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This paper provides an assessment and a review of the national oil companies' (NOCs) business models, challenges and opportunities, their strategies and emerging trends. The role of the national oil company continues to evolve as the global energy landscape changes to reflect variations in demand, discovery of new ultra-deep water oil deposits, and national and geopolitical developments. NOCs, traditionally viewed as the custodians of their country's natural resources, have generally owned and managed the complete national oil and gas supply chain from upstream to downstream activities. In recent years, NOCs have emerged not only as joint venture partners globally with the major oil companies, but increasingly as competitors to the International Oil Companies (IOCs). Many NOCs are now more active in mergers and acquisitions (M&A), thereby increasing the number of NOCs seeking international upstream and downstream acquisition and asset targets.
In the 1970s a revolution occurred in the field of corporate strategy. A boom in mergers and acquisitions launched new professions in M&A banking, M&A law, and strategy consulting, and companies started to focus on owning businesses in which they had a competitive advantage. At the same time, another revolution occurred in how financial services companies understood, bought, and sold risk - described in the authors' companion article in this issue, "The New Arsenal of Risk Management." Now these two revolutions are coming together to trigger a third in the corporate approach to risk management. Engineering and dynamically managing a company's risk portfolio has become the organizing principle for strategic choice. When companies focus on the risks for which they are naturally advantaged, they can typically support higher debt levels and save on operating costs. McKinsey's Buehler, Freeman, and Hulme describe five steps to help corporate managers adjust to the third revolution: 1) Identify and understand your major risks; 2) decide which risks are natural; 3) determine your capacity and appetite for risk; 4) embed risk in all decisions and processes, including investment, commercial, financial, and operational; and 5) align governance and organization around risk.
"Twenty years after the publication of The Goal, the goal remains elusive," states the author. This article outlines ways to improve production strategy and uncover new opportunities for growth. It explains economic value added, an integrated performance measurement, management, and reward system.
Western countries abandoned the National Oil Company (NOC) model many years ago, but the rise of NOCs has shifted the balance of control over the world’s hydrocarbon resources. In the 1970s, NOCs controlled less than 10% of the world’s energy resources, but now they control more than 90% of reserves and 75% of production. This shift comes in concert with increased access to capital, expertise and technology, as NOCs build in-house capabilities that allow them to operate increasingly independently. NOCs have been increasing their ability to contract and manage operations through oilfield services companies. We see an evolution in roles and strategies for all oil and gas companies – including NOCs, international oil companies and independents. NOCs have seen their power and influence grow. Moreover, the demands on NOCs continue to evolve with changes in the global energy landscape – changes in demand, discovery of new sources, and national and geopolitical developments. As managers of their country's natural resources, NOCs have generally owned and managed their complete oil and gas supply chain from upstream to downstream activities, but now they are emerging as both potential partners and competitors on the international scene in search of upstream and downstream assets. While the rise of NOCs, accelerated by high oil prices, has seen the balance of control over hydrocarbon resources shift in their favor, we see an increasingly disparate range of political and economic roles, strategies, and performance. In this paper we discuss several important themes in terms of NOC strengths, weaknesses, opportunities and challenges.
We study which dimensions of corporate culture are related to a firm's performance and why. We find that proclaimed values appear irrelevant. Yet, when employees perceive top managers as trustworthy and ethical, a firm's performance is stronger. We then study how different governance structures impact the ability to sustain integrity as a corporate value. We find that publicly traded firms are less able to sustain it. Traditional measures of corporate governance do not seem to have much of an impact.
This paper provides an assessment and a review of the national oil companies' (NOCs) business models, challenges and opportunities, their strategies and emerging trends. The role of the national oil company (NOC) continues to evolve as the global energy landscape changes to reflect variations in demand, discovery of new ultra-deep water oil deposits, and national and geopolitical developments. NOCs, traditionally viewed as the custodians of their country's natural resources, have generally owned and managed the complete national oil and gas supply chain from upstream to downstream activities. In recent years, NOCs have emerged not only as joint venture partners globally with the major oil companies, but increasingly as competitors to the International Oil Companies (IOCs). Many NOCs are now more active in mergers and acquisitions (M&A), thereby increasing the number of NOCs seeking international upstream and downstream acquisition and asset targets.
This paper provides a review of the evolving role and characteristics of the oil and gas companies, which increasingly come in a variety of flavors. It also surveys the different types of oil and gas companies that include national oil companies (NOCs), international oil companies (IOCs), independents, and oilfield services companies (OFSCs). The continued rise of NOCs, accelerated by high oil prices, has seen the balance of control over most of the world's hydrocarbon resources shift decisively in their favor. Their ability to access capital, human resources and technical services directly from oil field service companies, and to build in-house competencies, allows them to operate independently of Investor Owned Companies in most instances. The demand on NOCs continues to evolve with the global energy landscape to reflect variations in demand, discovery of new ultra-deep water oil deposits, and national and geopolitical developments. NOCs, traditionally viewed as the custodians of their country's natural resources, have generally owned and managed the complete national oil and gas supply chain from upstream to downstream activities. Having secured their home base, NOCs have emerged as joint venture partners with the IOCs and increasingly as their competitors, seeking international upstream and downstream acquisition and asset targets. The key question is whether this emerging landscape will undermine the sustainability of the IOC resource-ownership business model. Are the challenges of declining production in existing oil fields replacing oil and gas reserves in restricted access or higher cost areas, and the declining of the operating profit margins yet sufficient to reach a tipping point? NOCs and OFSCs have increasing power and influence in global oil markets. In parallel, IOCs' significance and role in the oil markets has been in decline due to shrinking technical skills and expertise, reduced access to low cost reserves, and lower operating profit margins. As a result, IOCs have tended to focus on more challenging and less profitable domains, shale gas, unconventional oil, and deep-water operations. OFSCs have been offering NOCs more services and specialized operations with high technical experience at a lower cost than IOCs offer. As these trends continue, IOCs are likely to adopt a new business model that may require changes in collaborative efforts and cooperative relationships. Partnering with IOCs and OFSCs is a good step for NOCs that undertake a globalization strategy. In fact, this is a win-win strategy for all parties, as it will enable IOCs to gain more access to NOCs' resources. Further, IOCs and OFSCs in partnership with NOCs should contribute to the socioeconomic development of the countries in which they operate.
Public private partnerships (PPPs) are a recent extension of what has now become well known as the “new public management” agenda for changes in the way public services are provided. PPPs involve organisations whose affiliations lie in respectively the public and private sectors working together in partnership to provide public services. This special issue of the Accounting, Auditing & Accountability Journal explores this new development, which, in its most advanced form, is contained in the UK’s Private Finance Initiative (PFI) but is now spreading across the world in multiple forms. This introduction provides an overview of this development as well as an outline of the seven papers that make up this special issue. These seven papers are divided into two parts – the first four looking at different aspects of PFI and the latter three providing three country-based (from the USA, New Zealand and Australia) studies of PFI/PPP. Many questions about the nature, regulation, pre-decision analysis and post-project evaluation are addressed in these papers but many research questions remain unanswered, as this Introduction makes plain.
This paper examines the equity valuation process for the world's largest privately owned oil and gas companies. Our analyses provide evidence for a structural shift in the valuation of the largest oil and gas companies. Furthermore, we examine the key value-drivers that have been instrumental in the structural shift. Using financial and operational information from 15 international oil and gas companies over the period 1990-2003 and proxies for merger activity and market sentiment, we test for structural shift in the valuation of integrated international oil and gas companies. We show that financial information such as net income, cash flows and accruals, and operational measures such as the size of oil and gas reserves, are instrumental in explaining the structural shift in valuation of oil and gas companies.
For more than a year Iraq's Central Government (ICG) has been attempting to pass its first post-invasion national petroleum law (Oil Law). If passed by the Iraqi Council of Representatives, the Oil Law will provide the legal framework for the future exploitation of Iraq's vast oil wealth. First approved by the Council of Ministers in February 2007, the final draft Oil Law was submitted to the Council of Representatives for an expected vote in May 2007. With no vote in May, a slightly modified version was resubmitted to the Council of Representatives in July 2007, where it has been fiercely debated. A deal on the Oil Law had apparently been reached, but imploded when the Kurdistan Regional Government (KRG) passed their own regional oil law in August 2007, and the Sunni coalition in the Council of Representatives pulled out of the deal. There is little hope that the law will be passed, or even voted on, in the near future. Although the political reconciliation needed to pass the Oil Law is failing, the law is an important piece of legislation that will eventually play a crucial role in the reconstruction of the oil industry in Iraq. The proposed law authorizes oil sector privatization in the form of production-sharing contracts, or PSCs. Under the new Oil Law, PSCs permit foreign oil companies (FOCs) to sign contracts directly with the ICG to develop specific areas of Iraq's petroleum sector in exchange for a share of the oil profits. Iraq's oil sector has been greatly damaged by decades of conflict, and is now in need of massive redevelopment, foreign investment, and expansion. Through minor modifications to the Oil Law, moderated FOC involvement will be greatly beneficial to Iraq, while at the same time giving an equitable share of the oil profits to the FOCs for their contribution.
In the economy of the second industrial revolution firms deployed only a limited number of distinct operating models. These are: the functional model, the holding, the multi-product-division, country-division-model, the split-business chain and the Verlag-model. These models implicitly are based on a number of assumptions with respect to economic characteristics of technology deployed, resources, institutional environment, scarcities in the economy and human capital. Firms selected operating models not consciously rational, but on basis of thoughtless rationality and especially on basis of convention and emulation of operating models deployed by competitors. Each of these models not only served as a practical translation of underlying economic models of firms, they also, by intention and convention, turned into control models as well. Also, these operating models turned into socially accepted roles and identities. As a result the consciousness with respect to the underlying economic model of a firm, respectively the awareness of - economic - assumptions underlying such popular models as the multi-divisional form, never developed. Even the economic organization theory, using Coase's first theorem of 1937, fails to do so. Since scarcities in the economy are changing, so are economic models, and thus should operation logics. This paper explains why this process is half hearted, lack of awareness of underlying assumptions being one explanation, lack of institutional change being another. This phenomenon is not restricted to the era of management of firms itself, but is also to be found with practitioners like management consultants, controllers and auditors. Also this phenomenon of half hearted adaptation of operating models to the new economic realities, is to be found in many of the textbooks on management, strategy and organizational behaviour. This paper argues that it is possible to design the internal organization of firms on basis of economic models for value creation and rent appropriation. Apart from the contribution of this paper to the field of organization, it also raises questions with respect to the foundations of the field of business administration. This paper argues in line with Williamson's argument for institutional change, that and how the foundations of business administration should be redefined as a prerequisite for economic growth.
Conventional wisdom would have us believe that it is always beneficial to be first – first in, first to market, first in class. The popular business literature is full of support for being first and legions of would-be business leaders, steeped in the Jack Welch school of business strategy, will argue this to be the case. The advantages accorded to those who are first to market defines the concept of First Mover Advantage (FMA). We outline why this is not the case, and in fact, that there are conditions of applicability in order for FMA to hold (and these conditions often do not hold). We also show that while there can be advantages to being first, from an economic perspective, the costs generally exceed the benefits, and the full economics of FMA are usually a losing proposition. Finally, we show that increasingly, we live in a world where FMA is eclipsed by innovation and format change, rendering the FMA concept obsolete (i.e. strategic obsolescence).
Global public service infrastructure faces the competing demands of age, capacity and economic headwinds. The aging infrastructure of Western economies needs upgrading – just as challenging economic conditions bring government spending and deficit measures to a head. And the inadequate infrastructure of emerging markets is in desperate need of expansion, putting a strain on available resources. For many strategic buyers and financial sponsors, the shortage of not only capital, but also capabilities and talent, makes public service infrastructure, and its entire supply chain, an interesting business opportunity that spans a wide spectrum of industry verticals. These represent significant growth markets with an attractive risk profile. Ultimately, participation in these plays might be as vendors, investors, business partners, or in the form of an M&A transaction. The fundamentals can be compelling for those who can bring to the table, the requisite capital, capabilities, or talent. This working paper addresses the key design elements of financial strategy & policy for public service infrastructure, including: sizing the need, types and sources of capital, capital structure, ownership structure, and operating model.
High oil prices are normally expected to stimulate exploration and the development of new oil and gas fields. But over the last few years, financial analysts have focused strongly on shortterm accounting return (RoACE) for benchmarking and valuation, and this has led to high capital discipline among oil and gas companies. We analyse how high oil prices can be explained in terms of an implicit capacity game between the oil companies, and explore the stability of the current equilibrium. Our approach is an investigation of a key assumption among financial analysts, namely the presumed positive relation between RoACE and stock market valuation. Based on panel data for 11 international oil and gas companies, we seek to establish econometric relations between market valuation on one hand, and simple financial and operational indicators on the other. Our findings do not support the perceived positive relation between reported RoACE and market-based multiples. Recent evidence also suggests that the stock market is increasingly concerned about reserve replacement and sustained profitable growth. The current high-price equilibrium is therefore hardly stable.
The Canadian oil and gas sector faced several challenges due to the declining world oil prices and growing oil and gas production in the US causing an impact on Canadian oil demand. Light and heavy crude oil producers in Canada also suffered huge penalties in US markets while the mixture of heavy crude oil and bitumen suffered a greater discount than light sweet crudes. Another setback faced by Canadian producers is the unavailability of access to world crude oil prices. This was aggravated by the opposition by the Canadian government to the Trans Mountain Expansion due to concerns about environmental risks associated with potential pipeline leaks and ruptures.
This chapter discusses various aspects of low-cost business models. The low-cost business models are taking share from traditional players in many industry sectors and locations. These new models also have important strategic implications for the developed world. Rapidly developing economies (RDE)-based market leaders are leveraging their home-market success to pursue global ambitions. And multinationals are disrupting competitors and pioneering new price points and applications in the developed world with low-cost offerings created for RDEs. A low-cost approach is more than merely an opportunity for current customers to buy the same goods for less. Most important, it is a truly new value proposition that addresses both existing and new customers and is supported by a novel operating model. Offering a limited range of products without compromising on quality is another critical pillar of many low-cost business models.
This paper is based on the author's comments at the Columbia University Symposium on Bebchuk and Fried's "Pay without Performance: The Unfulfilled Promise of Executive Compensation." The paper offers the author's perspective on the book and the problems of executive compensation raised in it.
We study which dimensions of corporate culture are related to a firm’s performance and why. We find that proclaimed values appear irrelevant. Yet, when employees perceive top managers as trustworthy and ethical, firm’s performance is stronger. We then study how different governance structures impact the ability to sustain integrity as a corporate value. We find that publicly traded firms are less able to sustain it. Traditional measures of corporate governance do not seem to have much of an impact.
In 2009, the Kuwait Integrated Digital Field (KwIDF) project was established in the Sabriyah field in north Kuwait to boost production and reserves (Al-Jasmi et al. 2014). The goal was to help realize the vision of sustained oil production in Kuwait of four million barrels of oil equivalent per day (BOE/D) by 2030 (Goel et al. 2013). The project involved the creation of 11 integrated, automated workflows, and a real-time collaborative environment to help optimize production, reduce downtime, and improve reservoir management: Key performance monitoring—calculates and displays key parameters to monitor and assess asset performance at the field and well levels (Al-Jasmi et al. 2013).Well performance evaluation (WPE)—allows users to model and evaluate any well in real time, from completion face to wellhead (Cullick et al. 2013).Smart production surveillance (SPS)—helps enable users to control production and make surveillance decisions in real time (Villamizar et al. 2013).Production loss—an advance workflow for users to compare current oil production to pre-established allowable rates (Villamizar et al. 2013).Electric submersible pump (ESP) diagnostic and optimization—helps enable users to interactively monitor and optimize ESP operated well operations (Velasquez et al. 2013).Production allocation—integrates the allocation process within the KwIDF environment, increases the frequency of the allocation cycle, and improves the accuracy of allocated volumes (Al-Jasmi et al. 2013).Gas lift (GL) diagnostic and optimization—uses a smart real-time control that provided proactive recommendations for GL systems optimization (Al-Jasmi et al. 2013).Reporting and distribution—displays system generated alarms from all KwIDF workflows, generates tickets, and reports ticket status (Al-Jasmi et al. 2013).Simulation model update and ranking—an automated workflow for reservoir history matching (Carvajal et al. 2013).Reservoir visualization and analysis, and subsurface waterflood optimizer—helps enable the monitoring of subsurface health during the waterflooding process, and provides predictive reservoir optimization analysis and actions (Ranjan et al. 2013).
By 2012, KwIDF had been deployed on 49 wells, representing a pilot that served as a proof of concept. By 2013, cumulative production gains of 756,000 barrels of oil were reported (Singh et al. 2013). While the gains were impressive, and management wanted to expand KwIDF, it was recognized that full deployment would pose significant challenges and, without a set of necessary changes, the value of KwIDF would not be realized.
The key challenge facing management was to identify the appropriate operating model to deliver on the KwIDF vision and scale the program to accommodate future expansion across the rest of the organization. A transition and deployment assessment team was established by management to address this challenge.
The transition and deployment assessment project produced a recommended operating model, a transition road map, change management strategy, risk and mitigation plan, and project charters to assist the program team and steering group in the deployment of KwIDF across the rest of North Kuwait.
This case is about Activity Based Costing (ABC) and throughput accounting (TA) as accounting tools to structure technical (process) insights in an accounting context. The case shows how working-floor insights and production process data can be used in the computation of income statements that are relevant managerial decision making. The throughput accounting part of the case stimulates a discussion on (short run) avoidable costs and hence provides necessary input for short-run managerial decision making. It is essential to understand that ABC is a method that tries to frame data in a managerial decision making context. Models, figures and theories only have value to the extent that they help us to understand and explain what happens in the company. ABC is an allocation method cum story: it is an arbitrary way to allocate costs - as arbitrary as any other allocation method - but it helps in communicating how the (production) process works and, therefore, tries to upgrade the value of accounting in the decision making process. If, e.g., a good driver is found and if there is statistical evidence that supports the choice of and/or work-floor feeling on such a driver, using this cost driver in the calculations of product (line) profitability makes the accounting much more vivid and important to decision making. Mr. Van Schenkel, founder and owner of small company producing colour printed T-shirts, has some ideas on why multi-coloured T-shirts are more expensive in production than T-shirts with fewer colours printed on them. Process mapping and accounting data are available to set up an ABC system that will allow to test the validity of Mr. Van Schenkel's ideas and to come to better accounting calculations of product profitability. The case illustrates how ABC calculations can support managerial decision making and lead to ABM (activity based management), enabling the company to better understand how its process works and how this understanding can be put to use in an accounting context (income statement, performance evaluation, product profitability, ...).
John S. Leggate*, John B. Gregory*, Simon C. Bennett * SPE Members
Abstract
BPX recognised that a radically different approach was required in the management of its mature North Sea oil fields. In January 1994 the Beatrice, Buchan, Clyde and Thistle fields were brought together into a single mature asset - MAST - with the objectives of maximising economic recovery, extending the delivery of positive cash flows and deferring non-value adding abandonment expenditure. During 1994 the MAST team has achieved top quartile business performance when compared to other North Sea operators and aims to be best in class by the end of 1995. This has come about through aggressive cost reduction and maintaining/enhancing oil production, yet sustaining an already good HSE performance.
Key to this success has been the use of benchmarking data, the setting of extra-ordinary targets, the proactive evolution of the market place, the use of novel organisational structures and the encouragement of certain behaviours within the team. Success to date has provided the space to consider opportunities for growth such that there is now confidence that the MAST business will continue to make a positive cash flow contribution to BPX into the next millenium.
During the second half of 1993, in the face of the oil price collapsing to its lowest real level for 20 years, BP reviewed the shape of its UKCS upstream portfolio and identified four mature assets from which financial returns were extremely limited in comparison with the effort involved in managing them. Typically, the fields in question were producing between 10,000 and 25,000 barrels of oil per day, off a cost base which, by UKCS standards, was probably no better than average. Clearly, something different was required to improve the cash generation of these assets, so top quartile operating cost targets were set and the fields placed under the management of a small, highly-incentivised team (MAST), whose emphasis was placed clearly on performance delivery. This paper describes the events of 1994, which have resulted in significant improvements in business performance and some extremely important and value-adding learning from BP's perspective.
THE PRE-MAST COMPLEXITIES
Prior to a new approach being taken with Beatrice, Buchan, Clyde and Thistle, the contribution of these fields amounted to just 4% of BP's upstream UKCS production, yet accounted for more than 17% of the resource base (operating costs, people, etc.). More than 1000 individual service contracts were in operation in the marketplace and we were handling 50,000 invoices each year. The organisation was characterised by complexity, many interfaces, unclear accountabilities and large staff numbers. Additionally, there were complex partnerships with no fewer than 14 different Partners. Overall BP equity share across the four fields was round one third.
In this article, the authors summarize the findings of their recent study of the hedging activities of 92 North American gold mining companies during the period 1989-1999. The aim of the study was to answer two questions: (1) Did such hedging activities increase corporate cash flows? (2) And if yes, were such increases the result of management's ability to anticipate price movements when adjusting their hedge ratios? Although the author's answer to the first question is “yes,” their answer to the second is “no.”
More specifically, the authors concluded that:
Global supply chains (GSCs) are transforming the world. This paper explores why they emerged, why they are significant and future directions they are likely to take along with some implications for policy. After putting global supply chains into an historical perspective, the paper presents an economic framework for understanding the functional and geographical unbundling of production. The fundamental trade off in supply chain fractionalisation is between specialisation gains and coordination costs. The key trade-off in supply chain dispersion is between dispersion and agglomeration forces. Supply-chain trade should be not viewed as standard trade in parts and components rather than final goods. Production sharing has linked cross-border flows of goods, investment, services, know-how and people in novel ways. The paper suggest that future of global supply chains will be influenced by: 1) improvements in coordination technology that lowers the cost of functional and geographical unbundling, 2) improvements in computer integrated manufacturing that lowers the benefits of specialisation and shifts stages toward greater skill-, capital, and technology-intensity, 3) narrowing of wage gaps that reduces the benefit of North-South offshoring to nations like China, and 4) the price of oil that raises the cost of unbundling.
CEOs are in a difficult bind with Wall Street. Managers up and down the hierarchy work hard at putting together plans and budgets for the next year and quite often when those plans are completed top management discovers that the results fall far below what Wall Street expects. CEOs and CFOs are therefore left in a difficult situation. They can stretch to try to meet Wall Street's expectations or prepare to be punished if they fail. All too often top managers react to the situation by encouraging or mandating middle and lower level managers to redo their forecasts, plans and budgets to get them in line with external expectations. In some cases, fearing the results of missing the Street's expectations, managers start the budgeting process with the consensus expectations and mandate that internal budgets and plans be set so as to meet them. Either way this sets the firm and its managers up for failure if external expectations are, in fact, impossible for the firm to meet.
We illustrate, with the experience of Enron and Nortel, the dangers of conforming to market pressures for growth that are essentially impossible. We emphasize that an overvalued stock can be as damaging to the long-run health of a company as an undervalued stock, a proposition that few managers are familiar with. An overvalued stock sets in motion a variety of organizational behaviors that often end up damaging the firm. It does not have to be this way. Ending the expectations game requires that CEOs reclaim the initiative in terms of setting expectations and forecasts. To begin, CEOs must say no to the earnings guidance game and reverse recent practices in which analysts took the lead in driving industry forecasts, and companies complied. Managers must make their organizations more transparent to investors, so that stocks can trade at close to their intrinsic value. Doing so means CEOs and CFOs must inform the market when they believe the market expectations cannot be met and that the stock is, therefore, overvalued.
While the literature on the determinants of entry mode strategies of MNCs in new countries is significant, it largely ignores emerging markets. This paper addresses this lacuna in the literature using unique firm-level data from India. The results suggest that the basis of a MNC's strategy vis-à-vis large emerging markets is to enter soon after the initiation of reforms to capture the potential benefits from a "first mover" advantage, but to limit both their exposure to these markets, and the extent of technology transfer to their host country operations until a much later date.
Ever since the 1970s a small number of national oil companies (NOCs) have dominated the world supply of oil and other hydrocarbons. Despite the huge influence that NOCs have on political economy, systematic scholarship remains surprisingly thin. I examine the factors that explain the wide variation in strategy and performance of NOCs and survey the literature that has suggested the many ways that NOCs play pivotal political and economic roles in resource rich countries . Looking to the future, the fate of NOCs hinges on the price of oil, which may be eroded as new supplies (largely outside the control of most NOCs), such as deep water and shale oil, affect global markets. Expected final online publication date for the Annual Review of Resource Economics Volume 5 is October 5, 2013. Please see http://www.annualreviews.org/catalog/pubdates.aspx for revised estimates.
Inter-organizational networks play an increasing role in delivering computer-mediated public services such as healthcare. Many networks govern through an infomediary (i.e., electronic broker) that brings together disparate member organizations. These networks can resemble an enterprise where standards and incentives for use are imposed on its partners. This study seeks to extend an enterprise IT Governance (ITG) concept to the US e-prescribing network as it transitions from a paper-based network to a computer-mediated one. The operating model, proposed by Ross et al (2006), emphasizes choices in standardization and integration to align strategy with operational processes to improve enterprise performance. Missing in their work is evidence that macro-level choices embedded in the operating model directly impact network workflow. A comparative synthesis traces the changes made to the US e-prescribing operating model to their impact upon the roles and relationships amongst network members. Some workflow mis-alignments were traceable to the operating philosophy imposed by healthcare policy makers. The study suggests IT alignment in networks may be better achieved through governing operating models rather than the traditional ITG focus on organizational forms.
Transfer of Technology is one of the significant issues in oil and gas contracts. At one side petroleum developing countries are concern about controlling and operating of all phases of their industry’s operation which in turn, has led to their awareness of the need to acquire at least an adequate understanding of the related technology. As it has been mentioned in a study prepared by UNCTAD secretariat, without some mastery of oil technology, petroleum developing countries can not ensure, for instance that their exploration efforts are adequate and that production rates are consistent with their national interest and oil requirements. Moreover where the size of the prospective reserves is not large enough to be economic and attractive for the international oil companies to invest in, but perhaps large enough for domestic or local consumption the domestic technology and basic skills of the countries concerned might be the only way to use the potentialities. At the other side, referring to old concession contracts, the physical and temporary imports of the machinery and the equipment and skilled expatriate personnel, have been sent back to the countries where they have come from or are maintained on the job as long as is necessary, without any effective transplanting of the know-how involved to the recipient countries. Even in the case of proper and permanent transfer of technology, it seems essential to remark that there is a genuine divergence of interests between the developing petroleum countries and the International or foreign oil companies which have most important role in developing and investing in the developing petroleum countries oil and gas industry. “It is fundamental to the understanding of the transfer of technology to appreciate that development of the local technological capacity is not in the interest of multinational corporations.” In fact, notwithstanding the issue of the least amount of necessary and basic technology needed for exploration and operating a profitable oil or gas project, transfer of technology is a costly and time consuming process for an international oil company or any other investor, but the more significant part of fact is that technology in general and oil and gas industry’s technology, in our case, is a valuable good which can be monopolized by limited number of companies. Thus transfer of such a precious technology in full can decrease the importance of those companies as a sole supplier of such an economically vital technology for petroleum developing countries. It may lead to an economic and technological competition in this regard and again decrease the dependency of petroleum developing countries to international oil and gas companies which is per se and increasingly profitable for such companies. Apart from the problems mentioned above, usually, certain amount of vagueness, beyond the normal political and some times economic problems which may arise, cast shade on the transfer of technology; the substance of transfer of technology or a real transfer of technology, the capacity of developing petroleum countries for absorption and adoption of required technology, the various channels for transfer of technology in oil and gas industry and the suggested alternative ways. With these initial considerations as a background, we will attempt to compare transfer of technology through different oil and gas contracts, with consideration on Iranian Oil Buyback Contracts, to find their problems and make some suggestions for improvement of transfer of technology through oil and gas contracts. For this purpose this article proposed in three main chapters to investigate the issue; in the first part we will try to clarify the concepts of “Technology” and “Transfer of Technology” For the purposes of this essay, in two distinct parts. In the second chapter, we will discuss “Transfer of Technology through Oil and Gas Contracts” as one of the main legal arrangements through that petroleum industry technology has been transferred in three sections. Third chapter relates to the Alternative Channels for the Transfer of Technology in Oil and Gas Industry apart from the traditional ways in the oil and gas contracts. We will also discuss this chapter in three sections. Finally we will conclude with due regard to all above mentioned issues.
We investigate the shareholder wealth effects of 233 joint venture announcements of Dutch public companies in the period 1987 till 1998. The research shows that, on average, establishing joint ventures has a positive effect on the market value of Dutch companies. The results indicate that joint ventures are preferred when a company is under pressure. Our research also shows that the factors of strategic intention, the environment in which the strategy is unfolded and the extent to which the company has control over the implementation strongly explains the extent to which a joint venture can create value.
Since the 1970s, Norway has had in place a policy regime that allows it to capture a high level of revenue (or economic rent) from the oil and gas sector. Compared to Norway, the level of rent captured by the Alberta government is considerably lower. Assuming governments have similar economic objectives (e.g. to attain the greatest revenues possible from the exploitation of a depleting natural resource), then it is to be expected that the petroleum policy outputs in various states would likewise be similar (Edwards, 1987). The puzzle is even more interesting given the fact that Alberta and Norway are both advanced, industrialized, unitary states that share many similar institutional characteristics. Why then did Norway develop a regime that allowed it to capture a high level of economic rent whilst Alberta did not? This paper argues that fundamental differences in political culture across the cases represent the key explanatory variable for understanding variation in the levels of captured rent. In doing so, this paper rejects two other explanatory approaches, namely the differences in resource approach and the concept of the obsolescing bargain. The overall focus is on domestic determinants of policy outcomes and international determinants are largely ignored.
In response to competitive pressures, firms increasingly use R&D alliances to complement in-house R&D efforts. However, empirical evidence to date provides little guidance on how firms can use this strategy effectively. Here, I examine why some R&D alliances contribute more than others to firm innovative performance. I suggest that technological diversity, or differences in technological capabilities between partners, determines firm benefits from such alliances. Further, I argue that how partners organize their alliance activities influences this relationship between technological diversity and firm innovation. To test these relationships, I examine firm patenting performance with a sample of 463 R&D alliances in the telecommunications equipment industry. I find that alliances contribute far more to firm innovative performance when technological diversity is moderate, rather than low or high. Some diversity is required, or firms have nothing to learn from their partners. However, when very diverse, firms have difficulty learning from their partners. While this relationship holds irrespective of alliance organization, I find that hierarchical organization, such as the equity joint venture, improves firm benefits from alliances with high levels of technological diversity. Thus, alliance organization likely influences partner ability and incentives to share information, which affects performance. Keywords: alliances, R&D, patents
Malaysia is one of the many countries that adopted Indonesian’s Product Sharing Contract (PSC) since its second formulation. However, both countries had developed their own version of PSCs according to each State’s interest within the last thirty decades. These recent years, Indonesian fiscal regime tends to be less investor-friendly than Malaysia. As a result, Malaysia leads in front Indonesia on attracting foreign investment flooding into its oil and gas sector in the last few decades. The most recent case was happened when only five blocks taken by investors from sixteen blocks that were being auctioned by Indonesian government in 2009. Indonesian government took this issue to restructure the Cost Recovery Regulation on Oil and Gas sector. The new regulation meant to attract foreign investment and recover Indonesia position against the neighboring rival country. This leads to the following questions: (i) why Malaysian PSC could be more investor-friendly than Indonesian PSC; and (ii) how the new regulation on Cost Recovery make Indonesian PSC more competitive against Malaysia PSC? The research will employs comparative legal study in Indonesian and Malaysian legislatives with emphasize on Indonesian new Cost Recovery regulation draft. The ruling is supposedly to be enacted in the end of June 2010. Literature review will strongly support the research as secondary sources along with other relevant sources.
This paper presents a theory of corporate risk management that attempts to go beyond the “variance‐minimization” model that dominates most academic discussions of the subject. It argues that the primary goal of risk management is not to dampen swings in corporate cash flows or value, but rather to provide protection against the possibility of costly lower‐tail outcomes –situations that would cause financial distress or make a company unable to carry out its investment strategy. (In the jargon of finance specialists, risk management can be viewed as the purchase of well‐out‐of‐the‐money put options designed to limit downside risk.)
By eliminating downside risk and reducing the expected costs of financial trouble, risk management can also help a company to achieve both its optimal capital structure and its optimal ownership structure. For, besides increasing corporate debt capacity, the reduction of downside risk also encourages larger equity stakes for managers by shielding their investments from “uncontrollables.”
The paper also departs from standard finance theory in suggesting that some companies may have a comparative advantage in bearing certain financial market risks–an advantage that derives from information acquired through their normal business activities. Although such specialized information may lead some companies to take speculative positions in commodities or currencies, it is more likely to encourage “selective” hedging, a practice in which the risk manager's “view” of future price movements influences the percentage of the exposure that is hedged.
But, to the extent that such view‐taking becomes an accepted part of a company's risk management program, it is important to evaluate managers' bets on a risk‐adjusted basis and relative to the market. If risk managers want to behave like money managers, they should be evaluated like money managers.
CEOs are in a bind with Wall Street. Managers up and down the hierarchy work hard at putting together plans and budgets for the next year only to discover that the bottom line falls far short of Wall Street's expectations. CEOs and CFOs are therefore left in a difficult situation; they can stretch to try to meet Wall Street's projections or prepare to suffer the consequences if they fail.
All too often, top managers react by suggesting or even mandating that middle- and lower-level managers redo their forecasts and budgets to get them in line with external expectations. In some cases, managers simply acquiesce to increasingly unrealistic analyst forecasts and adopt them as the basis for setting organizational goals and developing internal budgets. But either approach sets up the firm and its managers for failure if external expectations are impossible to meet.
Using the recent experiences of Enron and Nortel, the authors illustrate the dangers of conforming to market pressures for unrealistic growth targets. They emphasize that an overvalued stock, by encouraging overpriced acquisitions and other value-destroying forms of overinvestment, can be as damaging to the long-run health of a company as an undervalued stock. Ending the “expectations game” requires that CEOs reclaim the initiative in setting expectations and forecasts so that stocks can trade at close to their intrinsic value. Managers must make their organizations more transparent to investors; they must promise only those results they have a legitimate prospect of delivering and be willing to inform the market when they believe their stock to be overvalued.
This Article addresses the implications that the Enron collapse holds out for the self-regulatory system of corporate governance. The case shows that the incentive structure that motivates actors in the system generates much less powerful checks against abuse than many observers have believed. Even as academics have proclaimed rising governance standards, some standards have declined, particularly those addressed to the numerology of shareholder value. The Article's inquiry begins with Enron's business plan. The Article asserts that there may be more to Enron's "virtual firm" strategy than meets the eye beholding a firm in collapse. The Article restates the strategy as an application of the incomplete contracts theory of the firm that prevails in microeconomics today and asserts that Enron failed because its pursuit of immediate shareholder value caused it to misapply the economics, mistaking its own inflated stock market capitalization for fundamental value. The Article proceeds to Enron's collapse, telling four causation stories. This er ante description draws on information available to the actors who forced Enron into bankruptcy in December 2001. The discussion accounts for the behavior of Enron's principals by reference to the shareholder value norm and Enron's corporate culture. Finally. the Article takes up the self-regulatory system of corporate governance, asserting that the case justifies no fundamental reform. The costs of any significant new regulation can outweigh the compliance yield particularly in a system committed to open a wide field for entrepreneurial risk taking. If we seek high returns, we must discount for the risk that rationality and reputation will sometimes prove inadequate as constraints. At the same time. we should hold critical gatekeepers, particularly auditors, to high professional standards. The Article argues that present reform discussions respecting the audit function do not adequately confront the problem of capture demonstrated in this case.
This article presents a new approach to financial risk management whose primary objective is to ensure that companies have sufficient internal funds and access to outside capital to carry out their strategic investments. The foundation of this approach is a comprehensive measure of corporate exposure that views the firm as a collection of current cashgenerating assets and future investment opportunities and that attempts to show how changes in fundamental economic variables can threaten the firm's ability to realize its strategic objectives. As such, the measure of exposure reflects the effect of expected changes in economic variables not only on the firm's operating cash flows but also on its future investment requirements.
Because its focuses only on the exposures that need protection when regular sources of funds are exhausted, this strategic hedging approach will generally lead to a more conservative hedging policy. In so doing, it should enable companies to avoid the excessive and costly “micro” hedging of individual transactions—an approach that can easily degenerate into speculation.
In this commentary on Bebchuk and Fried s "Pay Without Performance", the former SEC Chairman begins by declaring, "I have problems with exorbitant executive pay precisely because I care about markets and private enterprise. These huge pay checks… undermine corporate governance and send a signal that boards are willing to spend shareholders' money lavishly and with too little oversight." The author calls for a number of regulatory reforms, including expensing of stock options, broader and more complete disclosure of compensation, greater independence of directors, and empowerment of shareholders. At the same time, he notes that corrective market forces are already at work in the form of companies like Institutional Shareholder Services that monitor corporate governance and decision-making. 2005 Morgan Stanley.
In this article, the authors summarize the findings of their recent study of the hedging activities of 92 North American gold mining companies during the period 1989-1999. The aim of the study was to answer two questions: (1) Did such hedging activities increase corporate cash flows? (2) And if yes, were such increases the result of management's ability to anticipate price movements when adjusting their hedge ratios? Although the author's answer to the first question is "yes," their answer to the second is "no." Copyright (c) 2008 Morgan Stanley.
The difficulties of the past year have convinced many observers that current risk management practices are deeply flawed, and that such flaws have contributed greatly to the current financial crisis. In this paper, the author challenges this view by showing the need to distinguish between flawed assessments by risk managers and corporate risk-taking decisions that, although resulting in losses, were reasonable at the time they were made.
In making this distinction, the paper also identifies a number of different ways that risk management can fail. In addition to choosing the wrong risk metrics and misidentifying or mismeasuring risks, risk managers can fail to communicate their risk assessments and provide effective guidance to top management and boards. And once top management has used that information to help determine the firm's risk appetite and strategy, the risk management function can also fail to monitor risks appropriately and maintain the firm's targeted risk positions.
But if risk management has been mistakenly identified as the culprit in many cases, current risk management practice can be improved by taking into account the lessons from financial crises past and present. In particular, such crises have occurred with enough frequency that crisis conditions can be modeled, at least to some extent. And when models reach their limits of usefulness, companies should consider using scenario planning that aims to reveal the implications of crises for their financial health and survival. Instead of relying on past data, scenario planning must use forward-looking economic analysis to evaluate the expected impact of sudden illiquidity and the associated feedback effects that are common in financial crises.
Oil revenue plays a central role in Russia's economic development. Thus, the recent decline in oil production and investment, and the possible contribution of the current fiscal regime to these developments, have prompted a reassessment of the oil tax system in Russia. Some important changes have already been made, while others are underway. This paper uses a simulation model to evaluate Russia's current oil fiscal regime. Based on these simulations, the paper proposes ways to make the fiscal regime more supportive of investment, while ensuring an appropriate share of oil sector profits for the government.