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Blog/October 6, 2014

Why Strategy Matters in the Oil and Gas Industry

oilaa048987-298x300What separates great companies that can consistently achieve high performance over a long period of time from those that rise and fall year to year? One thing is the depth of thinking company leaders put into planning for the future of their company. Your company’s strategy is the collection of decisions you make about how you will achieve your vision for the company over the long term. It includes answers to a few very basic questions. Among them are where the company will compete (geography, business segments, client types, etc.) and how you will compete (services, scopes, differentiators, etc.). If you can gain clarity on these two questions and use them as guidelines in all of your other business decisions, you will be able to consistently outperform your peers.

Simply defined, strategy is the decision about where to allocate scarce resources within your company. It includes decisions such as how much corporate profit to invest in employee bonuses, levels of investment in project controls systems, purchases of equipment, hiring of business development staff, opening branch offices, etc. All of these decisions are about levels of investment in the company. It is very difficult (and not terribly effective) to address them individually. However, you don’t have the luxury of sitting down with all of the decisions you face all at one time to weigh the pros and cons of them altogether. Having a corporate strategy in place serves as a guide to company leaders when making these decisions. In essence, it changes the question from “Should we invest in this job costing software?” to “Does the recommended investment in job costing software advance us toward our strategy to pursue XYZ market?”

It should be a relatively simple exercise to answer the “Where” and “How” questions for your company’s current strategy:

Where do we compete?

  • In what areas will we pursue work and where will we not? (Examples might be Gulf Coast states, Appalachia, midcontinent, anywhere, etc.)?
  • What lines of work will we pursue? (compressor stations, metering stations, transmission pipelines, gathering systems, miscellaneous gases, all of the above, etc.)?
  • ƒƒWhat client types do we prefer? (nationals, regionals, those with high prequalifications, those with unsophisticated project management systems, etc.)?

How do we compete?

  • What services or scopes will we deliver? (engineering, civil construction, data gathering and management, etc.)?
  • How will we be different? (strong balance sheet, duplicate resources that can mobilize quickly, deep project controls experience, great relationships, low cost, etc.)?

But having clarity around these points is just the first step. The next step is to describe where and how your company will compete in the future and the gaps between today’s company and that future company. In essence, you should develop a deliberate view of how you envision your company evolving over time and what it will take to get there. Some of the key inputs into both your definition of your future company and the gap assessment should be derived from research into where the market is growing and buying trends. It should also include an objective assessment of how your current and prospective customers perceive your company’s capabilities. For instance, do they consider you capable of handling large projects, or have they pigeonholed your company for smaller work? Are you a preferred supplier? Is the market shifting toward limited, prequalified selection processes for certain types of work? If so, which companies will have an advantage?

Armed with the information above, company leaders are then prepared to document what the company will look like in the future and the steps it will take to get there. That document (the strategic plan) is the detailed road map everyone in your company will follow. From that, decisions about whether to invest in field management training, new equipment, building customer relationships, bidding on an upcoming project, opening new offices, etc., become considerably clearer.

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