ABERDEEN

Date Due

BUSINESS

April 21st 2015

SCHOOL

Official Use Only

Student Number
1318968
Student Name
Lukas Lins Vilar de Carvalho
Course
(Tick as appropriate) MBA Oil & Gas Management
Module Number

BSM659

Module Name

Strategic Operations Management (Full Time)

Module Co-ord
Assignment
number
Number of pages
in submission and
word count:

Brian McNay
1

Pages: 31
Word count: 4378

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BY SUBMITTING THIS DOCUMENT YOU ARE CONFIRMING STATEMENTS (a) AND
(b) ABOVE.
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Table of contents
1. Introduction ............................................................... 5

1.1 Overview of the company.........................................

1.2 Corporate Strategy ................................................
2. Subdivisions ...............................................................
3. Maintenance Service Unit .............................................
3.1 Maintenance Operations Process ..............................
3.2 Maintenance Execution ...........................................
4. End Users of the Operation Output ................................
4.1. Corporate Objectives ............................................
4.2. Marketing Strategy ...............................................
4.3. Operating Unit ......................................................
4.4. Strengths of Maintenance Unit.................................
4.4.1. Contribution to Corporate Strategy ..................
4.4.2. Performance Objectives ..................................
4.5. Maintenance Operations Strategy ............................
5. Strategic Role of Materials Management .........................
5.1. Calculating Inventory ............................................
6. The Strategic Role of Supply Network ............................
7. Macro-environment Challenges .....................................
7.1. Political ...............................................................
7.2. Economic .............................................................
7.3. Social ..................................................................
7.4. Technology ..........................................................
7.5. Environment ........................................................
7.6. Legal ..................................................................
8. Conclusion ......................................................................
9. References List ................................................................
List of appendixes
Appendix
Appendix
Appendix
Appendix
Appendix
Appendix
Appendix
Appendix
Appendix

1
2
3
4
5
6
7
8
9

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5
6
7
8
9
10
11
12
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14
15
15
15
16
17
18
19
21
21
22
22
23
23
24
25
26
29
29
30
30
30
31
31
31
32

Illustrations table
Figure 1: Wood Group Logo .................................................. 5
Figure 2: Wood Group division ............................................... 7
Figure 3: WGPSN market

.................................................... 8

Figure 4: Relationship of customer, information and materials.... 9

Figure 5: Wood Group transformational process ....................... 9

Figure 6: Maintenance execution professional .......................... 10
Figure 7: Maintenance execution professional .......................... 10
Figure 8: Porter 5 Forces of WGPSN ....................................... 13
Figure 9: Maintenance stage process WGPSN ....................... 14
Figure 10: Corporate impact of Maintenance unit ..................... 16
Figure 11: WGPSN areas of improvement ............................... 17
Figure 12: Oil & Gas value chain ............................................ 19
Figure 13: Supply chain KPIs ................................................ 20
Figure 14: Perspectives influencing Operations Strategy ........... 25

List of Abbreviations
WGPSN Wood Group PSN
OPEX Operational Expenditure
CCMS Content Content Management System
KPI Key Performance Index
EOQ - Economic Ordering Quantity
IOC International Oil Company
UKCS United Kingdom Continental Shelf

Executive Summary

Wood Group is an international energy services provider for the oil

& gas and power generation markets with around $7bilion in sales,
employing over 42,000 people worldwide and operating in 50

countries. The Group has been able to build a global reputation by

managing complex projects, and by offering a range of integrated
services that goes along the assets lifecycle.
The Group marketing strategy is to obtain sustainable growth as an
international services provider by adding value to customers
operations through innovative products and services. Operations
take inputs and process to produce outputs, and it can be
characterized as a system. The operations strategy defined by the
Maintenance unit of WGPSN is the main focus of the report to
analyze the effect of operation into the corporate strategy.
From the operations Strategy perspective the maintenance unit
seeks to align the internal requirements (driven by corporate
objectives) with the operative resources, considering the external
environment (market needs).
Moreover, a discussion of the strategic role of materials and supply
network in the maintenance unit context will be taken. The report
ends with an evaluation of the potential strategic operational
challenges and how the team might mitigate the effect of these
challenges.

1. Introduction
The aim of this report is to undertake an operational analysis for the
maintenance unit of Wood Group PSN. The use of Hills framework
(Berry et al, 1999) will be considered and adapted to understand

how

the

corporate

objectives

can

be

developed

inside

the

maintenance unit by conducting the operational strategy (Appendix

1). Moreover, a discussion of the strategic role of materials and
supply network in the maintenance unit context will be taken. The
report ends with an evaluation of the potential strategic operational
challenges and how the team might mitigate the effect of these
challenges.
1.1. Overview of the company
Wood Group is an international energy services provider for the oil
& gas and power generation markets with around $7bilion in sales,
employing over 42,000 people worldwide and operating in 50
countries (WoodGroup, 2015). The company headquarters is located
in

Aberdeen,

segmented

Scotland
as

offering

engineering,

services

worldwide

procurement,

that

are

construction

management, maintenance, and repair & overhaul of turbines of

rotating equipment (appendix 1) (WoodGroup, 2014).

Figure 1: Wood Group Logo

Source: www.woodgroup.com

The Group has been able to build a global reputation by managing

complex projects, and by offering a range of integrated services
that goes along the assets lifecycle. Wood Group has a long history
dated from the beginning of the 20 th century when the company
offered ship repair and marine engineering services for the fishing
industry. Building on its capabilities the company found a great
opportunity when the North Sea oil & gas industry started to
flourish in the 1970s and since the Group has enjoyed success in

delivering innovative services and customized solutions for its

clients.
The services provided by Wood Group help customers to safely
improve performance from new and existing oil & gas assets; to
produce more, operate more efficiently, spend less and extend asset
life. According to Wood Groups annual report 2014, Wood Group is
differentiated

by

focus

on

Core

Values,

relationships,

skills,

knowledge and track record of delivery (appendix 2).

1.2. Corporate Strategy
The objective of Wood Group is to become the leading global energy
services provider by attracting, developing and retaining the best
professionals.

According

to

Kaplan

and

Norton

(2008),

the

objectives of a company imply the execution of its marketing

strategy. A marketing strategy implies a set of integrated decisions
and actions, where a business expects to achieve its objectives and
address the requirements of its customers (Slater and Olson, 2001).
The Group marketing strategy is to obtain sustainable growth as an
international services provider by adding value to customers
operations through innovative products and services. Moreover, four
pillars form the corporate strategy:

Keep balance between development and production support;

Develop and support market-leading positions, by offering

exclusive know-how and technical capabilities;

Maintain long-term customer relationships;
Expanding services and widening global reach.

2. Subdivisions
Wood Group is formed by three major subdivisions, Wood Group
Engineering with Wood Group PSN and Turbine activities (Figure 2).

Wood
Group
Wood
Group
Engineerin
g
Wood
Group
Mustang

Wood
Group PSN

Turbine
Activities

Wood
Group
Kenny
Figure 2: Wood Group division

Source: Author

Wood Group PSN (WGPSN) is the main business division of the

Wood Group, comprising 61% of the revenue and employing over
28,000 people. WGPSN focus is to optimize production, and extend
life asset by providing brownfield engineering and modifications,
production enhancement, operations and maintenance, facility
construction, training and abandonment services (Appendix 3).
According to Wood Groups annual report (2014), 75% of the $4.6
billion in revenues are generated by delivery of OPEX services. In
2014 WGPSN had an EBITA margin of 7.4% and about 40% of the
services took place in the North Sea and another 40% in the
Americas (mainly US).

Figure 3: WGPSN market

Independent

companies

Source: Wood Group annual report 2014

and

IOCs

are

the

main

customers

contributing with 85% of the services demand. After presenting the

main characteristics of WGPSN, this report focus will be directed to

the Maintenance services unit of the company, which is one of the
most

important

units

in

terms

of

reputation

and

revenue

generation.
3. Maintenance Service Unit
For many years there was a debate as to whether service industries
are

fundamentally

different

from

manufacturing,

as

services

operations are managed differently from manufacture operations

(Jones and Robinson, 2012). Therefore, in 1978 a group of Harvard
professors argued that there were services fundamentally different
from manufacturing goods namely intangibility, heterogeneity,
perishability and simultaneity (Sasser et al., 1978). Moreover, many
of the outputs provided by WGPSN maintenance services unit fall
under these characteristics please refer to the appendix 4 to
understand the relationships in more detail.
Furthermore, given that the concept of a process is that of a flow in
the system', in the case of WGPSN it is defined as Customer
Processing Operation (CPO) that typically describes as a service
(Johnston and Morris, 1994). Please refer to figure 4 to understand
the relationship of customer, information and materials for the
maintenance unit of WGPSN.

Custom er
Customer
C ustom er
b ooks
m aintenance
C ustom er
g ran t
p erm ission to
access
p rem ises
C ustom er
p ays for
m aintenance
C ustom er
takes over
the
p roduction

Inform ation
Information
W G PSN takes
reservation
M aintenance
is designated
a w ork
num ber
Custom er
assigned an
expected
com p letion
tim e
M aintainaenc
e invoice
prepared

Figure 4: Relationship of customer, information and materials

M aterials
Materials
M aterials are
ordered
M aterials are
assem bled
M aintenance
is com pleted
C lient can
take over

Source: Author

3.1. Maintenance Operations Process

Operations take inputs and process to produce outputs, and it can
be characterized as a system. The inputs are called transforming
resources, once the inputs are placed in the system it gets
transformed into a tangible or intangible output. Figure 5 is a
representation of the operations process in the maintenance unit of
the WGPSN. Later, this report will focus on the operations
optimization to identify key elements of its operations process.

Figure 5: Wood Group transformational process

Source: Author

3.2. Maintenance Execution

To further understand how operations management operates, it is
important to look at one of the services provided by WGPSN.
According to WGPSN website, the Maintenance execution service
combines

operations

compromising

safety

efficiency
and

and

environment.

minimal
To meet

cost
the

without
market

demand, WGPSN acquired companies to increase the knowledge

pull and technical capability in order to meet the growing market
demand of (BBC News, 2015). WGPSN underlines this service as:
Maintenance execution challenge conventional practices in order to
reduce overall costs and optimize the performance and productivity
of new and existing facilities (Wood Group, 2015). The company
use best practices and WGPSN tools such as Value Finder, OnTrack, Lean Engineering and Operations Excellence Framework
to deliver a high quality service that meet customers expectation.

10

Figure 6 and 7: Maintenance execution professional

WGPSN

have

central

Source: www.woodgroup-psn.com

management

model

represented

by

Operation & Management unit that controls the Maintenance

Execution process, and defines the competency of professionals for
a specific task. The execution process is described by the 4Ps
(Practice, People, Performance and Progress).
Maintenance Execution is a critical service for the oil & gas industry
as a tool to mitigate the high risks associated with the oil
production.

Maintenance must be considered from day 1 of the

project and should be an integral part of the total life cycle. The
risks associated with poor maintenance and/or lack of maintenance
can be disastrous for a company, as it is the case of BPs Macondo
well blowout in 2010 (Griffiths, 2012). The importance of asset and
materials maintenance is not questionable, but the current low oil
price indicates that companies are trying to minimize costs and the
Maintenance Execution service is being affected (Wood Group,
2014). The Maintenance Execution relies in CCMS software, such as
Maximo to analyze key performance index (KPI) (appendix 5) from
data and financial resources. KPIs are subdivided in hard measures
that can be used to compare fixed (costs, productivity, etc.) and
soft measures (people). However, the scorecard used by WGPSN
combine

both measures.

It

is

important

to use

KPIs

from

maintenance unit to compare with the objectives set by the

organization, in order to understand what needs to be improved and
to maintain competitive advantage (Jones and Robinson, 2012).

11

4. End users of the Operation Output

The operations strategy contemplates the main strategic decisions
that will establish the guidance of an organization. The decisions
determine the corporate strategy, which also determine each
business unit strategy, outlining the main objectives of the business
(Slack et al, 2010). In this regard, it is important to consider and
adapt Hills framework (Berry et al, 1999), to further apply an
operations strategy it is important to recognize and align the
corporate objectives that direct influence the operations strategy
(Slack et al, 2010). Moreover, it is important to focus the analysis in
a business unit with singular market characteristics and customer
oriented

to

Furthermore,

explore
this

the

analysis

business
will

be

unit

operation

directed

to

find

strategy.
out

the

representation of the Maintenance Execution, in supplying the

operations strategy of Wood Group.
4.1. Corporate Objectives
The purpose of a corporation entails the accomplishment of its
strategy (Kaplan and Norton, 2008). It defines guidance for
strategic planning at a business unit level (Corey, 1978). Therefore,
Wood Group has set objectives to influence its strategic outcome for
the next years, leading the company to implement an operation
strategy that translates a higher level of strategy (Slack et al 2010).
Wood Group in its annual report (Wood Group, 2014), establish the
intention to:
-

Keep a balance between development and production support;

Developing and supporting market-leading positions, by

offering exclusive know-how and technical capabilities;

Maintaining long-term customer relationships;
Expanding services by widening market reach.

However, the low oil price is affecting Wood Group operations

severely, as companies reduce contracts and new projects are
12

postponed. Instead of the positive EBITA margin of 7.2% in

2014, the company is expecting a decrease for 2015 (Farrell,
2015). Therefore, job cuts and renegotiation of contracts are
some of the actions taken by Bob Keiller, CEO of Wood Group.
4.2. Marketing Strategy
As noted by Slater and Olson (2011), a marketing strategy implies a
set of integrated decisions and actions, where a business expects to
achieve

its

objectives

and

address

the

requirements

of

its

customers. The corporate objectives of WGPSN (section 1.2)

includes strategies to be executed, those strategies were obtained
from Wood Groups annual report. Therefore, the Group has chosen
the expansion of services by widening market reach as its main
driver to strengthen the business, by developing an strategy to
penetrate developing markets by servicing NOCs, and by increasing
its capabilities in countries that recently came out of conflicts, but
that has of great oil industry potential (Iraq).
Considering the aspects of corporate strategy, WGPSN is focused in
a niche market offering B2B services across all range of products
and services. WGPSN operates in a highly competitive environment
that can be considered as an imperfect competition, as prices can
be controlled if the knowledge of price is not shared.
However, the niche character of WGPSN by providing tailored
services for its customer represent a strategic difference that will be
strengthened by the technology innovation culture of the company.
To analyze the threats faced by WGPSN competitive environment, a
Porter 5 forces analysis is used:

13

New entrant barriers

- MEDIUM (There are
many companies
entering the
industry,but very few
has a global reach
and special
deliverables
capacity.

Supplier power MEDIUM (WGPSN

needs a very good
supply chain to
deliver parts for the
projects).

Rivalry among
existing firms -VERY
HIGH (Many
companies offering
similar services,
high fixed cost,
volatility of oil
prices exacerbates
the competition).

Buyer power - HIGH

(IOCs and
independent
companies can
chose the service
company based on
their capacity).

Threat of substitute
services- LOW
(Engineering
capability will always
have an important
use, mega projects
being developed in
new regions).

Figure 8: Porter 5 Forces of WGPSN.

Source: Author

According to figure 8, rivalry among oil & gas services companies is

intense, and the current low oil price environment just make even
harder for companies to compete for new contracts. Historically the
North Sea region has been the main market for the demand of
WGPSN services, and Wood Group strategy focus on keeping
existing relations one of the strategic pillars. However, the current
decline of production in the North Sea (Gosden, 2013) signals the
need to seize new markets. WGPSN is seizing and securing
opportunities in the shale gas production is the US, in order to keep
its strategy of market expansion.
4.3. Operating Unit
Maintenance Execution is conducted by engineers and technicians
located in regional offices across the world, which allow local
Maintenance Execution to take place immediately.

14

In general terms, the maintenance process can be described as

figure 9:

Develop

New service identfied / Specialized team to inspect the service / Contract negotiated

Implement

Specialized team dispatched to site / re-allocation of specialized professionals if

necessary/ CCMS

Execute

Service to be delivered as per contract/ Customer support/ KPIs / CCMS

Improve

Optimization operations / KPIs / Inspection

Maintain

After sales / Continuous relationship for future projects

Figure 9: Maintenance stage process WGPSN

Source: Author

Maintenance unit serves large number of external customers.

However, maintenance process may vary according to customer
needs, changing the services to be acquired. Services are offered
and advertised by marketing tools, such as trade magazines, trade
shows, networking, proposals and brand oriented activities).
4.4. Strengths of Maintenance Unit
As seen in the previous section the IOCs and independent oil
companies are the main customers, therefore the maintenance
department tend to have a very close relationship with customers
that usually have specific needs. Most of WGPSN services are
tailored to attend customers needs, therefore the experience of this
unit

based

in

technical

innovation

gives

the

maintenance

department a strength that is not usually seen by other units within

the company. In the North Sea, closer supply chain relationship with

15

customers helps to achieve and optimise targets. Furthermore,

automated processes are highly relevant since it reduces costs of
processes, increasing full operability and providing information to
external consumers, resulting in cost reduction (Sheth et al, 2009).
4.4.1. Contribution to Corporate Strategy
The maintenance unit contribute to corporate strategy by adopting
agile operations to retain current markets and to gain new
customers (Slack and Lewis, 2010). The use of lean supply chain
offers a competitive advantage through efficiency, decreasing time
to serve process by applying continuous improvements across the
supply chain (Osterman and Fundin, 2014). Given the corporate
strategy to seize new market, the efficiency of the maintenance unit
is a great ally to gain market share during the current oil downturn.
4.4.2. Performance Objectives
WGPSN maintenance process can be measured by Services Level
Agreements (SLAs), which allow better speed performance in each
stage of the process. As stated by Keller and Ludwig (2003), SLAs
are agreements between customer paying for a service and provider
to support diverse business units by setting realistic conclusion
times. In this sense, the WGPSN has established different SLAs
(customized to country and customer) mainly focused in controlling
quality

and

speed.

Considering

Slack

and

Lewis

(2011),

performance objectives as dependability, flexibility and cost are also

implicitly considered. Please refer to the table below to understand
how performance objectives and the efficiency of maintenance
department contribute to corporate strategy.
Performance

Maintenance unit Targets

Objective
Quality
Time (speed)
Dependability

Corporate Objectives
impacted

Experience and tailored expertise

Measured by SLAs
External customers with on time job conclusion

All objectives
All objectives
Keeping long-term

16

Flexibility
Cost

North Sea supply network expertize

Regional services with global reach
Supply chain advantages in North Sea

Decrease of head count

Figure 10: Corporate impact of Maintenance unit

customers
All objectives
All objectives

Source: Author

4.5. Maintenance Operations Strategy

According

to

Porter

(1985)

cited

in

Errasti

(2013),

the

competitiveness is related to the ability to increase market share or

profitability in a sustainable manner. In order to operate in the
current industry downturn, WGPSN has taken actions to sustain the
corporate objectives and strategies. Therefore, the company is
currently analysing internal and external competencies and areas
that need improvement, in order to sustain market competition. As
seen in section 4.2, thousands of job cuts were announced and
contract renegotiation focused in cost reduction was implemented.
From the operations Strategy perspective (Slack and Lewis, 2011),
the maintenance unit seeks to align the internal requirements
(driven by corporate objectives) with the operative resources,
considering

the

external

environment

(market

needs).

Characteristics such as the location, cost, and innovation represent

the decision strategic areas to be improved (Slack and Lewis,
2011). Please see the table below for a brief analysis of the areas to
improve.
Decision Area
Location

Organization Actions
The American shale gas market has

Areas of Improvement
The low oil price is hurting the shale gas

been the main area of growth for

market in the US, and decrease in activities

maintenance unit of WGPSN in the

is expected. WGPSN need to diversify the

past years.
Job cuts and renegotiation of

services activities to other areas.

- Competence maximization.

contracts.

- Maximize lean process activities during the

Organizational

Consecutive acquisitions and rapid

whole maintenance life cycle.

WGPSN became very complex and need to

Structure

geographical expansion brought

be reorganized to improve efficiency.

Cost

excess bureaucracy into the

organization.
Figure 11: WGPSN areas of improvement

Source: Author

17

5. Strategic Role of Materials Management

As noted in this report under section 2., the maintenance service is
75% based in OPEX. Therefore, most Maintenance contracts agreed
between WGPSN and customers, determine that materials have to
be supplied by customers. Given that customers have different
needs

based

in

customized

assets.

Moreover, only

material

management aspects that can be related to WGPSN will be

discussed in this report.
Materials

management

also

called

inventory

management,

is

defined by the planning and controlling of activities both within and

outside an organization to ensure that the correct quantity and type
of material are delivered to the correct place at the right time and
at the right cost (Jones and Robinson, 2012).
The

dependent

demand

for

materials

anticipated

by

the

maintenance team can be scheduled and planned by CCMS

software, so most of materials can be controlled months ahead. The
CCMS software play an important role in materials management and
control, as a clean databases of what the organisation actually holds
is essential.
5.1. Calculating inventory
Prices for key items are strongly correlated to oil price, so subject to
either sharp increase in unit cost as oil price rises or sudden
reductions in consumption if oil price falls (leading to higher
inventory levels).
In order to determine the most cost-efficient quantity of material to
be

purchased,

WGPSN

team

uses

EOQ

(Economic

Ordering

Quantity) (appendix 6) the right balance from ordering costs and

holding costs the WGPSN group uses the Economic Ordering
Quantity. EOQ is based in 4 variables:

Annual demand in units;

18

Annual ordering cost per unit;

Annual holding cost per unit;
Unit cost.

There are significant maintenance costs in the UKCS associated with

non-moving

inventory.

Therefore,

WGPSN

can

apply

storage

efficiency (Lean 5S, Straighten, Scrub, Systems, Sustain and Sort)

to improve general space utilization and efficiency.
The main KPI used for inventory management in WGPSN is the
stock turn, calculated by dividing the total costs of goods sold over
a period (monthly) by the average aggregate inventory value over
that period (Jones and Robinson, 2012). The increase in stock turn
generates more revenue from less materials holding cost and
therefore increasing WGPSN profit.
6. The Strategic Role of Supply Network
According to Martin Christopher (2005), the supply chain is the
network of organisations that are involved, through upstream and
downstream linkages, in the different processes and activities that
produce value in the form of products and services in the hands of
the ultimate consumer. Figure 12 illustrates these relationships:

19

Figure 12: Oil & Gas value chain

Source: RGU - BSM659 course lecture

According to EYs UK supply chain report (2014) the UK upstream

oil & gas supply chain generated more than 35 billion of turnover
in 2012 (Appendix 7). However, challenges are seen all across UKCS
supply chain, and some of the main issues are related to logistics,
procurement and people. Please refer to the table below to
understand KPIs in relation to the main issues:

20

Figure 13: Supply chain KPIs

Source: Author

WGPSN can obtain some competitive advantage in the supply chain

by defining a new operation strategy focused in the operation areas,
as each operation has different needs. Another way to obtain
advantages is by increasing economy of scale using high bargaining
power with suppliers. The implementation of Lea/Kaizen continuous
improvement can also decrease costs (Plan, Do, Check and Act).
The use of suppliers that are located in a short distance can also
contribute to minimize costs in the UKCS supply chain.
In the operational environment, an important way to check potential
suppliers is by reviewing past history with scorecards. Another way
to check suppliers is by analyzing the current resource capability to
see if there are areas of improvement. Reputation and number of
suppliers should also be considered by WGPSN to increase its supply
chain efficiency.
Finally, benchmarking is an important tool to analyze how other
regions are optimizing their supply chain. Therefore, an innovative
idea elsewhere can be transplanted to the UKCS.

21

7. Macro-environment Challenges
Inkpen and Moffett (2011), define the Oil & Gas industry as one of
the most volatile industries to operate, given the scarce availability
of resources. The current oil downturn present great challenges for
WGPSN, as operations are affected demanding a strategic change.
To analyze the macro-environment challenges faced by the oil & gas
industry, a PESTEL analysis (appendix 8) is explained below:
7.1. Political
Political challenges are related to change in governments that can
generate political instability in a given country and eventually
nationalization of the oil industry generating economic losses to
IOCs and independent companies. One of the pillars of Wood Group
strategy is the market expansion. However, the main operations of
Wood Group takes place in mature/developed economies (US and
US). There are many political challenges to operate in developing
countries, as lack of clear government framework can change
attitudes to regulation and control impacting in financial or asset
loss.
Political challenge is the most feared risk faced by oil and gas
companies. There are many examples of company losses, as noted
by Thayer and Pasich (2011), Repsol lost its Argentinian operations
to YPF (Argentinian NOC) after the Argentinas president declared
that the company was not investing in the country, as it should be.
Another case is the control of oil plants by Lybian rebels, after the
fall of Moammar Gadhafi (Georgy and Golovnina, 2011). In both
cases operators, service companies and all supply chain involved
had considerable losses.
WGPSN have to make use of good contracts to safeguard losses and
use of business intelligence to effective develop public relations and
communication with local government.

22

7.2. Economic
The main economic challenges faced by the oil & gas industry,
consequently by WGPSN, have all combined to dramatically curtail
the economics of oil and gas industry. They are listed below:

Global economic weakness (specially, slower growth in China

and continuing financial problems in Europe);

Tougher fuel economy regulations;
More viable forms of alternative energy;
Development of extraordinarily efficient engines on equipment
as varied as cars, earthmovers, and power plants.

Meanwhile, robust new reserves, especially of shale oil, in numerous

regions around the world are flooding the market. The continuity of
low oil prices represents a great challenge for Wood Group, as cash
intensive operations are postponed or cancelled.
According to Doshi and Corrigan (2015), the main mistake that oil
and gas companies can make in this challenging business landscape
is

to

concentrate

solely

on

reducing

costs

(operating

and

administrative) and spending; this strategy is adequate only in a

very limited range of market conditions and rarely effective enough
to make businesses successful over the long term.
WGPSN should carefully consider the supply chain, analyzing the
logistics of accessing new markets, and ensuring a long-term
presence in these markets. In the current economic turmoil,
producers and refiners need to be prepared and adopt strategies
that take advantage of the new reality.
7.3. Social
Oil and gas projects directly and indirectly impact local economies
and communities where they operate. These include immigration,
inflation, social equity/parity, local food, housing, water supply,
schools and recreational pursuits. Oil and gas companies have

23

placed increasing emphasis on Corporate Social Relationship (CSR),

by creating local partnerships and integrating stakeholder concerns
into the overall project management cycle (Ipieca, 2002).
One of the strategic pillars of Wood Group is the market expansion.
Therefore,

extensive

use

of

best

practices

in

CSR

will

be

fundamental for future market penetration and project success.

7.4. Technology
There may be no other industry today that demands a more diverse
set of technological capabilities than the oil and gas exploration and
production industry (IBM, 2012). The investment in disruptive
technologies will allow companies to minimize risks and financial
pressures in deeper water exploration, extension fields life-cycle,
and to work in increasingly more remote and dangerous fields.
Every oil and gas operator will have different needs depending on
their assets, geographical location and business objectives.
WGPSN

have

strong

tradition

in

the

use

of

technology

innovation to assist customers in finding tailored and strategic

response to challenges. Technology in WGPSN is also used to
understand business issues and needs across the supply chain. The
opportunity to use technology to standardize assets and services is
one of the main challenges of WGPSN. The operating cost in the Oil
industry is strictly correlated to tailored demands. Therefore,
communication technology will allow companies to interact and
share best methods to manufacture a product.
7.5. Environment
The exploration and production of oil & gas has not always been
without some environmental side effects. Accidents, fire, oil spill,
water and air pollution left negative footprints for the industry. The

24

BPs Macondo incident in the Gulf of Mexico gives a dimension of

how environmental disasters can ruin a companys finance and
image (Griffiths, 2012). Not to mention the public and government
negative view towards the industry.
WGPSN

has

long

tradition

to

meet

face

challenges

by

implementing strong environmental safety standards. However, it

could be implemented by using up-to-date quality management
(ISO 14000) and better planning control by the use of MRP to
reduce waste.
7.6. Legal
The lack of skilled workers in new emerging markets is an important
issue for the development of an oil and gas industry. For instance, in
Ghana the main industry is agriculture and there is a lack of
technical skilled workers for the oil and gas industry.
However, in a country with limited means there is a large movement
by the government to enforce laws that impose a minimum number
of local employees (Inkpen and Moffett 2011). This law can
generate tensions as the country wants the IOC to hire local people,
but there are no local workers ready for the job. For instance, in
Ghana the IOC has to hire 80% of local labour force to start its
operations and commit that 100% of the companys work force will
be local within 15 years (Laurens and Van der Molen, 2009).
Therefore, IOCs may have to delay projects in order to educate the
local staff.
WGPSN has to make a diligent analysis of worker skills before any
project kick-off. The Kraljic matrix (appendix 9) helps to illustrate
the risk level in relation to professional skills and experiences. In
order to service new markets, WGPSN should address the lack of

25

local expertize with the hosting government as legal aspects of local

labour policy can influence the project feasibility.
8. Conclusion
The volatile environment of the oil & gas industry is in constant
change and companies need to adapt its corporate strategy to
amortize challenging periods. The operations unit is the first area of
the company to feel the market changes, as they are in constant
contact with customers. Therefore, strategies set at a corporate
level are not necessarily in line with the operations strategy.
The figure below is a summary of how different perspectives
influences the operations strategy:

Figure 14: Perspectives influencing Operations Strategy

Source: Author

In conclusion, the operations strategy of WGPSN maintenance unit

needs to adapt to the new market reality in order to follow the
corporate strategy. The recognition of market difficulties at the
corporate level should realign the corporate strategy with operations
strategy.

26

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Appendices list
Appendix 1

30

Appendix 2

Appendix 3

31

Appendix 4
Intangibility

Heterogeneity

Perishability

Simultaneity

Some of the

Different customers

Services cannot be

Services take place

maintenance

may value the

inventoried or put

where it is

services are

service in different

into stock; therefore

consumed, so

essential to avoid

terms; hence

maintenance will

maintenance depend

accidents and

measuring customer

depend on the

from the interaction

production risks, but

satisfaction is a

availability of

between the client

not always tangible.

challenge.

technical knowledge.

and WGPSN.

Appendix 5

Appendix 6

32

Appendix 7

Appendix 8
Political
Economic
Social
Technologica
l
Environment
al
Legal

Government instability
Volatility in oil prices
Corporate Social Responsibility
New disruptive technologies
Oil spill and accidents
Local content of labour imposed by hosting country

33

Appendix 9

34