Information Technology and Cleaner Production Practices of Saudi Aramco in Its Business Improvement - Case Study Example

Industrial Systems & Environment 2 Name Professor Institution Course Date Industrial Systems & Environment 2 Table of Contents Industrial Systems & Environment 2 2 Table of Contents 2 1.0 Introduction 3 1.1 Background Information 3 1.2 Selection of the organization 4 1.3 Motivation 4 2.0 Characterization of the Company under Study 5 2.1 Mission 5 2.2 Vision 5 2.3 Objectives 5 2.4 Corporate structure 6 2.5 Strategic Analysis 7 2.5.1 SWOT analysis 7 2.6 Capabilities 9 2.7 Porters Forces Analysis 11 3.0 Problem/ Challenge Identification 13 3.1 Information Technology 13 3.2 Environmental Management 18 4.0 Action Plan 21 4.1 Short Term 21 4.2 Long Term 21 5.0 Conclusion 22 6.0 References 23 1.0 Introduction 1.1 Background Information Advancement of information technology in the 21st century has becoming a blessing to information has provided companies with competitive advantage in terms of performance, effectiveness and management efficiency (McNurlin & Sprague 2004, p.53). Laudon, K & Traver (2009, p.12) argued that modern managers invest information technology or be phased out of the market. On the other hand, over the years, industrial pollution has become one of the biggest problem problems to humanity as it pollutes the environment. In particularly, oil production has been regarded as the major producer of green houses gases and largest polluter of the environment. Saudi Aramco, as the major oil producer in the world has been made to bear the blame for past production practices (Cowie et al., 2012, p.319). However, the demand for social corporate social responsibility in the last two decades have prompted Saudi Aramco to adopt information technology and cleaner production in quest to improve its operation, image and to attract more customers. Therefore, this report will analyze the information technology and cleaner production practices of Saudi Aramco in its business improvement. The report will also identify any other significant issues to be addressed in the continuing development and implementation of IT and related systems. Lastly, in reference to Cleaner Production, the report will discuss the company’s current environment management, or cleaner production policies, procedures and practices. 1.2 Selection of the organization In the 21st century, a considerable advancement has been marked in usage of information technology and the need for cleaner production particularly in the oil sector. Use of information technology and greener has been prompted by effects of climate change and the demand for social corporate responsibility (Carraher 2014, p.207). In endeavors to enhance their image and operations, established companies have been the first to adopt information technology and cleaner energy. Therefore, the status of Saudi Aramco as the world largest oil producer makes it has ideal company for analysis. Saudi Aramco is a natural gas and petroleum company owned by government of Saudi Arabia with headquarters in Dhahran (Saudi Aramco 2016). The company was established in 1933 and has grown over the years to become the most valuable company with value worth roughly US$10 trillion. Saudi Aramco (2016) claimed that the company has the largest crude oil reserves and leading oil production. Saudi Aramco oil reserve is worth over 265 billion barrels. Forbes report of 2015 ranked Saudi Aramco as the largest Gas and Oil Company in the world (Saudi Aramco 2016). 1.3 Motivation The motivation of choosing the topic was due to its important to me but to but also modern companies. Information has proven to be a very important factor of running contemporary organizations. Bernard (2001, p.26) argued that information technology can be used to gain competitive advantage as company which owns or adopt it improves the speed of production, information processing marketing and communication. On the other hand, the motivation for choosing cleaner production as a topic has been due to its growth since 1992. With increase of air pollution international community, society and customers have been have been demanding that companies implement strategies and polices which leads to reduction of air pollution and climate change (Zhi-dong et al., 2011). 2.0 Characterization of the Company under Study 2.1 Mission According to Saudi Aramco annual reports (2015), the company’s mission states that ‘Saudi Aramco is a result-based gas and oil corporation which creates value for its shareholders via employees by building a culture and atmosphere of safety, environmental stewardship and health through teamwork, creativity, resourcefulness and optimism and handling with every person in ethical manner. 2.2 Vision On the other hand, the company vision state that “the company treasures and use its best values and business practices in endeavor to become the leading chemicals and integrated energy companies in the world” (Saudi Aramco 2016). 2.3 Objectives The Objectives are outlines as follows: To be a strong successful commercial oil producer (Saudi Aramco 2016). The Saudi Aramco aims at mintaining stable growth of 20 percent in the next four years, from 2016 through to 2020 (Saudi Aramco 2016). To venture into shale gas production by 2018. Generate 14 percent sales increase from from Europan markets in the next five years To reduce sulphur, CO2 and other greenhouse gases emision by 85% by 2050 (Saudi Aramco 2016). 2.4 Corporate structure Saudi Ramco’s corporate is more than a standard structure and comprise of several departments including exploration and refining, gas operations and marketing, engineering services, HRM and industrial relations, finance and accounting, and Information Technology as shown in figure 1 below. Overall, the company is headed by the CEO who is assisted by directors in making decision and strategic goals. The CEO of Saudi Ramco is Mr. Amin Nasser while board chairman is Khalid Al-Falih (Saudi Aramco 2016). Saudi Ramco adopted matrix structure to run its operation because the company is large and needs a great co-ordination. Jacobides (2007, p.457) argued that the matrix structure is complex due to the fact that company is often organized around several dimensions such as product and geographical location and employees report multiple supervisors. Matrix structure is advantageous to company as it yield successful projects because it allows for specialization hence staff have depth of skills and knowledge in their area of work. However, this form of structure has some shortcomings such as complex chain of command, inefficient communication (Jacobides 2007, p.458). Figure 1: Saudi Aramco’s corporate structure 2.5 Strategic Analysis Strategic analysis implies to use different tools and concepts to evaluate challenges and opportunities present for a business so as to prepare strategies to maximize opportunities and minimize challenges. In most cases strategic analyze entails use of SWOT to analyze internal and external environment. 2.5.1 SWOT analysis Internal Factors Strengths weaknesses Saudi Aramco is a strong brand both in local and global markets. Saudi Aramco ranked as the largest oil producing company in the world (Saudi Aramco, 2015). The company owns and manages several oil fields in Saudi Arabia. The company has adopted sophisticated technology in exploration and marketing of oil products (Saudi Aramco, 2015). The company has implemented a great environmental policy which improves its production and image (Abro, Khurshid & Aamir 2016, p.79). Since Saudi Aramco is owned fully by the government of Saudi Arabia, it benefits from political patronage. High cost of operation due to high cost of oil and gas exploration. Droping sales of the refined oil products leading to low top-line growth. Inability to complete stop pollution during exploration. External Factors Opportunities Threats 1. Advancement of technology which can be used to improve oil exploration, refining, marketing and distribution. Economic growth in Asia countries leading to increase in luxury spending especially buying cars. There is opportunity for Alternative energy processes and bio-fuels such as shale gas. Economic volatility and extended global recession. Adoption of renewable energy such as sun, solar, wind and tidal. Politics of environment conservation and issues is a threat to oil exploration and sales (Abro, Khurshid & Aamir 2016, p.81). 2.6 Capabilities Capabilities are defined as the intangible and tangible assets a company utilize to choose and adopt its set strategies (Peng, 2012, p.64). According to Peng (2012, p.65) tangible capabilities are majorly classified into three types including financial capabilities, physical capabilities and technological capabilities. On the other hand, intangible capabilities include human, innovation and reputation. Abro, Khurshid & Aamir (2016, p.82) established that Saudi Aramco has strong financial base which gives it a competitive advantage in the market. The financial muscle of the company is derived from the fact that it is rated as the most valuable company based on its net worth of roughly US$10 trillion. The company’s financial strength is also derived from its continuous revenue growth which has been observed in the last five years. In 2010/2011 financial year, Saudi Aramco posted revenue of US$182.5 billion (Saudi Aramco 2016). Five years later the company revenue has grown to US$379 billion (Saudi Aramco 2016). The financial strength makes its capable of employees the best talent in the market to manage its operations. There has been a positive correlation between best talent and positive organizational performance. True to the argument, Saudi Aramco is today ranked as the largest producer of oil and the best performing oil producer in the world. In the current business world, consumers are interested in companies’ financial reporting and performance. Peng (2012, p.66) has established that firms which have strong financial performance often present a good image hence attracting more customers. The physical capabilities of Saudi Aramco are its oil wells. Cowie (2012, p.321) found out Saudi Aramco operates, develops and owns every energy resources in Saudi Arabia. In fact, the company owns and manages more than 100 gas and oil wells. Some of the oil wells managed by Saudi Aramco include the world’s leading onshore and offshore fields including Ghawar Field and Safaniya Field respectively (Saudi Aramco 2016). The fact that it owns some field gives it advantage to control production and quality of gas and oil. The company also derives it capabilities from technology which it has embraced over the years for production and management. Saudi Aramco (2016) pointed out that the company uses highly sophisticated technology in exploration of oil and the process ensure the company reaches oil deposit located deeply in the ground. Technology is also used to manage organization in terms of communication, inventory management, marketing and distribution (Ward & Peppard 2002, p.36). The company also boasts of qualified employees with technical and interpersonal skills which have made the company largest and most valuable oil producer in the world. 2.7 Porters Forces Analysis Porter’s five forces framework can be used to analyze Saudi Aramco so as to understand the intensity of the competition in local and international markets. New entrants’ threat The competition and attractive of a market is normally affected by how it is easy for new companies to enter in the market (Peng 2012, p.35). Saudi Arabia oil market is a highly regulated, practice which has kept the number of companies away from entering into this market. In fact, Saudi Aramco is fully owned by the government and the company control and manages most of oil wells (Vitalis 2006, p.16). The unfriendly nature of the government of towards foreign oil companies has also discouraged new business from investing in Saudi Arabian oil market. However, attractiveness and interest to invest in Saudi Arabian Oil sector is discouraged by the fact that setting up a new company is expensive and need large capital (Vitalis 2006, p.47). Therefore, level of new entrants’ threat is low. The threat of substitute The level of substitute in the market affects competition and attractiveness because it enables customers to choose substitute over your product (Peng 2012, p.43). In global gas and oil market, the level of the threat of substitute is low as the substitute is only renewable which is yet to be tapped meaningful use. The Level of rivalry Competition in global is very high due to the fact that it involves both local and international companies, and is even projected to increase in future. Saudi Aramco competes with Devon Energy, Gazprom, Exxon, National Iranian Oil Company, Mobil and BP for the same market (IBISWorld 2015). The stiff competition means Saudi Aramco must embrace various strategies such as product development, pricing, promotion, placement and innovation to take advantage (Saudi Aramco 2016). Nevertheless, high completion might see Saudi Aramco making losses. Bargaining Power of buyers In Saudi Arabia, buyers have a high bargaining power owing to presence of numerous oil producers. Research and Markets (2014) claimed that the buyers have several alternatives companies which they switch to whenever they want. In this process, Saudi Aramco Company can compete on price and product quality. Bargaining power of suppliers This aspect analyzes the capability of the suppliers to influence market prices (Peng 2012, p.41). Saudi Arabia is known for extensive oil exploration hence most of its gas and oil are manufactured locally (IBISWorld 2015). Therefore, the market has several suppliers. It means that bargaining power of suppliers is very low and cannot drive the market prices up. 3.0 Problem/ Challenge Identification 3.1 Information Technology Information technology is describe as build of the electronic computer software and hardware as well as human procedures and practices which is integrated into the information management system can be used to for decision support , effective management and competitiveness (Betz 2001, p.7). The 21st century has been marked with marked with advancement of information in what is called information and technology age. Bernard (2001, p.18) asserted that information technology has been hyped to reduce costs of operation, improvement of operational efficiency, service quality, reduce waste, improve customer experience and help in decision making. However its continuously growth poses a huge challenge on oil producing companies as they are often forced to continuously update their technological machines for oil exploration and production, technological device for management (Bulatov & Klemes 2009, p.3). The situation means the company must keep on allocating extra funds to buy new technological devices and funds for training. From the early years of its establishment Saudi Aramco has majorly depended on a Hydraulic rotary drilling for oil exploration (Saudi Aramco 2016). With the customer demand speed in market delivery and oil products capacity, the corporation has found more burdens placed on its exploration and production department to efficiently increase the speed of exploration, production and refinery. However, Mau and Edmundson (2015) stated that the increase of speed and capacity was almost zero because the old hydraulic rotary drilling had slow speed and less capacity in exploration. In other words, using the same technology does not increase the speed of operation but rather retain the status quo. Amaral and Uzzi (2007, p.1034) posited that slow speed of the equipment means workers works for a longer time leading to low morale and poor performance. The equipment also posed produced low quality crude oil and gas. It means the companies would continue to suffer dismal performance in term of revenue if the technology device had to be used further. In addition, old hydraulic rotary drilling (shown in figure 3) posed environment concerns like air pollution, water contamination and health risks to both the employees and surrounding communities (Mau & Edmundson 2015, p.55). For this problem to solved, the company needed a powerful, speedy, efficient and effective technology for exploration or drilling oil. On the other hand, Saudi Aramco was also facing errors in its reports, payroll, information processing and other administrative tasks due to technology. Most of the company process and technology had been stationed at Exploration and Petroleum Engineering Center often shortened as EXPEC Saudi (HPCWIRE 2013). From its inception, the company had been using Cray Supercomputers called CRAY-1M (see figure 1 below) to help in processing large quantity of data and information about exploration (Saudi Aramco 2016). With the number of workforce and exploration activities increasing, it became a huge burden on the company to efficiently manage data processing, storage administration at required levels. The company had to store some information at the main office at Dhahran to avoid lost of some information. However, the staff had constantly contact their head managers or bosses to request for data and information they stored away from EXPEC in reference to administrative tasks and payroll (HPCWIRE 2013). Additional challenge posed to CRAY-1M was in related to report generation. Often, the system prompts personnel to manually generate reports, a practice which had strong errors and needs longer hours to complete. The manual practices further pose expense and high cost of operation to the firm. The problems arising from old Hydraulic Rotary Drilling and CRAY-1M depicts challenges oils companies face in the 21st century. The research shows that despite companies having unique policies and practices entailing technology, the fact that technology disorients their plans making them to consistently change. The challenges of technology are now based on speed capacity and efficiency and knowledge. Ward and Peppard (2002, p.12) argued that speed of technology matters in business operations. The current oil market has several players competing for the same customers. In this perspective, the company which has the short lead time in terms of market delivery attracts more customers and gain competitive advantage (Hubbard 2004, p.41). The speed of market delivery starts with production. To maintain increase speed of its production and information processing Saudi Aramco had to replace its technology. The company replaced old Hydraulic Rotary Drilling with a new one which used a combination of mud and steam-driven rig instead of just water. The new Hydraulic Rotary Drilling (see figure 4) is faster 35 percent compared to the old one. Furthermore, Saudi Aramco also replaced CRAY-1M with Linux clusters in 2009 (see figure 2 below) (Saudi Aramco 2016). The new system has a high speed and high storage capacity; a disk storage 1,050 terabytes in terms of capacity. This is the biggest capacity in the history of Saudi Aramco, and supports its exploration activities which are now expanding to Red Sea and frontier areas. Hubbard (2004, p.63) argued that when a company is expanding, its activities also increased hence the need for more information processing and storage capacity. However, the IT needs does not just stop with speed capacity, but extends to training and security and privacy. Niranjanamurthy et al., (2013, p.2363) opined that as the information technology advances, hackers are also in the rise as they seek to steel company information and use it to blackmail them. For instance, Perlroth (2012) claimed that in 2012, the computer of Saudi Aramco was attacked by Shamoon virus by “Cutting Sword of Justice” causing the firm to spend one week trying to restore the situation. Normally hackers seek for customer’s information to steel form them. The company needs to invest training and secure systems. Training will enable staff to detect suspicious programs and notify the computer security officers to secure the systems from serious attacks and comprise (Niranjanamurthy et al., 2013, p.2364). Figure 1: CRAY-1M Figure 2: Linux cluster IV Figure 3: Old Hydraulic Rotary Drilling Figure 4: New Hydraulic Rotary Drilling 3.2 Environmental Management The 21st has been marred with issues of climate change. The attention has highly been drawn to oil sector as studies have shown that it is the leading source of green house gases hence the biggest contributor of pollution (Gurtu, Searcy & Jaber 2016, p.160). The researchers understand that activities particularly, exploration, production, refinery and usage has been a major contributor of the environment pollution. The effects have been on society which has strongly questioned companies’ ethical conduct and social corporate responsibilities. Diamond (2005, p.18) argued that the questioning of company activities actually shows a society which care about their natural habit and their life. The criticism has elicited various responses with majority of companies adopting environment management policies and practices (Abro, Khurshid & Aamir 2016, p.75). Saudi Aramco exploration using heavy machines normally exposes green house gases usually found on minerals and rock. As the process takes place, these gases are emitted to atmosphere while other and breathed by company workers exposing them to health risks. Similarly, the gases rises temperatures leading heavily rainfall which cause floods. In addition, high temperatures also cause drought leading to destruction on natural habitats and death of animals. Cowie et al (2012, p.318) found out that production of oil results to naturally occurring radioactive material which results to radiological health risks. The risks are not only exposed to company Saudi Aramco workers but to the surrounding community. Waste material tainted with NORM when disposed uncontrollably extends risks to general public and environment (Cowie et al. 2012, p.320). As concerns rises, Saudi Aramco has been in the forefront in adopting cleaner production. Fore and Mbohwa (2010, p.315) defined cleaner production as the based environmental protection and preventive initiative which is often aimed at minimizing emissions and waste product output. This is done after identifying emissions and wastes from the industrial processes via source reduction practices. Bulatov and Klemes (2009, p.2) stated in its cleaner production, Saudi Aramco has since built boilers, thermoelectric and hydroelectric plants which decarbonize carbon II Oxide and carbon IV oxide making the safe for environment. Similarly, the company has built Gas Combined Cycle power plant that utilizes advanced gas turbine which decarbonizes gas and reduce emission of other harmful gases into the atmosphere (Bulatov & Klemes 2009, p.3). According to Valdez principle, the practice ensures the company markets safe products and reduces environmental impacts. Furthermore, Saudi Aramco started other cleaner production programs including NORM reduction and Environmental Master Plan in its quest for safe environment. Saudi Aramco’s NORM management practices consist of five major factors including naturally occurring radioactive material monitoring, safe management equipment contaminated by naturally occurring radioactive material, NORM waste control, workers training and protection and best practices Cowie et al., 2012, p.322). On the other, the company uses its “Environmental Master Plan”, to reduce emission of sulfur, flaring and Carbon II oxide. Saudi Aramco has upgraded its technology at Berri, Uthmaniyah and Shedgum gas plants, a move which has significantly reduce emission of sulphur from these manufacturing plants (Saudi Aramco 2016). Also, has also installed diesel hydrotreaters at Riyadh and Yanbu refineries which mitigates emissions of sulphur by 95% from diesel fuel. Today the Saudi Aramco is ranked as the leading firm in Asia (Saudi Aramco 2016). The company regards these programs as its corporate social responsibility. Researches had found out correlation between CSR programs and good reputation. The argument is based on the fact that companies which have strong CSR initiative are thought to care about human social problem and not just profit, hence attract more customers. Also, a deep analysis into environment management shows that company which care about the environment ensures sustainability of the resource (Laszlo 2003, p.9). 4.0 Action Plan 4.1 Short Term On information technology perspective, when the company computers are attacked by virus, the short term plan is often to get back its computers into network (Perlroth 2012). Deploy cloud services to help in stotage on data and information online. Implement Multi-factor Authentication and Virtual Desktop Infrastructure to permit users to access company technology and information from any geographical location for approved plants and branches (Saudi Aramco 2016). To create mobile access to Saudi Aramco functions starting main office then to oil all fields where engineers are doing oil exploration. 4.2 Long Term Continue evaluating the new or emerging informational technological trends and adopt fiber infrastructure platform to the support wireless adoption and effecient traffic routing. Continuous support for automation and the workflow effectiveness and efficiencies for Saudi Aramco staff by assessing extra processes which might be streamlined by means of technology Finish GIS-installed Infrastructure Management System and create technique to ensure consietnt maintenance of the accurate and timely infrastructure records (Saudi Aramco 2016). 5.0 Conclusion Information technology and cleaner production are fast becoming important topics in business arena. The report has established that competition and environment management is become a source of competitive advantage. While technology can be use to enhance production and operations, cleaner production is used to improve the image of the company. A study conducted this report about Saudi Aramco has shown the company has invested in both technology and cleaner production. Purchase and adoption of more sophisticated technology for exploration and operation has solved speed, capacity and information processing need of the company. Similarly, the company is recognized for leading in sulphur, flaring and CO2 reduction. These practices have majorly enhanced performance of the company, and Saudi Aramco is today ranked as the most valuable oil producer in the world based on its revenue. 6.0 References Abro, M.M.Q, Khurshid, M.A & Aamir, Al 2016, Corporate Social Responsibility (CSR) Practices: The Case of Saudi Aramco, JCS Vol. 24, No. 1&2, pp.78-90. 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