Fighting disruption in the Oil & Gas services sector
Posted by Ton Dobbe
An interview with Luke Mason – Financial Planning & Analysis Manager at DOF Subsea, Asia Pacific Region
Recently I interviewed a number of customers and asked them: “How do you fight disruption in your sector”. One of the people I talked to as part of a customer panel at the Unit4 Connect event in Singapore was Luke Mason who operates as the Financial Planning & Analysis Manager for the DOF Subsea Asia Pacific Region. DOF Subsea is an international leader in the Oil & Gas services sector which was founded in 2005, employs +1500 people worldwide and operates at an approximate annual revenue of AUD $1,070 million.
Question 1: Can you explain the major challenge your industry faces today i.e. What’s happened/happening and why is doing nothing not an option?
The industry we operate in has experienced a lot of turmoil the last few years. The main driver is the fact the oil & gas prices have collapsed. To put it in perspective a few years ago the oil price was $ 120 a barrel, now it’s …..$40. This has impacted everything and everyone.
The most direct impact is obviously its effect on revenues and profits. The drop in the oil price has led to a complete turn-around in terms of how our clients (most of the major oil & gas operators globally) are operating and behaving. But that is directly impacting us (and our competitors): Since their main source of income (Oil) has dropped to roughly a third of what it was some years ago, their budgets are slashed to the bone and as a consequence they are squeezing literally everything. As a result they require their suppliers to step up, slice rates, take more risks, deliver higher performance and deliver fast.
Doing nothing here is not an option. This is not a matter of transparency only, it has led to transformation inside our company as well. If we did not look to cut our costs, productivity, utilization and the level of our prices (downwards…), we’d be priced out of all tenders. Worst case they are cancelling projects, but far more we see squeezing costs to achieve savings. To compete we need to be much more nimble, to provide far greater detail; they want us to split our prices into individual cost components so they can isolate the things they want and the things they don’t want; they are asking far more questions “why does this particular item cost so much?”. In essence they want to be able to compare us more closely against our competitors at the lowest level of detail.
Question 2: Facing the challenge – what were the top initiatives you introduced to prevent being disrupted / to disrupt your industry and with what objective specifically?
DOF Subsea has a strong position because of the nature and structure of the company: It’s a global company and as such our assets can be moved around. This gives the opportunity to market our assets globally where the work is. For example: In one region (North Sea) the trend is shifting from construction to maintenance, and in Asia it’s the opposite. Another aspect is that the income streams are diversified - DOF Subsea can market vessels, or engineering solutions or both. That gives it versatility in its business model.
Our ERP system has helped us during this tough period in the market at three levels:
1) Increase people productivity and maximize chargeability / utilization: to assist in measuring this, we have introduced Business World HR to improve insight at the most granular level, recording of timesheets and subsequent reporting and management of our personnel utilization. Previously we had been using an external system making accurate reporting difficult. People Planner will allow us to maintain better quality future forecasting of our personnel – i.e., which projects they’ll be working on, how chargeable they are planning to be – this way we can more easily analyze our actual timesheets against this benchmark.
2) Empower all our decision makers with on-the-fly decision making. Unit4’s Business World ERP plays a crucial role in this through its versatile information architecture, but the tough market conditions have also forced us to further break down our cost modelling to enable us to analyze cost overruns and identify weaknesses in our spending/structure at the most granular detail of our business. Instead of “lumping” a number of different cost areas into one internal charge (like “Vessel”), we split it out in to their individual areas/services in order to a) lower our prices (while retaining a healthy margin) b) optimize the business performance by eliminating hidden cost and c) give greater flexibility to the tendering team, enabling them to win more profitable business.
3) Last but not least we changed the role of the Finance Department from Control/Accounting to Business Partner: Business World helps us constantly look at our processes, performance and opportunities which we can in turn use to advise our key staff/ units to perform better within the unique constraints of their (local) market.
Question 3: What are the top things that really worked well for you in making these initiatives successful? And what did the success look like so far?
I can easily summarize that: Integrate as much as possible into one single system and invest in agility – the faster we can react, the better. Let me explain:
1) Putting everything into one single enterprise system has provided us with far better control over our business than ever before: For example: People / departments that are achieving lower chargeability than budgeted are scrutinized and plans are put in place in order to address this instantly. This has positively impacted our profitability.
2) Secondly we challenged our cost structure and split it into a far greater level of detail. This way we have been able to identify equipment and maintenance items we no longer need; we’ve been able to constantly optimize our mix of employees vs contractors; we’re able to find areas of slack instantly and attack it instantly. All in all we have far better insight as a company and our cost-base has transformed, all ingredients we also use to our benefit in our tender process, making us more competitive.
3) Thirdly, investment in agility has provided us with a business system that allows us to “manage the business with the business”. Insight is everything to make the right decisions, agility is key to put it to action without delay nor extreme cost. Let’s put it this way: if you have to cut costs, you either release people or you become more innovative. Losing people is losing knowledge and expertise…, and that’s our life-blood i.e. we try to avoid this at all times. Our investment in agility has made us nimble i.e. we can change when we need to without delay or dependence on others. That’s a great asset in a challenging & highly competitive market. The result: we’ve been continuing to win work, outperform our competition and have full control over our financial performance.
A nice side effect of our investment has been that we’ve also grown our ability to address compliance and regulations. As such we have to deliver clear and sound transfer pricing documentation - why you’re set up this way, why we have transactions with related parties (companies within the same group), and the substance behind them. This process is easier when you put high-quality info in your system and pull it out effectively. Running Business World they can request at any time - just like the business.
Question 4: How does the Unit4 product contribute to success? How critical is the product in relation to this?
The core value of Unit4 Business World lies in its inherent flexibility. We have really shaped and tuned this to suit our business with the support of our partner Agyilx. Every time we ask, “could we do this in order to achieve this” – the answer is “yes”. And we are adjusting this (by the business, not IT) as our business continues to grow and evolve. Our business, as a global enterprise with different jurisdictions, compliance requirements, etc., is incredibly complex, and yet whenever we think we have a roadblock, instead we have an opportunity to shape this system to suit our needs which has helped reduce the stress levels of our personnel . It has contributed towards creating a “Can-Do” culture.
Question 5: What did you learn along the way? What would be your advice to others in a similar situation?
Challenge your cost structure, relook at it with fresh eyes and identify if you can structure the individual cost attributes better in order to give you greater flexibility in pricing, and higher quality reporting/analysis.
Secondly, integrate as much as possible into one single system. We have realized that the more areas of our business we bring together into Unit4, the more efficient we seem to work as a business, the more productive our people become and the better our competitive position gets.