By Michael J Brennan And Caleb Baker, Alexander Mann Solutions
IN THE new world order where oil prices have dropped significantly, is it possible to focus on new business efficiencies without slashing budgets?
While the oil price has pretty much halved, many organisations are still struggling to find long term game changing initiatives to realign their cost-base and operations in the new world of lower oil prices.
Although many have taken obvious steps – squeezed suppliers, cut staff and reined in investments – we ask whether such short-term measures are the kind of sustainable operational changes the industry needs.
Can they deliver significant long term cost savings, greater efficiencies and more operational agility?
Can you really cut costs while improving compliance oversight?
Are our business leaders willing to take bold steps and ‘future-proof ’ their business, at a time when suppliers and their own organisations are more open to change?
While the current landscape is challenging, for the bold and the brave there are opportunities to make game-changing organisational moves.
With this in mind, industry business leaders should set a new series of challenges for their procurement and human resources leadership teams as they seek to reduce their non-permanent flexible worker base without disrupting the business.
Any such reduction must be done efficiently and in a way to reduce costs and improve efficiencies while keeping a sober eye on future labour demands and a company’s ability to meet them.
While the ‘slash and burn’ approach is often the first instinctive reaction, it is not always the best long term solution and cost reductions may not be on going. The key is to instigate long-term, game-changing savings which help create a leaner, more efficient and fit-for-purpose organisation.
Outsourcing non-core functions is an obvious move. For example, recruitment and the administrative management of workers (FTE’s and temporary workers) isn’t a core competency of oil and gas companies – finding and extracting natural resources is.
Taking a fixed cost recruitment, administration and payroll function out and working with a partner to transform it into something leaner, more efficient and more scalable on a sounder commercial footing makes good business sense.
Such functions can be ‘sold’ to organisations and transformed without impacting the organisation’s ability to attract staff, resulting in a leaner recruitment infrastructure … something which can flex and adapt with market conditions and is less fixed cost more pay as you play.
Imagine having a third party take away part of your organisation, buy it from you and lease it back over 10 years, saving you at least 30 per cent in operating costs.
From experience we have found that this approach can and does transform an organisation’s ability to attract the right talent, at the right time and for the right price.
By way of further example, a well-managed contract worker program can provide organisational transparency uncovering non-compliant workers and agencies thus reducing health, safety and environment, reputational and financial risk.
Such a program can also correctly classify workers mitigating regulatory or tax risks. In addition it can deliver very significant cost savings and reduced agency usage.
For example, 1,000 contract workers may mean an annualised spend of $100 million.
How would it feel if a business partner created a transformational program saving a sustainable $10 million per annum and achieved all of the other points listed above?
Can cost-cutting be achieved without cutting the middle layer of staff and administration, a move which seems so popular at present?
Cutting out layers of suppliers and needless internal/external layers of bureaucracy is an obvious way forward.
However, another way is to reduce the number of suppliers to a core by selecting those who meet and exceed strict key performance indicators, cost parameters and other relevant criteria.
The trade-off for suppliers would be lower rates but a greater market share – such an arrangement would see the relationship elevated from that of supplier to partner.
A core group of suppliers could be managed by a neutral, client focused organisation who would aim to improve efficiencies, reduce bureaucracy, and drive time efficiencies while managing and rewarding suppliers.
Supplier relationships are important and high quality partners who add value at every opportunity should be nurtured by companies.
A critical partnership offering which manages temporary and contract workers is the kind of long term arrangement which can and does deliver tangible, sustainable financial gains and long-term organisational value.
For example, with every $1 million of contract worker spend it is feasible to expect sustainable savings of between 10 per cent and 15% under this model.
Since external partners are duty-bound to perform for the sake of the contract, have a specific budget-meets-performance target to achieve and are specialists in their field, these savings and efficiencies can generally be sustained.
This model also offers the added benefit of transparency and compliance oversight without disrupting day to day operations.
It is game-changing solutions such as these which forward-looking organisations are exploring and implementing in the fast-changing world of oil and gas.
Solution providers are regularly challenged by clients to develop new and innovative solutions to ever more complex problems… but sometimes we throw the challenge back at them.