Introduction
The Emirates National Oil Company (ENOC) is one of the players in the oil and gas industries that have spurred the unprecedented economic growth in Dubai. ENOC, headquartered in Dubai, conducts multiple business ventures in Dubai and Northern Emirates.
The company’s primary objective is to facilitate the development of both the downstream and upstream oil and gas functions (ENOC n.d.). These activities include the production and distribution of lubricants, aviation fuel, liquefied petroleum gas (LPG), LPG containers and chemicals.
Nonetheless, ENOC has a diversified portfolio that ranges from real estate to shipping and aviation (Bloomberg 2011).
The current business environment has increasingly become volatile and competitive. As such, the majority of companies and organizations are centralising some of their critical operations into Shared Services arrangements.
The Shared Services concept is a novel management model that entails the development of a market efficient unit to deliver corporate support from a central place (Borman 2012). The elemental purpose of this approach is to enhance efficiency and productivity by streamlining the delivery of business functions and services (Wang & Wang 2015).
According to Borman, human resources, finance and information systems constitute the largest proportion of the Shared Services framework. Ramphal (2011) has underscored the need for the Shared Services function to compete actively with outside suppliers.
The effectual implementation of the Shared Services approach necessitates the combination of the benefits of centralisation and decentralisation (Borman 2012). Herbert and Fitzgerald (2013a) have asserted that the standardisation of processes is critical in tailoring service levels to the actual demands of business entities.
Although the upstream and downstream energy corporations face different challenges, they both share similar situations. For example, cost pressures, inadequate talent and technological demands confront the two segments.
Companies in this industry are now adopting the Shared Services model to navigate the changing landscape (Chima 2007).
The Emirates National Oil Company provides diverse services and products. The company delivers its core functions through the Supply, Trading and Processing (STP) segment.
The provision of services under this function requires ENOC to identify and tap marketing outlets both locally and internationally (ENOC n.d.). In essence, ENOC capitalises on the global growth opportunities by collaborating with international oil companies and traders.
The introduction of the Shared Services Unit in 2011 was essential to obtain the economies of scale (SSON 2014). Conversely, Herbert and Fitzgerald (2013b) have indicated that various obstacles undermine the successful implementation of this model.
The aim of this paper was to find out how ENOC addressed these challenges during the implementation process. The data collection involved both qualitative and quantitative methodologies.
On the one hand, the quantitative approach involved the use of a semi-structured questionnaire to gather information from the heads of five departments. These units were Procurement, IT and Business Solutions, Account Payable, Human Resources and Project Management & Engineering.
The initial process entailed forming a rapport with the managers through an email correspondence. The purpose of this procedure was to seek consent from the officials, in addition to scheduling the most appropriate time for completing the questionnaire.
On the other hand, the qualitative approach involved conducting a video call with the managing director of Supply, Trading & Processing (STP) and that of Shared Services. The inclusion of these key informants was critical to triangulate the information gathered using the questionnaire.
In addition, these directors played a fundamental role in the implementation of the Shared Services Model. Thus, it was imperative to get their insights on the barriers, successes and failures of this strategy.
Adequate preparations were crucial in this process considering the managerial commitments of these individuals. A telephone communication with the executive secretaries of both leaders was critical to plan for the interviews.
Factors that Influenced the Implementation of the Change
The oil and gas industry is currently undergoing remarkable changes because of the rising global demand for oil and gas.
By contrast, these developments have brought with them capital, capacity and cost challenges. For instance, the expansion of shale drilling has increased capital requirements and back-office expenses (Chima 2007).
In addition, the plummeting oil prices have constricted profit margins. Further, the aging of the sector’s workforce is causing a significant shortage of talent. Consequently, oil and gas corporations are changing their internal operations to remain competitive (Bloomberg 2011).
One of these strategies is the implementation of the Shared Services model to manage costs efficiently. The Emirates National Oil Company introduced this approach for various reasons (SSON 2014).
Firstly, ENOC adopted an in-sourcing strategy to reclaim the profit margins that their outsourcing partners had been enjoying previously. The management realized that the outsourcing system was not efficient.
As such, ENOC decided to develop a highly functional internal system through the implementation of the Shared Services arrangements (Bloomberg 2011). In practice, this approach formed the basis for supporting the cost-effectiveness of outsourcing.
The company eliminated the operations that were not adding any value to the core business (SSON 2014). ENOC projected an increase in their cost savings by determining budgetary allocations for each unit based on the demands of customers.
The introduction of the Shared Services in the company was necessary to free the business units from non-core functions (ENOC n.d.).
Secondly, the company adopted the Shared Services Model to facilitate the efficient utilisation of scarce resources. The Shared Service Unit serves 26 subsidiaries in five departments: Procurement, IT and Business Solutions, Account Payable, Human Resources and Project Management & Engineering.
The amalgamation of these services has enabled ENOC to build critical capabilities (Bloomberg 2011). SSON (2014) has indicated that this strategic decision has not only enhanced productivity but has also increased the efficiency of business operations.
This model has given ENOC the incentive to undertake massive infrastructural projects and expansion to international markets. Each of the five units is now focusing on their core functions, which has improved productivity (ENOC n.d.).
The Change Process
The Emirates National Oil Company employed the services of a consultant (KPMG) to implement the change process. KPMG intervened using a three-phased approach: Analysis, Engagement and Delivery.
The first stage (Analysis) commenced with the development of a business case and the vision for change. Secondly, KPMG also conducted a risk analysis to support the development of the change strategy.
The second phase (Engagement) entailed the development of collaboration plan and the realignment of leadership roles. The professional body also managed stakeholders at this stage.
Finally, KPMG implemented the change strategy by facilitating the process of organizational integration. Other components of the final step included the transitioning of people and workforce engagement, as well as productivity and sustainable performance.
The contracted company, KPMG, focussed on efficient communication at each of the three stages. Janssen, Joha and Weerakkody (2007) have asserted that the transition to the Shared Services Model is a demanding and complex process.
According to Ramphal (2011), this shift requires a comprehensive transformation of the management practices. The primary concern is that successful implementation depends on the ability of the company to foster cultural changes.
The change process may not be feasible where there is no commitment (Spector 2007). KPMG addressed these issues by maintaining a continuous flow of information throughout the company. The engagement with the management, employees and stakeholders was necessary to build synergies.
Secondly, KPMG was clear about the need for change from the onset. For example, the company contacted a rigorous analysis at the initial stage to determine the costs and benefits of shifting to the Shared Services Model.
McCracken and Mclvor (2013) have identified two pitfalls that companies encounter when they fail to provide the rationale for change. First, partners and employees do not show commitment if the goals are not clear.
Second, the parties may move in divergent directions since each of them has different expectations about the change.
Webster (2007) has underscored the need to have an explicit vision and unambiguous objectives prior to implementing the change. Thus, KPMG engaged with the leadership, stakeholders and employees to ensure the continuous flow of information.
The transition process is the most critical aspect of implementing the Shared Services approach (Janssed, Joha & Weerakkody 2007). Resistance to change and the assimilation constraints often threaten to dismantle the entire procedure (Pieterse, Caniëls & Homan 2012).
KPMG set clear goals to facilitate organizational integration. One of the strategies that KPMG espoused during the delivery stage was enhancing workforce effectiveness and supporting the employees to transition to the new system.
Herbert and Fitzgerald (2013a) have noted that the Shared Services methodology is more likely to fail where different units do no adopt a single organizational culture.
The Shared Services adopted by ENOC serves 26 subsidiaries in five departments. It was imperative to ensure that these groups collaborate seamlessly to enhance productivity and efficiency (Webster 2007).
Resistance to Change
The senior management of ENOC was unanimous in supporting the shift towards the Shared Services. Despite this commitment, some of the unit managers resisted the change for two reasons.
First, they were afraid of losing direct control of their respective departments. Second, they were concerned about the responsiveness and quality of services under the new approach (SSON 2014). KPMG pacified the managers by involving them in the planning and implementation processes. Senior and Swailes (2010) have argued that employees resist change if they do not participate actively in the planning and implementation procedures.
In addition, KPMG provided the rationale for the transformation. Kärreman and Alvesson (2009) have noted that people are receptive to change if they understand the need to transition from the status quo.
Critical Success Factors of Change Management
The change agent, KPMG, emphasised two areas to facilitate the successful transition to the Shared Services Model. Firstly, KPMG developed a clear business case and the vision for change at the outset. In addition, the company conducted a risk analysis to develop a viable change strategy.
Herbert and Fitzgerald (2013b) have found out that most companies develop Shared Services entities before differentiating between the types of services. For example, the consolidation and standardization of functions may reduce costs initially.
Conversely, the challenges that emerge from excessive standardisation undermine the delivery of services (McCracken & Mclvor 2013). KPMG adopted a systematic and objective approach to segment the functions of each service.
Secondly, KPMG created a stakeholder management strategy during the engagement stage. The purpose of this plan was to facilitate efficient communication. Spector (2007) has noted that the provision of timely and accurate information to the stakeholders enables the company to achieve positive outcomes.
According to Kärreman and Alvesson (2009), stakeholders usually have different expectations and interests. Thus, it is of the essence to ensure that these individuals move in the same direction.
One way of achieving this goal is to communicate the objectives of the change strategy continuously (Pieterse, Caniëls & Homan 2012).
The KPMG’s stakeholder management approach was essential to make certain that each party had the same information regarding the rationale for implementing the Shared Services arrangement.
Summary
The oil and gas industry is currently facing turbulent times considering the plummeting oil prices and massive financial requirements. The primary challenge for companies in this sector is to adopt strategies that support the utilisation of the existing resources efficiently.
One of these approaches has been the shift towards the Shared Services arrangements. The Emirates National Oil Company adopted this plan in 2011 to enhance its productivity and efficiency.
The company contracted KPMG to facilitate the change process. KPMG used a model that constituted three components: Analysis, Engagement and Delivery. The company developed a clear plan from the outset, which played a fundamental role in reducing the risk of resistance.
In addition, KPMG engaged the leadership, stakeholders and employees through efficient communication from the planning phase to implementation.
The elemental lesson from the ENOC case study is that Shared Services arrangements are essential in managing business operations. Nonetheless, companies should set explicit goals from the outset and manage the change process adequately to achieve positive outcomes.
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