MANAGEMENT REPORT – EVALUATION OF THE COMPANY’S STRATEGY
Abstract
Wood Group is a leading organisation that provides engineering, repairing or maintenance services for companies activating in gas and oil throughout the world. The current report evaluates the company’s strategic position, its strategic direction and it aims to identify if the strategies that the company utilizes to attain its strategic direction are suitable, acceptable, feasible or sustainable. The report will intertwine the organisation’s internal environment with its external environment, making references to PESTLE and Porter’s Five Forces frameworks for allowing a more transparent understanding of its strategic position and its strategic direction. The report will provide recommendations for the future approach of the company’s strategic direction, suggesting an organisational shift into becoming a learning organization.
Key Words: Wood Group; engineering, repairing, maintenance; oil and gas; strategic position; strategic direction.
Executive Summary
Analysing Wood Group’s operations in the current environment implies placing its activities on the political, economic, social, technological, legal and environmental spheres, elaborating the PESTLE analysis of its strategic position. This report analyses Wood Group strategic position, evaluating its activities in relation with PESTLE and with Porter Five Forces, but also with its internal environment.
The report further presents the company’s strategic direction, analysing the strategies that the organisation pursues for reaching its strategic direction. The strategic direction of Wood Group – to continue to grow through long-term commitment to safety and quality provided for its customers, it is supported through various growing strategies, as illustrated by Ansoff matrix. In addition, the company also utilizes Business Consulting Group (BCG) matrix for delineating its products and services with high potential for high market share and industry attractiveness of the ones that need to be eliminated from the company’s operations.
Further, the report develops the SAFS framework, analysing Wood Group’s suitability, adaptability, feasibility and sustainability for reaching the targeted strategic direction. The report identifies specific arguments for each of the SAFS framework components, indicating arguments for and against the strategic direction that the company pursues. Basically, in terms of sustainability the company needs to be more sensitive to environmental sustainability considering the fact that its business sustainability focus sometimes might infringe the environmental sustainability.
In the end, the final section of the report, “Conclusion and Recommendations” summarizes the report and proposes recommendations for the company’s future strategic direction. The main recommendation is that the company should adhere to learning organisation in order to smoothly assimilate the technological advancement into its operations, answering the customers’ needs in a customized, yet politically, legally and environmentally responsible.
Management Report – Evaluation of the Company’s Strategy
Introduction
Providing repairing, engineering and maintenance services for oil and gas companies, Wood Group is facing various challenges, but its approach to business’ safety and excellent quality placed the company as the leader in its domain. The report analyses the company’s strategic position, as well as its strategic direction, identifying what approaches Wood Group pursues for maintaining its existent clients and increasing its market share. The report will also use the SAFS framework (suitability, acceptability, feasibility and sustainability) for investigating whether the strategic direction that the company pursues is suitable, acceptable, feasible or sustainable. Overall, the report evaluates the company’s strategic position as comfortable and privileged for pursuing further extension and its strategic direction as fairly approached and pursued. The report recommends, nevertheless, close attention to integrating technology into its operations and to being sensitive to political, economic, social, technological, legal and environmental aspects.
Analysis and Critical Evaluation of the Organisation’s Strategic Position
Wood Group’s comfortable positioning in the oil and gas industry allows the company to further maximize its strategic position, seizing new business opportunities, while strengthening and exploiting its existent business. Judging by the fact that the oil and gas is currently the most traded commodity at a global level, Wood Group deals with a valuable and powerful resource, which can generate enhanced new business opportunities, even if the company mostly provides engineering, maintenance and repair for companies actually working directly with gas and oil. However, considering the fact that the current economy is emerging towards the green, renewable energy consumption, the oil and gas as a market and as commodities are at threat.
The strict rules and guidelines that are regulating the operations of companies activating in oil and gas industry are impacting the overall performances of these organisations and Wood Group might be severely affected. The company needs to develop alternative solutions for continuing to be performing. Additionally, aligned with the nature of the legal and governmental regulations that limit the environmental impact of gas and oil companies, Wood Group would need to use these regulations for finding its own advantages. For instance, the waste management and landfills, which are severely impacting the environment, hence, heavily regulated against, should be approached not as burdens, but as opportunities to reduce expenses, due to the potential of saving materials out of recycling. For a further optimisation of its waste and landfills, the company should invest in its research and development (R&D) in order to identify new effective manners of increasing performances through incorporating green solutions within its operations and to effectively incorporate regulations within its operations.
Wood Group has the potential of developing leading operations in various subareas of activities, but it nevertheless has to face the challenges of different environments in which it operates. Working with oil and gas companies from Middle East and Africa is challenging, due to the specific geo-politic environments. The Israeli-Palestinian crisis and the general anti-occidental spirit manifested in the Middle East hamper Wood Group’s operations. In the same time, the civil wars from African countries such as Angola, South Sudan, Libya or Nigeria put increased financial pressures on the company (Wood Group official website). However, Wood Group is not the only company that deals with these challenges, because in the current global economy every player faces these, and many other realities that affect their business. It all depends on how international companies answer to such challenges. The fact that Wood Group is providing integrated services, while the focus on safety and innovation defines its core business is helping the organisation to remain objective and un-biased to international challenges. On the long-term businessmen seek consistency and to work with reliable partners and the Wood Group can deliver these assets. This is how Wood Group can differentiate from the other competing organisations. Moreover, its organically development and strategic acquisitions are significant business approaches that generate differentiation, assuring this organisation’s leading position in the areas in which it activates (Wood Group official website). These business strategies are suitable for the current business environment as the company optimizes the business tendencies for its operations. However, with over a century of experience, Wood Group needs to permanently look into the future and to adjust its business strategies to the upcoming global realities in order to gain continuous performances, maintaining its leadership position.
The technological revolution is currently well integrated in the company’s operations, as Wood Group is a technological leader in subsea and pipeline engineering. Nevertheless, the company must remain flexible and to incorporate technological advancements throughout its operations, as soon as new technologies emerge. Similarly, the company needs to be sensitive to economic, cultural and political aspects, customizing its business style on different regions according to the specificities that define various world regions, avoiding, however to become political. By maintaining a proactive and visionary business approach, the company will ensure its leadership position in the future.
Wood Group’s strategic direction is oriented towards achieving long-term sustainable growth at an international level and the company approaches this strategy by developing strategic partnerships based on meeting challenges with creative solutions and innovation (Wood Group official website). For attaining this strategy, the company also invested in working with talented and experienced professionals and in providing to its customers services above their expectation.
At a closer look into the company’s operations and business strategy, there can be identified two methods that the company used for achieving its strategic direction: Ansoff and Boston Consulting Group (BCG).
Ansoff matrix
Ansoff matrix comprises a series of business strategies that a company can follow, using either its current products/services, new product/services, current customers in existent markets or new customers new markets (Graham, 2011). Ansoff matrix, developed in 1965 contains four business strategies that a company can approach:
- Market penetration – seeking growth in an existing market using existing products and services;
- Market development – seeks growth by targeting new customers on new markets;
- Product development – seeks growth by developing new products for delivering them in the existing markets;
- Diversification – seeks growth by diversifying new businesses, developing new products for new markets (Graham, 2011).
Wood Group applied all the above-mentioned business growth strategies. In its incipient years the company sought growth by providing ship repair and marine engineering in its domestic market – Scotland. Later it pursued expansion in other markets, developing new products, placing them in the existent or the new markets (Wood Group, official website).
Pursuing long-term sustainable growth at international level is a broad strategic direction that the company sets. As it is indicated in the Annual Report 2013, Wood Group pursues this strategic direction by seizing growing opportunities through acquisition (Elkhorn) or joint ventures (Siemens) meant to facilitate its products’ penetration into new markets or the create new products for the existent or new markets. The CEO of Wood Group, Bob Keiller, states that the company’s strategic direction is focused on consolidating its leadership position in oil and gas services by broadening and deepening its services in the sector (Wood Group Annual Report 2013). Hence, the company currently pursues the product development business growth strategy. This strategy fairly sustains the company’s strategic direction. Nevertheless, in pursuing its strategic direction the company must be sensitive to the market’s evolution, adjusting to new trends and when needed, redefining its strategic direction.
BCG Matrix
Designed for companies with multiple product lines, the BCG matrix categorizes the products and services of a company in four components of a matrix: stars, problem children, cash cows and dogs (Berkowizt, 2010). The stars represent products and services with high market share and high growth rate, cash cows have a high market share but their growth rate is low, problem children have a low relative market share but a high growth rate and the dogs are the products/services with both low share and growth (Berkowizt, 2010). Considering the fact that market growth translates the industry attractiveness and the relative market share refers to the investigated company’s competitive advantage, the stars products and services are the ones that need to be boosted and invested in, while the dogs should be excluded from the company’s operations. The problem children can turn either into stars and on a long-term into cash caws or into dogs (Baranwal, 2013).
The BCG matrix method defines Wood Group’s operations and it sustains the company’s strategic direction. The company’s stars product and services are onshore shale, offshore operations, cash cow: marine engineering, the upstream gas and oil, subsea and pipeline, refineries/petrochemicals or downstream, the problem children include alternative renewable energy while the dogs products and services seem to be represented by the gas turbine, power solutions or maintenance activities (Wood Group Annual Report, 2013). As the annual report indicates, the products and services that are no longer productive (representing less than 10% revenue) are left aside, entering no further in the company’s strategic direction (Wood Group Annual Report, 2013).
Therefore, Wood Group’s strategic direction is consistent with both the Ansoff and the BCG matrix, as the approaches that the company pursues for reaching its strategic direction include both market and product growth strategies and market share orientation. The company utilizes these two frameworks effectively, customizing their specificities on its operations. As such, while BCG incorporates the organisation’s multi-product line direction, the Ansoff matrix reflects Wood Group’s international and diversification focus in a practical manner.
Critical evaluation of the organisation’s strategy (SAFS Framework)
Suitability
Although the economy is moving towards green and renewable energy, it is currently highly dependent on oil and gas. The fact that Wood Group chooses to diversify its products and services on the oil and gas repair maintenance indicates that the company aligns with the international economic tendencies, offering to new or existing markets what they need in terms of energy. Nevertheless, the company pursues also the green direction, investing in renewable energy, which shows its adaptability to the external environment through internal resources. This is an emerging solution for answering the public opinion’s critics about pollution and environmental damage. The company would need to invest more in the renewable energy, making this service a star, from the BCG matrix perspective. However, currently the cost of coal and petroleum products is considerably less expensive than the one of the renewable energy and therefore the demand for oil and gas is still high. Because of this aspect, the company’s strategic direction is suitable with the PESTLE analysis. The company grows in new or existent market through product development of technological innovations, investing in its main activity that generates guaranteed profitability, while respecting and embracing the environmental and political regulations.
Feasibility
For evaluating if Wood Group’s strategic direction is feasible, there must be evaluated the organisation’s resources. For analysing the resources available, there can be used the 6M model (Wu 2010). The company has the know-how (make up), the money, machinery, manpower, available and emerging markets and the materials to sustain a continuous growth based on long-term commitment and excellent services. However, for continuing to remain feasible and suitable, the company needs to permanently improve its machinery, meaning also its technological processes, in terms of software and hardware infrastructure, assuring up-to-date qualitative and differentiated services. In terms of manpower, Wood Group would need to diversify its international teams by recruiting local specialists, assuring a smooth transition from global to local business, in other words, assuring the glocalization of the company’s services (Mendis, 2007). One aspect regarding the market component of the 6M analysis is to identify whether the company has become a competitor of its customers (Wu, 2010). As such, while the company provides engineering and maintenance support for companies that extract oil and gas, it recently shifted its supply management strategy by becoming a gas supplier itself (Wood Group, Annual Report, 2013). The challenge is that the company is less equipped, lacks the proper technology, materials and know-how than the companies actually working in supplying oil and gas. Besides losing clients the company might also face serious difficulties in adjusting to the new business direction (the supply of oil and gas), which can severely affect its overall productivity and its market share with the existent customers.
Acceptability
This component of the SAFS framework refers to the expected performances in terms of financial and stakeholders terms, as compared to the organisation’s strategic direction (Evans, Stonehouse and Campbell, 2012). Referring to the stakeholders’ perceived performances from the company’s strategic direction, there are different categories of stakeholders (internal and external), which need to be taken individually for analysing their reactions to the organisation’s strategic change. For the employees, a growth strategy based on long-term commitment to customers in safety and enhanced qualitative standards implies increased work, but also increased career opportunities and guaranteed long-term employment. For the shareholders the nature of a long lasting business implies consistent share value. The customers benefit from an experienced supplier, focused on providing quality and safety, which contributes to enhancing their performances. For authorities instead, Wood Group’s strategic direction implies a deeper attention on the company’s operations, increased regulations and evaluation of its activities, which might hamper the organisation’s profitability.
Sustainability
The strategic direction of Wood Group needs to be sustainable. The discussion about sustainability refers to environmental sustainability on one hand and social, economic and business sustainability on the other hand, which may differ and even contradict at time. The interest of the company is to generate increased productivity, which is sustainable for its business, and at a large scale for the economy and for society, but not always for the environment.
Conclusions and Recommendations
Wood Group’s strategic position allows the company to comfortably explore new markets and product development, while growing in the existent markets and developing or improving the existent product/services. The company’s strategic positioning is subjected to various internal and external factors, such as the, political, economic, legal, sociological, technological, or environmental (PESTLE) aspects that challenge the company’s operations, hence its position on various markets (Allen, 2001). From a strategic position perspective it is recommended that the company to further invest in its research and development for identifying solutions of complying to the environmental, political or legal regulations, considering the fact that there are everyday more tougher regulations in the oil and gas industry. Becoming a learning organisation will allow Wood Group to prosper, integrating new trends and technologies within its operations, ensuring like this extensive quality and expertise for its customers.
The company’s strategic direction targets continuous growth through long-term commitment to customer’s operations through high safety and qualitative standards. Therefore, the focus on safety and on quality are main strategies that the company need to ensure while it pursues its strategic direction, applying Ansoff and BCG matrices. The report evaluated the utilisation of these two matrices as aligned to the company’s strategic direction and as practical and effective in meeting the strategic direction. It is further recommended for Wood Group to apply its growth strategies through a permanent adjustment and flexibility to the external environment. Following the competitors and the needs of the customers, aligned to the evolving needs of the end-users, will allow the company to predict new customer needs and work towards delivering them, being sensitive to the environmental sustainability, while focusing on economic, business and social sustainability.
References
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