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MNP’s Balanced Strategic Approach to Management

19/10/2011


Most successful oilfield service companies understand that effective strategic management and planning is a key factor of business success. Industry conditions have improved since 2008 and 2009 but oilfield service companies are now faced with labour and equipment shortages -- and a cloud looms due to worldwide economic instability. Taking a balanced approach to ensure you are prepared to overcome obstacles and meet your business goals allows your oilfield services company to contend with this changing landscape.

The Balanced Strategic Approach to Management is a full strategic planning and management system that allows oilfield service companies to align business activities to vision and strategy. Rather than analyzing financial data alone, the Balanced Strategic Approach to Management takes operational, marketing and developmental inputs into account to provide a more comprehensive view of the company.

There are four main components to consider in the Balanced Strategic Approach to Management: customers, operations, people and finance. Within each of these components, there are areas to consider and questions to ask. The components are equally important and do not need to be completed in any particular order.

Customers

The recent industry rebound has had significant impact on the customer component. Lack of equipment and manpower mean that oilfield service companies need to be more proactive in allocating these limited resources. Unlike in 2008 and 2009, where finding work was a concern, the issue is now “picking your horse” to ensure that your customer is in it for the long haul and has the financial means to get there. It is simple sound business advice to try and attract customers that you want to work with instead of just waiting for the phone to ring.

Equally important, oilfield service companies should strive to become “partners” versus having the traditional supplier/customer relationship. This gives oilfield service companies input into the services provided to each customer. Lastly the old adage of “loving your customer to death” holds true as there is a limited number of “A” customers and the competition is never far behind.

Operations

When it comes to understanding operations, one of the most important factors is to have a good grasp on the cost of production and ways to improve productivity, efficiency and quality. Understanding what your break-even points are will also allow you to make better business decisions.

People

People are possibly the most important aspect of your business. Recruit, train, mentor and reward are the pillars to proper people management and all four are extremely important in today’s environment. If these pillars don’t exist in an oilfield services company, the “tone from the top” needs to change. Otherwise, your company will not be able to adapt to the changing labour landscape.

A significant percentage of owners of oilfield service companies are nearing retirement. It is imperative for them to recognize that now is the time to invest in their people because a company that has an owner who doesn’t delegate responsibilities is a company that isn’t nearly as attractive to a buyer as one with a proper management structure and a performance management system.

Finance

Once the other three components of the Balanced Strategic Approach to Management are working successfully, the financial component will also begin to improve. It is also helpful to develop a planning process based on your financial statements to improve the financial fluency of the entire management team. Often, financial measures are lagging indicators, so a scenario analysis should be conducted to help determine the effectiveness of your business. This analysis should focus upon liquidity, debt coverage and profitability. Without question cash is king, but today it is more so because credit hasn’t returned to pre-2008 levels and as a result necessary steps should be taken to ensure cash flow is being managed very carefully.

Applying the Balanced Strategic Approach to Management is not a major undertaking. The most common obstacle is getting started. Once you have prioritized the areas in which you want to improve and begun taking steps to make the required changes, you will find your oilfield services company much better prepared to compete and succeed.