FGV Professors Study Opportunities and Challenges for SMBs in Oil Industry

Professores da FGV – Fundação Getúlio Vargas - publicam estudo no congresso
“2011 ACMP Global Conference on Best Practices in Change Management”,
apontando as oportunidades e desafios para as MPMEs - Médias, Pequenas e
Micro Empresas da cadeia do petróleo.

O Congresso Mundial, que acontecerá no início de maio deste ano,
reunindo os maiores especialistas do mundo na área de “Gestão da
Mudança”, contará com a presença de dois professores da FGV.

Change To Go 'Deeper'

The Business Transformation
in the Brazilian Oil & Gas Production Chain

by
Lucio Chaves
Fernando Jefferson
Fundação Getulio Vargas

ABSTRACT

Brazil may become one of the largest oil producing countries in the world considering the
discovery of extensive reserves on offshore fields and US$ 400 billion investments of over
the next five years. Tens of thousands businesses will benefit in a robust production
chain. However, the Brazilian industry is prepared to meet only 40% of the projected
demand. This scenario may bring the so-called "Curse of Oil", faced by other countries. To
avoid this, many changes will be required both at governmental and at business level,
some of which are already underway. Based on the analysis of a successful case that
occurred at the beginning of the last decade, this paper discuss the usefulness of
implementing formal methodologies in Business Management, and presents a survival
framework that relies on a special education program focused in Change Management for
business executives of medium and small companies of the petroleum production chain.

Lucio Chaves & Fernando Jefferson, Fundação Getulio Vargas

ACMP Global Conference, May 1, 2011, Orlando, Florida. page 1 of 8

Executive Overview Other important initiatives are:
 PROMINP (Program for Modernization of the
Since the discovery of large oil reserves in offshore
National Oil Industry), that provides the
very deep waters (Pre-Salt), Petrobras, one of the
support from Federal Government and the
world's largest companies nowadays, plans to invest
entities of the sector for a set of integrated
US$ 224 billion in their exploration over the next five
actions, prioritizing the participation of
years. Taking into account the other big players
national industry of assets and services in
investments, this figure could reach US$ 400 billion,
businesses of oil and natural gas, creating jobs
becoming one of the biggest investment programs in
and skills.
the world, benefiting tens of thousands of large,
medium and small companies, which are likely to  Petrobras and SEBRAE (Brazilian Agency for
integrate a robust supply chain. Small and Medium Companies) 2004
agreement, that has trained more than 3000
The Brazilian industry, however, is currently
organizations, promoting the integration of
prepared to meet only 40% of the expected demand.
these companies in the petroleum supply
Brazil is going, then, to be an excellent country for
chain.
expansion of activities of companies from other
regions such as the North Sea, where production In parallel to these activities of development and
begins to decline, and for rising powers like South support organizations, the companies in this
Korea or China. They are mature companies, well sector are organizing themselves into networks,
structured (in Norway and Korea, for example) or creating entities known as RedePetro (PetroNet).
other ones with small tax economies, low wages and Currently there are seventeen of these successful
little unionization, such as China. Local Productive Arrangements (APLs), which
now aggregates thousands of companies.
This situation, if not changed in the near future, can
cause the so-called "Curse of Oil" as occurred in many Based in this context, this paper aims to point out
countries, with the destruction of the base industry the main areas where problems might occur and
besides an increasing dependency from other develop considerations about the importance of
countries in the supply of basic consumer goods to application of methodologies such as Change
the people. Management, both at government and at company
level, in order to take advantage of the
Brazil is making a huge effort to prevent this. For
opportunities and to minimize the impact on the
example, several Brazilian organizations, including
companies and their employees.
Petrobras and BNDES (Brazilian Development
Bank), worked throughout the year of 2010 to
assemble the "Network for the Improvement of
Business Management of Petrobras Supply Chain
Companies" . This initiative should invest over US$
260 million over the next five years and may cause
profound changes not only in the production chain of
petroleum, but in the economy and the Brazilian
society itself.
According to the document "Strategic Plan 2011-
2020" [2], the Network aims "to improve
management that combines competition with
cooperation, integrate initiatives, promote an
increase on scale and on the Brazilian
competitiveness, promote sustainable development,
social and environmental responsibility,
entrepreneurship and innovation”. This could be one
of the greatest change management cases in the
world.



The Initial Case Oil Production Supply Chain
In the late 1990s, the industrial sector of a southern Figure 1 shows the participants involved in the
state in Brazil (Rio Grande do Sul), articulated a Brazilian oil supply chain. From one side,
common program to take advantage of the Petrobras and other big players, and from then on
opportunities that surfaced on an emergent sector on the following levels, are incorporating smaller
the Brazilian economy: the oil and natural gas companies, down to "micro" companies.
industry.
With the help of public organizations and other
development entities, like SEBRAE, these
entrepreneurs organized themselves into an entity, the
RedePetro-RS, aggregating not only organizations that
already worked in the oil market, but other ones that
used to develop entirely different products, such as
agriculture machinery and components.
The experience of this enterprise network "consists in
good example of integration and reconfiguration of
internal and external organizational capabilities,
using functional competences and resources to fulfill
the requirements of an evolving industry environment,
associated to an inter-organizational strategy, focused
in technological improvement and process and
products innovation" [3]. Figure 1 - Oil Production Supply Chain

In this case, the changes have occurred at various The oil market is extremely demanding, requiring
levels: organizational standards and certifications that
 In governmental structure and in the entities to extend beyond Quality Management to EHS
support development. Guidelines (Environmental, Health and Security).

 In business networks. Companies need to review and update their
 In companies themselves. operational procedures so they can be included in
the qualified suppliers' databases, and to
 In business owners and employees. participate in this market.
Big challenges were faced by all involved in the
process, but the results have been rewarding and can Based on the analysis of the strategic positioning of
serve as an example for all the national industry to Supply Chain companies, we developed the
adapt to new demand generated by the oil sector. following SWOT Analysis:

This is particularly true in the most developed
industrial region (São Paulo), where thousands of
businesses, which have existed for many years linked
to the automobile industry, are now facing a relative
stagnation in their activities and need to find out
alternatives to survive.



Oil Sector SWOT Analysis The Network development involves twelve
programs that should be developed throughout
Strengths 2011 to 2014, with a budget in excess of US$ 260
 Brazil has already a good base of industry, million.
universities and research centers.
Many of the 278 actions involved in their 67
 Brazilian Government and Petrobras are ready strategic projects were linked, in a certain way,
and willing to defend the national content by to those Change Management issues.
supporting local initiatives.
The real challenge starts now: make real what
 Brazilian people's creativity and innovative
has been planned and programmed, bringing the
characteristics; more adaptive to changes than other
benefits to supply chain companies, actually the
people.
target audience for all this work.
 Capability to joint into Local Productive
Agreements (APLs). The strategic initiatives required can now be
seen clearly enough at first sight. This will
Weaknesses
require, however, a true re-engineering in
 Brazilian companies have shortcomings in companies which, in turn, depend on complex
management and / or are not prepared for the high projects of internal and external changes
demands of the oil market. regarding, for example:
 Lack of qualified human resources in sufficient  Business Model redesign, including changing
quantity for the demand of projects. management styles, specially for the many
Opportunities family businesses that are
 Investments of US$ 400 billion to be made in the shifting ownership from the
production chain, generating business older generation to the younger one.
opportunities.  Ability to participate in pools of companies in
 Brazilian companies may expand business to the order to develop sub-projects under larger
global market that Petrobras will certainly try to Petrobras' projects.
participate.
 Use of formal techniques and methodologies to
Threats manage the business process, such as
 International Competition coming from well Strategic Planning, Project Management,
structured and aggressive companies, eager to Quality Management, Customer Relationship
compete in our market. Management, among others.
 High level of requirements for the contractors.  Implementation of processes and culture of
Innovation and Knowledge Management.
The Study Proposal  Development of technological and managerial
The concerns with issues related to Change skills.
Management were witnessed by the Brazilian Society
of Knowledge Management - SBGC, one of the
organizations involved on the design [1] of the
"Network for the Improvement of Business
Management" [2], since its beginning, such as:
 "As a simple gathering of vendors, Petrobras’ goals
will not be achieved”.
 “The formation of the network will involve a huge
cultural transformation for people representing the
organizations that comprise the network and for
people who work for the companies in the supply
chain".



The Survival Framework whether to create new products/services and work
opportunities, or to hold the intellectual capital
Based on the previous findings, our study wants to (knowledge of business) to keep the current level
present a Survival Framework that can be used by of customer service.
the Oil Supply Chain companies, in their direction to
take advantage of their business opportunities. Business and Competitive Intelligence
Another area of special attention is related to the
Business and Competitive intelligence , which
involves business support, monitoring of markets
and competition, management of competitive
advantage, marketing, customer relations,
suppliers and partners. These activities can be
integrated into the proposed framework, with
additional gain for the companies.
Project Management
We are mainly considering, here, companies with
business in engineering areas that might be using
Project Management best practices in their
technological projects. However they should learn
also how to use these tools in projects for many
other areas of business process such as marketing,
finance, training, costs and risks, QHES
Figure 4 - The Survival Framework management and customers and suppliers
relationship [4].

Externally, from the point of view of demand, the The Change Management Education
creation and maintenance of competitiveness will Issue
strongly depend on the effort of Innovation which is, in
turn, heavily connected to the existence of strong The current country situation is much more
technological and managerial qualification. challenging than was found in the RS Pole. At
least other 7 regional industrial poles should
Two processes will directly serve as keystones to develop big transformation programs that imply a
support this goal: Knowledge Management and complex change management process. This new
Change Management. Additionally, other methods scenario comes from an increase on the demand of
should be used to favor this process such as Strategic Oil & Gas, either in volume, quality and
Planning, Project Management, BI (Business technological complexity that should be fulfilled.
Intelligence) and BPM (Business Process The requirements have to be accomplish in a short
Management). time frame and, at the same time, face several
Knowledge Management and Innovation threats from foreign competitors.

In the competition with local or foreign firms, there is What has to be done is fairly clear. How to do it is
a very important issue: competition will reveal not another matter. In other words, we mean that
only in the race for contracts of suppliers, but mainly good intentions are not enough to generate
in the dispute for talents. There will be an increased concrete results and to get into this game requires
competition for intellectual capital and knowledge changes far more complex than we imagine for the
needed for conducting business in all its phases: sustainability in this environment. Recent
proposal, negotiation, planning, execution, billing and research on this matter [5], revealed that there is
final documentation. a high risk of not performing most of these
transformations, if, in the level of each company,
To compete in this scenario, companies need to apply there is no use of an effective Change
techniques of Knowledge Management and Innovation, Management.


This process will have to withstand the challenge to FGV has been responsible, also, since 2004, for
support the internal stakeholders, in their various the Project Management MBA Program of
levels, enabling their transition to new business PROMINP, focused on forming and recycling
profile, posture and skill in conducting their day-to- Large Contract Managers for the Oil & Gas
day operations. The lead sponsor to this process will Brazilian supply chain companies.
need to obtain sustainable commitment of those
We consider that FGV, to keep its leading role as
involved for this goal to be realized.
an education provider for the Oil & Gas business
In the sector of small and medium companies, the environment, now has to reach the strategic
largest one in this chain, the expected resistance to management level (CEO's and senior
change might be caused mainly by barriers such as: management). With this purpose we have been
working on a team to develop and offer a special
 Business with family base and origin.
executive education program, to be launched in
 Fear of innovation due to the conservatism. 2011, to fulfill the sponsorship education gap
mentioned above. The program, named
 Lack of information due to regional isolation.
"Leadership Development for Oil & Gas Supply
 Limited technological stage. Chain focused in Change Management" could be
included in the PROMINP "umbrella". This
The lack of an effective sponsorship, due to the
course, with a projected demand of up to 3.000
leadership style and the deficiency of proper
participants, aim to develop the essential
education and of awareness of one´s role in the
leadership skills required to face and sponsor the
process, can also be factor to make the needed
radical transformation process that implies in an
changes more difficult. The management profile in
effective participation on the Oil & Gas Supply
this industry sector of engineering companies is, by
Chain.
obvious reasons, based on technical skills and usually
not very familiar with cultural and people behavior Inspired in Prosci's research framework Project
issues. If we examine the curriculum of most Change Triangle (PCT) [6], we define the
management training programs already available in following objectives for this program:
the area we will not find further discussion of these
 To develop the awareness of the strategic
human aspects. Even our most recognized HR
challenges involved in the Oil & Gas new
(Human Resources) magazines are mostly focused in
business environment.
personnel management process issues such as
selection, career, motivation, training, and team-  To discuss the Business Process initiatives, the
working best practices. tools and capabilities to be acquired for their
implementation such as:
FGV Proposal for Executive Education
 Project Management and Change
Fundação Getulio Vargas, a non-profit institution,
Management best practices (conducted by
known as FGV and created in 1944, is the leading
trained and dedicated professionals).
Business School in Brazil, and develops, in its
 Quality, Environmental, Health and Safety
complex educational organization, a series of
certified processes.
Graduation, MBA and Doctoral programs and is
 Knowledge Management, Innovation and
either responsible for the economic researches used
Business Intelligence capabilities.
in the official national economic indexes.
 To justify the importance of a structured
FGV launched the Project Management MBA
approach for Change Management.
Program in the year of 2000 and from that time on,
Change Management has being included in the  To understand the sponsorship role that has to
course curriculum in order to create the awareness of be performed by top management.
its importance for project implementation. More than
14,000 students have participated in this program
that is recognized by the PMI (Project Management
Institute) as the world's largest Post-Graduated
Project Management initiative.


References
Conclusions
[1] Petrobras, Network for the Improvement of
 From surveys conducted, it looks that a large Business Management, Workshop Summary
number of small and medium Brazilian companies Findings, December 2009
have serious deficiencies in relation to the matters [2] Petrobras, Network for the Improvement of
mentioned above, requiring a strong Business Management, Strategic Plan, 2011-2020,
organizational change in the short term. November, 2010
 They will need to comply with a Survival [3] Balestro, Lopes and alli, The Experience of
Framework to improve their management Petro-RS: A strategy for development of dynamic
processes, including applying methodologies such capabilities, RAC, 2004
as strategic planning, project management, [4] Jefferson, F. and Guatiello, H., Project
knowledge management and innovation. Management as a Knowledge Aggregation Factor
 The expression "Change To Go 'Deeper'" has to be on Business Management, MBA Dissertation,
considered in three dimensions: one for Petrobras, Fundação Getulio Vargas, 2005
one for the national supply chain industry and [5] McKinsey Quarterly - Global Survey Results:
another for the country, as follows: Creating organizational transformations: , August
2008
 For the first participant, the national oil
company, it means to continue facing the [6] Prosci, Change Management Pilot Pro 2010
technological challenge to explore oil in deeper
and deeper layers, where it has already
achieved a leading position worldwide. About the authors
 For the much smaller supply companies, it is a Lucio Chaves, MSc - Engineer and Master in
metaphor that means to implement profound Management Systems from the Universidade
internal changes in order to survive in this Federal Fluminense, a management consultant
arena and be globally competitive. certified by IBM Consulting Group in the
 For the country it means, as much as it can, to practices of Business Transformation and
continue facilitating the national companies Strategic Planning of Information Technology. Co-
and enabling them to fulfill the Oil & Gas author of the book Communication Management
production requirements in order to achieve a in Projects, is a Professor of MBA Project
self sufficiency in this industry. Management at Fundação Getulio Vargas,
specialized in Organizational Change and
 Considering the number of companies and entities Business Strategy, areas in which he operates as
involved, this could be one of the greatest change a consultant for over 20 years.
management cases in the world, and if
successfully implemented, it would be a Fernando Jefferson, MSc - Engineer and
benchmark for similar initiatives in other Master in Computer Science and MBA in
countries Marketing from PUC/RJ, MBA in Project
Management from Fundação Getúlio Vargas. Co-
 An important "education gap" still has to be
author of the books: Local Networks in
fulfilled in a short time frame, either at project
Organizations and Brazilian Projects - Real Cases
management areas as at executive levels, in order
of Management. Consultant in the areas of CRM,
to enable the supply chain companies to comply
KM and BPM. Director of the Brazilian
with the new business environment.
Knowledge Management Society (SBGC) and
Member of the Steering Committees of
RedePetroRio and the Network for the
Improvement of Business Management of
Petrobras Supply Chain Companies. Professor of
MBA Project Management at Fundação Getulio
Vargas.



FGV Professors Study Opportunities and Challenges for SMBs in Oil Industry

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