Achieving sustained performance in the oil and gas industry can, quite frankly, be a challenge. A primary reason is cyclicality. For suppliers, the task of continually scaling one’s organization to match the market’s temperamental ways can prove especially tricky.
Numerous factors lead to the swings in demand that define the oilfield. Mercurial commodity prices top the list. Fluctuating exchange rates, capital availability, seasonality and weather, government policy and geopolitical events also play a part.
The uncertainty can have serious implications. In fact, how a company navigates the sector’s crosscurrents can mean the difference between success and failure. It can also shape how it’s perceived by customers.
One way suppliers can help tame the effects of industry volatility is to stay focused on the horizon. Longer-term perspective allows companies to sidestep some of the risks of a flighty marketplace. It reduces the inclination to grow too quickly during upswings and cut recklessly during downturns. In other words, it introduces balance where there is none.
Integral to executing a longer-term strategy is the financial strength to survive the troughs. Sound financial footing also allows for greater investment — including research and development — throughout the cycle. This leads to more consistent and differentiated performance over time.
The best performing suppliers also have visibility in their business. While many can’t effectively hedge using financial instruments, they can enter into long-term, take-or-pay or minimum-payment contracts with customers (many of whom can and do hedge). The resulting cash flow stability is invaluable during crunch times.
Finally, suppliers that outperform across industry cycles also tend to display an outsize commitment to process. This is the case at all levels of the organization. Processes are the proven playbooks they follow during both contractions and expansions. And their procedures are continually honed over time.
Commitment to process is also almost always evident in a company’s approach to talent management. Because they typically enjoy lower employee turnover, top performing companies are more willing to invest in training, cross-training and retraining of their people. This enhances employee utilization, loyalty and morale. The upshot is better performance, even as activity fluctuates.
In downturns the best workforce-reduction plans ensure treatment of employees is fair, communication is clear and responsibility transfer is smooth. During expansions, prior employees — familiar with the culture and the job — are among the first contacted to return. For the better companies, many will.
As in most industries, there are far too many short-sighted players in the oilfield to expect all to heed the advice given here. However, those that do will find the deck stacks in their favor. And in an business where opportunity can turn to challenge (and vice-versa) overnight, no advantage should be ignored.