Critical Thinking Organizational Change

Critical Thinking: Organizational Change

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Critical Thinking: Organizational Change

Introduction

Contemporary organizations exist in a dynamic environment where change is the only constant. The ability of a company to respond to changes in the market may be the difference between the continued profitability and existence of an organization and failure. Therefore, it is vital for organizations to implement effective change management strategies (Cawsey, Deszca, & Ingols, 2020). This paper details some of the strategies that Saudi Aramco used to implement changes within the organization.

Summary of the Organization

Saudi Aramco is the most valuable company in the world. The official name of the company is Saudi Arabian Oil Company. The government has majority ownership of the company. Saudi Aramco is the largest oil producer in the world. It has 270 billion barrels of oil reserves. Saudi Aramco is the most profitable company in the world. Economies of scale is one of the major factors that has led to the high profitability of the company. This is highlighted by the fact that Saudi Aramco produced an average of 13.2 million barrels of oil per day of oil in 2019, which was more than five times the daily production of Exxon Mobil, the second largest oil producer in the world (Reed, 2019).

Saudi Aramco organizational culture encourages exemplary performance. The company provides its employees with regular training to improve their skills. The company has a mentoring process where junior employees are mentored by senior staff. Employees are also provided with career advancement opportunities, which increases their loyalty to the company. Saudi Aramco’s corporate culture does not usually encourage individual initiative. Group loyalty is regarded as very important. In addition, employees are rarely criticized. They also avoid talking in public.

The Need for Change

The need for change is external to the company. Low prices of oil in the global market threaten the continued profitability of the Saudi Aramco. This has necessitated the company to look for alternative growth strategies. Saudi Aramco is one of the major sources of revenues of the government as the government has majority ownership. Therefore, the success of the company is closely linked to the economic prosperity of Saudi Arabia. The government of Saudi Arabia launched Vision 2030 in 2016, which is a plan on economic diversification to reduce overreliance on oil revenues. Saudi Aramco is critical component of the changes that the government intends to implement. The success of the company is critical to the government’s plans. This is one of the reasons as to why Saudi Aramco sold three billion shares or 1.5% of the company through an initial public offering on the Saudi Stock Exchange (Tadawul) in late 2019. The IPO raised $25.6 billion (Weijermars & Moeller, 2020).

The Change Process

Moving downstream is one of the major strategies that would facilitate the continued growth and profitability of the company. This change enabled the company to capture more value from oil as a commodity. It would enable the company to increase its refining and petrochemical capacities. This would be vital to the sustainable growth of the company since petrochemicals are expected to be the main drivers of oil in the next few decades. It would cushion the company from the fluctuations in the price of oil.

Prior to the implementation of this strategy, Saudi Aramco established the HR Joint Venture Support Division (HRJVSD) to bring together the HR resources of and knowledge from the joint ventures of the company. HRJVSD provides staffing, recruitment, workforce planning, and onboarding. HRJVSD also helps in change management and cultural transformation of the company. HRJVSD team is made of more than 20 consultants, analysts, and support staff that have different backgrounds. The global experience of the HRJVSD in various industries enables it to provide cost-effective and practical advice and solutions to Saudi Aramco to enable it achieve its outcomes.

Saudi Aramco also created an integrated Corporate Development organization, which was tasked with the responsibility of optimizing the portfolios of the company. Some of the roles of the Corporate Development include creating value, assessing the present assets, and providing the company with greater access to certain markets by engaging in portfolio optimization and strategy alignment. The creation of the HRJVSD and Corporate Development improved the speed of the decision-making process of Saudi Aramco. It also ensured the company had all the resources it required to implement its diversification strategy successsfully.

Acquisitions facilitated the downstream expansion of Saudi Aramco. The company has acquired a 70% stake in Saudi Basic Industries Corporation (SABIC), a Saudi Chemical company, which is the fourth largest chemical company in the world in terms of revenues in 2019.

Saudi Aramco also acquired Arlanxeo, a company that specializes in the manufacture of synthetic rubber. The company was a joint venture between Saudi Aramco and Lanxess. It acquired Arlanxeo by buying out Lanxess’ 50% share in the company to gain full ownership of the company Arlanxeo. The acquisition of the two companies helped in the strengthening Saudi Aramco’s position in the energy and chemical value chain in 2019.

Saudi Aramco also acquired Shell’s 50% interest in Shell Saudi Arabia Refinery (SASREF) joint venture in Jubail industrial City, Saudi Arabia in 2018. The completion of the deal made Saudi Aramco become the sole owner and operator of the joint venture, which refines 305,000 barrels per days of oil (.

Saudi Aramco also acquired 17% of South Korean Hyundai Oilbank from Hyundai Heavy Industries Holdings. The acquisition helped in improving the global footprint of Saudi Aramco since South Korean Oilbank is an oil refining company. It provided Saudi Aramco with a dedicated outlet for its crude oil to the South Korean market.

The changes implemented by Saudi Aramco helped in improving the financial sustainability of the company. This is because upstream earnings suffer more during periods of market downturns than downstream business. In addition, low prices of oil in the global market increase the downstream margins. Therefore, having both downstream and upstream units would improve the long-term financial performance of the company.

The implementation of the changes is an indication of Saudi Aramco’s gradual shift into new business areas, which would facilitate the diversification of the company and make it one of leading or not the leading integrated energy company in the world.

Conclusion

Diversification of business operations would improve the financial sustainability of Saudi Aramco. Vertical integration would reduce the financial impact of the volatility in the oil prices in the global market. It would also provide the company with an opportunity to capture all pieces of the value chain since profit margins in the chain move up and down. A reduction in the prices of oil increases the margins of entities that are downward in the value chain. However, vertical integration strategy would have a significant impact on the organizational culture of Saudi Aramco since different units within the value chain have different organizational cultures. HRJVSD facilitates the implementation of the change management strategies within Saudi Aramco.

References

Cawsey, T. F., Deszca, G., & Ingols, C. (2020). Organizational change: An action-oriented toolkit (4th ed.). Thousand Oaks, CA: Sage drafting.

Reed, S. (2019). Saudi Aramco Is World’s Most Profitable Company, Beating Apple by Far. The New York Times. Retrieved from: https://www.nytimes.com/2019/04/01/business/saudi-aramco-profit.html#:~:text=The%20earnings%20of%20Saudi%20Arabia’s,most%20profitable%20company%20by%20farWeijermars, R., & Moeller, J. (2020). Saudi Aramco Privatization in Perspective: Financial Analysis and Future Implications. Journal of Finance and Economics, 8(4), 161-170.