Strategy S01E04: Proactive Stratification

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StrategyS01E04

**[One Year later]**

**[A normal working day at Strategy Nigeria Limited. Proffering solution to an organization in the oil and gas industry on how to optimize service delivery and increase profit in an economic recession]**

Edward: *[Each peering at laptop in front of them]* You all must have looked up our client’s profile on the zip file sent to your respect company inboxes. Our client has been in the oil and gas industry for almost 25 years. *[Walk to stand in front of the presentation screen]* The economic recession in the country has impacted the service delivery of our client and its profit margin. We need to analyse the methodology of our client’s service delivery, giving consideration to duplicity of method or isolate bureaucracy in methodology. We have to keep an eye on methods that takes more financial resources than adding to profit. Let’s listen to each ones observation after looking at our client’s profile.

 

Chinwe: *[Raises her hand to speak]* Please if we can start from my area of interest, human resourcing. I observe that our client is spending more in maintaining numerous expatriate staff as against employing indigenous experienced hands. While the expatriate experience is good for the company at its early stage, our client should have a set period to reduce or eliminate cost on expatriate hands.

Edward: *[Walks back to his seat.]* That is a good observation. We have to identify clearly to our client how this has impacted on his service delivery and profit margin.

Duru: *[Speaks on the contracting agreement]* I observe that our client is struggling with payment clause in the pricing section of his contract with some of the project owners. I observe a clause of 20% volume discount to be paid by our client for continuous patronage by project owners. In a healthy economy this kind of clause is a rip off not to talk of in a recess economy. Our client was just interested in having a contract but did not study the contract terms carefully.

Vincent: That will undoubtedly impact heavily on the company’s profit margin after overhead cost, company income tax payment and, sundry expenses.

Duru: Very true. That’s not all.  Our client is made to pay penalty charges for delayed equipment on the rig. This is of two sides. The penalty charge could make our client to be prompt in back loading his equipment from the rig. On the other hand if there is negligence on the part of the project owner, there should be some financial benefit to our client.

Edward: Duru, thanks for those observations. We’ll have to come up with recommendations to help our client in the right direction.

Bruce: Our client does not have a transparent HSE system. Handling projects for high profile organization requires that our client HSE system mirrors the HSE system of such organizations. Such organizations feel reassured and will want to continue business with our client as much as they can see a connection between the two HSE systems. None transparent HSE system has made our client loose some valuable contracts.

 

Edward: Thanks Bruce that was an insightful observation. Sophie, I reckon you are taking down every detail of these observations as we’ll have to analyse them productively to the benefit of our client. **[Sophie: Yes, Edward.]** *[Stands up]* Why don’t we go for 15 minutes coffee brake to refresh our minds and when we come back we’ll seat down to the business of the day.

**[All left there seats for the side table that has coffee and some small chops on]**

**[15 minutes later]**

Sophie: *[Walks back to her sit]* Ladies and gents, by my time piece, our 15 minutes coffee brake is over. We can finish up our small chops while seated.

Busola: Sophie, you’re qualifying as a good time keeper. **[All got seated]**

Sophie: I was the bell ringer in my high school days.

Vincent: You must have been getting to school early to be assigned such role. It’s still observable in your approach to your duties around the company.

Sophie: Vincent, thanks for the compliment.

Edward: *[With a tint of smile on his tone of voice]* Thanks Sophie for ushering us back to our seats. *[Stands up and walk to stand in front the beamer screen]* As we do process analysis of our client’s, let’s pay close attention to likely duplicity of processes that may have impacted on service delivery and that may have amounted to unwarranted cost to our client. *[Walks back to sit down.]* Sophie, please highlight the bullet points in the observations made.

Sophie: *[Stands up in front of her seat]* These are but not the least of observation made on our client business process: (1) maintaining numerous expatriate staff as against employing indigenous experienced hands. (2) 20% volume discount payment clause levied on our client for continuous patronage. (3) Penalty charges for delayed backload of equipment from the rig. (4) Non- transparent HSE system. Did I miss out any?

 

Edward: Let’s start from the last point to the first, Non-transparent HSE system. Ok Bruce this is your call. Set the ball rolling so we can look at this from your professional perspective.

Bruce: *[Stands up and pace slowly to stand in front of the Beamer screen]*  I observe that our client is struggling to put an adequate HSE plan in place. In the oil and gas industry, there are universal and localized frameworks in every HSE systems. Irrespective of the companies our client is handling projects for; our client need not write different HSE plans for each. While the universal frameworks in the HSE system is known in the industry, our client need to note carefully the peculiar environment each of the companies operate from. While not trying to mirror exactly the localized HSE plans and statements, our client should frame its own HSE plans and statements but imbibe the collective spirit behind the respective project owners HSE plans and statements into one and putting some words in their HSE statements as part of her own. This way our client’s HSE plan will be transparent.

 Busola: *[Cutting in]* How do you intend we get this right with our client.

 Bruce: An HSE audit of our client will reveal how much of the localized HSE plans of project owners are known by our client. Then integrate all of them into one to come up with a transparent HSE plan that will meet the expectations of our client’s project owners.

Edward: Well said Bruce. So that’s an action item for you. How long would the HSE audit take?

Bruce: 3 days will do. I’ll have to visit some of the major project owners with our client to have a feel of what their expectations are of our client’s HSE plan and system.

 Edward: Let’s give attention to penalty charges on delayed backload of equipment from the rig. Duru, this was an observation from you so let’s have you lead the discussion.

 

Duru: *[Stands and walk to stand in front of the beamer screen]* I’ll prefer standing to lead this discussion. Penalties as part of contractual clause are healthy to both our client and the project owners. This makes both parties sensitive to their responsibilities and would want to carry them out promptly. However, a closer look at the price and rate terms and conditions of the contract, I see penalty clauses that impacts on our client but none that impacts on the project owner.

Chinwe: That is a very good observation. It makes it appear as if delayed backload of equipment from the rig will perpetually be the fault of our client.

Duru: Exactly the point. So it will be good to know if our client is aware of it, bordered about it and, if it has been discussed with the project owner. Also the form of penalty is not spelt out clearly in the contract by the project owner. Which means the project owner has the power to impose whatever the penalty will be.

Edward: *[Cutting in]* What I have observed over the years as process analyst, is that some contract owners adopts contract conditions and clauses from some previous contracts handled by them without considering the peculiarities of the contract giving them to manage either in a new role or company. Please go ahead Duru, just thought to chip that in.

Duru: *[Starts pacing around the conference table]* And you are very correct Edward. I’ve noticed an instance where a contract holder does not remember that a certain term and condition exist in a contract. It will be appropriate to have the project owner define clearly what the penalty for delayed backload of equipment from the rig is to our client and what the penalty is to the project owner should the delay be partly their fault.

Bruce: I reckon that most often delayed backload of equipment from the rig is as a result of break down in communication and this can be the fault of our client or the project owners.

Edward: Ok Duru, how do you intend to handle this?

Duru: I’ll schedule a meeting with our client and the project owners. All of this can happen in a day at different time.

Edward: You need just a day to clear this up.

Duru: Yes, a day will just be enough. *[Walks back to his seat]*

Edward: Good, weldon. Let’s give attention to 20% volume discount clause levied on our client. Duru, you still would lead in this discussion. However, let’s have a 20 minutes coffee brake.  Sophie, please keep the time check.

Sophie: You can count on that Edward.

**[They had 20 minutes brake and returned afterwards]**

Sophie: *[Strikes the side of her coffee cup with a pen to call everyone’s attention]* By my time piece, we all should be back at our seats. *[Strikes the coffee cup again.]*

Chinwe: *[As she walks back to her seat]* Sophie, you get quite innovative every time you invite us back to our seats after each coffee breaks.

Sophie: *[Chuckles]* Its all about strategy and thanks for the compliment.

Edward: *[As all take their sit]* Sophie, thanks for keeping the time accurate. Time is of essence to every business. Duru, you have our attention.

Duru:  *[Remain seated this time]* Reading through the contract, I deduce that the 20% volume discount is levied on our client because of continuous patronage of our client by the project owners for an extended period of time. The 20% volume discount paid up at the expiration of the contract. Let’s put this in perspective. If our client has a 3 years contract worth 10 million naira, 20% of that will be 2 million naira. If our client is re-awarded the contract at expiration for another set of years at the same contractual terms and condition, it will become 20% volume discount times two sets of contract.

Vincent: That appears to me like contractual bullying.

Duru: *[Stands up and paces to stand at the end of the conference table facing the beamer screen]* You can say that again. An indigenous company struggling with high interest rates on bank loan and delayed payment sometimes from the project owners, it’s surely a rip off.

Edward: This is a very technical situation. The project owners are devising ways to reduce project cost.  In a healthy economy this will be heavy on our client considering high bank loan interest and occasional delayed payment but can be worse off in a recessed economy.

Vincent: I am interested in knowing how we’ll manage this for our client with the present financial state of our client in a recessed economy.

Duru: *[Returns to his seat]* Well firstly, I’ll like to know if our client understands the implication of the volume discount and if they’ve been factoring it in their financial reserve such that it would not be a heavy burden for them to handle at the end of the two sets of contract. Secondly, I’ll like to meet with the project owner along with our client if the percentage can be re-negotiated in a contract variation and if this condition can be removed from the payment terms and agreement in future contracts.

Edward: Duru, this will be a heavy burden off our client if we can deliver this. How many days will you need for this?

 Duru: Minimum of 2 days.  I say minimum of 2 days because if there will be need, I will want to make one or two quick follow ups with the project owner.

Edward: So why don’t we assign 3 days to close it out?

Busola: I feel 3 days should be ok to impress on the project owners presenting all the arguments for.

Chinwe: I agree with Busola.

Duru: Yes, I agree let’s close it out in 3 days.

Edward: Perfect. Let’s consider human resourcing. Chinwe, are you ready for this?

Chinwe: *[Stands in front of chair for while and the starts walking around conference table]* I’ll like to stretch my legs. The oil and gas industry really requires all the best technical hands you can get. I worked out the percentage of expatriate staff to indigenous staff and I observe that our client is spending so much maintaining several expats. Even paying for things that should have been cared for from their monthly salary that is paid in foreign currency.  I also noted that some of their roles are manipulatively duplicated and our client does not know it.

Vincent: I feel that the indigenous companies in the oil and gas industry feels they make better impact to project owners by the number of expatriate hands they have in their employ.

Chinwe: Vincent, your feelings may not be far from correct. My years in human resourcing has giving me such a nudge too. I listed out some duplicated roles, items our client need not border itself with on behalf of the expatriates that should be removed from the contract and so forth.

Duru: I reckon that some of these expats come with outrageous terms of employment or contract. This is done with the feeling that indigenous companies cannot do without their technical know how in the oil and gas industry.

Edward: And that’s not correct. We have many qualified indigenous hands in the country. Chinwe, how do you intend to manage this with our client?

Chinwe: *[Stopped pacing in front of the beamer screen facing the others]* I’ll want to call up a meeting with the chairman managing director and the human resources manage to present my observations. I will want to find out how much they know of my observation and whether they’ll want to do anything about it. Human resourcing is a very sensitive aspect in most organizations. When I see their level of involvement in the observation brought forward and desiring to implement corrective measures, then I’ll recommend firstly to remove duplicated roles even in to management.

Sophie: That will mean laying off some of the expatriates.

Chinwe: Exactly Sophie! Next will be recommending considering hiring qualified indigenous hands to take up some of the technical roles occupied by expatriates reducing the number of expatriates to the nearest minimum. It would be good to know if they’ve had applications in the past that can be reviewed for technical qualification and if none, they can start sourcing qualified indigenous hands.

Edward: This is sensitive as it has to do with people’s lives. However, since it has such financial impact and our client has subscribed to corporate re-stratification we cannot leave any stone unturned. This will obviously take a bit longer time to close-out and it has to be in stages.

*[To be continued]*

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