Ajman University

MBA Program

YPF S.A.: Shaping A New Culture

Aisha Mohamed Al Kitbi

201012436

December 31, 2011

The name of the course: Managing Change

The name of the professor: Dr. Zain Yaseen

Evaluation Rubric:
By InstructorOUP CASE STUDY
Dr. Zahi Yaseen / LEVEL 4
Excellent / LEVEL 3
Very good / LEVEL 2
Good / LEVEL 1
weak
Identification of the Main Issues/ Problems / X

Analysis of the Issues

/ X

Comments on effective solutions/Alternatives

/ X
Links to Course Readings and Additional Research / X
Total Marks : 28/30
Instructor Note: Aisha responded positively to my feedback provided in her earlier draft.

Executive summary:

Restructuring YPF was guided by management consultant from U.S. the goal was to transform a very centralized, bureaucratic company into a highly profitable company capable of generating high value for its prospective stockholders. As a result of the first stage of YPF’s transformation more than $ 2 billion worth of assets were sold, cutting workforce by approximately 90 %.Privatization was hardly the end of the story. The oil industry’s newest private company had to join the rest grappling with declining oil prices, requirement for technological advancement, and greater competition from more focused players. Monti downsized and restructured the company. Changing the mindset and behavior of the workforce to turn it into a competitive player in the world economy was not automatic. It required major redesign of organizational systems, like recruiting, training, and performance management. Continuous changes have an underlying structure that can be articulated, understood and, most importantly, managed. My project address applying strategic alliance which is necessary for penetrating offshore markets, sharing, and developing products, services, procedures, and processes. The objective of strategic alliance is to sustain long-term competitive advantage in a fast-changing world. Thus, alliance organizational form likely influences partner ability and incentives to share information, which affects performance and productions.

Challenges:

Unclear vision: Del Amo ,the major agent of the cultural change was optimistic about what had been accomplished ”it’s going to take 10 years to make the transition, but we need to be sending signals now about the kind of company we are becoming”. YPF wasn’t clear about the future vision to be a multinational company. Estebssoro take over leadership of YPF and He agreed to take on the task of preparing the company for privatization, but made no commitment to running the company beyond that stage. His three stages plan involves, divesting of all nonstrategic assets, restructuring the remaining company and taking the company public. Estebssoro and others knew that investors would be expecting to see the company expand beyond its mostly domestic operations to become a true world player. In 1994 they identified Maxus a large independent U.S. based oil company with reserves and operations in US, Colombia, Bolivia, Equador, Venezuela and Indonesia. YPF’s stakeholders approved the deal; making YPF a true multinational. Jesus found that” the vision provides a healthy sense of urgency, something reasonable, attainable and tangible. Vision revisits the values and mission and engages the organization in seeing new Possibilities. The most common disadvantage has really nothing to do with the creation of an organizational vision, but everything to do with failing to implement that vision. A leader can lose all credibility when a vision statement is when no one in the organization knows about it.”

DICE Assessment: Although the transformation change program in YPF Company implemented successfully, but it has to keep continuous improvement .Although soft issues elements are critical for success, change projects can’t get off the ground unless companies address harder elements first. Related to YPF case study evaluations and review of the transformation process was not mentioned. Sirkin, et al. defined “Duration is a long project reviewed frequently stands a far better chance of succeeding than a short project reviewed infrequently. Problems can be identified at the first sign of trouble, allowing for prompt corrective actions. Review complex projects every two weeks; more straightforward initiatives, every six to eight weeks. Companies make the mistake of worrying mostly about the time it will take to implement change programs .A long project that is reviewed frequently is more likely to succeed than short project that isn’t reviewed frequently”.

Global Competition: YPF faced fierce competition from far richer competitors as it struggled to overcome its lack of capital, technology and expertise. Competition causes commercial firms to develop new products, services and technologies, which would give consumers greater selection and better products, which typically causes lower prices for the products, compared to what the price would be if there was no competition or little competition. However, competition may also lead to wasted effort and to increased costs in some circumstances.

Oil price: According to YPF case, some manager clearly worried about the company’s losing its entrepreneurial momentum and the favor of financial markets. Stock price had fluctuated over the last year and the net income of $ 580 million for the year was disappointing, largely due to the drastic decline of world oil prices in the 1998, Indeed the stock price tumbled from a peak of $38 in October 1997 to $ 31 in June 1998 and kept going as world oil price went into a free fall. Oil is a globally traded commodity and the price of oil is determined by global oil demand and global oil supply conditions. Rapidly increasing demand for oil from emerging market economies like China and India, coupled with oil supply shortages will lead to much higher oil prices in the future and eventually a substitution away from oil to alternative energy sources. In the short to medium term, the outlook for oil is complex because the largest consumers of oil are not the countries with the largest reserves. (Henriques, & Sadorsky, 2007)

Access to Resources: The most critical, is access to significant quantities of economically recoverable oil and gas resources. Other oil companies CEOs have stated their belief that there are more than sufficient supplies of oil and gas globally to meet future demand. According to the Brown & Wolk “Increasing natural resource scarcity will limit future economic growth and human well-being, while others remain optimistic that technological change will overcome geophysical scarcity. The increasing scarcity of a natural resource increases its price. When they expect higher prices, consumers turn to use technology that less uses of a natural resource. So producers turn to technology that lowers production costs in expectation of higher profits”.

Lack of skills: YPF had very weak managers in the field, who were really just administrators consuming resources rather than developing them. The weak manager in the past used HR only to hire, fire and handle salary. Pierre B. HR motivator role is to identify and develop relationships with the right universities for recruiting, to sell the company image, to take the temperature of the organization at employee roundtables in the field.

Environmental Risk: Climate change improvement is becoming one of the principal challenges for major International Oil Companies. Dependence on oil, coal and gas as primary sources of energy has left the world with a legacy of environmental issues. Carbon dioxide (CO2) emissions are causing Global warming which is recognized as danger to humanity. When leadership looking for considering the environment aspect it well be more costly than they get profit. Oil industry polluted the environment through the production process .They can’t maintain and control overall aspect of the oil & gas production process, some process which is under control can be recycling and limiting the wastage .

Human resources Structure: Pay Per Performance linking employees’ pay to the company’s performance had been an important HR strategy at YPF since its privatization in 1993. Although the program gave participating employees percentage of their annual salary if the company met its financial targets. The Bonus program BONACC was established based on the company’s reaching its target of having a return on capital employed (ROCE) and because of Stock price had fluctuated over the last year and the net income of $ 580 million for the year was disappointing, largely due to the drastic decline of world oil prices the ROCE was only 10.4 %. As a result no one received the bonuses provided under either program.

Alternative:

Strategic Alliance: Strategic alliances involve exchange, sharing, or developing products, services, procedures, and processes. The objective of strategic alliance is to sustain long-term competitive advantage in a fast-changing world, such as, reducing costs through economies of scale or more knowledge, boosting research and development efforts, increasing access to new technology, entering new markets, breathing life into slowing markets, reducing cycle times, improving quality, or inhibiting competitors.(Serrat, 2009). The Disadvantage of strategic alliance are facing language and cultural barriers, dealing with conflicting operating practices, Time consuming for managers in terms of communication, trust-building, and coordination costs.

Applying Balance scorecard: Developing a scorecard system is transformational for an organization. Balanced Scorecards, when developed as strategic planning and management systems, can help align an organization behind a shared vision of success, and get people working on the right things and focusing on results. A Balanced Scorecard approach generally has four perspectives: Financial, Internal business processes, Learning & Innovation and Customer. A planning and management scorecard system uses strategic and operational performance information to measure and evaluate how well the organization is performing with financial and customer results, operational efficiency, and organization capacity building. (Rohm, 2008). It will be costly to implement a balanced scorecard and it may take considerable effort from the work team to develop a list of appropriate metrics.

Applying DICE Assessment: By assessing each DICE element (Duration, Integrity, Commitment and Effort) before launching a major change initiative, YPF can identify potential problem areas and make the necessary adjustments such as reconfiguring a project team’s composition or reallocating resources to ensure the program’s success. YPF can also use DICE after launching a project to make midcourse corrections if the initiative veers off track. (Sirkin, Keenan & Jackson, 2005). DICE frameworks often prove to be its biggest problem. CEOs seem to desire more complex answers; sometime DICE framework doesn’t work properly.

Invest in Research & Development: The new business environment has resulted in a shift of the organizational power base away from the corporate center. Now R&D must compete within the business for funds and resources on a value-added basis with other high-risk high-reward investments, and within the marketplace with new global technology suppliers. The R&D effort is expected to demonstrate productivity enhancements, cost reductions, and process improvements. (Boskin M. and Lau L.1992). R&D is not only expensive but also risky, for it is difficult to predict the success. Even if a product is successful, other firms will copy the product or the process to become more competitive.

New Technologies: Is a continuing need for new, breakthrough technologies that can help find, develop, and produce more oil and gas. Oil and gas companies around the world are continually pioneering new technologies and techniques to deliver more effective and safer subsea drilling and incident response procedures. The industry is continually building on and improving existing practice to enhance safety through ongoing assessment, communication, cooperation and improvement across companies, and across countries.(Cazalot Jr, 2007). According to MIYAGIWA & OHNO however, inventing a substitute technology can be quite expensive and risky. There is no guarantee that a new technology can produce energy more cheaply than oil.

Conclusion:

Oil Industry mergers provide higher profits and leave consumers with fewer choices .So Strategic alliances enable business to gain competitive advantage through access to a partner's resources, including markets, technologies, capital and people. As managers face a competitive environment that is increasingly complex, globally centered, and technologically uncertain, there is a critical need for dynamic, flexible, and proactive responses. Strategic alliances can be a reasonable choice. If alliances utilized properly, then it can provide a number of advantages over traditional organizational arrangements including faster market penetration, the sharing of financial risk possibilities for technology transfer and increased production efficiencies.

Implementation

The YPF Company should put planning for a successful and effective Alliance, so before entering into a strategic alliance, enough thought is to be placed behind the structure of the relationship and the details of how it will be managed. Consider the following in the company planning process:

  1. Locate and validate the alliance within the long-term vision, mission, and strategy of the organization.
  2. Specify the objectives and scope of the alliance regarding the organization-specific resources and capabilities that are desired, and underscore the importance of these objectives.
  3. Identify the results that will cause the alliance to be most beneficial for business and define the structure and operating issues that need to be addressed to achieve these results.
  4. Protect company's intellectual property rights through legal agreements and restrictions when transferring proprietary information.
  5. Evaluate and select potential partners based on the level of synergy and the ability of the organizations to work together.
  6. Identify and mutually recognize the opportunities, including the transparency and receptivity of information they call for
  7. Be certain that the company cultures are compatible, and the parties can operate with an acceptable level of trust.
  8. Evaluate negotiation capabilities.
  9. Understand joint task requirements and develop and propose a working interface with the prospective partner.
  10. Negotiate and implement an agreement, anticipating longevity that defines progress and includes systems to monitor and evaluate performance.
  11. Create the alliance and catalyze it with leadership commitment.
  12. Manage for value identification, creation, storage, sharing, and usage over time, while assessing the alliance’s interdependence with other relationships.

References:

  1. Boskin , M., & Lau , L. (1992). The role of R&D and the changing R&D paradigm. Stanford university press.p19. Retrieved from http://belfercenter.ksg.harvard.edu/files/pcast97_ch2.pdf
  2. Cazalot Jr, C. P. (2007). The major challenges facing our industry. Society of Petroleum Engineers, 1(2003-2011), 1. Retrieved from
  3. Sirkin, H. L., Keenan, P., & Jackson, A. (2005). The hard slide of change management. Harvard Business Review, 1.9.
  4. Henriques,, I., & Sadorsky, P. (2007). Oil prices and the stock prices of. Energy Economics, (2008), 999. Retrieved from http://isites.harvard.edu/fs/docs/icb.topic741392.files/EnergyStockPrices.pdf
  5. MIYAGIWA, K., & OHNO, Y. (2000). Japanese energy security and changing global energy markets:. OIL AND STRATEGIC DEVELOPMENT OF SUBSTITUTE TECHNOLOGY, 2. Retrieved from
  6. Jesus, N. R. D. (1999). Developing and implementing. National Fire Academy, 20-21. Retrieved from http://www.usfa.fema.gov/pdf/efop/efo29220.pdf
  7. Rohm, H. (2008). Using the balanced scorecard to. The Balanced Scorecard Institute, 1. Retrieved from
  8. Serrat, O. (2009). Learning in strategic. Knowledge Solutions, 2-3. Retrieved from
  9. Brown, S. P. A., & Wolk, D. (2000). Natural resource scarcity and technological change. ECONOMIC AND FINANCIAL REVIEW FIRST QUARTER, 8-9. Retrieved from

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