How Petrofac Is Able to Secure Its Competitive Position in the Industry - Coursework Example

Management Report on Petrofac (2) Module Assignment ID number: Seminar Word count: Executive summary The oilfield service sector is a highly competitive sector. In order to maintain a superior position in the industry, Petrofac is required critically analyse the external and internal environmental conditions and accordingly develop suitable plans of actions. To meet the challenges of a competitive industry organizations are required to satisfy customer needs in the fastest and using the most convenient means. Therefore it becomes essential to develop plans of actions which are prevent wastage of resources, reduces the cost of activities and helps the firm to meet the sustainability objectives effectively. In the current paper critical evaluation is done in respect of the strategic position and policies of the firm in respect of the environmental conditions. The paper analyses how Petrofac is able to secure is competitive position in the industry and the internal organizational competencies which facilitate meeting the overall objectives. Table of Contents Executive summary 2 Introduction 4 Analysis of the organizations environmental audit 4 Strategic directions 6 BCG matrix 6 McKinsey framework 7 Evaluating organizational strategy 9 Suitability 9 Acceptability 10 Feasibility 11 Sustainability 12 Conclusion 12 Reference List 14 Introduction Petrofac is one of the largest firms operating in the oilfield service industry and is renowned for delivering integrated solutions to the energy sector. The firm delivers engineering, construction and consulting services in the most efficient manner. The organization follows a strict approach towards meeting the needs of clients. Since the energy sector is highly competitive, it is essential that the firm ensures that its technologies and resources are highly competent and suitable with the needs of the energy sector (Lightbody, 2000). Hence much effort and management is employed by Petrofac to strategically align the goals of the firm with that of the clients. The company has therefore developed its internal organizational culture and operations in a manner such that they remain flexible to the external environment changes and also the expectations and goals of the client firms. All the resources, technologies and human efforts are integrated in a manner such that there is no wastage of resources and activities can be completed on time. Analysis of the organizations environmental audit On the basis of the environmental analysis conducted in the previous management report, it can be stated that the overall position of Petrofac in the oilfield services industry is highly competitive. The company has been successful at managing both its internal and external environmental conditions so as to be able to deliver the best possible services. The oilfield services sector being extremely cost intensive, is not clustered with a very large number of firms. The existing firms in this sector are large in size and the competition existing between them is strong (Brammer and Pavelin, 2008). Competition mainly occurs to obtain contracts from governments and other large oil and gas companies. The efficient management systems and highly skilled employees strength possessed by Petrofac has facilitated the company to achieve success in the industry. The management system of the firm ensures that the valuable resources such as oil and gas are handled carefully so that they are not wasted. Effort is also given towards completing assignments on time which requires the implementation of a highly strategic supply chain framework (Stafford, 2006). Although the firm enjoys a strong position in the oilfield service sector, the company may lose its strength if adequate importance is not given to research and development. The oilfield service sector gets impacted with technological innovations and developments. Firms which are able to develop better technical processes and systems of manufacturing are likely to be in a position to provide improved services. As a result, in order to maintain the competitive position in the industry, it is essential for Petrofac to invest in research and development. The process related innovations of Petrofac is seen to remain considerably low in the recent times as compared with other stronger firms of the industry (Deegan, 2002). One of the significant qualities of Petrofac is that the company provides a customized working approach. The firm develops commercial models based on the needs of customers. Petrofac also tries to obtain projects through co-investments contacts which also facilitate resource sharing. One of the premier aspects the firm focuses upon is to keep costs at a minimum. The management at Petrofac believe that they operate in an industry with scarce resources. Hence optimal utilization of assets and resources are essential. The smart way in which the company phases out its operations helps it to achieve cost reduction and resource wastage minimization. Petrofac also gives considerable amount of understanding to the aspect of risk. The oilfield service sector is dependent on different government regulations and the policies of various oil and gas firms and trade blocks. Petrofac seeks to perceive the risks which arise out of changes in the external environment and accordingly develop strategic plans of action (Iraldo, Testa and Frey, 2009). Strategic directions BCG matrix The strategic policies and performances of Petrofac can be analyzed using the BCG matrix. The matrix is considered as a useful tool for analysing the performance of a firm in relation with the overall market. The matrix uses four elements of analysis which have been used for assessing the strategic position of Petrofac in the market. Based on the strategic position held by the company, resources are allocated (Fleisher and Bensoussan, 2003). Cash cows: Firms which have a considerably large market share within a slow growing sector. Star- Firms which possess a large market share in a quick growing industry. Dog- Firm having a small market share in a sluggishly growing industry. Question mark- A firm which has a small market share in a rapidly growing industry. On the basis of the BCG matrix sector’s it can be seen that Petrofac belongs to the cash cow sector. The firm possesses a considerably large market share within the oilfield service industry which is characteristically a slow growing industry. The oilfield service sector is an already well developed and mature industry. The scope for growth arises only out of technological innovations which are not very frequent (Spee and Jarzabkowski, 2009). Well established firms of the sector such as Schlumberger Limited, Weatherford International, Halliburton and Baker Hughes are seen to control the majority portion of the industry on a global scale. However based on the area served the prime competitors of Petrofac are Fluor Corporation and GE Oil and Gas. Firms which belong to the cash cow sector have adequate financial resources which can be utilized by them in diverse ways. Petrofac has a diverse model which caters to the numerous needs of the oilfield sector. Apart from onshore and offshore projects of engineering and construction, the company also provides consulting services for developing designs. The company also provides training facilities to enhance the skills and abilities of its employees. Cash cow firms consistently try to expand and diversify themselves. This is due to the aspect that the firms belonging to this category have a considerably high level of leverage (Basu, 2004). McKinsey framework The strategic position of Petrofac can also be analyzed using the McKinsey framework. Strategy- Petrofac aims to deliver the best services and remain as one of the best delivering firms of the industry. Since the prime rivals of Petrofac are large scale firms, it becomes essential for the company to remain competitive through proper utilization of its resources. Petrofac realizes that the energy sector is expected to grow continuously. Accordingly innovative and integrated oilfield services will be sought after at a greater level (Hanafizadeh and Ravasan, 2011). Structure- Petrofac follows a matrix structure where the functional and the divisional structures co-exist. On the basis of the divisional structure the firm is divided into different segments based on the geographical area served or the type of product or service provided. Accordingly Petrofac is broadly divided into two main divisions namely; the Engineering, Construction, Operations and Maintenance division and the Integrated Energy Services division. Each of these divisions is then further subdivided into a number of different categories based on functionality. A matrix model facilitates firms to remain flexible. Petrofac has developed its organizational structure in a manner such that leadership and discipline can be affected. Systems- Employees are given adequate training and clear directions regarding their work. The roles and responsibilities of the employees are strategically aligned with the goals of the organizations. The firm is required to be able to considerably improve their systems. As a result it is essential that the systems of the organization remain flexible (Kaplan, 2005). Shared Values- The core values of Petrofac is to provide equal opportunities of growth to all employees. The company gives high importance to its internal code of conduct and ensures that discipline is implemented throughout the organizational structure. The firm’s administration consistently tries improving their reporting standards considering the responsibilities associated with information dissemination to the shareholders. Ethics is also considered to be one of the core values of the company. Style- Petrofac follows a management style which is integrated with organizational growth, reinforcement and development. The company believes in a leadership style which aims to deliver excellence. The management style is also motivational whereby employees are stimulated to set higher standards of performance. Staff- Petrofac believes in the concept that in order to achieve objectives of the organization, it is essential to have the right people appointed for the right job at the right time. The company ensures that every employee of the organization is able to deliver value to the overall organization. Maximum efforts are taken to ensure employee satisfaction and to retain the most deserving talent with the organizations. Skills- Talent management forms an integral part of the organizational culture. The oil and gas sector is seen to face skill shortages on a global level. It therefore becomes necessary for companies to provide training and development. Such a strategy reduces the firm’s dependency on external recruiting agencies. In order to motivate employees to perform and deliver better, the company indulges in succession planning with the employees (Cameron and Quinn, 2011). Evaluating organizational strategy Suitability While analysing the suitability position, it is essential to consider whether the products and services of Petrofac are suitable for providing value to customers. Petrofac works across the gas and oil sector to help customers unlock the full potency of energy assets. The company provides useful technology and assistance to the firms which predominantly operate in the oil and gas sector. The firm facilitates in the management of existing plants and facilities. It also provides technical assistance for developing new onshore and offshore projects. The company provides its services on a standalone basis as well. However majority of the services are integrated with the commercial models of the customers and a suitable project strategy gets developed. With the advancement of the power sector, it becomes highly essential for the firm to consistently improve their activities. This calls in for greater investments in innovation and research related activities (The guardian, 2014). Petrofac relies on its highly skilled employees for fulfilling the needs related to innovation. The company strives to build products which help the oil and gas sector to meet their goals effectively. In order to adapt with the changing environment of the oil and gas sector it becomes essential for the firm to develop their organizational structure in a highly flexible manner. The oilfield service sector plays an important role in the overall development of the firms in the oil and gas sector. It provides the oil and gas firms with the necessary technology and skills so as to carry out their activities. Hence much reliability of these firms gets developed upon the oilfield service firms. Petrofac therefore develops its strategic plans of action on the basis of the needs of the oil and gas sector. Environmental assessment of the sector therefore becomes an essential factor to consider when Petrofac develop strategic plans of action (Dunmade, 2002). Acceptability The demand for oilfield services is considerably high due to the tremendously large requirement of energy production. Therefore Petrofac enjoys easy acceptability in the market. The services provided by the company are highly valuable. The company largely operates on a contractual basis with the government and other large size organizations. Hence its activities are continuous in nature for a predominantly long period. Acceptability assessment is an important criterion while assessing the strategic plans of a firm. If the activities pursued by the organization have less acceptability on behalf of clients, it becomes essential to alter the plan of actions of the company. In order to gain easy acceptability Petrofac ensures that its functions are strategically aligned with the needs of the clients. Much importance is required to be given the client specifications. One of the essential qualities of Petrofac is that the company provides its clients with the flexibility of developing customized business models for fulfilling large scale projects. The efficient management system, optimal utilization of resources and the timely delivery of finished products and services makes Petrofac highly acceptable to clients. The management also takes into consideration the interests of all the stakeholders of the organization before important strategic decisions are taken and implemented. Stakeholders play an important role in the success of the organizations activities. Hence Petrofac must incorporate the opinions of stakeholders and consider their wellbeing when strategic plans are being made (Shen, et al., 2010). Feasibility Every strategic plan requires being feasible in terms of profitability and generating utility. Hence Petrofac ensures that adequate forecasting is done before the strategic decisions are taken by the organization. Feasibility study incorporates studying the external and internal environmental conditions and determining whether a project can be taken up or not. If the factors of external and internal environment are positive, suitable action plans, budgets and project designs needs to be developed. While develop project plans, the firm considers both favourable and adverse environmental conditions (Petrofac, 2013). Sustainability Sustainability is a factor which modern firms are required to consider while developing strategic plans. Sustainability refers to meeting the current and future needs of the society without causing any harm to the environment. Sustainability is one of the aspects which matter most to the stakeholders of the organization. In order to meet the sustainability objectives, the firm ensures that all activities are carried out in a safe environment. Additionally Petrofac ensures that environmental footprint is minimum and scarce resources and handled in the most efficient manner. The rapidly declining environmental conditions have necessitated firms to align organizational goals with sustainability needs (Managi, et al., 2005). Conclusion The efficient performance and high industry reputation has provided Petrofac with a competitive position in the industry. The firm enjoys a stable position in the industry which allows it to gain power over suppliers. The continuously rising demand for energy provides suitable scope of growth for Petrofac. The company ensures that safety and integrity of assets are met at every stage of production. However lower efforts towards developing innovative energy solutions have weakened the position of the organization considerably. It is therefore essential that the firm develops its innovative capabilities to continue maintaining its superior position in the industry (Ficenec, 2014). It is also essential that the firm diversifies its services into the renewable energy sector considering the needs of the future. Reference List Basu, R., 2004. Implementing quality: a practical guide to tools and techniques: enabling the power of operational excellence. Connecticut: Cengage Learning. Brammer, S. and Pavelin, S., 2008. Factors influencing the quality of corporate environmental disclosure. Business Strategy and the Environment, 17(2), pp. 120-136. Cameron, K. S. and Quinn, R. E., 2011. Diagnosing and changing organizational culture: Based on the competing values framework. New Jersey: John Wiley & Sons. Deegan, C., 2002. Introduction: the legitimising effect of social and environmental disclosures–a theoretical foundation. Accounting, Auditing & Accountability Journal, 15(3), pp. 282-311. Dunmade, I., 2002. Indicators of sustainability: assessing the suitability of a foreign technology for a developing economy. Technology in Society, 24(4), pp. 461-471. Ficenec, J., 2014. Questor share tip: Petrofac downgraded to sell as risks rise. [online] Available at: [Accessed 31 October 2014]. Fleisher, C. S. and Bensoussan, B. E., 2003. Strategic and competitive analysis: methods and techniques for analyzing business competition. New Jersey: Prentice Hall. Hanafizadeh, P. and Ravasan, A. Z., 2011. A McKinsey 7S model-based framework for ERP readiness assessment. International Journal of Enterprise Information Systems, 7(4), pp. 23-63. Iraldo, F., Testa, F. and Frey, M., 2009. Is an environmental management system able to influence environmental and competitive performance? The case of the eco-management and audit scheme (EMAS) in the European union. Journal of Cleaner Production, 17(16), pp. 1444-1452. Kaplan, R. S., 2005. How the balanced scorecard complements the McKinsey 7-S model. Strategy & Leadership, 33(3), pp. 41-46. Lightbody, M., 2000. Environmental auditing: the audit theory gap. In Accounting Forum, 24(2), pp. 151-169. Managi, S., Opaluch, J. J., Jin, D. and Grigalunas, T. A., 2005. Environmental regulations and technological change in the offshore oil and gas industry. Land Economics, 81(2), pp. 303-319. Petrofac, 2013. Annual reports and accounts. [pdf] Petrofac. Available at: [Accessed 31 October 2014]. Shen, L. Y., Tam, V. W., Tam, L. and Ji, Y. B., 2010. Project feasibility study: the key to successful implementation of sustainable and socially responsible construction management practice. Journal of Cleaner Production, 18(3), pp. 254-259. Spee, A. P. and Jarzabkowski, P., 2009. Strategy tools as boundary objects. Strategic Organization, 7(2), pp. 223-232. Stafford, S. L., 2006. State adoption of environmental audit initiatives. Contemporary Economic Policy, 24(1), pp. 172-187. The guardian, 2014. Petrofac slips on worries about rising working capital. [online] Available at: [Accessed 31 October 2014]. Read More