Creativity and Innovation of Saudi Aramco - Case Study Example

Creativity and Innovation and Section # of INTRODUCTION In contemporary times, it is deemed extremely essential for a business to be creative and innovative in order to succeed. As the world becomes excessively competitive, and businesses strive to attain a relatively greater chunk of the market share as compared to its rivals, they make use of these tools to accomplish their goals. One such business whose activities have an impact on the lives of people around the globe on daily basis, is Saudi Aramco (Saudi Arabian Oil Company); in a time span of 60 years, this renowned company has evolved from just a minute American initiated venture based in Saudi Arabia into a full fledge company with extensive operational scale- from joint venture refineries to completely owned marketing and sales offices situated in North America, Europe and Asia. Set up with a commercial intention, and the mission of converting a small venture into an international business dealing in all sorts of oil-industry related activities, Saudi Aramco established itself into the worlds largest vertically integrated energy unit. The success of Saudi Aramco rests on the proper utilization of the creativity tools which have marshaled it into the right direction, for these tools give birth to creativity, and result in the value addition to its products or processes, thus the correct identification of all those factors which can add value, are creative and above all signify a difference, are creativity tools. Saudi Aramco relies on innovation management and its cultural organization as a measure to creatively differentiate itself from other businesses and to carve out its unique place in the oil market. CREATIVITY AND INNOVATION PROCESSES Firm Climate and Culture Saudi Aramco is very skeptic towards the idea of taking risks, they consider whether the risk involved would provide a sufficient level of profits, i.e. if their Board of Directors deem it to be feasible, then they undertake it, such as when the Board of Directors of Saudi Aramco rejected the proposal to extend the reach of the new trading unit to be allowed to sale 25 percent of refined products. This attitude defines a closed atmosphere, wherein individuals are not highly encouraged to take huge risks; they walk on conventional lines and strategies. Their increased dependence on the King of Saudi Arabia for permission regarding any decision also adds to confining the authority of the employees within an extremely closed culture. The communication network is based on channels, due to the autocratic hierarchical system; such a cultural setup does not promote a healthy and interactive culture, but an extensively bureaucratic structure. However since the Saudi cultural setup of the community supports a collectivist stance, thus it is also reflected within the company, despite the fact that there exists a high proportion of departmentalization at higher levels, this company also promotes integration in the form of team working, and the development of a family atmosphere, which promotes loyalty and thus having a record of 60,000 dedicated employed workforce. Leadership Style Following of the caste system is common in Arab society; their natural tendency is towards denying upward mobility in the hierarchy of power levels. Even though the company is multi-cultured, they have a home ownership that maintains control, it does have facilitative services for other nationals as well as Saudis, and its employees, due to being contended, accept the differentiation in authority that prevails. Saudi Aramco has aims and missions which are based on time basis, such as expansion of spare capacity, becoming more efficient and less polluting etc., these aims are properly articulated and made sure that all employees are aware of the companys mission, and thus ensuring that this acts as a motivating factor. Mintzbergs strategic management strategy of Management by walking around proposes the idea of having a direct contact with the employees at work, in order to ensure that feasible strategies are made by using the knowledge of the workers: Saudi Aramcos senior level managers and directors ignore this strategy, they draft policies on their own and present them to the King for approval, however they do have a strong hold on the practices of the employees, due to the development of a collectivist culture, they are able to attain the views and stances of different individuals of their workforce. They also provide fringe benefits to their employees in order to keep them motivated, these perks include healthcare facilities, education for children, vocational trips, executive working standards though ensuring the availability of proper utilities like clean bathrooms, hygienic dining areas, clean food etc. The autocratic leaders also ensures that the employees do not feel alienated and aloof from their work due to an extremely centralized authority system, thus as mentioned earlier, they promote integrity and cohesion via team working activities and projects with employees from different departments working together. Resources and Skills They make sure that proper training is provided to these employees, and in addition they financially support the education of IT and engineering students etc. in Dhahran at the King Fahd University of Petroleum and Minerals. They currently have an employed workforce of technical experts, who serve as the human capital for Saudi Aramco; they have also adapted technological advancement which is the kernel of innovation today. In the case of Saudi Aramco, technology plays a crucial role, it frames the way the company is designed and operated, and thus its affects on the company are of immense significance. Since this industry requires latest technology implementation in oil exploration, production and delivery processes, thus reliance on technological innovation is massive. The personnel in this business who are situated at various terminals, such as drilling, engineering, physicians, and industrial control device skills, and apart from the technical staff, the office staff comprising of office workers, management crew, marketing and administration staff, plus the maintenance personnel are trained in accordance with computerized programs, their work is challenging and adds to their self-actualization need for motivation, in addition, Saudi Aramco has also launched its own website, thus declaring its acceptance of the norms of the contemporary era. Structure and Skills The staff employed by Saudi Aramco is based on their technical skill set and qualities that are scant in number, hence it is bound to maintain a long and committed relationship with its employees, for which it ensures proper motivation, provision of services and a good pay-scale. Its Organizational Structure (Appendix 1), as mentioned above, is very hierarchical, with the Chief Executive Officer (President) of the company at the top, followed by the managerial departments of Law, Planning, Information Technology and Management services, they all have inter-departmental links, thus ensuring a horizontal communication. Further divided into sub-categories of Gas Operations, Exploring and Producing, and Refining, Marketing and International, each with its own senior Vice-president who controls operations at this level and collaborate with the functional departments to meet their objectives. The CEO finally reports to the King of Saudi Arabia, without whose permission no critical decision is possible, since he is has the overriding power of the Saudi energy sector. HOFSTEDES DIMENSIONS OF CULTURE Apart from an innovative culture rapidly adapted by Saudi Aramco, there are other aspects to its culture as well, which can be analyzed with respect to Hofstedes Dimensions of Culture. Power Distance This model initially analyses the Power Index of a company, which is the measurement of the extent to which the employees at the lower levels of a company are willing to accept the inequality attached to the concept of authority, and their expectations of this unequal status of power distribution. According to Hofstede, Arab companies have a large power distance, and so does Saudi Aramco due to its autocratic hierarchical structure and long channel communication network. Uncertainty Avoidance Saudi Aramco has a low acceptance of uncertainty, and thus stringent rules and policies are in place to ensure a highly rule oriented atmosphere. They depict a companys tolerance level, which appears to be low in this case, since they have a high-level planning system and a hardcore organizational structure. However, it cannot be stated that the Saudi Aramco is a risk averse company, since it has developed automated systems to regulate switch in productions, and it can make use of strategic management and contingency planning in order to facilitate a backup in case of an uncertainty. Masculinity vs. Femininity The Masculinity vs. femininity index for Saudi Aramco depicts a very masculine environment, since the structural setup is very authoritative, and they value accomplishments and goals more than the preservation of the environment and the beauty of the surroundings. The setup is autocratic and leaves no room for compassion and tolerance, but depict an extremely goal oriented atmosphere. This depicts the approach of the company as being more quantitative rather than qualitative and hence they can be rightly labeled as lying in the masculinity scale of the Hofstedes analysis. Individualism vs. Collectivism As already stated earlier, Saudi Aramco supports a collectivist culture view, and they prioritize social capital more than ego factor. They are thus making use of teamworking and projects based on matrix structure which depicts their collectivist stance, which is essential since it employs a workforce based on diverse backgrounds, and if they do not support a collective notion of identity, then their workforce would have to suffer the negative consequences of ethnocentrism, wherein every individual considers himself superior to others on the basis of his cast, creed, gender etc. Hence Saudi Aramco has successfully managed to create an integrated employee network. CONCLUSION AND RECOMMENDATIONS This kind of cultural setup along with a rich innovative management is a key to success, however with the addition of a few other aspects to this company can pave the way to a greater successful future, and might lead to long term stability, since the sector of operations of Saudi Aramco are under external threat from the environmentalists, they can thus make an effort to recognize the detrimental effects that its production activities can have on the environment. As the worlds anti fossil consumption movements gain increased recognition and support, it simultaneously becomes essential to devise processes to limit the damage that can be done to the company, it must chalk out plans to minimize the risk pertaining to a reduced demand of oil in the future, which can severely affect not only the company but the Arab Kingdom. It can diversify into other markets that are less environmentally dangerous, but linked to the field of expertise, i.e. energy. It can use the creativity tool of brainstorming effectively and thus manage to develop diversification plans into similar industries, such as solar power generation, which is viable in Saudi Arabia, is environmentally friendly and would serve the needs of the nation. It can thus preserve its fossil fuel reserves for the future generations and reduce exploitation. Another way is to create a positive image of the company by ensuring the world though proper publication and marketing strategies that Saudi Aramco is not as environmentally hazardous as other oil producing companies, and also works on discovering new reserves and their maintenance, this can reduce the risk of external attack and customer disloyalty. Furthermore, as according to the Hofstede analysis, there is a high power index measure, since each employee is crucial to Saudi Aramco, owing to their technical expertise, it cannot let them be a prey to inequality in the company, which would alienate them from their jobs leading to inefficiency. Hence, the company should adapt an effective communication network in order to establish a strong link between individuals at different levels, irrespective of their hierarchical placement. It would reduce the employee turnover of Saudi Aramco, and ensure worker loyalty, hence working more on the effectiveness its employee benefit plans would prove beneficial for the company in the future. Saudi Aramco is the sole provider of all Saudi exports of crude oil and natural gas; with the capability of producing around 15 million barrels of crude oil per day, or even more, in addition to this, Saudi Aramco’s gas reserves according to the world rankings come at fourth place, with a gas processing capacity of near about 9 billion SCF daily, hence it is rightly the biggest exporter from any country in the entire world, thus earning a distinct place. It must make use of effective creativity tools in order to maintain this status and market share, plus make room for potential growth. References Amy Myers Jaffe and Jareer Elass (2007) Saudi Aramco: National Flagships with Global Responsibilities. James A. Baker 3 Institute for Public Policy. Retrieved April 22nd 2010 from http://www.rice.edu/energy/publications/docs/NOCs/Papers/NOC_SaudiAramco_Jaffe-Elass-revised.pdf Geert Hofstede Cultural Dimensions (2009). Retrieved April 17, 2010 from http://www.geert-hofstede.com/hofstede_arab_world.shtml H. StJ. B. ‘Arabian Oil Ventures’, Washington, 1964 Henry Mintzberg (2009) Managing. Berret-Koehler Publishers. Retrieved April 22nd 2010 from http://books.google.com.pk/books?id=ztZc6XKSBWMC&pg=PA128&lpg=PA128&dq=mintzberg+management+by+walking+around&source=bl&ots=Hm-XpYfrly&sig=MXYpUKWDiNvmah_woyD3sl06DwE&hl=en&ei=UkfQS76PEIm2rAeT4uCwDw&sa=X&oi=book_result&ct=result&resnum=4&ved=0CBIQ6AEwAw#v=onepage&q=mintzberg%20management%20by%20walking%20around&f=false Longrigg, S H., ‘Oil in the Middle East: Its Discovery and Development’, Oxford University Press, London, 1955. Nawwab, I. Speers, P and Hoye, P ‘Saudi Aramco and its world: Arabia and the Middle East’. Saudi Aramco Official website (2010). Retrieved April 17, 2010 from www.saudiaramco.com http://www.saudiaramco.com/irj/portal/anonymous?favlnk=/SaudiAramcoPublic/docs/At+A+Glance/Organization+Chart&ln=en Tughendhat, C. ‘Oil the biggest business’. 1968 Turner, L. ‘Oil Companies in the International System’, London, 1978. Zaian, B., ‘prices, Revenue and Oil Contracts in the Arab Countries and Iran’, Arabic Institution for Studies and Publishing, Beirut, 1982 Read More