Paul Alcock, advisory board member C&S Partners - Materializing Leadership and Chief Growth Officer at Acteon Group Ltd., delivers his thoughts on the needed change management associated to integrated offers.
Leaders League. What is your vision of the current crisis?
Paul Alcock. From the perspective of an Oilfield Services Company (OFS), it accelerates the need to focus on energy transition into other sectors. Taking our experience, product and services developed on the back of an oil and gas market and adapt that into the renewables and the marine facility sectors which are similar in terms of requirements albeit different in terms of commercial drivers and contracting strategies.
But the upstream E&P market still remains a critical element of the world’s energy needs, at least in the short to medium term and there is a need to optimise how that market is served. As I observed in the sector downturn of 2015-2018, there was a lot of emphasis on the need to correct the costs base in accordance to what the future was going to be. “Lower for longer” was a term which seemed to resonate with many. But I don’t believe that it was achieved to maximum effect. Undoubtedly, there was change but was it radical enough? Pre the latest oil price collapse, process duplication between client and supplier still remained, cost reduction of individual services was favoured over cost benefits from integrating services and the uptake of automation whether it be AUVs or AI to predict maintenance cycles has been slow..
What this current crisis will bring is an urgency to change and a greater appetite for radical ideas and much greater consolidation to re-set the cost base within the O&G market. Without that, survival will be difficult.
What are the benefits of an integrated offer?
There's some key points to talk about in terms of integrating services to the oil and gas sector in order for it to address the crisis. Integration concepts and ideas is the first point. And they are not always client-driven! It’s something that we've seen through the most recent downturn: new ways of working, cross training, challenging guidelines and new commercial models. Repackaging work scope's is often best seen by the provider, and particularly if that provider has a longer-term desire to survive and prosper through their customer’s success and loyalty.
Integration of such decisions can often originate from the top of an organization largely because they have that longer-term vision as part of their day-to-day job. But, execution, has to be understood and bought in to by the coalface that delivers the integrated offerings. Integrating services can be a complex problem particularly if you have to demonstrate true commercial benefit.
Solving a complex problem can sometimes only be achieved by assembling a group consisting of different-minded people with appropriate domain knowledge and experience. Integration can’t be driven solely from a centralized position; you have to get adoption from those who actually address the details to clients and understand how integration works to prove where the commercial or technical benefits may well sit. Adoption rates from these people are key. It is a collective approach and cognitive diversity that's needed if you are going to be successful in integrating an offer to the oil and gas sector.
"Experience has taught us that the gestation period between conceptual discussions with customers on how integrated services can deliver commercial value and actually seeing commitment to contract can be protracted"
The next point is pertinent to a lot of companies and it is certainly a topic that has been around for a long time in the oil and gas sector, and that is around what I would call the brand conundrum. Some buyers, when looking at integrated offering which comprises products and services from individually branded businesses or branded product lines, prefer a one brand, one solution approach. To them, it is simpler to understand and to deal with. And some buyers wish for those brands to be retained, as they appreciate the value behind the individual brands and can deal with that complexity, providing they are brought together successfully.
It appears to me that there is no wrong or absolute right answer. The only absolute is the time required for all parties to understand where brands add value and where they don’t. This is the only factor which will decide the fate of the successful integration and the brand conundrum. So, whether a multiple branded integrated offer works or not, time will be the test rather than what I believe is subjective emotions around brand loyalty or whether the simplicity is best. It’s a fine balance to manage.
How to improve commercial value?
From experience, demonstrating commercial value proposition compared to other leading industries has been less of a factor in upstream oil & gas. Saving rig or vessel time has often been the key benchmark but has the sector gone much deeper than that, I am not so sure. Now, demonstrating commercial value is more important now than ever before.
The commercial value proposition that needs to be focused on, right now, is delivering service while optimising cash preservation. And that may come through identifying the reduction in duplication of processes, simplifying buying complexity through the provision of an integrated service or ways to reduce personnel offshore through technology and automation. Then there were some key points around integration.
The challenge is now coupling the need to invest in resources where appropriate in order to integrate services which bring a greater commercial value proposition to the customer. Linking back to the collective approach mentioned earlier, a collective approach to understanding how integrated services can address financial challenges is paramount. For example, why having non-core services - because you have always had them in-house - when you could contract in specialist service providers even under a ‘white label’ to allow the service still to be branded as your own. The commercial benefit is elimination of carrying the cost of non-core services whilst using expertise from further down the supply chain.
The combination of having a commercial vision, knowing what the end looks like and working out your own roadmap from the end and work backwards is key.
One of the things to avoid when integrating services is don't mix business models as it is costly to run and know where to focus. Seeking to integrate specialist providers into your business addresses that.
Finally, I would add that we are a traditional business in a traditional industry that, in its own world, has generated a lot of high-end technology. But outside our industry, there's also a lot of important technology that we should adopt and not be afraid to adopt!
What did you do in terms of integrated offerings at Acteon particularly?
Many businesses have offered integrated projects or integrated services in the industry before and done it very well. We have tried to focus on the client solution all the time with the client’s drivers and historically balanced the brand issue with the integrated offering.
Experience has taught us that the gestation period between conceptual discussions with customers on how integrated services can deliver commercial value and actually seeing commitment to contract can be protracted. The concept, once accepted, has to be walked through your customers organisation to ensure all stakeholders appreciate and understand the value. There is a tendency to need to compare one service with another however, often times integrated services differ because they bring commercial benefits and that can sometimes be a handicap. In order for customers to prioritise focus on commercial benefits over the comfort of price comparison, this needs to be driven from the top every time.
In house commercial focus is also critical. I mentioned earlier the need to start from the end and work backwards. The end is more often than not, the target commercial value so when involving many product and service lines which carry their own margin expectations, great care has to be given to ensure the collective offering is not a greater cost to the client than otherwise.
Whilst the industry faces a VUCA environment. "VUCA" i.e. volatility, uncertainty, complexity, and ambiguity. It's a combination of those things but the concept is not new. But in this current environment, it has become much more pronounced. And we have to embrace that more by being more agile and more flexible in terms of how we integrate, how we offer solutions and how we organize ourselves.