Saudi Aramco Rapid Transformation Strategy

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Introduction

The emergence of new economies can perhaps be regarded as one of the most significant developments in contemporary business practices. The new marketplace and economies are experiencing dynamic changes at a very high rate, concerning competitive edge in their respective industries. According to Khursani, Bazuhair, and Khan (2011), current as well as future economies’ development is being pegged on technological evolution. The basis for this technological evolution is intellectual capital and related assets such as inventions, innovations, and knowledge in business organizations within the economies. Consequently, the development of Saudi Arabia as one of these economies is being driven by a strategy aimed at the rapid economic transformation. The strategy is leveraged on knowledge management (KM) and intellectual capital development. One of the organizations using this strategy is Saudi Aramco, which provides the basis for this case study. Companies in Saudi Arabia including Saudi Aramco are finding it increasingly essential to reconcile and consolidate their respective knowledge assets, to remain competitive. In addition, effective knowledge management is seen as a driver of value creation, leading to the development of sustainable businesses over time. Saudi Aramco’s knowledge management and intellectual capabilities development are in line with the overall national strategy.

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Case Analysis Overview and Company Background. The Organisation and Operations

Saudi Aramco is among the biggest oil companies with integrated operations worldwide. The company has operations such as hydrocarbons exploration and refining. In addition, the company markets, ships and distributes oil and related products (Marcel & Mitchell, 2006). Apart from those core operations, Saudi Aramco is a company owned by the state, and hence enjoys ownership of huge gas and oil reserves in the Kingdom of Saudi Arabia. Aramco holds the top position in the ownership of oil reserves, as well as production, concerning other leading global companies. In the future, the strong gas and oil reserves are expected to be a key driver in the operations and growth of Aramco. Stringent regulations in the business environment are however also expected to have a significant impact on the future operations of the company.

Aramco has its headquarters in the city of Dhahran, in Saudi Arabia. The operations of the company, however, span multiple continents including Europe, the Americas, Asia, and Africa. The company has affiliates and subsidiaries located in China, Saudi Arabia, South Korea, Netherlands, the US, UK, UAE, Singapore, and Egypt. Saudi Aramco is vertically integrated, with operations focusing on oil and gas production, although the company subsidiaries deal with related products such as those in the chemicals industry. The upstream activities of the company involve the exploration and extraction of oil and gas. The stage activities include searching for crude oil as well as natural gas both offshore and onshore (Marcel & Mitchell, 2006). Activities at this level also include management of the field operations development, to optimize production in the long run.

Saudi Aramco markets natural gas liquids, petroleum fuels, and petrochemicals (Marcel & Mitchell, 2006). The operations of Aramco are thus wide-ranging, hence the massive size of the company. The initiatives by Saudi Aramco’s engagement in retail services by opening gas stations are in line with the vision of the company of becoming a leader as an integrated company in the energy industry (Energy is Opportunity: Annual Review 2013, 2014). Cantner, Conti & Meder (2010) define informatics as the utilization of information science, as well as statistical techniques in managing information. Essentially, information management has become a key defining element in the development of competitive advantage by a contemporary business organization (Gold, Malhotra, and Segars, 2001; Cormican & O’Sullivan, 2004).

To support efforts of accelerating development as well as deployment of technology in Saudi Arabia, Aramco has initiated diverse information intellectual capital and knowledge management initiatives. For instance, the company has a strategic mission of by 2020 becoming “the world’s leading integrated energy and chemicals company facilitating the Kingdom’s sustainable economic growth through a knowledge economy; and enabling a high-growth, vibrant Saudi energy sector3” (Khursani, Bazuhair & Khan, 2011, p.3).

In line with this mission, Saudi Aramco is heavily investing in human capital and information technologies through various initiatives (Khursani, Bazuhair & Khan, 2011). In addition, the company is investing in global start-ups. The initiatives focus on sectors exhibiting high growth concerning technology and industry growth, for instance retailing. In addition, the initiative also focuses particularly on the downstream activities since these are becoming more increasingly strategically important to the organization.

Khursani, Bazuhair, and Khan (2011) define intellectual capital as a group of knowledge assets attributed to a particular business organization. The assets contribute immensely to the organization’s competitive position, through value addition. Knowledge management system on the other hand is viewed as structural capital, which typically utilizes technologies that are intranet-based (Khursani, Bazuhair & Khan, 2011).

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In line with the overall Saudi Arabia strategy for rapid transformation through knowledge management and intellectual capital, Saudi Aramco boasts a KM system referred to as ShareK (share knowledge) system (Khursani, Bazuhair & Khan, 2011). Sharek is a knowledge management system, which is the center of Saudi Aramco’s operations. Figure 1 below illustrates Saudi Aramco’s knowledge management system:

Increase Intellectual Capital

Aramco’s knowledge architecture has also been shaped around a state of the art system referred to as Idea Management System (Energy is Opportunity: Annual Review 2013, 2014). The system is geared towards administering the innovation portfolio and creativity within the company. The system facilitates the development of high-quality ideas, improvement of ideas tracking as well as reporting, and also provides a platform upon which innovation campaigns are launched. In 2013 alone, 6 201 ideas were submitted to Aramco through the Idea Management System, leading to granting of 57 patents by the Trademarks and Patents Office of the US (Energy is Opportunity: Annual Review 2013, 2014).

Communities of practice have also become very essential in the operations of Saudi Aramco. For instance, the company has entered into Global Research and Development (R&D) programs with various research centers from Saudi Arabia, as well as with other countries leading in various technologies (Energy is Opportunity: Annual Review 2013, 2014). Some of the R&D initiatives include a partnership with King Abdullah University of Science and Technology and the Korea Advanced Institute of Science and Technology. Other knowledge communities include the Georgia Institute of Technology and the Massachusetts Institute of Technology.

The company also intends to enter into R&D initiatives with other major technological institutions in China, and across continental Europe in the future. The research initiatives, coupled with the innovations are aimed at facilitating the company’s discovery of newer and more efficient ways of conducting business. The outcomes expected include competitiveness in the industry, and cost-effectiveness in running operations, hence increased profitability

The Activity in Focus

The fuel retailing industry is experiencing a massive bounce back following the drop in 2010 resulting from the 2009 economic recession. Although increases in fuel consumption have been minimal from 2009, industry future forecasts expect solid growth for the years following 2011 onwards (Energy is Opportunity: Annual Review 2013, 2014). The Saudi retail market has experienced a recent exit by major companies such as Mobil and Shell after incurring losses. The information was favorable to the company’s long-run goal of being fully integrated with retail services.

The focus of this report is on Saudi Aramco’s downstream activities, especially concerning the company’s retailing network. One of Aramco’s current pursuits in its business operations entails becoming fully integrated concerning the upstream and downstream operations. The integration also involves more internationalization. Due to this pursuit, Saudi Aramco has launched plans and initiatives to open retail outlets for its refined products, beginning in Saudi Arabia (Energy is Opportunity: Annual Review 2013, 2014). The report also explores the effect of knowledge management and organizational informatics concerning Saudi Aramco’s downstream activities.

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The focus of the study on Saudi Aramco’s downstream activities has been facilitated by the fact that the company is considered integrated. Despite the integration, a vast majority of people have little knowledge or none, regarding the company, in comparison to the other competitors such as Shell, BP, and Total. Recently, Saudi Aramco has been in the headlines following the launch of a strategy to open filling stations, as well as retail services wholly owned and operated by the company. The report seeks to determine knowledge management, as well as organizational informatics affecting the company’s projected retail sector.

Saudi Aramco’s lack of any gas station network across the world has been a hindrance to the vision of the company becoming fully integrated (Marcel & Mitchell, 2006). Other major competitors such as Shell, Exxon, and Mobil have their operations fully integrated, with robust gas stations networks globally. The lack of a retail network persists despite Saudi Aramco producing more than these companies and having better resources.

A robust network of gas stations essentially allows any oil and gas company to access end customers with little or no dependence on intermediaries. In addition, this capability enables companies earn enhanced margins. The shortcoming of Saudi Aramco concerning having gas networks across the globe has posed a significant competitive disadvantage to the company as compared to those having retail networks across the world.

The exploitation of knowledge management in venturing into the retail industry by Saudi Aramco attests to the innovative capabilities of information systems on the company’s future. An example is that exposure of the company to the retail business offers the opportunity to innovate products, which are currently in the market. An example is whereby alternative fuels or sources of energy are being developed to supplement fossil fuels.

Hybrid vehicles using electricity are being developed and introduced in the market. Saudi Aramco can be able to provide energy services for such vehicles by having direct links with the consumers, hence keeping up with industry developments. The key to Saudi Aramco’s future success in the energy industry is the continuous investment in R&D and development, as well as knowledge management systems. The capabilities will not only be able to evolve industry market needs but also most efficiently and effectively.

Knowledge management and organizational informatics should not be a complicated process. However, organizations should invest in knowledge management systems efficiently, for their survival in the contemporary business environment. Saudi Aramco case illustrates how knowledge management and intellectual capital are being leveraged to transform not only the organization but the entire Saudi Arabia economy.

References

Cantner, U., Conti, E., & Meder, A. (2010). Networks and innovation: The role of social assets in explaining firms’ innovative capacity. European Planning Studies, 18 (12):1937–1956.

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Cormican, K., & O’Sullivan, D. (2004). Auditing best practices for effective product innovation management. Technovation, 24 (10): 819–829.

Doroodian, M., & Nizam, M. (2001). Designing and Validating a Model for Measuring Innovation Capacity Construct. Advances in Decision Sciences, 1(576596), 1-12.

Energy is Opportunity: Annual Review 2013. (2014). Web.

Gold, A., Malhotra, A., & Segars, A. (2001). Knowledge Management: An Organisational Capabilities Perspective. Journal of Management Information Systems, 18(1), 185-214.

Khursani, S. A., Bazuhair, O.S., & Khan, M. (2011). Strategy for Rapid Transformation of Saudi Arabia by Leveraging Intellectual Capital and Knowledge Management. Saudi Aramco Journal of Technology, Winter 2011, 1-13.

Kling, R. (2000). Learning about Information Technologies and Social Change: The Contribution of Social Informatics. The Information Society, 16(1), 217-232.

Marcel, V., & Mitchell, J. (2006). Oil titans national oil companies in the Middle East. London: Chatham House.

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