As per the article by Xingang, Jiaoli and Bei (2013) market entry barriers in the oil and gas industry are patents, economies of scale, government regulations, huge requirements of capital and ownership of the resources. For instance, ExxonMobil has patents on technology that can reduce the cost of the operational process. Therefore, it minimizes the risk of new entrants. Furthermore, factors like government regulations vary from one country to another. For that reason, it is very difficult for new entrants to penetrate successfully in the market.
Threat of substitutes:
Increase competition in the oil and gas sector has provided more options for the people at the time of purchasing any oil. With the utilization of advance technology, most of the oil and gas organizations are focusing on the alternative energy sources. For instance, organizations like British Petroleum, ExxonMobil and BHP Billiton is focusing on the development of effective transportation of the biofuels. Chinese government is trying to have biofuels account for 20% of its entire transportation fuel consumptions by the end of 2020 (Weaver 2013). As a result, it actually increases the pressure for the oil and gas organizations to develop infrastructure for the development of alternative energy sources. Thus, it actually increases the threat of substitutes in the market.
Bargaining power of suppliers:
As per the article by Wan, Huang and Craig (2014) powerful suppliers influence the market through limiting production and charging higher prices. In the oil and gas industry, suppliers possess considerable amount of power that can actually influence the business pattern of the organization. For instance, ExxonMobil change in pricing strategy influences OPEC to change its prices as well. As suppliers, oil companies bring power to the recipient countries through the vertical integration process. For instance, PDVSA control its marketing and refining operation in USA through CITGO Corporation. Now vertical integration maximizes the profitability and reduces risk (Xiang et al. 2014). Therefore, it is expected that suppliers will possess higher bargaining power in future.
Bargaining power of buyers:
This factor of the Porter’s five forces describe the ability of the buyers influence price and also forcing organizations to provide better quality product and services. In present business environment, majority of the big oil and gas organizations outsource much of their field activities to the oil and gas service organization. As a result, major oil and gas organizations heavily depended on the provided services. Therefore, as a buyer, organizations in the oil sector are in extremely powerful position to bargain prices or demand additional or better quality services. Furthermore, oil companies often acquire other organizations to utilize the exploration process in an effective way. As per the article by Asche, Oglend and Osmundsen (2012), joint ventures actually reduces the amount of risk, increase the market penetration power for the oil companies. Therefore, it actually increases the bargaining power of the oil and gas organizations even further.
Competitive rivalry within the industry:
High rivalry among the existing organizations can limit the profitability of the industry. However, as the market entry is limited in the oil and gas industry, oil companies do not have to face huge amount of competition for maintaining its position in the market. However, all the major players in the oil and gas organizations often utilize unique strategies to get additional advantage in comparison to its competitors.
Figure 2: Porter’s five forces
(Source: Yunna and Yisheng 2014)
From the above analysis, it can be assessed that threat of substitutes are becoming a huge factor in the oil and gas industry. As per the article by Wan Ahmad, de Brito and Tavasszy (2016) oil and gas is facing huge amount of pressure to fulfil the demands in the market. Furthermore, the earth contains limited amount of energy resources. Therefore, it is expected that the industry will face difficulties in fulfilling the demand of the market in future as well. Therefore, major players in the oil and gas industry has no other option than to make massive investment in the development of alternative energy sources so that it can able to fulfil the requirement of energy in an appropriate manner. However, utilization of alternative energy sources is also providing alternative opportunity for the oil organizations to sustain its position in the market.
On the other hand, major players in the oil and gas industry do not have to face too much threat from the new entrants in the market (Brynolf, Fridell and Andersson 2014). Furthermore, majority of the oil and gas organizations do have fare share of the market. Therefore, it will help oil and gas organizations to invest huge amount for the development of infrastructure to produce alternative energy so that the world does not have to face scarcity of energy in near future. In fact, less competition will ensure that the oil organizations can actually face the threat of substitute in an effective manner.
References:
Asche, F., Oglend, A. and Osmundsen, P., 2012. Gas versus oil prices the impact of shale gas. Energy Policy, 47, pp.117-124.
Beyer, J., Wathne, B.M., Omer, R.K. and Ahmed, S.E., 2015. Guideline for environmental monitoring in Sudanese marine waters in connection with offshore oil and gas industry activities.
Bohi, D.R. and Russell, M., 2013. Limiting oil imports: An economic history and analysis. Routledge.
Brynolf, S., Fridell, E. and Andersson, K., 2014. Environmental assessment of marine fuels: liquefied natural gas, liquefied biogas, methanol and bio-methanol. Journal of cleaner production, 74, pp.86-95.
Coday, B.D., Almaraz, N. and Cath, T.Y., 2015. Forward osmosis desalination of oil and gas wastewater: Impacts of membrane selection and operating conditions on process performance. Journal of Membrane Science,488, pp.40-55.
Finšgar, M. and Jackson, J., 2014. Application of corrosion inhibitors for steels in acidic media for the oil and gas industry: a review. Corrosion Science, 86, pp.17-41.
Kelland, M.A., 2014. Production chemicals for the oil and gas industry. CRC press.
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Saad, S., Mohamed Udin, Z. and Hasnan, N., 2014. Dynamic Supply Chain Capabilities: A Case Study in Oil and Gas Industry. International Journal of Supply Chain Management, 3(2).
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Tordo, S., Warner, M., Manzano, O. and Anouti, Y., 2013. Local content policies in the oil and gas sector. World Bank Publications.
Wan Ahmad, W.N.K., de Brito, M.P. and Tavasszy, L.A., 2016. Sustainable supply chain management in the oil and gas industry: A review of corporate sustainability reporting practices. Benchmarking: An International Journal,23(6), pp.1423-1444.
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Weaver, J.L., 2013. Unitization of Oil and Gas Fields in Texas: A Study of Legislative, Administrative, and Judicial Policies (Vol. 9). Routledge.
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