Small suppliers reassess strategy as operators shift responsibilities to contractors
How can small suppliers improve their in-house knowledge of process, product and materials technologies in order to deliver innovative, cost-effective and lower risk solutions to the oil company operators? One route is through technology partnering, a process where firms pool their technological expertise in order to speed up the learning process and develop innovative engineering solutions.
This has been the underlying question throughout a CALTEC study supported by Britain's Offshore Supplies Office. It set out to explore small suppliers' attitudes and strategies towards technology partnering arrangements with the contracting sector. A selection of small offshore suppliers (less than 50 staff) were interviewed last summer to establish their views on the changing contractual scene and how it influences the future delivery of innovative engineering concepts.
The study found that small firms prefer to rely on a dense web of informal, interpersonal connections that enhance learning and support technology development. Recommendations included that more attention be focused on the supply sector's reliance on informal contacts and the ad hoc flow of innovation that comes from those arrangements.
Government support is also needed, it was suggested, to target the launch of more facilitating groups, thus enabling firms to learn about each others' capabilities and make informed decisions about collaboration.
Whilst the operators have a direct relationship with their contractors, they are one stage removed from the suppliers. One trend arising from this is that operators are reducing their responsibility to push for new technologies and to manage the supply base onto the major contractors.
The implications of this is profound for small firms in certain sectors whilst for others, the trend will have minimal impact. It all hinges on the individual firm's ability to influence field performance and cost.
The combination of downsizing and concentration on core activities by the operators has resulted in a reduction in the amount of R & D funds supporting speculative and pre-competitive innovation.
Some operators are making it clear to their contractors that they should be supporting the development of new technology and that oil industry support will flow from subsequent use/purchase. However, the contractors are not inclined to allocate significant R & D budgets and this curtails the scope for smaller firms to make a contribution.
Despite the contractors' increased responsibilities, their freedom to select suppliers is still restricted, being contingent on the type of contract between the operator and contractor. To the frustration of the contractor, the operator may typically direct the contractor to specify sources of supply. This effectively limits the opportunities and choice open to the contractor.
Contractors are still not sufficiently empowered to take on the new roles implied by the term `partnering'. The point is that smaller firms, which have earned the confidence of the contractor, will lose out unless they partner with other firms to present a more attractive engineering package. The new partnership may then earn the participants a place on the operators' preferred supplier listing. Meanwhile, the contractors select their own specialist sub-suppliers instead of independent companies.
A further aspect of the changing scene is that small firms see their direct links with operators slowly being severed. Several firms noted the challenge of bringing their technology to the attention of the operators, given that their clients occasionally appear to shield their source of innovative solutions from the operators.
In a sector which relies heavily on informal contacts, this represents a major shift and threat to small firms' place in the market. Consequently, the motivation to create and sustain good partnerships with the contracting sector is reduced.
The study concluded by distinguishing between the managerial attitudes of product design and development firms and those of engineering consultants. It noted how small product design firms often ducked customers' requirements for product performance guarantees, resulting in lost future business.
It also observed how they habitually insulated themselves from the perceived `side effects' of alliance arrangements. Their reasons stretched beyond the desire to sustain quality and avoid the sheer management effort needed to make it work. For example, how should a contractual arrangement be reached with the medium and major contractors where the rewards and risk of product performance are shared equitably?
One of the underlying reasons appeared to centre on the position of power between the parties. Contrary to ready talk of `openness', the reality is that these firms do not trust clients with product know-how following earlier abuse of confidences. Whatever the cozy discourse, imbalances of power present a barrier to otherwise progressive alliances.
CALTEC perceives that two critical factors are lacking in the industry. 1) The attitudes towards partnering are not conducive to making these arrangements viable and 2) There is no support mechanism in place between operators, contractors and suppliers.
What is needed is more help to establish catalyst groups led by the operators and major contractors. For example, facilitating groups such as the Scottish Subsea Technology Group in Aberdeen and the Northern Offshore Federation which are already helping to create localized forums for firms to meet and understand each others' capabilities.
The foregoing suggests that there is one missing vital factor necessary for technology partnering: inter-firm trust. Small product supply firms perceive the managing contractor as angling for either complete ownership and controlling interest in their company, without any real interest in the concept or innovative product. They fear losing control over quality and the innovation element.
Arguably, technology partnering arrangements are more likely to succeed where the subject product is a mixture of sub-products complementing one another. Intelligent pigs are an example.
A CALTEC report has been produced examining the outlook for small firms in the new era. For details, telephone (44) 234 750422.
Copyright 1995 Offshore. All Rights Reserved.