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ADNOC Onshore’s New Category Management Strategy Essay

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Updated: Jun 8th, 2022

Executive Summary

ADNOC Onshore is planning to implement a new category management strategy. The author has been tasked with leading the project team and overseeing the change process. To that end, they have researched category management and its best practices, as well as the state in which it is currently at the company. They have found that, while ADNOC Onshore has a number of powerful advantages that have enabled it to succeed in the past, such as exclusive access to the rich UAE oil and gas fields, the nature of the oil market, and the increasing worldwide exploration are hurting its prospects. Additionally, the nation’s reserves are limited and will deplete in the future, warranting a more cautious approach to their usage. The report concludes that the company should look to extend its reach, aiming for new markets and beginning exploration there. Additionally, it would be beneficial for it to ensure long-term stability by looking for alternative sales approaches. There is limited differentiation between products in the oil market, and ADNOC Onshore should leverage its competencies and seek innovative technologies and business practices to succeed. To that end, the report formulates a change plan, incorporating practices such as transformational leadership and the eight steps framework to achieve significant and lasting change.

Background

ADNOC Onshore is a member of the ADNOC Group, which is responsible for the extraction of oil and gas within the United Arab Emirates. As the name suggests, it is responsible for land-based operations as well as those in shallow water. Per “About ADNOC Onshore,” it is the oldest member and largest producer in the group, generating over half of the UAE’s total oil output. The company is majority state-owned, with foreign energy-producing companies holding 40% of the shares and contributing strongly to the nation’s overall economy. “About ADNOC Onshore” highlights the company’s focus on sustainability and preservation of natural resources for future generations, naming it an industry leader due to its innovative technologies. This approach applies to all levels of management and aspects of operations, including supply chain management. As such, ADNOC Onshore’s policies have been adjusted to accommodate its new goals and adapt its spending accordingly.

Introduction

The concept of category management is relatively new, but it has been widely accepted throughout various industries. Carlsson claims that it involves the manager working on “assortment mix, sales prices, product fulfillment, and sales activities, as well as launching and phasing out products,” as opposed to the supplier doing so (29). Through the use of this approach, the business can address the needs of its customers better and become less dependent on specific suppliers. Additionally, it can work with partners to develop superior products instead of passively waiting for them to make changes in response to shifting market needs. Having started in the retail industry, the concept has since spread to many different industries, including oil and gas companies. As such, it warrants a discussion and consideration of how it is currently implemented at ADNOC.

Category management is associated with a variety of different benefits, in addition to those listed above. Barbosa and Sandra list advantages such as improved competitiveness, reduced costs, higher managerial practice productivity, improved technology investment returns, talent attraction and retention, and continuous supplier collaboration (142). Category management places a higher degree of autonomy and responsibility on the company than the alternative, enabling it to make meaningful tactical and strategic decisions. These choices would be more closely coordinated with the company’s goals and needs, improving their overall positive effects on performance. The company will also be able to deliver better products to customers, outperforming competition that does not employ category management and staying at the forefront of the industry. The recognition of these advantages has been widespread, and many large companies use the practice nowadays.

With that said, category management is associated with substantial issues, many of which stem from practical applications rather than theory. An adequate implementation of the approach involves coordination at all levels within the company and possibly outside it once closer relationships with suppliers are established. O’Brien claims that a large percentage of companies fail to embrace category management best practices and do not capitalize on the strategic aspect, adopting a pseudo version of the method or applying the label to old, unchanged approaches (422). A likely reason is a lack of knowledge or external reviews of the measures taken to adopt it. Managers would benefit from a literature review regarding category management and a comparison to its application at their workplace. Many would likely find a substantial amount of improvement opportunities, both within their work and on a companywide scale.

The most prominent category management model was formulated by Brian F. Harris, one of the people who originally proposed the concept. It is a cycle that consists of eight steps: category definition, category role, performance assessment, goals and scorecard formulation, category strategy, category tactics, implementation, and category review (Carlsson 30). In the first step, the manager outlines a group of products that are viewed by consumers as similar and capable of replacing each other. The second step involves understanding the role that the products play in the company’s overall portfolio and how they may be differentiated. Next, the performance of the category is assessed, with an identification of its strengths, weaknesses, and improvement opportunities taking place. The fourth step involves setting realistic and achievable goals, which will be summarized in a scorecard.

In the fifth step, the company chooses a strategy that it will use to develop the product category and meet the established goals, using the information gathered in the prior stages. A variety of different approaches are possible, based on the stated goals and specific aspects of the category’s performance. Once a strategy has been agreed on, the management can begin working on the tactics that it will employ. They involve a variety of different essential considerations, such as pricing, promotions, and resource usage. The implementation follows, using the formulated ideas to assign employees specific duties and begin work on the project. Once it is complete, a review of the company’s performance through the seven stages, as well as the results of the initiative, begins as the final step. Using insights from this analysis, the company restarts the process from the beginning, finalizing the cycle.

While the Brian Harris model is the most widespread, other approaches have emerged since its inception that can also be used for category management. “Category Management Cycle” outlines a four-phase, six-step process that consists of initiation, opportunity identification and prioritization, strategy preparation, implementation, maintenance, and improvement based on a review. The model is generally similar to the Brian Harris framework, as it is based on the same fundamental ideas, but it is more heavily focused on continuous growth and improvement. Carlsson also describes the IKEA diamond, a highly specialized version of the model that the Swedish company uses to implement internal category management. It reflects the company’s focus on both suppliers and customers, guaranteeing low prices and high volumes. Many other models also exist, but their discussion would be beyond the scope of this paper.

Research

SWOT

Table 1. SWOT Analysis.

Strengths
  • Concessions for the UAE’s oil and natural gas sources
  • Extensive infrastructure and production capabilities
  • Access to leading manufacturing and sustainability technology
  • High quality of crude oil compared to many competitors
Weaknesses
  • Limited reach, holdings, and facilities localized within the UAE
  • Reliance on internal reviews due to lack of public disclosure
  • Lack of differentiation due to the general homogeneity of the product
  • Few opportunities for future exploration, limited resources long-term
Opportunities
  • Development of new technologies to improve productivity and safety while reducing costs
  • Sale of oil to new customers throughout the world
  • Increased oil and natural gas demand due to rising consumption
  • Collaboration with other large oil producers to improve technologies and practices
Threats
  • Fluctuations in oil price make the business’s performance potentially unstable
  • Oil exploration throughout the world is increasing supply, lowering costs, and increasing competition (Zou 33)
  • Alternate energy sources, including renewables and nuclear plants
  • The unstable political situation in the Middle East can have side effects

STEEPLE

  • Social: low importance. As a B2B company, ADNOC interacts with customers worldwide and does not advertise to consumers. As such, factors such as culture are not particularly relevant for ADNOC Onshore.
  • Technological: high importance. Advanced technologies enable oil and gas companies to reduce the costs of production and achieve more sustainable practices. As such, they are essential to effective competition in the industry due to the homogeneity of the products it offers.
  • Economic: high importance. The performance of ADNOC Onshore is contingent on global oil prices, which tend to fluctuate substantially depending on the broader situation. With that said, due to the importance of oil in the UAE’s economy, it may be proposed that ADNOC influences the nation’s economy more than the other way around.
  • Environmental: high importance. Due to the dangers and bad publicity associated with disasters such as oil spills as well as the ecological impacts of oil extraction, environmental policies are essential to ADNOC. As a result, it has implemented extensive ecological policies and is continuing to develop new ones.
  • Political: medium importance. As a majority government-owned company, ADNOC Onshore is not likely to be affected by damaging government policy. With that said, international relations may affect the company’s performance, particularly when unstable situations in the Middle East are involved.
  • Legal: low importance. Similar to the point above, the company is likely to follow any UAE regulations closely and with excellent oversight. Moreover, its international partners can help it address any foreign laws that it encounters in its operations.
  • Ethical: medium importance. The company needs to behave ethically both in its internal and external operations, particularly due to modern moral developments. To that end, it has introduced a variety of initiatives such as the Takallam program, and made efforts to expand its hiring practices (“Takallam”).

Mendelow’s Matrix

Mendelow’s matrix
Fig. 1. Mendelow’s matrix

Conclusion

ADNOC Onshore has a number of advantages when compared to other oil and gas companies, which have enabled it to succeed in the market in the past and will likely continue to do so in the near future. The business has exclusive access to numerous sources of high-quality crude oil and gas, which it can produce at prices that are lower than many competitors. The wealth generated by the company’s powerful position and profitability has enabled it to develop an excellent technological framework. As a result, it is a world leader in production and sustainability, developing substantial advancements in these fields continuously. Additionally, it has a massive production capability, as shown by its share in the UAE’s total oil production. With the constant increases in oil and gas demand worldwide, ADNOC is positioned to keep increasing its sales to match its capacity.

With that said, the company may also be facing substantial problems in the future, both internally and externally. With the lack of disclosure that comes with it not being a public company, possibilities for unrecognized mismanagement and corruption arise, stressing the need for stringent oversight from the government. Additionally, the oil industry is undergoing changes that may damage ADNOC’s position as a provider of premium oil at excellent prices. As Zou notes, exploration is ongoing worldwide, and alternate methods of petroleum products are becoming increasingly prominent. With the inherent instability of oil and gas prices, as well as the existence of other energy options, this growth can lead oil prices to drop, harming ADNOC’s profits. The company will have to develop future-oriented category management policies to retain its current levels of profitability.

Stakeholders will play an essential role in the company’s future strategy, as they will determine whether it succeeds in the long term. The public is not highly relevant, as it does not substantially influence the company’s policy, operations, or sales. However, it is best to keep ADNOC’s employees informed of the company’s activities so that they can provide improvement suggestions and be aware of upcoming changes. The company’s suppliers and private shareholders should be kept satisfied, as they can inconvenience it, though they do not have extensive power over its operations. Lastly, the key players that it has to cater to are the UAE government, which owns the company and has specific expectations of it, and the customers, who generate its revenue and can switch to another oil company without excessive difficulty.

Other companies in the oil and gas sector have implemented a variety of policies to ensure that they are successful in the long term. Inshakova and Popkova highlight Gazprom’s and Rosneft’s usage of long-term contracts, contract work, and alternate trade methods such as gas auctions to ensure that their product stays competitive (46). Through these measures, the companies can sell their products at higher prices or guarantee that they establish long-term, highly profitable relationships with other companies and nations. ADNOC Onshore may need to reconsider its product management policies and adopt a model that is better adapted to the current environment. Its category management will need to be adjusted for such a purpose, targeting new emerging and established markets. To that end, this report will provide a recommendation on what changes are required and how they may be implemented.

Recommendation

To implement the change, it will be necessary to conduct efforts on all levels of the organization. Employees will have to understand the strengths of the company and its products as well as their weaknesses and the challenges involved. Their contributions will be required to ensure that the change achieves the goals that it intends to fulfill and guarantees the business’s continued success. Without them, a variety of small inefficiencies is likely to emerge and combine to undermine the managerial ideas behind the change. To that end, it will be necessary to establish a transparent organizational culture and promote idea generation among employees. Such a process would take substantial time, and it will have to take place as the implementation of the change proceeds. For that purpose, the author will have to adopt transformational leadership practices.

Transformational leadership has become highly prominent in recent decades, with many scholars and companies promoting its usage. “Transformational Leadership” claims that it inspires followers to succeed by raising awareness of organizational goals, persuading them to rise above self-interest for the organization, and addressing high-level needs. As a result, the leader creates a team that can work for the benefit of itself and the broader company without the need to guide it constantly. Subordinates who see the wider picture will be able to make more informed proposals and combine the experience of their different backgrounds to refine the ideas. This result is generally challenging to achieve through the usage of other leadership styles, which either involve substantial oversight or a lack of motivation. As such, given the specifics of the task, transformational leadership is the optimal approach to its solution.

To achieve a state of transformational leadership, the author will have to adjust their approach to communication with their subordinates. The task is challenging because the specific competencies necessary are not adequately described in the literature. “Transformational Leadership” suggests that assertiveness is the most important aspect, particularly in the view of many subordinates, and that the manager should seek to find a balance between impotence due to low assertiveness and extreme aggression with disregard for others. By using such an approach, the author will be able to accomplish their goals without aggravating the workers excessively. Combined with the appropriate communication and information sharing, they will be able to help their subordinates improve themselves and become more productive. As such, they will successfully achieve a transformational leadership approach and improve the results achieved by the team and the project as a whole.

As part of fostering excellence in the team, the author will embrace the principles of management and instill them in the members. Per Marino, they are the division of work, authority, discipline, unity of command, unity of direction, subordination of individual interest, remuneration, scalar chain, order, equity, stability of tenure of personnel, initiative, and team spirit. Many of these ideas are consistent with the central notions of transformational leadership, and the two should integrate well. However, the first principle, the division of work, is particularly noteworthy due to its importance to effective operations. Specialization is essential for workers to gain experience and become more competent at their tasks, making them more valuable to the team through their unique skills. As such, it will be necessary to assign different employees specific categories of jobs that are suitable for them.

To understand what work may be suitable for each subordinate, the author will have to evaluate their individual competencies. Graupp et al. suggest using the skills matrix, which is often used for training and development purposes by matching current needs or jobs with employee skills (152). To fill it, they will need to become acquainted with each subordinate’s abilities, whether as seen by the author or through their self-reporting. Such a task can be challenging when one has to manage large numbers of people, as will likely be the case for the author. Graupp et al. note that to circumvent the problem, it is essential to continually keep actively updating the matrix with new information and assignments (152). By doing so, the author will separate the workload over an extended period, making it more manageable as a whole.

The eight steps framework is not currently in use at ADNOC Onshore, likely due to the low heterogeneity of its products and those in the broader industry. As part of their change initiative, the author will put it into practice by applying it in the new initiatives and teaching others the approach. Initially, they will personally oversee the implementation of the method closely, but later on, they will take a less involved, more observational role. By formulating specific goals and achieving them efficiently, they will persuade others of the success of the method. It will then be adopted by an increasingly large number of people who will contribute to its success through motivated work and new ideas. The author will then ensure that other aspects of category management, both strategic and tactical, are adopted to benefit the company.

To guarantee the success of the initiative, the company will have to engage all of its stakeholders. To do so efficiently, it will be necessary to construct a stakeholder map, a preliminary version of which is available in the research section. The purpose of the graph is to recognize the respective importance and integration of each stakeholder group and design measures correspondingly (Jonas 168). The method most commonly used for stakeholder mapping is known as Mendelow’s matrix, which separates them based on their interest level and power over the company. Minimal effort has to be devoted to those with little interest and power, those with high power have to be informed, those with high interest should be kept satisfied, and those with both are key partners. The final version of the matrix will likely be more complicated than that presented, as specific partners are identified.

It is necessary to consider the potential risks involved in employee training and development, as well as issues that complicate work, such as COVID-19. Without receiving training and other company investment, workers are more likely to leave and adopt inefficient practices. To mitigate the issues, the author will try to monitor the competencies and needs of the employees and provide them with appropriate training when necessary. The primary dangers of COVID-19 are the economic downturn and the self-isolation measures adopted in many nations. The impact from the former is inevitable, though it will not be as high as for many other industries due to the importance of oil to many sectors. The latter can be managed by adopting tools that enable employees to work from home, such as videoconferences and online work organization platforms.

Works Cited

“About ADNOC Onshore.” ADNOC, 2020. Web.

“Category Management Cycle.” CIPS, 2020. Web.

“Takallam.” ADNOC, 2020. Web.

“Transformational Leadership.” Big Dog and Little Dog’s Performance Juxtaposition, Web.

Barbosa, Belem, and Filipe, Sandra. Smart Marketing with the Internet of Things. IGI Global, 2018.

Carlsson, Magnus. Strategic Sourcing and Category Management: Lessons Learned at IKEA. Kogan Page, 2019.

Graupp, Patrick, et al. Building a Global Learning Organization: Using TWI to Succeed with Strategic Workforce Expansion in the LEGO Group. CRC Press, 2017.

Inshakova, Agnessa O., and Popkova, Elena G. Energy Sector: A Systemic Analysis of Economy, Foreign Trade and Legal Regulations. Springer International Publishing, 2018.

Jonas, Julia M. Stakeholder Integration in Service Innovation. Springer Gabler, 2017.

Marino, Vincent. “Summary, Forum, Best Practices, Expert Tips and Resources.” 12Manage, Web.

O’Brien, Jonathan. Category Management in Purchasing: A Strategic Approach to Maximize Business Profitability. Kogan Page, 2019.

Zou, Caineng. Unconventional Petroleum Geology. Elsevier Science, 2017.

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