Opinion – Quest for Synergy – by James McLean, ABN subsea features writer & director of subsea consultancy firm Zenocean

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BY James McLean, ABN subsea features writer & director of subsea consultancy firm Zenocean

THE last ABN article https://aberdeenbusinessnews.co.uk/opinion-what-does-2021-hold-for-the-north-sea-subsea-industry-and-beyond/ about the outlook for the subsea industry in 2021 considered the fact that for those companies seeking growth, perhaps international markets was where they needed to look.

Exporting is a natural progression for some, whereas, others do so out of sheer necessity due to poor or challenging market conditions at home.

It’s often the case that another by-product of testing market conditions is consolidation, where, companies either form loose working agreements with like-minded companies, merge formally, create structured joint ventures, or go on the acquisition trail in the quest for scale, cost savings and or synergy.

The pursuit of synergy is something that is often to the fore in large corporations. Synergy initiatives can vary in depth and quality, with some being highly successful, whilst others fall short of management expectations, or see some early action with reporting lines and business groups reshuffled for some imagined benefit, but then run out of steam.

If a synergy plan fails it’s often the case the business unit takes the blame, whereas, the problem often sits at a corporate level where biases can distort thinking which results in benefits being overestimated, whilst the costs of synergy have been underestimated.

Goals are often expressed in broadest of terms and general lack of clarity can obscure real costs and benefits. Goals that make good slogans don’t necessarily do anything for the managers or project engineers in the field. By disaggregating a broad goal into precisely defined objectives it will provide for a better overall evaluation of costs and benefits of the opportunity.

The thing is the ‘opportunity cost’ is one that a large corporation can usually absorb, but for smaller entities, such as many that populate the subsea industry, they have to make sure they get it right first time.

They cannot afford for managers to be distracted from the day-to-day business and risk impacting their delivery to customers, in other words, looking inward, rather than outward. It can take a long time to attract a customer and no time at all to lose them.

The cost of failure is one thing in isolation, but the consequential costs of failure to a client where production may be impacted or lost entirely can be massive.

Given that the industry has suffered a highly impactful downturn which continues, at least for some, there is a real need to take a hard and focused look at what clients need now given the challenges they face, and will continue to face as offshore facilities age and the trend towards renewables and other alternatives to fossil fuels gain momentum.

Within the subsea sector, product and service quality is already high, though there is never excuse for complacency. But a key challenge for smaller entities going forward is, how can these companies raise their game further and employ innovative or non-conventional contracting strategies to better serve the clients’ needs and continued desire for risk and cost reduction, whilst at the same time as ensuring cost reduction doesn’t mean margin erosion?

Considering the size and make-up of the subsea industry, there are most definitely opportunities for different ways of working and finding synergy, be that sharing know-how, sharing resources, pooling negotiating power and even coordinated strategies for example.

It goes without saying that the pitfalls, some of which are touched on above, are many, therefore, its vitally important to plan ahead, avoid knee-jerk reactions by jumping blindly into relationships, and do your due diligence.

It will save time, money, frustration, and possibly your company.

 

 

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