Answer

OPERATIONAL REPORT ON EXXONMOBIL

Executive Summary

Offshore oil and gas companies drive many aspects of the world today. This paper seeks to elaborate the operations of one of the world’s supermajor industries in the oil and gas field – ExxonMobil Corporation. The paper seeks to illustrate how the leadership and management of the firm affects its performance by evaluating management and leadership theories that it adopts. Taylor’s theory of scientific management, Operation Integrity Management System, as well as Management Control System were found to be the core management methods utilized by the firm, making it a world supreme. A literature review analyzing the effectiveness of management operations adopted by the company was conducted and positive outcomes realized due to the same theories. The report analyses the business stratagem of ExxonMobil and how it is met. Several ways, including intelligent and disciplined investments, capitalizing on benefits from integrated models, as well as production planning and optimizations are the methods discovered by the report. In addition, the report analyses the effect of internal structure and culture to the overall realization of the business strategy. Several cultures like commitment to high quality products leads to success in the operation of the industry. Pitfalls associated with ‘director agency’ were analyzed to find bugging problems such as incentive problems, difference in evaluation horizons, and consumption of perks and perquisites, to be major reasons for management conflicts. However, the paper elaborates on how to avert effects arising from the same. Lastly, the paper analyses the logistic challenges faced by ExxonMobil and ways through which the company meet them. The company meets several challenges such as fluctuation of oil prices, maintaining oil reserves, and maintaining an effective chain supply differently. The report, thus, elaborates ways through which other offshore maritime companies can avert various organizational problems using the report from the world giant, ExxonMobil.

Table of Contents

1.0 Introduction. 4

2.0 Management and Leadership Theories Adopted. 5

2.1 Theory of Scientific Management 5

2.2 Operation Integrity Management System (OIMS) 6

2.3 Management Control System.. 6

3.0 Literature Review.. 6

4.0 How Business Strategy is established in ExxonMobil 8

4.1 Effects of Internal Culture to Business Strategy. 9

5.0 Pitfalls Associated with ‘Director Agency’ 10

5.1 Solutions to ‘Director Agency’ Pitfalls. 12

5.2 How ExxonMobil and the Shipping Industry Susceptible to the Problem.. 12

6.0 Logistic Challenges in ExxonMobil 13

6.1 How Logistic Challenges Are Met in ExxonMobil 15

7.0 Conclusion. 16

List of References. 18

1.0 Introduction

            In the world today, the eminence of offshore oil and gas industry is innumerable as it drives almost every aspect of machinery and technology. However, as elaborated by Herkenhoff (2018), it is one industry that is characterized by volatile prices, increasing demands, as well as decreasing rates of discovery of oil. Therefore, it is important for the gas and oil industry to maintain an active and effective operation logistics for optimum and continuous working conditions. Furthermore, it is paramount for companies in the sector to have effective leadership and management with certain core values, including emotional intelligence, which will enable the industry to grow and operate effectively (Goleman, Boyatzis and McKee 2013). An example of a company in the oil and gas industry is the ExxonMobil Cooperation, one of the world’s supermajor industry. ExxonMobil ranks top in the inventory of global oil and gas company resources as well as in the position of the best refiner and marketer of petroleum products in the world (Eccles and Krzus 2018). This paper seeks to analyze and discuss the management and operations of offshore maritime industry by evaluating the current structure of ExxonMobil cooperation. The paper expounds on the leadership and management theories that are adopted by the organization and also evaluate the perceived effectiveness of the leadership and management by reviewing contemporary literature on the same. Furthermore, the paper evaluates how business strategy in the cooperation is achieved while expounding on the influence of internal business culture that influence its strategic direction. The paper also exploits the negative effects of the so called ‘director agency’ and evaluate its possible mitigation methods, as well as exploiting the extent to which ExxonMobil and the shipping industry, in general, is affected by the same. Finally, the paper discusses the predominant logistic challenges experienced at ExxonMobil and methods through which they are met and managed.

2.0 Management and Leadership Theories Adopted

            ExxonMobil, being one of the biggest oil companies in the world in term of revenue and market value has one of the most revered management methods that enables it to maintain its global position. The company has thus adopted various management and leadership theories that assist in smooth and successful operation of the enterprise. The corporation adopted a leadership framework that tends to develop leaders from within the corporation with three major components; developing essential personal quality of leaders, developing fundamental business principles, and checking on leadership behavior to achieve premier leadership results (ExxonMobil 2018a). The theories that are adopted by the company include the theory of scientific management, operation integrity management system, as well as management control system.

2.1 Theory of Scientific Management

This is a past theory of management enacted and developed by Frederick Taylor – and for that reason, it is also referred to as Taylorism (Waring 2016). The theory, which analyzes and synthesizes workflows, has its main objectives aligned with improving labor productivity as well as economic efficiency. In the same manner, the theory is reflected in the corporation which rigorously applies the theory to enable high operational performance. As was developed by Taylor, the scientific management system assists ExxonMobil in identifying, tracking, and reporting critical operations that guide the performance of company. Furthermore, they select employees scientifically and develop them through thorough training in order to realize high operation integrity and production (ExxonMobil 2018b). Additionally, the concept of scientific management is utilized in the corporation to eliminate waste motions through time-and-motion studies, designing incentive systems based on the output, as well as employing the best-qualified and experienced employees for a job.

2.2 Operation Integrity Management System (OIMS)

ExxonMobil – having the commitment to the safety of their employees and operating in an environmentally friendly manner – developed a management system in 1992 that envelopes its safety, health, and environmental policies called the Operation Integrity Management System (OIMS). The OIMS framework addresses aspects of the business which enhances workers’ and customers’ safety and security, health, as well as its environmental impact. This enables the company to develop stratagems that transport and utilizes petroleum products without degrading the environment – hence aiding in the successful operation of the corporation (Davis, Edgar, Porter, Bernaden and Sarli 2012).

2.3 Management Control System

This is a modern management method that is effective in gathering information from different organizational resources and utilizing the information to direct the organization towards its strategic objectives as well as its competitive advantage (Anthony, Govindarajan and Dearden 2007). In 2004, ExxonMobil adopted control system management which helps in running the facility and controlling major processes in the corporation. The control system will apply the principles of real-time process automation, which improves production flexibility and workflow.

3.0 Literature Review

            The management methods that are adopted by ExxonMobil Corporation is effective in managing and maintaining the operations of the industry. This is majorly because the management methods have been researched, tested, and proven to be effective by different scholars pursuing operational excellence. For instance, different scholars around the world have analyzed Taylor’s theory of scientific management, including Turan (2015), who identifies several effects of scientific management techniques. Turan elaborates that although various improvements have been made on Taylor’s theorem, most of his ideas remain to be the basis of implementation the contemporary management world, especially scientific selection of personnel. Furthermore, Turan (2015) mentions in his masterpiece that the scientific method reiterated from the theory has established a long term and hence a reliable employee base. This, therefore, is of great eminence to the continuous quality production by ExxonMobil Corporation – thus maintaining the industrial performance. Generally, it is captured that the management theory forms a basis of personnel selection, which is one of the most important functions of management.

            Similarly, different scholars such as Gallagher, Underhill, and Rimmer (2003) have exploited the eminence and value of Operation Integrity Management Systems (OIMS). Gallagher et al. (2003) discusses the merits of occupational safety and health management system, where OIMS is dominant in operation. It is captured that it improves the leadership behaviors and it enables understanding of worker behavior. Furthermore, the management system – which is focused on the worker safety – comes in handy in hazard recognition and management of risks. Furthermore, the eminence of this management system is appreciated as it reshapes the worker experience within the organization, impacting the culture of the organization, which in turn, positively affects the performance.

            Furthermore, the utility as well as organizational outcomes of Management Control Systems (MCS) have been analyzed by a variety of scholars including one Chenhall (2003). In his article, Chenhall (2003) elaborates that MCS is useful in providing the management with satisfaction enabling them to approach a certain task with enhanced information. Therefore, as captured by the article, such managements make improved decisions and better achieve organizational goals. Furthermore, behavioral outcomes such as job satisfaction – which are associated with MCS – enhances employee welfare thus enabling them to work more effectively and identify with the goals of the organization (Chenhall 2003). This, therefore, enhances the overall effectiveness of the management of companies that adopt the same like ExxonMobil, improving their performance.

4.0 How Business Strategy is established in ExxonMobil

            Business strategy simply outlines how the industry is set out to achieve its principle objectives. Majorly, business strategies are concerned with major resources and how to allocate the same. As reiterated by Teece (2010), the main essence of a business strategy is to define the manner in which the company delivers its values and entice customers to buy for the same idea – thus converting returns from the sales as profits. Likewise, the business strategy adopted by ExxonMobil has the concern of the scope of the business activities which pursues growth and globalization of the firm. As described by ExxonMobil (2018b), their main focus as a business strategy lies on the consistent focus on delivering operational excellence. This is majorly done by embracing problem-solving techniques and developing the best leadership and management techniques that create a sustainable improvement within the organization.

 Moreover, the corporation is focused on building on technology leadership, which is important in fostering technological advancements. Furthermore, technological leadership is effective in steering commercialization of technological advancements as well as linking the same to the overall business strategy – allowing the business to reach its goals. What is more, the business strategy of the firm is achieved by capitalizing on benefits from its integrated models. The integrated models, which includes integrated and centralized maintenance, remote operations and monitoring, and production planning and optimization; is advantageous in cost saving on expertise, increased personnel safety, as well as increased production. The business strategy of ExxonMobil is aligned to capitalize on such benefits, enabling it to grow more. Lastly, ExxonMobil’s strategy is established through intelligent and disciplined investment that enables the firm to grow in various fields. For instance, the company invested $15 billion towards increasing production in the Permian basin in Texas, enabling it have even more production across the country and all over the world (DiChristopher 2018).

4.1 Effects of Internal Culture to Business Strategy

            The internal structure of a business has great impacts on the strategies of the organization at large. First and foremost, knowledge based view (KBV) argues that the internal structure of an organization forms the basis through which a firm’s ability to integrate and apply knowledge is based (Weigelt and Miller 2013). Empirical analysis of the effects of internal structure to the general business strategies have been conducted and accurate inferences made from the same. As discussed by Weigelt and Miller (2013), the internal organization structure of any firm is associated to its vertical integration since task completion majorly relies on the organizational structure which then affect the business strategy. Further, internal organizational structure such as incentive intensity, decentralized accountability, as well as coordination is of high eminence to the realization of the business strategy hence influence an organization’s strategic direction.

            In the same manner, the organizational culture has immense influence to the strategic direction that the organization follows. Organizational culture involves the organizational norms, values, attitude, beliefs, and assumptions which shape the way in which individuals in an organization relate and work together (Armstrong 2009). As exultantly elaborated by Akinyi (2015), the organizational culture affects most parts of the organization’s life in that it affects decision making, how the organization responds to different changes, as well as the motivation to meet the business goals. In the same manner, the organizational culture of ExxonMobil affects its business strategies in various ways. For instance, the culture to produce high quality products has influenced their strategic direction towards delivering operational success. Similarly, the organization has an Operation Integrity Management System (OIMS) which has built the culture of employee safety in the organization, which in turn, positively affects the business strategies as the employees interests align with those of the organization.

5.0 Pitfalls Associated with ‘Director Agency’

            The ‘director agency’ relationship exists whenever one party – known as the principle – appoints another party – known as the director agency – who is given authority to act on behalf of the party. There are several pitfalls associated with director agency who oversee and manage the operations of an organization. This is because, whenever the ownership is separated from control, a conflict of interest usually arises in many ways as discussed below.

            One of the biggest problems, incentive problems, arise when inducing the agent to exert the optimal effort in effect to optimal risk sharing arrangement. This is because many managers that fall in this category have a fixed salary, thus lack the motivation to maximize the shareholders’ wealth. As it is perceived, irrespective of the benefits brought about by the ‘director agency’ they are always paid a fixed amount of salary. This brings about conflict of interest of the two parties, thus affecting the operations of the organization.

            Secondly, conflicting evaluating horizons is another factor that is associated with the pitfalls of ‘director agency’. In many cases, managers tend to undertake projects that are profitable in short term, so that they are able to take credit and benefit from the same. However, the ownership of the organization prefer projects that are long-term and are consistent with the going concern concept of the firm. This, thus, brings about conflict, especially when the ownership of the firm forego some profits when low return projects are undertaken, which affects the operations of the firm.

            Moreover, consumption of perks and perquisites by the agency tend to cause conflicts in the firm. This is because perquisites – which relates to the high salaries and generous fringe benefits that directors might award themselves – constitutes the directors’ remuneration thus reducing the wealth of the owners of the firm. Furthermore, due to the same reason, the firm can make several unnecessary expenses incurred by the ‘director agency’ such as making trips to unnecessary locations using funds from the company. The consumption of perks and perquisites, therefore, is against the interest of the ownership of a firm since it reduces their wealth and their income in general.

            Additionally, there is the problem with difference in risk profiles proffered by various entities within the management of the organization. For instance, shareholders of firms prefer high risk investments, which attract high returns, majorly since their investments are diversified and losing one company does not have an overall effect on the shareholder. However, managers on the other hand prefer low risk projects that are stable and cannot lead to them losing their jobs. This causes conflicts of interest within the organization as the ownership of the firm may forego certain low-profit projects that are undertaken by the management.

5.1 Solutions to ‘Director Agency’ Pitfalls

            However, the challenges and conflict can be averted by various ways, thus mitigating their effects. First, the incentive problem can be solved by offering pay rise to the agency according to the value of profits gathered by the organization at large. This can motivate them to work even harder to improve the quality of the company’s income since they also benefit from the same. Furthermore, the ownership and the agency can have and maintain a restrictive covenant that restricts both their interests, thus favoring both parties. Such restrictive covenants may involve restriction from borrowing additional debts as well as restriction on payment of dividends past a certain level of earnings.

            Furthermore, demanding securities before offering credits to these organizations is useful in realizing back funds for the creditor in case of misuse of the same. Furthermore, the shareholders may demand representation in the agency management, to ensure the interest of the management aligns with those of the owners. Also, unnecessary misuse of organizational funds can be controlled by allocating funds for specific duties to be done by the management, restricting further use from the allocated one. Differences in risk profiles and the evaluation horizon can be minimized by frequent and detailed elaboration of different views by both parties, ensuring that both parties agree upon the final decision made. These and many other techniques can help mitigate the risks and problems associated with ‘director agency’ and agency theories that arise in various syndicates.

5.2 How ExxonMobil and the Shipping Industry Susceptible to the Problem

            The shortcomings of the agency theory affects many organizations including the shipping industry. Corporate officers and managers that run the company on behalf of the shareholders and investors – who are majorly never involved in the daily activities of the business – may make decisions that do not align with the interest of the investors, bringing about conflicts. In the shipping industry, the model that is frequently adopted involves the vessel management of the company’s fleet outsourcing to a third party due to many reasons including benefitting from economies of scale (Karatzas 2015). When the vessel management company is in any way affiliated with the shipping company’s management, the market neutral cash flows from the same unilaterally benefits the management only, bringing about concern to the owners of the company. In the same manner, ExxonMobil is susceptible to such challenges, especially when outsourcing the means of shipping their products to different places around the globe. Furthermore, the management of ExxonMobil, may invest in contrary to the wishing of the shareholders, bringing about conflicts in the company. Furthermore, since there is the unending quest to find new oil sites – which may become eventually depleted – so as to maintain sales, the shareholders may put the management of the company under pressure to invest in long term profitable projects, which might not be possible for the management – bringing about conflict. These and many other problems that the company may face in the management level indicates how the ExxonMobil and the shipping industry at large are susceptible to problems arising from the same.

6.0 Logistic Challenges in ExxonMobil

            The logistics of any offshore maritime corporation constitutes the detailed organization and implementation of a complex operation involving the flow of goods from point of origin to the final user. It involves integration of information flow, production, handling, transporting, securing, as well as selling. Similarly, ExxonMobil’s logistics fall in the same category – which leads to the final product being supplied to the customers worldwide. The performance of the company largely depends on the logistics of the company as well as all the individuals that makes the logistics run smoothly. However, challenges within the logistic framework are bound to be experienced within the organization. These challenges include maintaining reserves, shifting gears, fluctuating oil price, business process and supply chain improvement among others.

            First, ExxonMobil face a major challenge in maintaining its oil reserves. This is because, the more the company utilizes its oil reserves, the more they are depleted, and without replacements, they may end up totally being empty. As per a report present by 2016, the company is reported to have replaced only two-thirds of its total oil reserves (Brewer 2017). If the same rate continues over a number of years, it may lead to total depletion of the oil reserves of the company, leading to the failure of the organization.

            Secondly, the oil prices keep on fluctuating and thus affecting the organization in different ways. For instance, low prices of oil in the market forces the company to reduce its own price so as to keep up with the competition, which in turn leads, especially when drilling for the oil took most of the capital finance. This means that the prices of oil in the market can change significantly, affecting the operations of the firm, while there is less that the firm can do to counter that since market prices depends on competitors and customer preference.

            The firm’s business process and supply chain influence the performance of the business at large. Major logistic problems arises as the company has to ensure diversity in its distribution and supply chain so as to ensure equality across the globe. Furthermore, a sustainable supply chain that takes into considerations, human rights, environmental protection, employment, and laws of different countries that the company operate in. This brings about different challenges that is problematic to the logistics of the company at large.

6.1 How Logistic Challenges Are Met in ExxonMobil

            The first problem majorly arises due to depletion and overexploitation of oil deposits that aid in the supply of its raw material, and thus affecting the production of its products. For this reason, ExxonMobil invests a lump some of money to engineers in a bid to discover new oil sites, both on and off shore. In a corporate citizenship report, McCaron (2018) – the vice president of public and government affairs in ExxonMobil – discusses that the company invest a lot in looking for newer oil sites in every country. Furthermore, she elaborates that a newer oil discovery had been recently made in the offshores of Guyana, which is significant and will produce lots of oil (McCarron 2018). This tends to meet the logistic challenge of production of oil as it is paramount for continuous and reliable production of its products.

            Another problem arises during the supply chain management and the business process at large. ExxonMobil in a bid to promote a sustainable chain management tends to comply with local laws, provide opportunities to all individuals of diverse settings, and respect the human rights in their chain distribution. Their approach constitutes the managers identifying an operational need that requires procurement of third party goods. Furthermore, supplier qualifications and capability to supply goods effectively are assessed to ensure all laws and regulations are followed. This enables the supply chain management of the firm to be effective – thus improving its performance.

            Moreover, ExxonMobil faces the logistical problem of fluctuating oil prices in different ways. First, the company tends to invest in its chemical division in bid to thrive in low oil prices as that means that they can find alternative selling commodity when oil is unfavorable to sell. The integrated report from the same indicates a high earning profile from the chemical and gas products that it sells – which contributes to about 24 percent of its total profits earned – especially when the oil prices are significantly low (Eccles and Krzus 2018). This help solve the logistic challenge of fluctuating oil prices while it also improves the revenues of the company by providing different products to the market.

7.0 Conclusion

            As discussed above, the importance of offshore oil and gas company is innumerable due to the needs that befall them, oil being an important factor in the manufacture and running of many products. This paper has thoroughly discussed the operational report of one of the world’s largest oil and gas company bot by production and revenue, according to various statistics – ExxonMobil. The corporate merger, as has been elaborated, has adopted various management and leadership methods that assists in the running of its day to day operations. First, the theory of scientific management – Taylorism – has been effective in synthesizing workflow and improving labor productivity in the company’s operations. Moreover, the OIMS system that the syndicate uses ensures the safety, security, and health of all individuals working within the firm’s disposal are well taken care of. Moreover, the paper discovers that the company utilizes the control management system to gather and utilize different information from within the firm.

            A literature review on several studies conducted by prominent scholars (use names) was conducted to ascertain the perceived effectiveness of the theories and methods adopted by the company and the results of the same documented. It was found that Taylorism helps in identifying the best personnel for a specific task – which is the most important function of management. Moreover, it has been discussed that OIMS is of great eminence in improving leadership behavior and ensuring safety of all individuals. MCS has also been proven useful as it enables the management to approach any situation with reliable and accurate information, resulting to sound judgement. The paper also discusses how business strategy is achieved in ExxonMobil, and how its internal culture and structure affects the same. Their strategy, which mainly focuses on delivering operational excellence, is achieved in many ways as discussed in the text. The effects of business culture to the operations of the business as well as to the realization of the strategies of the business has also been elaborated. Their culture, that ensures safety of all workers and decision making from an information-based perspective, enables the firm to run smoothly and operate efficiently.

            Further, pitfalls associated with ‘director agency’ as discussed above may lead to several conflicting issues between the owners (shareholders) and the management of the firm. These issues may arise due to different reasons such as difference in evaluation horizons, perquisite consumption, difference in risk profiles, and others as discussed in the text. However, the paper illustrates effective ways through which the same can be averted. Furthermore, the paper has elaborated how ExxonMobil and the shipping industry at large is affected by the same problem – thus elaborating solutions to the same. Lastly, the operational report also focuses on the logistic challenges that tend to face the company at large. As has been discovered, major challenges lies in maintaining and discovering new oil reserves, fluctuating oil prices, as well as maintaining an effective supply chain management. However, the company devises several methods that help in avert effects from such problems as elaborated in the paper. As has been the case, the paper – which focuses on ExxonMobil – provides the report involving best operational methods, challenges during operation, and best practices to avert such challenges, which are applicable in any maritime and shipping firms.

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